Asia FX By Cornelius Luca - Tue 08 Jan 2013 16:53:10 CT (CME/www.lucafxta.com)
The appetite for risk was limited on Tuesday ahead of the earnings system and amid a dearth of new information. The European and commodity currencies slipped after closing up on Monday. The severely oversold Japanese yen recovered further, but remains close to a 28-month low. The US stock markets fell while gold, oil and silver advanced. The short-term outlook for the foreign currencies is sideways. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is short on European currencies and long on commodity currencies. Good luck!
Overnight
US: The consumer credit surged to $16.05 billion in November from $14.08 billion in October.
Today's economic calendar
Australia: HIA new home sales for November
China: Industrial production for December
China: Retail sales for December
UK: BRC Shop Price Index for December
Australia: Retail sales for November
Asian Stocks Decline as Japanese Exporters Fall on Yen (Bloomberg)
Asian stocks fell, with the regional benchmark index heading for its third straight day of losses, as Japanese exporters extended losses after the yen edged higher.
Honda Motor Co. (7267), which gets about 44 percent of sales from North America, dropped 1.3 percent in Tokyo. Hokkaido Electric Power Co. sank 6.4 percent after the Nikkei newspaper reported government regulations being considered will increase the cost for Japanese electricity producers. Alumina Ltd., a supplier of the material used to make aluminum, jumped 6.1 percent in Sydney after its joint venture partner Alcoa Inc. reported fourth- quarter sales that exceeded analysts’ estimates.
The MSCI Asia Pacific Index (MXAP) slipped 0.2 percent to 130.53 as of 9:42 a.m. Tokyo time. Markets in China and Hong Kong have yet to open. The regional benchmark gauge posted its seventh weekly advance last week, the longest winning streak since March last year, after the U.S. Congress approved a budget deal and Japanese shares rallied on expectations the new government would call for more stimulus.
“With investors now having digested the news from the Bank of Japan and Prime Minister Shinzo Abe that Japan will stimulate its economy later this month, the yen has now appreciated against all but one major trading pair, showing that more may need to be done to hold the currency down,” said Evan Lucas, a Melbourne-based markets strategist at IG Markets Ltd., a provider of equities, currencies and commodities trading services.
Nikkei 225 Falls Third Day on Signs Market Overheating (Bloomberg)
Jan. 9 (Bloomberg) -- Japanese shares dropped a third day as technical indicators signaled the market may be overheating after the Nikkei 225 (NKY) Stock Average last week reached a 22-month high.
Honda Motor Co. (7267), a carmaker that generates 81 percent of its sales outside Japan, fell 2.3 percent as the yen remained higher after a two-day advance. Kansai Electric Power Co. slid 3 percent on a report nuclear power producers may face tougher regulations. Furukawa-Sky Aluminum Corp. added 1.2 percent after industry bellwether Alcoa Inc. reported better-than-expected sales.
The Nikkei 225 declined 0.8 percent to 10,419.79 as of 9:28 a.m. in Tokyo. The broader Topix (TPX) Index slid 0.8 percent to 864.72 with about three stocks falling for each that gained.
The Topix has risen about 21 percent as of yesterday since Nov. 14 when elections were announced, driving the gauge into a bull market on expectations a new government would call for more stimulus. An advance of 20 percent or more from a low signals a bull market to some investors. The gauge is trading at 1.04 times book value, compared with 2.19 for the Standard & Poor’s 500 Index (SPXL1) and 1.58 for the Stoxx Europe 600 Index.
U.S. Stocks Fall Before Corporate Earnings Season Starts (Bloomberg)
U.S. stocks fell, sending the Standard & Poor’s 500 Index down for a second straight day, as investors awaited the start of the corporate earnings season.
