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26 EU States Consider Joining New Euro Zone Treaty
Published: Friday, 9 Dec 2011 | 8:56 AM ET
All EU countries except one are ready to join the 17 members of the euro zone to draft a new intergovernmental treaty for deeper fiscal union aimed at tackling the sovereign debt crisis, EU Council President Herman Van Rompuy said on Friday.
Twenty-six of the 27 EU leaders agreed to pursue tighter integration with stricter budget discipline in the single currency area, but Britain said it could not accept proposed EU treaty amendments after failing to secure concessions.
The decision appears to isolate Britain even more markedly as the only one of the 10 non-euro-zone countries in the EU not to agree to join the treaty change.
The outcome of a two-day European Union summit left financial markets uncertain whether and when more decisive action would be taken to stem a debt crisis that began in Greece, spread to Portugal, Ireland, Italy and Spain and now threatens France and even economic powerhouse Germany.
A new treaty could take three months to negotiate and may require referendums in some countries.
German Chancellor Angela Merkel told a press conference in Brussels following the summit that there was no indication that Britain could change its mind on treaty change.
Merkel also said EU leaders had decided to give EU institutions greater responsibility.
In short, cash is king now. Just leave the market n go for tour with families during ds sch holidays.
ENERGY MARKETS
January crude oil was higher due to short covering in overnight trading. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near-term. Closes below the reaction low crossing at 94.99 are needed confirm that a short-term top has been posted. If January renews the rally off October's low, the 75% retracement level of the May-October decline crossing at 105.28 is the next upside target. First resistance is the 75% retracement level of the May-October decline crossing at 105.28. Second resistance is the 87% retracement level of the May-October decline crossing at 110.27. First support is the reaction low crossing at 94.99. Second support is the reaction low crossing at 89.05.
January heating oil was higher due to short covering overnight as it consolidates some of Thursday's decline. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near-term. If January extends the decline off November's high, the 62% retracement level of the October-November rally crossing at 288.13 is the next downside target. Closes above the 20-day moving average crossing at 303.09 are needed to confirm that a short-term low has been posted. First resistance is the 10-day moving average crossing at 298.79. Second resistance is the 20-day moving average crossing at 303.09. First support is the 62% retracement level of the October-November rally crossing at 288.13. Second support is the 75% retracement level of the October-November rally crossing at 281.37.
January unleaded gas was higher overnight as it consolidates some of this week's decline. Stochastics and the RSI are turning bearish signaling that sideways to lower prices are possible near-term. Closes below the 20-day moving average crossing at 256.00 would confirm that a short-term top has been posted. If January renews the rally off November's low, November's high crossing at 273.98 is the next upside target. First resistance is November's high crossing at 273.98. Second resistance is October's high crossing at 277.33. First support is the 20-day moving average crossing at 256.00. Second support is November's low crossing at 244.80.
January Henry natural gas was lower overnight and remains poised to extend this year's decline. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are possible near-term. If January extends this year's decline, monthly support crossing at 3.225 is the next downside target. Closes above last Monday's high crossing at 3.720 are needed to confirm that a short-term low has been posted. First resistance is last Monday's high crossing at 3.720. Second resistance is the reaction high crossing at 4.095. First support is Tuesday's low crossing at 3.405. Second support is monthly support crossing at 3.225.
STOCK INDEXES & MARKETS
The March NASDAQ 100 was higher overnight as it consolidates some of Thursday's sharp decline over the European debt crisis. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If March extends the rally off November's low, October's high crossing at 2401.25 is the next upside target. Closes below the 20-day moving average crossing at 2271.78 would confirm that a short-term top has been posted. First resistance is the reaction high crossing at 2369.00. Second resistance is October's high crossing at 2401.25. First support is the 20-day moving average crossing at 2271.78. Second support is the reaction low crossing at 2190.25.
The March S& P 500 index was higher in overnight trading as it consolidates some of Thursday's decline. The high-range close sets the stage for a steady to higher opening when the day session begins trading. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If March extends the aforementioned rally, the reaction high crossing at 1267.20 is the next upside target. Closes below the 20-day moving average crossing at 1218.79 would confirm that a short-term top has been posted. First resistance is Wednesday's high crossing at 1261.50. Second resistance is the reaction high crossing at 1267.20. First support is the 20-day moving average crossing at 1218.79. Second support is the November 30th gap crossing at 1195.50.
Top investors wade into battle over bankers' bonuses
* British Insurers call for lower rewards
* Says capital retention should not be only via lower divs (Adds details, background)
By Sarah White and Myles Neligan
LONDON, Dec 6 (Reuters) - Banks across Europe battered by the euro zone crisis face an increasingly bitter battle over bonuses this year as investors add weight to politicians' calls for restraint, rankled by the level of returns they get versus employee payouts.
In Britain, where wranglings over pay have become ever more acrimonious since the bank bailouts of the financial crisis, the Association of British Insurers upped the ante ahead of this year's bonus round, calling for rewards to be slashed.
The ABI, whose members own about a fifth of Britain's publically traded shares, pointed to tumbling bank share prices this year and greater capital demands facing the sector as the backdrop for an overdue change in pay practices.
" It is our members' view that it can no longer be business as usual for this remuneration round," ABI director general Otto Thoresen wrote in a letter to the country's top banks on Monday.
" Any capital retention should not be solely funded by a reduced payment of dividends," Thoresen said.
Shareholders' anger over bankers' pay has usually been vented by voting against remuneration proposals, and this year Britain's HSBC faced a backlash over its reward plans.
The early warning from the ABI comes as banks are already under pressure to slash costs, as return on equity -- a key measure of profitability -- wilts.
