Information Epicenter

Wednesday, 20 November 2013

Economic events of the week

Monday: The Rightmove House Prices data will shed light on the U.K. real estate sector, amid growing concerns regarding the developing housing price bubble.

Tuesday: ZEW Surveys will be published in Germany, revealing financial market experts’ view on the local economy.

Wednesday: The Fed and the BoE are releasing their Minutes report. Japanese Trade Balance data will be published, current analyst expectations are for a slight improvement to a -851 billion Yens trade deficit. This will be followed by the Japanese All Industry Activity Index, which analysts predict to slightly improve. U.S. Mortgage Applications data will also be published, after growing mortgage rates set October’s applications to a monthly -1.8% decrease. Advance Retail Sales are due, as well as the Consumer Price Index, which is analyst surveyed to present no monthly change. Unemployment data will be published in Russia, which continued to present a strong economy with only a 5.3% datum last month.

Thursday: The day will reveal expectations for future economic recovery for the Eurozone, as Purchasing Managers’ Indices will be published in France, Germany, and the Eurozone’s aggregate. U.S. Jobless claims will make their weekly appearance, and the Bank of Japan will publish its target rate.

Friday: GDP data and the IFO surveys will be published in Germany. ECB’s Draghi will speak in Frankfurt and the Eurogroup will hold a meeting.

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Global perspective

The world slowly continues its exit from the great recession. However, the global zero rate policies shave their mark in too many financial figures. Japan published a rather impressive Current Account Balance on Monday, presenting an increase to ¥ 587.3 billion. This seems to be the result of an increase at the value of Japanese foreign investment’s income rather than an actual increase of export value. Later that day, China published its Money Supply statistics, indicating a 14.3% annual increase, not highly unusual given the 7.8% GDP increase presented last month.

Unlike monetary data, which are quite volatile nowadays due to the globally low interest rates, tangible indicators appeared much more moderate. The Italian Industrial Production index presented only a 0.2% monthly increase on Monday. A monthly decrease of the same magnitude was presented on Tuesday at the Japanese Tertiary Industry Index of September.

Tuesday also revealed mild price increases throughout the Eurozone. Germany’s CPI presented an annual 1.2% increase. A muted 0.8% increase was recorded in Italy. The U.K., with its relatively upbeat growth compared to the rest of the Eurozone, presented a 2.2% annual increase. Spanish CPI, on the other hand, presented a -0.1% annual decrease on Wednesday.

On Thursday, Japanese GDP presented a 0.5% seasonally adjusted quarterly increase, higher than that of Germany which had only a 0.3% increase, and both were higher than the Eurozone’s 0.1% quarterly increase. U.S. Initial Jobless Claims continued their slow recovery as 339K claims were submitted during the previous week.
The week concluded with the Eurozone’s aggregated price index recording a 0.7% annual increase, and U.S. Industrial Production recording a monthly -0.1% decrease.

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Yellen’s market confirmation

Professor Janet Yellen testified before the Senate on Thursday, after being nominated the next head of the Fed. Yellen, 67, provided markets with an impressive presentation, in spite of difficult questions hammered by senators from all sides of the political arena. Yellen reaffirmed her reputation as a dovish Governor. When asked by Senator Tim Johnson about the Future of the Quantitative Easing amid slowly recovering job markets, her response was that she “would be strongly committed to working with the Federal Open Market Committee to continue promoting robust economic recovery”. Yellen continued stressing this dovish line when she later commented that it is “important not to remove the support when the recovery remains fragile”.

Yellen’s words contributed a positive tone at equity markets, however, unlike the optimism we are used to from Bernanke’s comments in the past, markets seem to grasp that QE cannot last indefinitely. In addition to volatile increases throughout the testimony, the S&P 500 index saw an approximate 1.2% increase throughout the trading day. A more moderate tone was recorded at the Dow index, which gained only a 0.3% over the previous day and the NASDAQ composite index, which recorded only about a 0.2% increase.

Yellen also said that the quantitative easing could not go on forever, as it created “potential risks for financial stability”. With an annual Consumer Price Index increase of 1.2%, it is unclear what could stop the fed from printing more cash and infusing that into the economy. As the Fed’s purchases already contributed to the 36% U.S. Monetary Base growth throughout the year, it would be difficult for Yellen to fend off critics arguing that inflation would pick up when interest rates finally return to pre-crisis levels.

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Monday, 11 November 2013

Economic events of this week

Monday: Japan’s Balance of Payment Current Account Balance will be published. Industrial Production is due to be released in Italy, with analyst expectations for a Seasonally Adjusted Month over Month 0.2% increase, following two negative figures.

Tuesday: The M2 Money Stock Index will be released in Japan, in addition to the Tertiary Industry Index. October’s Producer and Consumer Price Indices will see light in the U.K.

Wednesday: Jobless Claims and the ILO Unemployment rate will be released in the U.K. MBA Mortgage Applications will be published in the U.S., in hopes of recovering from the -7.0% decrease of last week.

