The summer this year has so far provided some level of respite (though not from the unusually hot weather!) against uncertain markets, with the S&P index ranging in a 10% band compared to 15% in 2010 and 20% in 2011. The relatively low volatility in markets has occurred despite a host of negative factors prevalent as in the previous two years– with the current factors being continued turmoil in Europe, the fiscal cliff in the US, the China slow-down to name a few. Why the relative calm? It is the commitment to provide adequate monetary support by both the Fed and the ECB (and the PBOC) which has effectively taken out the downside tail risk in markets and provided support for the "risk on" trade. Global central bank behaviour (in form of both commitments as well as actions) will be the critical factor over the coming weeks and months in providing further impetus to a cyclical bull market phase which could last twelve to eighteen months - albeit with continued volatility as some of the risk factors outlined above are likely to remain.
The Chicago Fed's National Activity Index, is based on 85 economic indicators drawn from four broad categories of data, and is produced monthly. The four categories are:
1 of 1 File(s)
As always, the famed value investor Jeremy Grantham did not disappoint with his latest quarterly newsletter - with this one focussed on the critical long-term issue of rapidly declining natural resources. This is likely to be the most important theme to play out over the next several decades and will have broad implications on every aspect of our lives going forward. So I would urge you to read the attached (long!) piece carefully - a brief summary to whet the appetite follows below:
-The world is five years into a severe global food crisis which is threatening global stability and growth, but is unfortunately underestimated by almost everybody.
-As analysed in a note last year, we are currently 10 years into a paradigm shift from a century long phase of falling prices to rapidly increasing real prices.
-We need to increase food production by 60% to 100% by 2050 to feed a projected population of 9 billion, with more meat to cater to the needs of the fast growing middle class in the developing world.
-However, we are unlikely to reach the lower end of the above estimate (unless under a very optimistic scenario) as there are many factors which are providing a headwind as outlined below:
1)Grain productivity has fallen from 3.5% in 1970 to 1.5% today. Even the most efficient producers are reaching a limit, as increases in productivity per acre reaches zero for various grain species.
2)Shortages of underground water and increased soil salination will offset the gain in production due to increased irrigation.
3)Continued bad farming practices causing land degradation is reducing our sustainable productive capacity.
4)Fertilizer use has increased five times over the last 50 years and is unlikely to provide the same impetus to increased production as in previous years.
5)Increased weather instability causing floods and droughts and increased heat, as we have see over the last three years, will negatively impact agricultural production.
6)Rapidly increasing cost of fertilizers and fuel will also have a severe negative impact on production.
-Even if we are able to raise food production to a level to feed the increased population, the significant rise in the cost of inputs will make it unaffordable to an increasing segment of the population.
-On a positive side, scientists now are optimistic that they will be able to introduce more efficient photosynthesizing genes into vital plants such as wheat and rice, in 20 to 30 years. This would increase production by 50% and buy some time.
-The rapid increase in food prices in 2008 and 2011 reflected these difficulties, but the rise in food prices over the last six weeks is more problematic as it occurred despite a significant increase in plantations. This has been caused by rapidly rising global demand which has made agriculture more prone to price shocks.
-Several countries dependent on foreign food grain imports have still not recovered from the 2008 food price shock, with food rising to 40% of households budgets in some cases. These high levels put immense social pressures and may have contributed to the Arab Spring. Any price increases from these levels would be catastrophic and could cause social collapse and unprecedented mass immigration.
-Strong countermeasures taken by the rich countries would be effective in curtailing the developing crisis but are unlikely to be taken as the they are not yet adversely affected by the crisis and is therefore not a top priority.
-Continued food pressures, exacerbated by fuel price increases, dramatically increase the risk of international confrontations - China is particularly concerned about resource scarcity, in particular food.
-Increased supply of natural gas will buy (mainly for the US) some time but also create more complacency and dependency on hydrocarbons. While the energy problem is less critical in the short-term than the food crisis, with sufficient supply causing only a slow and erratic increase in prices, it does make the food problem worse by increasing cost pressures on poorer countries.
-However, in the long term, increasing energy costs (particularly oil) and shortages are second only to the food problem and will result in very high prices which will negatively impact global growth and the viability of current economic models.
-Theoretically though, the energy problem can be contained through large investments in renewable and smart grids. The countries which are able to do this will emerge stronger with advantages in lower costs and energy security – most countries (including the US) will be unable to muster the political will and courage to implement this programme and counter the enormous political power of energy interests.
-Metals are a relatively minor problem in the next few decades with only steadily increasing prices. However, in the long run they are the most intractable problem as there are no research-intensive solutions like for agriculture or capital-intensive and technology-intensive solutions like for energy. We will slowly run out of metals eventually leading to dramatic price rises.
-We are currently ill-equipped to address the above problems in an effective manner – being ill-informed, manipulated, full of inertia and corruptible. The global stakes are very high and we must try harder.
-The portfolio implications of all this , for a personal portfolio without career risk, and a time horizon of 10 years and beyond, are:
1)expect resource stocks (with resources in the ground) to outperform over the next several decades as resource prices continue to rise.
2)farming and forestry are on top of the list .
3)long term investors should have at least a 30% weighting in a resources package.
4)a relative beneficiary would be high quality companies which have a smaller exposure to resources in terms of final sales and high profit margins.
5) More importantly, the resource squeeze combined with other growth-reducing factors(to be covered in the next quarterly) is likely to reduce returns from the rest of the investment portfolio.
Fascinating piece with serious implications for investment portfolios and quality of life in general! I have repeatedly emphasised the importance of having a high allocation to natural resources, and gradually accumulating a position which would reach 30% of your portfolio over the course of this decade (starting now if you haven't already got some exposure) would provide a reasonable level of protection against rising resource prices. In addition, having a high weighting in countries like China which are taking the natural resource issue more seriously than other countries would make sense. Exposure to resource stocks and underlying commodities via funds, etfs and single stocks would be appropriate, while farmland and forestry could be accessed via some funds and direct purchases.
As highlighted in the first paragraph, central bank monetary policy actions and commitments are going to be critical over the next few weeks and months in terms of reinforcing the bullish momentum for stock markets and other risk assets. This becomes even more important given the inability to provide more fiscal stimulus (outside of China) making economic growth anaemic. The chart below highlights clearly what ails the US economy:
| 1)Production and Income 2)Employment, Unemployment, and Hours 3)Personal Consumption and Housing 4) Sales, Orders, and Inventories |
It is the third category which has been holding back the economic recovery and is likely to do so for a while longer. So failing further fiscal stimulus, we can expect continued monetary stimulus (and commitments to that effect) to keep the markets and the economy afloat until consumer demand and housing recover to trend levels.
1 of 1 File(s)
In an attempt to maintain its strict currency peg to the euro, the Danish central bank lowered its main deposit rate for banks—the certificate of deposit or CD rate—to -0.2 percent last month.
The Nationalbanken felt it had little choice. Investors flocked to Denmark in search of a haven outside the euro zone—one that has no currency risk with the euro and offers cheap protection against a break-up of the single currency.
The move to negative rates is being watched closely by central banks around the world. “We have never been so popular,” laughs one Danish policy maker.
Apart from a brief move by Sweden in 2009-10, negative official rates are something of a novelty. But others may soon follow suit, with the European Central Bank recently cutting its deposit rate to zero and warning that it could go negative.
Policy makers in the UK and elsewhere in Europe have expressed interest in the idea as a potential way of forcing banks that are currently hoarding cash to start lending again.
“The Danish central bank is the first one in a small experiment of what happens when you impose negative interest rates,” says Thomas Kressin, head of the European foreign exchange desk at Pimco, one of the world’s largest bond investors.
“The popularity of the Danish krone is because of the unpopularity of the euro. Investors all over the world are looking for safe investments and are even willing to face negative interest rates for the security of knowing their money will still be there.”
So far, the economic impact of the move is largely unknown. Scandinavians take their summer holidays in July, so the central bank has little normal data to rely on. But officials acknowledge there has been a negative impact on banks, which they estimate to amount to about DKr300 million ($50.5 million).
