The euro has reversed it’s overnight, early morning bearishness versus the major currencies to make strong gains ahead of two crucial meetings; the troika meeting to rubber stamp Greece’s next proportion of bailout funds and Angela Merkel’s government vote on just how far Germany is prepared to support this and further bailouts for the seventeen members of the Eurozone who are using the euro and as a consequence locked into the mechanism and governance. Ms Merkel may be helped in her mission by the good news released this morning concerning Germany’s unemployment levels.
German unemployment declined more than economists forecast in September. The number of people out of work fell by 26,000 to 2.92 million, the Nuremberg based Federal Labor Agency has reported. Economists had forecast a drop of 8,000, according to a median estimate of 24 estimates in a Bloomberg News survey. The adjusted jobless rate slipped to 6.9 percent from 7 percent in the previous month. Germany’s unemployment has now reached the lowest level since reunification two decades ago after increasing global export demand prompted companies to spend and hire.
Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion told Bloomberg – “Investors appear to be pinning their hopes on the German vote on euro-area rescue fund. They seem to be betting that the region’s debt troubles, though there will be sporadic bumps, will eventually be resolved.”
That resolution optimism may only be short term, Bloomberg have also run a fascinating poll this week amongst key global investors who anticipate that Europe’s debt crisis will lead to an economic slump, a financial meltdown and social unrest in the next year. Seventy two percent predict a country abandoning the euro as a shared currency within five years. Approx. three quarters of those questioned said the euro-area economy will fall into recession during the next 12 months and 53 percent said turmoil will worsen in a banking sector laden with government bonds, according to the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. Forty percent see the 17-nation currency bloc losing at least one member in the next year. Economists at Pacific Investment Management Co., JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc have all stated in the past week that the euro-area is entering recession.
However, contrarian views have emerged from the Citigroup Inc. Chief Executive Officer Vikram Pandit who has stated that in his opinion Europe’s crisis is about sovereign debt, not the euro’s survival, and the bank’s level of risk in the region is extremely manageable. “This is an issue of leverage, it’s not a euro issue. The Europeans will figure it out. They’ll get through the debt crisis and get to the other side being fully committed to the euro and the euro zone.”
Whilst Bloomberg’s survey is undeniably Euro centric the pace at which IPOs are currently being abandoned worldwide could also give an indication as to the state of the economy globally and where the smart money isn’t headed, companies have cancelled or postponed $8.9 billion in initial public offerings in the third quarter putting the market on pace to set a record for pulled deals. The value of withdrawn and delayed IPOs this year has risen to $34 billion, approaching the $40 billion witnessed in 2010.
The Nikkei closed up by 0.99%, the Hang Seng closed down 0.66% and the CSI closed down 0.86%. China’s benchmark Shanghai Composite Index has now fallen to a 14 month low. Hong Kong shut financial markets after the city raised its highest storm signal this year. The Hong Kong Observatory said a No. 8 gale signal will remain for most of the day.
European markets are still subdued due to the relative enormity of the latest decisions and votes which are taking place today. The UK FTSE is currently down 0.7%, the STOXX is up 0.78%, the CAC is up 0.74% and the DAX is up 0.5%. Brent crude is up $145 a barrel and gold is up circa $21 an ounce. Silver is up circa 3%. The SPX equity future index is currently up circa 1%. The Euro has made significant moves up versus yen, dollar and franc, sterling has appreciated significantly versus the USA dollar and yen but remained fairly flat versus the franc. The USA dollar has fallen sharply versus the franc.
Data releases to be mindful of for the NY opening and session include the following;
Thursday 29 September
13:30 US – GDP Annualised 2Q
13:30 US – Personal Consumption Expenditure 2Q
13:30 US – Initial and Continuing Jobless Claims
15:00 US – Pending Home Sales Aug.
For GDP the economists polled by Bloomberg gave a median prediction of 1.2%, from the previous release of 1.0%. The initial jobs claims prediction from a Bloomberg survey forecasts Initial Jobless Claims of 420K. A similar survey predicts 3730K for continuing claims. For pending home sales a survey of analysts yielded a median estimate of -2.0% month-on-month, compared with last month’s figure of -1.3%. The year on year figure predicted was 6.3% from 10.10% previously.