New York: News that the IMF is planning to expand resources and that Goldman Sachs' earnings beat expectations cheered markets. Upbeat industrial production data added to the optimism. Consequently, the S&P 500 gained 1.1% yesterday.
Asia: The IMF’s expansion plans to fight the Eurozone crisis pushed the Nikkei to a five-week high. It closed 1.4% higher. The Hang Seng was trading at +1.2% at 7.00 am UK time.
Continental Europe: Markets were mixed after IMF announced plans to expand resources by US$600bn. In the absence of additional news from Greece, the German DAX rose 0.3%, while the French CAC 40 closed 0.2% lower.
UK small caps: The FTSE AIM All-Share index advanced 0.7% yesterday.
Today's news outlook january 19 2012
US$600bn more needed - IMF
The International Monetary Fund (IMF) proposed to increase the US$380bn Fund's strength by US$600bn to help fill the estimated US$1trln global financing gap in the next two years and help countries cope with the European debt crisis. However, US and Canada prefer restrained use of IMF funds and are reluctant to increase their contribution. Instead, they are asking Europe shoulder the burden of its debt. Europe has already committed US$200bn to the fund, which was included in the total estimate.
Italy downgrade on cards – Fitch
Fitch is considering a rating cut for Italy, but stressed that the fundamentals remained strong and that it does not expect the country to default. The credit rating agency expects to downgrade Italy by two notches to A- by January end.
Economic News:
UK unemployment
The unemployment rate in the UK rose to 8.4% y-o-y in three months to November, the Office of National Statistics reported yesterday. The number of people unemployed climbed 118,000 to 2.69m in the three months to November. The rate of unemployed youth (age 16-24) increased to 22.3%. Other data showed that average weekly earnings rose just 1.9%
Our view: The unemployment rate shot up to a 16-year high in November as the government cut jobs in the public sector, and there is general aversion to new hiring in the current climate in the private sector.
US producer price index
Wholesale prices in the US dropped 0.1% m-o-m and increased 4.8% y-o-y in December, the US Department of Labour reported yesterday. The drop in wholesale prices was entirely attributed to the declining price of energy and food—energy prices declined 0.8% m-o-m while cost of food dropped 0.8%. Core prices, excluding food and energy, increased 0.3% m-o-m and 3.0% y-o-y.
Our view: Expectations had been for a 0.1% rise. Though overall wholesale prices are declining, the continued increase in core prices suggests that inflation is on the rise. This could have an impact on the timing of any stimulus package from the US Fed.
US industrial production and capacity utilisation
Industrial production in the US increased 0.4% in December, backed by a strong 0.9% m-o-m growth in manufacturing output, the US Federal Reserve said yesterday. The rebound in industrial production follows a 0.3% m-o-m decline in November. Mining production grew 0.3%,while output at utilities dropped 2.7%. Capacity utilisation at factories improved to 78.1% in December from 77.8% in the previous month.
Our view: The increase in industrial production is one more sign that the US economic recovery is gaining pace. Faster manufacturing activity and rising utilisation suggests that this economic momentum is being driven by the manufacturing sector.
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