Saturday, January 26, 2013

Economic Summary for the week ended 25th Jan 2013

Japan - The Bank of Japan (BOJ) has agreed to double its inflation target to 2% and ease monetary policy, meeting key demands of Japan's new government.
Japan's central bank has guarded its independence and there were fears it may resist Prime Minister Shinzo Abe's calls for it to do more to help growth, but the BOJ has gone further than many analysts predicted, offering to do open-ended asset purchases from 2014, expected to pump billions of yen into the economy.
"This is very good news," said Brian Redican, from Macquarie in Sydney. "For once, the BOJ has been more aggressive than the market expected. The government is clearly forcing the pace of change, which is no bad thing. The BOJ has talked about targeting inflation for years without any success, but these changes are more credible."
China - Manufacturing activity in China grew at its fastest pace in two years in January, according to data from HSBC.
The preliminary reading of the Purchasing Managers Index (PMI) was 51.9, compared with 51.5 in December. Levels above 50 indicate expansion.
China's leaders have taken steps to boost the country's growth, of which manufacturing is a major component. The data is the latest sign that the world's second-largest economy is recovering after a sharp slowdown.
"Despite the still tepid external demand, the domestic-driven restocking process is likely to add steam to China's ongoing recovery in the coming months," said Qu Hongbin, chief China economist at HSBC.
India - India raised a cap on foreign investment in rupee-denominated bonds by $10bn to $75bn, the central bank said.
The nation boosted the limit on holdings of government debt to $25bn from $20bn while an ownership ceiling for corporate notes was increased to $50bn from $45bn, according to a statement on the Reserve Bank of India’s website.
Prime Minister Manmohan Singh’s administration has taken a series of measures since mid-September, including allowing more international investment in retailing and aviation, to revive Asia’s third-largest economy and avert a downgrade in the sovereign rating.
Spain - Spain's unemployment rate has soared to its highest level since measurements began in the 1970s as a prolonged recession and deep spending cuts left almost 6 million people out of work at the end of last year.
Spain's unemployment rate rose to 26% in the fourth quarter of 2012, or 5.97 million people, the National Statistics Institute said on Thursday, up from 25% in the previous quarter and more than double the European Union average.
Spain sank into its second recession since 2009 at the end of 2011 after a burst housing bubble left millions of low-skilled labourers out of work.
Germany - German investor confidence jumped surprisingly this month above its long-term average to a level not seen since May 2010, the ZEW Center for European Economic Research said on Tuesday.
The ZEW’s economic sentiment indicator, which gauges investors’ six-month outlook, surged by 24.6 points this month to 31.5. Analysts had expected a 12 point increase.
The report means that a significant majority of investors sees conditions improving after the fourth quarter’s estimated 0.5% quarterly decline in German GDP.
“The financial market experts seem to expect that the positive sentiment on the financial markets may soon result in companies realizing investments that had been postponed early on,” ZEW President Wolfgang Franz said. “However, the economic situation of important trade partners is rightly considered to still be weak. This suggests that the German economy will further grow at a moderate level in 2013.”
Companies - Apple Inc. more than doubled its iPhone sales points in China, which helped boost revenue by 67% in the world’s largest market for handsets.
Outlets in China selling the iPhone rose to 17,000 in the period that ended Dec. 29, from 7,000 a year earlier, Apple Chief Executive Officer Tim Cook said. That helped Apple boost sales in the Greater China region to $6.83bn, from $4.08bn a year earlier, the company said in statement that marked the first time it formally shared China data in its earnings release.
Cook needs a strong performance in China after Apple last quarter posted its slowest profit growth since 2003 and weakest sales gain in 14 quarters, amid rising costs and accelerating competition with Samsung Electronics Co. Apple expanded its own China retail stores to 11 from six over the past year, while the number of premium resellers doubled to more than 400 shops, said Cook, who visited China this month.
Commodities - Gold will rally this year and into 2014 as U.S. Federal Reserve policy makers will probably maintain asset purchases for two more years to buttress the recovery of the largest economy, according to Morgan Stanley.
Gold, which rose for a 12th year in 2012, may average $1,830 an ounce in the final quarter from $1,715 in the first, $1,745 in the second and $1,800 in the third, analysts Peter Richardson and Joel Crane said in a report. Prices will be supported by investment and central-bank buying, they wrote.
Spotlight on: China set for a mini bull market?
China exited 2012 with its economy accelerating hard out of a year in which it came closer to almost stalling than at any time since 1999, in a further tentative sign of recovery in global activity.
The country recorded its slowest full-year growth of this century, but the 12 month figure of 7.9% still beat consensus expectations of 7.7% in a Reuters survey of economists.
The Shanghai Composite index gained 1.41% on Friday, crowning a month which seems to have signalled a break-out from its two year bear run, gaining 17.16% since mid-December.
‘Should the Shanghai market gain another couple percentage points, a new bull market will be at hand, and it will certainly be a welcome relief for Chinese investors, noted Bespoke Investment this week.
‘Last month’s PMIs were upbeat and we think the recovery has a while yet to run,’ said Mark Williams, Asia analyst at Capital Economics.
The uptick was driven by a stabilisation of exports, industrial production, which was up 10.3% over 12 months compared to a figure of 10.1% in November, and retail growth, up 15.2% from 14.9%.
Two interest rate cuts and the approval of infrastructure projects, as well as the introduction of new leadership in November, have helped stabilise outlook and confidence.
Investors responded enthusiastically amid hopes the market has shrugged off its extended losing streak, but analysts were sceptical of how long China could maintain re-acceleration. They pointed out that household spending remained sluggish and that state intervention was still very much required.
‘As such, there must be a good chance of disappointment if incoming data fail to meet expectations,’ said Williams.
‘This will be an increasing risk as the year goes on if the recovery remains centred on infrastructure and real estate investment rather than consumption. Sustained stronger growth in China would require a turnaround in household spending.’
Bank of America Merrill Lynch’s China economist Ting Lu said he expected annual GDP growth to peak at 8.3% in the first half of 2013, before slowing again to 8% over the second.
‘Pro-growth policies will be extended into 2013, and aggressive stimulus will be avoided unless there is another global financial crisis,’ said Lu.
‘Within the year, policy will likely be marginally tightened towards the second half of the year on concerns of rising inflation and home prices, investment overheating and financial system risks. We expect no rate changes in 2013, and the People’s Bank of China will aim to deliver a stable interbank rate.’

