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Key Events In The Following Week
Goldman summarizes the key events in the past week as well as the main developments in the week to follow.
Week in Review
Last week focused on the European crisis, Hungary, the US job market and PMI numbers. The Spanish deficit was revised wider than previously thought, weighing on bonds in the first trading week of the year. In Hungary, legislation passed in late 2011 has lead to tensions with the IMF/EU about financial assistance, increasing the risk of a balance of payments crisis and thus weakening the HUF. We thus changed our EUR/HUF forecast to 340, 350 and 320 to reflect these new developments.
In the US, non-farm payrolls showed stronger gains than expected on the back of gains in employment for "couriers and messengers", which likely reflects temporary employment for holiday gift delivery. However, underlying growth was still firmer than in the preceding months. The FOMC announced to publish forecasts for the fed funds rate starting in January, as well as information about the balance sheet with potential implications for further asset purchases.
PMIs improved on both sides of the Atlantic with ISM moving to a solid 53.9. While there are still some seasonality issues in the data due to the sharp decline in '08/09 and which might have contributed to the positive reading, they can only explain part of the strong data in the US. The Euro-zone and UK composite PMIs rebounded sharply but the former remained firmly in recessionary territory, in line with our view of a contraction in Q4 2011.
Despite the positive surprises in key data releases this week, risky assets did not mange to rally much beyond the first one or two days. The intensifying concerns about the Eurozone crisis moves are increasingly in the spotlight with pretty much all critical issues again openly debated after the holiday lull. Issues like the paid-in capita into the ESM, the Greek PSI, the upcoming Italian funding hump or the proposed transaction tax have started to dominate the headlines again. The Euro closed the week on the lows and we expect this trend to continue for now. The logic of our getting-worse-before-it-will-get-better call on the Eurozone crisis is in fact consistent with a short-term move in EUR/$ towards the 1.20 area.
Week Ahead
The meeting between Merkel and Sarkozy on Monday is likely to be the main focus of next week, as well as continued debate of the Greek PSI. Overall, this process is likely to push the EUR lower in the next couple of weeks, while the missing details for better fiscal policy coordination are getting negotiated.
On the macro side, we expect IP in Germany to have slowed by 0.2% mom in November and consensus expects the aggregate Euro-zone IP to have contracted by the same amount. But we also get November IP in many other places, including the UK and India.
Already released over the weekend, Chinese money supply data has been stronger than expected and the amount of new loans issues in December is clear evidence of policy easing.
Related to the global cycle, we expect Taiwan exports to have rebounded by 3.5% yoy in December, broadly in line with consensus and China exports to remain firm at 13.8% yoy. Despite numerous central bank meetings this week, we expect there will be almost no policy change. Chile is likely to be the only outlier, where consensus expects a cut by 25bp to 5.00%.
Monday 9 January
- Germany IP (Nov): We expect -0.2% mom above consensus of -0.5% after 0.8% in October.
- Taiwan Exports (Dec): We expect 3.5% yoy below consensus of 3.7%, after 1.3% in November.
- Merkel & Sarkozy Meeting
- Also Interesting: Hungarian trade and budget balances, Turkish Industrial production.
Tuesday 10 January
- France IP (Nov): Consensus expects 0.1%mom after a 0% in October.
- China Exports (Dec): We expect 13.8% yoy above consensus of 13.4%, after 13.8% in November.
- German Retail Sales (Nov): Consensus expects another flat 0.0% mom reading.
- Also Interesting: Swedish industrial production.
Wednesday 11 January
- Poland CB Meeting: Consensus expects no change from 4.50%.
- Turkey Current Account (Nov): The external deficit remains one of the biggest problems for the Turkish economy. Consensus -$5.2bn.
- Also Interesting: Spanish, Mexican industrial production, Fed Beige book
Thursday 12 January
- ECB Meeting: We expect no change from 1.00%, in line with consensus.
- BOE Meeting: We expect no change from 0.50%, in line with consensus.
- BI Meeting: We expect no change from 6.00%, in line with consensus.
- Chile CB Meeting: Consensus expects a 25bp cut to 5.00%.
- Peru CB Meeting: Consensus expects no change from 4.25%.
- China CPI (Dec): We expect 4.2% yoy above consensus of 4.0%, after 4.2% in November.
- US Retail Sales (Dec): Consensus expects 0.2% mom after 0.2% in November.
- Also Interesting: Euro-zone/German/Italian/UK/India IP (Nov), France CPI (Dec), Japan trade and current account balances (Nov), Spanish bond auction.
Friday 13 January
- BoK Meeting: We expect no change from 3.25%, in line with consensus.
