Second Thoughts about the U.S. Fiscal Cliff Pact

January 3, 2013

There have been predictable misgivings about what the U.S. Congressional deal to avert the full fiscal cliff has accomplished.  Rating agencies like Moody’s have noted with disappointment that unsustainable deficits in the long term were not corrected.  President Obama signed the bill.

Japan’s market remained closed Thursday for the extended New Year holiday.  Share prices elsewhere in the Pacific Rim mostly climbed with gains of 0.7% in Taiwan, Australia and Singapore, 0.4% in Hong Kong, New Zealand, and China, and 0.3% in India, but a drop of 0.6% in the South Korean Kospi index.  In Europe, moreover, the mood soured.  Stocks fell 1.1% in Spain, 0.6% in France, and 0.3% in Germany and Italy.  The British Ftse is unchanged so far.

The dollar recovered 0.5% against the euro as well as 0.4% versus the Swiss franc and sterling.  The buck fell 0.3% relative to the yen and is unchanged against the loonie and yuan.  The U.S. currency has edged 0.1% lower relative to the Aussie dollar and kiwi. 

Ten-year sovereign debt yields are steady.  Gold and oil prices have dropped 0.5% to $1680.60 per ounce and $92.63 per barrel.

Market attention now turns to U.S. labor market conditions.  Today, investors will learn about the latest weekly jobless insurance claims and ADP’s estimate of private employment growth in December.  The Labor Department releases the December jobs report tomorrow.

Meanwhile, today’s German and Spanish labor data releases brought some unexpected relief.

  • A 59.1K drop in Spanish unemployment last month was the first decline since July and considerably better than forecasts of a 50K advance.
  • In Germany, unemployment climbed just 3K in December, a third as much as was expected.  The German jobless rate stayed at 6.9%.

More purchasing manager surveys were released.

  • Britain’s construction PMI dropped 0.6 points to 48.7 in December, signaling the fastest contraction in six months.  Residential activity hit a 2-year low.
  • Norway’s manufacturing PMI in December rested right on the 50 no-change line, dipping down from 50.2 in November.
  • The Swiss manufacturing PMI climbed a full point to 49.5, connoting the smallest pace of contraction since July, following readings of 48.5 in November, 46.1 in October, and 43.6 in September.
  • China’s service-sector PMI hit a four-month high of 56.1 in December, up from 55.6 in November and 55.5 in October.  Such was the 10th reading above 50 in a row.
  • Brazil’s factory PMI remained above but close to 50 with a reading of 51.1 in the final month of 2012. 
  • Manufacturing conditions in Canada likewise held steady at 50.4.  Output stagnated, and orders rose only a tad.
  • The JP Morgan compilation of a global manufacturing PMI crossed over the 50 threshold to 50.2 last month from 48.8 in October and 48.6 in November.

Year-over-year Ezone M3 money growth dipped to 3.8% in November from 3.9% in October because of a greater drag from short-term marketable instruments (i.e., M3-M2).  Private-sector loans were 0.8% lower than in November 2011, including a 1.8% on-year contraction of loans to non-financial companies.

Britain’s Nationwide house price index slid 0.1% in December but showed a smaller on-year drop of 1.0% after falling 1.2% in the year to November.

According to the KOF Institute, Switzerland’s index of leading economic indicators fell to 1.28 in December from a 1.50 reading in November.  The deterioration exceeded what analysts were expecting.  Household lending growth in Sweden ticked up to a 12-month increase of 4.6% in November from 4.5% the month before.

Turkish consumer prices increased 0.4% on month and 6.2% on year in December, down from a 6.4% advance in November.  PPI inflation also slowed, dropping from 3.6% to 2.5%.

Retail sales in Hong Kong posted 12-month increases of 9.5% in value and 8.1% in volume during November.  Both changes were larger than those in October.

U.S. mortgage applications fell 10.4% in the final week of 2012 amid ultra uncertainty.  The ADP private employment and Labor Department weekly release of jobless insurance claims figures arrive today.  So do the NAPM index of New York manufacturing conditions, monthly auto sales, and minutes from the last FOMC meeting.  Members of the incoming House of Representatives will elect their Speaker.  Although controversial, John Boehner is likely to retain that post.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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