In an echo of season’s past a relatively small European country, Slovenia, revealed that several of its banks require approx. €5 billion in order to pass the E.U. banking stress tests. This situation has a familiar theme to it, it’s reminiscent of the trouble Greek banks found themselves in during 2011. However, the relatively small sum involved and the fact that the E.U. and ECB have already navigated through far more difficult situations recently, renders the situation as being ‘controllable’, but worth investors keeping up to date on.
In other European news industrial production figures fell by 1.1% in the month of October. This was quite a shock as the majority of analysts had predicted a modest uptick. This may have affected the majority of the main European bourses which closed down on the day.
Looking at USA news events the excellent and optimistic print of unemployment claims of last week, which came in under 300K, was adjusted up to 300K whilst this week’s new claimant count came in at an unexpected 368K, from expectations of 320K. The concern is that, despite the retail figures that were published on Thursday revealing a rise of 0.7% retail sales month on month, retailers don’t appear to be ‘gearing up’ for that excess seasonal demand by way of employing seasonal workers.
Finally Fitch confirmed late afternoon/early evening Thursday that they’re in no rush to upgrade the UK back to its previous triple AAA rating. Despite the optimistic prints from Markit Economics and the UK’s ONS Fitch have cut through the bluster to suggest that until the UK’s debt versus GDP falls significantly the downgrade will stay in place.
Industrial production down by 1.1% in euro area
In October 2013, compared with September 2013, seasonally adjusted industrial production fell by 1.1% in the euro area (EA17) and by 0.7% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In September industrial production decreased by 0.2% in the euro area and rose by 0.1% in the EU28. In October 2013 compared with October 20124, industrial production increased by 0.2% in the euro area and by 0.8% in the EU28. In October 2013 compared with September 2013, production of energy fell by 4.0% in the euro area and by 2.7% in the EU28.
EC: “Slovenia won’t need a bailout”
European Commissioner Olli Rehn has declared that Slovenia can recapitalise its banking sector without seeking international help. In its latest report Slovenia’s central bank gives some details of the €4.758bn cost of cleaning up the banking sector of its bad debts. The country’s biggest three banks need €3.12bn, which will be paid through government funds and bonds.
Another five banks need a total of €1.6bn – and have been given until June 2014 to raise the funds on the private markets. Slovenia’s central bank also said that the operation will take the country’s national debt to 75.6% of GDP.
Fitch: No rush to upgrade the UK
Fitch’s new top sovereign analyst has warned that it will take time for Britain to win its AAA rating back, having been downgraded to AA+ in April. Fitch followed rival agency Moody’s in downgrading Britain to AA+ in April, but since then the country’s economy has improved, it is now one of the fasting growing in the developed world.
[quote]Projections that we were working off showed debt peaking at a level higher than we previously anticipated and further out than anticipated. Some of the adjustment that has gone on since then has been a pleasant surprise for everyone, but one of the things we have said about getting triple-A ratings back is that it is going to take some time.
We probably need to see medium-term projections of debt-to-GDP coming down in a sustainable way over a period of time. So one quarter or six-months’ worth of data is generally not something we are going to change our rating view on.[/quote]
USA Unemployment Insurance Weekly Claims Report
In the week ending December 7th, the advance figure for seasonally adjusted initial claims was 368,000, an increase of 68,000 from the previous week’s revised figure of 300,000. The 4-week moving average was 328,750, an increase of 6,000 from the previous week’s revised average of 322,750. The advance seasonally adjusted insured unemployment rate was 2.1 percent for the week ending November 30, unchanged from the prior week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 30th was 2,791,000, an increase of 40,000 from the preceding week.
US Import and Export Price Indexes – November 2013
U.S. import prices declined 0.6 percent for the second consecutive month in November, the U.S. Bureau of Labor Statistics reported Thursday, after rising the previous 3 months. The decrease in each of the past 2 months was led by falling fuel prices. U.S. export prices rose 0.1 percent in November following a 0.6 percent decline in October. Imports All Imports: Import prices fell 0.6 percent in November following a 0.6 percent decrease in October. Those were the first monthly declines for the index since a 0.4 percent drop in June. The price index for U.S. imports decreased 1.5 percent.