Danish banks have about DKr200 billion on deposit at the central bank. While Nationalbanken has increased the amount banks can hold on current account—where the interest rate is zero—from DKr23 billion to DKr70 billion, this still leaves a sizeable chunk where banks will, in effect, have to pay the central bank to look after their money.
Bank executives, as well as central bankers, are clear that lenders have to increase their loan prices to compensate for the loss, as they are unable to impose negative rates on customers.
“When we are at zero [for customers’ deposits], we can’t go any lower. We have to recover that money in other ways, so we do that by increasing our margins on loans,” Eivind Kolding, chief executive of Danske Bank, the country’s biggest lender, said this month.
Government bond yields have followed suit, complicating a normal way for banks to make money. Denmark’s two-year bond yields, which had never previously been negative, were -0.22 percent on Thursday.
The danger is that this hurts the economy by reducing lending. But, in Denmark, this has been offset by a huge fall in mortgage rates as the official lending figure—the central bank’s headline interest rate—has also dropped, although it remains just in positive territory at 0.2 percent.
One-year mortgage bonds being auctioned this month are expected to yield only about 0.25 percent, according to analysts, down from the 1 percent they fetched last year.
Mr. Kolding notes that, for consumers, the cost of a mortgage in Denmark is exceptionally low. But outsiders still think the overall impact on the economy is more negative than positive.
“It is almost quantum physics,” says Mr. Kressin. “All the way down to zero, monetary policy is ultra loose. But below zero, to some extent you tighten policy, because you impose a cost on the banking system.”
Nationalbanken officials are also keeping a close eye on the circulation of coins and notes. So far, as commercial banks still offer zero for current accounts rather than negative rates, there has been no move from the public to hoard cash. But central bankers concede that if the CD rate fell to, say, -1 percent, banks might feel under more pressure to charge customers.
Denmark’s fierce defense of its currency peg means that a further move into negative territory cannot be ruled out, especially if the ECB were to cut rates further. But the small relative size of the Danish economy and the existence of the peg have led some to question how much other central banks can learn from its experiment.
“Can the ECB draw any lessons? It’s too much of a stretch from my perspective,” says Mr. Kressin.
( FT.com)
The Hindu's Business Line unleashes the position of Two Wheeler domestic makers of India who are geared up for production cuts owing to demand dip,reducing growth,piling up of inventories and competition. Their research shows that how players like Bajaj & TVS are going to be hurt the most with the two wheeler auto sector starting to face the downfall.
http://www.thehindubusinessline.com/industry-and-economy/article3765331.ece?homepage=true
http://www.thehindubusinessline.com/industry-and-economy/article3765331.ece?homepage=true
The recent blackout in India highlights problems in the electricity sector, including ineffective distribution networks, loss-making providers and low capacity utilization of utilities. Despite improvements in recent years, as supply generation capacity has risen relative to demand, distribution losses have fallen, and the supply shortfall has shrunk, the Indian government’s production targets for the coming five years appear overly ambitious. The electricity shortfall is likely to remain due to coal shortages and lack of incentives for loss-making providers. Read More..
Latest indicators point to flat U.S. economy
Initial jobless applications in the U.S. rose slightly last week, a gain that was in line with expectations and, overall, a still-positive indicator of a weak U.S. recovery. But mixed signals in housing and a drop in a key factory activity gauge for mid-Atlantic region suggested an economy treading water. "For the Fed, the issue was whether the economy was sliding toward the abyss, and it doesn't seem to be, but it's certainly not improving," observed Pierre Ellis, an economist at Decision Economics in New York.
FDI in China slows as outbound investment surges
Foreign direct investment in China was down 8.7% in July from a year before, and U.S. investment in the first seven months was down 3.6%, the Ministry of Commerce reported. The ministry said investment may continue to decline somewhat in the near term but is likely to be replaced eventually by higher-quality inflows. Separately, the ministry reported that China's outbound direct investment surged by more than half in the first seven months of 2012.
EU's struggles hurt China's exports, but stable growth is still expected
China's exports to the recession-racked European Union are down 3.6% through the first seven months of the year, the Ministry of Finance reported. "Unpromising exports to the EU has been expected, yet escalating while worsening euro debt crisis, as well as a sharp drop in import demand from European countries, has gone beyond many experts' forecasts," a ministry spokesman said. Meanwhile, global accounting firm KPMG predicted stable growth for the Chinese economy in the second half of this year.
Merkel sides with ECB on conditions for aid to struggling euro countries
Germany is "in line" with the European Central Bank's demands for measures to reduce borrowing costs in indebted countries, Chancellor Angela Merkel said. It was Merkel's first comment on the crisis in a month and pitched Germany back into the debate over defending the euro as pressure mounted for easier terms and a sharing of debt.
U.K. economists who backed fiscal restraint now call for stimulus
U.K. economists who had endorsed Chancellor of the Exchequer George Osborne's fiscal stringency ahead of the country's last election have backed off and are now urging fiscal stimulus. Only one of the original 20 economists calls for staying the course.
U.K. retail sales post July increase
Retail sales in the U.K. defied forecasts of a slight decline and rose 0.3% in July. In addition, new factory and construction numbers now suggest that gross domestic product may have declined less than the 0.7% reported for the second quarter.
Market Activities
INTERNATIONAL MARKETS OVERVIEW
Mixed to favorable economic data in Europe and the U.S. lifted shares Thursday on both sides of the Atlantic. In New York, the S&P 500 was up 0.71% to close at 1415.51, and the Stoxx Europe 600 Index climbed 0.3% to 271.22. Here is a continuously updated list of global stock indexes.
Japanese shares make strong gains; other Asia markets end mixed
Asian stock markets were mixed Thursday, with Japan the outstanding gainer due to export hopes as the U.S. dollar rose against the yen. The Nikkei ended the day with a 1.9% advance, closing at 9092.76, while Australia's S&P/ASX 200 rose 1.1% to 4330.20. The Hang Seng was off 0.45%, closing at 19962.95, and the Kospi was basically unchanged at 1957.91, up 0.1%.
Economic Trends & Outlook
Japan expects to end long run of deflation
Japan's long bout of deflation, stretching over 16 years, will come to end in the next fiscal year, the Cabinet Office is reportedly preparing to forecast. Among the upbeat trends contributing to the swing to inflation are an improving job market, higher consumer spending and rebuilding after 2011's tsunami and nuclear disaster.
India's central bank may consider rate action
Even though inflation remains above the Indian central bank's target range of 5% to 6%, the bank now says it is preparing to assess whether a downward trend will persist and make a decision about rates on that basis. A bank review of monetary policy is scheduled for Sept. 17. Pressure has been growing for bank stimulus as industrial growth weakens.
Worries grow even as South Korea jobless rates falls
Self-employment and the service sector are credited with an unexpected easing of South Korea's unemployment rate to 3.1% in July. Even so, "Europe's fiscal crisis is taking a toll on company hiring. The quality of the job market is deteriorating with more people taking nonsalaried work," said Sun Yoo, an economist at Woori Investment & Securities. In a bid to boost lagging exports, the government introduced several measures Thursday to help exporters secure funding.
Bank of Japan government holdings top those in circulation
Because of a special asset purchase program, holdings of Japanese government bonds by the Bank of Japan now exceed banknotes in circulation in the country for the first time. The bank's normal policy is to keep its government bond holdings at or less than the balance in circulation as a sign it won't indefinitely support government shortfalls. But the special program was instituted to address prolonged deflation.
Singapore retail sales decline in June
Singapore's retail sales were down 0.9% in June, pulled lower by slow vehicle sales and a number of other consumer sectors. However, continued softness could help moderate price increases, analysts said. "If retail sales remain soft in [the second half], this could constrain retailers' pricing power, compelling them to absorb higher costs in their margins, providing some modest relief for core inflation," said Citi analyst Kit Wei Zheng.
Taiwan is seen in danger of recession
Taiwan's economy is in danger of slipping into recession if the world economy worsens and electronics exports don't pick up, Moody's forecasts. Separately, the Council for Economic Planning and Development said the outlook for the global economy in the current quarter declined after two quarters of increases.
