We covered how the austerity measures are beginning to bite hard in Greece during our tale of two cities forex market commentary of last week. The youth unemployment problem is dire, adoption and care agencies are at breaking point as desperate families are giving up their children for adoption but these charities (having had their funding cut) are struggling to cope.
Civil servants are being laid off in huge numbers, the country’s doctors are only treating emergencies and basics such as school books are in short supply. But the industrial military complex status quo apparently has to be maintained at all cost. Will ordinary Greeks delight in learning that a significant proportion of the bail out cash, that will cost so much to pay back, is being spent on honouring military hardware purchase contracts?
The shopping list is impressive and having committed to buy this hardware over the past two years, as the Greek economy headed into a death spiral tailspin, the newly installed technocratic govt. in Greece have no intention of ‘stiffing’ the arms suppliers; USA Apache helicopters, French frigates, German submarines are all on the list.
The final cost is proving difficult to establish, however, tens of billions would be a conservative estimate. That’s quite a sizeable chunk of each circa €80 bl tranche of IMF/ECB/Troika funding. Who’d have thought that, during all that tense and hard fought negotiation in the final six months of 2011, part of the remit of the political elite was to ensure that enough bailout cash was secured in order to ensure that the military suppliers continued to be enriched.
Market Overview
French banks are likely to be in the spotlight after an internal memo obtained by Reuters on Monday showed that Societe Generale is forecasting a “significant” drop in 2012 investment-bank revenue compared with 2011, weighed by higher funding costs and efforts to slash its balance sheet. As a consequence we can expect the thorny subject of specific French banking credit downgrades to rear its head once again over the coming days and weeks which inevitably leads to the question of a French downgrade from AAA, a subject that’s disappeared from mainstream discussion as the Merkozy show hits road once again.
The Shanghai Composite Index closed at its biggest three-day gain in a year, amid speculation that policy makers may act to spur growth in the world’s second-largest economy. Commodities rose, while the euro was little changed versus the dollar before European leaders continue their meeting to discuss the debt crisis.
The MSCI All-Country World Index rose 0.6 percent at 9 a.m. in London. The Stoxx Europe 600 Index climbed 0.9 percent and Standard & Poor’s 500 Index futures increased 0.6 percent. The Shanghai Composite Index jumped 2.7 percent, bringing the rise to 6.4 percent. The euro bought $1.2762. Oil climbed 1.3 percent to $102.59 a barrel and gold and copper also rose.
Market snapshot at 9:30 am GMT (UK time)
Asian and Pacific Markets
The Nikkei closed up 0.38%, the Hang Seng closed up 0.73% and the CSI closed up 3.33%. The ASX 200 closed up 1.14%. The Shanghai Composite Index rose to the biggest three-day gain in a year due to speculation that Chinese policy makers may act to spur growth in the world’s second-largest economy after disappointing import figures.
European bourse indices have risen sharply in the first part of the morning session. The STOXX 50 is up 1. 26%, the UK FTSE is up 0.89%, the CAC is up 1.30%, the DAX is up 1. 24% and the MIB is up 2.10%. ICE Brent crude is up $0.83 a barrel at $113.31 and Comex gold is up $16 an ounce at $1624.1. The SPX equity index future is currently priced up 0.78%.
Sterling declined versus most of its 16 major counterparts after the British Chamber of Commerce said more Bank of England stimulus may not be enough to revive U.K. economic growth. The pound fell 0.5 percent to A$1.5021 at 8:30 a.m. London time after sliding to $1.4994, the lowest level since Sept. 8. The U.K. currency was little changed at 82.58 pence per euro, and traded unchanged at $1.5458.
Economic calendar data releases that could affect sentiment in the afternoon session
Tuesday 10 January
15:00 US – Wholesale Inventories November
Wholesale sales and inventories data does not usually have a dramatic or immediate effect on the bond or stock market, but data at this level, as opposed to at the consumer level, does offer an insight into the economy and can offer a foretaste of future consumer trends and comparing changes in the Inventories/Sales Ratio can provide useful indications of changes in the economy.
For example, a dropping Inventories/Sales Ratio caused by, say, unexpectedly high sales figures, suggests that manufacturers will have to increase production levels at some point if product shortages are to be avoided. Conversely, an increasing Inventories/Sales Ratio points toward a requirement for a slow down in production in order to help ship out unplanned build-ups of inventory
A Bloomberg survey of economists gave a median forecast for an increase of +0.50%, weaker than the previous figure of +1.60%.
Market Commentary by FXCC - USA Consumer Credit Reaches Ten Year High
USA Consumer Credit Reaches Ten Year High As Savings Rate Continues To Languish
The news released yesterday that USA citizens had gorged on a credit binge (the likes of which had not been seen for ten years) took many market commentators and publishers by surprise. Whilst there is evidence that a degree of optimism is returning at grass roots level and consequently to the markets could the numbers really be that ‘good’? That’s if we assume credit binges are a good phenomena which recent evidence suggests otherwise.
The main indices in the USA didn’t get too carried away regarding the news, the Dow only finishing up 33 points on the day and there are suspicions that the U.S. consumer felt like one last end of days bacchanalian adventure before the inevitable contraction. But the credit was there and the consumers dutifully did their duty. It’s the American way, they didn’t need to be asked twice, like a dying man in a desert they simply lapped it up ferociously..
