Tensions rising, Republicans and Democrats focus on debt ceiling

 "The White House on Monday reiterated that President Barack Obama would not negotiate with Republicans over the threat of a debt default, sticking to its line as stock prices fell and a government shutdown moved into its second week.

But White House National Economic Council Director Gene Sperling did not rule out a short-term increase to the borrowing cap, such as two or three weeks, which could offer more time for an agreement. Speaking at a Politico breakfast, he said that while the administration prefers an increase that would last as long as possible, the length of the increase is Congress's decision.

"The longer the debt limit is extended, the greater the certainty for our economy," Sperling said. "That said, it is the responsibility of Congress to decide how long and how often they want to vote on doing that."

Conservative Republicans in the House of Representatives have resisted funding the government for the current fiscal year until they extract concessions from Obama that would delay or defund his signature healthcare law"

Source:  Reuters

How Emerging Markets Can Get Their Groove Back (will continue)

After a decade of high growth and a swift rebound after the collapse of U.S. investment bank Lehman Brothers, emerging markets are seeing slowing growth. Their average growth is now 1½ percentage points lower than in 2010 and 2011. This is a widespread phenomenon: growth has been slowing in roughly three out of four emerging markets. This share is remarkably high; in the past, such synchronized and persistent slowdowns typically have only occurred during acute crises.
  Our analysis attributes the slowdown in part to cyclical forces, including softer external demand and in part to structural bottlenecks, for example in infrastructure, labor markets, power sector. 
  The current slowdown raises the question of whether emerging markets can bounce back to the growth rates seen in the last decade.
 Strong external demand and developing supply chains brought higher growth through trade and specialization in the 2000s.Countries that managed their economies well in the “good times” had more firepower to deal with the global financial crisis. Conversely, economies with large external and financial imbalances, including much of emerging Europe, are going through a painful deleveraging process and have experienced a more uneven recovery.
  Taking into account the fact that cheap financing and rising commodity prices over the past decade raised investment and growth in many economies, and the fact that those favorable tailwinds are fading, we estimate that emerging market’s “potential” growth needs to be revised down. IMF forecasts for growth five years ahead are down by 0.7 percentage points compared to October 2012. Market analysts have made similar downward revisions.

By Kalpana Kochhar and Roberto Perrelli
     FMI

India looking for deals for LNG and nuclear-power technology with Russia

     According to an article published today in the Wall Street Journal:
"India is looking to finalize multibillion-dollar deals on liquefied gas and nuclear-power technology with Russia before Prime Minister Manmohan Singh's visit to Moscow later this month, a senior government official said Friday.

India's trade with Russia totaled just over $11 billion in 2012, nearly a quarter more than the previous year, according the website of the Indian Embassy in Moscow. That was significantly smaller than India's bilateral trade of $65.78 billion with China and $61.35 billion with the U.S.

Moscow and New Delhi have a target to nearly double the value of their trade to $20 billion by 2015. Russia's exports to India include fertilizer, nuclear-power technology, iron and steel, and crude oil, while India's exports to that country comprise mostly pharmaceuticals, electrical goods, tea and coffee.

The deals that India is looking to sign include one on a liquefied natural gas project in the Yamal region. The region has proven gas reserves of more than 20 trillion cubic feet.

The government official said a consortium comprising India's ONGC Videsh Ltd., Indian Oil Corp. and Petronet LNG Ltd. is talking to OAO Novatek for acquiring a stake in the Yamal liquefied natural gas project and signing a long-term gas-supply agreement.

The Indian group has been in talks for nearly four years now for a stake, but without any headway. Novatek owns 50% of the project, with Total SA and China National Petroleum Corp. holding 20% each.

The Yamal LNG project holds a license to develop the South-Tambeyskoye field, located at the northeastern portion of the Yamal peninsula in Russia's western Arctic region. It is also building an onshore LNG facility near Sabetta on the Yamal peninsula".

