Friday, February 10, 2012

Economic Summary for the week ended 10th Feb 2012


Greece - Greek Prime Minister Lucas Papademos failed to secure the support of his coalition for a raft of new austerity measures, after more than seven hours of talks. He met officials from three parties on Wednesday night to try to secure a deal leading to a fresh bailout package. The main problem appears to be pension cuts worth EUR600m reportedly proposed in a draft text agreed by the troika and the prime minister. The document is also said to include a 20percent minimum wage reduction and the sacking of 15,000 public sector workers. The stalemate potentially further jeopardises the bailout of EUR130bn that Greece needs in order to meet its March debt obligations. Meanwhile, private sector lenders are negotiating with Greece to write off up to 70percent of the value of the money that the Greek government currently owes them.

Germany - Germany's trade surplus reached EUR158bn in 2011 on record exports that rose 11.4percent to top EUR1tn for the first time. The national statistics office also said that imports rose 13.2percent to reach an all-time high of EUR902bn. In 2010, the trade surplus for Europe's biggest economy was EUR155bn. German exports to countries outside the 27-nation European Union showed the strongest growth last year, up 13.6percent to EUR432.8bn. Exports to other European Union countries rose 9.9percent to EUR627.3bn. Of those, EUR420.9bn went to the eurozone bloc, 8.6percent rise.

India - India's economic growth is likely to dip below 7percent for the 2011-12 financial year, new government statistics show. The downward revision reflects the slowdown in mining, agriculture and manufacturing sectors. On Monday, ratings agency Standard and Poor's warned there could be a downgrade in India's investment-grade credit rating. Despite the growth forecast reduction, the main Sensex stock exchange has continued to perform well, up almost 15percent this year.

Global - Global stocks hit a fresh six-month high on Wednesday as hopes for a worldwide economic recovery were outweighed by the lingering eurozone fiscal crisis. The FTSE All-World equity index was up 0.4percent, its best level since the start of August. Wall Street's S&P 500 started the session with a gain of 0.1percent, leaving the benchmark index just 1percent short of its best close since the summer of 2008. The FTSE Eurofirst 300 advanced 0.3percent as miners and banks stocks demonstrated promise. The move higher in core bond yields and main equity gauges enforces the conviction among traders that better economic data from the world's two biggest economies, the U.S. and China, mean global commerce can absorb the fallout from the eurozone's debt woes. The yields on Italian debt remain at four-month lows, another sign, say some, that the chances of sovereign debt contagion, beyond Greece, and potentially Portugal, is becoming increasingly unlikely.

China - China's central bank pledged support for first-home buyers as a crackdown on real estate speculation threatens to trigger a property slump in the world's second biggest economy. Officials will increase support for construction of affordable housing and ensure that "loan demand from first-home families" is met, the People's Bank of China said. Policy makers aim to limit public discontent by making housing more affordable, with Vice Premier Li Keqiang, a possible contender to be the next premier, describing the distribution of low-cost homes as a key test of government credibility. At the same time, the ruling Communist Party aims to avoid the economic "hard landing" that Fitch Ratings recently said is a key global risk.

U.S. - Federal Reserve Chairman Ben S. Bernanke is holding to his pledge to keep borrowing costs close to zero at least through late 2014 even after unemployment unexpectedly fell to a three-year low this week. Bernanke told the Senate Budget Committee that the decline in the jobless rate to 8.3percent in January veils weaknesses in the U.S. labour market. Fed officials last month said they didn't expect such progress until the fourth quarter. "It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work," Bernanke said in response to a lawmaker’s question during his testimony. "There are also a lot of people who are either out of the labour force because they don't think they can find work" or who have taken part-time jobs.



Spotlight on:  Value in Equities

Investors should have 100 percent of investments in equities because of valuations and higher returns than bonds, said Laurence D. Fink, chief executive officer of BlackRock Inc., the world's largest money manager.

Investors who seek the safety of government bonds will have minimal returns and will not be able to meet their needs with the U.S. Federal Reserve expected to keep interest rates low, said Fink, who in 1988 co-founded the New York-based manager with USD3.5tn of assets. By contrast, equities are trading at the lowest valuations in 20 or 30 years.

"I don't have a view that the world is going to fall apart, so you need to take on more risk," he said in Hong Kong on Wednesday. "You need to overcome all this noise. When you look at dividend returns on equities versus bond yields, to me it’s a pretty easy decision to be heavily in equities."

The Federal Open Market Committee last month pledged they would keep borrowing costs low through at least late 2014 to boost the economy and put more Americans back to work, extending a previous end date of mid-2013. Investors pulled money from funds that buy equity stocks for a fifth year in 2011.

Fink said in a May 31 interview he's more bullish on equities than bonds because companies are benefiting from the weak dollar and have surplus cash to invest for growth. While equities around the world were off to the best start in 18 years, the S&P 500 Index gained just 1.2percent since Fink's prediction last year, compared with the 6.8percent return in U.S. government bonds, according to Bank of America Merrill Lynch indexes.

Meanwhile, the MSCI All-Country World Index rallied 5.8percent last month, topping gains in commodities and handing investors January's best returns in almost two decades, according to data compiled by Bloomberg.

"I'm very bullish on the market," he said, citing the increased liquidity from the U.S. and European central banks. "I think the market is focusing too much on noise like Greece. And yet we’re going to have a lot of volatility and we’re going to have to live with it."


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