Morning Metrics!

Our typical jaunt round the globe begins in Japan, where last night at 6:50 PM EST their Merchandise Trade figures were released. This is more or less the same thing as the US Trade Balance figures, and looks at the trade deficit or surplus on tangible goods and services. The consensus estimate was for a surplus of ¥450 billion in December (up substantially from November's ¥151.1 billion). Analysts were also looking for annual imports to hit a 9.5% increase, while imports were expected to increase 12.3%. In actuality, the December trade surplus was ¥727.7 billion (whupping estimates), while 2010 exports finished up 13.0% and imports finished up 10.5%.

The Japanese markets would be far happier about this if Standard & Poor's hadn't cut their long-term sovereign debt rating to AA-.S&P's reasoning is that "In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country's debt dynamics, in part due to the coalition having lost its majority in the upper house of parliament last summer." The yen dropped and credit default swaps widened on the news.

In further Asia-related news, Representatives Sander Levin, Tim Ryan and Tim Murphy are planning to reintroduce the Currency Reform for Fair Trade Act when the House returns in February. This act would allow the Commerce Department to treat undervalued currency[1] as a subsidy under US trade law. This would allow companies to seek higher duties against imports from the nation with the undervalued currency[2] if those imports compete with US production.

In addition, the China Securities Regulatory Commission has drafted a consultation paper outlining rules that will allow qualified foreign institutional investors to invest in the Chinese stock index futures market. The investments can only be used as a tool for hedging, not for arbitrage or speculation, and the QFIIs will not be allowed to issue derivative products on the stock index futures.

Turning to Europe, German CPI was released at 8:00 AM EST. For January 2011 the consensus expectation was to see CPI fall 0.4%, and it beat expectations by falling 0.5%.

[1] coughcoughyuancoughcough, at least as far as the authors of the bill are concerned.

[2] coughcoughChinacoughcough, at least as far as the authors of the bill are concerned.

Metrics: European And Canadian

Let's start with Europe, shall we? We've got economic data flowing in from Switzerland, Germany, France, and the EU as a whole.

In Switzerland, seasonally adjusted unemployment remains flat at 3.6% (missing expectations by 10 bps), while non-seasonally adjusted unemployment rises 20 bps to a level of 3.8% (also missing expectations by 10 bps).

Germany's got a ton of data coming out, and it's all bad. First off, their merchandise trade[1] surplus dropped E2.4 billion (brutally missing expectations, which anticipated an increase in the trade surplus to E15.0 billion) to a level of E11.8 billion in November. Imports jumped 380 bps for the month to a level of 4.1%, while exports rose 160 bps to a level of 0.5%. Retails sales fell 250 bps in November, dropping from a revised 0.1% (revised downward from the original 2.3% reported for October[2]) increase to decline 2.4% (also brutally missing expectations, which anticipated a decline to an increase of only 1.0%). Finally, to round out this trifecta of misery, industrial production fell 370 bps in November from a revised 3.0% increase to a 0.7% decline (missing expectations by 40 bps).

France is not experiencing much joy either. Their merchandise trade figures for November can be read in one of two ways: either as a E7.3 billion shift from a E3.43 billion trade surplus in October to a E3.87 billion trade deficit in November, or (using the revised October figures) as E0.16 billion shift from a E3.71 billion trade deficit to a E3.87 billion trade deficit. The first is an almost inexplicable single-month face-heel turn, and the second smacks of sheer incompetence amongst the offices of the French equivalent of the Department of Labor[3].

Do things get any better for the European Union as a whole? Well, their Q3 final revision for GDP cuts the quarter over quarter growth to 0.3% (down from the previous revision of 0.4%, and missing expectations that the final figure would remain 0.4%). Year over year GDP remains unchanged at 1.9%. the EU's unemployment rate remains unchanged at 10.1% in November, exactly meeting expectations.

On to Canada, where the Labor Force Survey shows things improving by at least a small amount. Employment rose 22,000 in December (up 6800) beating expectations by a small margin (analysts were expecting to see 20,300 new jobs). As a result, the unemployment rate for the year comes in at 7.6%, beating expectations by 10 bps.

Coming up next, we'll be looking at the US Employment Situation!

[1] Merchandise trade is imports and exports of tangible goods and services.

[2] There's no real explanation about how 0.1% was mistaken for 2.3% in the original data.

[3] I mean, really. How else do you look at the trade figures one month and say "Aha! We exported 3.43 billion more Euros worth of goods than we imported! Viva la France!" and then the next month say "Our bad. We made a 7.3 billion Euro mistake in our calculations"? Were they holding the balance sheet upside down?

Metrics: Domestic and Foreign

Highlights from around the world (well, from Europe anyway) and around the corner.

