Eleven of the less prosperous members of the European Union – Bulgaria, Croatia1, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic, and Slovenia (EU11)—have remained attractive destinations for Foreign Direct Investment (FDI). The Czech Republic, Estonia, and Slovakia witnessed FDI levels in 2012 similar to pre-crisis levels. Poland and Bulgaria also experienced large gains in FDI in 2012.
Financial Markets…U.S. Treasuries slid for the first time in four days, with the benchmark note yields 3 basis points to 1.62%, as a government report showed U.S. employers added more than forecasted jobs in November. U.S government bonds have advanced 2.8% this year as of yesterday, after gaining 9.8% in 2011 and 5.9% in 2010.
The Eonia swap rate (an estimate of compounded overnight borrowing costs in euros over the next three months) fell to 4.5 basis points on Friday, the lowest level since July, as investors speculated the European Central Bank is open to cut interest rates further. And the 3-month euro interbank offered rate (or Euribor), bank-to-bank lending rate, fell at a record low of 0.187%.
The dollar strengthened against the yen and euro following encouraging U.S. jobs data, climbing 0.3% to 82.66 yen and 0.4% to $1.2913, respectively. Meanwhile, Canadian dollar rallied versus its U.S. counterpart, climbing 0.3% to 98.82 cents per U.S. dollar, as the country’s unemployment rate fell to 7.2% from 7.4% last month.
High-income Economies…U.S. nonfarm payroll employment rose by 146,000 in November, suggesting that the impact of Hurricane Sandy on overall U.S. employment had been limited. But the rate remains well below the 200,000-250,000 monthly gains needed for a sustained improvement in the labor market as employers remain reluctant to hire amid U.S. “fiscal cliff” risks. The unemployment rate, however, edged down by 0.2 percentage points to a four-year low of 7.7%, mostly because of people dropping out of the labor force.
Reflecting uncertainties relating to impending tax increases and spending cuts, the outlook of U.S. consumers deteriorated sharply in December, with the Thomson Reuters/University of Michigan consumer sentiment index falling to 74.5 in December, the lowest since August, from 82.7 in November.
German industrial production fell 2.6% (m/m) in October, a faster pace of decline compared with a 1.3% drop in September, suggesting that the Euro Area debt crisis is taking a toll on Europe’s largest economy. Earlier data had shown that industrial orders were supported by strengthening foreign demand (partly from developing countries), but domestic demand has continued to weaken.
U.K. industrial production fell 0.8% (m/m) in October, a slower pace of decline than the 2.1% monthly fall in September. On a year-on-year basis, industrial output was 3% (y/y) lower in October, compared with -3.2% (y/y) in September.
Revised data showed that Greek GDP shrank a slightly smaller 6.9% (y/y) in the third quarter, compared with a 7.2% decline reported earlier.
The pace of economic contraction in Czech Republic accelerated in the third quarter to an annualized pace of about 1.2% (q/q) from 0.8% recorded in the second quarter. On a year-on-year basis, Czech Republic’s GDP contracted by 1.3% (y/y) in the third quarter of 2012, compared with 1% (y/y) decline in the second quarter.
Hungary’s GDP continued to contract in the third quarter at an annualized pace of about 0.8% (q/q). On a year-on-year basis, Hungary’s GDP contracted by 1.5% (y/y) in the third quarter of 2012, compared with 1.2% (y/y) declined in the second quarter.
Developing Economies…The Central Bank of Egypt held its benchmark overnight deposit rate steady at 9.25%. Headline inflation rose to 6.7% in October from 6.22% in September on a sharp rise in the prices of butane gas cylinders, partly due to bottlenecks in distribution channels, despite moderating food prices.
Brazil’s inflation accelerated insignificantly in November to 5.53% (y/y) from 5.45% in October with the prices of all key components in consumer basket showing insignificant rise.
Chile’s inflation moderated to 2.1% (y/y) in November from 2.9% in October.
Mexico’s inflation moderated to 4.18% in November from 4.6% in October on easing of food prices following a temporary spike related to adverse weather and the outbreak of avian flu in western Mexico.
Peru's central bank held its policy rate unchanged at 4.25%. Peru's inflation rate slowed to 2.66% in November under the central bank’s 3% inflation target from 3.25% in October on moderating food prices.
Malaysia's exports fell 3.2% (y/y) in October from 2.6% increase in September on continued weak demand from major trade partners and moderating prices for Malaysia's commodity exports (palm oil and crude rubber).
