The OECD pricks the Eurozone bubble as 200 million are feared unemployed
Is it irony or coincidence that as we welcome our seventh billionth global citizen into our world global unemployment reaches 200 million according to the ILO. The International Labor Organization said in its report that about 80 million net new jobs will be needed over the next two years to return to pre crisis employment rates—27 million in advanced economies and the remainder in emerging and developing countries. The projection is that only 40 million will be created.
“We have a brief window of opportunity to avoid a major double-dip in employment,” said Raymond Torres, director of the ILO International Institute for Labor Studies, which issued the report.
The risk of social unrest is rising in 45 of the 118 countries it examined—particularly within the European Union and Arab region, the ILO warned. Data released on Monday showed the number of people out of work in the euro zone rose to 16.2 million in September, the highest level since records began in 1998. The ILO said the number of jobless across the world has also hit a record high of more than 200 million.
Ahead of the G20 meeting to be held later this week in Cannes, France the OECD has spoilt the party and pricked the euphoric bubble of last week before the officials have even gathered and got into full debating swing. The OECD said economic growth in the eurozone will slow to 0.3pc next year after 1.6pc growth this year, and will remain weak in the US as emerging markets will experience slower growth than before the financial crisis began. Overall, growth in the G20 nations will slow to 3.8pc in 2012, compared to 3.9pc this year, it could accelerate to 4.6pc in 2013. The OECD added that the scenario will be worse if the eurozone rescue deal fails to restore confidence. The OECD said the U.S. economy will grow 1.8% next year, less than the 3.1% expansion it had forecast in May, and will pick up speed only in 2013, with a 2.5% expansion. Debt-to-GDP ratios will keep rising, reaching in two year’s time 108.7% in the U.S., 97.6% in the euro zone and 227.6% in Japan, the OECD figures showed.
A repeat of the financial crisis of 2007 could wipe up to 5 percent off major economies’ GDP by the first half of 2013, the OECD added. However, a radical action plan by the G20 could help boost growth above its projections. G20 nations need to make structural reforms to address unemployment and rebalance global demand, while interest rates in the eurozone should be lowered under new president Mario Draghi, the OECD added.
Whilst most eyes have been focused on the equity market rally since last week’s announcement of a solution (of sorts) to the Eurozone sovereign debt crisis the euro hasn’t played along having now lost close on all of it’s post solution announcement rally gains. The currency has now erased all of the gains, close on 400 pips versus the USA dollar since late last week. As night follows day the other PIIGS nations, in the best ‘Oliver Twist’ fashion, are politely asking “please Sir, can I have more?” Having witnessed Greece obtain fifty percent debt haircuts they now feel empowered to ask why they should toil and sweat to maintain the onerous and punishing austerity commitments they’ve all agreed to over the past twelve months.
What a clever grey old fox Greece’s prime minister is proving to be, no sooner is the ink dry on the overall deal and he suggests a national referendum on the austerity package, hat doffed, that’s world class ‘stiffing’, but he’s had some exclusive tutors and a helluva education over the past three years. Papandreou also said he would ask for a vote of confidence to secure support for his policy for the rest of his four-year term, which expires in 2013. Analysts said he was likely to win that, despite dissent among his parliamentary team. He was forced to expel a senior party member for voting against part of his latest austerity package and others warned him it was the last time they would vote for measures they did not believe in.
We trust citizens, we believe in their judgment, we believe in their decision. In a few weeks the (EU) agreement will be a new loan contract, we must spell out if we are accepting it or if we are rejecting it.
Prime Minister Silvio Berlusconi faced fresh calls to resign on Monday as markets finally began to turn on Italy, pushing its borrowing costs to dangerous new levels on renewed concern about a worsening of the euro zone crisis. Yields on Italy’s 10-year, fixed-rate bonds known as BTPs rose to 6.1 percent, a level widely seen as unsustainable in the longer term and close to the level which forced Rome to seek help from the European Central Bank in August. The ECB kept up its intervention to cap Rome’s borrowing costs by buying Italian bonds on the market on Monday but the risk premium continued to rise and 10-year Italian yields ended the day more than 407 basis points above benchmark German Bunds.