Capital Markets & Financial Products
China offers 14th issue of T-bonds this year
China's Ministry of Finance has begun offering 30.06 billion yuan in five-year book-entry treasury bonds with an annual interest rate of 2.95%. The bonds, the 14th issue this year, will become tradable Aug. 22.
Iran says it may close key South Korean accounts
Iran is demanding higher deposit rates at two South Korean banks where it has currency-based transaction settlement accounts estimated at $4.4 billion and is threatening to close the accounts, sources said. Such a move could affect as many as 2,700 Korean exporters.
Islets dispute may impinge on Japan-South Korean currency-swap deal
A dispute over islets between Japan and South Korea has led Japan to hint that a currency-swap deal between the two nations may be in jeopardy. Japan's chief Cabinet secretary, Fujimura Osamu, said many options are open to Tokyo and did not rule out withdrawal.
India regulator moves to build country's base of retail investors
In a move to bolster India's capital markets, the Securities and Exchange Board of India moved to broaden openings for retail investors in initial public offerings and mutual funds and extend the reach of mutual funds to smaller localities. The board also opened the door to electronic IPOs.
Industry & Regulatory Update
Standard Chartered switched tune quickly to seek settlement
Standard Chartered's initial denials and sharp defiance of New York regulators over charges of illegal dealings with Iran quickly switched to an outreach for settlement as the bank's shares took a hit. StanChart is now said to be pursuing a package deal with other U.S. regulators to finally set the matter aside.
Standard Chartered reaches settlement with N.Y. state
The state of New York has agreed to a $340 million settlement of its case against Standard Chartered. The U.K.-based international bank had been accused of handling $250 billion in Iranian funds in violation of U.S. sanctions against Iran. The settlement will not end U.S. federal agencies' investigations of the bank's dealings with Iran.
India reports sub-7% inflation, but rate outlook is unclear
At 6.9% in July, India's inflation is the lowest it has been since late 2009. Some analysts, however, doubt the reliability of the government figure, noting core inflation was higher even as food prices were reported easing. Forecasts of whether the central bank is now likely to cut rates differed, with some seeing a half-point cut in the near future and others predicting no action.
Indian exports plunge in July
Indian exports were down nearly 15% in July for the sharpest falloff in three years. Commerce Secretary S.R. Rao cited the severe fiscal crisis in the eurozone and slackening demand from the U.S. as contributing factors. Rao said it now will be a "stiff challenge" to achieve the full-year export target of $350 billion.
Second-quarter shrinkage casts gloom over eurozone
The economy of the 17-nation eurozone shrank 0.2% in the second quarter, burdened by budget cuts and the intractable debt crisis. The main problem lies in the struggling economies of the so-called periphery, said Martin Van Vliet, an economist at ING Bank in Amsterdam. "Any recovery will likely remain sluggish and fragile. There are a lot of things that could go wrong on the crisis resolution that could derail the envisaged recovery," Van Vliet said.
Germany tops forecasts with 0.3% growth
Marking a significant departure from the eurozone contraction, Germany's economy grew at a 0.3% pace in the second quarter, topping analysts' estimates. "Positive contributions came from both consumer spending and from net foreign trade," commented Destatis, Germany's statistics office.
France barely avoids a 2nd-quarter contraction
With boosts from the private and public sectors, France's economy narrowly avoided contracting in the second quarter, with no growth. Economists had expected a 0.1% pullback, but the better result allows some room for the government to pare the country's budget deficit.
Struggling Spain posts 2nd month of rising inflation
Despite a deeply mired economy and soaring unemployment, Spain's core consumer inflation rate edged up for the second month in July, to 1.4%. Separately, European Economic and Monetary Affairs Commissioner Olli Rehn suggested that the Spanish government is open to the idea of requesting a sovereign bailout.
With successful debt sale, Greece ensures no August default
Greece ensured it will have enough money next week to repay bonds held by the European Central Bank with a successful debt sale, its largest in two years. About €3.1 billion out of the more than €4 billion raised will repay ECB-held bonds that mature Aug. 20, thus helping Greece avoid default.
U.S. retail sales jump 0.8% in July
Reversing three months of decline, U.S. retail sales jumped 0.8% in July, pointing to a stronger third quarter and indicating that a slowdown in the second quarter may have been temporary. However, signals were mixed in two other indicators, with business inventories rising in June as companies anticipated higher consumer demand but with business sales dropping for the third month in a row.
Market Activities
INTERNATIONAL MARKETS OVERVIEW
INTERNATIONAL MARKETS OVERVIEW
Stronger-than-expected German growth figures and a surprising jump in U.S. retail sales helped lift European stocks Tuesday, with the Stoxx Europe 600 index adding 0.7%. The same data also provided an early impetus for U.S. shares, but the market eased later in the day and the S&P 500 ended a fraction of a point lower in light trading. Here is a continuously updated list of global stock indexes.
Economic Trends & Outlook
Fears grow that Japanese recovery may be sidetracked
Although the Japanese government is predicting continued recovery over the second half of the year, new concerns are being raised that the imperiled European economy and, domestically, the end of subsidies for eco-friendly vehicles will contribute to further slowing in the current quarter. In addition, poor economic conditions could work to delay implementation of a tax increase just passed into law.
China's 2012 growth is now pegged at 8.0% by Morgan Stanley
An absence of economic stimulus and faltering external demand were cited by Morgan Stanley as it cut its growth forecast for China to 8.0% this year and 8.6% in 2013. Morgan does see an easing policy in the next one to two months, as well as a quarter-point interest-rate cut before the end of the year.
China may be preparing sharper clampdown on property market
With inspection teams back in Beijing and preparing their reports on how well provincial governments have acted to restrain their property markets, expectations are growing that further curbs will be introduced. Some governments have already been warned that they haven't done enough to implement past measures.
South Korea posts 6th month of trade surplus
South Korea's trade surplus in July was down a sharp 40% from the previous month but remained strongly positive at $2.76 billion, according to the Korea Customs Service. July's was the sixth consecutive month of surplus, although exports and imports both declined. Separately, Nomura predicts lower inflation in South Korea for the second half.
National Australia Bank predicts a rate boost in 2013
An increase in interest rates may be in store for the coming year in Australia, according to National Australia Bank, which changed its forecast to become the first major bank predicting a boost. If the central bank does raise its rate, it will mark the first increase since November 2010.
Indonesia consumer confidence, outlook hard to beat
Indonesia's consumer confidence as measured by KADIN-Roy Morgan at 150.5 points in July topped by a wide margin comparable measures in every other Group of 20 country. "While global gloom is taking its toll on China and India, Indonesia continues to swim against the tide," said KADIN Chairman Suryo Sulisto. The survey also found that 79% of Indonesians are optimistic about the country's economy over the next 12 months.
Capital Markets & Financial Products
EU calls for more Indian "stability" to pull in investment
Noting that EU investment to date in China, Russia and other countries far surpasses investment in India, a visiting EU delegation called for more "stability and predictability" in the Indian market. "Though economic relations between India and EU have been multi-dimensional and have expanded over time, they are far below the potential," commented delegate Joao Cravinho. The EU and India are negotiating a trade accord that would lower duties and spur investment.
China's yuan funds for foreign exchange decline amid global slowdown
Reduced trade and foreign direct investment contributed to a decline in China's yuan funds outstanding for foreign exchange in July. The total of 25.66 trillion yuan was down nearly 3.82 billion yuan from the previous month, the central bank said. The drop also suggests a strong outflow of foreign capital amid the global debt crisis and slowing economy.
Greece is squeezed more as GDP plunges, Germany threatens
The economic free fall in Greece continued in the second quarter, with an annualized 6.2% contraction in gross domestic product that renders it more difficult for the government to meet fiscal obligations. In Germany, meanwhile, a key parliamentary ally of Chancellor Angela Merkel said that any failure by Greece to meet its targets would bring a swift veto from Berlin for any additional assistance.
Most U.K. companies plan layoffs if economy remains sour
If the U.K. economy doesn't turn around in the next year, nearly two-thirds of British companies say they plan to reduce their workforces, a survey finds. U.K. employment is somewhat better than the European average, but the survey revealed that nearly a third of British companies say they're currently keeping on more staff than they need; many of them are doing so to maintain their skill base in the event of an upturn.
