Japan’s industrial output fell 1.3% in August, after a 1% drop in July, primarily due to cuts in the production of electronic parts and cars, the Trade Ministry said today. The decrease was worse than the 0.5% fall forecasted by economists. Meanwhile, the Markit/JMMA manufacturing Purchasing Managers Index rose to a seasonally adjusted 48 in September from 47.7 in August, marking the fourth successive month of contraction.

Greece’s lenders – the EU, ECB and the IMF – have faced mounting friction, with disagreements related to the resolution of Athens’ debt crisis, as informed to Reuters. While the IMF is demanding European government’s write-off a portion of their Greek debt, EU leaders are keen to offer Greece more time to meet its bailout targets.

Ewald Nowotny, an ECB governing council member, said the ECB was acting within its mandate by buying bonds of struggling Eurozone nations to stem the crisis. Germany’s Bundesbank continues to oppose the ECB decision, calling it equivalent to financing governments by printing banknotes. Separately, Eurozone governments have begun talks over creating a central budget for the currency union. The aim is to develop tighter controls over national spending as well as move towards a banking union so as to smoothen some of the region’s economic divergences.

People’s Bank of China infused a record ¥290bn in the banking system through reverse-repurchase agreements, with an aim to stem the cash crunch ahead of the quarter-end and weeklong holidays. The central bank carried out ¥190bn of 28-day reverse repos and introduced 14-day contracts worth ¥100bn.

German news magazine Der Spiegel said Eurozone nations were taking necessary action to ensure the region’s permanent bailout fund could use the same leverage techniques as its predecessor, the EFSF. This would provide the fund with a lending capacity of around €2trln, enabling it to rescue large countries, if needed. Wolfgang Schaeuble, the German Finance Minister, has supported the plan, which is yet to be accepted by other Eurozone members.

The Eurozone Composite Purchasing Managers’ index (PMI), dropped further to 45.9 in September from 46.3 in August, research group Markit said yesterday. The services sector PMI plunged to a 38-month low of 46 from 47.2 in August. However, the PMI for manufacturing sector rose to a six-month high of 46 in September from 45.1 in August. Separately, the US preliminary manufacturing Purchasing Managers’ Index (PMI) remained unchanged at 51.5 in September. However, the index averaged 51.5 in Q3 2012, well below the 54.2 reading in Q2 2012, recording its weakest quarter since Q3 2009.

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) inched up to 47.8 in September from a nine-month low of 47.6 in August. However, the sub-index measuring output dropped to 47.0, its lowest level since November 2011.

Bank of Japan expanded its asset purchase and loan program by ¥10trln (US$127bn) to ¥80trln, with the increase coming from purchase of government bonds and treasury discount bills. The central bank held its key policy rate in the 0–0.1% range and monthly bond purchases at ¥1.8trln.

Home prices in China inched up for the second consecutive month by 0.1% m-o-m in August, the National Bureau of Statistics (NBS) said today. On a y-o-y basis, prices were down 1.4%. On m-o-m basis, home prices rose in 35 of 70 major cities compared to 49 in July. Beijing and Shenzhen saw prices rise 0.1% in August, while new home prices in Shanghai remained unchanged.

IMF Managing Director Christine Lagarde said on Friday that Greece could get an extension for meeting its financial obligations under the €130bn bailout package. However, the international lenders signalled that the country would probably not receive more aid, and said a final decision had to be arrived at by the end of October.

The Japanese government reduced its forecast for the economy for the second consecutive month, citing a slowdown in demand for exports globally and drying-up of government subsidies for low-emission cars. It also cut the estimate of private consumption. The government and the central bank now forecast economic growth to be 2.2% in the business year to March 2013.

In a ruling yesterday, Germany’s constitutional court gave the ESM a go-ahead, paving way for the bailout fund to be operational within weeks. However, the approval comes with two conditions. First, any increase in Germany’s liability beyond the agreed €190bn must be approved by the Bundestag (lower house of parliament). Secondly, although the ESM treaty states that its activities must remain confidential, the two chambers of parliament must be consulted.

Germany’s constitutional court is expected to approve Berlin’s participation in the Eurozone’s new bailout fund, the European Stability Mechanism (ESM). However, the verdict could involve conditions limiting Germany’s financial exposure and protecting its autonomy.

Chinese banks dispersed new local-currency loans worth ¥703.9bn (£69bn) in August, a marked increase from ¥540.1bn (£53bn) in July, the central bank said today. The sharp rise in bank lending could be ascribed to higher investments in real estate and the government-backed spending on infrastructure projects.

Chinese exports rose 2.7% y-o-y in August, below the expectation of a 3% increase, the customs bureau said today. Imports https://www.beaufortsecurities.com/files/breakfast-today/2012/surprisingly dropped 2.6% y-o-y in august; they were expected to increase 3.5%. Furthermore, growth in industrial output eased to 8.9% y-o-y in August, the slowest pace since May 2009, the National Bureau of Statistics said on Sunday. Separately, South Korea unveiled today a US$5.2 bn stimulus package to shore up its economy.

ECB President Mario Draghi stressed the ‘euro is irreversible’ and detailed the ‘Outright Monetary Transactions’, a new unlimited bond-buying programme aimed at lowering bond yields of troubled nations. Bonds with maturities upto three years will be bought under the scheme. Countries wishing to avail the facility will have to apply for a bailout through the EFSF or ESM, the region’s rescue funds, and adhere to strict reforms targets.

The composite Purchasing Managers’ Index (PMI), which measures manufacturing and services together, dropped to 46.3 in August from a preliminary reading of 46.6 and below July’s 46.5, Markit said yesterday. Germany’s composite PMI declined to 47, its lowest level since June 2009.

Italian Prime Minister Mario Monti and French President François Hollande stressed that European institutions must take action to lower ‘unjustified’ risk premiums on bonds of countries that were taking steps towards economic reforms and fiscal prudence, as they mounted pressure on the bank to commence a bond-buying programme. However, the ECB is expected to provide only a sketch of the programme to ensure that troubled nations adhere to deficit and debt controls.

Moody’s lowered the outlook on EU’s Aaa long-term bond rating from stable to negative, underscoring the downside risks to Germany, France, UK and the Netherlands, which represent 45% of the European Union’s budget revenue. Moody’s added that EU’s rating would be sensitive to changes in the ratings of these four member states, warning that if it downgraded these four, it could also cut the EU’s rating.

China’s official manufacturing purchasing managers’ index declined to 49.2 in August from 50.1 in July, the National Bureau of Statistics said on Saturday. A private survey by HSBC concurred with the official survey. The HSBC China PMI dipped to 47.6 in August compared to the preliminary reading of 47.8. This is the lowest reading since March and follows July’s reading of 49.3. A reading below 50 indicates contracting factory activity.