Intraday Market Thoughts

UK Confidence at 32-mth low, Italian Auction Next

by Kyle Morrison
Oct 28, 2011 8:40

Europe rallies but growth remains a concern as France consumer unexpectedly, Italian bond yields set for key test, Japanese growth continues to slide, UK consumer confidence hits 32 month lows, US personal spending set to rise.

The Japanese economy continues to be strangled by the effects of the stronger yen as industrial production for September slid sharply by for the first time in 6 months, sliding 4%, more than reversing the gains of July and August. Household spending also slid while consumer prices continued to weaken despite the easy monetary policy of the Bank of Japan. The strengthening yen continues to mitigate inflationary pressures in the Japanese economy.

In the UK Gfk consumer confidence fell further in October to -32 from -30 in the previous two months and to its lowest levels since February 2009 as consumers remained pessimistic about the future as rising inflation eats into incomes and retail sales continue to fall.

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If the price action yesterday is to be believed then Europe is fixed, however life is rarely that simple. While Europe may have deferred the day of reckoning significant risks remain, not least from the fact that the European economy is almost at a standstill.

The bank recapitalisation plan risks a fresh credit crunch, possibly dragging causing France to lose its triple A rating in the event where the govt has to step in to recapitalise the banks. With 2012 French GDP set to fall to 1% it could well be that Italy is the least of Europes problems, unless EU leaders have a strategy for growth.

Earlier this morning, French consumer spending fell 0.5% in the month ending in September from 0.2, vs expectations of a no change, while falling 1.3% on the year, following a 0.1% increase.

Italy looks to auction around 8.5bn in 2014, 2017, 2019 and 2022 bonds today in a key test for yields

Yesterdays GDP figures in the US could well keep the Fed monetary doves in their boxes until early next year. In any case todays latest PCE figures are expected to show that pricing pressures in the US economy are still rising slightly, and with the stock market rising, calls for further easing arent likely to gain much traction. Personal spending set to rise


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