European banks have put less aside overall to pay their staff than they had this time last year as a raging euro zone debt crisis dents income. But most still notched up bonus pots even in a dismal third quarter.
The fall in revenues -- down 30 percent in the three months to September at the top 10 investment banks globally, according to research group Coalition -- largely outstripped the drop in compensation.
Even at Switzerland's UBS, hit by a rogue trading scandal in September, pay was down 14 percent in the first three quarters, while operating income fell 24 percent.
Much of the pay set aside for 2011 relates to awards handed out in previous years -- at UBS, of the 2.875 billion Swiss francs ($3.13 billion) in variable pay expenses so far this year, close to 1.35 billion francs related to deferred pay.
But if banks are reluctant or unable to claw back some of these deferred rewards, then the pressure from investors and politicians for them to come down hard on new bonuses for 2011 will be greater than ever.
CONTINENTAL CONCERN
In France, where even the top banks are not known for paying out the very high individual rewards more common in the City of London, politicians are calling on banks to cut back on bonuses.
Prime Minister Francois Fillon met with top executives at the likes of BNP Paribas and Societe Generale last month to tell them to keep lending to the French economy while keeping a lid on bonuses.
One participant at the meeting said there was no objection from bankers, who were in similar hot water over compensation during the last crisis.
Slumping revenues, meanwhile, could bring British banking bonuses down nearly 40 percent on 2010 levels, according to one economic thinktank.
But this has not been enough to stem fresh calls this week to cut bonuses and dividends further, from Bank of England governor Mervyn King and deputy prime minister Nick Clegg.
Only part nationalised Royal Bank of Scotland did not accumulate any fresh rewards in the third quarter.
Bonuses accrued so far this year stand roughly at 416 million pounds ($653.45 million), based on company reports, down over 56 percent on what it had notched up to hand out to staff for the whole of 2010.
British banks, seen as vulnerable to the euro zone crisis, are among the worst stock market performers this year, with the FTSE All Share Banks index shedding a quarter of its value against a 5.7 percent drop for the FTSE 100. ($1 = 0.6366 British pounds) ($1 = 0.9182 Swiss francs) (Additional reporting by Lionel Laurent in Paris Editing by Hans-Juergen Peters and Sinead Cruise)
Metro warns euro crisis hitting Xmas trade
* Says 2011 profit, sales likely to be below last year
* Says euro zone debt crisis hitting consumer confidence
* Consumers holding back on electronics, clothing
* Metro shares drop over 10 pct, Carrefour down 6 pct (Adds comments from Carrefour, Douglas)
By Victoria Bryan
FRANKFURT, Dec 6 (Reuters) - Metro, the world's No.4 retailer, issued a profit warning that sent shockwaves through the sector on Tuesday, saying Christmas trading had started slowly and the euro zone debt crisis was undermining consumer confidence.
Shares in the German group, which runs cash and carries, hypermarkets, electrical goods and department stores, slumped over 10 percent.
" We feel the resulting consumer restraint across all sales divisions and national borders," outgoing Chief Executive Eckhard Cordes said in a statement.
France and Germany are frantically working on a convincing agreement for how to solve the euro zone debt crisis, which has been spooking businesses and consumers for months. Ratings agency Standard & Poor's has warned it may carry out an unprecedented downgrade of the countries in the region should leaders fail to deliver in a summit on Friday.
Metro, world number four behind Britain's Tesco, France's Carrefour and U.S. industry leader Wal-Mart , said it expected both sales and earnings before interest, tax and special items to come in below 2010 levels, should weak Christmas trading continue.
Previously it had forecast earnings growth of at least 5 percent, even without a good Christmas.
A Metro spokesman said shoppers were particularly holding back on purchases of consumer electronics and clothing, sold mostly through its MediaMarkt, Saturn and Kaufhof stores.
He said quiet sales last weekend, traditionally the second week of the Christmas shopping season, had prompted the profit warning from Metro, which usually waits until January to give details of Christmas trading.
Bernstein analyst Chris Hogbin said the warning did not augur well for rivals like Tesco, which reports third-quarter sales figures on Thursday, and particularly Carrefour, which is also highly exposed to euro zone countries.
Carrefour declined to comment on Christmas trading.
However, Hogbin said there were good reasons for thinking Metro was suffering more, because it sells a higher proportion of discretionary non-food goods, where shoppers are making the biggest cut backs.
" For Metro, the fourth quarter is disproportionately important. It's 70 pct of their full year operating profit, and secondly 50 percent of their business is non food," he said.
CHILL SPREADS TO GERMANY
Carrefour shares were down 5.6 percent, while the STOXX Europe 600 retail index was the worst performing in Europe, down 2.2 pct against a 0.4 percent fall in the index of top European shares.
" The start to Christmas business has so far distinctly lagged behind the prior year level," Cordes said.
Shoppers across Europe have been reining in spending this year as they fret about jobs, government spending cuts, rising prices and, more recently, the euro zone crisis.
Even in Germany, which had seemed more resistant but is now one of the top-rated countries being threatened with a credit rating downgrade, retail association HDE reported a quiet start to the first two weekends of Christmas shopping.
Bankhaus Lampe analyst Christoph Schlienkamp said Duesseldorf, one of Germany's top retail destinations, was quiet last weekend.
" The city was not crowded. It seems to be that customers are staying home and are only buying in small amounts."
Douglas, which sells smaller items such as books, perfumes and cosmetics, said it was pretty happy with trading in Germany.
" Sales are within our expectations and we are confident for the next 2-1/2 weeks up until Christmas Eve, with the most important days ahead of us," CEO Henning Kreke said in comments sent to Reuters on Tuesday.
