Economic Summary for the week ended 21st Feb 2013

Japan - Japan's monthly trade deficit hit a record in January after its recent aggressive monetary policy stance weakened its currency sharply. Exports rose in January, the first jump in eight months, as its goods became more affordable to foreign buyers.

However, a weak currency also pushed up its import bill resulting in a monthly trade deficit of 1.6tn yen ($17.1bn), a 10% jump from a year ago.

Meanwhile, output data also indicated that things may be starting to change. Japan's shipments to China rose by 3% in January from a year earlier, the first rise since May.

At the same time, exports to the U.S., the world's biggest economy also jumped 10.9% further, adding to hopes of a recovery in the sector. Meanwhile, the pace of decline in exports to the European Union also slowed during the month.

There are hopes that as shipments to key markets recover and the yen continues to remain weak, Japan's export sector may see a sustained recovery.

Japan - Japanese Prime Minister Shinzo Abe plans to ask U.S. President Barack Obama to approve shale gas exports to Japan, which has relied on fossil fuels to keep the world’s third biggest economy running after the 2011 Fukushima nuclear disaster.

Japan, the world’s biggest importer of liquefied natural gas, has increasingly turned to fossil fuels after most nuclear reactors were shuttered in the wake of Fukushima.

Japanese companies are investing in U.S. shale gas projects, which could begin exports from 2017 if they win government approval.

Importing U.S. gas would boost Japanese utilities’ bargaining power in negotiations with suppliers who benchmark their prices against more-expensive oil, said Reiji Ogino, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. Utilities have sought government approval to raise electricity prices and pass on the burden of higher fuel bills to consumers.

Global - The economies of the Organisation for Economic Co-operation and Development (OECD) contracted by 0.2% in the last three months of 2012.

It was the first such decline for the group of developed countries since the beginning of 2009.

The eurozone was the biggest factor, with a 0.6% contraction. Japan and the U.K. shrank too and the U.S. saw no growth. The OECD's figures highlight the continuing weakness that has afflicted the developed world.

At no stage since the financial crisis have developed economies grown very strongly. It has never been a convincing recovery.

But the figures for the final quarter of last year actually show a decline for the first time in nearly four years for the OECD as a whole.

U.K. - Britain's benchmark, the FTSE 100 equity index extended gains on Wednesday to rise to new five-year highs, and breached a key psychological level which some traders said could induce moves higher.

The FTSE 100 was up by 0.4% at 6,401.79 on Wednesday, surpassing the key 6,400 point level. The stock market extended earlier gains after minutes from the Bank of England signalled a greater likelihood of more monetary stimulus measures, which have boosted equity markets around the world.

The FTSE 100 last traded above the 6,400 point mark in late May 2008.

China - China’s foreign direct investment fell for an eighth month in January, a sign that the recovery in the world’s second-largest economy has yet to revive confidence among overseas companies.

Inbound investment dropped 7.3% from a year earlier to $9.27bn, the Ministry of Commerce said. Non-financial outbound investment rose 12.3% to $4.91bn, the ministry data showed. China’s economic data in the first two months are distorted by the timing of the weeklong Lunar New Year holiday, which fell in January last year and February this year.

Rising employee and land costs have diminished China’s attractiveness as a destination for foreign investors, with labour-intensive manufacturers leaving for other Asian countries, HSBC Holdings Plc said in a report last month. Inbound investment dropped 3.7 percent last year as economic expansion was the weakest since 1999.

“Foreign enterprises are saying, ‘OK, China’s not growing as fast as in the past, maybe we should pull back a little bit,’” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said. “The big picture is that Chinese growth potential is being lowered by less appetite by foreign businesses to move their operations into China.”

At the same time, inflows are likely to rebound by 4.5% this year as businesses realize growth is improving and the nation won’t have a “hard landing,” Kowalczyk said.

Commodities - Gold traded little changed near a six-month low in London as investors weighed signs of economic improvement against stronger physical bullion demand, before the U.S. central bank releases minutes of its latest meeting.

