During the past week, it seemed like a progress has been made between republicans and democrats, when Obama agreed to raise the bar for increasing taxes to those who earn more than $400K a year (compared to the original demand of $250K).
Another sign of progress was the principle agreement of the House of Representatives Chairman (Republican John Boehner) to raise taxes for those who earn over one million dollars a year.
However, there had been no progress regarding the cuts required, so eventually, another week ended without a real solution.
Due to Christmas, U.S. leaders may not be able to meet the target they set, which is reaching an agreement by the end of the year.
However, forecasts are optimistic and so is President Obama, who said on Friday that he believes a solution can be reached on time.
Most economic data published in the U.S. were positive, though the economy continues to grow in a very moderate pace (+2.6% over the past year).
The inventory component, which significantly contributed to the GDP rise in the third quarter, is expected to detract from growth in the fourth quarter.
Positively, the recovery trend in the U.S. real estate market has continued and personal spending and personal income expenditure have increased by more than expected in November.
On the other hand, we note the relatively sharp drop in the University of Michigan Consumer Confidence Index.
Eurozone economic data continues pointing to the recession, although moderate recovery was recorded in most expectations surveys.
We will note the IFO survey, which examines managers’ expectations in the manufacturing and services sectors in Germany and is used as a leading indicator for examining developments in the German economy.
The survey suggests an improvement in managers’ assessments for the second consecutive month; however, it remains relatively low and indicates expectations for further slowdown in the growth rate of the German economy.
A slight increase was also recorded in the Eurozone’s Consumer Confidence Index for December, inter alia in light of the improvement in France and Italy Consumer Confidence indices, although the absolute level remains low and continues to point to further decline in Europe’s retail sales.
As mentioned above, some data is still pointing to the recession prevailing in the EU.
The trade balance pointed to a decline of 1.4% in exports from the Eurozone in August to October, parallel to a moderate rise in imports (+0.6%).
In addition, despite the sharp decrease in the volume of credit given by Spanish banks (lowest level since 2007), the doubtful debts in Spain rose in October to a record of 11.23% of total loan portfolio.
Among the main reasons, we note the continued price declines in the real estate market, the very high unemployment rate, and the weak domestic demand.
In summary of Eurozone data
Despite the economic problems of the PIIGS countries and the current recession, the PIIGS countries debt yields continue to decline.
We emphasize that the main reason for the relative calmness in the financial markets stems from the declaration of the ECB president in September, regarding the future launch of a bond-purchasing program (the OMT program).