Intraday Market Thoughts

G20 Kicks off in Paris, Belusconi Faces Vote

by Kyle Morrison
Oct 14, 2011 8:41

G20 finance ministers meeting start in wake of further bank and sovereign downgrades, Berlusconi confidence vote, Euro zone CPI set to remain unchanged, China PPI and CPI slips back, US retail sales. Premium Trades are below (initially posted at 3 am GMT).

The latest G20 finance meeting gets under way in Paris today in the wake of the last piece of the jigsaw in Slovakia ratifying the EFSF changes. This now paves the way for leaders to look to at ways to try and address the next stage of the crisis, namely how to go about recapitalising Europes banks, in the wake of the recent assault by the ratings agencies with Fitch the latest to get in on the act and put the main German and French banks on ratings watch for a one or two notch downgrade. Standard and Poors not to be outdone downgraded Spain last night to Aa-with a negative outlook. The agency cited weak growth, tightening fiscal conditions and high private sector debt.

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There remain a number of obstacles to overcome with the ECB remaining opposed to changing the PSI while France pushes for a large scale expansion of the EFSF with Germany opposed. France wants to turn the EFSF into a bank, but both the ECB and Germany are opposed on the basis that the buck will ultimately stop with them.

In Italy the Primer Minister Silvio Berlusconi will be subject to a confidence vote which could bring down his government and throw more uncertainty with respect to Italys fiscal situation than is already the case. At around the same time the latest CPI figures are set to be announced for September with expectations that they remain unchanged at 3.5%.

Eurozone CPI for September is also due and is expected to rise from 1.2% to 1.5%, with the year on year figure jumping to 3%, which could well make it less likely that the ECB would be minded to reduce rates at next months rate meeting. Even so given the language at the last ECB press conference there remains an even chance that rates could get cut at the November meeting and ex Bank of Italy governor Mario Draghis first as ECB President.

Chinese inflation data for September shows little signs of abating despite the recent slowdown in the Chinese economy, which presents the Peoples Bank of China with a dilemma.

Chinese PPI came in at 6.5% slightly down on last months 7% while Chinese consumer prices rose 6.1%, down from 6.2%, thus limiting any scope for imminent fiscal easing.

US retail sales for September are due out later this afternoon with hopes high that they will improve on last months figures.


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