“Bullion’s safe-haven properties as well as its traditional use in inflation hedges are irrelevant at this point,” Andrey Kryuchenkov, an analyst at VTB Capital in London, wrote in a report. “The market’s attention is set to turn to the Federal Open Market Committee’s January minutes.”

Spotlight on: Fund Manager global allocation survey

Global fund managers’ expectations of stock market returns in the U.S. have fallen to their lowest since 2008, according to research by Towers Watson.

The professional services firm’s latest investment manager survey shows that asset allocators expect U.S. equities to deliver returns of 7% during 2013. This is down from the expected 8% in 2012 and is the lowest level recorded since the poll’s inception in 2008.

Equity return expectations have also fallen for Australia, moving from 7% to 6%, but rose in all other major regions.

Investors expect the U.K. and Japanese stock markets to advance 6% in 2013, both up from 5%, the eurozone is tipped for 7% returns, up from 6%, and China is expected to return 10%, up from 7.8%.

But despite their muted outlook for the U.S., this country is the preferred investment target for global fund managers. Asset allocators have a preference towards U.S. and China and away from the eurozone.

Towers Watson global investment committee chairman Robert Brown says: “There are some positive economic signals coming out of the U.S. which, even though driven largely by government policies, seem to be reflected in managers’ view that the U.S. is the region with the most rewarding investment opportunities in 2013, followed by China, the eurozone and frontier markets.”

The survey also reveals that fund managers have adopted a stance of “guarded optimism” with many expecting to keep their portfolio risk levels the same or carry out modest increases during 2013. Investors think equity volatility will sit between 15% and 20% in the major economies this year, which is above the historical average but “somewhat lower” than the range seen in recent years.

Brown says: “Volatile markets and heightened risk awareness continue to make asset allocation very challenging as investors balance priorities like long-term de-risking, short-term market opportunities, rebalancing and maintaining a strategic asset allocation mix.

Towers Watson agrees with the market view that government bonds do not appear to be “great value” at the moment, after yields dropped on the back of central bank policy and safe-haven flows, and argue that equities seem to be better value.

“However, it is challenging to know what to do about it when the goal for many funds is to reduce risk overall and diversify from existing equity holdings,” Brown adds.

“So many funds are buying fewer bonds than before and those which are considering adding risk to their investment portfolios are most often diversifying into alternative assets rather than simply buying equities.”

Economic Summary for the week ended 15th Feb 2013

The Equity Bull Market

Global equity prices this year have added to their late 2012 gains, with many stock markets hitting new cyclical highs.

Some market participants are now claiming that complacency has set in and, thus, stocks are primed for a tumble. While equities are becoming overbought on a short-term basis, the Macro Research Board Risk Appetite Indicator is still positive on a 6-12 month horizon, and expects stock bulls to be well rewarded, while bond bulls face a disappointing year ahead.

Retail investment flows and sentiment gauges have a good record of flagging equity market turning points, as extremes occur just as the tide is set to turn. To this end, a surge of inflows to stock mutual funds in the US during January has raised the fear that the bull run is nearing an end.

Over the past year, there have been near-record outflows from equity funds, while bond funds have received near record inflows over the same period. While there has clearly been a lift in sentiment recently, one month does not make a trend and it is premature to claim investors are now excessively optimistic and thus "fully invested". Rather, the Macro Research Board Risk Appetite Indicator has risen only to neutral levels, implying that there are no technical roadblocks to higher equity prices.

The equity advance should be choppier than in recent months with markets becoming overbought, but valuations remain compelling (and still very negative for government bonds). Moreover, the fundamental backdrop is slowly improving, with US and emerging economies regaining momentum, and global manufacturing surveys recovering to positive territory in January.

Monetary policies around the world will remain hyper-accommodative until the global economic expansion is decisively back on track. Therefore, there is a compulsive argument that investors should consider staying cyclically positive on stocks, especially relative to bonds.