The jump in the yield reflected widening market concern about measures EU leaders agreed last week to stem the euro zone crisis and underlined Italy’s position at the centre of the emergency. Last week, Italy paid a yield of 6.06 percent at an auction of 10-year bonds, the highest since the launch of the euro more than a decade ago, fuelling growing concern about how it will fund the more than 600 billion euros of bonds it needs to refinance over the coming three years. Italy, the euro zone’s third largest economy, would be too big for euro zone authorities to bail out and EU leaders have been pressing Berlusconi for rapid and far-reaching reforms to cut the deficit and boost growth.
Euro zone inflation was surprisingly high at 3.0 percent for a second straight month in October, the EU announced on Monday, prompting economists to postpone their bets for a central bank rate cut until December. Efforts to woo China to offer the euro zone a lifeline will dominate the G20 Summit and leave Beijing holding the cards as world leaders try to restore market confidence. Despite denials from European officials that they have lost their negotiating position and promises that China would not be offered concessions, Europe’s bid to have Beijing contribute to a special purpose investment vehicle (SPIV) to leverage its EFSF bailout fund has put the ball in China’s court for France’s final G20 gathering.
Investors were so concerned that euro zone leaders would not reach agreement on solving the debt crisis in October that they cut equity holdings to the second lowest level in 12 months, Reuters polls showed on Monday. Reuters surveys of 56 leading investment houses in the United States, Japan, Europe ex UK and Britain showed the average stock holding in a balanced portfolio was 49.5 percent, down from 50.5 percent in September.
Bonds rose to 35.9 percent from 34.6 percent while cash slipped to 5.9 percent, still the second highest level of the past 12 months after September’s 6.3 percent. The rise in bond allocations reflected some of the fear of investors, but it was by now means even. Global allocations to U.S. debt jumped to 40.3 percent from 35.2 percent and holdings of Japanese bonds ticked up slightly. But euro zone debt holdings fell to 27.4 percent from 29.1 percent – the fourth month in a row they have been cut.
Markets
The SPX closed down 2.47%, the STOXX closed down 3.13%, the FTSE closed down 2.77%, the CAC down 3.16% and the DAX closed down 3.23%. The equity index future for the FTSE suggests an open of circa 1% down, the SPX equity future was down circa 0.3% at 23:00 GMT on Monday.
Economic calendar releases thar may affect market sentiment in the London and European morning sessions.
07:00 UK – Nationwide House Prices October
09:30 UK – PMI Manufacturing October
09:30 UK – GDP Q3
09:30 UK – Index of Services August
The UK GDP figures will prove to be the most effective. Analysts surveyed by Bloomberg gave a median quarterly prediction of 0.30%, from the last quarter’s 0.1%. Year-on-year, the survey predicted 0.4%, from the previous release of 0.6%. However, there is a strong possibility of a negative figure taking the market by surprise.
Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/the-oecd-pricks-the-eurozone-bubble-as-200-million-are-feared-unemployed/
Daily Market Roundup by FXCC - Beware Geeks Bearing Gifts
Despite the efforts of the greatest economic minds available to the European ministers the very best the forecasters, quants, policy ‘makers and shakers’ could devise during the tortured weeks of ‘Merkozy’ meetings was leveraging the initial bailout fund by five times its value to then (fingers crossed) sell the Eurobond paper to Japan, Asia and any BRICS nation that would be prepared to buy into the plan on the basis that if they didn’t their largest market might implode.
Having had time to absorb the overall impact of the provisional decisions reached last week the Greek prime minister has finally suggested that the Greek people should have the final say on an austerity package that will cripple their country for decades, far beyond the negative 5.5% growth predicted for 2012. The secular bear market rally experienced last week was severely over cooked, the market literally bought hope, investors didn’t buy the rumour neither are they selling the news this morning. The words “orderly default” and “contagion” will now be constantly re-visited and regurgitated over the coming months with the referendum scheduled for January 2012.
Dora Bakoyanni, former foreign minister and leader of the small centre-right Democratic Alliance party.
I never expected Papandreou to take such a dangerous and frivolous decision. All the international media will say that Greece itself is putting the EU deal at risk.