Japan's recovery looks frayed as growth rate declines
Although exports were up 4.8% in the latest quarter, Japan's growth in gross domestic product was down sharply at an annual 1.4%, dropping from a rate of 5.5% in the previous period. The global economic crisis figured strongly in the new figures, but so did a pullback in previously robust domestic demand. The government says the nation's recovery remains on track, but analysts say there are growing signs of fading optimism among both businesses and consumers.
Taiwan nears accord with China on renminbi clearance
Taiwan is expected to join Hong Kong and Macao as the only global venues with offshore renminbi clearance banks when China and Taiwan sign a memorandum of understanding for cross-strait currency clearance. The signing could come as early as this week, pending reviews by the two central banks.
Market Activities
INTERNATIONAL MARKETS OVERVIEW
European shares fell as worries over the eurozone and the global economic slowdown once again took hold in the absence of previously hoped-for central bank action. In the U.S., shares were down as well for much the same reason, with a particular focus on whether the market should expect any help from the Federal Reserve. The Euro Stoxx 50 index was down 0.3% for the day, and the S&P 500 ended 0.13% lower. Here is a continuously updated list of global stock indexes.
Economic Trends & Outlook
As economic numbers fade, Beijing may remain cautious
Analysts now expect China will fall short of its goal of 10% trade growth this year. Nonetheless, expert opinion is divided over whether Beijing will move more aggressively to stimulate the economy or wait to see whether previous measures bear fruit. Certainly, caution appears to be the order of the day in China's housing market, where Beijing is planning for higher property taxes.
India central bank chief highlights inflation, blames government
Pointing a finger at the Indian government, the central bank's governor, Duvvuri Subbarao, said inflation remains a pressing concern and called on New Delhi "to generate supply so that we produce more, and that will bring down inflationary pressures." Subbarao also cited the problem of deficit spending that is "going into government expenditure, which is consumption expenditure that's going into people's hands," increasing demand and raising prices.
With global gloom deepening, Hong Kong cuts growth forecast
Hong Kong has scaled back its growth forecast for the year to 1% to 2% after posting 1.1% annual growth for the second quarter. The export-heavy economy has been hit hard by the worldwide economic slowdown, especially in Europe. "With the crisis in the eurozone set to intensify, we expect global weakness to continue to depress Hong Kong's export sector, making a strong rebound in the economy unlikely," said Gareth Leather, an economist with Capital Economics Asia.
Having matured in their own markets, SE Asian companies reach out
Following a pattern set by powerhouse companies elsewhere in Asia, prosperous Southeast Asian firms are now looking for room to grow and expand outside their crowded home markets. The search is adding to asset prices across a range of industries and stepping up global competition. "There's a lot of economic power sitting in Southeast Asia, and this is being reflected in the companies," said Rajiv Biswas, Singapore-based chief Asia economist for IHS Global Insight.
Capital Markets & Financial Products
Australia plans sharper watch over automated trading
Australia plans sharper watch over automated trading
Taking a cue from market mishaps elsewhere, Australia is planning tighter controls over automated share trading, including regular tests to ensure systems operate properly.
Bank of Communications wins clearance for share sales
In a development described as freighted with "great significance" for China's financial sector, China's securities regulator has cleared Bank of Communications to sell as much as 56.6 billion yuan of publicly traded shares to private investors. The bank, which intends to replenish capital with the sale, has selected a number of investors, including the Ministry of Finance, the pension fund and large institutions such as HSBC.
Julius Baer moves strongly into Asian markets with acquisition
Greatly expanding its presence in Asian growth markets, Julius Baer is acquiring Bank of America Merrill Lynch's overseas wealth-management business. The $882 million purchase means that half of the Swiss bank's business will be in emerging markets, mainly in Asia.
Global ills weigh heavily on results at South Korean securities firms
A sharp decline in stock trading value due to the eurozone crisis and global slowdown has proved costly for South Korean securities firms, whose net profits are down 72.7% in the latest quarter from a year before. And out of 62 brokerages, 21 reported losses for the period.
PE funds help Chinese companies struggling in U.S. market
With many Chinese stocks struggling in the U.S. market, the state-owned China Development Bank is helping those seeking to go private by providing funds for private-equity groups. "If you can distinguish between a good company and a company that has issues, you can do very well investing in China," observed Kevin Pollack of Paragon Capital in New York.
Yuan-against-dollar market bets reflect confidence in China
Securities that bet against the dollar and in favor of the yuan are selling well as volatility in the yuan-dollar exchange rate hovers near a 10-year low. The popularity indicates underlying confidence in the yuan and the Chinese economy despite recent signs of slowing.
Analyst sees China slowdown, bets on Europe
China's economy is in for a rough spell, and European stocks at the moment are worth buying, says Marc Faber, publisher of the Gloom Boom & Doom report. Faber says the time to consider Chinese shares is after waiting to see whether stimulus measures work. Meanwhile, "for the first time in my life, I've started to buy some European stocks, and I will buy more over time," Faber said.
Industry & Regulatory Update
CITIC Securities shares drop amid reports of arrest, overseas loss
CITIC Securities shares drop amid reports of arrest, overseas loss
CITIC Securities dismissed as unfounded rumor a report that its chairman, Wang Dongming, has been seized by police for investigation. A report also surfaced of a large loss on an overseas investment as the company's stock plunged more than 9%.
Settlement talks under way with Standard Chartered
With New York state regulators and Standard Chartered said to be eager to reach agreement, the bank is seeking a settlement over allegations of illegal dealings with Iran.
Top Stories
U.S. trade, jobs figures point up, but wholesale inventories drop
U.S. exports were surprisingly strong in June, with growth of $1.7 billion over May's total helping to cut the country's trade deficit to its narrowest reading in 18 months. Separately, new U.S. claims for unemployment benefits dropped to 361,000 in the latest week, a further sign of a recovering job market. On the downside, wholesale inventories were down in June amid poor sales, indicating that consumer confidence continues to lag.
Central banks in Asia follow others, leave rates steady -- for now
Central banks in Japan, South Korea and Indonesia left their key interest rates unchanged Thursday, in line with their counterparts in the U.S., Europe and Australia. But analysts regard this as more of a wait-and-see situation than a vote of confidence, given the unsteady state of the global economy and the likelihood that monetary easing will soon be needed.
China industrial output, retail sales show weakness
Growth in China's factory output was at a three-year low and retail sales fell short of forecasts in July as effects of the eurozone crisis and other global ills began to take a heavier toll. With stimulus already under way, the fear is that government measures might not be enough to raise growth in the face of worldwide factors.
China, Taiwan sign investor-protection pact
China and Taiwan have signed an agreement designed to protect Taiwanese investors in mainland business ventures. It is seen as a sign of further progress in cross-strait trade relations.
With jobless rate reaching a record, Greece plans more cuts
The Greek bailout may come under additional pressure as the country's unemployment rate soared to a record 23.1% amid government plans for still more public servant layoffs as demanded by lenders. In the past two elections, mainstream parties that favored staying in the euro and vowed more budget cutting suffered major losses of support.
Steep drop in U.K. exports cancels one hope for recovery
A surprisingly sharp 8.4% drop in U.K. exports helped widen the country's trade gap for June to £10.1 billion, undermining government hopes that exports could soon spark the beginnings of a recovery. "The worsening trade position adds further gloom to Wednesday's downbeat assessment of the U.K. economic outlook from the Bank of England and highlights the extent to which U.K. growth is being hit by the ongoing crisis in the eurozone," said Markit chief economist Chris Williamson.
Europe's spreading woes begin to take toll in German powerhouse
Europe's economic and manufacturing engine in Germany is beginning to sputter as the slowdown through most of the rest of Europe begins to take hold for the world's third-largest exporter. The 1.5% decline in exports for June -- a sign of weakness in the most vital segment of the German economy -- is just the latest in a series of downward-pointing indicators.