Friday, January 18, 2013

Economic Summary for the week ended 18th Jan 2013

India - Indian economic growth may rebound in 2013 while falling short of the government’s 8% target, as inflation risks limit the extent interest rates can be lowered to spur consumption and investment.
Gross domestic product in Asia’s third largest economy will rise 6.5% in the year through March 2014, according to the median of 30 estimates in a Bloomberg News survey. That compares with a 10-year average of 7.8% and the Finance Ministry’s projection of 5.7% to 5.9% in 2012-2013.
Prime Minister Manmohan Singh revived stalled policy overhauls in September to stem a slowdown in expansion, steps that helped send stocks to a two-year high this week on bets that a recovery has begun. While inflation eased to a three-year low of 7.18% in December, it remains the fastest among the biggest emerging markets. A record current account gap is threatening to damp the rupee, adding to price pressures.
China - China's economy, the world's second largest, is showing signs of a rebound that could help it emerge from its worst economic period in 13 years.
According to the latest government figures, growth picked up to 7.9% in the final three months of 2012, from 7.4% in the previous quarter. This was driven by state investment in infrastructure projects and efforts to get consumers and companies to spend.
Economic stability is seen as vital for China as its new leaders take over.
"It is obvious that the slowdown in the Chinese economy has halted for the moment," said Fraser Howie, an economist and co-author of Red Capitalism. "But one has to be mindful that any recovery will be limited in its scope, not least because of the various headwinds that China is facing," he added.
Currencies - The world is on the brink of a fresh “currency war,” Russia has warned, as European policy makers joined Japan in bemoaning the economic cost of rising exchange rates.
“Japan is weakening the yen and other countries may follow,” Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said at a conference on Wednesday in Moscow.
The push for weaker currencies is being driven by a need to find new sources of economic growth as monetary and fiscal policies run out of room. The risk is as each country tries to boost exports, it damages the competitiveness of other economies and provokes retaliation.
Colombia - Colombian Finance Minister Mauricio Cardenas says that when he travels next week to Switzerland for a meeting of the world’s richest capitalists, he won’t be lobbying for investment. After spending his first four months on the job trying to protect the economy from a currency rally, he doesn’t need more dollar inflows.
“I’m just going to tell a good story,” Cardenas, who will attend the World Economic Forum’s annual meeting in Davos, said in an interview on Tuesday in Bogota.
Foreign direct investment this year should surpass last year’s record USD16bn, Cardenas said, keeping pressure on manufacturers struggling to compete with a currency that outperformed all of Latin America in 2012. While the government can boost dollar purchases and take other steps to weaken the peso toward a “more natural” level of 1,800 per dollar, Colombia’s track record for market-friendly policies will make it attractive to investors for some time to come, he said.
Spotlight on: investors move from bonds to stocks
Global fund managers’ risk appetite has reached a nine-year high as the ‘great rotation’ from bonds towards equities continues to gather pace, Bank of America Merrill Lynch (BofA ML) research shows.
According to the bank’s Global Fund Manager Survey, the proportion of asset allocators taking higher-than-normal risk reached its highest level since January 2004 at the start of the new year.
Furthermore, the number of fund managers taking out market protection dropped to its lowest point since the first quarter of 2008. Cash levels also fell for the sixth month running, moving from a high of 5.3% in June 2012 to their present 3.8%.
A net 51% of asset allocators are now overweight equities - the most bullish stance seen since February 2011. The underweight to banks that has persisted since February 2007 also ended as investors moved overweight on the sector.
Within equities, managers have shifted towards cyclicals, with technology and industrials becoming the favourite sectors, and away from defensives. The weighting to telecoms, for example, has fallen to its lowest since December 2005.
Allocations to bonds dropped to their lowest since May 2011, with a net 53% of managers underweight when it comes to fixed income. In further evidence that a great rotation is in its early stages, 49% of investors now expect to sell government bonds to purchase higher-beta equities.
Investor confidence has improved markedly in recent months. The US fiscal cliff remains the leading tail risk among fund managers, cited by 37% of respondents. But this is down from 47% in December and 54% in November.
Meanwhile, a net 59% expect the global economy to strengthen over the coming year - up from a net 40% one month ago. China is a particular bright spot, with a 63% of allocators expecting the world’s second largest economy to secure a stronger recovery this year.
Michael Hartnett, chief investment strategist at BofA ML Global Research, said: “Following the resolution of the US fiscal cliff, sentiment has surged.
“Half of investors now tell us that they would sell government bonds to buy higher-beta stocks, which is consistent with increasing growth and inflation expectations and with our call for a ‘great rotation’ to start in 2013.”

Sunday, January 13, 2013

Ecomonic Summary for the week ended 12th Jan 2012

Global - European shares consolidated close to two year highs on Friday after Europe's Central Bank expressed cautious optimism on the euro zone's prospects.
Strong Chinese trade data on Thursday also helped lift economists' expectations of a steady global recovery this year, pushing the MSCI index of world shares to a new eight-month high.
"People are starting to come back to the stock market because they don't have any other option," said Edward Page Croft, managing director at Stockopedia.
"Equities are very overdue a rest but that shouldn't make people throw in the towel in my opinion as they will continue to be supported by central banks' very accommodative policies."

