Greece experiencing record levels of deflation, Germany’s industrial output in surprise fall again, China’s yuan reaches twenty year high as the loonie falls to a 3 year low

Dec 10 • Morning Roll Call • 2320 Views • Comments Off on Greece experiencing record levels of deflation, Germany’s industrial output in surprise fall again, China’s yuan reaches twenty year high as the loonie falls to a 3 year low

shutterstock_141650110Despite Monday being a relatively quiet day on Wall Street there were plenty of high impact news events published and the customary chatter regarding monetary easing took centre stage, on both sides of the Atlantic, providing one of the major debating points of the day…

Greece now appears to be locked in a deflationary economic death spiral, pricing according to what consumers can afford will inevitably lead to pressures on jobs, still a massive real life ‘hurt’ throughout Greece with unemployment levels above 50% for youths.

Germany once again suffered a fall in manufacturing output; this is bad news that should be given more credence in the financial press, because as a portent for where the EU might be in terms of trading in the new year, the omens don’t look good.

Luxembourg’s central bank governor couldn’t prevent himself from becoming embroiled in the monetary easing discussion on Monday, once again offering up an opinion to then say;

oh, er, but we can’t do that as we don’t have a mandate, Germany won’t let us and it’s illegal under our constitution.

That currency that the USA financial mainstream press don’t like talking about, the Yuan or renminbi, hit the news and new heights on Monday, reaching a twenty year high versus a basket of other currencies and versus the dollar in particular. Meanwhile the commodity currency that is the Canadian dollar fell to a new three year low on Monday.

November 2013 Housing Starts in Canada

Housing starts in Canada were trending at 194,014 units in November compared to 195,274 in October, according to Canada Mortgage and Housing Corporation (CMHC). The trend is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.

The trend in housing starts has increased slightly since July, before stabilizing in November. Overall, housing starts have been following a trend similar to sales on the existing home market. As sales rise relative to listings of existing homes, buyers are increasingly meeting their needs in the new home market.

Greek deflation rate hits new recorded high

Greece has fallen deeper into a deflationary spiral; prices are now falling at their fastest rate recorded as the country’s long economic slump continues. The Greek consumer prices index shrank by 2.9% in November, showing deflation accelerated after October’s reading of minus 2.0%. Prices in Greece have been falling during the last three years, hitting deflation in April for the first time since records began in the 1960s. Monday’s data shows that retailers have slashed prices drastically, having seen demand slide among customers hit by austerity cutbacks and record levels of unemployment.

Clothing and textile prices fell by over 11%, according to national statistics body ELSTAT. Household equipment costs were down 3.7% year-on-year. There was however some respite in the form of good news regarding Greece, the Greek economy (only) shank by 3% on a year-on-year basis in Q3, confirming that the five-year recession is finally easing somewhat.

German industrial output drops again

German industrial output dropped in October, falling by 1.2% month-on-month in the biggest monthly drop recorded since May, following a 0.7% drop in September. The data took analysts and investors by surprise who had predicted a 0.8% rise in output. Instead, factories reported that output of capital goods such as heavy machinery fell by 3.0%, while durable goods production was down by 4.5%. Germany’s finance ministry insists that it’s a temporary factor, and that output will improve in coming months.

The ministry said

After high output levels in the second and third quarters supported by catch-up effects, output made a weak start to the last quarter. Industrial orders suggest upwards momentum however and construction orders are good.

ECB’s Mersch: “QE would be an immense challenge”

The debate over whether or not the European Central Bank will venture further into quantitative easing took another twist Monday, as ECB board member Yves Mersch warned it would be extremely difficult. In a speech in Frankfurt, Mersch argued that the ECB could (in theory) ease monetary policy with a major bond-buying programme, but it would be a huge challenge and once again questions of legality would be raised, particularly by Germany. Luxembourg’s central bank governor also cited Austrian economist Hayek’s views that only free markets can price assets correctly.

Mersch said:

Friedrich August von Hayek said that only the free market could factor all the relevant information into the price and thus ensure a meaningful allocation of assets. He accused social engineers who planned society on the drawing board of displaying a pretence of knowledge’’. To define portfolios of government bonds of euro zone member states and then to buy them would pose immense economic, legal and political challenges for the ECB.

Mersch cited problems with two other key methods of easing monetary policy:

• Consumers could be hit with higher costs if the ECB imposed negative deposit rates on banks.

• The ECB could offer more cheap long-term loans to banks, but they’d probably use the money to buy sovereign debt.