Asian Stocks

Asian stocks rose after the Bank of Japan maintained its asset-purchasing programme before its governor steps down next month. An unexpected contraction in Japan's economy fuelled speculation policy makers will boost efforts to end deflation.

The MSCI Asia Pacific Index climbed 0.3 percent to 133.64 on Wednesday in Tokyo. About four shares advanced for each three that fell. Hong Kong's market reopened on Thursday while China, Taiwan and Vietnam remain shut for the Lunar New Year.

"Once the new governor takes over, we’ll see an acceleration of the pace of monetary easing," said Shane Oliver, Sydney-based head of strategy at AMP Capital Investors Ltd. "Valuations remain reasonable and monetary policy will remain accommodative. We're starting to transition into a phase where global growth picks up and that transfers through to earnings."

Bank of Japan Governor Masaaki Shirakawa and his colleagues left monetary policy unchanged, while raising their assessment for the economy. Shirakawa and his two deputies step down on 19 March.

EU Transaction Tax

The European Union will propose a far-reaching tax on financial transactions which could be collected worldwide as soon as 1 January next year by the 11 nations that have so far signed up to participate.

The plan by the EU in Brussels, to be outlined shortly, invokes "residence" and "issuance" ties to firms in participating countries, in a bid to prevent traders from escaping the levy by trading outside the tax's zone. The plan says that to escape the proposed tax entirely, firms in other nations would have to entirely cease financial-services business with the 11 EU nations involved.

The proposal marks a new stage in the EU's efforts to raise revenue from the financial sector and curb what it sees as a "patchwork" of local levies. Like a prior, failed proposal for all 27 EU nations, Thursday's plan would set a rate of 0.1% for stock and bond trades and 0.01% on derivatives trades.

The EU estimates the arrangement could raise EUR 30 billion (USD 40 billion) to EUR 35 billion per year. It would need approval by the 11 participants to proceed. All EU nations can sit in on the talks and have the option to join.

The proposals would exclude certain types of trading from the scope of the tax: day-to-day transactions by individuals and non-financial firms; primary offerings of stocks and bonds; and trades with central banks, the European Stability Mechanism and other official institutions. According to EU documents, it also would exclude trades in units of collective investment funds along with certain restructuring operations.

Repurchase agreements would be included, though they would be taxed differently from trades with an outright buyer and seller.

The plan also would include pension funds. The EU intends to argue that a well-designed tax could make pension funds safer by encouraging them to make untaxed purchases on the primary market and hold securities to maturity.

When EU ministers last month allowed the 11 willing nations to proceed with transaction-tax negotiations, the spillover effects on pension funds were a concern.

The Netherlands will wait before deciding whether to sign up, said Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area finance ministers. "One of the criteria for us is our pension funds," he said. "It's very important that these pension funds are not harmed by a new tax."

A weighted majority of EU finance ministers backed the measure in a Brussels meeting last month. The U.K., home to the Europe's largest financial centre, abstained along with Malta, the Czech Republic and Luxembourg. The Confederation of British Industry said yesterday that the tax plan's extended scope will require extensive review.

"The Commission’s FTT proposals are now significantly different from its initial plans, so the impact on growth and jobs must be assessed before proceeding," Matthew Fell, CBI director for competitive markets, said in a statement.

While the U.S. will study the proposal, it doesn't support the European financial transactions tax, according to a U.S. Treasury Department spokeswoman. The tax would harm U.S. investors who bought affected securities, a concern that Treasury officials have raised with their European counterparts, the spokeswoman said.

Demand for Gold

Gold demand rose 3.8 percent in the fourth quarter as Indian purchases jumped, narrowing the first drop in annual usage in three years, the World Gold Council said. India remained last year's biggest buyer, ahead of China.

Global demand gained to 1,195.9 metric tons in the quarter, the most ever for an October-to-December period, from 1,151.7 tons a year earlier, as Indian consumption surged 41 percent, the London-based industry group said today in a report. Jewellery usage rose 11 percent to the highest since the first quarter of 2011, leaving total demand for 2012 down 3.9 percent at 4,405.5 tons. That’s still 15 percent more than the five-year average.

