Last week S&P downgraded credit ratings on several European countries. Today, the World Bank downgrades growth prospects of the World. While the economy is falling further, we have the central planners trying to ramp up asset prices. Things are getting rather interesting going forward. From the World Bank.
Developing countries should prepare for further downside risks, as Euro Area debt problems and weakening growth in several big emerging economies are dimming global growth prospects, says the World Bank in the newly-released Global Economic Prospects (GEP) 2012.
The Bank has lowered its growth forecast for 2012 to 5.4 percent for developing countries and 1.4 percent for high-income countries (-0.3 percent for the Euro Area), down from its June estimates of 6.2 and 2.7 percent (1.8 percent for the Euro Area), respectively. Global growth is now projected at 2.5 and 3.1 percent for 2012 and 2013, respectively.
Slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded an estimated 6.6 percent in 2011 (down from 12.4 percent in 2010), and are projected to rise by only 4.7 percent in 2012. Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19 percent respectively since peaks in early 2011. Declining commodity prices have contributed to an easing of headline inflation in most developing countries. Although international food prices eased in recent months, down 14 percent from their peak in February 2011, food security for the poorest, including in the Horn of Africa, remains a central concern.
“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President for Development Economics.
Developing countries should take steps to plan for a global economic meltdown on a par with 2008-09 if the European sovereign debt crisis escalates, the World Bank warned on Wednesday. The FT reports the World Bank is forecasting significantly slower global growth in 2012 than it expected last summer even if the eurozone muddles through its crisis,http://ftalphaville.ft.com/thecut/2012/01/18/838161/world-bank-warns-emerging-nations/
An administrator of MF Global’s UK arm has warned some customers of the failed futures broker might not see all their money returned. Richard Heis, joint special administrator at KPMG, told the FT that his firm had recovered some £594m or 82 per cent of customer funds held in so-called segregated accounts, http://ftalphaville.ft.com/thecut/2012/01/18/838301/warning-on-returns-from-mf-global-uk/
Central banks increased the amount of gold they lent for the first time in a decade in 2011, as they used their bullion reserves to help commercial banks raise US dollars, says the FT. Thomson Reuters GFMS, http://ftalphaville.ft.com/thecut/2012/01/18/838491/central-banks-increase-gold-lending/
Spain’s new government is pressing for Bankia, a group of savings banks listed last year, to seek a merger with another Spanish bank in a deal that would create the country’s largest domestic lender by assets if it materialised, http://ftalphaville.ft.com/thecut/2012/01/18/838561/spain-pushes-for-domestic-bankia-merger/
So, today China was the savior. Our thesis has been the market is about to make a false break out to the upside. Today might just be that day. With the total lack of volumes, this market is truly “sucking” people into “forced” longs. With everything grinding higher on extremely poor volumes, this action risks attracting rather weak longs. Many markets are reaching some rather big resistance levels.
Below some random charts from our screens.
So far, so right. With the SPX hitting 1300 today let’s review Mr Bulls view. Goldman’s O`Neill talks about the growth outlook for China and the impact on the global economy, the European sovereign debt turmoil and currency markets. Bloomberg video below.
The European mess risks taking focus from other important event. The Geopolitical space is still alive. From Stratfor on US, Iran and the Strait of Hormuz.
The United States reportedly sent a letter to Iran via multiple intermediaries last week warning Tehran that any attempt to close the Strait of Hormuz constituted a red line for Washington. The same week, a chemist associated with Iran’s nuclear program was killed in Tehran. In Ankara, Iranian parliamentary speaker Ali Larijani met with Turkish officials and has been floating hints of flexibility in negotiations over Iran’s nuclear program.
This week, a routine rotation of U.S. aircraft carriers is taking place in the Middle East, with the potential for three carrier strike groups to be on station in the U.S. Fifth Fleet’s area of operations and a fourth carrier strike group based in Japan about a week’s transit from the region. Next week, Gen. Michael Dempsey, chairman of the Joint Chiefs of Staff, will travel to Israel to meet with senior Israeli officials. And Iran is scheduling another set of war games in the Persian Gulf for February that will focus on the Islamic Revolutionary Guard Corps’ irregular tactics for closing the Strait of Hormuz.
The market is trading higher (mainly due to China), and looks to be breaking to the upside, although we lack volumes for these top attacks. Central planners are still in charge, and by several successful operations, they eventually make the market go where they want it to be.