The Metro profit warning adds to the challenges facing finance chief Olaf Koch, who will take over as CEO on Jan. 1 and already has his work cut out to repair relations with labour representatives, oversee a sale of department store chain Kaufhof and improve the fortunes of the Media-Saturn chain of consumer electronic stores.
Metro, with over 2,100 outlets in 33 countries, confirmed on Tuesday it had received a binding offer for Kaufhof from Austrian investor Rene Benko via his Signa vehicle. Benko said at the weekend he hoped to agree a deal by Christmas, although two other parties are interested in the chain.
Metro reported sales of 67.3 billion euros ($90.6 billion) and core earnings of 2.4 billion in 2010.
($1 = 0.7425 euros) (Reporting by Victoria Bryan Additional reporting by Marilyn Gerlach, Matthias Inverardi and Dominique Vidalon, Editing by Mark Potter)
Wells Fargo well positioned for stress test - CEO
* Wells to return capital to shareholders next year - CEO
* Fed to test banks' capacity to withstand crises (Adds CEO comments on fourth quarter and Europe exposure)
Dec 6 (Reuters) - Wells Fargo & Co is " well positioned" for upcoming stress tests of the largest U.S. banks, Chief Executive John Stumpf said on Tuesday.
The fourth-largest U.S. bank looks forward to returning more capital to shareholders next year, Stumpf said at a Goldman Sachs financial services conference in New York. He did not provide specifics on the bank's plans.
Wells is one of six large U.S. banks that will face additional scrutiny of their exposure to the European debt crisis.
The bank has no " sovereign claims" against the five countries at the center of the crisis, Stumpf said. The bank's " gross outside exposure" to those five countries was $3.1 billion at the end of the third quarter, he said.
Wells had total loans of $760 billion at the end of the third quarter.
The Federal Reserve plans to release results of the stress tests in March.
In the fourth quarter, Wells expects higher mortgage fee income but also expects higher noninterest expenses from the mortgage business and its 2008 acquisition of financial services company Wachovia, Stumpf said. (Reporting by Rick Rothacker in Charlotte, North Carolina editing by John Wallace)
High-yield stock: Go for strong yield plays to cushion negative returns in 1H2012, says Nomura’s Lim
Lim Jit Soon has seen the market go through its worst and best times in the past decade — from the US dotcom bust, 9-11 terror attacks, collapse of energy firm Enron and the outbreak of Severe Acute Respiratory Syndrome in 2000-03 to the heady years of soaring market returns that ensued. Having jumped ship to Lehman Brothers after a 10-year-stint at Citigroup, he also witnessed first hand Lehman’s collapse in 2008 and the financial devastation that followed.
Image: Lim: We are looking at more realistic EPS growth of about 4% for FY2011 compared with 11% expected in January. Credit: Gwyneth Yeo
Now, with the global economy in yet another bind owing to Europe’s debt crisis, Lim — who currently heads equity research at Nomura — is convinced that investors are in for another quarter or two of negative returns before things get any better. “We think that the [Singapore] market will trade within a narrow range of between 2,600 and 2,900 in 1Q2012 to 2Q2012 and possibly test 2,500 levels during that period,” Lim tells The Edge Singapore during a recent interview. Indeed, the benchmark Straits Times Index is down 13% year-to-date to 2,761 points, with the market trading at 12 times FY2012 earnings and 1.3 times forward price-to-book, below the long term average of 15 and 1.7 times, respectively.
One clear reason for the gloomy forecast is poor global demand resulting from Europe’s woes and slow growth in the US. Singapore’s exports are already at their lowest in 30 months — falling 16.2% in October — led by a pull-back in tech exports. More importantly though, Lim is wondering if there will be higher unemployment. That’s because wages in Singapore have been increasing over the past two years but productivity levels have not kept up with the rise. That will force companies to cut staff in order to sustain bottom lines amid weaker demand. According to recent data by the Monetary Authority of Singapore (MAS), wages grew 5.6% y-o-y in 2010, while unemployment stands at 2.1%.
The outlook over the next couple of quarters certainly looks grim if the recent earnings reporting season is anything to go by. Corporate earnings in Singapore fell by up to 10% during the July to September quarter, dragged down by losses incurred by Neptune Orient Lines and Noble Group as well as lower earnings from Sembcorp Marine, Cosco Corp, Singapore Airlines and SMRT. In fact, more than half the 48 companies under Nomura’s coverage reported earnings that came in below expectations, leading Lim to believe that consensus earnings per share (EPS) estimates of 9% in FY2012 is “too high”, with the MAS projecting growth of between 1% and 3% in FY2012, against 5% and 6% this year.
“We are looking at more realistic EPS growth of about 4% for FY2011 compared with 11% expected in January,” says Lim. “Logically, we also think 9% EPS growth in FY2012 is unrealistic, given the macro headwinds and potential for higher unemployment. Moreover, it is not consistent with the government’s growth projections.”
Meanwhile, Lim also notices a steady rise in the number of unsold residential properties in Singapore since the beginning of the year. “Residential property prices usually trail movements in the local bourse, so if the market is going down, it must mean that investors are growing negative about the economy and this must have a knock-on effect on property,” says Lim. “We can safely bet that we will see prices pull back in 2012 and dampen sentiment.” Nomura is forecasting a fall in residential property prices of between 6% and 10% next year amid rising supply, which could lead to even more earnings weakness, especially for property developers and banks.
GO FOR HIGH-DIVIDENDS PLAYS
In the meantime, Lim and his team of analysts at Nomura are advising that investors cushion their portfolios with “resilient stocks” that pay high dividends. “You need dividends as a good source of return when you expect the market to be in negative territory,” he says. “You want to be positioned in the sectors that can outperform at least in 1H2012. The market will gravitate towards the winners and those who can hold their value amid the weakness.” Nomura’s top picks include conglomerates Keppel Corp and Fraser and Neave as well as Oversea-Chinese Banking Corp, Singapore Telecommunications, SATS, taxi operator ComfortDelGro and CapitaCommercial Trust for its “attractive 6.5% yield”.
