What's Important in the Financial World (12/11/2012)

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The ZEW Indicator of Economic Sentiment for Germany improved a bit, which must be a relief for those who believe that Europe’s largest economy by gross domestic product continues to move rapidly into recession. The measure increased by 22.6 points in December 2012. It now stands at a level of 6.9 points. Thus, the indicator is in positive territory for the first time since May 2012. In the report ZEW analysts wrote:

The indicator’s rise shows that the financial market experts expect the economic activity to stabilize until early summer 2013. Positive U.S. economic data may have contributed to this assessment. They may have spurred the hope that the global economy will gain momentum. Nevertheless, keeping in mind that the Indicator of Economic Sentiment currently hovers only marginally above the zero points-line, the German economy is rather likely to bottom out instead of already experiencing an upswing within the next six months.

And ZEW President Wolfgang Franz said:

The financial market experts forecast the development of the economic activity in 2013 with pre-Christmas optimism. Although the cooling down of the economic activity will last until the beginning of 2013, Germany will not have to face a recession. However, this only applies if the crises in the eurozone do not deepen once again.

OPEC Output Target

OPEC may do the rest of the world a favor. Prices of Brent remain above $100, which many members of the cartel believe are adequate to fund their treasuries. If OPEC decides not to lower production, which probably would have caused an increase in prices, that is one more threat to the world economy that becomes less likely to happen. Reuters reporters write:

At a meeting in Vienna on Wednesday the 12-member Organization of the Petroleum Exporting Countries is widely expected to retain its 30 million barrel a day (bpd) output target for the first six months of 2013.

“The world economy is weak and supply will be running ahead of demand, which could justify a cut of around 500,000 barrels a day, but political factors will prevent OPEC from taking any formal action,” said a senior OPEC delegate from a Gulf producer, referring to Middle East unrest and sanctions on Iran.

The Dividend Boom

The top 1% in the United States are about to get much richer because of the number of corporations that have accelerated dividend payments into 2012 so that their investors can avoid what may be higher taxes once the fiscal cliff has been reached. The dividend effect is already well calculated, but its size has not been. According to Bloomberg:

More than 150 companies, from Costco Wholesale Corp. to Las Vegas Sands Corp. (LVS), have declared special dividends totaling about $20 billion this quarter to avoid anticipated tax increases in 2013, according to data compiled by Bloomberg. Others, including law and private-equity firms, probably will pay bonuses, partnership distributions and commissions early for tax reasons, according to Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

“We’re going to have a big jump in household income in the fourth quarter” said Crandall, whose company is a subsidiary of ICAP Plc, the world’s largest broker of transactions between banks. “It’s going to be in excess of $50 billion.”

Douglas A. McIntyre