Positive data from EU and China

Europe

Data released in the past week were surprisingly good, but it is important to emphasize they still point to the recession prevailing in the European economy.

The ECB cut its European economy growth forecast in 2013 to a level of -0.3% (+0.5% in previous September forecast), following the expected contraction of 0.5% in 2012, noting that the balance of risks is tended to the downside.

ECB president, Mario Draghi, said that weak Eurozone’s activity is expected to continue into next year, but at the same breath provided a more optimistic outlook, saying that a gradual recovery should start later in 2013, due to the expected increase in global demand and the positive effects of low interest rates.

Other date was the ECB lowering its 2012 inflation forecast to 1.6% (1.9% in the previous forecast).

The interest rate was left untouched, though Draghi noted the monetary committee members discussed the possibility of cutting it.

Following that statement the Euro had weakened and ECB interest rate contracts for December 2013 decreased by 5 basis points to a level of about 0.17%.

Greece:

Greece’s Ministry of Finance declared its Greek bonds purchase plan, which is expected to reduce Greece’s debt by about 20 billion Euros.

That bond purchase program was part of the terms for releasing financial bailout by troika representatives.

The debt purchasing plan is expected to succeed.

The country’s three largest banks announced on Friday that they will respond to the offer, and according to estimations, some foreign entities that purchased the Greek bonds as a short term trade, are also expected to comply with the tender offer.

Formal issuance’s results will be published in the coming week.

In light of the Buyback program the S&P rating agency cut Greece’s credit rating from ‘CCC’ to ‘SD’ (selective default), claiming that the repurchase program leads to debt restructuring.

We note positively that despite the S&P downgrade, and due to the fact that the debt purchase plan is expected to succeed, Greece’s risk premium fell relatively sharply last week.

China:

A batch of data published Sunday indicates further improvement in macro data in China.

A higher than expected increase was recorded in November’s industrial production and retail sales, as to investments stability.

Muted inflationary pressures are apparent in the Chinese economy: the CPI (Consumer Price Index) published on Sunday increased in November by 2.0% (expectation were 2.1%).

The PPI (Producer Price Index) declined sharply in the past year (-2.2% versus -2.0% expectation).

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