Yum! Brands Inc. (YUM), the owner of the Taco Bell and KFC fast- food chains, retreated 4.2 percent as same-store sales fell more than projected in China after a government probe into one of its former suppliers hurt demand. GameStop Corp. (GME), the world’s largest video-game retailer, tumbled 6.3 percent amid a narrower sales forecast. Alcoa Inc., the largest U.S. aluminum producer, rose 0.9 percent at 4:29 p.m. as sales beat estimates.
The S&P 500 fell 0.3 percent to 1,457.15 at 4 p.m. New York time. The Dow Jones Industrial Average lost 55.44 points, or 0.4 percent, to 13,328.85. About 6.2 billion shares changed hands on U.S. exchanges, in line with the three-month average.
“We’re waiting for earnings to come out,” said John Manley, who helps oversee about $212 billion as chief equity strategist for Wells Fargo Advantage Funds in New York. He spoke in a telephone interview. “Valuations are far from excessive. Yet we’ve had a strong rally very quickly. Now the market is adjusting.”
Stocks had the biggest gain in 13 months last week as lawmakers passed a bill averting spending cuts and tax increases known as the fiscal cliff. Fourth-quarter profits from S&P 500 companies probably increased 2.9 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second- slowest quarterly growth since 2009, the data show.
Bull Market in U.S. Equities to End in 2013, UBS Says (Bloomberg)
The bull market in U.S. equities that began in 2009 may end this year, followed by a drop of as much as 30 percent in the Standard & Poor’s 500 Index by next year, according to technical analysts at UBS AG.
The S&P 500 may gain 7.4 percent to as high as 1,570 forming a top for the 116 percent rally from March 2009 in late summer this year, Michael Riesner and Marc Mueller in Zurich wrote in a report yesterday. A “cyclical” bear market will then follow, with the gauge dropping as low as 1,100 by 2014, they added. The measure fell 0.3 percent to 1,461.89 yesterday.
“The March 2009 cyclical bull market is moving into a mature stage and in this context, we see the S&P 500 and risk assets moving into a major top in 2013, followed by a new cyclical bear into 2014,” the analysts wrote in the note.
They said the benchmark gauge began a long-term bearish pattern in 2000 which, in turn, consisted of medium-term, or cyclical, ups and downs. One part of this was the increase from 2009, which is now looking to reverse based on a triangular pattern called the rising wedge forming on its price chart, the analysts said.
The ensuing slump will not only end the current rally, it will also complete the larger bearish trend that began at the turn of the millennium, Riesner and Mueller wrote. Further, it will set the stage for the start of a similarly long-term bullish pattern about two years from now, they added.
Technical analysts describe a structural pattern as one that lasts more than a decade and a cyclical trend as one that goes on for several months to a few years.
Most European Stocks Fall as German Exports Slide (Bloomberg)
Most European stocks fell after German exports dropped and investors speculated recent gains have overshot the outlook for company profits as Alcoa Inc. prepared to kick off the U.S. earnings season.
Debenhams Plc (DEB) slid the most in more than three years after the retailer cut its profit-margin forecast. Vodafone Group Plc (VOD) added 1.7 percent as the Wall Street Journal reported that Verizon Communications Inc. said it’s feasible it will buy the U.K. company’s stake in their Verizon Wireless joint venture. TGS Nopec (TGS) Geophysical ASA rallied 7 percent as the Norwegian offshore surveyor forecast revenue that exceeded estimates.
The Stoxx Europe 600 Index (SXXP) slipped 0.1 percent to 286.25 at the close of trading, as three shares fell for every two that gained. The volume of trading was 46 percent greater than the 30-day average, Bloomberg data show. The measure climbed to the highest level since February 2011 last week after U.S. lawmakers agreed on a compromise budget.
“We have to realize that economic data coming out of the euro zone is going to be very poor,” Bob Parker, senior adviser at Credit Suisse Asset Management in London, said on Bloomberg Television. “I would want to diversify in equities across the euro zone. Markets are going to be frustrating. We are going to see a lot of day-to-day volatility.”
