What’s Important in the Financial World (12/3/2012)

No Progress on Fiscal Cliff

For those who believe that Congress and the White House can find a solution to the fiscal cliff problem, hope has begun to drain away. Treasury Secretary Tim Geithner said that Republicans will have to accept the president’s tax and stimulus proposals. Republicans believe the president hit them with a new proposal, almost entirely contrary to theirs, without warning. And a number of Republicans continue to refuse proposals for new taxes on people who make more than $250,000 a year. According to CBS News:

The public posturing picked up on Sunday television where it left off at the end of last week, with politicians attempting to sell their sides of the story while evading any semblance of willingness to budge on their respective stances. And time is running out. There is less than a month before a series of automatic spending cuts and tax increases are set to go into effect, which economists predict will be devastating for the economy.

Greece to Buy Back Bonds

Greece’s leadership said the nation would try to buy back 10 billion euros of its bonds in the public markets as a way to lower borrowing costs. The number is relatively small compared to Greece’s overall sovereign obligations, but the move would be a start. And, if this first foray works, it will show that capital markets might support other similar deals in the future. The Wall Street Journal reports:

Greek government bonds after the announcement rose sharply to their highest levels since the debt restructuring in March as the stated buyback prices were much higher than some investors had expected.

The price of the 2023 Greek bond rose to 39.88 cents to a euro, pushing the yield on the bond 1.5 percentage point below Friday’s close at 14.43%, the lowest level since March. The price of the 2042 bond climbed to 31.43 cents to a euro for a yield of 11.58%, down 0.81 percentage point.

Uptick in U.K. PMI

After reporting a strong PMI figure for China, Markit posted slightly positive numbers for the United Kingdom, a sign that its austerity, unemployment and lack of demand for goods and services from Europe have not taken an awful toll. Markit reports:

Business conditions in the UK manufacturing sector edged closer to stabilisation in November, as levels of new work held broadly steady and production posted a modest increase. However, trends in output were uneven across the sector, with contractions at capital and intermediate goods producers offsetting strong growth in the consumer goods sector.

At 49.1 in November, up from October’s three-month low of 47.3, the seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) remained below the neutral 50.0 mark for the seventh straight month. The average reading so far in Q4 2012 (48.2) is slightly above that recorded for Q3 (47.8).

Douglas A. McIntyre