Consumer borrowing in the U.S. surged in November by the most in 10 years. Credit increased by $20.4 billion, the biggest jump since November 2001, to $2.48 trillion, Federal Reserve figures showed. The advance was almost twice as big as the highest forecast of 31 economists surveyed by Bloomberg News.
The median forecast in the Bloomberg survey projected a $7 billion gain. Estimates ranged from a $6.4 billion drop to an increase of $11.6 billion. The level of borrowing was the highest since September 2009. Revolving debt, which includes credit cards, climbed in November by $5.6 billion, the biggest advance since March 2008, according to the Fed’s statistics.
Non-revolving debt, including educational loans and loans for autos and mobile homes, increased by $14.8 billion, the most since February 2005, the report showed. The Fed’s report doesn’t track debt secured by real estate, such as home equity lines of credit.
Auto purchases ran at a 13.59 million annual rate in November, the highest level since August 2009, according to industry statistics from Ward’s Information Products. Cars sold at a 13.5 million rate last month. General Motors Co., Ford Motor Co., Chrysler Group LLC reported December vehicle sales that beat analysts’ estimates, capping the U.S. auto industry’s best year since 2008.
Whilst not wishing to pour too much cold water on the report does it really stand up to closer scrutiny? Firstly the USA govt rescued it’s own auto industry, several leading brands would have disappeared, or been bought up on the cheap by foreign investors, if the U.S. govt. hadn’t have stepped in to rescue, for example, Ford and General Motors in 2008-2009.
That’s why any reports regarding increased profitability and solvency of these two behemoths should be take with a pinch of salt. The U.S. govt is now, together with these manufacturers, engaged in promoting the most generous environment folk have been able to purchase cars in during living memory. It’s not just the price but the finance terms. It’s sub prime lending on steroids.
The USA manufacturers see very little demand for their cars in emerging markets vis a vis Honda, Toyota, Nissan, BMW and Mercedes, therefore they’ve realised they have to cannibalise their domestic market, strip its flesh bare and then suck on the marrow. They’ll avoid an inventory build up of autos at any cost, even to the point of giving them away. Whilst the generous finance terms currently on offer haven’t reached that stage of giving cars away if it comes to it the manufacturers, egged on my a govt only ten months from re-election, will be actively encouraged to offer insane inducements in order to shift the metal.
However, there’s also another phenomena that commentators missed yesterday that links into the use of credit, a vast swathe of Americans, those most likely to want or need a new car, have virtually no savings, nada, zilch.. The phrase “most folk are only two wage packets from the gutter” is deeply embedded in the average American’s psyche, now it’s only one wage packet and in real and or inflation adjusted terms that wage has been static for over a decade..
The long decline of the savings rate in the United States has been largely ignored, yet every revisit of the data brings new cause for alarm. Hedgeye provided its clients a chart showing savings as a percentage of GDP. In the 1970s and 1980s savings were in the 5 – 7% range. In the decades since, personal savings have declined to the 1-3% range up to 2011.
At one point in 2009 it reached a negative print. In early 2009, savings in aggregate as a percentage of GDP actually went negative for the first time since 1952. The savings shortfall widened to negative 2.3 percent in the first three quarters of 2009 from negative 0.2 percent in all of 2008. Before 2008, there hadn’t been a full-year drop since 1934, the last year of a four-year period when rates were below zero.
Current estimates suggest that savings rates have increased sharply since the negative lows, estimates put the range at anywhere between 3.4 – 4.5%, however, there’s been a massive withdrawal of small holders of private equity from the markets in 2011, that withdrawal will sit in banks..temporarily.
But even at an estimate of 4% that’s still way short of the longer term savings trend of circa 7% and this at a time when the average cost of the thirty year USA mortgage is at its lowest. Also the current data of savings doesn’t take into consideration the vast numbers of Americans who actually have no savings, 24% of Americans have no ‘emergency’ savings and one in three adults have no savings whatsoever. Twenty-seven percent of Americans have no personal savings and 34% have no retirement savings, according to results of a Harris Poll in 2011. Just 18 months ago those numbers were moderately lower, at 22% and 30%, respectively.
When it comes to personal savings, the age group least likely to have any is Echo Boomers (18-33), with 33% having no personal savings. Gen X fares little better with 32% having no personal savings. Only 14% of Matures (65 and older) lack personal savings.
Echo Boomers’ retirement saving habits are even worse than their personal saving habits. Fifty-three percent of Echo Boomers have no retirement savings, with Gen X the next most likely to say this at a far lower 32% response rate.
After factoring in inflation and post-retirement medical costs, Aon Hewitt projects Generation Y workers will need to save 18.7 times their final pay in retirement resources: including Social Security, employer-provided defined benefit and defined contribution plans and employee savings; to maintain their current standard of living in retirement (this assumes retiring at age 65; more will be needed to retire earlier). Yet Aon Hewitt’s research shows that employees of this generation who work a full career are on track to accumulate just 12.4 times their final pay, leaving a shortfall of 6.3 times pay, a third of their total needs…
You have to wonder if Americans will regret their frantic buying of autos in 2011, after all if you lose your job, have no savings and no retirement income you can’t sleep in a car in your later years..can you?
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