Leading indicators for world are broadly negative, OECD says
The Organization for Economic Cooperation and Development forecasts below-trend economic activity for China, India and Russia and, overall, a general slowing worldwide, including the major developed economies. Leading indicators were particularly worrying for the eurozone but also down for the U.S. and Japan, indicating "fading growth momentum."
Market Activities
INTERNATIONAL MARKETS OVERVIEW
U.S. investors are taking a wary approach to stocks after recent gains and with economic indicators giving off different signals, while stronger indications of stimulus emanating from China helped boost shares in Europe for the fifth day in a row. The U.S. S&P 500 Index was basically unchanged with a 0.04% gain, while the FTSEurofirst 300 index closed 0.5% higher. Here is a continuously updated listed of global stock indexes.
Economic Trends & Outlook
India's industrial production drops 1.8% in June; Moody's cuts forecast
As if to confirm the gloomier forecasts for India's economy, industrial production in June declined a sharper-than-expected 1.8%, led by drops in manufacturing and capital goods. Output also was down in the quarter ended in June, by 0.1%. Separately, Moody's projected 5.5% growth for the Indian economy this year, lowering its forecast and joining others with sub-6% estimates.
Outlook is flat for South Korean banks, securities industry
With the growing risk factor of rising insolvencies in South Korea and little prospect of further interest-rate cuts, the outlook is for no improvement in profitability at the country's banks, the Korea Institute of Finance concludes in a report. The securities industry is in a similar situation, chiefly due to eurozone troubles and a slowing U.S. economy, the report says.
Defying predictions of an upward tick, Australia's unemployment rate held steady at 5.2% for July. A robust economy that has largely avoided the downturns seen elsewhere around the world generated 14,000 new jobs in the month, seeming to validate the central bank's decision not to cut interest rates.
Malaysia's industrial output moderates in June
Boosted by a jump in energy exports, Malaysia's industrial production was up 3.7% in June from a year before. As expected, however, the growth rate was down from May's 7.6% figure.
Capital Markets & Financial Products
Asia Alternatives looks for China private equity pools
Renminbi-denominated private equity pools in China are the target for $1.5 billion raised by Asia Alternatives through a new fund of PE funds. "It's the largest pool of capital we've ever raised," said Melissa Ma, managing director. Asia Alternatives looks for buyout, growth, venture capital and special-situations PE funds throughout the region.
Insurers step in as banks pull back
Asian insurance companies seeking high-yield opportunities in noncore investments offloaded by banks might find what they're looking for if they're willing to look offshore. But offshore is the key, as banks in Asia are under less pressure than those in other parts of the world to improve their capital ratios under Basel III.
Ethics & Standards
South Korean authorities to question HSBC, Standard Chartered
HSBC Holdings and Standard Chartered will be the subject of an inspection by South Korea's Financial Supervisory Service in connection with suspicions of money laundering. HSBC's Mexico unit was recently fined $27.5 million for not reporting suspicious drug money. And the New York unit of Standard Chartered is under investigation over allegations of dealings with Iran.
Bank of Tokyo Mitsubishi employee is questioned in Libor probe
An employee of Bank of Tokyo Mitsubishi is being questioned in London in connection with the Libor manipulation scandal.
U.S. trade, jobs figures point up, but wholesale inventories drop
U.S. exports were surprisingly strong in June, with growth of $1.7 billion over May's total helping to cut the country's trade deficit to its narrowest reading in 18 months. Separately, new U.S. claims for unemployment benefits dropped to 361,000 in the latest week, a further sign of a recovering job market. On the downside, wholesale inventories were down in June amid poor sales, indicating that consumer confidence continues to lag.
Central banks in Asia follow others, leave rates steady -- for now
Central banks in Japan, South Korea and Indonesia left their key interest rates unchanged Thursday, in line with their counterparts in the U.S., Europe and Australia. But analysts regard this as more of a wait-and-see situation than a vote of confidence, given the unsteady state of the global economy and the likelihood that monetary easing will soon be needed.
China industrial output, retail sales show weakness
Growth in China's factory output was at a three-year low and retail sales fell short of forecasts in July as effects of the eurozone crisis and other global ills began to take a heavier toll. With stimulus already under way, the fear is that government measures might not be enough to raise growth in the face of worldwide factors.
China, Taiwan sign investor-protection pact
China and Taiwan have signed an agreement designed to protect Taiwanese investors in mainland business ventures. It is seen as a sign of further progress in cross-strait trade relations.
With jobless rate reaching a record, Greece plans more cuts
The Greek bailout may come under additional pressure as the country's unemployment rate soared to a record 23.1% amid government plans for still more public servant layoffs as demanded by lenders. In the past two elections, mainstream parties that favored staying in the euro and vowed more budget cutting suffered major losses of support.
Steep drop in U.K. exports cancels one hope for recovery
A surprisingly sharp 8.4% drop in U.K. exports helped widen the country's trade gap for June to £10.1 billion, undermining government hopes that exports could soon spark the beginnings of a recovery. "The worsening trade position adds further gloom to Wednesday's downbeat assessment of the U.K. economic outlook from the Bank of England and highlights the extent to which U.K. growth is being hit by the ongoing crisis in the eurozone," said Markit chief economist Chris Williamson.
Europe's spreading woes begin to take toll in German powerhouse
Europe's economic and manufacturing engine in Germany is beginning to sputter as the slowdown through most of the rest of Europe begins to take hold for the world's third-largest exporter. The 1.5% decline in exports for June -- a sign of weakness in the most vital segment of the German economy -- is just the latest in a series of downward-pointing indicators.
Leading indicators for world are broadly negative, OECD says
The Organization for Economic Cooperation and Development forecasts below-trend economic activity for China, India and Russia and, overall, a general slowing worldwide, including the major developed economies. Leading indicators were particularly worrying for the eurozone but also down for the U.S. and Japan, indicating "fading growth momentum."
Market Activities
INTERNATIONAL MARKETS OVERVIEW
U.S. investors are taking a wary approach to stocks after recent gains and with economic indicators giving off different signals, while stronger indications of stimulus emanating from China helped boost shares in Europe for the fifth day in a row. The U.S. S&P 500 Index was basically unchanged with a 0.04% gain, while the FTSEurofirst 300 index closed 0.5% higher. Here is a continuously updated listed of global stock indexes.
Economic Trends & Outlook
India's industrial production drops 1.8% in June; Moody's cuts forecast
As if to confirm the gloomier forecasts for India's economy, industrial production in June declined a sharper-than-expected 1.8%, led by drops in manufacturing and capital goods. Output also was down in the quarter ended in June, by 0.1%. Separately, Moody's projected 5.5% growth for the Indian economy this year, lowering its forecast and joining others with sub-6% estimates.
Outlook is flat for South Korean banks, securities industry
With the growing risk factor of rising insolvencies in South Korea and little prospect of further interest-rate cuts, the outlook is for no improvement in profitability at the country's banks, the Korea Institute of Finance concludes in a report. The securities industry is in a similar situation, chiefly due to eurozone troubles and a slowing U.S. economy, the report says.
Defying predictions of an upward tick, Australia's unemployment rate held steady at 5.2% for July. A robust economy that has largely avoided the downturns seen elsewhere around the world generated 14,000 new jobs in the month, seeming to validate the central bank's decision not to cut interest rates.
Malaysia's industrial output moderates in June
Boosted by a jump in energy exports, Malaysia's industrial production was up 3.7% in June from a year before. As expected, however, the growth rate was down from May's 7.6% figure.
Capital Markets & Financial Products
Asia Alternatives looks for China private equity pools
Renminbi-denominated private equity pools in China are the target for $1.5 billion raised by Asia Alternatives through a new fund of PE funds. "It's the largest pool of capital we've ever raised," said Melissa Ma, managing director. Asia Alternatives looks for buyout, growth, venture capital and special-situations PE funds throughout the region.
Insurers step in as banks pull back
Asian insurance companies seeking high-yield opportunities in noncore investments offloaded by banks might find what they're looking for if they're willing to look offshore. But offshore is the key, as banks in Asia are under less pressure than those in other parts of the world to improve their capital ratios under Basel III.
