NEW$ & VIEW$ (17 August 2012)

BETTING ON BANKERS AND POLITICIANS…
 
Fingers crossed  Investors welcome Merkel euro support      Wall Street approaches post-crisis high

Investors seem to be welcoming comments from German chancellor Angela Merkel in which she said the pledge by the European Central Bank to do whatever it takes to support the euro project was “completely in line” with the views of the bloc’s leaders.

High five  But from Bloomberg:

Asked about ECB chief Mario Draghi’s announcement that the central bank may return to sovereign bond-buying, Merkel said recent ECB decisions “have made it clear that the European Central Bank is counting on political action in the form of conditionality as the precondition for a positive development of the euro.”

And from the UK Telegraph, particularly on the seniority issue:

Finland prepares for a full-blown currency crisis 

Finland’s foreign minister warns that the country is preparing for a full-blown currency crisis as tensions in the eurozone mount and that it will not tolerate further bail-out creep

Mr Draghi said two weeks ago that the issue of seniority would be “addressed” as part of his twin-pronged plan for the ECB and ESM to buy bonds in concert. A number of EU leaders and officials claimed there had been a deal on the ESM’s seniority status at an EU summit in late June. Finland, Holland, and Germany all deny this.

“Our law passed this summer says the ESM has the same priority as the IMF. There was a clear understanding on this. Any change would require a new law passed by the whole parliament, and this would be very difficult because the risks would be much higher.”

Confused smile  To QE3 or Not To QE3, The Timing Is The Question  Credit Suisse economists Neal Soss and Dana Saporta are on a growing list of forecasters putting 50/50 odds on new action from the Federal Reserve at the central bank’s September 12-13 policy meeting. Plenty of analysts think the Fed will still launch a third round of quantitative easing in the coming months. But as they say in a note today, “the timing is the question.”

‘Hawks’ Weigh In Against Action

The Federal Reserve’s “hawks” are speaking out against the central bank taking additional action to spur the U.S. economy.

“I’m very dubious. There are diminishing returns to these actions,” Mr. Plosser said. “The evidence is not strong that somehow more [bond purchases] are going to help the unemployment rate move faster to where we’d like it to be. I don’t see that there’s much benefit.”

Dallas Fed President Richard Fisher, in an interview Thursday, expressed similar skepticism about the efficacy of Fed action. He said businesses already have ample access to cheap credit and are reluctant to borrow, hire and invest for other reasons, including concerns about regulation and taxes. With those uncertainties holding back business, he said, “I don’t see any virtue to further quantitative easing.”

The recent numbers have encouraged me in my argument that there is no urgent need” for additional action, Mr. Fisher said.

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Wal-Mart: ‘Paycheck’ Cycle Spreads  Wal-Mart’s second-quarter earnings rose 5.7% but it said many customers in the U.S. and abroad are living “paycheck-to-paycheck.” Overall revenue rose 4.5%.

Wal-Mart cautioned that it is now seeing in international markets the same “paycheck cycle” it saw in the U.S., where customers buy immediately after payday and then make smaller purchases as money runs out. The trend has become particularly pronounced in the U.K., where customers at Wal-Mart’s Asda grocery stores are “clearly stretched,” Chief Financial Officer Charles Holley said during a conference call with reporters Thursday morning.

David Rosenberg reminds us:

The spike in food and gas prices casts a cloud over the back-to-school shopping season – a big drain on cyclical spending right into the grocery bill and gas tank. The last time we had food and gas prices going up was like this was back in the first quarter of 2011 and it produced a zero percent GDP growth and a subsequent end to the post-QE2 rally.

Hence:

Auto  White House studying potential oil reserve release  The White House is “dusting off old plans” for a potential release of oil reserves to dampen rising gasoline prices and prevent high energy costs from undermining sanctions against Iran, a source with knowledge of the situation said.

“The driving force in this is both impact on the economy and impact on the Iran sanctions policy,” the source said, noting that Washington did not want rising oil prices to create a windfall for Iran while international sanctions were having an effective impact on its crude exports and revenues.