Rainer Bruederle, a leader in German Chancellor Angela Merkel’s centre-right coalition said on Tuesday he was “irritated” by Papandreou’s announcement, the parliamentary floor leader for the Free Democrats said;
This sounds to me like someone is trying to wriggle out of what was agreed – a strange thing to do. One can only do one thing: make the preparations for the eventuality that there is a state insolvency in Greece and if it doesn’t fulfill the agreements, then the point will have been reached where the money is turned off.
Once again the mainstream media will point the finger at Greece when the elephant in that corner of the Eurozone room is Italy whose bond costs are dangerously approaching levels at which most commentators would suggest are unsustainable. The key inflection point for Italy’s bonds could be regarded as 7.0%, if that figure is breached then then Italy’s solvency may begin to be brought into question.
On Monday the five-year Italian yield rose 16 basis points, or 0.16 percentage point, to 5.91 percent at 4:04 p.m. London time after climbing to 5.99 percent, the highest since September 1997. The 4.75 percent note due in September 2016 fell 0.635, or 6.35 euros per 1,000-euro ($1,396) face amount, to 95.490. Two-year yields increased as much as 33 basis points to 5.08 percent, the most since 2000.
Amongst the banks who have been hit due to the poor sentiment prevalent this mornings is Credit Suisse. Credit Suisse Group AG, the second largest Swiss bank, said it will cut about 1,500 more jobs and reorganise its securities unit after the division reported its first quarterly loss since 2008. Credit Suisse fell the most in almost three years in Zurich trading as third-quarter net income of 683 million Swiss francs ($776 million) missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg. Credit Suisse dropped as much as 10 percent, the biggest intraday decline since December 2008, and was down 9.7 percent at 23.11 francs as of 9:12 a.m. in Zurich. The stock is down 37 percent this year, compared with a 30 percent decline at larger rival UBS AG and a 27 percent fall in the 46-company Bloomberg Europe Banks and Financial Services Index.
China’s largest manufacturers produced at their slowest pace in October since early 2009, purchasing managers’ data shows, signs of an improvement at smaller firms and a sharp fall in factory-gate prices suggest no swift change to interest rates. China’s official purchasing managers’ index (PMI) fell to 50.4 in October from 51.2 in September, negating expectations of a rise. The National Bureau of Statistics suggested the drop on weak European and U.S. economies.
Australia’s central bank has cut interest rates for the first time since 2009. The Reserve Bank of Australia this morning reduced its key lending rate to 4.5 percent from 4.75 percent, saying Europe’s woes are starting to hit Asian trade. RBA Governor Glenn Stevens indicated that easing inflation had allowed the nation’s first rate cut since April 2009. The local currency and government bond yields fell.
Markets
The Nikkei closed down 1.77%, the Hang Seng closed down 2.49% and the CSI closed up 0.08%. the ASX 200 closed down 1.52% and the SET is down 1.92%. European markets have reacted badly to Greece’s suggestion of a referendum. The euro has fallen for a third day against the dollar and German government bonds have jumped. Commodities slid as China’s manufacturing growth cooled. The MSCI All Country World Index dropped 1.3 percent as of 8:02 a.m. Standard & Poor’s 500 Index futures lost 1.4 percent. Australia’s dollar slumped 1.3 percent after the central bank cut interest rates. German 10-year bund yields decreased 17 basis points to 1.86 percent. Oil retreated for a third day. Copper fell 1.7 percent.
European bourses have been hit hard in the early part of the morning trading session, at 9.14am GMT the STOXX is down 3.35%, the FTSE is down 2.06%, the CAC 3.07% and the DAX is down 3.36%. the MIB is down 3.55%. The ASE, Athens main stock exchange index is down 5.87 %, its year on year fall is now 46.25%.
Economic calendar releases that may affect the afternoon sessions’ sentiment
14:00 US – Construction Spending September
14:00 US – ISM Manufacturing October
A survey of analysts compiled by Bloomberg showed a predicted figure of 52 for manufacturing from last month’s figure of 51.6.
Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/beware-geeks-bearing-gifts/
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