National benchmark indexes declined in 10 of the 18 western European markets. Germany’s DAX Index slipped 0.5 percent and the U.K.’s FTSE 100 dropped 0.2 percent. France’s CAC 40 was little changed.
The Stoxx 600 has increased 2.4 percent in 2013, pushing its valuation to 19 times reported earnings, near the highest level since March 2010, according to data compiled by Bloomberg.
Emerging Stocks Fall a 3rd Day as Power Stocks Hit Brazil (Bloomberg)
Emerging-market stocks fell for a third day as power producers led declines in Brazilian equities and markets in China, South Korea and Poland retreated. Russian shares advanced on their first day of 2013 trading.
Centrais Eletricas Brasileiras SA (ELET6) was the worst performer on the MSCI Emerging Markets Index, and led a 1.3 percent slide in the Bovespa index. Industrial and raw materials stocks led declines on the MSCI gauge, as Embraer SA (EMBR3), the world’s fourth- largest planemaker, slid 4.2 percent in Sao Paulo after JPMorgan Chase & Co. downgraded the stock. HTC Corp. (2498) and Samsung Electronics Co. (005930) fell after their earnings disappointed some investors. Russia’s Micex index rallied 2.7 percent during the day.
The MSCI emerging-markets measure fell 0.5 percent to 1,069.68 in New York after jumping 2.2 percent last week in its steepest surge since November. The iShares MSCI Emerging Markets exchange-traded fund also dropped, tumbling 0.9 percent to $44.25 for the biggest one-day decline since Dec. 21. Brazil is considering energy rationing amid lower water levels at hydropower dams, the O Estado de S.Paulo newspaper reported, citing a government official it didn’t identify.
“In Brazil the utilities sector is pretty weak, and whenever you have a major name down that much, it’s going to drag on the benchmark,” Alec Young, a global equity strategist at S&P Capital IQ, said by phone in New York. “Whether it’s the Bovespa or the MSCI Emerging Markets Index, it’s been kind of straight line up for the last few weeks so it’s also a natural place for some profit-taking.”
Yen Remains Higher on Bets Losses Were Excessive (Bloomberg)
The yen remained higher after a two- day advance amid speculation recent losses related to monetary easing in Japan were overdone and as Asian shares extended a global decline.
The yen was also supported as investors sought a haven on concern U.S. lawmakers will struggle to agree on raising the debt ceiling. The euro halted a loss from yesterday on prospects European Central Bank officials meeting tomorrow will refrain from lowering borrowing costs. The Australian dollar slid against its peers after data showed that retail sales unexpectedly declined.
“The market probably did get quite ahead of itself in terms of pricing in actions from the Bank of Japan,” said Kymberly Martin, a strategist at Bank of New Zealand Ltd. in Wellington. “We may see the Japanese yen strengthen a little in the near term.”
The yen traded at 87.14 per dollar as of 9:55 a.m. in Tokyo from 87.05 yesterday, after climbing 1.3 percent in the previous two days. It was little changed at 113.90 per euro. Europe’s shared currency bought $1.3071 from the $1.3081 close in New York.
Japan’s newly elected Prime Minister Shinzo Abe has called for a doubling of the central bank’s 1 percent inflation goal in a bid to reverse more than a decade of deflation. Bank of Japan policy makers next meet on Jan. 21-22, after boosting stimulus and refraining from altering their price-gain measure at their December gathering.
U.S. Set for Biggest State-Local Jobs Boost Since 2007 (Bloomberg)
State and local governments are in their best financial shape since the recession, giving them leeway to cushion the U.S. economy from federal budget cuts with spending and hiring of their own.
After slashing their workforces by about half a million in the past five years, state and local authorities will add employees in 2013, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. Their payrolls in the fourth quarter will be 220,000 larger than in the same period for 2012, he projects.