"Without a global revolution in the sphere of human consciousness, nothing will change for the better in the sphere of our Being as humans, and the catastrophe toward which this world is headed, whether it be ecological, social, demographic or a general breakdown of civilization, will be unavoidable. If we are no longer threatened by world war or by the danger that the absurd mountains of accumulated nuclear weapons might blow up the world, this does not mean that we have definitively won. We are in fact far from definite victory.
We are still a long way from that 'family of man;' in fact, we seem to be receding from the ideal rather than drawing closer to it. Interests of all kinds: personal, selfish, state, national, group and, if you like, company interests still considerably outweigh genuinely common and global interests. We are still under the sway of the destructive and thoroughly vain belief that man is the pinnacle of creation, and not just a part of it, and that therefore everything is permitted. There are still many who say they are concerned not for themselves but for the cause, while they are demonstrably out for themselves and not for the cause at all. We are still destroying the planet that was entrusted to us, and its environment. We still close our eyes to the growing social, ethnic and cultural conflicts in the world. From time to time we say that the anonymous megamachinery we have created for ourselves no longer serves us but rather has enslaved us, yet we still fail to do anything about it.
Important developments today:
1. Fitch downgrades Ireland’s credit rating another notch
2. The German engine powers on
Fitch downgrades Ireland’s credit rating another notch. Fitch Rating Agency lowered Ireland’s debt ratings to ‘A+’ from ‘AA-‘on Wednesday, citing the “exceptional and greater-than-expected cost” of bailing out the country’s banking sector. Rating agency also said the outlook on the nation’s rating is negative, implying that a further downgrade is more than likely in the next 12 to 24 months if the economy fails to recover. The move comes a day after Moody’s Investor Service warned that it was reviewing the country’s rating for a possible downgrade.
The market reaction to the downgrade was somewhat muted with the euro, European government bonds, and European equities largely unflustered. As for Irish government bonds, however, the 10-year Irish and German bond yield spreads widened by 6 basis points (bps) to 416 bps after Fitch downgraded the nation’s credit rating. Similarly, sovereign credit default swap on Ireland’s debt rose 13 bps to 450 bps, reversing 13 bps tightening in morning trade.
The German engine powers on. Inspite of the slowdown in global economic activity, orders for German made manufactured goods increased by 3.4% in August, thanks to strong foreign demand. Orders from abroad were up by 6.6% in contrast to the 0.5% fall in domestic orders [see Chart at http://gem or http://www.worldbank.org/gem]. Demand from other eurozone countries was the biggest driver of the orders abroad, up by 13.8% compared to only 1.5% increase from non-eurozone countries. The increase in August manufacturing orders should lend support to Q3 GDP growth. However, it is important to also recognize that most of the increase in manufacturing orders came from big-ticket items such as trains, planes and ships, hence may not be sustained in the coming months. Indeed, the new orders component of the September manufacturing purchasing managers index (PMI), which gives an indication of manufacturing activity fell. This suggests a slowdown in manufacturing activity in September/October is most likely.
Among emerging markets
Emerging stock markets are rising on the speculation that more monetary policies such as the one from the Bank of Japan will be implemented thus boosting the flow of funds to emerging countries. The MSCI Emerging Markets Index reached 1,111.17 today and benchmark stock measures in South Korea, Taiwan, Czech Republic and Turkey also gained at least 1%. Both the U.S. and Japan have carried out easing measures, the U.K. Australia, New Zealand, and Canada are also considering their options as many other central banks worldwide would follow.
November 9th is an ambiguous day for Germany. On November 9, 1938, the Nazis killed 400 Jews, arrested about 30,000 more, destroyed over 800 synagogues and thousands of homes and businesses in the Kristallnacht, a pogrom against German and Austrian Jews.
About half a century later, on November 9, 1989, Germans in East and West Berlin stormed the Berlin Wall, the symbol of the Cold War, and brought down the Iron Curtain, literally with their own hands. I lived in East Germany when people started going out into the streets, chanting "We are the people" and demanding more freedom from the communist government. In September 1989 the first so called Monday Demonstration brought people out onto the street in Leipzig, first to pray for peace, then to demand freedom. I remember the exhilarating feeling when those demonstrations spread through other cities and drew more and more people until hundreds of thousands of East Germans protested - peacefully, without violence - for their rights.