More importantly, Nomura believes F& N, Keppel and SATS also possess the financial wherewithal to capitalise on potential merger and acquisition opportunities to stay ahead of competitors amid the slump. With valuations likely to become more reasonable, such transactions ought to proceed with greater ease too. Other companies poised to embark on M& A activities include Singapore Airlines — which is “well-positioned to acquire airlines in the region” — as well as Sembcorp Industries, Singapore Exchange, Singapore Press Holdings and medical technology company Biosensors International.
Yet others could seize the chance to divest non-core assets for more efficient operations, including F& N, which could divest its publishing arm worth up to $400 million and separately list its growing food and beverage business, says Nomura. Meanwhile, SPH and Keppel stand to raise up to $315 million and $445 million should they sell their respective 13.7% and 19.7% stakes in M1, while Sembcorp, SIA and SingTel could also gain by unloading their stakes in Gallant Venture, Virgin Atlantic and PT Telkomsel respectively, according to Nomura’s report.
LOOK FOR UNDERVALUED STOCKS
With valuations falling, it could also be time to scour the market for undervalued stocks with strong growth prospects. “Given the macro uncertainties, we believe investors can easily overlook promising companies that are embarking on new ventures or opportunities that may not be priced in by the markets,” Nomura reports. Biosensors — which has a presence in Japan, China and Europe — is one candidate, while ComfortDelGro — which has strong taxi and bus franchises in Singapore, the UK, China and Australia and will soon open its Downtown MRT line — is another.
Nomura also has “buy” calls on M1 as well as Olam International for its “diversified agri-business”, upcoming fertiliser project in Gabon and recent move into sugar. Meanwhile, it singles out Ezra Holdings, Amtek, Goodpack and Osim International as quality mid-cap stocks with “solid fundamentals and good prospects”. All four have acquired new businesses or diversified revenue streams for growth over the past year or two. Ezra, for instance, expects to see significant revenue contribution in FY2012 from its new subsea division via the acquisition of Aker Marine Contractors, while Osim has diversified beyond massage products to lifestyle brands such as GNC and TWG.
RISK IN CHINA
Far from being the haven of opportunity it was just a year ago, China now poses a great deal of risk for companies with significant operations there. Nomura expects the Chinese economy to grow by about 8.5% in 2012-14, compared with 9.5% forecast by the International Monetary Fund this year.
However, Nomura’s projections could fall to 5% should factors such as “overinvestment and excessive credit” dampen growth. A slowdown in China on top of weak demand in Europe and the US could push Singapore’s 2012 GDP growth to negative levels as 9.5% of the city-state’s non-oil domestic exports is to China while 10.6% of tourist arrivals in 1H2011 were from China. Buyers from the Mainland also formed 5% to 7% of property purchasers in Singapore over the past three quarters, so a pullback in China’s growth could affect the already weakening Singapore property sector. As such, Nomura cautions that companies with direct exposure to China including CapitaLand and Keppel Land could be adversely impacted by weak Chinese demand.
Other major companies whose earnings are at risk from a slowdown include Wilmar International — which is the largest oilseeds crusher and manufacturer and refiner of oils and oleochemicals in China — as well as DBS Bank, which has 6% to 7% of its assets located in China and a larger portion based in Hong Kong.
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Did You Hear About The Time Germany Broke All The Eurozone Debt Rules And Then Begged For A Rule Change?
Just a little perspective from Dan Greenhaus at
BTIG, who talks about the stability pact and anti-deficit rules contained within the original Eurozone treaty.:
If you woke up today, you would think that Germany and France were the strongest adherents to this principle. However, we would once again remind clients that thanks to poor economic performance, including several negative quarters for GDP early in the previous decade, both Germany and France found themselves with deficits larger than the 3.0% limit. In fact, by 2003, just a few short years after the beginning of the Euro, France, Germany, Portugal, Greece and Italy had all violated the pact. Naturally, the Germans and the French got their house in order to demonstrate their commitment to the project, no?
In fact, they “bullied” the Ecofin Council into ignoring the transgressions and subsequently adjusted the pact so that deficits could exceed the target “temporarily.” Imagine what would have been.
Along these lines, it's important to bring up a couple of good charts recently showing how all these countries got into so much debt trouble.
The first is this IMF chart (via A Fist Full Of Euros) showing why the public debt expanded for various countries over the last several years.
As it turns out, Germany has been the big fiscal stimulator and bank bail-outer. Italy has done very little, and almost all of its worsening debt can be associated to the rise in interest rates.
And then this chart from Krugman explodes the myth that countries got into deep debt thanks to their aggressive welfare spending.
As you can see, there's basically no connection between the welfare spenders, and who is in debt trouble these days.
Bottom line: Everyone's been a cheater, and looking for some moral explanation of why so and so is in trouble, and why so and so isn't, will not get you very far.
A Major Misconception People Have About China's Government Structure
Many observers mistakenly think that because China is not a parliamentary democracy that is it monolithic. Yet repeatedly we have seen this is not the case. Many officials at the PBOC, for example,seem more sympathetic to a more flexible currency regime, while officials more involved with commerce and trade are more opposed.
Most recently, diplomats and political leaders, including Premier Wen seems more sympathetic to the plight of Europe. Wen suggested in mid-Sept that China might be more prepared to lend the euro zone funds if it were to recognize the PRC as a market economy. This designation would make it more difficult to charge China with dumping.
Officials closer to financial issues seem less sanguine.