Japan - The Japanese government has approved a fresh 10.3 trillion yen ($116bn) stimulus package in an attempt to spur a revival in its economy.
The package will include infrastructure spending, as well as incentives for businesses to boost investment. Tokyo estimates that the stimulus will boost Japan's economy by 2% and create 600,000 jobs.
Japan's economy has suffered a dip in exports amid slowing global demand and subdued domestic consumption.
The world's third-largest economy is currently in a recession, having contracted for two quarters in a row.

China - China has reported better-than-expected trade data, adding to optimism that growth in the world's second-largest economy may be rebounding.
Exports, a key driver of expansion, rose 14.1% in December from a year earlier. Most analysts had forecast a figure closer to 4%. Imports also rose, climbing 6% and indicating stronger domestic demand.
There have been worries about the state of China's economy after growth fell to a three-year low.,
"The export data especially is very good news as it shows that external demand for Chinese products is picking up," said Dariusz Kowalczyk, a senior economist at Credit Agricole-CIB in Hong Kong.

Emerging Markets - Emerging-market equity funds recorded their biggest-ever weekly inflows as the U.S. budget deal and China’s economic rebound fuelled investor demand for riskier assets.
The funds attracted a net $7.4bn in the week ended Jan. 9 and assets under management reached an all-time high of $781bn, according to Jonathan Garner, the chief Asia and emerging market strategist at Morgan Stanley in Hong Kong. Developing-nation debt funds lured their second-largest inflows of $2bn, Garner said, citing data compiled by research firm EPFR Global.
Mutual fund purchases have helped spur a 22% rebound in the benchmark MSCI Emerging Markets Index from last year’s low on June 4. While big inflows tend to foreshadow short-term market declines, Garner said the combination of global monetary stimulus, accelerating economic growth and an improving outlook for earnings will support share prices. His year-end target for the MSCI index is 14% higher than Thursday’s close.
Greece - The latest unemployment rate for Greece has risen to 26.8%, the highest figure recorded in the European Union.
The official Greek data for October sees Greece overtake Spain as the country with the highest unemployment rate in Europe.
So far, the European Central Bank, International Monetary Fund, and the European Commission have pledged a total of 240bn euros ($315bn) in rescue loans, of which Greece has received more than two thirds.
It is thought that the unemployment rate will move higher still, following the introduction of further austerity measures in 2013.
Commodities – U.S. oil production will jump by a quarter by 2014 to its highest level in 26 years, figures suggest. This is mainly because of the discovery of vast reserves of shale oil.
The Energy Information Administration (EIA) in the U.S. also forecast average global oil prices would fall from $112 a barrel in 2012 to $99 in 2014.
It said U.S. oil imports would fall by a quarter between 2012 and 2014, because of rising domestic production and the discovery of shale gas.
Many have hailed shale gas as the saviour of the U.S. energy market. In fact, the International Energy Agency (IEA) has said it expects the U.S. to overtake Russia as the world's biggest gas producer by 2015 and to become "all but self-sufficient" in its energy needs by about 2035.

