Tuesday, August 21, 2012

Economic Summary for the week ended 18th Aug 2012

China - Chinese Premier Wen Jiabao has said the world's second largest economy can meet its growth target this year in an effort to allay concerns over recent economic data. "We have the conditions and capabilities to fulfil this year's economic and social development target," said the Chinese Premier.
He acknowledged downward pressure remained "relatively large" and difficulties were set to continue for some time, China National Radio reported. Meanwhile China Central Television quoted him saying that rising prices were easing and there was "growing room for monetary policy operation".
Brazil - Brazil's government has unveiled the first phase of a major economic stimulus package designed to boost growth in the flagging economy.
More than $60bn will be invested in the country's roads and railways over the next 25 years, with more than half in the next five years. The government's recent measures, such as the recent devaluation of the currency, the real, and the progressive reduction in interest rates, have so far failed to stimulate growth.
"The measures unveiled by the Brazilian government this afternoon are good news insofar as they will help tackle some of the supply-side problems that are holding the economy back," said Neil Shearing at Capital Economics.
U.K. - Financial firms in London, under pressure with Europe's sovereign-debt crisis, will most-likely shrink their workforce this year, as a hiring rebound from 2008's credit crisis as New York's industry attempts to create job growth.
Banks, insurers and other financial-services firms may eliminate a total of about 3,000 jobs across greater London as companies in the New York region add 9,000, according to U.K.- based researcher Oxford Economics Ltd. Reductions will be particularly acute in London's financial district, where the industry may cut 25,200 positions, according to the Centre for Economics and Business Research Ltd.
Asset Trends - Global fund managers have taken allocations to eurozone equities to their highest in more than a year as sentiment builds that the European Central Bank (ECB) will unveil new policy measures to preserve the single currency.
The latest Bank of America Merrill Lynch global fund manager survey shows that 13% of asset allocators are running an underweight position in eurozone equities during August.
BofA ML Global Research head of European equities strategy Gary Baker says: "August's surge in confidence seems to be more a triumph of policy projection and potential than positive economic data.
"As indicated by the survey, the risk is now that inaction by policymakers would lead to a negative reaction in global markets."
Commodities - The U.S., France and Mexico are planning talks to consider whether an emergency meeting is needed to tackle the soaring price of grain.
The three will hold a conference at the end of this month after the worst U.S. drought in 50 years threatens to cause a sharp rise in the cost of staple crops.
It will be decided whether to convene the first meeting of the newly-formed G20 Rapid Response Forum, formed to promote united action.
A French agriculture ministry official said: "If the situation requires it, a meeting of the Rapid Response Forum could be called as soon as the start of September.
"The aim is to talk about the situation and avoid measures like export embargoes which would be damaging for everyone."
Commodities - Global demand for gold is seeing a significant slowdown as top consumers in India and China cut purchases amid weak economic growth, abruptly halting a consumption boom that started five years ago with the onset of the financial crisis.
The consumption slowdown is driving prices downward, denting the profitability of gold miners such as Barrick Gold of Canada and New York-listed Newmont, and hurting top hedge funds managers such as John Paulson and George Soros.
Spotlight on: Brazil's plan to kick-start growth
Brazilian President Dilma Rousseff has announced plans to stimulate economic growth through high level investment in the country's infrastructure network.
What has happened?
President Dilma Rousseff has announced a $66bn package to stimulate the economy through infrastructure developments on highways, airports, ports and railways.
Designed to improve the transport system in order to aid trade and commuting, the money will also help strengthen its infrastructure ahead of the 2014 FIFA World Cup and 2016 Olympics Games in Rio.
Commentators have questioned how much of the plan is actually new developments, with elements of it echoing her $50bn PAC-2 infrastructure project currently held up in Brazilian government bureaucracy.
Why has Rousseff announced this now?
Growth is a major factor. From obtaining 7.5% GDP growth in 2010, current projections for this year sit at 2% and Rousseff has seemingly taken a proactive step to foster investment in the country.
Sceptics could view the timing as an attempt to put Rio on the same footing as London as a city able to cope with major sporting events by improving its infrastructure base.
However, the need for improvement in the Brazilian infrastructure cannot be dismissed, with fund managers such as Franklin Templeton's Marco Freire and Ashmore's Jerome Booth both previously stating the need for $1tn worth of foreign and private investment in the country.
Will it deliver?
Brazilian equity investor Michael Konstantinov, who runs five Brazil and BRIC equities on behalf of Allianz including the Allianz Brazil fund, said infrastructure developments in the Latin American powerhouse are very much a case of seeing is believing.
'The announcement is one thing and the implementation is another,' he said. 'We don't know whether these plans will actually happen. It looks like they are asking for much lower internal rates of return, so these projects could be a bit less profitable.'
'On the other hand, they have got quite strong support from the BNDES - the Brazilian Development Bank - which will offer funding at below market rates.'
Does this affect what the Brazilian central bank is doing?
In short, no and Konstantinov said the majority of projects outlined by Rousseff will be set on a five-to-six year time horizon, while the Brazilian central bank is working on a much more near-term basis.
The central bank has drawn both praise and criticism for its decision to undertake systematic cuts to its benchmark interest rate - the SELIC - since the end of last year.
In a move designed to stave off a global economic downturn, the central bank's monetary board, known as Copom, has cut the rate from a 30-month high of 12.5% in August 2011 to a record-low of 8% last month.

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