The vice minister of foreign affairs explained over the weekend why China can not use its massive reserves (over $3 trillion) to aid Europe.
The reserves are effectively financed through borrowed funds. The reserves are the asset, but there is a linked liability. The PBOC forces commercial banks to transfer 20% of their domestic deposits to it, which it then uses to buy dollars in the foreign exchange to manage the RMB.
Commercial banks are also forced to buy PBOC bills that pay low rates and the proceeds are also used to fund its acquisition of foreign exchange. This is another example of how China's foreign currency assets have an associated RMB liabilities. To spend those reserves leaves a large unfunded liability.
The CEO of China's sovereign wealth fund also commented on the issue recently. He was very clear. The China Investment Corp is more interested in real assets, roads, bridges and other infrastructure projects. This is consistent with China's broad interest in fixed assets as opposed to helping countries finance budget deficits.
Separately, some Chinese officials opined willingness to contribute more money to the IMF and the preference for greater protection than lending directly to the euro zone, such as through the IMF.
Many observers conclude that Europe itself is bankrupt and cannot afford to address the debt situation. We remain skeptical of such a dour view of Europe's wealth. In a combination of portfolio and direct investment, the euro zone holds about 10 trillion euro of foreign assets. These can be sold. Another example is the household wealth in Italy it is many times more than the government's debt (~1.9 trillion euros). Europe needs to marshal its own resources and officials still seem reluctant to do so.
China has an interest in preventing the total collapse of the largest buyer of its exports, but it also has an interest in forcing Europe to divest its overseas assets. Chinese banks and companies are in a position to be a buyer of some of those assets.
There are three take-aways: 1. China is not monolithic and speaks in different voices. In terms of help for Europe, the politicos and diplomats seem more sympathetic than the finance folks. 2. China is unlikely to be the knight that rescues the euro zone. 3. China, as many other countries, may find it difficult to leverage its financial prowess for significant political gain.
PRESENTING: The Best Economic Forecasters On The Planet
As 2011 nears its end, many tend to look back on the year. But for financial analysts, this also means a key time to look ahead and make predictions for 2012.
For that,
Bloomberg Markets Magazine is here to help. In an article for its latest issue,
rankings analysts took forecasting data from the last two years from forecasters at over 354 firms, checked their predictions and gave them a score from 0 to 100.
The magazine ranked the economic forecasters by the countries they covered, choosing 11 countries whose GDP was among the top 25 in the world. For each country's forecasters, the rankings team at Bloomberg Markets used anywhere from 3 to 13 criteria included " gross domestic product, unemployment, consumer and producer price indexes, home sales, industrial production and personal spending," etc.
For the sake of brevity, we put together the highest rated economic forecaster for each country. As we go into 2012, maybe you should consider getting a report or two from them to be best prepared for the volatile macroeconomy.
US: Maury Harris, Sam Coffin, Kevin Cummins and Drew Matus (UBS Securities)
Eurozone: Andreas Scheuerle and Peter Leonhardt (Dekabank Deutsche Girozentrale)
China: Ting Lu (BofA Merrill Lynch)
UK: Adam Chester and David Page (Lloyds Banking Group)
Canada: Stefane Marion (National Bank Financial)
Brazil: Luciano Rostagno (Banco WestLB do Brasil)
Australia: Scott Haslem (UBS)
India: Sonal Varma (Nomura International HK)
Japan: Brendan Brown and economy group (Mitsubishi UFJ Securities)
South Africa: M. Kafe and A. Masia (Morgan Stanley)
Mexico: Alejandro Cuadrado (Societe Generale)
Want some forecasts from Goldman Sachs?
15 Brilliant Insights From Hedge Fund Superstar Kyle Bass
Hedge fund superstar
Kyle Bass, the founder and principle of
Hayman Capital Management, has certainly been doing his homework on some of the most pressing issues facing the global economy.
Bass, who describes himself as a " realist," has a pretty negative outlook on the eurozone and Japan and the possible implications here in the U.S.
" Don't believe these governments when they tell you that everything is going to be fine when they are going to solve the problems... They can never tell you what they are about to do," he said during the AmeriCatalyst conference last month.
" Develop your own opinion. Go look at these numbers. Don't listen to me," he told the audience. " The key is to do your own work."
We recommend watching the
full hour-long video. In the meantime, we've pulled out some key insights from the Texan hedge fund manager.
How long of a road do we have?
" I think we have... let's say the political elite think we have 10 years -- I think we have 3-5 and it's predicated on the acceleration on what happens in Europe and Japan," Bass said.
" I hope that's right."
The silver lining...
" The silver lining, in my theory, our politicians, our people in the Fed and the Treasury, they all have front row seats to what's about to happen in Europe and Japan. It takes a crisis of that kind of magnitude to shake us to our core to change the path that we are on. Politically, the path isn't going to be changed."
The psychology is more important than the quantitative analysis.
" We have been conditioned to believe there is always this savior out there," Bass said. " There's an optical backstop designed to make everyone believe countries can't default."
" It's where we stand to day on Greece on Italy. I think it's really important to think through that psychology," he said. " Those optics are starting to come into question."
Unabated free trade is problematic for the U.S.
" I think unabated free trade is problematic for the country that the highest living standards and wages in the world," Bass said. " Call me crazy."
" You think you can import the good and leave the bad behind -- their standards and wages -- that's not the case."
That's because in the U.S., he explained, we are starting to see permanent job loss.
" The Fed is just starting to recognize this," he said. " When you ask the Fed, the Fed presidents, they all think that it's less than 100 basis points. I'd say it's hundreds of basis points."
If there is any growth in the U.S., it will be very slow.
" We're not going to grow," he said. " If we grow, we are going to grow very slowly."
