In the upcoming week the key focus on the data side will be the US February retail sales figures on Wednesday, which should provide clearer evidence on how the tax increases that took place on January 1 have affected the consumer. In Europe, industrial production and inflation data will be the releases to watch. On the policy side, the focus will be on the BoJ appointments in an otherwise relatively quiet week for G7 central banks. Italy’s newly elected lawmakers convene for the first time on Friday 15 March and the expectation remains that President Napolitano will formally invite Mr Bersani to try and form a new government. He may also opt for a technocrat government. Although clearly preferred by markets, winning political backing may prove challenging.
- Italy Political Vacuum to Extend for Weeks as Bargaining Begins (BBG)
- Italian impasse rekindles eurozone jitters (FT)
- On Spending Cuts, the Focus Shifts to How, Not If (WSJ)
- Obama spending cuts strategy focused on waiting game (Reuters)
- BOE’s Tucker Says He’s Open to Expanding Asset-Purchase Program (BBG)
- Fed Faces Explaining Billion-Dollar Losses in Stress of QE3 Exit (BBG)
- Carney warns over lack of trust in banks (FT) - here's a solution: moar bank bailouts!
- Bundesbank tells France to stick to budget (FT)
- China to tighten shadow banking rules (FT)
- Saudis Step Up Help for Rebels in Syria With Croatian Arms (NYT)
- After election win, Anastasiades faces Cyprus bailout quagmire (Reuters)
- Just for the headline: Singapore’s Darwinian Budget Sparks Employer Ire (BBG)
The ongoing debacle of Europe's food-chain continues with news from the BBC that IKEA, the venerable do-it-yourself furniture (and food apparently) maker has pulled 1675lbs of Swedish Meatballs off shelves. Horse was found in "beef and pork" meatballs in the Czech Republic and then in 13 other nations including the UK, Holland, and Portugal. Since the first horsemeat was found last month, traces have been found in many places (table below) with UK's FSA having 35 positive tests and Germany's equivalent 67 positives. IKEA's discovery, noted on their facebook page, adds further fuel to the complex food-chain fire but we can only wonder just how many extra pieces of horsemeat were included in the package (and what was missing).
With China offline celebrating its New Year, and potentially mobilizing forces in (not so) secret, and not much on the global event docket, the upcoming G20 Finance Ministers meeting in Moscow at the end of the week will be the key event for FX markets, which these days define every other aspect of risk. It should surprise nobody the last couple of weeks have seen increased attention on exchange rates and the frequent use of the “currency war” label by policymakers in many countries. No news announcements are expected at the BoJ meeting on Thursday, following the formal announcement of a 2% inflation target and an open-ended asset purchase program. On the data side, US retail sales on Wednesday will provide an important signal about the strength of the US consumer following the largest tax increase in decades. Although January auto and same store sales data was reasonably solid, new taxes will soon begin to weigh on spending. Also on Wednesday, Japan Q4 GDP will be released. On Thursday, Q4 GDP for France, Germany, Italy and the Euro area will be released. While Q4 contraction is assured, the key question mark is whether German can rebound in Q1 and avoid a full blown recession as opposed to a "brief, technical" one, as the New Normal economic term goes.
One-stop summary of the key events and issues in the week ahead.
Here are eight considerations that will shape the captial markets in the week ahead.
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
How effective have the sanctions been in moderating Iran’s behavior up to now? Current indications are not much, despite the damage inflicted on the country’s economy. On 9 January Iranian President Mahmoud Ahmadinejad said that Iran should establish more processing industries in the oil and gas sectors to reduce dependency on exports of crude oil and that the budget plan for the next Iranian year of 1392 (to start on 21 March) envisaged less dependence on crude oil revenues as the government intends to replace crude oil exports with oil derivatives to allow the nation’s economy to participate in the oil sector’s lucrative downstream industry.... A regime that has weathered more than three decades of tumult in its efforts to construct an Islamic society seems unlikely in an energy-starved world to ameliorate its behavior solely to please the dictates of Washington, Brussels, the UN and Canberra. And oh, on 14 September 2012 the United States exempted Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain, and Japan from complying with the sanctions for another 180 days, a list that was expanded on 8 December to include China, India, South Korea, Malaysia, Singapore, South Africa, Sri Lanka, Turkey, and Taiwan.
