European leaders will this week try to deliver new fiscal rules and cut Greece’s debt burden hoping investors ignore Standard & Poor’s euro-region downgrades. Initially European markets fell on opening as did the Euro which have both recovered to be hovering around positive territory. The thought could be that the French downgrade in particular was already priced into market expectations. The euro dipped 0.2 percent to $1.2657 in early trade, close to its 17-month low of $1.2624 hit last week, and well below the intraday high of $1.2879 seen on Friday. Sentiment had improved last week after Madrid and Rome found investor support for their first debt sales of 2012.
Italy takes a break from raising debt this week, France will attempt to sell up to 8 billion euros of debt and Spain comes to the market with sales of 2016, 2019 and 2022 bonds. Worries that European financial troubles would be a drag on global growth and affect the appetite for commodities weighed on industrial metals such as copper. France will auction as much as 8.7 billion euros of bills today, followed by the European Financial Stability Facility’s 1.5 billion-euro sale tomorrow.
Cash Hoarding
The amount of ‘cash’ being placed overnight with the European Central Bank hit another record high this morning approaching half a trillion euros. The ECB reported this morning that it parked €493.2bn in overnight deposits from European banks on Friday evening. The amount being borrowed through its overnight loan facility also increased, to €2.38bn. The overnight deposits figure has been hitting record levels in recent weeks, ever since the ECB pumped circa €500bn of cheap loans into the system.
UK Back In Recession
The Ernst & Young Item Club and the Centre for Economics and Business Research (CEBR) both believe that gross domestic product (GDP) shrank in the final quarter of last year and will fall again in the first three months of 2012. A recession is defined as two consecutive quarters of contracting output. The prospects for the economy in the UK are closely tied to the fate of the eurozone, according to both reports, which is hitting the export trade which is crucial to the country’s recovery.
Professor Peter Spencer, chief economic adviser to the Ernst & Young Item Club,
Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement. But it’s not going to be a repeat of 2009 – we are not going to see a serious double dip.
Greece And Haircuts
Greece’s prime minister insists that Greece will not be forced out of the euro and back to the drachma. Lucas Papademos told CNBC quitting the eurozone “is really not an option.” The unelected leader also claimed that negotiations with Greece’s creditors is going well:
Our objective is to complete the two processes and also to fulfil our commitments that have been made in the past and we are confident that we’re going to achieve this. Some further reflection is necessary on how to put all the elements together. So as you know, there is a little pause in these discussions. But I’m confident that they will continue and we will reach an agreement that is mutually acceptable in time.
Market Overview
The euro fell earlier as much as 0.5 percent to 97.04 yen, the lowest since December 2000. Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week over the size of investor losses in a proposed debt swap, raising the threat of default.
The MSCI Asia Pacific Index lost 1.2 percent, set for the biggest fall since Dec. 19. The index has climbed 7.5 percent since a two-year low in October and capped four weeks of gains on Jan. 13, the longest stretch in a year.
European stocks and the euro rebounded, while oil and copper climbed before a French bond auction. Asian equities fell the most in a month after Standard & Poor’s stripped France of its top credit rating and cut eight other euro-zone nations.
The Stoxx Europe 600 Index fell less than 0.1 percent as of 8:30 a.m. London,time, reducing its earlier decline of 0.5 percent. The euro was little changed at $1.2673 following a previous drop of 0.4 percent. Standard & Poor’s 500 Index futures sank 0.3 percent. French 10-year government bond yields rose four basis points to 3.12 percent. Copper, gold and oil advanced by up to 0.2 percent.
Market snapshot at 9:40 am GMT (UK time)
Asian and Pacific markets mostly fell in the overnight and early morning session. The Nikkei closed down 1.43%, the Hang Seng closed down 1.0% and the CSI closed down 2.03% – now down 24.13% year on year. The ASX 200 closed down 1.16%. European bourse indices have recovered their sharp opening losses moving into positive territory but have now fallen back slightly. The STOXX 50 is flat, the FTSE is down 0.14%, the CAC is down 0.13%, the DAX is up 0.24%. The MIB is up 0.30% down 30.56% year on year. Ice Brent crude is up $0.64 at $111.26 and Comex gold is up $11.80 an ounce. The SPX equity index future is down 0.36% although USA markets are closed for the annual Martin Luther King holiday.
There are no significant economic data releases to be mindful of in the afternoon session.
Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/is-the-uk-back-in-recession/
Market Commentary by FXCC - The UK Is Back In The Recession It Never Came Out Of
The UK Is Back In The Recession It Never Came Out Of. In Reality The USA Is No Different
The definition of recessions has altered over the years and varies from country to country and continent to continent. In the UK A recession is defined as two consecutive periods of negative growth. In the USA the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions. The NBER defines an economic recession as:
a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
Almost universally, academics, economists, policy makers, and businesses defer to the determination by the NBER for the precise dating of a recession’s onset and end. In short if growth ‘goes negative’ in the USA then the country is in recession.
According to economists, since 1854, the U.S. has encountered 32 cycles of expansions and contractions, with an average of 17 months of contraction and 38 months of expansion. However, since 1980 there have been only eight periods of negative economic growth over one fiscal quarter or more, and four periods considered recessions.
