Focus Returns to Fiscal Cliff Negotiations

December 27, 2012

European markets reopened after the Christmas recess. 

Obama is back from Hawaii, and Congress resumes fiscal cliff talks today.  There’s no hope of a “grand bargain.”  Analysts are instead looking for some kind of short-term truce to buy time in January, but so far, neither House Republicans nor the Democrats show a predisposition to compromise further.

Japanese Finance Minister Aso promised a fiscal stimulus plan unveiling by early January but said the government will not issue more deficit bonds next fiscal year than the outgoing cabinet had planned (that is, JPY 44 trillion).  Aso also indicated that the date for imposing a sales tax increase could be delayed, with a decision on that matter due next October.

China’s fiscal deficit next year will increase some 50% but will only amount to 2.1% of GDP according to government sources.  Industrial profits in China were 3.0% greater in January-November than in the first eleven months of 2011.

The South Korean government revised projected GDP downward to 2.1% this year and 3.0% in 2013 from prior estimates of 3.3% and 4.0%.

Japanese markets continue to react positively to new political leadership.  The dollar hit its highest yen level (85.89) since September 2010.  The Nikkei advanced 0.9% to 10,323, and the 10-year Japanese Government Bond yield has firmed to 0.80%, a three-month high.

The dollar otherwise slid overnight by 0.3% against the euro, Swissie, and loonie, 0.4% relative to sterling, 0.2% versus the kiwi and 0.1% against the yuan and Australian dollar.

Share prices in the Pacific Rim closed mostly up, with gains of 1.1% in Thailand, 0.4% in Hong Kong, 0.3% in South Korea and Australia and 0.2% in New Zealand, Taiwan and Indonesia.  Chinese and Indian equities lost 0.5%, however.  In Europe, stock market results have seen dips of 0.2% in Spain and Switzerland but upticks of 0.6% in Italy, 0.5% in France, 0.3% in Germany and 0.2% in Britain.

The ten-year British gilt and German bund yields reopened at 1.90% and 1.37%.

Gold slipped 0.2% to $1657.30 per ounce, 12.8% below the peak London fixing in September 2011.  The price of WTI crude oil edged 0.1% higher to $91.08 per barrel.

Japanese housing starts were 10.3% greater in November than a year earlier, which was close to analyst expectations.  This was less than on-year advances of 25.2% in October and 15.5% in September.  June, July, and August saw on-year declines.  Japanese construction orders posted a considerably smaller 2.1% on-year drop in November than the decline of 13.8% between October 2011 and October 2012.  Japanese motor vehicle output was 8.4% lower than a year earlier in November after declining by 12.4% in the year to October.

Italian business sentiment edged up 0.4 points to a reading of 88.9 in December.  The average reading in the second half of 2012 was 88.2.

French consumer confidence this month surpassed expectations, rising to a score of 86 from readings of 84 in both October and November.  Total French producer prices slid 0.4% in November and recorded a 12-month increase of 1.5%.  Export prices went up only 0.7% on year, but domestic PPI inflation was 1.9%, down from 2.9% in October.  The French fiscal debt to GDP ratio settled back to 89.9% in September from 91.0% at midyear.

The Russian manufacturing purchasing managers index fell 2.2 points to 50.0 in December.  This was the first reading that failed to exceed the no-change threshold since September 2011. Export orders contracted at the fastest pace since October 2010. 

According to the British Bankers Association, mortgage approvals in November totaled 33,634, somewhat less than anticipated but greater than the October sum.

The UBS consumption indicator for Switzerland slid back to a reading of 1.23 in November from 1.30 in October.

Consumer confidence in Finland improved 2.5 points to a December reading of 3.5 versus 1.0 in November and minus 1.6 in October.  Business sentiment worsened two points, however, to a score of minus 15.  The Greek trade deficit widened 7% to EUR 1.20 billion in October.

Czech consumer confidence rose 0.3 points to minus 26.0 in December.  Business confidence rose 1.3 points to +1.

In South Korea, manufacturing business sentiment recovered in January to 70, matching the November score, from 67 in December, which had been the lowest reading since April 2009.

Hong Kong’s trade deficit totaled HKD 44.07 billion in November but embodied a reassuring 10.5% on-year rise in exports.  Taiwan’s index of leading economic indicators advanced by 0.8% in November following gains of 0.5% in September and 0.7% in October.  The index of coincident indicators went up just 0.4% last month.

Scheduled U.S. economic data due today include new home sales, consumer confidence, and weekly jobless insurance claims.

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

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