- European finance ministers fail to agree on a debt-reduction plan for Greece.
- Very weak Japanese export orders for October.
- Strong housing starts data from the US.
The big news Friday morning was that the European finance ministers failed to agree on a debt-reduction package for Greece. Head of IMF Lagarde and ECB President Draghi also attended the meeting. According to Dow Jones divisions between the IMF and the eurozone members and also among eurozone members prevented a deal. The talks lasted more than 12 hours and despite the failure to reach an agreement, it ended with chairman Jean-Claude Junker saying that the participants had ‘made progress in identifying a consistent package of credible initiatives’. He also praised the Greek government for its efforts to cut down the budget deficit. It was announced that the Eurogroup will reconvene at a hastily arranged Finance Minister meeting on 26 November.
The breakdown of the Greece debt-reduction plans means that Greece remains a major concern for financial markets and not least the euro. EUR/USD dropped from 1.2800 to currently 1.2750 when the news came out this morning.
This morning yet another set of dismal economic numbers was released from Japan. October data showed that Japan is now suffering its worst year for export since the severe global recession in 2009. Exports dropped for a fifth month, down 6.5% y/y, and the trade deficit widened to JPY549bn compared to an expected trade deficit of JPY360bn. Especially export to China was weak, dropping 11.3%, underlining that the territorial dispute with China has taken its toll.
USD/JPY has continued to trade higher overnight - despite the Greece news denting financial sentiment - and the cross is now trading just below 82, the highest level since April this year. The combination of weak economic performance and an expected further easing of monetary policy by Bank of Japan does not bode well for the yen in 2012. We continue to see both USD/JPY and EUR/JPY moving higher over the next three to six month.
The US equity market started the day in negative territory but managed to climb during the day and the three major indices all ended close to flat. The mood improved when data showed that housing starts rose 3.6% to an annual pace of 894,000 in October. It is the fastest pace since July 2008. There is now little doubt that the US housing market is in a recovery, helped by an improved labour market and record-low mortgage rates.
Bernanke also shared some optimism yesterday saying that a "very good year" could be ahead for the American economy but underlining that optimism is conditional on the economy not hitting the fiscal cliff. He warned that failure to reach a budget agreement could send the economy "toppling back into recession."
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