* Japan´s 3Q GDP growth revised to 1.1% from 0.9%
* South Korea and Taiwan export growth continues
* Standard Chartered forecasts record income and profits
Review of global marketsWeek ending Friday 10 December 2010
BOE LEAVES MONETARY POLICY UNCHANGED
This week the Bank of England (BoE) Monetary Policy Committee voted to leave the Bank rate steady at 0.5% and maintained the existing level of quantitative easing at £200bn, as had been widely expected. Meanwhile, Sterling’s near-20% depreciation against major currencies since the onset of the global financial crisis may be helping the UK economy rebalance towards external demand. A survey of Britain’s manufacturing sector, suggests that overseas demand has been a key source of recovery. According to the December CBI survey, export orders for the nation’s manufacturers were at their highest levels in more than two years. The survey, which was much stronger than expected, also found manufacturers optimistic about future prospects. However, the effects of rising commodity prices are beginning to weigh on the sector, with higher output prices expected. The Office for National Statistics said that the manufacturing sector grew by 0.6% in October, the most rapid rate since March. A separate report showed that UK import and export volumes rose by more than 11% in the three months to October compared with the same three months a year earlier, and were only a few percentage points away from their levels before the recession began. The trade deficit was little changed at £3.9bn in October against £3.8bn in September, although imports of goods other than oil and erratic items rose rapidly. The National Institute of Economic and Social Research estimate that the UK economy grew by 0.6% in the three months to November. The institute judged that GDP grew slightly faster in the three months to November than the 0.5% expansion seen in the three months to October. In other news, the Halifax House Price Index showed that average house prices fell by 0.1% in November – less than had been expected – but the three-month measure, considered a smoother and less volatile reading, was 2.1% below that of the three months to the end of October.
Separately, Britain’s biggest banks face paying as much as 50% more than expected towards an industry levy after the Treasury increased the burden on larger, riskier institutions. The Treasury lifted the overall charge on banks’ balance sheets after concessions it made in October meant that it would have otherwise fallen short of its revenue target of £2.5bn. The refinements will generate an additional £400m over the next four years for the Treasury.
ECONOMIC DATA IN FRANCE AND GERMANY UPBEAT
This week’s reports and statistics in Euroland’s two largest economies were upbeat. In Germany the Economy Ministry said that industrial production in Euroland’s largest economy rose almost three times as much as had been forecast, up 2.9% in October from September, led by demand for investment goods such as machinery. September production fell a revised 1%. From a year earlier, output in October increased 11.7% when adjusted for the number of work days, after rising a revised 7.7% in September. A separate report showed that German exports, adjusted for working days and seasonal changes, fell 1.1% from September, when they rose 3%. In France the central bank revised up its forecast for fourth-quarter growth, saying that the Euroland’s second largest economy is set to expand 0.6% in the final three months of the year instead of the 0.5% increase it was expecting a month ago. The Bank of France’s Business Sentiment Indicator for the nation’s manufacturers increased to 107 from a revised 104 in October. A reading of 103 had been forecast. The central bank survey also showed that sentiment in services rose to 98 from 96. The increase in French business confidence underlines a shift from export-led growth that helped France pull out of recession last year to reviving consumer demand.
Separately, the European Central Bank warned that banks in the Euro area could face problems in refinancing €1,000bn of debt due over the next two years because of nervous market participants and the increased borrowing needs of cash-strapped governments. Officials have been pushing banks to issue more long-term debt to lessen their reliance on volatile short-term funding but net issuance of bank bonds in Euroland has been negative since May. The central bank’s warning came as credit rating agency Standard & Poor’s questioned whether there would be enough investors to take up new contingent capital bonds currently winning favour with regulators. Known as Cocos, the bonds convert into capital if a struggling bank reaches a predetermined level of stress.