Their expenditures and investment also will be higher, rising by 1.8 percent, triple the increase last year, according to projections by St. Louis-based Macroeconomic Advisers.
“The bloodletting on the state- and local-government level has finally passed through,” said Jim Diffley, chief U.S. regional economist for IHS Global Insight in Philadelphia. “They’re no longer subtracting from growth.”
The shift will help the U.S. weather the blow from federal tax increases and spending cuts, keeping the expansion on course, Zandi said. He forecasts that gross domestic product will climb 2.1 percent this year after rising 2.3 percent in 2012, with the expansion getting stronger as the year progresses.
States and municipalities, which accounted for 12 percent of GDP in 2011, won’t be a drag on growth this year for the first time since 2009, said Ben Herzon, a senior economist at Macroeconomic Advisers. The economic rebound means they’re collecting more taxes, reducing the need for more spending cuts.
Consumer Credit Rose in November on U.S. Auto, Student Loans (Bloomberg)
Consumer credit in the U.S. increased more than forecast in November, led by borrowing for student loans and automobiles.
The $16 billion gain followed a $14.1 billion advance in October, Federal Reserve figures showed today in Washington. The median forecast of 34 economists surveyed by Bloomberg called for a $12.8 billion November rise.
With sustained gains in the labor market, reflected by December’s 155,000 increase in payrolls, and strong demand for student loans and cars, economists expect consumer credit to continue to grow in the early months of 2013. The ability to borrow, combined with an improved labor market, signals consumer spending, which accounts for about 70 percent of the economy, will bolster the expansion.
“We’ve seen four straight months now of very significant increases in overall consumer credit,” Thomas Simons, a money market economist at Jefferies Group Inc. in New York, said in a phone interview. “I would expect that’s going to continue.”
Stocks fell, sending the Standard & Poor’s 500 Index down for a second straight day, as investors awaited the start of the corporate earnings season. The 500 Index declined 0.3 percent to 1,457.14 at the close in New York.
China to Encourage Dividend Payouts to Lure Investors (Bloomberg)
Chinese companies trading on the Shanghai Stock Exchange will be encouraged to pay at least 30 percent of their annual profits to shareholders as the bourse seeks to lure more investors to equities.
Companies that fail to do so will need to disclose the reason in annual reports, the Shanghai exchange, the nation’s main bourse, said in a dividend-payment guideline on its website yesterday. There was no mention of penalties in the statement.
“This is the first time the Shanghai exchange has issued such a guideline on dividend payments,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “This makes dividend payments for companies more implementable and is positive for the market.”
Guo Shuqing, chairman of the China Securities Regulatory Commission, has encouraged dividend payments, tightened rules on delisting companies and cut trading costs to boost the appeal of Asia’s third-largest stock market. The CSI 300 Index of the 300 biggest companies on the Shanghai and Shenzhen stock exchanges entered a bull market yesterday after rallying 20 percent from last year’s low on signs economic growth is picking up.
“Only the establishment of an efficient and stable dividend-payment mechanism for listed companies can attract long-term institutional investors seeking steady dividend returns and reasonable capital gains,” the exchange said in the statement. “That’ll make the valuations of the market reasonable and stable.”
China-Japan Dispute Takes Rising Toll of Asia’s Top Economies (Bloomberg)
The last time a dispute between Japan and China blew up in 2010 over eight uninhabited islands, the economic fallout lasted less than a month. This time, the spat is prolonging a recession in the world’s third-largest economy.
Four months after Chinese consumers staged a boycott of Japanese products over the islands in the East China Sea, sales of Japanese autos in China have yet to recover, Chinese factories began to favor South Korean component suppliers, and the U.S. has displaced China as Japan’s largest export market.
“The spats have become increasingly costly as Japan’s dependence on China as an export market has risen,” said Tony Nash, a Singapore-based managing director at IHS Inc., which provides research and analytics for industries including financial companies. “Nationalism around the issue has resulted in lower demand for Japanese products in China and even Chinese firms sourcing products from Korean suppliers.”