Thursday: The Preliminary figure for Japan’s Q3 GDP is due, as well as September’s Industrial Production. France, Germany, Italy, and the Eurozone Aggregate will also follow with their Q3 GDP figures, while the latter is still surveyed to present an annually shrinking economy at a rate of -0.3%. Russia is due to publish its Gold and Forex Reserve. In the U.S., Initial Jobless Claims and the U.S.’s Trade Balance will be published. Fed’s Governor Bernanke is scheduled to speak.

Friday: The Eurozone’s Consumer Price Index will be published. In the U.S., the Empire Manufacturing Survey and Industrial Production will see light.

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French socialist revolution faces hardships

It has been a year and a half since François Hollande was elected president in France. Upon entering his position, Hollande made a rather brave set of economic reforms, as he favored the increase of income tax over the prior plan to increase Value Added Tax. However, the decreased incentive to conduct business in the country had its toll on the country's bottom line. Half a year later, Hollande was forced to increase VAT, while providing corporations with tax benefits.

Last week marked a new low for the French socialist revolution, as rating agency Standard & Poor's announced cutting France's sovereign credit rating to "AA". S&P's announcement criticized Hollande's Government for incompetence of reducing its spending and supporting economic growth. Specifically, S&P called France's "fiscal stability" constrained by too high tax levels on one hand, and inflated Government expenditure on the other hand, which S&P believes to be out of control.

Adding insult to injury, France's Industrial Production output was published on Friday, revealing only a -0.5% Month over Month decrease in September, in addition to a worsening trade deficit. Pierre Moscovici, the French finance minister, commented in a statement that he regrets what he referred to as S&P's “critical and inaccurate judgment", while adding that “Never has a government carried out so many reforms in such a short time and in such a difficult economic environment”. Moscovici concluded that in spite of the rating cut, France's rating remains high compared to other world nations. Markets apparently shared the same view with as Moscovici, as France’s sovereign bonds continue trading at roughly the same prices throughout the day.

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Pessimism, responsible monetarism & other spinoffs

Last week kicked off with Fed Governor Jim Bullard trying to fan rising concerns about the Fed's Treasury holdings of the U.S. Government debt being too big. Bullard said that he does not want to support "fiscal recklessness", and that the Fed's holdings of debt (relatively to the U.S. Gross Domestic Product), is no larger than it was in historical periods. Bullard added: "We are going to target inflation and be held accountable for it", implying that the Fed will not let its money printing push prices upwards beyond control.

In China, however, there were concerns of a possible inflation. Chinese Premier Li Keqiang noted in a speech recently that "our outstanding M2 money supply has at the end of March exceeded 100 trillion Yuan, and that is already twice the size of our Gross Domestic Product… there is already a lot of money in the 'pool'; to print more money may lead to inflation".

Meanwhile in Europe, the European Commission grew a tad pessimistic over exiting the recession. On Tuesday, the Commission cut the Eurozone's 2014 growth prospects from 1.2% to 1.1%. This growing pessimism must have had a significant effect on the European Central Bank, as two days later it decided to join the monetary party by announcing a 25 basis points cut of its main refinancing rate to 0.25%. Needless to mention, the effect on the EUR/USD was quite massive.

Now with global rates set ultra-low and equity markets past impressive gains, vacant capital naturally seeks new lucrative investment ventures. One of these seems to have been Bitcoin, as the crypto currency surged to an all-time high and passed the $300 mark on Thursday. Other capital rushed to the very successful Initial Public Offering of the popular Twitter microblogging service, on the same day.

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Wednesday, 6 November 2013

Twitter’s IPO goes live in the USA this Wednesday, Normal Trading starts tomorrow, Thursday 7th, 2013

The San Francisco social media company has raised its debut price per share from an initial $17 to $20 to between $23 and $25.

The increase doesn't come as a big surprise. Many observers considered the previous pricing to be relatively conservative, given that Twitter's market value was appraised at $20.62 per share in an assessment done by Duff & Phelps Corp. in early August. Twitter's earlier decision to begin the IPO pricing below its recently appraised value was seen as a way to contain expectations while leaving room to raise the target and build more buzz about its stock market debut planned for later this week.

Inside Twitter Headquarters in San Francisco

With this, Twitter intends to raise between $1.6 billion and $1.8 billion when its stocks starts trading on Thursday.

The number of shares the company intends to sell is 70 million. At the new price, the company will be valued at between $12.8 billion to $13.9 billion.

Twitter co-founder Evan Williams is the company's largest individual shareholder with a 10.4% stake, which would be worth between $1.3 billion to $1.4 billion. CEO Dick Costolo's stake would be worth as much as $191.9 million.

The second largest individual shareholder is Peter Fenton -- a Twitter board director and an early investor in the company -- whose stake would be worth as much as $789 million.

Twitter's IPO is being underwritten by Goldman Sach (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) and is expected to be priced on Wednesday.

Regular investors will get their first chance to buy Twitter the day after, when shares will begin trading on the New York Stock Exchange under the ticker "TWTR."

Meanwhile the company disclosed that International Business Machines Corp. (IBM) sent a letter alleging that they infringed on at least three U.S. patents held by IBM. The patents relate to a networking technique based on common contacts, a way to show advertisements without interfering with an interactive site, and using interconnected computers to reduce Web traffic.

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