Note how the LTRO has “fixed” the curve. Meanwhile the ECB deposits break the 500 billion barrier.
The ECB is being very innovative when it comes to how to “fix” the mess. From WSJ;
The European Central Bank is looking for a possible alternative to its current bond-buying program, the Securities Markets Program, or SMP, ECB Governing Council Member Ewald Nowotny told The Wall Street Journal on Monday.
“We are discussing other possible alternatives. This discussion is however not so far along that we could do without the SMP program,” said Mr. Nowotny. “That is a discussion that includes all monetary-policy instruments.” There is a certain amount of doubt concerning the SMP in the ECB’s council, Mr. Nowotny said.
“There is indeed a skepticism about the Securities Markets Program because there is the fear that the market imperfections that we want to correct could possibly appear in other places,” he said.
Full article here.
Copper for delivery in three months at the LME on Monday rose to $8,082 a tonne, up 6.9 per cent in January so far after suffering a 22 per cent plunge over the course of 2011, reports the FT. Inventories of copper at LME-registered warehouses stood at 354,575 tonnes on Monday http://ftalphaville.ft.com/thecut/2012/01/17/836021/copper-price-jumps-as-lme-stocks-set-to-fall/
China’s economy expanded 8.9 per cent in the fourth quarter of last year, extending a slowdown that began at the start of 2011 and is expected to continue into 2012, reports the FT. “In terms of the domestic and international situation, http://ftalphaville.ft.com/thecut/2012/01/17/835721/markets-welcome-chinas-8-9-gdp-growth/
A quarterly report released by the Bank of Japan on Monday revealed that the outlook for the economic conditions in seven of the country’s nine regions has dimmed, the WSJ reports. While the central bank doesn’t think the regions risk a downward trend, http://ftalphaville.ft.com/thecut/2012/01/16/835521/bank-of-japan-sees-recovery-slowing/
Saudi Arabia is aiming to keep oil prices at about $100 a barrel, a third above its previous public target, the FT reports. Ali Naimi, the Saudi oil minister, on Monday for the first time said the world’s largest oil producer aimed to keep oil prices at the triple-digit level, http://ftalphaville.ft.com/thecut/2012/01/17/835771/saudi-arabia-raises-oil-target-price-to-100/
Morgan Stanley plans plans to cap cash payouts at $125,000, the WSJ says, citing people familiar with the matter. Some top executives will receive nothing now, deferring their 2011 payouts until the end of this year. http://ftalphaville.ft.com/thecut/2012/01/17/835821/morgan-stanley-bonuses-capped/
This week is about:
1. PSI in Greece – forced “voluntary deal” or CDS event? Creditors do not want to play ball despite Papademos telling us compromise near…
2. Massive ECB intervention to keep credit- and bond market flowing. There is only one lender, one buyer of credit and fixed income = ECB! The balance sheet will explode in Q1-Q2.
3. Sarkozy starting to lose power. Already the January 20th meeting with Germany cancelled due to “French political issues” – my call for Marie Le Pen to potentially upset everyone in round 1 is now in full play in even mentioned by mainstream media like CNBC! (Point: She is ANTI-EU and establishment – this is major blow for French “confidence” and self-image – watch this happen live all week)
4. The Merkel comment on further “intervention” in capital flow mentioned this weekend this is MAJOR news.
Full Stress Indicators.
So the Euro is once again under attack. S&P delivered THE downgrade on Friday. Nothing unexpected actually, but of course not pleasant for the increasingly de united Eurozone. If the Euro survives or not, nobody knows, but one should definitely prepare for the worst. From PIMCO.
The risk of one or more countries leaving the euro – or indeed the euro breaking up into national currencies or new smaller currency blocks – is no longer something to casually dismiss. The volume of PIMCO client questions on this topic attests to this. The possibility is also no longer politically unthinkable. French President Nicolas Sarkozy and German Chancellor Angela Merkel contemplated the previously unimaginable last November when they said, “The question is whether Greece remains in the eurozone.”
So even if the euro survives this crisis intact, scenario planning is indispensable for investors. Indeed, even if no country actually leaves the euro, investors need to think about the implications, because the market will price in this uncertainty as the euro debt crisis evolves. As 19th century British Prime Minister Benjamin Disraeli famously said, “I am prepared for the worst but hope for the best.”