U.S. retail sales rise in November, boost economic outlook
U.S. retail sales rose solidly in November as Americans bought automobiles and a range of other goods, adding to signs of a strengthening economy that could draw the Federal Reserve closer to reducing the pace of monetary stimulus. The Commerce Department said on Thursday retail sales increased 0.7 percent last month after rising by a revised 0.6 percent in October. November’s retail sales increase was the largest in five months. Economists polled by Reuters had forecast retail sales, which account for about 30 percent of consumer spending, advancing 0.6.
Market overview at 10:30 PM UK time December 12th
The DJIA closed down 0.66%, the SPX down 0.38% and the NASDAQ down 0.14%. European markets also closed in the red; STOXX down 0.65%, CAC down 0.43%, DAX down 0.66% UK FTSE down 0.97%.
Equity index futures are, at the time of writing, pointing to a negative opening in Europe and the USA. The DJIA equity index future is down 0.69%, SPX down 0.33%, the NASDAQ future down 0.30%. European futures are also down sharply; STOXX down 0.68%, DAX future down 0.70%, CAC future down 0.43% with the FTSE future down 1.15%.
Commodities closed the day mainly down; NYMEX WTI oil down 0.05% at $97.39 per barrel, NYMEX nat gas closed up 0.90% at $4.38 per therm due to storage data being below expectations. COMEX gold sold off sharply to close the day down 2.56% at $1225.00 per ounce, with silver on COMEX down a substantial 4.25% at $19.49 per ounce.
Forex focus
The greenback gained 0.2 percent to $1.3753 per euro after falling to $1.3811 Wednesday, its lowest level since Oct. 29th. The U.S. currency climbed 0.9 percent to 103.38 yen, the strongest level since May 23rd. Japan’s currency slipped 0.7 percent to 142.18 yen per euro. The U.S. Dollar Index appreciated 0.4 percent to 1,017.49 late afternoon in New York. The gauge fell as low as 1,011.73 on Dec. 10th, its weakest level since Nov. 1st.
The dollar rose for a second day after retail sales gained more than forecast last month, adding to speculation the Federal Reserve will move to trim its $85 billion of monthly asset purchases at a meeting next week.
The Australian dollar fell versus all 16 of its most-traded counterparts after RBA Governor Stevens dropped a bombshell stating that he’d prefer the currency be closer to 85 U.S. cents and highlighted his preference for a weaker Aussie over lower rates to spur the economy. The currency dropped 1.2 percent to 89.37 U.S. cents after falling to the lowest since Aug. 30th.
New Zealand’s kiwi fell 0.1 percent to 82.50 U.S. cents, after rallying as much as 0.8 percent. The nation’s central bank kept its key rate at a record-low 2.5 percent today while saying the level of stimulus is becoming unnecessary. The rate will probably need to rise 2.25 percentage points over the next 2 1/4 years, Reserve Bank of New Zealand Governor Graeme Wheeler said.
The loonie fell 0.5 percent to C$1.0640 per U.S. dollar late evening in Toronto. It earlier touched C$1.0561, the highest since Nov. 29th. One loonie buys 93.99 U.S. cents. Canada’s dollar fell for the first time in six days as central-bank Governor Stephen Poloz warned of deflation after a rise in U.S. retail sales lifted bets the Federal Reserve will start trimming its bond-buying programme.
Bonds
Five-year note yields rose three basis points, or 0.03 percentage point, to 1.53 percent late in New York. They touched 1.54 percent, the highest since Sept. 18th. The price of the 1.25 percent securities maturing in November 2018 dropped 5/32, or $1.56 per $1,000 face amount, to 98 21/32. Ten-year yields rose two basis points to 2.88 percent. Thirty-year bond yields added one basis point to 3.89 percent after falling earlier to 3.86 percent. They reached 3.96 percent on Dec. 6th, the highest since August 2011.
Fundamental policy decisions and high impact news events that could affect market sentiment on December 13th
Friday sees the production of the German WPI, wholesale production inflation expected to be at 0.4% month on month, Swiss producer inflation is expected in at 0.3%, whilst employment change in Europe is expected to remain flat. USA core PPI is published on Friday, expected to be flat, with core PPI expected at 0.1%.