Purchases in India, which the council had expected to be replaced by China as the top buyer, rose toward year-end on seasonal buying and expectations of higher import duties, it said. While holdings in gold-backed exchange-traded products reached a record in December as prices posted a 12th straight annual gain, the metal failed to set an all-time high for the first time since 2007. China's economic growth accelerated for the first time in two years in the fourth quarter.

"The real driver was the rise in jewellery, and within that you saw India being key" in the fourth quarter, Marcus Grubb, managing director of investment research at the council, said. "China's economy is now re-accelerating quite strongly into January and February. Both Indian and Chinese demand will be higher in 2013."

Gold for immediate delivery traded at USD 1,644.65 an ounce in London on Wednesday, down 1.8 percent this year. Prices averaged a record USD 1,717.86 in the fourth quarter, up 2.1 percent from a year earlier and 3.9 percent higher than the third quarter. They averaged an all-time high USD 1,669 in 2012, boosting the value of last year's demand to USD 236.4 billion, the most ever.

Spotlight on Current Fund Manager Sentiment

Confidence in a strong global economic outlook has consolidated while investors have indicated that they see support from current equity valuations after the recent rally, according to the Bank of America Merrill Lynch Fund Manager Survey for February.

A net 59 percent of investors believe the global economy will strengthen in the year ahead, in line with the reading in January, which marked four consecutive months of rising sentiment. The outlook for profits has improved with a net 39 percent of the panel saying that profits worldwide will improve in the coming 12 months, up from a net 29 percent in January. The desire for higher capital expenditure is strong with 48 percent of investors saying that capex is the best use of corporate cash – the highest reading since April 2011.

Investors have indicated that they continue to perceive value in equities in light of strong market performances of early 2013. A net 13 percent of global investors still say that equities are under-valued. At the same time, a net 82 percent say bonds are overvalued, the second-highest level recorded by the survey with the highest coming at the peak of the European sovereign bond crisis in 2012.

Risk appetite has also remained steady month-on-month. Average cash balances in portfolios remain at 3.8 percent, though the net percentage of investors overweight cash has fallen to 2 percent this month from 8 percent in January, the lowest reading since February 2011.

"The continued high level of optimism is a concern and markets may be vulnerable to bad news, but valuation support suggests any correction should be short and shallow, and our core 'Great Rotation' theme remains in play," said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch Global Research. "Investors are striking a balance between the optimism over growth and caution over investment decisions. Investors have so far resisted taking an exuberant stance," said John Bilton, European investment strategist.

Allocations towards equities have held at the highs reached in January. A net 51 percent of asset allocators remain overweight global equities. Within equities, sectoral allocations highlight a bias towards a measured easing of risk appetite with a shift towards defensive assets.

Pharmaceuticals, a traditional defensive sector, has returned to the number one sectoral pick for global investors, having been third in the pecking order a month ago. The proportion of investors overweight the sector rose to 27 percent from 11 percent in January.

Cyclical sectors become less popular. The biggest month-on-month faller was Technology, which saw a negative 12 percentage point swing in the number of investors overweight the sector. Materials also suffered a double-digit fall in the percentage of overweights. The number of respondents overweight Technology, Industrials and Energy also fell.

Japanese equities continue to benefit from a positive shift in sentiment by global investors. A net 7 percent of asset allocators say they are overweight Japanese equities this month, up from a net 3 percent in February. In December, a net 20 percent were underweight Japanese equities.

Local sentiment and risk appetite appears strong. A net 29 percent of Japanese investors responding to the Regional Fund Manager Survey say they are underweight cash, up from a net 5 percent one month ago. Automotives, Technology and Banks are the three most popular sectors domestically.

Global investors have indicated that their positive view towards Japan will continue. A net 21 percent of the panel says that the outlook for corporate profits in Japan is more favorable than for anywhere else, up from a net 4 percent in January. Accordingly, a net 9 percent says that Japan is the region they would most like to overweight. Two months ago, a net 17 percent said Japan was the region they most wanted to underweight.

