S&P 500 Rallies 12% From Brink of Bear Market as Index Approaching 1,220 The threat of a U.S. bear market is receding after the Standard & Poor’s 500 Index rallied the most in 31 months, leaving the gauge about 1 percent away from a level where two advances have stopped since August. A pundit said:
I’m not sure the world has changed that much in the last five or six days that 10 percent is really a reasonable change in the price of those risky assets.
Doubtful? Read on!
“THE COMPREHENSIVE PACKAGE” Slovakia will soon vote for the EFSF bailout fund (Slovakia Set to Approve European Bailout Fund). But as Ambrose Evans-Pritchard writes in the UK Telegraph:
The traumatic affair almost brought down the German government. It has in fact brought down the Slovak government. You can’t keep doing this. Democracies are not to be toyed with.
This political revolt matters a great deal because Europe will soon have to come back for more money and bigger bail-outs. The EFSF’s €440bn firepower – or €300bn after Greece, Ireland, and Portugal have taken their bites – is not enough. So even when the Slovaks fall on their sword, nothing will have been resolved.
A reluctant ECB will remain the only credible lender-of-last resort standing behind EMU, in breach of the Lisbon Treaty. Its actions already face a challenge at the European Court.
(German finance minister Wolfgang Schäuble) was forced to give categorical assurances to the Bundestag that the bail-out fund will not be enlarged further. Most people understood him to mean that it will not be “leveraged”. Pledges to parliaments have consequences. And as Mr Schäuble himself said, the September ruling by the German Constitutional Court has blocked off any possibility of eurobonds.
Just to be clear, the Merkel-Sarko “comprehensive package” is much easier said than done. How to backstop risky EU debt with the rich neighbor money?
Deutsche Bank Chief Executive Josef Ackermann:
On the one hand it [the debate] sends the signal that a [debt] haircut is more likely, and on the other because the resources for recapitalisation will surely not come from private investors, but rather states would ultimately have to raise the funds themselves, thereby worsening their debt levels. The key to the problem therefore lies with governments to restore trust in the solidity of state finances.
THE ECB IS AGAINST A BIGGER HAIRCUT: ECB warns against PSI role in bail-outs:
Such moves “may put at risk the financial stability of the currency area as a whole” and trigger a need for “large scale” bank recapitalisation steps, the ECB warned in its monthly bulletin on Thursday.
Its comments reflect the central bank’s alarm at eurozone leaders’ attempts to oblige banks to contribute more to Greece’s rescue – which it fears is sending a disastrous signal to investors in other crisis-hit eurozone countries. (…)
(The ECB) said it has “strongly advised against all concepts that are not purely voluntary or that have elements of compulsion, and has called for the avoidance of any credit events and selective default or default.”
It adds: “All euro area governments need to demonstrated their inflexible determination to fully honour their own individual sovereign signature, which is a decisive element in ensuring financial stability in the euro area as a whole.”
I HOPE YOUR NOT SURPRISED! Job Openings Fell in August Given the summer political brawl, this is not surprising. The number of positions waiting to be filled dropped by 157,000 (4.9%) to 3.06 million, from a downwardly revised 3.21 million in July. The number of private sector openings fell 5.1%. Hiring increased by 38,000 to 4.01 million. Employers discharged 1.66 million workers in August, down from 1.69 million in July. There were more than four people vying for every opening, up from about two when the last recession began in December 2007. (Chart from Haver Analytics)
“SELF-CONFIDENCE IS THE FIRST REQUISITE TO GREAT UNDERTAKINGS” (Samuel Johnson). Not much of that in America these days. Consumer confidence is in the pits, small businesses confidence is in the pits, Fed officials are generally downbeat about the economy (even admitting “significant” downside risks to their outlook), and now CEO confidence is in the pits. (Chart from BMO Capital).
The Conference Board Measure of CEO Confidence™, which had declined in the second quarter, fell further in the third quarter. The Measure now stands at 42, down from 55 last quarter (a reading of more than 50 points reflects more positive than negative responses).
