Week in Review September 11-16

The week started on the back foot, carrying over of an imminent Greek default fear from the previous Friday. The Group of 7 came empty handed and left, promising nothing. The SNB did all the promising, despite still looking for credibility, and reiterated their commitment to enforce the EURCHF floor at 1.20 at its quarterly meeting. The Bank is prepared to buy foreign currency in unlimited quantities, but traders continue to fan the flames by trading just above their ‘panic’ level. The Market is chewing on the coordinated central bank provision of USD swap facilities for banks, which are signaling a policy commitment to prevent worst-case illiquidity scenarios. This alone is not enough to prop up longer term risk appetite; investors seek stabilization in US growth to go hand-in-hand. Philly Fed was a plus, albeit small. Everyone is expecting European Finance Ministers to supply rhetorical support for Greece and the EUR. Thus far, the ministers have ruled out efforts to prop up the faltering economy and have giving no indication of providing aid.

Below are the highlights of the week:

EUROPE

• G7 Summit failed to bring any news to the table: no new policy action or indication of support for joint intervention in the FX market. Governments are “focused on their individual national interests rather than policy coordination”.
• ITL: Sold 3m and 12m bills at substantially higher yields, +1.91% and +4.15%.
• GER: Der Spiegel wrote that Germany was preparing for the impact of Greek restructuring on German banks in two scenarios, with Greece in or out of the EMU.
• GR: Finance Minister Venizelos announced a new property tax and a one month salary cut for elected officials aimed at ensuring Greece meets its 2011 and 2012 budget deficit targets.
• ITL: Industrial production unexpectedly fell by -0.7%, m/m, in July. Prior month growth also revised lower to -0.8% vs. -0.6%. The weakness was fairly broad based.
• FT and Bloomberg reported China could invest in Italian bonds. Similar talks last year failed to generate significant investments in Greece.
• ITL: Bond auction attracted slightly below average demand and contributed to dampening appetite in Europe. Italy sold €6.5b worth of 2016, 2018 and 2020 paper, with bid-to-cover ratios ranging between 1.28 and 1.61 (average for 2011 is 1.50).
• IMF agreed to disburse EUR3.98b to Portugal after completing the first review of the loan program.
• UK:CPI accelerated to +4.5%, y/y, last month from +4.4% in July, while core inflation was stronger at +3.1%, y/y and is not expected to undermine the BoE’s easing expectations. Peripheral stress could continue to drive demand for GBP as a reserve alternative.
• UK: Its expected that the BoE will respond to the marked slowdown in growth indicators by a new £50b asset purchasing program next month.
• SEK: Inflation above expectations at +3.4%, y/y last month, +3.3% in July. The print is unlikely to have a material impact on Riksbank expectations, given global uncertain. As a reserve currency, Sweden’s ties are too strong to the Euro-region.
• Moody’s cuts long-term debt and deposit ratings of several French banks
• UK: Jobless claims rose +20K in July vs. +35K. ILO unemployment rose +80K in May to July, pushing unemployment rate higher to +7.9% from +7.7%.
• EUR: Sarkozy and Merkel reaffirmed their commitment to the 21 July agreement, stating that they are convinced Greece will remain in the Euro area.
• ITL: The lower house has approved the revised €54b austerity package.
• ESP: Successfully auctioned €3.9b worth of bonds, to decent demand.
• CHF: SNB reiterated its commitment to enforce the EURCHF floor under 1.20 at its quarterly meeting and is prepared to buy foreign currency in unlimited quantities.
• CHF: SNB substantially lowered its inflation trajectory, forecasting deflation in the next 12 months and then rising to only +1.0%. SNB seeks credibility.
• GBP: BoE quarterly inflation expectations survey showed that inflation expectations one year ahead rose to +4.2% from +3.9% in May.
• UK retail sales excl-petrol fell -0.1%, m/m in August, better than consensus for a +0.2% fall.
• EUR: Central Bank coordinated global dollar intervention lifted, at least temporarily investor confidence.
• EUR: ECOFIN meets today and tomorrow in Poland

Americas

• US: Import prices fell last month (-0.4%), less than what had been expected (-0.8%), indicating that inflation pressures are benign. It was the second drop in three months, and gives Bernanke more wriggle room to add additional stimulus.
• US: Economy is showing signs of stalling. Retail sales were well below analyst’s forecasts and July was revised down, even wholesale prices recorded a similar print of being flat.
• US: The core and CPI came in as expected at +0.2% and +0.4% respectively and battering consumer confidence squeezed by stagnant wages and higher prices of food.
• US: Weekly unemployment claims was weaker than expected at +428k, up +11k w/w.
• US: Philly Fed Business Outlook Survey rebounded to -17.5 this month after plunging -33.9 points to -30.7 in August, the market was expecting-15.
• CAD: Manufacturing Sales beat all expectations at +2.7% vs. a revised higher -1.3% m/m.
• CAD: Net Foreign Investments rebounds to +11.78b in July
• USD: Prelim UoM Consumer Sentiment 57.8 vs 57.3

ASIA

• CNY: Robust trade is easing credit as trade remained resilient last month, with export and import growth rising to +24.5%, y/y and +30.2% respectively. The strong import performance has led to a narrowing of the trade surplus to +$17.8b from +$31.5b in July.
• CNY: M2 growth continues to fall, down to +13.5%, y/y in August from +14.7% in July (lowest print in six-years).
• NZ finance minister stated that they should be able to keep lower rates for longer-pressure on Kiwi.
• AUD: NAB business confidence index fell to -8 last month (lowest in two-years). RBA is expected to stay the course for the ‘foreseeable future’.
• IDR: Bank of Indonesia and Bank of Korea seen smoothing currency moves, other Asian Central Banks to follow.
• CNY: Premier Wen deflected calls to support indebted European countries by reiterating that China can offer “a helping hand” to Europe through investing there. No other details of specific regional investment.
• CNY: PBoC adviser Li was also quoted as saying that China should not buy large amounts of European bonds.
• NZD: RBNZ kept policy rates unchanged at +2.5%. Bollard cited the “intensification” in global risks and currency appreciation as the key reasons. The pricing for a rate hikes over the next 12 months fell-4bp.
• SGD: Retail sales growth surprised higher at +10.7%, y/y for both headline and ex-autos, vs. the consensus forecast for +8.7% and +9.0%, y/y. It’s proof that inflationary pressures remain elevated.
• CNY: PBoC fixes CNY at new low, 81 pips lower to 6.3797.
• NZD: ANZ consumer confidence fell to 112.6 this month from 113.3 in August, proof of resilient domestic sentiment.