07.12.12 Friday Morning

As we approach the quiet period over Christmas the impending Fiscal Cliff looms large, however, we see the markets in a strong position with the Dow resolute above 13k boosted by the non-farm figure of 146k new jobs this Friday afternoon, way in excess of the 87k forecast.

As sentiment on the Eurozone also improves, the FTSE has steadily risen since the Nov 15 low of 5600 with its eyes set once again on the 6k level.

Commodity equities consolidated the market Monday after Chinese manufacturing figures revealed the highest level of expansion in seven months.

However, very disappointing figures this morning from the UK have put a dampener on the week’s growth.

Asian markets didn’t react initially to the manufacturing data due to worries on reforms with the stock market, however, changed regulation allowing insurers to legally invest up to 30% of assets in a single bank’s equity helped push the Chinese market forward 200bp in midweek trading.

As the fiscal cliff approaches (31st December) Republicans proposed steep spending cuts on Monday but gave no response to Obama’s call to raise taxes on the wealthiest.

The Republican plan includes US$1.4tn in entitlement and discretionary spending cuts and US$800bn in new revenue through capping tax deductions for top earners.

The second part of Operation Twist approaches its climax with Boston Fed President Rosengren seeing a strong case for the Fed to buy treasuries at a rate of US$45bn a month, another FOMC member recommends half this amount.

Greece unveiled its bond buyback scheme with the aim to spend up to €10bn to buy its own debt at a steep discount, but still at a range that topped market expectations.

It will swap the existing debt with six-month paper issued by the EFSF, 10 year Greek yields bonds dropped 147bp to 14.69%.

If it is approved and succeed it will allow the next tranche of bailout financing to be sanctioned by the IMF.

Within the Eurozone but aside from Greece, the New York Times revealed that Germany’s 10 largest banks have €98bn in outstanding credit to the global shipping industry, more than double the value of their holdings of Greece, Ireland, Italy, Portugal and Spain debt.

Shipping industry woes thus pose a great threat to the German financial system.

Headline equity news centred on EADS, GDF Suez, Sportingbet and Informa.

The on-going saga with EADS continued with key shareholders discussing changes that would see Germany buy 7.5% from Daimler and France own 15%. 

It appears any link with BAE Systems to form a defence superpower has been pushed aside.

GDF Suez meanwhile plummeted 15% Thursday, battered by a bearish outlook.

It announced that its financial results were dragged down by the weak European economy and tight restrictions to raise natural gas prices in its home market.

It followed Electricte de France as the second French utility to experience a sudden sell off in less than a month.

Sportingbet received a revised offer from GCV of 44.8p cash, 1.1p dividend and shares in GCV with the deadline extended to 18th December whilst the rumours circulating around Informa seemed to freshen with Axel Springer still seen as a potential 550p a share bidder.

Next week important data following the Non-Farm centres around the German ZEW sentiment and US Trade balance.

The FOMC release their economic projections and statement Wednesday. With the fiscal cliff looming and Operation Twist on the way out it will of interest to see what their actions are.