In Europe, Germany reported it's December 2010 unemployment rate, which remains unchanged at 7.5% Great Britain's PMI Manufacturing Index beat expectations by rising 30 bps from November to finish at 58.3 (the consensus expectation had been only 57.0). Italy's CPI rose to finish at a 0.4% increase for December (making a 1.9% increase in consumer prices for 2010). Finally, the European Union has reported its annual inflation rate, which was expected to come in at 2.1% for 2010 (up 20 bps from 2009). The actual figure is 2.2% which, while worse than expected, is not terrible.

All told, the news ranged from good (German unemployment and Great Britain's Manufacturing Index) to tolerable (EU inflation) to "bad but who cares" (Italy's CPI[1]). It's not particularly surprising that the FTSE 100 is up 2.21%, the DAX is up 0.22%, and the CAC 40 is up 0.65% on the news[2].

Winging our way over the North Pole (because, really, we usually take the Atlantic route and I'm bored with it), we have a few measures coming up in the US. Factory Orders are due out at 10 AM EST - a moderate market mover because it gives a second look at the productivity of the US manufacturing sector.. For November expectations are, in a word, bleak. October saw a 0.9% decrease in factory orders, and November is expected to be absolutely flat (a 0.0% increase). At some point today we're also expecting the Domestic Vehicle Sales (tracking sales of domestic-made cars[3], which is expected to rise 100,000 to net sales of 9.2 million for December.

Finally, the FOMC minutes are due out at 2:00 PM EST. Look for such surprises as the Fed being concerned about inflation but still expressing a willingness to keep monetary policy loose to stimulate GDP, an overall consensus to leave the target rate for the federal funds rate at 0 to 1/4 percent, and for Thomas Hoenig to vote against the policy because he's concerned about the loose money policy promoting high future inflation.

[1] They're one of the PIIGS, and has had its fair share of troubling the market anyway. It's going to take more than a 40 bps CPI increase to make European traders flinch these days.

[2] As of 8:21 AM EST. Actual numbers are subject to change without warning.

[3] No idea yet if this includes say, Toyota, which has a large factory complex in Kentucky. Or if it includes say, GM or Ford, whose vehicles are only an average of 70% domestic parts. Do we prorate?

German CPI, Rare Earth Excitement, and Man v. Internet

There's just not a lot of market data due out today. Germany has reported its Consumer Price Index for the month of December, and the news is brutal. In November, consumer prices rose 0.1%. For December, they rose 90 bps to 1.0%. But the German economy can take comfort in the fact that the entire jump was driven by the almost irrelevant forces of home energy, motor fuel, and food. If you strip all of that out and look solely at core CPI, prices haven't changed at all![1]

The Swiss KoF Leading Indicators[2] dropped 2 bps to a 2.10%; not great news, but it still points to a reasonable amount of growth in the Swiss economy.

Everybody in the world that is not China[3] is now complaining about China's move yesterday to cut exports of rare earth minerals. The US Trade Representative's office is "very concerned" about the quota reductions. The EU is demanding that China "respect its recent assurance of a guarantee of rare earth supplies to Europe". On the other hand, everyone in the world that isn't China that has the ability to mine these rare earth minerals is ecstatic. Demand for these rare earths is set to increase by more than 125% in the next 5 years, so that's money in the bank for anyone that can supply them.

Speaking of money in the bank, Paul Allen[4] is suing the entire internet for patent infringement. His suit claims that Interval Research holds patents on how data is related to information being browsed, the way information is relayed to a computer screen in an unobtrusive manner, and the way web browsers are alerted to new items of interest based on the activity of other users. AOL, Apple, eBay, Facebook, Google, Netflix, Office Depot, OfficeMax, Staples, Yahoo! and YouTube are the major companies named in the suit, which asks for damages and a ban on products that use the disputed patents[5].

Apple is also getting sued, in what the law firm bringing the suit hopes will become a class action lawsuit, over privacy issues. It is alleged that Apple apps "leak" personally identifiable data, despite Apple's policy that only allows data sharing if an app requires the information to keep running. Google may also face a similar lawsuit.

The SEC is also getting involved in the internet, by looking into trading in privately-held internet companies (such as Facebook and Twitter). It appears that there are some online trading services that allow trading of unlisted Internet firms, and the SEC would like some information about how the shares are being valued, and whether or not this trading violates SEC rules[6]. So far, the probe is in the early stages.

[1] Yay?

[2] A composite of business surveys from the industrial, retail, and wholesale sectors, used to try to project GDP growth about 8 months into the future.

[3] Still not wanting to replace the US as the world's sole economic and military superpower.

[4] Co-founder of Microsoft and founder of Interval Research Corporation, a company you probably have not heard of.

[5] This would include Google's search engine, iTunes, AOL Instant Messenger, Apple's Dashboard, Google Talk, Google's Gmail Notifier, and Google's Android phone system, just to name a few things.

[6] Specifically, private companies must either have fewer than 500 shareholders or else publically disclose significant financial information.