Category: UK & Europe

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China manufacturing exports shrink

The Harper Petersen Index shows a fall in container shipping rates in the last few months, reflecting a sharp decline in manufacturing exports.

Harper Petersen Index

Bloomberg (hat tip to macrobusiness.com.au) now reports that “the cost of hauling goods to Europe from China (its largest export market) is falling faster than rates for deliveries to the U.S. The price for shipments to Europe is down 39 percent to $511 per twenty-foot box since Aug. 31, according to figures from Clarkson Securities Ltd., a unit of the world’s largest shipbroker. That’s more than double the 18 percent slide in the cost to the U.S. West Coast, measured in 40-foot units.”

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Quick Overview

Looks like something positive is brewing in Europe, but I don’t want to jump the gun. China looks weak, US probably through its worst, Europe still faces plenty of pain even if fiscal reform and euro-bonds introduced. Game changer would be QE/asset purchases by Fed and ECB.

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ECB Expected to Unleash QE Money Printing after Launching of Euro-Bonds :: The Market Oracle

In return for surrendering fiscal policy to Brussels, – Berlin and Paris, the key paymasters of the Euro-zone, would agree to the creation of a common Eurobond that would pool the credit ratings and collateral of all participating Euro-zone countries into a single fixed income instrument. Chancellor Merkel says that German borrowing costs will jump higher because of the creation of a Eurobond, though she is prepared to consider Eurobonds, if the legal framework is in place to ensure all countries in the zone observe the rules.

…..Once fiscal integration is agreed upon, Berlin is expected to agree to the creation of Eurobonds issued by member states that could be purchased in massive quantities (monetized) by the ECB. Countries would be liable for each others’ debts, but the ECB could make much of their debt disappear with its electronic printing press. Eurobonds would either be financed with higher taxes on the working class, through austerity measures, or through the inflationary effects of the ECB’s money printing machine. With French banks alone holding more of their debts than the entire €440-billion European Financial Stabilization Fund, a default by these countries would likely bankrupt the French financial system. Thus, Paris has been pushing hard for the ECB to monetize debt on a massive scale.

via ECB Expected to Unleash QE Money Printing after Launching of Euro-Bonds :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website.

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The German Hour – Jean Pisani-Ferry – Project Syndicate

Germany should be bold and use its leverage to offer a new contract to its eurozone partners: mutual guarantee of part of their public debt in exchange for strict debt limits and a new legal order in which a eurozone authority can veto an enacted budget even before it is implemented. Only such boldness will deliver the certainty that markets need – and it is Germany’s responsibility to be bold.

via The German Hour – Jean Pisani-Ferry – Project Syndicate.

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OECD Sounds Warning on Global Economy

The OECD now forecasts the eurozone economy to be in a six-month recession lasting through the first quarter of 2012, followed by a slow recovery that will leave the 17-nation bloc with only 0.2 percent growth next year. Despite the OECD’s warning, European markets enjoyed one of their best sessions in weeks amid hopes that radical plans were being readied for the Dec. 9 meeting of EU leaders in Brussels. The Stoxx 50 of leading European shares ended 3.6 percent higher at 2,208.89.

via OECD Sounds Warning on Global Economy.

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Europe weakens

A monthly chart of Dow Jones Europe shows the index testing primary support at 210. A peak below zero on 63-day Twiggs Momentum indicates a strong primary down-trend. Failure of support would offer a medium-term target of 160*.

Dow Jones Europe Index

* Target calculation: 210 – ( 260 – 210 ) = 160

Italy’s MIB Index is headed for another test of primary support at 13000 on the weekly chart. Respect of the descending trendline suggests another primary decline. Reversal of 13-week Twiggs Money Flow below zero would also warn of rising selling pressure. And breach of primary support would signal a decline to 9000*.

Italian MIB Index

* Target calculation: 13 – ( 17 – 13 ) = 9

The UK’s FTSE 100 index is also headed for a test of primary support at 4800. 63-Day Twiggs Momentum peaking below zero indicates a strong primary down-trend. Failure of primary support would offer a target of 4000*.

FTSE 100 Index

* Target calculation: 4800 – ( 5600 – 4800 ) = 4000

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U.K. Seeks to Revive Growth – WSJ.com

[Treasury chief George Osborne] will also announce an extra £30 billion in new money to be spent on infrastructure such as railways, roads, classrooms and broadband connections, said a person familiar with the matter. Of this, £20 billion will be provided by pension funds. The Treasury has signed a memorandum of understanding with the National Association of Pension Funds to provide this cash. Another £5 billion will come out of savings in other government departments and be spent over the next four years. The other £5 billion will be spent after 2015, but plans will be set out now.

via U.K. Seeks to Revive Growth – WSJ.com.

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Euro Zone Weighs Plan to Speed Fiscal Integration – WSJ.com

BERLIN—Euro-zone countries are weighing a new plan to accelerate the integration of their fiscal policies, people familiar with the matter said, as Europe’s leaders race to convince investors they can resolve the region’s debt crisis and keep the currency area from fracturing.

Under the proposed plan, national governments would seal bilateral agreements that wouldn’t take as long as a cumbersome change to European Union treaties, according to people familiar with the matter. …. The EU treaty allows countries to engage in “enhanced cooperation” if at least nine countries agree, circumventing the need for a unanimous treaty change among all 27 EU members.

via Euro Zone Weighs Plan to Speed Fiscal Integration – WSJ.com.

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20 Banks That Will Get Crushed If The PIIGS Go Bust

Now it looks like Commerzbank could be the next bank to fall in the crisis, which we found to have exposure to the PIIGS second only to Dexia of non-peripheral European banks in this exposure stress test.

….We took a list of the largest European banks by assets and compared their market cap, common equity, and total exposure to PIIGS debt (thank you for the bank statistics, EBA!). Then we calculated exposure to PIIGS debt (sovereign and private) as a percentage of the banks’ common equity. (Notice that HSBC, ING, and even Societe Generale are all absent from this list.)

So far our track record is pretty good–we predicted that Dexia was the most vulnerable bank outside of the PIIGS back in July. If the eurozone crisis continues to escalate, we will see more and more banks bow to the pressure of exposure and become unable to borrow money.

via 20 Banks That Will Get Crushed If The PIIGS Go Bust.

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