Since Europe is in a prolonged state of deleveraging, he explained, the U.S.'s hope is to grow at 1 to 1.5%.
" It's my assertion is our only hope is to plod along."
" If you think a 50% default in the private sector is what's going to save Greece, you're out of your mind."
" What does solvency mean to you? What is debt sustainability as we define it today"
" I define it in a very numerical way, the same way as the ratings agencies define it, having a sustainable debt load means that you are not spending more than 10% of your central government revenue on interest, but Greece spends 16% of central government revenue on interest alone." '
" Does anyone know what Greece’s on-balance sheet financing cost is? Forget their market rates. What does it really cost them today for their weighted average cost of capital on balance sheet? Does anybody know? That’s interesting."
" We all know they’re in trouble, but no one looks at the numbers. They borrow at 4.4%. Their two-year money is at 100% and their 10-year money is at 27%. They borrow at 4 and they’re spending 16% on interest. For those of you who think that a 50% default in the private sector is what’s going to save Greece, you’re out of your mind. It is a full write down of what the Troika doesn’t own."
The bottom line is the bill is due today.
Bass said policy only buys time, but the bottom line is the bill is due today.
" It's due in Europe today, due in Japan tomorrow and due in the U.S. the next day," he said. " Those days are separated by years of course and no one wants to admit it."
The UK and France are both in trouble, according to Bass.
Bass said when you looked at a host country's banking system such as Iceland, it didn't take a genius to figure out it was going to blow up.
" Regulators weren't paying attention to the size of the host country's banking systems in relation to the sovereign's ability to maintain losses," he said.
According to Bass' estimates, the UK is in " big trouble" and France is in " huge trouble" just as the EU as a whole is.
Why he's so focused on Japan, Ireland and countries like that.
" Some economies are much more productive than others," Bass said. " Japan has no natural resources. They import all their inputs."
" When you use central government tax revenue, it's a better measure... Some of the countries are in this scenario where their debt is 40x their Central government revenue and it just takes a tiny move to literally detonate them. That's why we are so focused on Japan, Ireland and countries like that."
So now what? Individual investors need to be " much more conservative."
" If you're an individual what you should do is to be much more conservative than you think you need to be," Bass said.
" The return of capital is much more important in the next few years than the return on capital," he said, adding that, " We are not programmed to think that way as Americans."
That's because we all think the central bank and the government will fix everything and make it right.
Investors should be more in cash.
" I think in the environment that we are talking about, the U.S. dollar will be fine int he short to medium term and if we are right about Europe and Japan."
He thinks people should be more in cash.
Individual investors should own " productive assets."
Bass suggested individual investors hang on to " productive assets" and be less invested in financial assets.
By productive assets he said he means real, productive things such as oil wells, apartment buildings, etc.
" I'm not saying you won't suffer mark-to-market losses there if we're right about deleveraging, but at least it will keep up with debasement of currency overtime.
He recommends people buy a little bit of mortgage insurer MGIC.
Bass, who famously bet against the subprime mortgage market, recently disclosed in an
SEC filing that Hayman snapped up a stake MGIC Investment Corp-- the largest mortgage insurance company in the U.S.
" We own almost 5% of MGIC," he said. " I think you can see that the pig has moved through the python in terms of U.S. housing losses."
" We believe that everyone paints the MI's with a brush that they are all going the way of the Dodo. MGIC has a pretty big positive equity positions. They will be one of the last one's standing," he said.
Bass said if people are looking for somewhere to put their money he recommended buying a little bit of MGIC.
" I think it's worth 3-10x over the next five years," he said, " Even at a runoff, it's worth north of three bucks."
On why he owns so much gold...
" My opinion is very simple as a fiduciary... to the extent that you own gold and you are going to own it a long time --it's not a trade. It costs us about 90 basis points a year to roll it through financial futures contracts," he said.
" And then we went and looked at the COMEX. The COMEX at the time they had about $80 billion in open interest between futures and futures options. In the warehouse they had $2.7 billion of deliverables. So $80 billion in open interest -- $2.7 billion in deliverables. We’re gonna own it a long time. You're on the board, as a fiduciary, what do you do? That’s an easy one. You go get it. So you go take a billion of $2.7 billion and you let them worry about the rest."
" When I talked to the head of deliveries at COMEX NYMEX, I was like, 'What if 4% of the people want deliveries?' He said, 'Oh Kyle, that never happens. We rarely ever get a 1% delivery.' And I asked, 'Well what if it does happen?' And he said,'Price will solve everything' And I said, 'Thanks, give me the gold.'"
He thinks social unrest will continue to grow.
Image: Robert Johnson — Business Insider
According to Bass, the anti-corporate Occupy Wall Streeters have a case.
" I think the social unrest is going to continue to grow. I wouldn't discount the Occupy Wall Street model."
" What on earth were we doing investing U.S. government taxpayer money into bank equities?" he said. " That was the biggest bozo no-no in the last debacle we went through."
" If we really had a capitalist model, we'd have bankruptcy," he said.
The Only Positive Angle From The Big S& P Downgrade Warning
From Deutsche Bank's Jim Reid:
For those looking for a ‘positive’ angle from all of this, the rating action may force the ECB to be more aggressive in inking up the presses if they want to avert a crisis. Indeed as we’ve briefly highlighted two weeks ago 2012 is looking to us like a year that will be decided by whether the ECB is a very different institution to what it is today. Thursday’s ECB post-meeting conference is shaping up to be a very interesting event for the week.
Gold recovered some of the losses incurred earlier today amid the high level of uncertainty, where pessimism spread in the market and the sentiment deteriorated further after the U.S. rating agency placed 15 euro-zone nations under “credit watch negative” including Germany and France, which raised concerns that the euro area region would contract further and will slip back into another phase of recession, and finally nations could face possible downgrades as soon as the end of this week in case European leaders didn’t agree on how to solve the two-year debt crisis.
