Daily Market Reports | Nov 21 2011
By Greg Peel
New ECB president Mario Draghi made his first speech on Friday night in which he hinted at further interest rate cuts to come and pushed hard for the rapid implementation of the EFSF. That's all well and good, but as the EFSF struggles to find any funding support, the calls for greater involvement from the ECB are gaining traction around the globe. The problem is, however, that any expanded role for the ECB as effective funder of the EFSF would require a constitutional change. At present the central bank has no mandate to print money as the Fed, for example, has been doing to alleviate US debt problems.
Any constitutional change would then require bills to be passed through the seventeen member parliaments and we know how fraught that process can be, and how slow. The latest popular suggestion therefore is for the ECB simply to lend to the IMF which can then distribute the funds – a move which would not require constitutional change. However, both the ECB and Germany are opposed to such a plan at this stage. Whichever way you turn Germany is dead against the untroubled eurozone members bailing out the troubled eurozone members any further no matter how indirect the process. Funding must come from elsewhere.
In the meantime the ECB was in buying Italian and Spanish bonds again on Friday, helping to take some pressure off yields in both countries and also in France. The French connection is via the French banks which are holding the bulk of the dodgy debt.
Speaking of dodgy debt, Wednesday night is the deadline for a resolution from the 12-member bipartisan super-committee charged with finding sufficient US budget cuts to avoid another debt ceiling breach ahead. Talk is that the committee is locked in an impasse – surprise,surprise – which doesn't bode well at this late stage. The committee is supposed to produce an outline for the Budget Office to examine 48 hours before the deadline, meaning tonight. A failure by the committee to arrive at a resolution risks another US credit rating downgrade.
The impasse has Wall Street rather worried and undermines the ongoing US positive economic data which have been building of late. On Friday night the Conference Board index of leading indicators showed 0.9% growth in October after a revised 0.1% fall in September, ahead of 0.7% expectations. Commentary from the CB suggested the index is pointing to continued growth in the northern winter, possibly even gaining some momentum in spring.
The news all round was enough to ensure a fairly directionless session which again featured low volume despite it being an option expiry day. The Dow closed up 25 points or 0.2% while the S&P was virtually unchanged at 1215 and the Nasdaq lost 0.6%.
The euro was a little stronger, sending the US dollar index down 0.2% to 78.05 and the Aussie to just over parity at US$1.0011. Gold was barely changed at US$17.23.90/oz and the US ten-year bond yield remains steady around the 2% mark.
Base metals in London were stronger early on but lost momentum over the session, leaving copper with a 1% gain. Brent oil fell US73c to US$107.73/bbl and West Texas fell US$1.41 to US$97.41/bbl.
The SPI Overnight rose one solitary point.
It's a short week in the US this week with a lot of data crammed in between tonight and Wednesday night ahead of the Thanksgiving holiday on Thursday. We'll see existing home sales and the Chicago Fed national activity index tonight, the Richmond Fed manufacturing index on Tuesday, and durable goods, personal income and spending and consumer sentiment on Wednesday. On Tuesday another revision of the US September GDP will be released and economists expect no change at 2.5% growth. On Thursday the Fed will release the minutes of its last monetary policy meeting and everyone will be looking for any further clues about QE3. Over the next three days the US Treasury will auction two, five and seven-year notes.
All US markets are closed on Thursday and on Friday the NYSE has a half-day, closing at 1pm local. Friday is traditionally known as “Black Friday” as retailers expect to go “into the black” for the year on one of the busiest Christmas shopping days. Black Friday sales typically provide a clue as to whether or not it will be a merry Christmas for retailers.
The Conference Board will also provide its September leading index for Australia on Wednesday this week in a quiet week for Aussie economic data. September quarter construction work done is the other highlight, also due on Wednesday. And on Wednesday HSBC will provide its “flash” estimate of China's November manufacturing PMI.
While Americans are giving thanks on Thursday, Germany will update its September quarter GDP as will the UK, while the influential German IFO survey will be released. Also influential will be the release of the composite PMI estimate for the eurozone on Tuesday.
Company-wise in Australia there are about a million AGMs this week while Programmed Maintenance ((PRG)) will release its interim result on Wednesday and Graincorp ((GNC)) will report its full-year on Thursday.
Rudi will appear on Sky Business at noon on Thursday.
For further global economic release dates and local company events please refer to the FNArena Calendar.