As China’s confidence in asserting its territorial claims has grown, and trade between the two nations has tripled since 2000 to more than $300 billion, the commercial cost of failing to resolve the dispute keeps rising. The latest flare-up came after property developer Kunioki Kurihara sold three of the islands to the Japanese government for 2.05 billion yen ($23 million) in September, a transaction Xi Jinping, the new head of the Chinese Communist Party, called “a farce.”
The fallout from the sale may have cut Japan’s growth in the latest quarter by about one percentage point, JPMorgan Chase & Co. estimated. That would be enough to keep the economy in recession after two quarters of contraction up to Sept. 30. Gross domestic product may have shrunk an annualized 0.5 percent in the final three months of 2012, according to the median forecast in a Bloomberg News survey.
Japan to Buy European Debt With Currency Reserves to Weaken Yen (Bloomberg)
Japan plans to use its foreign- exchange reserves to buy bonds issued by the European Stability Mechanism and euro-area sovereigns, as the nation seeks to weaken its currency, Finance Minister Taro Aso said.
“The financial stability of Europe will help the stability of foreign-exchange rates, including the yen,” Aso told reporters today at a briefing in Tokyo. “From this perspective, Japan plans to buy ESM bonds,” he said. The purchase amount is undecided, Aso said.
The move may help Prime Minister Shinzo Abe temper criticism of Japan’s currency policies from trading partners such as the U.S. The yen has fallen around 8 percent against the dollar since mid-November on Abe’s pledge to reverse more than a decade of deflation as his Liberal Democratic Party won an election victory last month.
“The Europeans would be happy to see Japan buy ESM bonds, so Japan can avoid criticism from abroad and at the same time achieve its objective,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. and a former central bank official.
The yen erased gains after Aso’s comments, reaching 87.81 per dollar, before appreciating again to 87.51 as of 7:14 a.m. New York time. The Japanese currency appreciated 0.3 percent to 114.86 per euro.
The ESM held its first debt auction today, selling 1.9 billion euros ($2.5 billion) of three-month bills at an average yield of minus 0.0324 percent. Investors placed bids for 6.2 billion euros of the securities, the Bundesbank said.
South Korea Adds Workers as December Jobless Rate Holds at 3% (Bloomberg)
South Korea’s workforce expanded last month, with the unemployment rate unchanged from November as jobs increased in manufacturing and in the service sector.
The jobless rate was at 3 percent in December, Statistics Korea said in an e-mailed statement from Sejong, south of Seoul. The median estimate in a Bloomberg News survey of 11 economists was for a rate of 3 percent. The number of employed people increased by 277,000, or 1.1 percent, to 24.4 million last month from a year earlier.
Incoming President Park Geun Hye has vowed to make it more difficult for companies to fire employees and to increase assistance for low-income workers burdened with record household debt. The nation will create 320,000 jobs this year, the Finance Ministry said in a Dec. 27 report, down from an estimated 440,000 million new positions in 2012.
“The unemployment rate looks good, but it is unlikely to help lift domestic consumption,” Ma Ju Ok, an economist at Kiwoom Securities Co. in Seoul said before the release. “There are many workers in temporary positions.”
The ranks of self-employed increased to 5.7 million as of last month, from 5.6 million in December 2011, according to the most recent report from Statistics Korea.
South Korea’s won is Asia’s best-performing currency this year, dragging on exports that unexpectedly fell in December for the first time in three months. The won strengthened 0.1 percent to 1,062.90 per dollar yesterday in Seoul.
New Zealand House Building Approvals Reach Highest Since May ’10 (Bloomberg)
New Zealand building approvals for detached houses surged to the highest in 2 1/2 years in November amid record-low interest rates and rebuilding in the earthquake- devastated Canterbury region.