CEOs’ appraisal of current economic conditions turned even more pessimistic, with only 11 percent saying conditions are better compared to six months ago, down from 33 percent last quarter. In assessing their own industries, business leaders were also considerably more pessimistic. Now, about 19 percent say conditions have improved, compared with 40 percent in the second quarter of 2011.
CEOs’ optimism about the short-term outlook also deteriorated sharply. Currently, about 19 percent of business leaders anticipate an improvement in economic conditions over the next six months, down from 43 percent in the second quarter. Expectations for their own industries are also quite negative, with approximately 22 percent of CEOs expecting conditions to improve in the months ahead, down from 44 percent last quarter.
(Survey results were fielded from mid-August to mid-September)
COUNT ONE MORE PESSIMIST: Pimco’s Gross makes U-turn on Treasuries Fund manager lays big bet on lower long-term rates.
I CAN’T GET NO … Satisfaction Remains Low, Economic Concerns High
In November 1979, 19% of Americans were satisfied with the way things were going in the United States, the last Gallup reading before Jimmy Carter’s defeat in 1980. Also, in August 1992, 22% were satisfied prior to George H.W. Bush’s unsuccessful re-election bid.
Satisfaction levels were higher when Ronald Reagan (48% in September/October 1984), Bill Clinton (39% in October 1996), and George W. Bush (44% in October 2004) all won re-election.
13 months to go, Mr. President!
France’s core inflation rate was unchanged in September and is up 1.1% YoY. The harmonized CPI, comparable to other Eurozone inflation rates, was also unchanged but is up 2.4% YoY. German harmonized inflation was +0.1% MoM and 2.9% YoY. Ex-energy -0.1% and +1.5%.
Carrefour Cuts Profit Target The WSJ: French retail giant Carrefour cut its full- year profit target for a second time in a few months, battered by see-sawing on its core strategy and increasing worries about consumer spending. Consumer confidence has weakened in Carrefour’s home market, a trend that also impacted competitors such as Groupe Casino SA, which cited a slow-down in sales of nonfood items in its hypermarkets. Carrefour is present in countries such as Spain, Greece and Italy which are suffering from the sovereign-debt crisis.
And if you doubt the big slowdown in China,
The performance in China was blighted by rocketing inflation which has slowed consumption, Mr. Sivignon said. Sales increased by 3.1%, but Carrefour witnessed a sharp drop of 11% in nonfood sales.
WALMART CEO MIKE DUKE said at yesterday’s annual meeting:
We don’t have a staff of economists but we have over 200m customers around the world to get perspective from. I can’t tell you that I see it getting better.
Turkey Revises Growth Forecast Mr. Babacan, the ruling AK-party’s most senior economic policy maker, upgraded Turkey’s growth forecast this year to 7.5% from 4.5% but lowered the government’s 2012 prediction to 4% from a previous expectation of 5%. Turkey’s ballooning current account will hit 9.4% of gross domestic product this year and ease only moderately to 8% next.
Greece Budget Deficit Widens 15% Greece’s budget deficit for the first nine months of the year widened 15.1% from a year earlier to $26.05 billion, the Finance Ministry said .
Berlusconi Calls for Confidence Vote Mr. Burlesquoni, who knows something about rituals, said
Financial markets are too volatile for Italian political rituals.
He also said that if his government does fall, the country will need to hold early elections.
CANADIAN ECONOMY LOOKS OK: Total hours worked declined 0.3% decline in Canada in September. But, as BMO Capital notes,
the bigger picture is that hours worked popped at a 4.7% a.r. for all of Q3,
and are still up at a 2.7% clip in the past six months. While not perfectly in synch with real GDP, the hours worked data are far from sending any serious warning signals about the broader economy. In contrast, the deep dive in late 2008 did give an excellent heads up to the trauma ahead for GDP (as the figures are released almost two months earlier than GDP).
