Archive forSeptember, 2012

Decline in Japan’s industrial output raises recession concerns

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.

IMF, EU at loggerheads over Greece’s bailout prospects

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.

ECB officials defend legality of bond purchases

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.

China’s central bank injects record funds

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.

Eurozone to raise bailout fund to €2trln

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.

Eurozone composite PMI shrinks further in September

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.

Manufacturing activity in China stabilizes

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 relaxes monetary policy

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.

Chinese home prices rise m-o-m in August

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.

Greece likely to get more time, but not more money

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.

Mid Morning Market Report, 14th September 2012

It may be a slight stretch of the imagination to cast the sober-looking central banker Ben Bernanke in the role of comedian Harry Enfield’s 1980’s uber-boastful plasterer, waving wads of ‘readies’. However, with the spirit of ‘loadsamoney’ now supporting Mario Draghi’s line ‘whatever it takes’, we are into a new age of macho-economics. It’s as if the only approach left to policymakers is to try to intimidate economies into a sense of confidence and ‘feelgood’ which is fine as long as no one has the temerity to ask who is paying.

Japan downgrades its economic outlook

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.

Mid Morning Market Report, 13th September 2012

The seemingly almost-universal level of expectation that the Federal Reserve will announce another round of Quantitative Easing or similar in the next 48 hours begins to beg the question ‘ what if it doesn’t?’. The gold price has been rallying ahead of today’s start of two days of FOMC meetings and, probably, would fall back in the short term within shouting distance of its all-time high. The dollar, meanwhile, could be expected to reverse its recent phase of weakness until the Fed does finally act to ease with the ‘Fiscal Cliff’ looming larger in the background as the year-end approaches.

German court approves ESM

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.

Mid Morning Market Report, 12th September 2012

As the global economic news becomes more negative, it begins to seem as if no amount of central bank stimulus will be big enough or timely enough to turn things around. The U.S. triple-A rating is under threat from credit agency Moody’s if Congress fails to adequately address the national debt by the end of 2013. News of a loss of sales growth in China from high-end retail group Burberry reinforces the view that the Chinese economy is stalling with a vengeance. Thirdly, investors continue to fret about growth prospects in Europe even if there are signs that the Euro project is slowly finding a base.

German court to rule on ESM’s legality today

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.

Mid Morning Market Report, 11th September 2012

After their pronounced gains of last week, equity markets have hit something of an air pocket this week. The gold price has continued to rally and now stands at the $1,730 per troy ounce level – up 12% since mid-May, coincidentally mirroring a similar rise in the S&P 500 since early-June. If there is a rational inference to be drawn, it is that gold bulls are looking for the Federal Reserve to announce further monetary easing measures possibly this Thursday with the inflationary knock-on impact that this implies. There is, of course, a chance that Mr Bernanke will yet again ‘fail to launch’ QE3 but the reasons for this may be more subtle than the markets can handle.

China’s lending rises sharply in August

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.

Mid Morning Market Report, 10th September 2012

As if the controversy surrounding the merger-turned-quasi-takeover of Glencore for Xstrata weren’t dramatic enough, the involvement of former British Prime Minister Tony Blair as the deal-broker between Glencore and the Prime Minister of Qatar has added a further twist of intrigue to the proceedings. According to press reports, the Glencore CEO, Ivan Glasenberg, met with Sheikh Hammad, Prime Minister of Qatar, in London late on Thursday to try to agree revised terms ahead of a meeting of Glencore shareholders in Zug, Switzerland scheduled for Friday to vote on the original terms. It is not clear if the new 3.05 times ratio will be successful but it could result in Xstrata’s Chief Executive, Mick Davis, who was expected to have been appointed head of the new group, having to step down after six months in favour of Ivan Glasenberg in that role. The new terms are to be put to the Xstrata board today. The indications are that the Xstrata board is not convinced about the deal on this revised basis, particularly as around £200 million of financial sweeteners previously earmarked for Xstrata board members appear to have disappeared.

Chinese trade data and industrial output weaken in August

Chinese exports rose 2.7% y-o-y in August, below the expectation of a 3% increase, the customs bureau said today. Imports 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.

Mid Morning Market Report, 7th September 2012

Yesterday’s proposals from Mario Draghi (surely everyone knows who the ECB President is now?) have created a Mexican wave of enthusiasm in equity markets from Europe, through the Americas and onto Asia this morning. Big positive index moves are good for the soul of an investment bull and refreshing to witness after months of largely volatile prevarication for, at least in the case of the FTSE 100 Index, a modest year-to-date gain – despite the inherent risks – of just 3.7% ( or 6.3% in U.S.$ terms).

ECB announces firm policy action

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.

Mid Morning Market Report, 6th September 2012

The first major announcement of a stream due in September is upon us (assuming you can discount the feint mumbles from Jackson Hole at the start of the month). European Central Bank President Mario Draghi is expected to reveal his latest financial prestidigitation in a speech later today shortly after scheduled interest rate announcements from the Bank of England (noon) and the ECB itself (12.45 p.m.). Given the weakness in the underlying economies in both cases, there is ample scope for speculating that a rate cut could be justified. However, precise timing for such moves would be essential and now may not be the time unless, in the case of the ECB, it is intended to reinforce Mario Draghi’s comments less than an hour later at 1.30 p.m.

PMI slump suggests Eurozone is back in recession

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.

France, Italy urge ECB for more action

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.

Mid Morning Market Report, 4th September 2012

It’s probably not best pleased the European Central Bank’s Mario ‘Whatever it takes’ Draghi ahead of his much-heralded policy speech scheduled for Thursday and it won’t have helped German Chancellor Angela Merkel’s blood pressure given her views on Credit Rating Agencies but Moody’s Investor Services has again stepped in to spoil the party by lowering its rating outlook on the European Union as long-term issuer from stable to negative. The ‘good news’ is that the E.U.’s Aaa rating remains unchanged.

Moody’s cuts EU outlook to negative

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.

Mid Morning Market Report, 3rd September 2012

A little more colour out of Federal Reserve Chairman Ben Bernanke’s Jackson Hole speech might have been helpful but, instead, we have the vacuum of a Labor Day Holiday in the U.S. today to compound the lack of definition. Maybe it’s more of a Black Hole from which nothing escapes, at least, not on this occasion. The basic message was that the Central Bank still does not rule out further buying of bonds, probably in the form of Quantitative Easing, principally to reverse the slide in the level of employment. However, the present stream of economic data is not really bad enough to trigger this response immediately. All eyes now refocus on the next meeting of the Federal Open Market Committee which is scheduled for the 12th and 13th of September. It might be a case of ‘all good things come to those who wait’ but the strain of sustained delay is wearing down investor sentiment.

China’s factory activity contracted in August

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.