Ethics & Standards
South Korean authorities to question HSBC, Standard Chartered
HSBC Holdings and Standard Chartered will be the subject of an inspection by South Korea's Financial Supervisory Service in connection with suspicions of money laundering. HSBC's Mexico unit was recently fined $27.5 million for not reporting suspicious drug money. And the New York unit of Standard Chartered is under investigation over allegations of dealings with Iran.
Bank of Tokyo Mitsubishi employee is questioned in Libor probe
An employee of Bank of Tokyo Mitsubishi is being questioned in London in connection with the Libor manipulation scandal.
French central bank projects 2nd quarter of negative growth
France appears headed for recession, with the central bank projecting a 0.1% contraction in the economy in the third quarter. This would come after a similar pullback in the second quarter. Unemployment is spiking as well, with the labor-intensive auto and construction industries hit especially hard by the eurozone slowdown.
Import, output figures turn down in Germany
Adding to accumulating signs of a German economic downturn, the government reported the second decline in imports in three months. June figures also showed a 0.9% drop in industrial output. "With the supposedly ultra-competitive German manufacturing sector in recession, the omens for the rest of the eurozone economy are extremely worrying," said Jonathan Loynes, chief European economist at Capital Economics.
U.K. recovery will take time, Bank of England chief says
The Bank of England says it will take time to right the U.K. economy, given the constraints imposed by government deficit-cutting and the unresolved eurozone crisis. "Our efforts to bring about a rebalancing of the U.K. economy will require patience. The overall outlook for growth is weaker," said the bank's governor, Mervyn King.
Loan figures likely to show further China credit loosening
In a further indication that Beijing is moving to lift China's lagging economic growth, steady growth in yuan-denominated loans by China's leading banks is seen for July, according to Goldman Sachs Gao Hua Securities. And looking ahead, the Bank of East Asia projects extended credit loosening, with banks likely to continue boosting credit structures in the final months of the year.
Market Activities
INTERNATIONAL MARKETS OVERVIEW
European stocks edged up and U.S. shares were largely unchanged in light trading Wednesday as the wait extended on both sides of the Atlantic for action from central banks. The S&P 500 was 0.04% lower, and the FTSEurofirst 300 closed with a 0.2% gain. Here is a continuously updated list of global stock indexes.
Economic Trends & Outlook
Indian growth, manufacturing forecasts are scaled back
An array of factors including political stalemate, weather and global markets were cited as Citigroup and CLSA cut their outlooks for India's growth in gross domestic product to 5.4% and 5.5%, respectively. Meanwhile, a manufacturing industry survey projected lower growth for the current quarter.
S. Korea tax bill focuses on growth as slow lending points to stagnancy
Boosting the economy without tax increases is the goal, the South Korean government said as worked at formulating its new tax legislation. Meanwhile, new evidence of a lagging economy emerged, with commercial banks reporting slower growth in household loans in July.
Vietnam sees inflow of ASEAN funds, projects
Encouraged by new openings for economic renewal, countries in the Association of Southeast Asian Nations have raised their foreign direct investment in Vietnam, with more than 2,000 projects funded as of the end of July, according to the Ministry of Planning and Investment. For its part, Vietnam has also invested outside its borders, including 214 projects in Laos and 112 in Cambodia.
Capital Markets & Financial Products
Taiwan, China take steps to further cross-strait investments
Easier rules for mainland investment in Taiwan are in order to help buoy the island nation's economy, the government said in announcing a fourth round of reviews. Meanwhile, China and Taiwan prepared to seal a legal-protection accord that should clear the way for greater investment in both directions.
Lower turnover damps profit for Hong Kong Exchanges
A quieter market and lower listing fees were cited as Hong Kong Exchanges and Clearing posted a 21% drop in profit for the second quarter. With the prospect of fewer initial public offerings from China, the bourse operator is looking to boost its status by venturing into commodities with its bid for the London Metal Exchange. "Going forward, it will depend on how it integrates the LME and whether the average turnover will improve," said Jonas Kan, head of Hong Kong research at Daiwa Capital Markets.
Singapore meets projections with 1.7% 1st-half growth rate
Pointing to economic sluggishness in Europe and the U.S., Singapore Prime Minister Lee Hsien Loong said the growth rate of the city-state's gross domestic product came in at 1.7% in the first half, in line with projections. Looking forward, Lee said that to "still be a shining red dot 20 years from now, we must rethink our approaches and reinvent ourselves. We must anticipate changes and prepare for what lies ahead."
Japan extends overseas financing facility
Japan is extending to March 2013 an emergency yen financing facility that helps companies with overseas mergers and acquisitions and in acquiring natural resources. The low-interest facility from the Japan Bank for International Cooperation was instituted last year as the yen hit a high, making overseas purchases cheaper.
Samsung Asset Management aims wide in overseas push
South Korea's biggest asset fund, Samsung Asset Management, says it's looking to Australia and Europe and is focusing on sovereign wealth funds in the Middle East in a broad overseas push. This would build on Samsung's current expansion into Japan and other North Asian markets as well as this year's entry into the U.S., where the fund has registered and agents have been hired.
Immersed in scandal, South Korea revamps rate mechanism
With South Korean banks rapidly losing their reputations amid scandals, including what some have described as the country's counterpart to Libor manipulation, regulators are set to overhaul rate setting.
Shanghai exchange opens up ETF index tracking
In a bid to improve index efficiency and boost growth in the market, the Shanghai Stock Exchange is permitting some exchange-traded funds to track the same index at the same time. The scrapping of the former rule that allowed index exclusivity for ETFs is aimed at driving "healthy competition among FMCs and sustainable growth of the ETF market," said David Xu, managing director of passive investment at HuaAn Fund Management.
China to push for overseas expansion in culture industry
Overseas mergers and acquisitions and investments are the focus for China's Ministry of Finance in its budget for the culture industry. Overseas expansion, driven by state-owned enterprises, is likely to include building distribution networks and setting up affiliated companies.
Industry & Regulatory Update
South Korea plans to raise tax minimum for conglomerates
South Korea's biggest conglomerates will face a higher minimum tax rate under a government proposal designed to augment government revenues and provide fairer overall taxation. Currently, because of numerous tax breaks extended by the government for certain kinds of spending and investment, some corporations are paying less than the minimum.
Ethics & Standards
Bank of England head speaks up for Standard Chartered
Mervyn King, governor of the Bank of England, defended Standard Chartered against New York state regulators' allegations that the bank had hidden $250 billion of dealings with Iran, saying the amount was much smaller. One source said that settling the case could cost the bank as much as $700 million. Meanwhile, it appeared the New York probe may extend to Standard Chartered's outsourcing of key jobs to India.
Eurogroup chief says Greek exit could be managed
Although not desirable, a Greek exit from the euro could be managed, Eurogroup President Jean-Claude Juncker said in an interview. But when asked how long the possibility of an exit could be categorically excluded, Juncker said, "At least until the end of the autumn -- and after that, too."
Analysis: Sept. 12 may be judgment day for the euro
A German court decision Sept. 12 may determine the Germany's ability to help its debt-ridden neighbors, and perhaps the future of the euro itself.
Eurozone slowdown hits German factory orders
Lower demand from eurozone countries led to a 1.7% drop in German factory orders in June from the month before. The decline was more than double the forecast of economists. "Exports are badly hit by the current cyclical slowdown, and the export-led German industrial sector is not going to be spared from the slump in trade activity," said Annalisa Piazza, an economist at Newedge Strategy in London.
Italy's recession now a year long with 0.7% 2nd-quarter contraction
Italy's recession has extended to a full year, with the economy contracting a steeper-than-expected 0.7% in the second quarter. "These are perilous times for Italy, particularly given the uncertainty about the credibility and effectiveness of measures to help shore up Italian sovereign debt in the likely event of a renewed deterioration in market sentiment," commented Nicholas Spiro, managing director of Spiro Sovereign Strategy.
China says private investment encouragement is working
Swifter approvals of investment projects have helped stabilize China's economy, according to the National Development and Reform Commission, China's top economic planner. "Those measures encouraging private capital to enter fields such as oil and gas exploration and education have been playing an active role since the beginning of this year," a commission official said. Separately, the government said that figures expected to show no growth in July electricity consumption are more indicative of a switch to less energy-intensive service industries than a slowdown in manufacturing.
