I was determined to get another opportunity to use the “Dexia line”, thank you Mr Market. Two issues caught the eye overnight, firstly that the Dexia rescue has failed and secondly that a quiet bank run, for the elite not for us proles, is happening before our very eyes.
Dexia’s temporary salvation has failed, France would need to back stop it further as the former Belgian bank has little chance of a further Belgian rescue given how that country’s rating has deteriorated and as a consequence its access to cheap money from the bond markets is blocked. However, given France has so many insolvent domestic banks to prop up this could finally be the tipping point leading to a downgrade in France’s AAA rating.
The Fed has been experiencing a surge in deposits as has the ECB, could this be another canary in the goldmine that trust is not exactly sound in the system and that ‘money’ has nowhere left to fly other than the only secure place left. The Fed is now discussing a new stress test, if it follows the low pain threshold set by previous tests it’ll have all the test capabilities of congratulating a toddler after his first ‘potty poo’. Early indications suggest that if the Fed were to shock test a selection of half a dozen banks in the USA they’d find that many fall short and require tens of billions which investors are unlikely to stump up, that rumoured next round of QE can’t come quickly enough. The Fed said it would publish next year the results of the tests for six banks that have large trading operations: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
In the Fed’s hypothetical stress scenario, unemployment would spike as high as 13 percent while U.S. gross domestic product would fall by as much as 8 percent. The heightened stress tests are part of a larger supervisory test the Fed will conduct on the capital plans of 31 firms with at least $50 billion in assets.
The tests will apply to 19 banks who have previously been through the process and 12 more financial firms considered less complex. The test each bank faces will be based on its size and complexity. The banks must submit their capital plans to the Fed by January 9, 2012. The Fed said that it plans to respond to banks by March 15. It was not clear when the results would be published.
Anyhow, that’s enough doom and gloom, let’s look forward to Black Friday, that traditional time of year in the USA when shopping peaks. As many as 152 million people will hit the stores on Black Friday, up 10 percent from last year, according to the NRF. Black Friday is the point at which many retailers start to go into the black, we’ll leave the madness of this economic model for another day. It’s the traditional pre Xmas blow out, timed after the USA Thursday Thanksgiving, when the U.S. citizens give thanks for..whatever they think the USA stands for; hope, change, democracy bombs etc..
The bargains rain down, according to a retail analyst (Storch) shoppers who bought every item listed in a recent Toys “R” Us circular would save $12,500, compared with $11,000 last year. The only fly in the ointment with that, apart from not having a house big enough to fit all the bargains in, is that this Black Friday comes at the time when USA consumer confidence is on its knees. On Oct. 30, the Bloomberg Consumer Comfort Index reached the second-lowest level in 26 years of data. Amid slumping confidence, customers at Best Buy Co., Gap and Toys “R” Us all said they would spend less this holiday season than last, according to a poll conducted last month by BIGresearch, a Worthington, Ohio-based researcher.
Consumer spending, which accounts for about 70 percent of the USA economy, grew at a 2.3 percent annual rate, little changed from the 2.4 percent initial estimate. Holiday sales may rise 2.8 percent this year, or about half of last year’s 5.2 percent gain, according to the National Retail Federation. The Washington-based NRF will release Thanksgiving weekend sales numbers on Nov. 27.
Americans have become mission shoppers, according to Bill Martin, the chief executive officer of the Chicago-based research firm Shoppertrak. Many consumers research what they want online, buy it and then leave, Martin said last month.
Global stocks hit their lowest in six weeks on Wednesday and crude prices fell after and manufacturing in regional heavyweight Germany contracted for a second straight month in November, and at a faster rate, as export demand slumped. Safe-haven U.S. Treasuries, German Bunds and gold were in demand as investors fled riskier assets.
World stocks measured by the MSCI All-Country World Index fell 0.5 percent to their lowest level since October 10. The global gauge was down for the eighth straight session, its longest losing run since late July and early August when the two-year-old euro zone debt turmoil spread to Italy. It has lost 13.6 percent this year.
China’s manufacturing may contract in November by the most since March 2009 as home sales slide, adding to evidence the world’s second-biggest economy is slowing, a preliminary purchasing managers’ index showed today. The reading of 48 reported by HSBC Holdings Plc and Markit Economics for November compares with a final number of 51 for October. A number below 50 indicates contraction.
The euro was down 0.4 percent at $1.3456 after a newspaper said France, Belgium and Luxembourg were in talks on how to provide temporary state debt guarantees for failed financial group Dexia stirring worries France will face a further fiscal burden. The dollar, which has been benefiting from recent investor unease, rose 0.3 percent against a basket of major currencies after hitting its highest in six weeks.
Brent crude dropped 0.7 percent to trade just above $108 a barrel, while copper prices slipped 0.3 percent to above $7,300 a tonne. Gold added 0.1 percent after rising 1.1 percent the previous session. The precious metal has risen nearly 20 percent this year, on track for its 11th straight year of gains.
Market Snapshot at 9:50am GMT (UK time)
Asian markets, particularly those in or reliant on China, performed badly in the overnight early morning session. The Nikkei closed down 0.4%, the Hang Seng closed down 2.12%, the CSI down 0.98%, the TWSE down 2.77% and the KOSPI down 2.36%. the ASX 200 closed down 1.98%. The European bourse indices are mainly flat or down marginally, the STOXX is up 0.05%, the UK FTSE is down 0.21% the CAC is down 0.3%, the DAX up 0.36%. The equity index future for the SPX is currently down 0.48%.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currencies of six major U.S. trading partners, gained as much as 0.4 percent to 78.549, the most since Oct. 10.
The 17-nation euro dropped versus the yen ahead of reports forecast to show that manufacturing in Germany and France, Europe’s two biggest economies, weakened this month. The pound was only 0.2 percent from a month low against the dollar before the Bank of England releases its November meeting minutes. The U.S. currency advanced most of its major peers as Asian stocks dropped, while Australia’s dollar slid after a preliminary reading of a Chinese industrial output gauge declined.
The pound weakened for a third day against the dollar, reaching its lowest level in six weeks, before the Bank of England releases minutes of this month’s policy meeting. The Bank of England held the ceiling for asset purchases at 275 billion pounds ($429.5 billion) at its Nov. 10 meeting. The bank, which expanded so-called quantitative easing by 75 billion pounds last month, said the current purchases will take another three months to complete and the “scale of the program will be kept under review.”
The pound dropped 0.1 percent to $1.5624 from yesterday, when it fell to $1.5582, the weakest level since Oct. 12. The pound has lost 3.6 percent over the past 12 months, the third-worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
The Australian dollar extended declines against the greenback after the HSBC Flash Manufacturing PMI for China, Australia’s biggest trading partner, fell to 48 this month, predicting the biggest contraction since March 2009. That compares with a final reading of 51 in October.
Economic calendar data that may affect the sentiment of the afternoon session
12:00 US – MBA Mortgage Applications Nov 18
13:30 US – Durable Goods Orders October
13:30 US – Personal Income October
13:30 US – Personal Spending October
13:30 US – PCE Deflator October
13:30 US – Initial and Continuing Jobless Claims
14:55 US – Michigan Consumer Sentiment November
A Bloomberg survey forecasts Initial Jobless Claims of 390K, compared with the previous figure released which was 388K. A similar survey predicts 3621K for continuing claims, compared with the previous figure of 3608K.
Economists surveyed by Bloomberg yielded a median forecast of 64.5 for the Michigan report, compared with the previous release of 64.2.