Good morning,
The weekend press was highly concentrated towards the EU budget, and the failure to 1. agree to Van Rompuy's proposal 2. agree to an adjusted version.
Listening to the responses, it seems France's Hollande is unhappy with the size of the spending cuts. Not long in power, he is already under pressure due to a monetary policy which required higher levels of growth to boost employment and support public spending. The recent downgrade from Moody's highlights their lack of optimism, that this is achievable.
Germany's Merkel has also come under pressure, but it appears the German's have a greater willing than the French, to reduce the widening deficit. With their strong ties with France, it is now hoped that an agreement can be reached between the UK and France, where Germany can help broker the deal.
Sticky issues include; high public spending, retirement age and state pension demands, and the Common Agricultural Policy (CAP).
The last one, is what seems to be getting a lot of attention. The CAP, was bought in after the second world war to encourage food production and subsides existing infrastructure. In my youth, it was designed to support prices, which were dramatically falling due to over production. Butter and Sugar mountains were created as the CAP purchased the over production from farmers, helping keep them in business.
Ow how things have changed. The mountains have long since gone, with rising demand and a shift of labor from the countryside to the cities in the early-mid 2000's, has now seen the globe struggle to increase supply.
The UK's argument, that a free market should determine supply and demand, thus reducing the cost of CAP on the budget, its understandable, but mental. Risking the supply chain of food stuffs could have a huge impact on inflation, especially after seeing the recent impact of adverse weather on production.
Both sides need to give a little, but to abandon or dramatically reduced funding to the CAP, is not the answer.
Markets.As the cost of hurricane Sandy come in, the US are instead choosing to look at the cap ex, that will now take place cross the eastern coast. Initial strong black friday sales also seem to have the market positive with names like Walmart and Target all strong on Friday.
As the Euro continues to strengthen, equity markets look set to remain strong. Inflows should consumer electronics and industrials run, both of which have been huge laggers over the last 12 months. This should also see further support to the container ships.
However, Europe is yet to resolve its budget issues. Greece has secured its next bailout payment, but markets will now start looking at Spain and Italy. With the creation of the Banking Union due in January, its banks still have some rather ugly bad loans and property on the books.
Until the European budget is in place, or there are signs that an agreement is close, its hard to see the Euro breaking the 1.30 level.
Today, equity markets open and trade slightly firmer, hitting day highs in the first hour, before we see them drift easier as we see a string of profit taking and trimming in names like Samsung.
Data.11:30 Thailand trade balance
13:00 Singapore industrial production
16:00 Spanish mortgages
17:00 Italy consumer confidence
19:00 Ireland property prices
20:30 Turkey industrial confidence, capacity utilization
23:30 US Dallas Fed Manf
UK nationwide house prices
Events.09:00 Japan BoJ governor speaks in Nagoya
11:30 India RBI governor speaks at conference
17:30 Italy PM speaks at a conference
19:30 EU finance ministers talk on Greek debt
EU's Hedegaard visits Prague
Bonds.10:30 S.Korea 20yr auction
12:00 Singapore 3,6 month auction
12:00 Malaysia 3,6,9 month auction
13:30 Philippines 3,6,12 month auction
18:30 German 12 month auction
22:00 France 3,6,12 month auction
00:30 US 3,6 month auction
Earnings.Berry plastics(US), Bazaarvoice(US), Aberdeen(UK), Seadrill(NO), Cafe de Coral(HK), Emperor ent(HK), Goldin(HK), Tysan(HK), Mongolia Energy(HK), Dore(HK)
Stoddart
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