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China data improves, but Monti resignation could weigh
00:00, 10 December 2012
It’s a toss-up whether the markets will react to the better than expected Chinese economic data released at the weekend, or the news that Italian PM Mario Monti will tender his resignation as soon the 2013 budget is passed into law, and thus trigger an early election and further political uncertainty to a country not known for its political stability. For now it seems equity markets are choosing to react to the Chinese data with a slightly higher open expected, however the single currency appears to be reacting to the Italian news flow, opening sharply lower in Asia. Chinese November industrial production showed a rise of 10.1%, much better than expected and a return to double digit growth for the first time since March this year. In a sign that domestic demand was also picking up retail sales for November also rose to their highest level since March as well rising 14.9%. These figures offer further encouragement that the Chinese economy may be starting to turn around after nearly half a year of bouncing along the bottom. Despite the recovery in these data items the sharp drop in exports remains a concern, although not altogether surprising given events in Europe, from 11.6% in October to 2.9% in November as the trade surplus shrank from $32bn to $19.63bn. Ordinarily this Chinese news would translate into a fairly positive reaction from markets; however the news out of Italy at the weekend has thrown a new uncertain element into the political maelstrom in Europe, with the news that Italian PM Mario Monti has announced he intends to resign by the end of this year, once the 2013 budget has been passed, having lost the support of previous PM, Berlusconi’s PDL party. Mr Berlusconi has also announced that he could well look to stand for office again in a further twist to the saga. The uncertainty that the prospect of an early election could introduce into Italian bond markets cannot be underestimated even allowing for the placebo of the ECB’s OMT program pledge, with any deterioration in Italian borrowing costs exerting further strains on political stability ahead of this week’s EU Summit. Meanwhile in Greece early indications suggest that the debt buyback appears to be proceeding smoothly, with some speculation that the offer may be extended in order to get as much involvement as possible, with an official announcement due today on the amount of bids received. EURUSD – Friday’s rebound from 1.2880/90 was also a 50% retracement of the up move from 1.2660 to last week’s high at 1.3125. It is also the 28th November low and a fall below here and the 50 day MA at 1.2915 opens up a move back towards the trend line support from the 1.2050 low which sits at 1.2800, and the 200 day MA at 1.2790. GBPUSD – the drop below the 50 day MA at 1.6040 brings the support at 1.5980 into view, while it is also 50% retracement of the 1.5825/1.6130 up move. The pound needs to get back through 1.6040 to retarget 1.6120. Major trend line support remains at 1.5850 from the 1.5270 lows, the 200 day MA at 1.5870 as well as 1.5660. EURGBP – the euro continues to decline and it would seem that a test of the trend line support at 0.8015 from the July lows at 0.7755 is on the cards, irrespective of the 50 and 200 day MA bullish crossover. A break below the 0.8010 level targets the November lows at 0.7960, while a move back through 0.8080 is needed to stabilise. USDJPY – a third failure at the 82.85 on level Friday puts in a potential triple top pattern with the base at 81.70. If we break below 81.60 then the potential is there for a move towards 80.50, and even 79.90. We need a break above the 82.80 level to target a move towards the March highs above the 84.00 level. Only below the 80.50 level suggests a move back towards the November lows at 79.00.