Market overview

The DJIA closed up marginally by 0.03% in what appeared to be a quiet New York trading session. The SPX closed up 0.18%, NASDAQ up 0.15%. European markets were similarly challenged; STOXX up 0.29%, CAC up 0.11%, DAX up 0.25%, FTSE up 0.11%.

Equity index futures are looking equally insipid with regards to tomorrow’s trading opportunities, the DJIA equity index future is up 0.05%, SPX future up 0.07%, NASDAQ up 0.07%. Looking towards the European open the STOXX future is up 0.34%, DAX up 0.35%, CAC up 0.08% and the FTSE future is up 0.22%.

NYMEX WTI oil closed flat on the day on Monday at $97.34 per barrel, NYMEX nat gas closed the day up a significant 2.87% at $4.23 per therm. COMEX gold closed the day up 0.42% at $1234.20 per ounce with silver up 0.91% at $19.70 per ounce.

Forex focus

The loonie, as the Canadian dollar is known, rose 0.1 percent to C$1.0627 per U.S. dollar at 5 p.m. in Toronto after falling as much as 0.3 percent. It touched C$1.0708 on Dec. 6th, the weakest since May 2010. One loonie buys 94.10 U.S. cents.

Futures on crude oil, Canada’s largest export, fell 0.5 percent to $97.18 a barrel in New York after six days of gains. The Canadian dollar traded at almost a three-year low amid speculation Federal Reserve officials may signal the central bank will slow its monetary stimulus program as soon as next week.

The pound rose 0.4 percent to $1.6407 late London time after climbing to $1.6443 on Dec. 2nd, the highest level since August 2011. The U.K. currency appreciated 0.2 percent to 83.65 pence per euro after weakening 1.2 percent in the previous four days. The pound rose for a second day versus the dollar before reports Tuesday that economists believe will show industrial production expanding and the trade deficit narrowing, adding to signs the recovery is progressing.

The dollar rose 0.4 percent to 103.27 yen at 5 p.m. New York time. It touched 103.38 on Dec. 3rd, the highest since May 23rd. The greenback fell 0.2 percent to $1.3739 against the euro. The Japanese currency slid 0.6 percent to 141.88 per euro and reached 141.95, the least since October 2008.

China’s yuan advanced to the strongest level in 20 years after the central bank rose the currency’s daily fixing and the nation’s trade surplus widened to the most in more than four years.

Bonds

Canada’s benchmark 10-year government bond gained, with yields falling two basis points, or 0.02 percentage point, to 2.67 percent. The 1.5 percent security maturing in June 2023 added 17 cents to C$90.30.

The benchmark USA 10-year note yield declined two basis points, or 0.02 percentage point, to 2.84 percent at 5 p.m. in New York. It traded between 2.83 percent and 2.86 percent, the narrowest since Dec. 3rd. The price of the 2.75 percent note due in November 2023 added 1/8, or $1.25 per $1,000 face amount, to 99 7/32. The 30-year bond yield fell two basis points to 3.87 percent. The yield spread between 10- and 30-year Treasuries shrank to 1.032 percentage points, the narrowest on a closing basis since Sept. 24th.

Fundamental policy decisions and high impact news events for December 10th

Tuesday sees the publication of China’s industrial production figures, expected in at 10.2%, retail sales in China are predicted to rise by 13.2%, with fixed asset investment predicted to rise by 20.1% – year on year.

In Europe both French and Italian Industrial production figures are published, both expected in at circa 0.2-0.3%. The UK’s manufacturing production is expected to fall to 0.4% from the previous month’s 1.1%. The UK’s trade balance is expected to stay at circa £9.1 bn for the month. Industrial production in the UK is expected in at 0.4%, down from 0.9% the previous month. The UK’s NIESR also publishes its latest data, suggesting that economic activity will be stable at circa 0.7%.

In Europe the ECOFIN meetings will take place with Mario Draghi then holding court with a speech discussing the outcomes of the meetings in relation to any policy change, or additions.

In the USA there is a raft of information published in the afternoon trading session; the NFIB small business index is published expected in at 92.7. JOLTS job openings are expected in at 3.96 million, with wholesale inventories in the USA expected to shrink to 0.3%.

Later in the evening on Tuesday Australia’s Westpac consumer confidence index is published, the expectation is for a figure similar to the previous month of 1.9%. Japan publishes its core machinery orders, expected in at 0.9%, up from the previous month’s negative print. The corporation inflation number is also printed, expected in at 2.7% year on year.


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