Will the European situation affect the US economy? The likely answer seems to be “yes”, but why? New research from Hyun Song Shin at Princeton suggests that there are important financial linkages between Eurozone banks and US credit conditions. It appears that the US “shadow banking system” consists mainly of European banks; these banks’ local branches are the recipients of USD lending in the wholesale funding markets, and they send the funds raised back to their parents, which then invest in USD assets. As Europe’s combined banking and sovereign crisis continues, credit is therefore likely to become scarcer in the US. This is an important conclusion. There are some slides here: http://j.mp/sxhryA, and a paper here: http://j.mp/uxaNAD. 

Data:

UK CBI realised sales -19 d.e. Nov. Continued deterioration. 
EZ GfK consumer climate rises to 5.6 b.e. This has not been a very informative indicator.
New home sales 307k d.e. Oct. Still basically flatlining.
Japan household spending -0.4% YOY b.e. Oct. Smallest YOY fall since the earthquake.
Japan unemployment rose to 4.5% d.e. Oct. Has been volatile recently.
Japan retail sales 1.9% YOY b.e. Oct. Best number of 2011.
UK Nationwide HPI had its third monthly rise in Nov; the increases have been small and are probably noise.
UK net lending to individuals b.e. Oct; remains very low compared to pre-crisis levels.
UK M4 -0.3% a.e. Oct. Continuous slow decline since the start of 2010. Base money growth doesn’t automatically translate into growth in the monetary aggregates.
UK mortgage approvals still flatlining; moderately high compared to their recent range.

Next 24 Hours:

CB consumer confidence
ECOFIN meeting
German RS
French consumer spending
German employment data
Eurozone flash CPI
Eurozone unemployment
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