* The retailing environment improves mildly in the UK
* US consumer confidence improves further
* The European Central Bank acts aggressively to boost bank liquidity
* Japan´s recovery pauses
* The National Bank of Hungary increases its key short-term interest rate
UK: mild improvement in retailing environment
According to the Distributive Trades Survey of the Confederation of British Industry (CBI), conditions for the country’s retailers improved moderately in the month of December. Of the companies that were surveyed, 41% said that sales were better than they had been in December 2010 while just 32% said that sales had fallen. This was better than had generally been anticipated. Judith McKenna, the Chair of the CBI Distributive Trades Panel and Chief Operating Officer of ASDA noted that: ‘early discounting helped retailers add a little extra sparkle to their sales in December, although the reprieve appears to only be temporary, as they don’t expect sales to continue to grow into January.’ She suggested that the UK’s consumers continue to defer big ticket purchases. Motor traders’ sales continue to be lower than they were at the end of 2010.
Meanwhile, the Office of National Statistics (ONS) reported that the UK’s economy grew by 0.6% in the 3 months to September, having been unchanged in the previous months. Over the year to September, GDP rose by 0.5%. Growth was boosted by better-thanexpected activity in the services, construction and agriculture sectors.
Unsurprisingly, the minutes of the 7-8 December meeting of the Bank of England’s Monetary Policy Committee (MPC), which were released on 21 December, had a fairly conciliatory tone. The decision to leave short-term interest rates unchanged – at 0.5% - and to maintain the asset purchase program at £275bn reflected ‘the magnitude of the current uncertainties’ in the domestic and external environments. Debate between members focused on the speed and way in which inflation is likely to fall in the coming year or so.
US consumer confidence improves further
Much of the economic data published in the US continued to highlight the general resilience of that economy. For instance, the Conference Board’s Consumer Confidence Index rose from 55.2 in November to 64.5 in December. Lynn Franco, Director of the Conference Board Consumer Research Center, noted that confidence had returned to levels last seen in April this year. ‘Looking ahead, consumers are more optimistic that business conditions, employment prospects, and their financial situations will continue to get better. While consumers are ending the year in a somewhat more upbeat mood, it is too soon to tell if this is a rebound from earlier declines or a sustainable shift in attitudes.’
Separately, the Conference Board noted that its Leading Economic Index (LEI) rose by 0.5% in November, having risen by 0.9% in October and by 0.1% in September. The Conference Board’s economists highlighted how the LEI suggests that the US economy is gaining momentum, with the result that ‘the risk of an economic downturn in the near term has receded.’
For its part, the Bureau of Economic Analysis (BEA) noted that, according to its latest estimate, the US economy grew at an annual rate of 1.8% in the 3 months to September. In the previous quarter the equivalent figure had been 1.3%. The BEA suggested that the acceleration of economic growth in the most recent quarter ‘primarily reflected accelerations in personal consumption expenditures, exports and federal government spending that were partially offset by a larger decrease in private inventory investment.’
European Central Bank acts aggressively to boost bank liquidity
Acting aggressively to ensure that the Euro area’s banks have access to all the liquidity that they need, the European Central Bank (ECB) provided €489bn in three-year funding to 523 banks. For the time being, though, much of this money has been deposited with the ECB, rather than being lent between the banks, or to non-bank customers.
Meanwhile, Germany’s IFO Institute noted that its Business Climate Index for trade and industry in that country rose from 106.6 in November to 107.2 in December. The climate remained unchanged in the manufacturing sector, but improved in the construction, wholesale and (especially) retailing sectors. As IFO President Hans-Werner Sinn noted: ‘the German economy seems to be successfully countering the downturn in Western Europe.’
In Italy, by contrast, Istat’s index of consumer confidence slipped from 96.1 in November to 91.6 in December. This was the result of ‘widespread pessimism particularly focused on short-term conditions.’ The indices concerning the overall economic situation and the personal climate also retreated.
