November 1, 2011: Some News That Matters

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Associated Press
Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, NYT DealBook says,’s prime minister unexpectedly announced a referendum to approve a second EU bail-out deal for his austerity-hit country, less than a week after it was agreed with international creditors at a EU summit,

China’s official purchasing managers’ index for October fell to its lowest since February 2009, Bloomberg reports. The PMI fell to 50.4 in October from 51.2 in September, the first fall in three months.

Thailand’s prime minister has warned that it will take the country three months to recover from the worst floods in decades, even though the capital’s central districts have thus far escaped being inundated,

According to a statement following a State Council meeting chaired by Premier Wen Jiabao, China will “firmly” maintain its property curbs and “fine tune” other economic policies at an appropriate time,

Intervention to suppress the yen threw some investors’ bullish strategies off kilter and was encouraging profit-taking after a stellar month for risk assets, the FT reports. Trader caution also possibly reflected a desire to lock in gains ahead of a busy week of potential policy and data headline risk

Portugal is to ask the European Union and International Monetary Fund for changes to its €78bn financial rescue agreement to help lift the country’s debt-stricken economy out of recession. Pedro Passos Coelho, prime minister, said he would seek “greater flexibility” to channel finance to companies in an effort to stimulate economic growth.

Bankers have warned that the eurozone rescue fund might face lacklustre demand this week for a planned bond issue designed to finance Ireland’s bail-out. The offering will provide a key test of investor sentiment after the announcement last week of new plans to tackle the eurozone debt crisis.

Leading emerging market countries have shifted further towards channelling any rescue loans to the eurozone through the International Monetary Fund, reducing Europe’s chances of negotiating direct bilateral bailouts to help resolve its sovereign debt crisis. Indian and Russian officials suggested that the IMF was their preferred way to help prop up the eurozone, rather than depositing money in a possible special purpose vehicle set up by European authorities to solicit loans.
Asian share markets dropped on Tuesday, as growth-sensitive stocks lost ground after data showed a slowdown in China’s manufacturing activity, while fresh concerns about the euro-zone debt crisis resurfaced.

Australia’s central bank cut interest rates on Tuesday for the first time in two and a half years, fine-tuning economic policy as inflation risks fade, unemployment rises and the global outlook worsens. The Reserve Bank of Australia, or RBA, cut its benchmark interest rate by one quarter of a percentage point to 4.50%. The move was in-line with market expectations and snapped a year-long period of unchanged rates.

The euro zone slid closer to recession as Spain’s economy stalled and unemployment across the 17-member bloc surged unexpectedly to its highest level since the creation of the euro, complicating the European Central Bank’s efforts to navigate the region through its debt crisis.

Japan’s government hopes the third time is the charm for its efforts to weaken the yen. But currency traders already are casting doubts over whether Japan’s intervention in currency markets on Monday will successfully put the brakes on the currency. Japanese officials have struggled this year to curb a rise in the yen that undermines the country’s economy by making its export sector less competitive overseas.

China’s manufacturing data indicated weak growth in October, suggesting Beijing’s tight monetary policy and fading growth in demand for its exports have started to weigh on the economy. China’s official Purchasing Managers Index fell to 50.4 in October compared with 51.2 in September, according to the China Federation of Logistics and Purchasing, which issues the data with the National Bureau of Statistics.

South Korea’s October exports growth slumped to a two-year low while inflation for the month fell within the Bank of Korea’s target band for the first time this year, underscoring increasing growth risks for Asia’s fourth-largest economy as the world braces for a potential global slump. Although the country ran a larger-than-expected $4.29 billion trade surplus in October, exports rose just 9.3% from a year earlier—the weakest performance since an 8.5% decline in October 2009 that was due in part to
n”October sales reports this week will show steady spending by U.S. consumers, as improving finances for many shoppers helped overcome a barrage of scary headlines about the economy. October can be a slow month, falling in the lull between the back to school season and the start to year-end holiday shopping. But it does give retailers a read into shoppers’ mindset and intentions ahead of the Christmas blitz.
Hong Kong‘s residential property prices would drop by 35 per cent to 45 per cent over the next two years in the “hard landing” scenario of a deflationary economic environment, Barclays Capital Research said.  In a “soft landing,” continued mortgage rate increases and a slowing economy would drive prices 25 per cent to 30 per cent lower over 2012 and 2013, Andrew Lawrence and Vivien Chan, analysts at Barclays, wrote in a report dated today.

