Category: Countries & Regions

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Buiter: no politically feasible route to sustained growth for many years to come | Credit Writedowns

Citigroup chief economist Willem Buiter:

There really is no politically feasible route back to sustained economic growth through monetary and/or demand stimulating policies for the EA, the UK, the US and Japan, for many years to come. As regards demand stimulus, expansionary fiscal policy will not be punished by the markets to the point of being self-defeating for all EA member states except for Germany (which will not do it on any significant scale for domestic political reasons). The US also may be technically able to use fiscal expansion to stimulate demand, but even if markets continue to be tolerant, political gridlock makes it impossible. Expansionary monetary policy is at the end of its rope in the US and Japan. The UK could cut the official policy rate by 50 bps and the ECB by 125 bps, and then they too are restricted to quantitative easing (QE), which I consider to be ineffective.

via Buiter: no politically feasible route to sustained growth for many years to come | Credit Writedowns.

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The euro zone’s terrible mistake | Felix Salmon

The FT is reporting today that the new fiscal rules for the EU “include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs”……The immediate result of this plan is that everybody will rush into the highest-yielding bonds in Europe, which is exactly what seems to have happened today……In order for markets to work, lenders need to suffer when they make bad lending decisions. If the Europeans didn’t learn from Ireland, couldn’t they at least learn from the Fed’s much-criticized decision to pay off all AIG creditors at 100 cents on the dollar? Blanket guarantees at par are pretty much always a really bad idea — and this one, if it comes to pass, will be the biggest one yet.

via The euro zone’s terrible mistake | Felix Salmon.

Colin Twiggs: ~ More evidence of moral hazard: giving bond-holders an effective put against the EU. Perhaps a partial guarantee (e.g. 90 percent) would be more effective in containing moral hazard as the bond-holder still has some skin in the game.

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The RBA gets hawkish on asset prices – macrobusiness.com.au

I believe that the RBA is determined to prevent any reinvigoration of the Australian housing bubble……. yesterday we had [] confirmation that the bank is structurally remodelling itself as an asset price hawk, with the appointment of Phil Lowe to the deputy governorship. In 2002, whilst working at the BIS [he] wrote a defining paper on the identification and targeting of asset prices….his history shows both the intelligence and fearlessness needed to be an effective senior governor. Bravo.

via The RBA gets hawkish on asset prices – macrobusiness.com.au | macrobusiness.com.au.

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China’s manufacturing sector under contractionary pressure – Westpac: Phat Dragon

Well, the official November manufacturing PMI, a more reliable survey than the private sector alternative [once seasonally adjusted], saw finished goods inventories rise to their highest reading ever in November. Along with across the board weakness in order books….. and a deceleration in output, import weakness, a steep decline in the new orders-to-inventories ratio and a depleting work backlog, the manufacturing sector looks to be under contractionary pressure. The moment of discontinuity has not yet arrived, but the odds of such an unwelcome appearance manifesting in the near term from this enfeebled jumping off point have certainly shortened.

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Romer: Expectations Wallop Needed to Avert 40-Year Recovery

The Federal Reserve should set a “nominal target” for growth in the nation’s gross domestic product that is well above its current low rate for coming out of a recession, said Christina Romer, now an economics professor at the University Of California, Berkeley.“One thing I think it would do is pack a really big expectations wallop,’’ said Romer, speaking at the Super Bowl of Indexing wealth management conference here. “A new operating strategy is something that could really break through and affect people’s behavior.” Such a “new operating strategy” is needed to get the economy on the kind of course normally seen after a recession. In the first nine quarters after the 1982 version, the economy grew at an annual rate of 6.3 percent. In the first nine quarters of this edition, the rate has been 2.4 percent, barely at the nation’s historical rate of growth. And if a new approach is not taken, it could be decades before the nation is back at full employment.

via Romer: Expectations Wallop Needed to Avert 40-Year Recovery.

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Japan & India

Dow Jones Japan Index is headed for a test of the descending trendline but 63-day Twiggs Momentum remains deep below zero, indicating a strong primary down-trend.

Dow Jones Japan Index

Dow Jones India 30 Titans index found support above 150 and is headed for another test of resistance around 170. Bullish divergence on 13-week Twiggs Money Flow favors a primary trend reversal. Breakout above 172 would confirm.

Dow Jones India 30 Titans Index

* Target calculation: 170 + ( 170 – 150 ) = 190

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China weakens

Dow Jones Shanghai Index respected resistance at 320 and is now testing support at 285. Failure would offer a target of 260*. 63-Day Twiggs Momentum deep below zero continues to signal a strong primary down-trend.

Dow Jones Shanghai Index

* Target calculation: 290 – ( 320 – 290 ) = 260

DJ Hong Kong index is testing medium-term support at 360. Failure would mean a re-test of the primary level at 320; respect is less likely but would indicate another test of 410. Declining 13-week Twiggs Money Flow below zero warns of selling pressure.

Dow Jones Hong Kong Index

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ASX buying pressure

The ASX 200 index is once again testing resistance at 4350. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure. Breakout would signal a primary advance to 4700*. Respect of resistance is less likely, but would suggest another test of primary support at 3850.

ASX 200 Index

* Target calculation: 4350 + (4350 – 4000 ) = 4700

The All Ordinaries is similarly testing resistance at 4400, while rising 13-week Twiggs Money Flow indicates long-term buying pressure. Breakout would offer a target of 4800*.

All Ordinaries Index

* Target calculation: 4400 + ( 4400 – 4000 ) = 4800

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Footsie and Euro Stoxx 50 shows signs of resurgence

The FTSE 100 index is headed for resistance at 5700. Breakout would signal an advance to the 2011 highs at 6100. Rising 13-week Twiggs Money Flow indicates buying pressure.

FTSE 100 Index

* Target calculation: 5700 + ( 5700 – 5200 ) = 6200

The Dow Jones Euro Stoxx 50 also shows signs of recovery, heading for a test of the descending trendline and resistance at 2500. Breakout would signal a primary advance to 2900* and the end of the bear market. Momentum is rising but remains a long way below the zero line. Respect of 2500 would be a bear signal not only for the euro-zone, but for the global economy.

Euro Stoxx 50 Index

* Target calculation: 2500 + ( 2500 – 2100 ) = 2900

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