Permits for dwellings excluding apartments rose 4.6 percent from October to 1,382, the most since May 2010, Statistics New Zealand said in Wellington today. Total approvals fell 5.4 percent as apartment consents slumped to a 19-month low.
Increases in construction plans add to signs of a revival in the housing market, led by low mortgage interest rates and by rebuilding in Christchurch city and the surrounding Canterbury district after earthquakes in 2010 and 2011. Central bank Governor Graeme Wheeler on Dec. 6 said lower funding costs were helping keep borrowing costs at bay, adding he will be monitoring the housing market for signs of emerging inflation pressure.
“Conditions have certainly eased on the interest rate front,” Craig Ebert, senior economist at Bank of New Zealand Ltd. in Wellington, said in an interview yesterday. “We all know interest rates need to be on the low side but just how low?”
New Zealand’s dollar was little changed after the report, buying 83.65 U.S. cents at 10:48 a.m. in Wellington.
New Zealand’s effective home-lending rate in October was the lowest since records began in 1998, according to central bank figures.
The central bank has kept the official cash rate at a record-low 2.5 percent since March 2011. Eight of 16 economists surveyed by Bloomberg News forecast Wheeler will raise borrowing costs this year.
Total approvals rose 20 percent from November last year, the statistics agency said, citing unadjusted figures. Consents in Canterbury surged 71 percent to the highest in more than five years, it said. Auckland approvals were little changed.
Euro-Area Economic Confidence Rises More Than Estimated (Bloomberg)
Economic confidence in the euro area increased more than economists forecast in December even as the 17-nation currency bloc remained mired in its second recession in four years.
An index of executive and consumer sentiment rose for a second month to 87 from 85.7 in November, the European Commission in Brussels said today. Economists had forecast an increase to 86.3, according to the median of 24 estimates in a Bloomberg News survey. The unemployment rate in the euro region rose to a record 11.8 percent in November, the European Union’s statistics office said in a separate report.
The improvement in sentiment is in line with strengthening business confidence in Germany, Europe’s largest economy. Still, German factory orders fell more than economists expected in November amid weak demand from outside the euro area.
“We expect the uncertainty emanating from the sovereign debt crisis, which has been hanging like dark clouds over the euro-zone economy, will continue to ease,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “From the spring, the economy in the core countries should start to grow again.”
The euro pared gains after the data were released and traded at $1.3119 at 12:25 p.m. in Brussels, little changed on the day.
The euro-area economy shrank 0.1 percent in the third quarter after a 0.2 contraction in the three previous months. Gross domestic product probably fell another 0.3 percent from October through December, according to the median estimate of 22 economists in a Bloomberg survey. The EU is due to publish GDP data for the fourth quarter on Feb. 14.
German factory orders fell more than economists expected in November amid weak demand from outside the euro area. (Bloomberg)
Orders, adjusted for seasonal swings and inflation, dropped 1.8 percent from October, when they jumped a revised 3.8 percent, the Economy Ministry in Berlin said today. Economists had predicted a 1.4 decline, according to the median of 24 forecast in a Bloomberg News survey. From a year earlier, orders fell 1 percent when adjusted for work days.
“The drop was to be expected after last month’s increase,” said Carsten Brzeski, an economist at ING Group in Brussels. “While there will be an economic dip in the fourth quarter and the recovery will be very gradual, the outlook for Germany is not bad at all. The lull in the crisis means companies are confident to invest again.”
Germany’s economy has shown some signs of stabilization in recent weeks, even as the euro economy, Germany’s biggest trading partner, fights recession. Unemployment increased less than economists expected in December, while business confidence improved for a second month. Investors also were more optimistic.
At the same time, exports plunged 3.4 percent in November, marking the steepest decline in more than a year, the Federal Statistics Office in Wiesbaden said earlier today.
Export sales fell 4.1 percent in November, driven by a 6.5 percent decline in demand from outside the 17-nation currency bloc, today’s report shows. Orders from the euro area rose 0.2 percent and domestic orders gained 1.3 percent.
