Friday, December 9, 2011
The news out of Europe today is quite good, though you will be hard pressed to see that come across from the headlines. The goal for the meeting was to convince the EU members to create a more unified fiscal union. And a big majority of the countries have signed on to that plan. A lot of details still need to be worked out, but the agreement provides a good enough basis to move in the desired direction.
Europe aside, we also have favorable inflation readings out of China this morning, highlighting that the Chinese authorities have gained the upper hand in their fight against persistent inflationary pressures. This improves the odds that the recent monetary easing move by the Chinese central bank will remain in place for some time. On the home front, we got a lower than expected trade deficit number for October this morning. On the docket for a little later is the preliminary December Consumer Sentiment survey from the University of Michigan.
But the big story today is the EU summit meeting in Brussels. Expectations had really gone up in the run up to that meeting in the last few days, which had helped calm some of the anxieties in the Euro-zone government bond markets, particularly of Italy. And the European leaders appear to have made a lot of progress, with the 10-hour meeting resulting in 7-page agreement. Not all 27 members of the European Union agree to the Franco-German plan to move the union towards greater fiscal integration. But nobody expected all of them to endorse the plan any way.
Aside from the U.K., Sweden, the Czech Republic, and Hungary, the rest of the 23 EU members signed on to the plan. This means that in addition to the 17 EU countries that were already in the Euro-zone (using the Euro as their currency), an additional six countries are coming around to the need for greater fiscal union. This has to count as a key success of the plan. The agreement provides for the harmonization of financial regulation, a financial transactions tax, and an earlier roll-out for the permanent rescue fund. By holding out, the U.K. appears to have isolated itself and further adds to its difficult relationship with Europe.
In corporate news, we have a negative earnings outlook from DuPont (DD), with the chemicals and life science giant citing global economic softness for its weaker outlook. We also have negative earnings outlooks from Texas Instruments (TXN) and Altera (ALTR). On the positive side, Ford (F) reinstated its quarterly dividend, having suspended the same more than 5 years.
Sheraz Mian
Director of Research
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