A Market Dominated by Fiscal Cliff Perceptions

November 29, 2012

Investors want to believe that the full brunt of the U.S. fiscal cliff is going to be somehow averted.  The evidence on that possibility continues to be mixed, but a better appetite for risk today is evident.

Chinese share prices, down by a further 0.6% to a four-year low, have been an exception.  However, worries about Chinese growth haven’t infected other markets.

Equities elsewhere rose 1.8% in India, 1.2% in South Korea, 1.0% in Japan and Hong Kong, 1.1% in Singapore, 0.9% in Taiwan, and 0.7% in Australia.  In Europe, stocks are up 1.9% in Italy, 1.2% in Spain, 0.9% in France and Britain and 0.8% in Germany.

The Swiss franc and euro climbed 0.4% and 0.3% against the dollar, which otherwise shows marginal changes from the Wednesday close.

Oil prices have risen 1.2% to $87.54 per barrel.  The price of gold is 0.4% higher at $1726.40 per ounce.

Ten-year British gilt and German bund yields are two basis points higher than yesterday.  Peripheral yield spreads in the euro zone have narrowed.  Italy held some sovereign debt auctions today, producing lower interest yields but smaller bid-cover ratios.

Euroland’s retail purchasing managers index recovered 0.5 points, but with a reading in November of 45.8 suggests that the fourth-quarter average level will be even lower than its quarterly trough during the Great Recession.  Italy’s 35.5 reading was at a 7-month low, and Germany’s retail PMI scores of 50.3 in October followed by 50.2 in November signify stagnation.  The French index rose 2.8 points to a 5-month high of 48.8.

Euroland’s economic sentiment index improved by 1.4 points to 85.7 in November, a three-month high and better than forecast.  Industrial confidence improved 3.2 points to negative 15.1, best since July.  Service sector confidence ticked up 0.2 points and was also better than anticipated.  Construction confidence dropped 2.6 points to a very low score of minus 35.5, but retail sector sentiment rose 2.5 points to minus 14.9.  Consumer confidence (-26.9) matched the preliminary estimate and was 1.2 points worse than in October.

Euroland’s business climate index recovered 0.42 points to negative 1.19 in November, a three-month high.

November business sentiment in Italy climbed to 88.5, highest since March and 0.7 points above the October reading.

The number of German unemployed workers increased for an 8th straight time in November but by a smaller 5K than the combined 29K increase in September-October.  The jobless rate stayed at 6.9%.

British M4 money contracted 3.2% between October 2011 and October 2012, a slightly smaller drop than that of 3.7% in the year to September.  Mortgage approvals totaled 53K, 6% more than in September according to Bank of England data.

Nationwide’s British house price index for November delivered disappointing news, stagnating on a month-over-month basis and dropping 1.2% from November 2011.

The Confederation of British Industries’ monthly survey of distributive trade trends saw the big improvement of September extended slightly.  The reading of 33 in October followed ones of 30 in September and 6 in August.

Greek PPI inflation slowed to 4.0% in October from 5.0% in September, but Moody’s said Greek debt even after this week’s deal still looks unsustainable. 

Belgian CPI inflation slowed to 2.3% in November from 2.8% in October.  Icelandic producer prices jumped 3.9% in October, producing an on-year 1.0% increase after a 3.7% drop in the year to September.

Swiss and Swedish GDP last quarter grew faster than forecast.

  • Swiss GDP went up 0.6% on quarter and 1.4% on year after just a 0.3% increase in the year to 2Q.
  • Swedish GDP increased 0.5% and 0.7% on year.  Swedish retail sales in October dropped 1.7% in volume terms from September and were just 1.2% higher than a year before.

Portuguese consumer confidence dropped 3.7 points to a record low reading of minus 59.  Business confidence dipped 0.4 points to minus 5.0.

The Central Bank of Brazil’s Selic interest rate was left at 7.25%, breaking a string of ten straight declines from a high of 12.5% prior to August 2011.  The policy committee, Copom, reaffirmed that monetary policy henceforth should remain stable for a “sufficiently prolonged period of time.”

Japanese retail sales rose 0.7% on month in October, a smaller-than-forecast rebound from September’s 3.5% plunge.  In on-year terms, total retail sales fell 1.2%.  Among large stores, the 12-month pace of decline widened to 3.2% from 2.2% in 3Q and 1.3% in 2Q.  Large-store sales had risen 1.3% between 1Q11 and 1Q12.  In the year to October, clothing sales tumbled 4.0%, while sales of food fell by 2.6%.

Japanese stock and bond transactions last week generated a JPY 129 billion net capital inflow versus an outflow of JPY 286 billion in the week of November 17.

Private business investment in Australia rose 2.8% between 2Q and 3Q, less than the 3.4% advance in the second quarter.  Aussie new home sales increased 3.4% in October, their first monthly rise since June.

Business sentiment in New Zealand according to the NBNZ gauge improved to a reading of 26.4 in November from 17.2 in October. 

Hong Kong retail sales posted smaller-than-forecast on-year increases in October of 4.0% in value and 3.6% in volume.  A monthly survey of South Korean businesses revealed some slight deterioration for both manufacturers and non-manufacturers.

South African producer prices rose 0.6% last month and accelerated to a 12-month increase of 5.2% from 4.2% in the year to September.  M3 money and private credit recorded respective 12-month advances of 5.7% and 8.4%.  Each decelerated from the pace in September.

Scheduled U.S. data releases today include revised 3Q GDP, pending home sales, the Kansas City Fed manufacturing index, and weekly jobless insurance claims.  Canadian producer prices, raw material prices, and current account data arrive, too.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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