Financial System is still getting worse, not better:
As Italian bond yields surge, and the IMF warns of a “lost decade” unless a way is quickly found to return the global economy to growth, the solutions already found to the Greek crisis are now seen as increasing the risk to banks of future exposure to crises in other countries (such as Italy, Spain), Fannie Mae (the US mortgage financier) is asking for another $7.8bn after a record $5.1bn loss in the last quarter, exits from the Eurozone by some country/ies and defaults are increasingly being considered. As this last article puts it, “when it comes to managing sovereign debt crises, perception [not reality] is all.”
But that at least implies that reality is better than the current perception.
China and US economies stumble:
China’s annual inflation rate has fallen sharply in October to 5.5%. Opinion is divided as to whether China is still on track for 9% growth this year, or whether the fall indicates deeper problems as China’s property sector falters as a result of inherent financial frailty.
As a symptom of the problems, one property developer has offered a free BMW as an incentive to the first 150 buyers in a new residential complex. This smacks of desperation.
At the same time, China’s factories are looking for lower labour costs in alternative production bases overseas. Labour costs in China have risen 15%-20% per annum for the last couple of years.
It looks to us as if China’s problems are serious, possibly structural, rather than minor.
Analysts expect that fourth quarter earnings for US companies will show the lowest sales growth since 20o9, failing to reach expectations.
Shift to the East
Graff, the London-based jeweller, is planning to raise $1bn in an IPO in Hong Kong, which it will use to expand production and inventory and open new stores in Asia. The luxury goods market is booming in China, and the country is expected to account for most of the growth in diamond sales between now and1 2015.
Oil may rise:
Traders are worrying that if Israel launches an attack against Iran’s development of nuclear capability then Iran might retaliate by closing the Straits of Hormuz to tankers, thus driving the price of oil to $200/bbl.
But Gold fell:
Opposition to the Keystone XL pipeline seems to be winning the day in Washington, though this may simply mean that a decision is delayed until after the Presidential elections next year.