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Government inaction and absence

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  • The United States gears up for sequestration tomorrow - although the spending cuts have already been anticipated (the Pentagon has been laying off staff for over a month). This is a different economic impact to the fiscal cliff (which was mainly about tax increases).
  • Italy still seems to be without a government, which may raise some concerns (though Belgium has shown that a country can manage without a government for some time). Risk aversion arising from the Italian situation may do more damage to other peripheral countries than to Italy.
  • The Japanese government, as expected, has nominated the head of the Asian Development Bank (former MoF) Kuroda to be the next Bank of Japan governor. The move was widely expected.
  • The Euro area offers us CPI, German unemployment and French household consumption date. The US is revising its Q4 GDP data. We are looking for a smaller gain than the market - we also see weaker imports into the US, which may give Asia pause for thought.

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