Financial markets continued to trade with considerable volatility in November, driven by the escalation of sovereign debt issues in the Europe Union (EU), heightened political uncertainty and confusion over possible policy responses.
Economic overview
At this stage EU politicians seem unwilling or unable to keep pace with developments in financial markets and failed to announce a comprehensive solution to the EU sovereign debt crisis.
Despite the EU leaders summit announcement of 27 October, market volatility continued. Financial markets are now looking to the International Monetary Fund (IMF) and European Central Bank (ECB) for a comprehensive solution to the debt crisis.
The situation in Europe looks to be heading towards one of two inevitable conclusions: a breakup of the EU and a return to individual currencies, or a full fiscal union (to go with the currency and monetary union), including Euro-bonds and a true lender of the last resort in the ECB. EU politicians continue to favour the latter option, although the ECB and German politicians appear reluctant to accept the ECB’s role in the final solution.
Pressure from financial markets saw the resignations of Greek Prime Minister, George Papandreou (after a failed call for a referendum on the bailout plans) and Italian Prime Minister, Silvio Berlusconi (after a loss of confidence by financial markets and the Italian Parliament). Both were replaced with technocratic leaders, both non-elected officials and ex-economists. Mario Monti, the new Italian Prime Minister, is a former EU Commissioner and economics lecturer at the University of Turin and is expected to remain in power until early 2013. Lucas Papademos, the new Greek Prime Minister is a former Vice President at the ECB and successfully negotiated to receive Greece’s sixth tranche of bailout funds in late November before a bond maturity in mid-December. Elections are due in February 2012.
There was also a change in government in Spain with Mariano Rajoy, from the People’s Party’s sweeping to victory. The focus of the new government will be the implementation of further austerity measures and improving growth prospects for the economy.
US economic data continued its run of beating expectations, but still remained well below average levels. Highlights included the unemployment rate falling to 9.0% (was 9.1% and down to 8.6% in early December) and upward revisions to employment in the prior two months. The University of Michigan Consumer Confidence index rose to 64.1 (was 60.9), retail sales gained +0.5%/mth and Thanksgiving sales late in the month were strong. Housing market data disappointed.
Data in China continued to slow, leading to considerable volatility in commodity prices and adding to global financial market volatility. The PMI Manufacturing Index fell to 49.0% from 50.4% (the first sub-50 reading since February 2009) and annual export growth slowed to 15.9%/yr from 17.1%/yr. This led to the first easing of bank capital requirements since September 2008.
In Australia, retail sales data was released for October and showed sales rose by 0.2%/mth to be 3.4% higher than a year ago. This was slightly below expectations, with department store sales remaining the weak spot in retailing. The housing sector also remains weak, with residential approvals dropping 11% over the month and house prices falling 0.5% to be 4.0% lower than a year ago. The unemployment rate in Australia ticked down to 5.2% from 5.3% after employment rose by 10,000 in October. However the pace of employment growth still remains subdued.
Indices:
The All Ordinaries Index has moved down over the past week decreasing 86 points (or -2.0%) since last Thursday to 01:30 pm this Friday.
The rest of the world as measured by the MSCI index is down 13 points (or -1.1%) from last Friday to end of trade Thursday.
No comments:
Post a Comment