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the financial markets daily
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Global summary
&' (anuar+ ,--.&' (anuar+ ,--.
Global Economics -Strategy 4eam
today's key snapshots
/all times GMT9
US6 National Holiday
Martin Luther Kin< Da+ING@nAa cons@nAa Crev@nAa
EU:;6 <fficial ceremony to markSlovenia’s entry into the EurozoneDLFublFana
EBHs Trichet and GasCari to sCeaJ at&-&' GMTING@nAa cons@nAa Crev@nAa
EU:;6 Nov industrial productionMoMJK :K
We looJ for a health+ rise/in ecess of -'O MoM9 in EuroPone industrialCroduction in NovemberData outearlier shoRed Croduction in Francecontracted but this Rill be more thanoffset b+ a sharC rebound in GermanCroduction in this monthING@-U cons@-. Crev@V-&
Prophet opportunities
Long Indonesia .PQ P:Q - Shorthilippines .Q P:Q
Entr+ Coint V'SCot ,,Tar<et X'StoC loss V,-all Yoldationale: DesCite the Cositive moment for hiliCCinesH debt Re still Cerceive better ratin< momentum in Indonesia as the<overnment attemCt to tacJle more structuralissues such as labour reforms a neRInvestments LaR and the chronic lacJ of efficienc+ on <overnmentVoRned enterCrisesThe local stor+ has also been suCCortin< Indomore stron<l+ than hiliCCines esCeciall+ if Re taJe into account the Cossible rise onColitical risJ ahead of the modVterm electionsin Ma+ ,--.
Buy BANES4;.Q P/:: - Sell CAXAMM;.Q;/::
Entr+ Coint XUSCot X-Tar<et &-StoC loss ]'all Yoldationale: BNESTX.' ,A&& is at least ,UbCundervalued versus the (MMX' XA&& froman historical and credit qualit+ CersCective
Developed Markets / Global
US: Shopping not stopping.
DesCite some much Rarmer than usual Reather inDecember retail sales Rere not as bad as the+ could have been
Italy: An agreement
de façade
, but little consensus yet on market friendlyreforms.
The much aRaited reformVridden Chase , of <overnment action is +et to taJe offas the much h+Ced <overnment meetin< could onl+ +ield an eas+ comCromise on risJlessColitical issues
EMEA
Emerging markets: Iran update.
Ke+ S oCConents of a striJe on Iran have beenreClaced atriot missile deClo+ment is another si<nal neRs a<encies have Rarned Iran Rillbe a maor issue in an acute Ra+
Ukraine: President Yushchenko is pushed out of mainstream politics.
nFrida+ &, (anuar+ ,--. the Carliamentar+ coalition uneCectedl+ bacJed an a<reementRith the embattled T+moshenJo overridin< the CresidentHs veto on the laR on the abinet of Ministers It maJes the abinet of Ministers the centre of the eecutive CoRers <rabbin< theCresidentHs constitutional authorit+ over forei<n and defence Colicies and leavin< him Rithonl+ a ceremonial role The CresidentHs last hoCe to restore his CoRers is the onstitutionalourt
Russia/Belarus: Belarus oil conflict resolved.
ussia and Belarus si<n a<reementon oil suCCl+ and transit
Poland: The week ahead.
We eCect loR inflation and Croduction numbers and thereis some risJ associated Rith Ra<es but Re eCect moderate <roRth
Poland: Money supply accelerating.
Slovakia: December inflation slightly down: major part of disinflation onlyto come in 2007.
Inflation to benefit from sta<natin< administered Crices and stron<Joruna in ,--.
Slovakia: November wages surprised on the downside, upturn expected in2007.
]-Hs ReaJ marJet sector Ra<e data are a CuPPle
Turkey: Great budget data.
nother tremendous fiscal Cerformance b+ TurJe+
Latin America
Brazil: December IPCA inflation posted a 0.48% increase.
,-- I inflationcame in at X&O for the first time beloR the centre of the tar<et
Closing prices
Developed markets closing prices
Emerging markets closing prices
Research Analyst Contacts
SEE 4HE YISCL<SURES AENYI[ <RIM<R4AN4 YISCL<SURES ANY ANAL]S4 CER4IICA4I<
roChet &' (anuar+ ,--.
Developed Markets / Global
US
Shopping not stopping
Yespite some much warmer than usual weather in YecemberD retail sales were not as bad as they could have been.