This positive outlook comes at a time when investors see the yen as weakening, despite the fact that the currency is close to fair value based on the IMF's definition of currency valuation. Four out of ten respondents to the global survey say that USD/JPY rising to 100 is likely to happen before a U.S. debt downgrade, a Spanish bailout or gold breaking through USD 2,000 per ounce.

An overall total of 251 panelists with USD 691 billion of assets under management participated in the survey from 1 February to 7 February.

Economic Summary for the week ended 1st Feb 2013

Greece - Greece's finance minister believes that the worst is over for his country. "There is definitely a glimmer of hope; light at the end of the tunnel," Yannis Stournaras said this week.

As reforms were rushed through and a massive austerity package passed late last year, Greece secured a significant amount of bailout money from its international creditors.

"The probability of Greece leaving the euro - Grexit - is now very small", he told the BBC.

"We have managed to turn the economy around. From the markets, there's much more optimism. Deposits are coming back to banks, the government is paying its arrears to the private sector and there is a change in how Europe sees us. So all of the leading indicators are positive. We are two-thirds of the way towards our target. So people can have hope."

U.K. - London’s leading share index is on course to record its best January performance since 1998, despite fears the U.K. economy could fall into a triple-dip recession later this year.

The FTSE 100 has risen 5.7% so far this month, driven higher by upbeat U.S. earnings figures. The ‘great rotation' out of bonds has been one of the main drivers behind the FTSE's strong start to the year, despite ongoing economic weakness.

The last time the FTSE 100 reached such a level in January was 1998, when the leading index rose from 5,135 to 5,458, representing a 5.9% gain.

Germany - German unemployment unexpectedly declined in January, adding to signs that Europe’s largest economy is gathering pace.

The number of people out of work fell a seasonally adjusted 16,000 to 2.92 million, the Nuremberg-based Federal Labor Agency said.

The Bundesbank said last week the economy appears to be recovering from its fourth-quarter slump, when gross domestic product may have dropped as much as 0.5%. Confidence among entrepreneurs and investors rose more than economists estimated in January and a gauge of activity in service industries climbed to a 19-month high.

Russia - Russia’s economy probably grew last year at the weakest pace since a contraction in 2009 and is set to slow further, casting doubt on President Vladimir Putin’s drive for an investment-led acceleration in output.

Gross domestic product expanded 3.6% in 2012, down from 4.35% the previous two years, according to the median of 18 estimates in a Bloomberg survey. The Economy Ministry estimated growth at 3.5%. The Federal Statistics Service in Moscow will report the data this week.

The slowdown highlights the challenges facing the world’s largest energy exporter as oil prices are forecast to stagnate this year and Europe’s stumbling economy saps demand for Russian commodity exports. The government began an open campaign this month to push the central bank to lower rates, a step the regulator is resisting because of concerns the economy is already growing near its potential.

“We need a government that is more proactive on the reform side,” Peter Westin, chief strategist at Aton Capital in Moscow, said. “The central bank is doing a good job, but the government is definitely behind the curve when it comes to what needs to be done to stimulate the economy.”

Argentina - The tumble in Argentine stocks that sent valuations to an almost four-year low has spurred Morgan Stanley Investment Management and BlackRock to buy.

Timothy Drinkall, whose Morgan Stanley Frontier Emerging Markets Portfolio rose 26% in the past 12 months, said he bought Argentine shares last year after avoiding the country altogether earlier in 2012. By Dec. 31, the nation’s equities accounted for a larger percentage of holdings than were in the fund’s benchmark index.

The MSCI Argentina Index of five companies with operations in the South American country has rebounded 16% this year following a 39% fall in 2012 that was sparked by President Cristina Fernandez de Kirchner’s seizure of the nation’s largest oil company and restriction of imports and capital flows.

