Monday, 24 September 2012

Mike Lenhoff: The week ahead


Image: Pete Souza
Gaffe prone Mitt Romney is presumably keeping an eye on the prediction markets, like Intrade.com, which rates the chances of Obama being re-elected President as having climbed to just over 70 percent. If Obama does win, the markets should do well in 2013, according to the record.

By the end of this week we should know a little more about Spain’s intention to request financial assistance when the Finance Minister announces a set reform measures and a timetable for the way ahead. The Spanish Prime Minister has been in talks with the European Commission since last month on conditions and supervision of a programme that would help the government meet its funding requirements. Moody’s, which is to review Spain’s credit rating by the end of this month, has indicated it would welcome such a request. While the word from Brussels seems to be that Spain will not formally make a request before a regional vote on 21 October, this would mean that Spain would have to meet its large refinancing obligation before the provision of any help from the ECB and/or the bailout fund. More should be known by the close of play on Friday.

Der Spiegel, which was early in leaking the ECB’s bond buying programme, indicated over the weekend that eurozone members are getting ready to approve leveraging the European Stability Mechanism’s resource availability to a reach a capacity of around 2 trillion euros. Germany’s Finance Minister supports the plan but Finland does not.

As for economic news, this is a busy week for data culminating on Friday with a mix of news on Japan (employment, inflation – or rather deflation – retail sales, industrial output among others) and on the US (Personal income and spending and the Chicago PMI). In between, there is more on the US housing market, including S&P/Case-Shiller house price index for July, new home sales (August) and pending home sales (August). Durable goods figure for August are also released later this week. A Bank of England credit conditions survey is due on Wednesday for the third quarter of this year and should be of interest, in light of the new Funding for Lending Scheme. 

Equity markets have been responding to their overbought condition with some consolidation but are holding up well and not yet focusing on what could be troubling for them, such as the US ‘fiscal cliff’. Perhaps they like what the prediction markets are saying about who the next US President is likely to be. 

Mike Lenhoff
Chief Strategist

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