Standard & Poor’s, the rating agency, warned the euro-area region’s nations with a possible credit rating cut in case European leaders fail to quell jitters and tackle the debt crisis during the coming summit this week. The Agency has placed the debt rating of 15 nations of the euro zone on a “credit watch negative”, as S& P’s said " systemic stresses" are growing up, while credit conditions tighten in the euro zone.
Gold opened the session today at $1722.05 per ounce, and then reversed to the downside setting the lowest at $1708.28, but then the metal recovered the losses incurred as Europe joined the session today amid the rising level of uncertainty. The shiny metal trades now around $1721.64 per ounce, and reached the highest at $1724.18 per ounce.
The economic conditions remain highly uncertain in the euro-area region as all eyes are focused on the European summit at the end of this week, while investors are looking forward to the European Central Bank rate decision, where markets are waiting the mechanism of how European leaders will resolve the debt crisis, while investors wonder what are the next steps to be taken by leaders in regards to the European Financial Stability Facility and the International Monetary Fund, what facility is going to play the larger role in fighting the crisis, is it the ECB, the IMF or the EFSF.
These questions should be answered by the end of this week, or Europe will loose investors’ confidence and this time European leaders will not be trusted until markets witness the implementation of the several decisions and plans set before, where the time has come for Europe to end the debt crisis, which started to threaten the largest economies in the zone and the monetary union itself.
Among other precious metals, silver gained slightly today after opening the session at $32.09 per ounce, to record the highest at $32.36 and the lowest at $31.75 and is trading in the moment at $32.24 per ounce, recovering some of the losses incurred yesterday.
Platinum also inclined today after starting the session in Asia at $1520.00 per ounce, where the metal gained 0.10% or $1.75 per ounce to currently trade around $1521.75. The metal reached the highest at $1526.50 and the lowest at $1508.00 per ounce.
Palladium gained 1.11% or $7.0 per ounce after the opening of $634.00, where the metal trades in the moment at $641.00 per ounce, after recording a high of $641.50 and a low of $630.63 per ounce.
Oil is struggling to erase yesterday's losses
Crude oil declined yesterday after early gains on fears that spread in markets after S& P warned Euro zone nations that they might face a downgrade by placing them on a credit watch negative, where a downgrade may occur even for Germany if the EU leaders’ summit won’t be useful.
After crude took an upside journey it returned to join a downside wave due to S& P's move, which erased hopes that seen in Europe, as it warned the euro-area region’s nations with a possible credit rating cut in case European leaders fail to quell jitters and tackle the debt crisis during the coming summit this week.
Crude oil opened today’s session at $100.46 and reached so far a high of $100.94 after it recorded a low of $100.35, where it is currently trading around $100.71.
The agency also explained that European leaders must reach an agreement on how to solve the two-year debt crisis during the summit this week and it has placed the rating of 15 nations of the euro zone on a negative review, as S& P’s said " systemic stresses" are growing up.
On the other hand, the German chancellor and the French president would together push to remake the European Union into a more integrated political and economic federation, with tight legal restraints on how much debt national parliaments can issue.
Investors are so optimistic that leaders would indeed come up with a decisive plan to solve the debt crisis as financial markets are struggling to maintain stability, where crude is trying to erase losses recorded yesterday.
Iran and its oil production is the main factor that is keeping crude above the $100 level, as more sanctions from US and Europe on the country is threatening oil supply from OPEC’s second largest oil producer.
Analysts and economists expect that sanctions on Iran not to affect supply heavily for now yet other sanctions would drive oil prices higher than now to reach $250 levels, due to the rising risk of shrinking oil supply, tension remains high in the Middle East especially with the tension seen in Saudi Arabia and new protests in its oil rich region.
Volatility will remain evident today and till the EU summit on Friday, as the summit is expected to present a decisive plan to solve the debt crisis, and hopes that they will do that are increasing amid signs from leaders especially Merkel and Sarkozy.
Volatility and fluctuations will increase today as the Euro zone will release its second reading for GDP in the third quarter, and it is expected to remain steady from the last reading that showed the economy is expanded by 0.2% on a quarterly basis.
Gold has been consolidating since the end of August, and has apparently developed a triangle. The resistance is more clear than the support as the market again respected the projected resistance. Note that this resistance was also 61.8% retracement of the latest downswing. 12/5 session candle was strong after 2 days of indecisive candles, showing bearish intention at least to test the triangle support which is near 1700. Then if the market can slide below the previous low at 1666.45, a swing projection targets near 1628, right near the 200-day simple moving average. The market does not have a bearish tone yet as the RSI never touched 30, and is still trading above the 200SMA, so for now, the maximum bearish outlook should probably not be lower than 1600, a common low from the downswing at the end of September. Look for bullish intent when the RSI reaches 40, especially if the market is also kissing the 200-day SMA.
FXTimes
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness.
FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analyses.
All screenshots are made from VT Trader 2.0 and are of actual market data at the time of the screenshot.
The commodity touched 102.50 areas before reversing sharply again to trade below 101.00 level, and currently below the ascending support of the rising wedge formation, while RSI is currently flat at 50 points. Price is currently attempting to retest the breached ascending resistance , therefore, we will wait and see if the breach is reliable enough to expect an intraday downside move.
The trading range for the day may be among the major support at 95.50 and the major resistance at 104.00.
The short-term trend is to the downside with steady weekly closing below 105.00 targeting 65.00.
