European Leaders Reach Deal On Fiscal Plan

December 9, 2011 01:24 AM

What Traders are Talking About:

* European leaders reach preliminary agreement. The news from the European summit is positive this morning, as leaders of 23 of the 27 European nations, including all 17 euro-zone countries, agreed in principle to new fiscal guidelines. Britain was the most notable dissenter. The primary components of the agreement are automatic sanctions against countries in the euro-zone which break deficit rules and a new fiscal rule on balanced budgets becoming part of national constitutions.

The long and short of it: Market reaction has been generally positive, although final details of the plan won't be worked out until later. There are also questions about the enforcement of the new guidelines.

* Chinese inflation easing, industrial output slowing. China's November consumer price index (CPI) came in 4.2% above year-ago, which was a dramatic reduction from 5.5% in October and the lowest level since Sept. 2010. The producer price index (PPI) plunged to 2.7% over year-ago last month from 5.0% in October. Meanwhile, Chinese industrial output slipped to 12.4% over year-ago last month, which is the lowest level since Aug. 2009.

The long and short of it: Slowing inflationary pressure and reduced industrial output growth are raising concerns about a potential hard landing for the Chinese economy. This data suggests China will be more aggressive in easing monetary policy as they will look to pro-growth measures.

* China actively buying domestic corn. It shouldn't come as a surprise that China is reportedly seeking to buy 10 MMT to 12 MMT of corn from producers in northeastern provinces by the end of January given the need to replenish state reserves and coming off a record harvest. Reports indicate the purchase price will be 2000 yuan ($314) per ton, which is in line with current market prices in China. The move is seen as not only a step to rebuild state reserves but to also boost domestic prices.

The long and short of it: Aggressive purchases of domestic supplies means government interest in U.S. corn will be limited near-term. Any Chinese purchases from now until at least the end of January will have to come from the private sector.


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