China In The News (Again), New Vatican Bank Rules, And First Time Jobless Claims

Looking to the global picture first, China is in the news[1]. They've released their Purchasing Managers Index, which dropped from 55.3% in November to 54.4% in December. Even though that's still considered to be an expansion in the marketing sector[2], this does indicate that manufacturing growth is slowing.

In further Chinese news, Jiang Yu has reiterated China's position that they are fully entitled to regulate the mining and exporting of their own nation's rare earth resources. "In the future, China will continue to supply rare earths to the international market and will take effective management steps over their export in accordance with WTO rules." Translated, this says "It's our stuff. It's in our nation. You don't like it? Wah."

Spinning round the globe to Europe, Italy reported a 0.4% increase in the PPI for November (putting it up 60 bps, and at 4.1% for the rolling year). That's not great news for one of the PIIGS, since it's a pretty good indicator that CPI will be going up over the next month or so.

European share trading in general is down a little right now, mostly on declining energy stocks and concerns about the "euro zone debt crisis". Copper prices have hit a new high ($9550 per ton) on expectations of rising emerging nations demand, and US crude oil prices are still near a two-year high. The dollar, on the other hand, is dropping like a stone - everybody expects the Fed's quantitative easing program to churn out more US currency in 2011 - bringing it to a 20-year low against the Australian dollar, a seven-week low against the yen, and a six-month low against the yuan.

Also in European news, Pope Benedict XVI has signed off on new rules to bring the Vatican's banking regulations in line with EU banking regulations. Why? Because Rome prosecutors have put the director of the Vatican Bank[3] and his deputy under criminal investigation for possible money laundering, and have seized 23 million euros worth of Vatican deposits at an Italian commercial bank (which were allegedly deposited without proper identification of the depositor or the recipient). Also, they have until tomorrow to bring themselves into compliance with EU banking regulations[4].

Moving westward across the Atlantic, the United States is braced for the First Time Jobless Claims for the week of Christmas with baited breath. For the week ending 12/18, we had 420k claims. Analysts are expecting a mild Christmas miracle (possibly driven by a last-minute surge in seasonal employment) which will hopefully bring Christmas cheer and a drop in first time claims to "only" 415k. Looking at the report, we see that the actual claims were only 388k - far, far better than expected.

So why are the futures flat? A couple of reasons, really. Everyone is still waiting to see the Chicago PMI (analysts are expecting a mild contraction in the growth rate to 62%) and the Pending Home Sales Index (no consensus yet).

[1] Isn't it always, these days?

[2] Any result over 50% is considered to be a sign of an expanding sector.

[3] Officially known as the Institute for Works of Religion.

[4] The EU, applying the "if it walks like a duck and quacks like a duck" rule, is no longer accepting the Vatican's position that the Institute for Works of Religion is not technically a bank.

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.

What Happened In The Market?

We had bad Case-Shiller and bad Consumer Confidence figures, and the markets still ended on the up side of mixed (Dow up 20.51, NASDAQ down 4.39, S&P 500 up 0.07). What happened?

Reuters, at least, gives the credit indirectly to the blizzard and directly to energy stocks being boosted by an increase in oil prices. Why the blizzard? It helped push oil prices near to a 26-month high (February oil futures were up $0.38 to $91.38 a barrel), and the rising oil prices helped push oil producers up in the markets.

I haven't seen the figures yet, but it wouldn't surprise me to see that commodities in general were either flat or down today - China announced that it will cut its export quotas for rare earth minerals[1] by 11.4%. This is a concern, because these elements are used in quite a bit of high-tech manufacturing[2], and because China produces something like 97% of these minerals. The EU, the United States, and Japan are particularly upset, and there is some possibility that the US will file a complaint with the World Trade Organization.

The Singapore Exchange is in the process of trying to take over the Australian Exchange to the tune of $8 billion US dollars. This is somewhat controversial in Australia, because their major exchange would become a subsidiary of the Singapore Exchange, and the government of Singapore owns 23.5% of the Singapore Exchange. As of December 15 the deal had been approved by the Australian Competition and Consumer Commission. Now it just has to be approved by the Treasurer of Australia, pass through the Australian Parliament[3], and then be approved by the Monetary Authority of Singapore. Investors are cautious.

[1] There's reasonable list available on Wikipedia.

[2] Wind turbines, hybrid cars, iPhones, flat screen TVs, and anything else that has a use for magnetism, luminescence, and strength.

[3] Which seems to be of the opinion that the merger is "fanatical marketism that is taking away our sovereign right to self determination"