The main events of this week, monetary policy meetings at the BoE and the ECB on Thursday, are not expected to bring any meaningful changes. In both cases, banks are expected to keep rates on hold and to hold off on further unconventional policy measures. While significant economic slack still exists in the Euro area, and although the inflation picture has remained relatively benign, targeted non-standard policy measures are more likely than an interest rate cut. As financial conditions are already quite easy in the core countries, where the monetary transmission mechanism remains effective, the ECB’s first objective is to reverse the segmentation of the Euro area’s financial markets to ensure the pass-through of lower rates to the countries with the most need for further stimulus.
Worldwide, more than eight-in-ten people identify with a religious group. A comprehensive demographic study of more than 230 countries and territories conducted by the Pew Research Center’s Forum on Religion & Public Life estimates that there are 5.8 billion religiously affiliated adults and children around the globe, representing 84% of the 2010 world population of 6.9 billion. These five charts sum up the age, size, geography, and power of the world's major religions.
The Eurozone was once again engaged in burning the midnight oil, in yet another futile endeavor, this time setting the stage for a common bank supervisor in the face of the ECB, which is somehow supposed to "regulate" Europe's thousands of banks. That this was a total practical dud can be seen in the response of the EURUSD to the news. However, for those interested in the theoretical nuances, whose actual implementation has once again been kicked into the future, here is a quick and dirty primer from SocGen.
The upcoming week is comparatively less loaded with policy events, though the ongoing fiscal cliff negotiations in the US remain one of the key developments to follow. Important is also the FOMC meeting on Wednesday, where Goldman and everyone else now expect the Fed to increase their monthly asset purchase target under the QE3 program to $85bn per month, up from $45bn per month; this will keep the pace of asset purchases constant after the Operation Twist expires at the end of December, as Zero Hedge predicted the day QE3 was announced. There are is a handful of other central bank meetings in emerging economies (Russia, Indonesia, South-Korea, Philippines, Chile) although consensus expects no change to the base-rate in most cases. On the data front industrial production numbers for October will be released around the world including in the Euro-area, US and China. We also get the US retail sales number and December flash PMIs for the Euro-area and China.
Americans Have Less Access to Justice than Botswanans … And Are More Abused By Police than KazakhstanisSubmitted by George Washington on 11/28/2012 15:57 -0400
U.S. Scores Towards the Bottom of All North American and Western European Nations
The upcoming week comes less loaded with policy events. The only major one is the Eurogroup meeting on Monday, however EU officials have already confirmed that no decision on the next Greek aid tranche will be made before the Troika’s next report on Greece’s adherence to the bailout conditions. Greece has scheduled an auction for Tuesday in order to roll over €3.1 bn in T-bills expiring by the end of the week. Additionally, in the US, the President has invited leadership of both parties for a first round of talks on the fiscal cliff. The data calendars also look lighter, with the publication of the FOMC minutes on Wednesday, and US Philly Fed on Thursday.
It is cloudy out there as Sandy enters the mid-Atlantic region, although for all the pre-apocalypse preparations in New York, the Frankenstorm may just be yet another dud now that its landfall is expected to come sufficiently south of NYC to make the latest round of Zone 1 evacuations about overblown as last year's Irene hysteria (of course it will be a gift from god for each and every S&P company as it will provide a perfect excuse for everyone to miss revenues and earnings in Q4). That said, Wall Street is effectively closed today for carbon-based lifeforms if not for electron ones, and a quick look at the futures bottom line, which will be open until 9:15 am Eastern, shows a lot of red, with ES down nearly 10 ticks (Shanghai down again as the same old realization seeps day after day - no major easing from the PBOC means Bernanke and company is on their own) as the Friday overnight summary is back on again: Johnny 5 must defend 1400 in ES and 1.2900 in EURUSD at all costs for just two more hours.