CHINESE GHOSTS China’s debt spree returns to haunt Bail-outs are coming thick and fast in China. In less than a week the authorities have had to step in to prop up the banks, rescue the insolvent railway system and save the near bankrupt city of Wenzhou from a spectacular debt crash. (By UK Telegraph’s Ambrose Evans-Pritchard)
Add the rising problem with shadow banks“:
With the new government crackdown on underground lending, analysts say there is now a risk that this source of credit could dry up, bringing down even thriving companies, with ripple effects on the formal banking system.
Shadow finance in China has been around for years, but the recent surge in such lending is unprecedented, analysts say. The lightly regulated underground lenders pool money from property developers, coal miners or other cash-rich individuals hunting for higher returns.
A significant portion of shadow lenders’ funds comes from the banks themselves. Shadow lending has become sizable enough to challenge the government’s tight control of credit and interest rates, two critical tools for steering the world’s No. 2 economy.
How big is the problem? Huge!
The IMF calculates that the stock of domestic loans, including those both on and off banks’ books, reached 173% of China’s gross domestic product as of the end of June.
In an indication of how much lending isn’t reflected on banks’ books, credit extended through banks, but moved off their balance sheets, stands at roughly 12 trillion yuan ($1.9 trillion), UBS economists say. Total loans outstanding , both on and off banks’ balances sheets, stood at 55.7 trillion yuan as of August.
How does that impact monetary policy?
Dragonomics, a Beijing-based research and advisory firm, estimates that shadow finance accounted for more than 40% of new loans issued in the first half of this year. Much of this kind of informal lending actually is conducted by, or through, the major state banks.
The woes of the private sector also raise fresh doubts about China’s ability to use bank lending to pump up the economy, as it did during the global financial crisis two years ago. “We think the bigger risks are credit withdrawal in both the formal and informal lending market and contagion,” Wang Tao, China economist at UBS, said in a recent note.
How do you feel now?
China Trade Surplus Narrows China’s trade surplus narrowed in September to $14.51 billion from $17.76 billion in August, with exports +17.1%, down from +24.5% in August and the slowest gain in 7 months. Exports to the EU rose only 9.8%. Imports rose 20.9%, a big slowdown from August’s 30.2% increase. Domestic demand is waning fast while China’s appetite for natural resources may be declining. Copper imports during the first nine months of this year are down 18 per cent compared with a year earlier, although they rose 3% YoY in September. See below.
COPPER: China has for the first time revealed the estimated size of its copper inventories, shedding light on one of the commodity market’s biggest mysteries. Chinese copper inventories stood at 1.9m tonnes at the end of 2010, more than the US consumes in a year, according to estimates by the state-backed China Non-Ferrous Metals Industry Association. The estimate is significantly higher than the 1.0m-1.5m tonnes range that foreign executives have assumed in the past.
The estimates, which were announced at a recent meeting of the International Copper Study Group but have not been made public, imply that real Chinese copper demand may have been lower than thought in recent years. (FT)
ASIAN CASH LOOKING FOR HOME: Yen’s Rise Piques Appetite for Deals
The head of Japan Bank for International Cooperation signaled that the country’s cash-rich firms are ready to take advantage of the stronger yen to pursue overseas buyouts, saying the state-backed lender hopes to finance its first deal under a special government facility by the end of the year.
CHINA is also clearly on the hunt for FDIs with over $3T in foreign reserves destined to lose value as the Yuan keeps appreciating. China ranked 4th in FDI outflows in 2010 ($68B), slightly exceeding Japan.
BRAZIL: The first wave of work stoppages under President Dilma Rousseff has disrupted mail and banking services as unions demand wage hikes above inflation. Workers at oil giant Petrobras want some, too.
OIL: THE CHANGING OF THE GUARD
THIS AND THAT
A new generation takes to the barricades. They should pay more attention to the ballot box.
SEEN BEFORE AT A STOCK EXCHANGE NEAR YOU! The Guardian found evidence that the Journal had been channelling money through European companies in order to secretly buy thousands of copies of its own paper, misleading readers and advertisers about the Journal’s true circulation.