S retail sales for December aCCeared to come in stron<er than had been eCected esCeciall+ <iven soft indications fromReeJl+ chainVstore sales and also some of the anecdotal evidence over the month from retailers man+ of Rhich su<<estedthat hot Reather had adversel+ affected sales of seasonal items Carticularl+ clothin< Yeadline sales rose -O MoM Rhilethe core rate rose &-O
ig : US Confidence and retail sales
-.-U--&--&&-&,-&X-&]-&'-(anVU(anV(anV--(anV-&(anV-,(anV-X(anV-](anV-'(anV-V]V,-,]U&-&,onference Board confidence inde/lhs9etail sales current Crices /rhs9/inde9/oO9
Source: EcoWin
g
That said the release shoRed substantial doRnRard revisions to Crevious months data and taJin< these into accountneither the headline nor the core rate of sales /ecludin< autos9 ended uC Carticularl+ different to eCectations andconsequentl+ the eventual marJet reaction ou<ht not to have been Carticularl+ substantialLooJin< at the breaJdoRn of the release it Ras no surCrise to see sales at <asoline stations risin< b+ XUO almost eactl+matchin< the rise in the retail Crice of <asoline over the month Sales of vehicles and Carts rose onl+ -XO less than thevolume increase of ]XO and su<<ests further falls in the neR car se<ment of I due out net ReeJ Buildin< suCCliesRere doRn &&O on the Crevious month echoin< the on<oin< ReaJness in the housin< sector There Ras a lar<e fall in thesale of miscellaneous <oods but sales of aCCarel Rhich should have been imCacted ne<ativel+ b+ the unseasonabl+ RarmReather in December mana<ed a relativel+ imCressive -O increase Rhile the Rarm Reather also seemed to boostsCendin< at restaurants and bars Rhere sales rose ,XOverall this release has to be vieRed as better than mi<ht have been eCected esCeciall+ <iven the anecdotes of ReaJness that had been reCorted nd this could result in some uCRard revisions to forecasters eCectations for fourthquarter GD
Investment implications: Some further near
-
term support for the USD.
Rob Carnell, London (44 20) 7767 6909
P
roChet &' (anuar+ ,--.
Italy
An agreement
de façade
, but little consensus yet on market friendly reforms
4he much awaited reform_ridden phase P of government action is yet to take offD as the much hyped governmentmeeting could only yield an easy compromise on riskless political issues.
Faced to a steeC decline in consensus and Cressured from the reformVCrone moderates of his coalition M rodi called ameetin< of his ministers and of the coalition CartiesH leaders Rhich Ras held late last ReeJ The declared aim of the meetin<Ras to set the <overnmentHs a<enda for ,--. Rhile correctin< at the same time some communication mistaJes Rhich hadat best disoriented the electorate B+ leavin< the blame for Cublic discontent Rith insufficient communications sJills on the<overnmentHs side M rodi clearl+ tried to divert the attention from the underl+in< Croblems Rhich continue to affect the<overnin< coalition NotRithstandin< his attemCt the CerceCtion of a clear diver<ence of vieRs betReen the reformists andradical left jconservativesH Rithin the <overnin< coalition remains YoCin< in a sudden solution to eistin< Croblems at themeetin< Ras Cure Rishful thinJin< It Ras thus inevitable that the meetin< Rould end Rith a loR Je+ comCromise RhichRould accuratel+ circumnavi<ate man+ crucial oCen Colitical issues With a local elections round due in sCrin< an overtfailure to find a formal cohesion Rould have been a Colitical suicide for the <overnment coalition Carties The chief Criorit+Ras thus to
show
cohesion at the Crice of a lacJ of hard facts to sell to the Cublic YoRever the loR Je+ comCromisereached is not neutral and leaves the reformVCrone moderates more vulnerable at the CollsLooJin< be+ond the Colitical marJetin< side of the meetin< can Re sa+ that it has been a success on the more relevantfront of the reform a<endak Even thou<h it is too earl+ to ud<e our feelin< is that if it Ras it Ras a ver+ Cartial one Nobod+eCected the meetin< to +ield a detailed list of a<<ressive measures but the outcome is at best little ambitious The sin<leCoint Rhere <enuine consensus Ras reached Ras on the National strate<ic frameRorJ for ,--.V,-&X Rhich allocates Estructural funds and national funds aliJe It Ras decided to sCend U'O of available funds in the Southern Italian re<ionsRith increased focus on human caCital formation on comCetitiveness enhancin< D and on a sustainable use of environmental resources nfortunatel+ no a<reement Ras reached on a much hoCedVinto liberalisation CacJa<e neither onthe Cension reform issue These issues Rere not deemed ur<ent or more maliciousl+ the+ Rould have been too CoRerful acatal+ser of internal divisions Given the crucial imCortance of reforms in consolidatin< economic <roRth Re remainconvinced that their discussion table Rill be carefull+ JeCt oCen and eCect that some concrete result Rill be obtained b+the end of &-.Ironicall+ the surCrisin<l+ <ood Cerformance of the underl+in< Cublic accounts in ,-- /net of etraordinar+ factors9 iscomClicatin< thin<s In fact the hardliners of the left mi<ht levera<e on imCroved balances to turn doRn an+ sCendin< cutclaim This Rould be dan<erous indeed as marJet friendl+ reforms and serious moves to fi<ht Cublic administrationinefficiencies /also throu<h Coliticall+ costl+ reor<anisations9 are badl+ needed to turn a c+clical recover+ into a structuralimCrovement of Cotential outCutThe divided nature of the <overnin< coalition Rill inevitabl+ affect the reform Cath With an ultra thin mar<in at the Senatean+ reform measure Rill be meticulousl+ Condered uCon and the sCeed of reforms Rill result inevitabl+ sloR Some issues/in Carticular the reform of the electoral s+stem9 mi<ht even be deemed too risJ+ and s+stematicall+ CostConed M rodiHsdifficult and often frustratin< mission Rill be that of continuousl+ striJin< a balance betReen the different souls of his coalitionRithout stoCCin< the reform convo+
Investment implications: If the agreement reached at last weeks government meeting has probably helped reducing short term political risk, it proved nonetheless that reaching consensus on deep reforms is a harder quest. Failure to speed up this process would hinder the hopes of closing the growth gap with euro zone peers any time soon.
Paolo Pizzoli, Milan (39 02) 89629 3630
;
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