Japan’s recovery pauses
The Bank of Japan’s Monthly Report of Recent Economic and Financial Developments focused on how the recovery in the country’s ‘economic activity has paused, mainly due to the effects of a slowdown in overseas economies and of the appreciation of the Yen.’ Domestic demand has remained reasonably firm, thanks in part to rising investment by businesses: this is significantly due to reconstruction in the wake of the Great East Japan Earthquake. Private consumption, housing investment and public investment have also held up. Meanwhile, ‘the improvement of business sentiment has slowed on the whole, despite steady improvement in domestic demand-related sectors.’
These conclusions were supported by the preliminary Industrial Production report (for November) that was published on 28 December by the Ministry for Economy, Trade & Industry (METI). Production, shipments, inventories and the inventory ratio have all fallen. Overall industrial production ‘appears to be flat.’ According to the Survey of Production Forecast in Manufacturing, output should rise in December and January.
The governments of Japan and India established a US$15bn currency swap facility, which will significantly enhance the ability of the Reserve Bank of India to access funding in US Dollars. The new facility replaces an earlier agreement, for US$3bn, which had expired. There are similar currency swap agreements between Japan on one hand and South Korea, China, Indonesia and the Philippines. The latest deal highlights how Japan’s government is able to deploy the country’s substantial foreign reserves in order to boost its role within the global financial system. The agreement with India’s government also reduces the probability that volatility in financial markets in other parts of the world (e.g. Europe) will cause serious problems for India’s banks.
Emerging market news
Much of the newsflow to emerge over the fortnight highlighted how economic and financial conditions in Central and Eastern Europe vary from country to country: overall, though, the financial problems of countries in the Euro area appear to be having a limited impact. The Bank Board of the Czech National Bank (CNB) decided to keep short-term interest rates unchanged at 0.75%. The Bank Board is looking for inflation in the Czech Republic to rise in 2012 – because of an increase in VAT – before falling below the target rate in 2013. Relative to the CNB’s forecasts the latest figures for GDP growth, average wage growth and unemployment have been slightly lower than expected. Inflation has been slightly higher.
For its part, the Monetary Policy Council of the National Bank of Poland (NBP) also kept its key interest rates unchanged. The Council is looking for a ‘smooth slowdown in economic growth along with a gradual decline in inflation.’ Overall, though, the Council is confident that the economy will remain robust in 2012, with some members looking for growth that exceeds 3%.
The Monetary Council of the Hungarian National Bank was something of an exception, in that it voted to lift its interest rate by 0.50% to 7.00%. The Council is concerned that ‘the depreciation of the Forint in recent months, reflecting the increase in perceptions of the risks associated with the economy, has led to a deterioration in the inflation outlook.’ Meanwhile, the economy is considered likely to stagnate: this is partly due to the probability that consumption in Hungary will remain weak because of ‘protracted’ balance sheet adjustment by households, and partly because of the low growth in Hungary’s main export markets.
Company news
The government of Abu Dhabi agreed to buy assets valued at 16.8 billion dirhams (US$4.6bn) from troubled local real estate development company Aldar Properties. This lifts the amount of money injected into Aldar by the government to 36 billion dirhams (US$9.8bn) since 2008, when property prices in the United Arab Emirates (UAE) began to fall.
Ratings agency Standard & Poors announced (S&P) that it would withdraw the ‘unsolicited’ A- rating that it had given to Cheung Kong (Holdings) Limited, the real estate development group that is the master company of Hong Kong businessman Li Ka-shing. Cheung Kong stopped seeking a rating from S&P in 2009: its management felt that the company’s strong financial position meant that it did not need a rating. S&P said that it could no longer assess Cheung Kong’s liquidity position – although it emphasised that it expects that the company ‘will generate satisfactory cash flows and maintain conservative financial management.’
In India, Tata Power Company, the largest utility that is not a stateowned enterprise, said that it would buy BP Plc’s 51% stake in a solar panel joint venture that the two companies own.