Spotlight on: Seeking out BRIC market growth opportunities
The factors underpinning the rapid growth of the so-called BRIC nations may weaken further in the coming years, recent research by Capital Economics suggests.
In its Emerging Markets Economic Outlook report, the macroeconomic forecasting consultancy highlighted a number of medium-term challenges facing Brazil, Russia, India and China.
The near-term outlook for emerging markets as a whole has improved in recent months, the group said. Capital Economics’ emerging markets GDP tracker suggest that growth bottomed out in the fourth quarter of 2012 and most emerging nations started 2013 with positive momentum.
However, the consultancy added that growth in the BRICs is likely to slow over the coming five years, with part of this slowdown being the result of permanent rather than temporary factors.
China’s recovery is expected to peter out later in 2013 and the country’s new leadership has yet to announce any concrete steps to move the world’s second largest economy away from its reliance on investment spending and towards domestic demand, the report noted.
In India, policymakers also face the challenge of pushing through reforms that will allow the economy to maintain its strong growth rates of the past. “The package of reforms announced in late 2012 has raised hopes of a new approach, but these look likely to founder in the face of political opposition,” Capital Economics said.
The consultancy argued that Brazil is approaching the limits of its consumption-led growth model, adding: “Growth over the next decade will need to be driven more by investment, but this will require difficult structural reforms.”
Capital Economics also said the above risk applies to Russia. Meanwhile, resources-rich Brazil and Russia may both find that commodity prices fail to prop up their spending as they have done over the past ten years.
However, the forecaster said some emerging markets outside of the main names could expect to see healthy growth rates in the years ahead.
“While the BRICs look set to slow, the outlook for other emerging markets is improving,” the report concluded.
“In Latin America, we think Mexico will outperform Brazil over the next five years. In Asia, we are bullish on the Philippines and Indonesia. Finally, in Africa, while South Africa is likely to struggle, we are upbeat on the prospects for Nigeria, Kenya and Ghana.”
Of course, identifying the markets that are predicted to deliver outperformance for BRIC markets in the future is the role of the fund manager. In turn, however, identifying the fund manager that is best positioned and able to act upon their convictions is the role of the end-client’s advisor.