Market Activities
INTERNATIONAL MARKETS OVERVIEW
U.S. stocks ended the day generally higher as hopes rose that central banks will soon step in, and European shares gained in light trading despite gloomy economic indicators and a sharp loss for Standard Chartered. The S&P 500 was up 0.51%, and the Stoxx Europe 600 rose 0.75%. Here is a continuously updated list of global stock indexes.
System problem shuts down Tokyo derivatives trading
A system problem forced the suspension of all derivatives trading on the Tokyo Stock Exchange on Tuesday. The 93-minute halt in trading marked the second interruption this year.
Economic Trends & Outlook
China's state enterprises are warned to tone down investments
With China's state-owned enterprises posting lower profits, the State-owned Assets Supervision and Administration Commission issued a warning against ill-advised investment, particularly "for the purpose of expansion in scale." Instead, the companies were advised to upgrade technologies, products and business models and focus on more discriminating management of investments and acquisitions.
Current, future indicators for Japan's economy point down
A basket of coincident economic indicators in Japan was off for the third consecutive month in June, edging down 2 points. Meanwhile, the leading CI, which looks to coming months, was also down for the third month with a 2.6-point decline.
Fitch lowers outlook for India's retail sector
With consumer spending hitting a 7-year low, ratings agency Fitch lowered its outlook for India's retail sector from stable to negative. Fitch said its action was prompted by "a sustained deterioration in the discretionary spending ability" among consumers in the face of domestic and international economic troubles.
India's new finance minister faces hurdles to win action
The appointment of P. Chidambaram as India's finance minister and his call to action have won applause, but it is not clear the measures he urges will win parliamentary cooperation.
Australian central bank sees growth signs from earlier rate cuts
Emerging signs in Australia's economy suggest that earlier rate cuts by the central bank are beginning to bear fruit, said the bank's governor, Glenn Stevens. The remark indicates no further cuts are likely soon, leaving Australia's official borrowing costs the highest in the developed world.
Taiwan exports fall as inflation climbs
For the fifth month in a row Taiwan's exports in July were lower than a year before, weighed down again by a struggling world economy, the Ministry of Finance said. Meanwhile, the rise in Taiwan's consumer price index, at a 2.46% annual rate in July, was the highest in four years.
Capital Markets & Financial Products
China discounts concerns that foreign investment might soon dry up
Foreign direct investment in China may continue to erode a bit but there will be no sudden exit of foreign capital, said Zhang Xiangchen, director of the Department of Policy Research at China's Ministry of Commerce. Although the U.S. is aiming to pull some investment back from China, "sharp declines ... will not happen in the next year or two," Zhang said. As for China's declining stock market, analysts say what's needed is confidence, rather than the fee cuts offered by regulators.
Refinancing pressure grows for many Chinese banks
Despite currently sufficient capital, Chinese banks are under increasing pressure to maintain cash flow and refinance, according to a report by The Chinese Banker. Increasing difficulties with refinancing and a growing difference between assets and liabilities are cited among the problems faced by many banks.
South Korean funds' net asset value tops 300 trillion won
The net asset value of South Korean funds has topped the 300 trillion won mark for the first time in nine months, reaching 308.2 trillion won in July. "The NAV of funds jumped last month thanks to the central bank's key rate cut and inflows of standby capital into funds amid mounting hopes for a bullish stock market, resulting in a rise in the valuation and the NAV of funds," the Korea Financial Investment Association reported.
Industry & Regulatory Update
Citigroup forms investment-banking joint venture in China
Citigroup forms investment-banking joint venture in China
Following Goldman Sachs and UBS, Citigroup is forming an investment-banking joint venture in China. Shanghai-based Citi Orient Securities will start with registered capital of $126 million.
Hong Kong unit of Daewoo to set up $1 billion private-equity fund
With an investment portfolio focused on social overhead capital projects in Asia and Europe, Daewoo Securities' Hong Kong Corp. is setting up a $1 billion private-equity fund. Daewoo says it will establish the fund in cooperation with a U.S. private-equity fund, with Daewoo raising half the capital from Korean institutional investors and the U.S. partner providing the other half.
Ethics & Standards
New York allegations deal a hard blow to Standard Chartered
New York regulators' sudden and sharp attack on Standard Chartered for alleged dealings with Iran has shocked the industry and threatens to ruin the reputation of one of the few major banks left untarnished by a run of recent scandals. News of the allegations sent the bank's shares plunging 16% Tuesday, knocking $17 billion off its value.
Top brokers in Japan tell how they'll crack down on leaks
Responding to a scandal of insider-trading-related leaks at Nomura Holdings and Daiwa Securities Group, the leading 12 brokerage firms in Japan are suggesting steps to tighten control over sensitive information. Many maintained that their security measures were already tight but said they would increase monitoring of e-mails and entertainment expenses as well as educate their employees better on what constitutes nonpublic information.
India's new finance minister lays out action plan
India's new finance minister is laying out a wide-ranging program designed to revive the country's economy. P. Chidambaram says he will work with the central bank to implement measures that will include an assault on inflation, a possible cut in interest rates, a progressive tax regime and financial consolidation.
China approves projects at steady pace as inflation moderates
Economists say China's inflation rate may have dropped to 1.7% in July, one factor expected to clear the way for more economic stimulus. Stimulus, however, already appears to be well under way, with authorities approving more than 300 development projects a month since March.
Bernanke: Fed should take more detailed look at struggling economy
U.S. Federal Reserve Chairman Ben Bernanke indicated that the Fed should take a harder look at microeconomic data when considering the overall health of the U.S. economy. Such data, he said, might reveal that "many individuals and households continue to struggle with difficult economic and financial conditions" despite other metrics that appear more optimistic. One such measure released Monday indicated that U.S. banks are now lending more than at any point since the recession ended in June 2009.
U.K. manufacturing figures disappoint
Launching what is likely to be a week of gloomy indicators for the British economy, new figures show that the country's small and midsize manufacturers in July had their biggest decline in output since late 2009. The survey by the CBI, a top British business lobbying group, also found that manufacturers expected basically flat demand over the coming three months.
Market Activities
INTERNATIONAL MARKETS OVERVIEW
Shares in Europe and the U.S. scored gains Monday amid new optimism in resolving the euro crisis and continued buoyancy in the U.S. supported by better employment figures for July. The Stoxx Europe 600 rose 0.5%, and the S&P 500 ended with a 0.2% gain after a late decline tempered a stronger advance earlier in the day. Here is a continuously updated list of global stock indexes.
Economic Trends & Outlook
South Korean finance ministry sees no urgent need for added budget
Amid calls from the ruling party for a supplementary budget to address what it calls an economic depression, South Korea's Ministry of Strategy and Finance has stated its reservations. "Our stance is that we can consider [such as plan] as an alternative if economic conditions get worse, but we are not yet in that situation," a senior official said. The Saenuri Party has said as much as 6 trillion won could be allocated in a supplementary budget.
Bank of Korea is expected to cut rates again
HSBC predicts another interest rate cut by the Bank of Korea this week. The expected quarter-point reduction would follow a cut last month that caught many by surprise.
Domestic demand boosts Indonesia's 2nd-quarter growth
Indonesia's economy picked up steam in the second quarter, growing at a 6.4% pace, up from 6.3% in the first quarter. The Central Statistics Agency attributed the gain to strong domestic demand that more than balanced lower demand from overseas.
Singapore economy shows some growth, but outlook remains cloudy
Although it now appears Singapore's economy grew rather than shrank during the second quarter, the outlook remains dim, given a still-uncertain global economy. The dull outlook has caused many analysts to dial down their growth forecasts for the city-state in 2012 and 2013.
Taiwan sees a one-month jump in inflation
Taiwan's inflation rate jumped to 2.46% last month from 1.77% in June, a gain attributed mainly to volatile food costs but also to the recent surge in global oil prices. The core consumer price index, however, appears to be holding steady for the time being.
