The final month of the year starts just like every other; with a slew of PMI surveys from the world’s manufacturing sectors and the hope that these have bottomed out and growth is now forthcoming. So far the picture is decidedly mixed with China, South Korea, Vietnam, India, Ireland and Spain showing an improvement while Japan, the Netherlands, Taiwan, Indonesia, Russia and Saudi Arabia’s measures are deteriorating.
The fact that the export kingpins of China and South Korea have improved seems to have driven risk onwards through the Asian session but these rallies will be sold if the data from Europe and the US disappoints. The UK’s figure is expected to show a little improvement but still remain firmly in contractionary territory. Manufacturing, alongside construction, is a sector that business is hoping to see the Chancellor help out in his Autumn Statement on Wednesday.
Falls in construction output are a real concern and probably the area where we think the most work should therefore be done. Loan guarantees to the total of £50bn were announced a few months ago for housing and infrastructure ventures alongside freeing up local pension arrangements to make local investments. Clarification on these measures are needed before the earth can be broken on new projects.
Business funding will remain an issue through 2013 and we would hope that the Chancellor will reveal plans of the so-called “Business Bank” to increase competition and reduce the cost of loans and overdraft facilities to SMEs. Full coverage of the Autumn Statement will be available by the World First Twitter page.
In political news we have a Eurogroup meeting today, to once again discuss the challenges surrounding the Greek debt sustainability and, in particular, the issue of a bond buyback. How willing bondholders are going to be to take losses on their holdings voluntarily is the big question. Making the buyback compulsory would make the whole thing a “credit event” involving CDS protection and an essential default by Greece. All of this would happen, however, while nations and the ECB would still be holding their debt with full value.
The fiscal cliff negotiations are on-going but have remained fairly low key throughout the weekend. Developments will continue to swing the markets either way as we get closer to the end of year deadline.
The first week of the month also means that we are in for a fair few decisions from the world’s central banks. Canada, Australia, the Bank of England and ECB all deliver their latest thoughts on their respective economies and the monetary policy needed. We expect no change apart from the RBA who should cut rates by 25bps overnight tonight.
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