The United States has not yet held talks with international partners about a coordinated move. The source noted that Britain, France, Germany and other partner nations in the Paris-based International Energy Agency (IEA) were receptive to a potential release a few months ago when conditions were similar.

May I remind you about the U.S. elections in 2 months.

Singapore’s Export Growth Slows

Singapore’s export growth slowed in July, missing expectations, but shipments to China grew, offering some hope that demand from the world’s second-largest economy can help support Asia’s export engine.

The city-state’s exports rose 5.8% in July from a year earlier, slowing from June’s 6.6% increase. Singapore’s exports to mainland China grew 8.3% in July from a year earlier and 10.2% from June, even as exports to the U.S. and Europe fell on an on-year and a sequential basis.

Shipments to the U.S. fell 15.6% on year, worsening from June’s 2.2% decline. Exports to the European Union, Singapore’s biggest export destination, fell 1.5% in July from a year earlier, erasing the previous month’s 17.0% jump. 

In fellow Asian export powerhouse Taiwan, by contrast, the export outlook worsened Friday, with the government cutting its 2012 export forecast to a decline of 1.72%, reversing a forecast of 0.07% growth.

Euro-Region Exports Increase as German Expansion Limits Slump: Economy  Euro-area exports rose for a second month in June, driven by a surge in shipments from Germany, as companies tapped into emerging markets to offset declining demand at home.

Exports from the 17-nation currency bloc advanced a seasonally adjusted 2.4 percent from May, when they gained 0.4 percent.

German exports jumped 6.6 percent in June to 40.9 billion euros, while imports in Europe’s largest economy rose 1.5 percent. Shipments from Italy increased 2 percent in the period. France and Spain reported gains of 1 percent and 1.4 percent, respectively.

Exports to the U.S. rose a non-seasonally adjusted 11 percent in the first five months from a year earlier, while shipments to the U.K. increased 7 percent, today’s report showed. Exports to China and Russia surged 8 percent and 16 percent, respectively, while Japan shipments climbed 13 percent.

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China’s slowing economy sparks retail price war

China’s major appliance retailers have launched an online price war in a battle for market share as sales of household white goods and electronics products are blasted by what may be the country’s slowest year of economic growth since 1999.

Lightning  Spanish Banks’ Bad Loans Surge

Bad debts held by Spanish banks surged in June to its highest level on record and there were further outflow of deposits as the economy sank deeper into recession.

Nonperforming loans grew by €8.39 billion ($10.37 billion) in the month of June, to €164.36 billion, or 9.42% of total outstanding loans compared with 8.95% in May. The previous high for bad loans was recorded in February 1994, when they peaked at 9.2% of total loans.

The data also showed that deposits shrunk by 6.59% compared with a year earlier, the steepest annual decline on record.

imageRate Cuts on the Cards for Norway, Sweden

Sweden and Norway are riding out the economic crisis engulfing the rest of Europe, but their relatively steady economic growth and robust public finances come with a price: soaring currencies.

 

China’s Gold Demand Loses Glitter

China has broken its near-decade-long gold streak.

A 7% year-on-year decline in Chinese gold demand in the second quarter was the first quarterly drop since 2003. Indian consumption is down too. With the two countries accounting for around 50% of global demand, it helps explain why prices are 10% off their peak this year.

Pointing up  In the past, Chinese households had a choice between volatile equities, expensive property and gold to park their cash. Now investment options are broadening.

At the end of the second quarter, Fitch estimates around 10.4 trillion yuan ($1.6 trillion) was invested in wealth management products, equal to 11.5% of deposits in China’s banking system and up fivefold from 2008. Unlike gold, wealth management products often offer principal protection and guaranteed returns.

At the same time, the capital account is becoming more porous. Chinese households are already making investments in real estate everywhere from Hong Kong to New York.

Facebook tumble as lock-up expires  Price drops below $20 as trading ban on pre-IPO investors lifted

ISI’s Bijal Shah offers some hope to Facebook shareholders with this pretty interesting research piece:

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