Sunday, January 6, 2013

Economic Summary for the week ended 4th Jan 2013

U.S. - U.S. politicians have been urged to do more to resolve the budget by the two largest credit rating agencies.
The warning comes despite the U.S. narrowly agreeing a deal to stave off the U.S. "fiscal cliff" of spending cuts and tax rises worth $600bn.
Rating agency Moody's said lawmakers would need to take additional steps to lower the ballooning budget deficit. Rival agency Standard and Poor's added: "Washington's governance and policymaking had become less stable."
The deficit has topped $1tn in each of the past four years. Moody's said that if it failed to cut the deficit, the government's top credit rating could be at risk.
The fiscal cliff measures - $536bn of tax rises and $109bn of spending cuts - had been due to come into effect at midnight on Monday, but Congress agreed a deal to avoid the worst of the measures late on Tuesday.
The total amount of debt that the government can borrow is currently set at $16.4tn and the government is set to run out of money in the next two months if this limit is not raised by Congress.
Emerging Markets - Emerging-market stocks rose for a ninth day on Thursday, the longest gaining stretch in more than 14 months, as data showing expansion in Chinese service industries and U.S. manufacturing bolstered confidence in the global economy.
The MSCI Emerging Markets Index added 0.1% on Thursday, having climbed 2.1% to a 10-month high on Wednesday. Commodities and stocks worldwide rallied on Wednesday, following U.S. lawmakers passing a bill that undone tax increases for most households.
“Economic indicators in China and the U.S. are raising optimism that the global economy is on a steady path of recovery,” said Budsares Yunniyom, a fund manager at Asset Plus Fund Management Co. in Bangkok, which oversees about $800mn of assets. “That may support further gains in emerging-market equities as most investors are willing to raise holdings in risky assets.”
Latin America - The two biggest financial markets in Latin America swapped their long-held positions in 2012, with Mexico surging ahead and Brazil lagging, catching many U.S. fund investors in the region off guard.
Stocks in Brazil, which had benefited over the past decade from a fast-growing consumer class and Chinese purchase of commodities, suffered as the government increased regulation of key sectors of the economy and Asian demand waned. In the third quarter of 2012, Brazil's economy grew only 0.9% from a year earlier, while Mexican growth was 3.3%.
Mexico's fortunes rose partly because of its closer ties to modest U.S. growth and hopes that the new Mexican government will undertake major reforms that could boost the economy.
"This time last year most folks were quite positive on Brazil and it was quite a crowded trade," said Adam Kutas, manager of Fidelity's Latin America fund. "Mexico had underperformed in the region for eight or 10 years, so it was under-owned."
China - The service sector in China has expanded at its fastest pace for four months, adding to evidence that an economic rebound might be sustained.
The non-manufacturing purchasing managers' index (PMI) rose to 56.1 in December from 55.6 in November. A reading above 50 indicates expansion.
The data also showed that the construction sector had seen strong growth in new orders. Singapore - Singapore's economy has averted a technical recession, as it reported better-than-expected growth data for the fourth quarter.
The economy expanded 1.1% in the October to December period, from a year earlier, advance estimates showed.
On a quarter-on-quarter basis, the economy grew 1.8%. That is up from a 6.3% contraction in the third quarter.
