In its meeting in the overnight/early morning trading session Australia’s central bank, the RBA, decided to once again leave its base interest rate at 2.5%. A leading UK think tank, the NIESR, has suggested that the UK’s growth is far too dependent on squeezing its consumers for improvement.
The troika re-visits Greece (starting today) to examine its ‘books’ as the Greek PM stresses to the decision makers that his country cannot accept further austerity. Spanish unemployment looks as if it’s finally topping out. The UK’s service sector PMI has risen sharply in October, up to 62.5 from the 60.3 printed in September. Later on today we receive the unemployment figures from New Zealand, expected in at 6.2%, whilst the ISM non manufacturing data from the USA is expected in at 54.2.
UK new business rises at survey record pace during October
The UK service sector has maintained its recent run of strong growth during October, with activity expanding at the fastest pace since May 1997 as levels of incoming new business rose at a survey record rate. Capacity was subsequently tested, with backlogs increasing at a sharp pace. Companies responded by adding to their payrolls, and the rate of growth was the best seen in nearly sixteen-and-a-half years. The headline seasonally adjusted Business Activity Index reached a level of 62.5 in October. That was an improvement on September’s 60.3.
NIESR warns UK growth too realist on consumer spending.
The UK’s National Institute of Economic and Social Research (NIESR) has predicted the growth rate will increase to 2.0% in 2014 (up from its August forecast of 1.8%). It also predicts that UK GDP will rise by 1.4% this year (compared with 1.2% three months ago). However, it is warning that the UK is too reliant on consumer spending;
[quote]“After two years of stagnation, economic growth has returned, underpinned by an increase in consumer spending. Consumer spending growth is necessary for an economic recovery in the UK, but a consumer-driven recovery will not be ‘balanced’, let alone one reflecting the required long-term ‘rebalancing’ towards an economy with greater net national saving.”[/quote]
The troika visits Athens
The meetings between the Greek government and its lenders begins at noon local time (10am GMT), when the Greek finance minister Yannis Stournaras sits down with the chiefs from the European Commission, European Central Bank and the International Monetary Fund.
The talks are likely to focus on the shortfall in Greece’s 2014 budget. Athens says the shortfall is just €500m, however, the Troika estimates it to be circa €2.5bn. Another meeting takes place four hours later today with labour minister Yiannis Vroutsis.
Greece’s prime minister Samaras believes that it is possible to close Greece’s fiscal gap in 2014, and achieve its goal of a surplus, without more austerity measures. Wages and pensions cannot be cut further, and taxes will not rise. Samaras believes that Greece’s society simply cannot take anymore austerity measures.
[quote]”First of all let me say something let’s do away with this notion that we are in some kind of war. It is a negotiation. Society cannot take it, the economy cannot take it, and it is not even required by the country’s current financial situation.” [/quote]
Spanish Unemployment in October recorded the first annual decline since 2007
Registered unemployment in October has been reduced by 22,138 persons over the same month of 2012. This is the first annual decline in the number of registered unemployed since May 2007. The decline of 22,138 unemployed compared to the same month a year ago contrasts with the sharp rise (year on year) in October and throughout the crisis, with an average increase of 557,000 people. The annual growth rate has been reduced by more than 11 points since October 2012 and now stands at -0.46 %.
RBA Statement on Monetary Policy
“At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent. Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year. Commodity prices have declined from their peaks, but generally remain at high levels by historical standards. Inflation in most countries is well contained. Overall, global financial conditions remain very accommodative. Volatility in financial markets has abated recently. Long-term interest rates remain very low and there is ample funding available for creditworthy companies.”
Market snapshot at 10:00 am UK time
Asian bourses suffered mixed fortunes in the overnight/early morning trading session. The Nikkei closed up 0.17%, the Hang Seng down 0.65% and the CSI 300 up 0.14%. In Europe the STOXX index is down 0.50%, FTSE down 0.37%, CAC down 0.23% and the DAX down 0.23%. Equity index futures for the USA indices are currently down; DJIA down 0.24%, SPX down 0.22% and NASDAQ down 0.20%, suggesting that the main markets in the USA will open down.
ICE WTI oil is down 0.03% at $94.59 per barrel, NYMEX natural down 0.70% at $3.42 per therm, COMEX gold is down 0.25% at $1311.40 per ounce.
Forex focus
The euro fell 0.6 percent to 132.49 yen early in London time after dropping to 132.39, the weakest level since Oct. 10th. The single currency declined 0.2 percent to $1.3488 after sliding to $1.3442 yesterday, the lowest since Sept. 18th. The dollar slipped 0.4 percent to 98.22 yen. The euro fell to a three-week low versus the yen as traders weighed up the prospects for additional monetary stimulus in the region before the European Central Bank meets in two days
The Aussie fell versus all except two of it 16 major peers after the Reserve Bank kept its key rate at a record-low 2.5 percent and signaled concerns that the currency strength risks undermining the recovery. The Australian currency weakened 0.3 percent to 94.82 U.S. cents after declining to 94.22 cents on Nov. 1st, the lowest level since Oct. 14th.
Benchmark 10-year yields were little changed at 2.61 percent as of 8:37 a.m. London time. The price of the 2.5 percent note due in August 2023 was 99 1/32.
