Japan struggles as industrial production falls; Italian auction yield on bills halved
European stocks started the session in a sour mood following worse than expected Japanese economic figures from November that showed industrial production declined 2.6 percent MoM and retail sales were down 2.1 percent MoM cementing what has been an awful year for the world’s third-largest economy.
Stocks were down 0.8 percent intraday before hitting the bottom while slowly moving back into green territory ahead of the Italian bill auction. The auction was a success in the sense that the yield came down to 3.25 percent from 6.50 percent on November 25 and stocks jumped a bit higher (see chart below) on the news. With the Long-Term Refinancing Operation (LTRO) allotments it seems natural that European banks are willing to lock in a carry trade of 3.25 percent which is 225 basis points higher than the credit provided by the European Central Bank. Also the maturity is only 179 days and while many things can happen in such a short period the probability of Italy going bankrupt within the next 179 days is limited. It is much more interesting to watch the longer-term Italian debt auction due in the first quarter; that will prove more decisive for Europe and investors.
Sears Holdings will continue to be in focus
Yesterday Sears Holdings shares plunged 27 percent on news that the company will close 120 stores in 2012 as sales have declined more than expected. Since hedge fund manager Edward Lampert merged K-Mart and Sears he has tried to change strategy by focusing on smaller stores and franchising but to no good as Sears has seen 18 consecutive quarters of declining sales. Since the news several analysts have downgraded the stock and thus we would expect the heat to continue for Sears in today’s session.
Peter Garnry
SAXO BANK