Support: 100.30, 99.75, 98.90, 98.20, 97.20
Resistance: 101.15, 101.70, 102.40, 102.85, 103.35
Recommendation Based on the charts and explanations above we recommend staying aside awaiting more confirmation.
Warrant Strategy: Call - 2650.00 - 29/02/2012 - PG6W - Macquarie Bank - STI MBL ECW120229
Pivot: 2675
Our preference: Long positions above 2675 with targets @ 2840 & 2905 in extension.
Alternative scenario: Below 2675 look for further downside with 2576 & 2525 as targets.
Comment: the RSI is supported by a rising trend line.
Key levels
2965
2905
2840
2741.23 last
2675
2576
2525
Click to view chart in actual size.
S Korea: Shares edge up as Samsung gains on US ruling
05 Dec 2011 14:15
SEOUL - Seoul shares crawled up on Monday following a steep rally last week, with investors treading lightly ahead of a key European summit.
Losses were led by banking shares such as Shinhan Financial Group, but Samsung Electronics Co Ltd gained after a favourable US court ruling.
The Korea Composite Stock Price Index (Kospi) finished up 0.36 per cent at 1,922.90. -- REUTERS
Source: Business Times Breaking News
With the beginning of a new week, markets are trading narrowly as we can see metals, commodities and currencies are barely moving, awaiting fundamentals from major economies to reveal the performance of the services sectors across the globe, with eyes are still focused on Europe, as Merkel and Sarkozy are to meet today, while the Italian Premier was able to pass the new austerity package through the cabinet yesterday, and now markets are waiting for the approval of the Italian upper and lower houses.
Gold ended a bullish week, supported by eased jitters and debt concerns in Europe and U.S, where after the Central Banks intervention spread optimism on Wednesday, Germany supported the relief rally when approved boosting the International Monetary Fund role in fighting the crisis.
In addition, the United Kingdom also added positivity to the market last week after showing commitment to any changes in the European Union treaty. The United States also supported markets to end a bullish week after the upbeat jobs report, which showed that unemployment dropped to 8.6% from 9.0%.
Gold opened last week at $1683.79 per ounce, and recorded the highest at $1762.90 and the lowest at $1680.95, and closed the session in New York on Friday at $1744.52 per ounce.
Today, gold is trading within narrow levels, awaiting critical fundamentals from Europe and U.S, where eyes are focused on the services sectors performance worldwide in addition to the retail sales in Europe, which is expected to show some improvement in the spending levels.
The shiny metal opened the session in Asia today at $1746.63 per ounce, and reached a high of $1754.60 and a low of $1743.15, and is currently trading around $1745.35 per ounce.
The Italian Prime Minister passed the new package of austerity and growth worth 30 billion euros through the cabinet yesterday, in attempts to spur growth in Italy and save the one currency union. The new austerity package includes cuts to the costs of maintaining the Italian political class, measures to prevent tax evasion, measures to spur growth and competition, imposing new taxes on private wealth and finally limiting cash transactions to payments under 1000 euro. Mario Monti, will outline the new measures to the upper and lower houses of parliament today.
The German Chancellor, Angela Merkel and the French President Nicolas Sarkozy will meet today to discuss their views for a closer fiscal integration between European Union’s nations ahead of the European Summit this week, where better integration should support European nations to stop the expansion of the debt crisis, which currently threatens the union the most.
Finally, markets are expected to fluctuate heavily today ahead of the ECB rate decision and the European summit this week, but in general we expect markets to remain volatile however, over weekly basis metals are expected to end this week higher as optimism is expected to dominate while the European Central Bank is expected to cut rates to spur growth in the time European leaders are expected to finally implement measures and resolve the debt crisis once and for all.
Silver opened the session in Asia today at $32.49 per ounce, and recorded a high of $33.04 and a low of $32.49, and is trading now around $32.75 per ounce, extending the gains recorded in the past week.
Crude inclines at the beginning of the week
Crude oil continues in the upside rally that begun before, where it is rising since the openening of today’s session above $101 level, backed by hopes that European leaders would act seriously and decisively to contain the crisis, and also supported on the possibility of shrinking oil suplly from the Middle East.
At the beginning of the week, investors are hoping that European leaders would take decisive measures to solve the debt crisis that is spreading all over the region, which is weighing down on growth in the continent and threatens global growth as well.
Oil started the session at $101.27 to reach so far a high of $101.70 and recorded a low of $101.15, where it is currently trading at $101.62, mentioning that crude has already rose above $100 last week when six major central banks took a decision to increase the dollar liquidity between banks, and especially European banks.
Today, the French president and the German chancellor are expected to meet in Paris, as the two leaders are willing put on table headlines for plans to be discussed in the European summit on Friday for deeper fiscal integration in order to stem the deepening debt crisis, as it is widening quickly to threat big economies such as Italy and Spain.
Also, investors saw that the Italian PM is taking the appropriate steps so far and he is wishing to control the huge national debt, as he presented a new austerity and growth plan for his of by 30 billion euros and it passed it, and he will present the plan in front of the Italian parliament which is widely expected to approve the plan.
Nevertheless, crude is beating all negative factors that could affect it, as despite the discouraging data from China that showed a slowing service sector in the world second largest economy, which signaled that the economy is cooling down amid slowing growth in the global economy, as China must act quickly and back off its monetary stance which is so tightened.
One of the major factors that affect crude positively and take it to the upside is the expected shrinking supply in the Middle East, as the situation is getting worse especially in Iran, which considered OPEC’s second producer, and no oil production from Iran would affect global crude supply significantly and drive oil prices to higher levels.
Hopes are covering the sky of Europe as the leaders of 27 countries would meet on Friday to put on new decisive plan to solve the debt crisis in the continent and prevent it from spreading, where investors are eagerly waiting for that date.
