Risk appetite improved a bit in Asian session on Tuesday as the IMF report suggested advanced economies have made progress in reducing deficits and a Chinese newspaper indicated the government would announce monetary easing measures to boost the economy. Economic Information Daily said the country is planning to invest RMB 2.3 trillion in railroad infrastructure through 2015. These helped lift sentiment which was a bit down yesterday as investors awaited Eurogroup finance ministers’ meeting. In the commodity sector, the front-month contract for WTI crude oil slipped to as low as 88.21 before ending the day at 89.33, down -0.61%, while the equivalent Brent crude contract dipped -0.18% to settle at 111.82. The benchmark Comex gold contract dropped for a second consecutive trading day, falling -0.29% and closing at 1775.7.
The IMF stated in its Fiscal Monitor report that Fiscal shortfalls in advanced economies would fall to an average of 5.9% of GDP in 2012 and 4.9% in 2013, from 6.6% last year. While the figures were revised modestly higher from July’s estimates of 5.8% and 4.7% respectively, the trend of narrowing deficits is positive news for the market. According to the world lender, "most countries have made significant headway in rolling back fiscal deficits and "the improvement in fiscal balances is most pronounced in advanced economies, where the fiscal shock was larger, followed by emerging market economies and to a lesser extent by low-income countries. However, the IMF in another report lower estimates of global GDP to +3.3% for this year and +3.6% for 2013, stating there’s a one-in-six chance of growth to fall below +2%.
Looking at the Eurozone, yesterday marked the kick of the ESM which has a lending capacity of about 500B euro. Eurogroup President Jean Claude Juncker stated that "The start of the ESM marks a historic milestone in shaping the future of the European monetary union. The euro area now is equipped with a permanent and effective firewall, which of course is a crucial component in our strategy to ensure financial stability in the Eurozone. Yet, investors were still not comforted by the additional firewall as evidenced by the decline in the euro and rises in peripheral yields. Indeed, the market remained concerned about Spain as the debt-ridden country continued to refuse requesting external funding. Regarding this, Juncker said he is "satisfied with the fiscal consolidation measures taken so far by the Spanish government. It is not up to me nor to us as members of the Eurogroup to advise the Spanish government to make a request. German Finance Minister Wolfgang Schaeuble also said that "the Spanish don't need an assistance program. That is what the government says over and over again and we should just trust the Spanish government. While not applying for a bailout, the Spanish government announced that it would seek a 4.86B euro private placement of 3-5 year bonds for financing needs.
On the data flow, the UK industrial production probably fell -1.1% y/y in August, accelerating from -0.8% in the prior month which manufacturing production might have slipped -0.6%, compared with -0.5% in the July. UK’s visible trade deficit might have widened to 8.3B point in August from 7.1B pound a month ago.
Oil and Gold Reports contributed by Oil N' Gold