The Bank of Japan has lost as much as 22.4 billion yen ($281.7 million) purchasing exchange-traded funds as the Topix Index approaches a 27-year low. The central bank’s stock holdings have fallen about 4 per cent since buying began on Dec. 15, 2010, according to estimates calculated by Bloomberg using government filings. Losses climbed above 67.6 billion yen in September as equities plunged amid concern Europe’s debt crisis would trigger a global recession, the data show.

South Korea will set up a fund as early as this year to begin raising up to 55 trillion won ($50 billion) to pay for its eventual reunification with North Korea. Individual Koreans at home and abroad will be able to make donations to the fund and the government in Seoul may earmark money including budget surpluses, Unification Minister Yu Woo Ik said in his first interview since being sworn in on Sept. 19. While foreigners will also be allowed to donate, there is no plan to ask overseas governments to contribute, he said.

Credit Suisse Group AG (CSGN), the second- biggest Swiss bank, said it will cut about 1,500 more jobs and reorganize its securities unit after the division reported its first quarterly loss since 2008. Third-quarter net income rose 12 per cent to 683 million Swiss francs ($776 million), helped by an accounting gain from the widening of its credit spreads, the Zurich-based bank said in a statement today. That missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg.

Treasuries fell, with 30-year bonds snapping yesterday’s steepest rally since March 2009, before an industry report that economists said will show manufacturing quickened in October. Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., said the Federal Reserve‘s willingness to increase debt purchases as it tries to spur the economy would boost the inflation rate and Treasury yields. Fed policy makers are scheduled to begin a two-day meeting today.
U.S. auto sales in October are expected to have hit the highest rate in at least eight months, helped by pent-up demand from consumers trading in ageing vehicles and a wider selection of Honda and Toyota brand cars and trucks. 40-one economists polled by Reuters expect October’s seasonally adjusted annualized rate to be around 13.2 million vehicles, up about 9 per cent from the year earlier. In September, the sales rate was 13.1 million.
Oil prices fell to near $92 a barrel Tuesday in Asia amid signs that last week’s optimism about Europe’s debt crisis plan may have been overblown. Benchmark crude for December delivery was down 70 cents at $92.49 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract slipped 13 cents to settle at $93.19 in New York on Monday.  Brent crude was down 25 cents at $109.31 a barrel on the ICE Futures Exchange in London. Crude has jumped from $75 on October 4 amid expectations of a European plan to contain Greece’s debt crisis.
The Treasury Department is seeking to borrow $305 billion in the current quarter through December and announced plans to borrow $541 billion in the first three months of next year. The first quarter amount would be the second highest borrowing on record. The latest estimate of borrowing plans for the October-December quarter is $19 billion higher than an estimate Treasury made three months ago. Treasury officials said lower-than-expected government tax receipts increased the borrowing estimate.
European inflation unexpectedly remained at a three-year high and unemployment increased, complicating the European Central Bank’s task of bolstering the region’s faltering economy. The inflation rate in the euro area held at 3 per cent in October, the same as in the previous month, the European Union’s statistics office in Luxembourg said in an initial estimate today. That’s the highest rate since October 2008. European unemployment unexpectedly rose to 10.2 per cent in September from 10.1 in August, according to a separate report. The ECB earlier this month resisted calls to lower its benchmark interest rate from 1.5 per cent, instead opting to extend the use of unconventional measures to fight a worsening fiscal crisis. With the economy cooling and governments stepping up budget cuts, companies may struggle to raise prices, easing cost pressures across the region.
The global economy is on the verge of a new and deeper jobs recession that may ignite social unrest, the International Labour organisation (ILO) has warned. It will take at least five years for employment in advanced economies to return to pre-crisis levels, it said. The ILO also noted that in 45 of the 118 countries it examined, the risk of social unrest was rising. Separately, the OECD research body said G20 leaders meeting in Cannes this week need to take “bold decisions”.
The Organisation for Economic Co-operation and Development (OECD) has warned that bold action needs to be taken at the G20 summit this week to stave off the threat of another recession in Europe.  The leading think-tank slashed its growth forecasts for some of the world’s biggest economies and said “without decisive action the outlook is gloomy”. In a rallying cry before the world’s 20 richest nations meet in Cannes on Thursday, OECD secretary general Angel Gurria called on politicians to implement the eurozone rescue package sketched out last week “promptly and forcefully”.