USA recessions since 1980
July 1981 – November 1982: 14 months
July 1990 – March 1991: 8 months
March 2001 – November 2001: 8 months
December 2007 – June 2009: 18 months
For the past three recessions, the NBER decision has approximately conformed with the definition involving two consecutive quarters of decline. While the 2001 recession did not involve two consecutive quarters of decline, it was preceded by two quarters of alternating decline and weak growth. The US recession of 2007 ended in June, 2009 as the nation entered the current economic recovery.
The unemployment rate in the US grew to 8.5 percent in March 2009, and there were 5.1 million job losses until March 2009 since the recession began in December 2007. That was about five million more people unemployed compared to the year prior, which was the largest annual jump in the number of unemployed persons since the 1940s.
UK Recessions Since 1970
Mid 1970s recession 1973-5, 2 years (6 out of 9 Qtr). Took 14 quarters for GDP to recover to position at the start of recession after a ‘double dip’.
Early 1980s recession 1980- 1982, 2 years (6 – 7 Qtr). Unemployment rises 124% from 5.3% of the working population in Aug 1979 to 11.9% in 1984. Took 13 quarters for GDP to recover to that at the start of 1980. Took 18 quarters for GDP to recover to that at the start of recession.
Early 1990s recession 1990-2 1.25 years (5 Qtr). Peak budget deficit 8% of GDP. Unemployment rises 55% from 6.9% of the working population in 1990 to 10.7% in 1993. Took 13 quarters for GDP to recover to that at the start of recession.
Late 2000 recession, 1.5 years, 6 quarters. Output fell 0.5% in 2010 Q4. The unemployment rate initially rose to 8.1% (2.57m people) in August 2011, the highest level since 1994, this has subsequently been surpassed. As of October 2011, after 14 quarters, GDP is still 4% down from the peak at the start of recession.
How The Recovery Was ‘Bought’
The USA 2008/2009 recession figures illustrate just how stagnated the USA is and how little genuine ‘progress’ has been made. Despite all the hype and misdirection the reality is that the USA is still in recession. In March 2009 unemployment was 8.5%, today it’s 8.5%. By March 2009 5.1 million had lost their jobs, estimates now suggest it’s circa 9.0 million net job losses from 2007-2012. Despite efforts to spin it otherwise there is no such phenomena as a ‘job-less recovery’, the USA is still mired in the trench of a deep recession. The USA would need to create circa 400,000 jobs per month over a sustained period of circa three years, in order to get back to pre 2007 levels of employment.
The facts and figures, relating to the bailouts, rescues and quantitative easing programmes in the USA, have been drip fed or force fed due to Bloomberg’s intervention through the courts. Moving aside those figures the debt ceiling hasn’t been disguised. The received wisdom is that for every two dollars of growth the USA has ‘bought’ eight dollars of debt. Leaving aside the real damage of purchasing power this has caused, due to carefully disguised inflation, the evidence of the debt ceiling is there in black and white as to how the recovery is in fact an illusion.
The debt ceiling has been raised by over 40% since 2008. Estimates suggest that a massive $5.2 trillion has been raised in order to effect a ‘recovery’, a recovery that still sees the most flattering (U3) measurement of unemployment back where it started, at 8.5%. Despite all the bailouts and rescues (secretive or published) the ‘tarp’ programmes and debt ceiling raises the USA is flat, ergo it never came out of recession, a duplicitous public relations exercise has been spun.
The UK comparison is remarkably similar, as is Europe’s. The UK unemployment rate is at 8.5%, yet the unemployed numbers are at their highest levels in seventeen years and according to a govt survey there are 3.9 million households with no ‘wage earner’. There are circa 4.8 ml UK adults on out of work benefits and 400,000 jobs available at any given time. And with employment of circa 20 million this job availability represents a normal statistical rate of ‘churn’, 2%. Similar to the USA, but on a smaller scale, both UK administrations attempted to ‘buy their way out’, leaving the UK with the staggering combined GDP v debt ratio of over 900%, the worst in Europe which (as an aside) is why many commentators and European politicians question the UK’s AAA rating.
The reality for both the UK and the USA is that they never left the recession, and as many suggested (after the event horizon of 2008) in attempting to avoid a recession the powers that be destined both countries for a depression like state not witnessed since the 1930′s.
If I can borrow an American phrase the UK, European and USA political leaders need to ‘fess up’ to their public with regards to the current situation. Whilst short term re-election is their goal the fact remains that all areas have remained in a recession ‘range’ for four years. Despite the largest infusion of money creation witnessed since the modern day banking system was introduced ‘growth’, as measured by the fundamentals most use; jobs, luxuries, modest savings, hasn’t occurred.
If we strip away the overall rescue packages and ignore the dubious benefits thereof, the USA is now in arguably its 48 month of recession, the UK and Europe are in their 35-37th, making this recession the worst in modern ‘recorded’ times. All three administrations might want to consider having an honest and frank debate with their prospective electorates before the dislocation between reality and spin becomes as immeasurable as their conjured and misleading figures.
Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/the-uk-is-back-in-the-recession-it-never-came-out-of/
No comments:
Post a Comment