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Broadgate: Weekly Briefing 7/12

7 December 2012

U.S. – U.S. output per worker grew by its fastest rate since 2010 in the third quarter of this year, according to official data. The Labour Department said that productivity among non-farm workers rose by an annual rate of 2.9% in the third quarter of this year.

The rise suggests companies are finding ways of getting employees to work harder, rather than hiring extra staff.

Consumer spending remains weak in the U.S. and the output is being driven by companies building up stocks.

India – India’s government has won a crucial vote in parliament on its controversial plans to open the retail sector to foreign competition.

After a two-day heated debate, MPs in the lower house approved the plan to allow foreign investment of up to 51% in multi-brand retail.

Parliament, which was deadlocked over the issue, resumed business this week after the government agreed to a vote.

It is hoped that the agreement will help the government push ahead with further economic reforms.

Argentina – Fitch has downgraded the credit rating of Argentina and admitted the country will probably default.

The ratings agency has cut its long-term ratings for Argentina by five notches from B to CC and its short term rating from B to C.

Argentina is appealing against a U.S. ruling ordering it to pay $1.2bn to foreign creditors holding bonds that it defaulted on in 2001. The government has until 15 December to reimburse the hedge funds, which declined two previous debt swaps. Argentina defaulted on $100bn of bonds in 2001, a record amount at the time.

Companies – Apple Inc. plans to spend more than $100mn next year on building Mac computers in the U.S., shifting a small portion of manufacturing away from China, the country that has handled assembly of its products for years.

“Next year we’re going to bring some production to the U.S.,” Chief Executive Officer Tim Cook said in an interview. “This doesn’t mean that Apple will do it ourselves, but we’ll be working with people and we’ll be investing our money.”

Apple, which until the late 1990s made and assembled many products in the U.S., moved manufacturing to Asia to take advantage of the region’s lower labor costs. The planned investment makes up a fraction of Apple’s $121.3bn in cash, and probably won’t significantly affect profit margins. Still, it reflects pressure on companies to create even a modest number of domestic jobs as the unemployment rate hovers near 8% and the economy rebounds from the recession that ended in 2009.

Europe – European stock markets hit fresh 2012 highs on Thursday and some traders eyed more rallies after equity indexes broke key resistance levels.

Technical analysts said the fact that the Euro STOXX had at one stage managed to clear the 2,610 level pointed to more potential rallies, provided it could close above that level.

“The potential for this symbolic formation which has been building for about a year now extends out to next spring, and could see the index climbing towards the 3,000 points zone, or 15% plus upside,” said Societe Generale chartist Loic De Galzain.

Greece – Greece is perceived to have the most corrupt public sector of all 27 EU countries, a new global survey reveals.

Worldwide, Denmark, Finland and New Zealand were seen as the least corrupt nations, while Afghanistan, North Korea and Somalia were perceived to be the most corrupt.

Transparency International’s 2012 Corruption Perceptions Index gathered views on 176 countries worldwide.

Greece’s global ranking fell from 80th in 2011 to 94th in 2012, reflecting the country’s continuing economic turmoil and widespread tax evasion.

“Governments need to integrate anti-corruption actions into all public decision-making”, said Huguette Labelle, chair of Transparency International (TI), a body set up in 1993 to expose and tackle countrywide corruption.

Germany – German factory orders surged almost four times as much as economists forecast in October, driven by foreign demand.

Orders, adjusted for seasonal swings and inflation, jumped 3.9% from September, the Economy Ministry in Berlin said. It revised September’s drop to 2.4% from 3.3%. The increase in October is the biggest since January 2011.

“The music is playing outside the euro region, where the label ‘Made in Germany’ is enjoying everlasting popularity,” said Mario Gruppe, an economist at NordLB in Hanover. “That’s good news for the economic outlook. We’re in for a cold winter but not a recession.”

Spotlight on: Commodity views in to 2013

Gold, silver and corn will outperform other raw materials next year as a weaker dollar and rising investor demand bolster precious metals while supply curbs aid grains, Morgan Stanley said this week, listing top picks for 2013.

Silver will track gold, which is poised to gain on low real interest rates, buying by central banks and geopolitical uncertainty, analysts including Peter Richardson and Hussein Allidina wrote in a report, reiterating an October call. Corn and soybeans should benefit from harvest delays in South America, they said. The bank is bearish on aluminum, sugar, nickel and uranium as supplies are set to outpace demand.

Commodities as tracked by the Standard & Poor’s GSCI Spot Index are down 0.4% this year, led by declines in coffee, cotton and sugar. The gauge almost doubled in the three years to 2011 as central banks and governments around the world took action to boost their economies dented by the global financial crisis in 2008. Morgan Stanley joins Goldman Sachs Group in predicting the so-called super-cycle isn’t over.

“Higher prices in recent years have brought both a supply and demand response, bringing many to call for the end” of the super-cycle, they wrote. “We view this as too simplistic. Commodities are cyclical but the elasticity of supply and demand, as well as the length of the cycle, vary significantly.” Gold may average $1,853 an ounce in 2013, while silver may be $35 an ounce, Morgan Stanley said. That compares with gold’s average of $1,668 so far this year and $31.1542 for silver.

Overweight Call

Goldman reiterated an overweight call on commodities, on Wednesday, forecasting prices will return 7% in 12 months, Jeffrey Currie, head of commodity research, wrote in a report.

“With commodity-supply constraints easing, Chinese growth slowing and producer-company returns normalizing, it is tempting to say the super-cycle is over”, Currie wrote. “Current developments are simply the next phase of a commodity-investment cycle that began in the late 1990s. We therefore view the current transition as a renaissance, rather than an end.”

Goldman, backing crude, corn and copper, expects gold to peak in 2013 on a recovery in the U.S. economy. In contrast, Morgan Stanley called for higher prices on low nominal and negative real interest rates, as well as risks in the Middle East and central-bank buying. So-called negative real interest rates describe savings rates that are lower than inflation.

Central Banks

Spot gold, up 8% in 2012, is rallying for a 12th year as central banks join investors buying bullion to diversify assets. South Korea, Brazil and Russia are among those adding to gold reserves this year. Holdings in exchange-traded products are at a record, data compiled by Bloomberg show.

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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