The jury is still out on whether last week’s haircut on Greek government debt will constitute a “credit event” triggering billions of pounds of insurance written against the country’s bonds, according to the body charged with overseeing the process. In a note to the market on Monday, the International Swaps and Derivatives Association (ISDA), which oversees the multi-trillion pound credit derivatives market, said it was too early to say whether the terms of last week’s bail-out of Greece would mean the country was formally in default.

Italy’s borrowing costs have once again surged to danger levels amid growing doubts over the viability of Europe’s bail-out machinery, dashing hopes that last week’s summit deal would at last contain the crisis. Yields on 10-year bonds jumped to 6.18pc on Monday, while spreads over German Bunds reached 410 basis points, nearing the critical level where LCH Clearnet raises margin requirements. This, in turn, triggers further selling.

Brazil will overtake the UK to become the world’s sixth biggest economy this year, according to new projections. The Latin American giant’s GDP for 2011 is expected to hit $2.44 trillion (£1.51 trillion) compared with $2.43 trillion for the UK, the latest monthly forecasts from the Economist Intelligence Unit (EIU) show. This will see Brazil, which last year overtook Italy to become the world’s seventh biggest economy, move up one more place to sixth with the UK falling to seventh.

The two halves of the eurozone are locked in a broken marriage. One by one, the democracies of Southern Europe are being broken on the wheel of monetary union. Greek premier George Papandreou and his ministers were cruelly depicted in cartoons knuckling to German orders or delivering the Nazi salute. The yearly march commemorating the struggle against the Axis was blocked in Thessaloniki by protesters shouting “traitor” at Greece’s ageing president Karolos Papuolias, himself a teenage resistor.
US crude oil fell on Tuesday, dropping for a third consecutive session, after the collapse of MF Global Holdings heightened concerns that the euro zone debt crisis is far from being resolved. US December crude fell 37 cents, or 0.4 per cent, to $US92.82 a barrel. Prices surged 17.7 per cent in October, the biggest monthly gain since May 2009. ICE Brent December crude lost 25 cents, or 0.2 per cent, to $US109.31 a barrel.

Spot gold prices edged lower, pressured by a stronger US dollar after Japan intervened in the currency market in the previous session, while uncertainty over the euro zone’s debt plan also weighed on market sentiment. Spot gold edged down 0.1 per cent to $US1711.99 an ounce, after staging a monthly rise of 5.5 per cent in October. US gold lost 0.7 per cent to $US1713.90.

Italian bank executives on Monday criticised a European agreement on recapitalising the banking sector, saying that it penalised Italy’s lenders. Federico Ghizzoni, the chief executive of UniCredit, Italy’s biggest bank, said the agreement was incomprehensible. “It’s true that Italian banks present a level of capitalisation below some European countries but this is justified because the portfolio is much less risky,” he said. The chairman of Intesa Sanpaolo, Giovanni Bazoli, spoke of his concern over recapitalization demands.
The latest economic forecasts, employment numbers and inflation data coming out of the euro zone will not make life any easier for Mario Draghi, the MIT-trained economist who takes the helm of the European Central Bank on Tuesday. The ECB is already under increasing pressure to play a more activist role as the 17-country euro zone grapples with a stalling economy and a crippling debt crisis that threatens to tear apart the currency union. Now, the organisation for Economic Co-operation and Development has underscored those concerns, warning of “patches of mild negative growth” in the region and slashing its GDP forecast to 1.5 per cent this year and a mere 0.3 per cent in 2012.
Finance Minister Pranab Mukherjee maintained that with the government taking necessary steps to ease the supply-side bottlenecks in farm products, inflation would begin to moderate soon. Interacting with the media on the sidelines of a function here, Mr. Mukherjee said: “The current inflation pressures are mainly because of supply-side constraints of agricultural products. Necessary steps have already been taken. I hope it will have its impact and from November-December onward … the rate of inflation will be moderating”.