- U Michigan Consumer Confidence (Jan): Consensus expects 70.4 after 69.9 in December.
- Also Interesting: Italian bond auction.
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If the Euro collapses, what happens to the dollar and all other fiat? Geo-politically and economically....does this not show weakness in the Fiat Ponzi? Or does it merely show that Europe can not be governed as a whole? Would this then mean a global currencie is off of the table? Guesses?
Not so fast. A euro collapse would take at least 2 to 3 years.
But the euro might drop,hard to 1.264 this week.
What if Greece and Portugal walk in a month? Do you think the euro can hold on while the periphrial walks away?
Short-term, any substantial indications of a potential system-wide failure of the Euro would wind up resulting in a rush to USD. The world still thinks of money as fiat paper, and will rush to the sturdiest leg of the rickety global forex tripod.
The Euro is the first domino to fall in a longer line of events that would be required to see a fundamental and global loss of faith event in fiat currencies. Gold is still seen as a speculative commodity play, not as its true role of real money. We have a ways to go.
Precisely. And the herd will futily and increasingly look to the very same central banks that have gotten us to this point to magically save them with more paper tricks until the entire structure fails spectacularly.
If the (crap) economies dragging the currency down walk away, then surely the euro will become more expensive vis-a-vis the dollar, pound, yen, etc.
Well, thats what Jim Rogers (is he the bow-tie wearer ?) thought last time he was interviewed.
I am no expert and have never claimed to be, but I feel the Euro is doomed. Mainly for the fact that imagine we had the same set up in the states. we would be doomed too, you always would have states that are doing well, and states that needed to be bailed out. it will never work in europe because the EU agreement is that mainly germany exports to all the EU countries, therefore they have nothing to give to themselves or the rest of EU. It just wont work in my opinion, but if im wrong please explain. (not sarc)and global currency is exactly what the IMF wants.
I think the ECB might begin to prepare the markets for a rate drop. Down 0.25% or something like it.
That would be super bullish! What's the rate at now? .5%?
1.25% I believe.
Doesn't TFA say 1%?
For the Dollar...
the dollar is being killed by our govt to set up there IMF "global currency", its never good that china is selling PM's in yaun and now the russians are bypassing the petrodollar. way to go g men, it worked out perfectly didnt it YOU STUPID AMERICANCITIZENFUCKERS!
UoM Consumer Confidence is a joke.
Well, the Fed and ECB's Gyrozone bailout schemes aren't working so well thus far.
Fed Bailout of Eurozone Picks Up Steam, ECB Cranks Up MLF and Gold Reserves, Italian Sovereign Yields Continue to Risehttp://confoundedinterest.wordpress.com/2012/01/08/fed-bailout-of-eurozone-picks-up-steam-ecb-cranks-up-mlf-and-gold-reserves-italian-sovereign-yields-continue-to-rise/
Italian bond auction on friday 13th
Excellent Question LH - I cannot believe that the Euro can collapse without alternatives & incredibly onerous/overarching agreements in place (EU Thugs would never allow for periphery to walk away as they currently have significant influence/control); i.e. - I think if Greece & Portugal reinstituted their national currencies this would be the triggering mechanism for war and/or alignments with less than friendly forces (Russia/Iran/other extreme organizations - Hamas is accustom to dealing with the disenfranchised) as other EU countries watch the departing countries explode into a hyperinflationary version of hell - the speed of adoption will be key as economic marginalization explodes - moreover, the ECB will still need to conduct banking activities with the departing countries so I still have difficulties understanding the 'benefit' - the MASSIVE monetary expansion required to support the debt obligations will be exacerbated by the cacading set of defaults that would occur - the credit events will create massive dislocation throughout the banking systems & EVERYONE would be looking towards the IMF/BIS & World Bank to act as intermediaries in order to insulate their risks to conduct trade - Though intrigued with the thought experiment I cannot imagine that fiat goes by the wayside...Moreover, as the economic imbalances become common knowledge public discontent will foment towards war - I think a precursor to any Euro departure would be a significant radical national movement within a given EU country - I agree with Red Pill's assessment on USD migration, but, I cannot visualize the movement away from fiat as I believe governments recognize that without fiat they would lose power/control/relevence...perhaps just a lack of imagination on my part, however, most people I speak with have very little true appreciation of the magnitude of this situation -
Portugal going to war ? That I'd like to see. Do they even have any weapons ? Or a navy anymore ?
Most of these numbers will be revised downward a month later. The con must continue for now.
ZERO chance the ECB doesnt cut... Count it score it...... Close your euro shorts by then.... That will drive it back north of 1.28