Weekly Focus: ECB Eases Pressure

Market movers ahead

• Despite two week's having passed since the EU Summit we are still waiting for the final verdict on France and the European Financial Stability Facility from S&P.
• On Wednesday 29 December, Italy will have auctions in the 3- and 10-year segment. We expect a combined amount in the range EUR3-5bn.
• Euro area headline inflation is set to embark on a declining trend, which combined with negative growth would pave the way for another 25bp cut from the ECB.
• We expect the ISM to remain largely at the healthy levels we have seen recently. Furthermore, we expect non-farm payroll figures in line with the November reading, posting healthy gains but not enough to put a real dent in unemployment.
• In China, we expect focus to be on the release of NBS manufacturing PMIs for December on New Year's Eve. The flash estimate for the HSBC manufacturing PMI has already been released and showed an improvement from 47.7 to 49.0 in December.

Global Update

• The first of the ECB's three-year longer term refinancing operations (LTROs), with the option of early repayment after one year, was conducted this week. EUR489bn was allotted, which was substantially more than expected.
• Ifo surprised positively, with the expectations index increasing from 97.3 to 98.4. This yields hope that we will see only a minor fall in German GDP in Q4.
• House Republicans have backed down and agreed to extend the payroll tax cuts by two months. It ends the risk of a sudden tax rise on 1 January in the US.
• Bank of Japan (BoJ) is still concerned about the impact on the economy of the strong JPY and further intervention and QE possible in 2012.
• In China, house prices continued to decline in November, albeit at a moderate pace. This was the fifth monthly decline in a row.

We wish our readers a happy and prosperous new year.