U.K. Stores Set for Tough 2013 After ‘Underwhelming’ Holiday (Bloomberg)
Christmas was “underwhelming” for U.K. retailers with sales barely rising and the outlook for 2013 is little better, according to the British Retail Consortium.
Sales at stores open at least a year gained 0.3 percent in December from a year earlier, the worst performance since 2010, when snowy conditions deterred shoppers, the lobby group said today in a statement. Total revenue climbed 1.5 percent, but would have fallen excluding buoyant online revenue, BRC Director General Helen Dickinson said. Web sales climbed 18 percent.
Britons held off making holiday purchases until the last minute in order to find discounts, and overall shopper numbers were “disappointingly low,” the BRC said. U.K. consumer confidence fell in December as optimism about the outlook for the economy plunged, according to GfK NOP Ltd., while food and fuel inflation is weighing on household budgets.
“The sheer endurance test of a marginal, if any, growth environment is making it very, very difficult for retailers,” Dickinson said. The BRC expects “more of the same” in 2013.
Some retailers had a better Christmas than others, the BRC said. John Lewis Partnership Plc said last week that department- store sales rose 15 percent over the Christmas season. Smaller competitor Debenhams Plc (DEB) today reported a 2.9 percent gain in 18-week same-store revenue, though lowered its margin forecast after it stepped up discounting.
German Exports Dropped More Than Forecast in November (Bloomberg)
German exports declined more than economists forecast in November as the sovereign debt crisis weighed on euro-area demand.
Exports adjusted for working days and seasonal changes fell 3.4 percent from October, when they unexpectedly rose 0.2 percent, the Federal Statistics Office in Wiesbaden said today. That’s the steepest decline in more than a year. Economists had forecast a 0.5 percent drop, according to the median of 9 estimates in a Bloomberg News survey. Imports fell 3.7 percent from October.
Weaker demand for its goods from the 17-nation euro region is hurting the German economy, which probably contracted markedly in the fourth quarter, the Bundesbank said last month. Still, euro-area investor confidence as measured by Sentix jumped to the highest level since 1 1/2 years in January as signs multiply that the region’s debt crisis may be beginning to ease.
“The big problem has been subdued demand in neighboring economies, and November saw a particularly weak level of activity in other euro-area countries,” said Sarah Hewin, head of European research at Standard Chartered Bank in London. “On a positive front, we think that the German economy should grind higher in the coming quarters.”
The trade balance widened to 17 billion euros ($22.3 billion) from 15.7 billion euros in October. The surplus in the current account, a measure of all trade including services, was 15.3 billion euros, up from 13.2 billion euros.
Merkel Economy Shows Neglect as Sick Man Concern Returns (Bloomberg)
German Chancellor Angela Merkel’s economic machine is beginning to show signs of neglect.
As the continent’s growth engine and self-appointed fiscal paragon orders budget cuts for its peers, investors, economists and policy makers are starting to warn Germany is turning a blind eye to its own weaknesses. Joerg Asmussen, a European Central Bank board member nominated by Merkel, has gone as far as to predict a return to the status of “Sick Man of Europe” should they go unfixed.
Without Merkel and a largely supportive German electorate ready to back over 300 billion euros ($393 billion) in bailouts and guarantees, Europe’s debt crisis could have already broken up the single currency. At the same time, the drive to rescue Europe has distracted her from signs of economic drift at home as labor costs rise at the fastest pace in a decade, erasing most of the progress made under predecessor Gerhard Schroeder.
“Merkel has had to work with the cards that history has dealt to her and Europe has been a priority,” said Irwin Collier, professor of economics at the Freie Universitaet in Berlin. “But you have to do a lot of things at the same time, and it’s clear now things have to change at home too.”
The chancellor, in office since 2005, thus far has had to do very little to the economy.
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