NEW$ & VIEW$ (30 JANUARY 2013)

Equities back in fashion, Eurozone woes continue, U.S. housing recovery, Chinese banks.

[image]Individual Investors Help Stock Surge

Small investors are jumping back into the stock market after abandoning it during the financial crisis, and their return is a big reason why the Dow is pushing toward an all-time high.

A total of $6.8 billion shifted into U.S. stock mutual funds in the first three weeks of 2013, according to mutual-fund tracker Lipper Inc. That is the biggest move since 2001.

“Looking at the news every day, there seems to be more of a consensus that things are getting better,” said Jack Stokinger, a 65-year-old retiree in Sudbury, Mass.image


Eurozone business confidence rises sharply
Survey adds to consensus that ‘growth prospects are brightening’


The European Commission’s “economic sentiment indicator” rose from 87.8 in December to 89.2 as managers predicted that the service and construction sectors would pick up across the 17 countries in the currency bloc. The strongest improvement in sentiment was registered in Germany, the Netherlands and Spain.

High five  Now, curb your enthusiasm and beware of headlines. First, I fail to see a “sharp” rise in sentiment. Only a small improvement. Second, sentiment remains very negative, just slightly less so.





Euro Zone’s Risk in Currency Wars  In the currency wars, being a noncombatant puts you squarely in the firing line. Take the euro, which hit a 14-month high against the dollar.

While the Federal Reserve and Bank of Japan are continuing to print money, leading to weaker currencies, the European Central Bank seems to be heading in the opposite direction. That points to more euro strength—at least until fears about euro-zone growth kick in.

Confused smile  “until fears about euro-zone growth kick in”! Read on:

Europe’s Car Woes Continue

Sales in Europe’s 19 largest auto markets this year likely will be lower than 13.5 million units, nearly a 20-year low.

Ford Chief Financial Officer Bob Shanks said a plan to cut 18% of its European capacity and close three plants by 2014 is on track and deeper cuts could come if necessary. (…)

Vice Chairman Stephen Girsky has said he is considering closing Opel’s Bochum, Germany, plant by 2015, nearly two years earlier than planned, unless executives and unions can wring out more costs. The plant employs about 3,000 workers.

Spanish Contraction Deepens  A new round of austerity further depressed Spain’s economy at the end of last year, official data showed

Spain’s National Statistics Institute, or INE, said Spanish gross domestic product fell 0.7% from the third quarter and 1.8% from the same period the previous year. It said output for whole of 2012 fell 1.37% from 2011.

The fourth-quarter INE data was slightly worse than a reading last week from the Spanish central bank, which estimated the economy had contracted by 0.6%. In the third quarter, Spanish GDP fell 0.3% from the second quarter.

Pointing up  According to data Tuesday from the INE, calendar-adjusted retail sales in December fell 10.7% from the same period a year earlier.

See also EUROZONE RETAIL PMIs REMAIN SOFT posted this a.m.

Poland’s Slowdown Fuels Worries

Polish economic growth slowed significantly last year, data showed, raising fears that the economy could soon be on the verge of contracting for the first time in more than two decades.

Hungary Cuts Rate as Expected

The Hungarian central bank cut the policy rate for the sixth consecutive month, ignoring the marked weakening of the forint against the euro and a warning from the IMF that room for easing is becoming limited.



Smile  Home Prices Jump From Year Earlier

U.S. home prices slipped in November, according to Standard & Poor’s Case-Shiller, with the decline attributed to seasonal weakness. (Chart below from Haver Analytics)

Home prices rose 5.5% in November from a year ago, the strongest increase since the peak of the housing boom in August 2006, according to the Standard & Poor’s/Case-Shiller index, released Tuesday.

The Case-Shiller report showed that 19 of the 20 metropolitan areas it tracks registered year-over-year price increases, with New York as the sole city to see prices fall.

Price gains have transformed housing from an economic drag to a key cog in the nation’s recovery. Through the third quarter of 2012, about 1.4 million homeowners saw their mortgages go from “underwater” to above, meaning that until recently their homes were worth less than they paid for them, according to real-estate research firm CoreLogic. Meantime, Federal Reserve data show real estate wealth increased $1.0 trillion through the first three quarters of 2012. (…)

A report on the home-ownership rate, released Tuesday by the Census Bureau, showed that the percentage of Americans who owned their home fell to 65.4% at the end of last year from 65.5% in the third quarter of 2012. The rate is down from its peak of 69.2% in 2005, but the decreases have slowed over the past year as the housing market has improved.


Though edging up for the first time in two years, the number of vacant homes (for sale only, year round) in the U.S. remained close to the historical trend. There are about 800,000 (or one-third) fewer
unoccupied homes on the market today than in 2008, which explains why house prices (Case-Shiller) rose 5.5% in 2012 after plunging 18.6% in 2008. (BMO Capital Markets)



Rising prices, low interest rates, limited visible supply, lower shadow inventory, rising rents, higher household formation = rising demand, rising prices, …

Emerging-Market Loan Outlook Perks Up

A survey to be released Wednesday by the Institute of International Finance, a global association of major banks, found that lending conditions in emerging economies perked up in recent months for the first time since the second quarter of 2011. Trade finance also is improving, a hopeful sign for the trade-dependent developing countries hit hard by the euro zone’s recession and financial turmoil. (…)

High five  Credit standards continued to tighten as well, particularly in Asia, as banks in China and other faster-growing economies maintain caution after sharp increases in property prices and trouble around the world.

China averts local government defaults
Banks extend maturities on loans on massive scale

Chinese banks have rolled over at least three-quarters of all loans to local governments that were due to mature by the end of 2012, an indication of the immense challenge facing China in working down its debt load. (…)

Banks extended at least Rmb3tn ($482bn) – and perhaps more – of the roughly Rmb4tn in loans plus interest that local governments were to have paid them by the end of last year, according to Financial Times calculations based on official data. (…)

With banks all but refusing to lend to local governments, cities and provinces have turned in increasing numbers to non-bank financial institutions, especially trust companies, and to the bond market to raise new debt.

“As the regulators have gotten more careful, they have been able to shift the risk to other sources of financing such as trusts and bonds,” Mr Peng said. “The risk has not gone away. It’s just been spread.”

Official public debt in China is extremely low, at less than 20 per cent of gross domestic product. But Mr Huang said Beijing might eventually have to pick up the tab for the local governments’ debt – about 25 per cent of GDP – since it had directed them to spend the money in the first place.

China’s leading index from NBS ticked up from 100.4 in November to 100.5 in December, the fourth consecutive month above 100. Not a great indicator, however.


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