Growth was boosted by a rebound in the services industries, which include retail, finance and insurance sectors. For the full year, the government said it estimates the economy to have grown by 1.2%, that is lower than its forecast of around 1.5% annual growth for 2012.
India - Global fund holdings of Indian debt jumped 26% last year to a record high, leading Schroder Investment Management to suggest that Asia’s highest-yielding investment-grade bonds are worth buying in 2013.
International funds poured $6.9bn into local-currency government and company securities, boosting ownership to $32.94bn, according to exchange data. Investments touched an all-time high of $32.99bn on Jan. 1 and have jumped more than fourfold since 2009. A December offering of bond-purchase quotas to foreigners by the market regulator was oversubscribed.
Schroder sees “good” returns in 2013 after Prime Minister Manmohan Singh unveiled India’s most-aggressive policy changes in a decade to improve public finances and spur growth. Ten-year bonds in India yield 7.99%, compared with 3.56% in China and 5.14% in Indonesia.
Germany - Chancellor Angela Merkel has warned that the German economic climate in 2013 will be "even more difficult".
In her new year message, she also cautioned that the eurozone debt crisis was far from over. However, she did say that reforms designed to address the roots of the problem were beginning to bear fruit.
Germany, Europe's largest economy, has been the paymaster in the eurozone crisis, a move unpopular with many German voters and some conservative MPs in Mrs Merkel's coalition.
Analysts say most Germans remain wary of eurozone bailouts but generally approve of Mrs Merkel's handling of the crisis. In October, the German government slashed its forecast for economic output in 2013 to 1.0%, compared to 1.6% previously anticipated.
Spotlight on: Fiscal cliff resolution.....?
Nouriel Roubini, an American economist also known as ‘Doctor Doom’ following his anticipation of the collapse of the U.S. housing market and the worldwide recession which started in 2008 and ended in 2009, has warned that the market euphoria surrounding the U.S. fiscal cliff deal is unsustainable, arguing the longer-term outlook for the world’s biggest economy remains "bleak".
Writing for the Financial Times, the prize-winning economist described the U.S. deal struck by the Democrats and Republicans as "mini" and "no victory".
With U.S. policymakers stopping short of including spending cuts in the deal, another crisis is around the corner, stated Roubini.
"If no action is taken by March 1, $110bn of spending cuts will commence, and at about the same time, the U.S. will hit its statutory debt limit, known colloquially as the debt ceiling," he said.
"Later in 2013, a bigger debate on medium-term fiscal consolidation will begin. This will lead to another dispute between Republicans, who want to shrink the size of the federal government, and Democrats, who want to maintain it but are unsure how to pay for it."
Roubini is even more pessimistic about the U.S.' longer term fiscal outlook, arguing middle class citizens should pay higher taxes to support a stronger economy.
He said the fiscal cliff deal will translate into a 1.2% drag on GDP this year, which will push the U.S. economy dangerously close towards another recession, given that growth is currently running at around 2%.
"The longer-term picture is bleaker still. The reality is that America is yet to wake up to the full extent of its fiscal nightmare," he said.
"Neither Democrats nor Republicans recognise that maintaining a basic welfare state, which is right and necessary in our age of globalisation, rapid technological change and demographic pressure, implies higher taxes for the middle class as well as for the rich.
"A deal that extends unsustainable tax cuts for 98% of Americans is therefore a victory that will ultimately end in defeat for Mr Obama." Roubini said.