Ad survey shows Australia's job market continues to weaken
As if to confirm economists' projections of a softer Australian labor market over the remainder of the year, a survey of newspapers' employment ads showed the fourth consecutive month of decline with a 0.8% drop in July. Additional softening might open the way for interest rate cuts by the Reserve Bank of Australia.
Capital Markets & Financial Products
South Korea records a surge in corporate bonds
Corporate bond issuances jumped nearly 11% in July from June after the Bank of Korea's interest rate reduction. "Corporate debt issuances surged for the second month in July due largely to the central bank's key rate cut and businesses' continued efforts to pre-emptively secure sufficient liquidity, revitalizing Korea's corporate debt market," observed the Korea Securities Depository.
South Korean conglomerates assail proposals to ban cross-shareholding
Proposals to ban cross-shareholding among affiliates have drawn opposition from South Korea's leading conglomerates. Such measures would force companies "to divert money to buy up more stakes that would have been used to hire more workers and make business investments," said Bae Sang-kun, a senior official at the Federation of Korean Industries.
Cut in China trading fees fails to inspire
Another cut in transaction charges by the China Securities Regulatory Commission hasn't inspired much confidence among traders and analysts. For one thing, it's uncertain whether the savings will be passed on to investors. But the step is seen as a further indication of the dwindling importance of regulatory measures in the face of an extended global economic crisis.
China-Japan tensions grow as economic ties expand
Relations between China and Japan that have alternated over the centuries from brutal invasions to highly lucrative investment have evolved into renewed animosity in Japan as China becomes a major investor. Japanese today acknowledge that closer ties with China can be key to reviving their economy but nonetheless remain wary of Chinese investment coming their way.
Industry & Regulatory Update
South Korean regulation helped contain loss of foreign capital last year
South Korean measures taken after the 2008 global economic meltdown helped stabilize the foreign currency market during the eurozone debt crisis last year, according to the Korea Development Institute. The cap on forward positions for South Korean branches of foreign banks held down the supply of foreign capital and helped contain its shrinkage to $390 million in the latest crisis, down from a loss of $560 million in 2008.
New York state may suspend Standard Chartered
Standard Chartered's U.S. unit might face a suspension in New York state over dealings with Iranian entities. It is alleged that the parent bank has done more than $250 billion in business with Iran over the past seven years, in violation of U.S. sanctions.
People & Personalities
Sherry Liu steps down as RBS chief in China
Sherry Liu has resigned as Royal Bank of Scotland's chairman in China. RBS said that Alex Chu, the bank's head of international banking for North Asia, will now oversee the board of RBS China.
Knight Capital reportedly will receive $400M capital injection
Knight Capital Group is expected to avert bankruptcy after a group of investors agreed to put $400 million into the troubled securities firm, sources said. The capital injection will help Knight continue to operate after a software glitch last week led to a $440 million loss.
Spain delays bailout, waiting for ECB bond-buying data
Spanish Prime Minister Mariano Rajoy said he won't decide on whether to seek help from the eurozone's rescue fund until he learns more about the bond-buying plan that the European Central Bank is developing. "What I want to know is what these measures are, what they mean and whether they are appropriate and, in light of the circumstances, we will make a decision, but I have still not taken any decision," he said.
Greece's lenders report positive progress after visit
Representatives from the International Monetary Fund, the EU and the European Central Bank said talks with Greece about its recovery were productive. The troika is set to go back to Athens in September to assess the economy, a necessary step in Greece's process of repaying debt.
London emerges as global hub for oil-futures trading
Contracts for North Sea Brent crude set a record in June, according to ICE Futures Europe, topping trading in West Texas Intermediate oil on CME Group's New York Mercantile Exchange for a third straight month. That propelled London past New York for trading in oil futures.
Investors fret about U.S. "fiscal cliff"
Although markets have climbed recently, many investors say the shadow of automatic tax increases and spending cuts in the U.S. -- the so-called fiscal cliff -- is looming and worrying investors. "The quickly approaching fiscal cliff is big, scary [and] yet avoidable," said Bill Stone, PNC Wealth Management's chief investment strategist. Though most investors think a solution cannot be worked out before the presidential election in November, they also say that enough of a consensus exists to keep the nation from sailing off the edge.
Market Activity
Upbeat U.S. jobs news bolsters Asian-Pacific markets
Positive U.S. employment data and optimism that Europe is making progress with its sovereign-debt problems boosted Asian-Pacific exchanges Monday. Japan's Nikkei 225 and South Korea's Kospi each rose 2%. Australia's S&P/ASX 200 added 1.2%. Hong Kong's Hang Seng Index gained 1.7%. China's Shanghai Composite and Taiwan's Taiex each advanced 1%. India's Sensex was up 1.2% at midday.
Exchange for small companies is planned by NYSE Euronext
NYSE Euronext is working to launch a securities exchange intended to make it easier for small companies across Europe to offer stocks and bonds.
Wall Street braces for biggest week of IPOs since Facebook
The U.S. pipeline of initial public offerings has more deals set to come to market this week than at any time since Facebook's IPO. Capital-market adviser and data provider Ipreo said six companies will try to raise $1.1 billion.
Economics
U.S. manufacturers slash investment and hiring
The number of U.S. manufacturing firms canceling investment and delaying hiring is growing as executives anticipate that political deadlock will prevent Congress from heading off a "fiscal cliff" of tax hikes and spending cuts set to automatically take effect at year-end. Commerce Department data show that factory orders unexpectedly dropped 0.5% in June compared with May.
Shell reportedly shifts funds out of eurozone banks
Oil company Royal Dutch Shell is withdrawing some cash from eurozone banks to limit exposure to the debt crisis, according to The Times newspaper in London. "There's been a shift in our willingness to take credit risk in Europe. The crisis has impacted our willingness to afford credit," said Chief Financial Officer Simon Henry.
Analysis: Global food crisis might be taking shape
U.S. farmers normally provide more than half of the world's corn and 40% of its soybeans, but the worst drought in 50 years makes it impossible to save the corn crop, while there is some hope for soybeans, according to The Economist. "If the rains come too late to save America's soya harvest, a bad situation could become dire and hit the whole food sector, according to Abdolreza Abbassian of the UN Food and Agriculture Organisation," the magazine notes.
U.S. unemployment rises despite strongest hiring in 5 months
Employers added more workers in July than at any time in the past five months, but the unemployment rate still edged up, from 8.2% to 8.3%, the U.S. Labor Department said. Last month, nonfarm employment increased 163,000.
Financial advisers should prepare clients for tax-law changes
Because of disagreement between Democrats and Republicans about how to handle the impending expiration of Bush-era tax cuts, financial advisers should prepare clients for last-minute changes to U.S. tax law, experts said. Investors must be ready to change portfolios and estate plans to minimize taxes under a wide range of scenarios.
Geopolitical/Regulatory
SEC round table will discuss HFT issues, Schapiro says
Mary Schapiro, chairman of the Securities and Exchange Commission, said the agency will hold a round table soon to discuss "critical issues" related to Knight Capital Group's error and high-frequency trading. Schapiro also said the SEC is considering rules to tackle such issues. "I have asked the staff to accelerate ongoing efforts to propose a rule to require exchanges and other market centers to have specific programs in place to ensure the capacity and integrity of their systems," she said.
Vietnam moves to relax stock market rules to encourage investment
The Vietnamese State Securities Commission plans to increase initial public offerings of state-owned businesses and relax stock-trading rules to attract investment. The commission is expected to open the door to 100% foreign-owned securities firms. Vietnam's benchmark VN Index is the third-best-performing equity index this year in Asia.
Libor investigation zeros in on former Barclays swaps trader
An investigation into possible manipulation of the London Interbank Offered Rate has turned its focus to a 30-year-old former swaps trader at Barclays in New York. U.S. prosecutors are exploring activity by Ryan Reich, who was fired in 2010. Reich and Barclays declined to comment.
Financial Products
Fidelity reportedly readies actively managed sector ETFs
Fidelity Investments is getting ready to move into exchange-traded funds, with a series of actively managed sector funds, a source said. The company wants to be the first major mutual fund firm to offer ETFs whose investments are directed by active stock pickers.