US LABOUR DATA MIXED
The Labour Department said that US unemployment rose 0.2% from October to 9.8% in November, the highest level since April. The economy added only 39,000 jobs in November. Wage growth was essentially non-existent - average hourly earnings were flat in November. On a year-on-year basis, hourly earnings rose 1.6%. On a positive note, initial jobless claims declined last week by 17,000 to 421,000. The measure was a bigger drop than had been forecast and left the four-week average of new claims near its lowest level in two years. An Employment Outlook Survey by global recruitment firm Manpower showed that the US recruitment forecast is the most positive since the first three months of 2008. In other economic news, the Federal Reserve said that household net worth rose by $1,200bn to $54,900bn from the second to the third quarter of this year thanks to rising stock prices. Separately, the Commerce Department said that sales at US wholesalers rose 2.2% from September to October, the fastest rate in seven months. Inventories also increased by 1.9%.
Separately, Federal Reserve Chairman Ben Bernanke said in an interview this week that the US central bank could quickly tighten monetary policy when "appropriate" -- but "that time is not now". Rather, he suggested that the central bank could purchase more than the promised $600 billion in assets – so-called QE2. The Chairman said that “It depends on the efficacy of the programme. It depends on inflation. And finally it depends on how the economy looks”. On the deficit, Mr Bernanke reiterated that Congress should not cut spending now while the economy is weak, but that it should agree actions to lower the deficit in the future. Meanwhile, US bond yields rose (and prices fell) following an unexpected agreement between President Barack Obama and congressional Republicans to extend all the Bush-era tax cuts, including a $120bn payroll tax holiday. The agreement, yet to pass Congress, is seen as essentially a “second stimulus” that would boost US growth in 2011.
JAPAN UPGRADES 3Q GDP ESTIMATE
Japan’s Cabinet Office said that the nation’s GDP grew 1.1% between July and September compared with the previous quarter, up from the initially estimated 0.9%. This is equivalent to growth of 4.5% on an annualised basis. Much of the upward revision to the third quarter data reflected an increase in private sector inventories – which contributed 0.2% to GDP growth, twice the level initially estimated. A separate Cabinet Office report revealed that machinery orders in October fell 1.4% from September when they dropped 10.3%. Machinery orders are an indicator of capital spending in three to six months. Separate reports revealed that the nation’s current-account surplus widened 2.9% to ¥1.44 trillion ($16.8bn) in October and bank lending slid 2% in November, the 12th straight decline. In addition, Tokyo’s office vacancy rate rose for the first time in three months in November.
EMERGING MARKET NEWS
In South Korea the Bank of Korea policy board voted unanimously to leave the nation’s seven-day repurchase rate at 2.5% following 0.25% rate increases in July and November. The Won rose 0.8% to 1,137.40 per Dollar (the currency has appreciated around 35% since March last year). In an accompanying statement, central bank Governor Kim Choong Soo said that South Korea’s exports, consumption and investment are helping lift growth - expected to hit 6% this year. A separate report showed that Taiwan’s value of exports underlined strong growth in the island’s manufacturing sector, reflecting improvements in the US economy. Total shipments from Taiwan, considered a barometer for global consumer demand rose 21.8% in November, putting the value of exports at $24.4bn, close to the year’s monthly high achieved in May. Taiwan’s IT and communication exports soared and consumer electronics exports recorded their fourth highest monthly value.
Elsewhere, Brazil’s central bank left its interest rate, the Selic, unchanged at 10.75%, one of the highest rates in the world. However, the central bank raised banks’ reserve requirements in an attempt to curb inflation and contain growth in Brazilian credit, which is expanding by 20% a year. Brazil’s high interest rates have drawn yield-hungry capital inflows, so contributing to a steady appreciation in the value of its currency, the Real, and hitting the nation’s competitiveness. Meanwhile, Russia’s central bank, Bank Rossii, said that it may increase interest rates in the first quarter, signalling a shift in its focus to inflation as the International Monetary Fund warned that prices may remain “elevated on unchanged policies”.
COMPANY NEWS
During the week UK bank Standard Chartered forecast double-digit ear-on-year growth in pre-tax profit in its consumer and wholesale banking arms for the 12 months to December 31. Separately, the US Treasury Department said that has it sold its remaining stake – 2.4 billion shares - in Citigroup for $10.5 billion, bringing the US’ third-largest bank a step closer to independence from the government following a $45 billion bailout in 2008.