Union Commerce and Industry Minister Anand Sharma on Monday said India was ‘seriously considering’ to hike the 51 per cent foreign direct investment (FDI) cap in single brand retail that would allow global retail giants to set shop in the country. “We have 51 per cent (FDI cap) in single brand retail and we are seriously considering how to raise it to a higher level,” Mr. Sharma said at a meeting of the India-Italy Business Forum, organised by the Federation of Indian Chambers of Commerce and Industry (FICCI).
Expressing confidence that India and Italy will reach the target of Euro 15 billion, Union Commerce and Industry Minister Anand Sharma has said that bilateral trade with Italy is fast gaining momentum. Talking to reporters after meeting an Italian business delegation led by Italian Economic Development Minister Paolo Romani here, Sharma said: ” We have had useful discussions to review the progress in our bilateral relationship”

Indian manufacturing rebounded for the first time in six months during October, having virtually stalled in September, boosted by rising domestic orders for new business, a survey showed on Tuesday. TheHSBC Markit India Manufacturing PMI rose to 52.0 from 50.4 in September, comfortably above the 50 mark which divides growth and contraction. The new orders index, an indicator of future output, rose after six consecutive declines. The factory output index also jumped to 52.7 after falling for five straight months to 51.1 in September.

India’s fiscal deficit for the first six months has crossed 70% of its full-year target, confirming fears that the government’s budget arithmetic could go awry as economic slowdown crimps tax collections.  Fiscal deficit for the April-September period stood at 2.92 lakh crore, government data released on Monday showed, almost double of the year-ago period. “Things are not looking too good. The best the government could do with this run rate is 5.3-5.4% of GDP,” said HDFC Bank chief economist Abheek Barua.
South Korea’s consumer prices grew at a slower pace in October than a month earlier, falling below the 4 per cent mark for the first time this year, a report showed Tuesday. According to the report by Statistics Korea, the country’s consumer price index rose 3.9 per cent last month from a year earlier, slowing from the 4.3 per cent on-year gain in September. The October figure marked the first time this year that the index has fallen below the government’s annual inflation target of 4 per cent for 2011. Prices also shrank 0.2 per cent from a month earlier.
Mayor Sergei Sobyanin‘s emphasis on developing social and transportation infrastructure over the housing market could lead to significant price increases for residential real estate in Moscow, according to a director of one of the city’s largest realty agencies. “In the upcoming year, year and a half, the price for apartments could increase as much as 20 to 30 per cent,” said Penny Lane’s elite real estate director, Alexander Ziminsky. Commemorating Sobyanin’s first year in office, Penny Lane held a press conference late last week to highlight potential strains that the mayor’s policies will place on the housing market in Moscow.
South Africa’s trade account recorded a trade surplus of R2.5bn in September compared with a R3.7bn shortfall in August, the South African Revenue Service said on Monday. “The change in the trade balance … was mainly due to increased exports of precious and semi-precious stones and mineral products and increased imports of machinery and electrical appliances,” SARS said.
Exports rose by 11.1% month-on-month to R67.8bn in September while imports edged up by 0.8% to R65.3bn.
The UAE Energy Minister Mohammed bin Dha’en Al Hamili said on Monday that crude-oil prices in the $80-$100 range create conditions that allow producers to continue expanding production capacity. He said a high oil price would lead to more investment in alternative energy and also more investment in crude production capacity, which would mean less volatile prices. “We need reasonable prices to keep investing to raise capacity,” Hamili told the Singapore International Energy Week conference.
Many readers have asked for the 08/11 updated comparison chart. Here it is. Note how we flirted with the 200 day moving average. The market turned perfectly, within the negative trend channel. MF Global instead if Lehman, and voilá, we have the perfect storm set up. We doubt the Greek people will support the austerity in the referendum vote coming up. Eurozone crisis 2.0 has just started, and will end in tears, unless we get another really BIG bail out

Futures are still trading, despite the Cash markets closed, and going lower. The European Stoxx and Dax futures have now taken out the Bail Out levels completely, just as we suggested in early European Trading. We believe the market has made the Top we have been waiting for, and the psychological set up is very interesting. A nasty correction is around the corner. Both Bulls and Bears have been run over, and the latest rally shook out the last bears, and attracted many new momos. MF Global imploding, Greece basically pulling the plug, are all ingredients for the dynamics to continue playing out. Below some “after hours” chart updates.

This post originally appeared at The Trader.

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