“Valuations are at extreme low levels,” said Drinkall, whose frontier fund beat 98% of peers tracked by Bloomberg during the past 12 months. “Sometimes for a market to adjust upwards, things just have to be less bad.”

Philippines - The Philippines has posted better-than-expected economic growth, boosted by the strong performance of the country's services sector.

Its economy grew 6.6% in 2012, the statistical bureau said, beating the government's target of 5 to 6% growth. The bureau added that a "substantial improvement" in manufacturing and construction sectors also aided growth.

Strong domestic demand has helped cushion the impact of a global slowdown on the Philippines' economic growth.

"The pace of Philippine growth has consistently surprised on the upside in the past year, as the economy displays resilience against global headwinds and is driven primarily by domestic engines," said Radhika Rao, an economist with Forecast Pte.

Spotlight on: The U.S. economy heading for recession, or a rebound?

The headline news from the U.S. this week was that gross domestic product had contracted in the fourth quarter. However, many economists and market commentators suggest that the headline does not necessarily tell the full story and that in fact, the U.S. economy is due more of a rebound than a recession.

The economy will bounce back in the current quarter after cuts to defence spending and reducing inventory growth adversely affected gains for consumers and businesses in the final three months of 2012, according to economists at JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley. Businesses probably will rebuild stockpiles while consumers and companies keep on spending.

“It would be a mistake to view this drop in GDP, driven by temporary corrections in defence spending and inventories, as a possible warning of recession,” Nigel Gault, chief U.S. economist for IHS Global Insight in Lexington, Massachusetts, said. “We expect GDP growth to rebound to around 2% in the first quarter.”

The expansion will stay on course thanks to a “mounting” housing recovery, a steadily improving job market and reviving demand for U.S. exports, said Mark Zandi, chief economist for Moody’s Analytics Inc. He sees GDP expanding 2.1% in 2013, after rising 2.2% last year.

The 0.1% decline in output in the final three months of the year was the economy’s worst performance since the second quarter of 2009, when the U.S. was still technically in a recession, according to figures from the Commerce Department in Washington.

After stripping out the inventory and defense data, the“tone of the report was positive,” said Peter Newland, an economist in New York for Barclays Plc. Consumer spending growth picked up to 2.2% from 1.6% in the third quarter, while business investment accelerated.

The steep drop in military outlays and restrained inventory building last quarter partly was a payback for the previous three months, when they both added to GDP. The slowdown in stockpiling also stemmed from supply-chain disruptions from superstorm Sandy.

Taking the two quarters together puts the “underlying” growth rate at about 1.5%, economists David Greenlaw and Ted Wieseman at Morgan Stanley in New York said in a note. That’s the pace they forecast for the first three months of 2013.

“Growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors,” the Federal Reserve said at the conclusion of a two-day meeting in Washington this week. “Household spending and business fixed investment advanced, and the housing sector has shown further improvement.”

An improving job market and rising home prices should alleviate the effects of higher payroll taxes. Government figures to be released on Friday are projected to show that employers added 165,000 workers to payrolls in January after a gain of 155,000 in December, according to the median forecast of economists surveyed by Bloomberg.

The housing revival is also a plus for the economy. Homebuilding climbed 11.9% last year, the best performance since 1992.

“In the United States, we’re becoming increasingly optimistic,” Michael DeWalt, a spokesman for Peoria, Illinois-based Caterpillar Inc. , the world’s largest maker of construction and mining equipment, said. “We expect U.S. housing industry to help the economy in 2013.”

The S&P/Case-Shiller index of property values in 20 U.S. cities increased 5.5% in the year through November, the biggest gain since August 2006, according to data released on Jan. 29.

Furthermore, a strengthening world economy also should bolster American exporters.

China reported economic growth accelerated in the fourth quarter for the first time in two years, raising prospects that a regional lift will fuel demand for U.S. goods. Developing nations are projected to expand 5.5% in 2013, more than last year, while Europe stabilizes, according to projections from the World Bank.

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.’

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.”

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.

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.