Meet Liu He, Xi Jinping's Choice to Fix a Faltering Chinese Economy

 In an article published today in the Wall Street Journal:
"China is turning to the quiet, 62-year-old Mr. Liu, a Communist Party apparatchik known to colleagues and Western leaders as an economic reformer, to lead development of the latest blueprint for China's economy. It is to be unveiled next month at a closed-door session of the top 450 party officials.

The session, held every five years, in the past has been a vehicle to announce some of China's biggest economic changes. This year's meeting is crucial because of fears China's economy is losing its fire. Gross domestic product expanded 7.5% year-over-year in this year's second quarter, down from 14.8% in the second quarter of 2007.

Without substantial changes in the next five years, International Monetary Fund economists estimate, Chinese growth could fall to an average of 4% annually through 2030.

The goal of China's top leadership, repeated by Mr. Xi and other officials, is to attempt to create a more U.S.-like economy: Promote a consumer culture—encourage Chinese citizens to buy more of the cars, clothes, appliances and electronic gizmos that China currently exports—while also encouraging innovative private firms.

"China must change its mode of economic development more quickly," including increasing domestic demand, Mr. Liu He wrote in a 2011 paper. He used the document to take a swipe at party leftists. The party, he said, must be "a ruling party rather than a revolutionary one," referring to its history of trying to transform China through central planning and by mobilizing Chinese peasants and students.

"Liu He is an example of Chinese pragmatism," says Michael Spence, a Nobel-prize winning economist at New York University whom Mr. Liu has turned to for economic advice. "He thinks markets are important mechanisms for getting things done efficiently," he says, but "they're not religion to him."

  In an email response to The Wall Street Journal, Mr. Liu's office said, "Director Liu He thinks that there are a lot of misunderstandings about his role in making China's economic policies. In fact, China's economic policies are made via a collective decision-making system, and the role played by any individual is rather limited."

Zeng’s ‘Last Supper’ Sells for Record $23.3 Million at Sotheby’s Auction

"A painting by Zeng Fanzhi sold for US$23.3 million at a Sotheby's auction on Saturday night in Hong Kong, setting a new record price for a work by an Asian contemporary artist.

Titled “The Last Supper” and inspired by the Leonardo da Vinci’s 15th-century mural of the same name, the large painting­–almost 13 feet wide–was sold after a bidding war that lasted over 10 minutes between two buyers on the phone. A crowd of 600 people in a packed room at the Hong Kong Convention and Exhibition Centre applauded several times as the prices slowly escalated up to the final result.

The winning bidder, who paid more than the presale estimate of 80 million Hong Kong dollars (US$10.3 million) was not identified by the firm.

The work, sold by Swiss collectors Guy and Mariam Ullens, broke the previous Asian contemporary record set by Japanese artist Takashi Murakami’s “My Lonesome Cowboy.” That work, a sculpture, sold for US$15.1 million at a Sotheby’s auction in 2008'.

Source: The Wall Street Journal

Airbus announced its first jet order from Japan

Airbus announced its first jet order from Japan Airlines Co Ltd  on Monday, breaking open the last big aviation market dominated by Boeing, in a move that suggests the U.S. company may pay for the 787 Dreamliner's troubled debut.

The landmark deal for 31 wide-body A350 jets with a combined $9.5 billion list price follows an intense battle between the planemakers as JAL and domestic rival ANA Holdings Inc seek dozens of new long-haul jets over the next decade.

The agreement, also a potential blow to a Japanese aerospace industry that builds large portions of Boeing's jets, includes options for another 25 of the A350s.

Source: LiveCharts

Wall Street drops as Washington deadlock continues

U.S. stocks dropped on Monday as the partial U.S. government shutdown dragged on with no signs politicians were willing to relax positions over the debt-ceiling limit or budget impasse.

Republican House Speaker John Boehner vowed on Sunday not to raise the U.S. debt ceiling without a "serious conversation" about what is driving the debt, while Democrats said it was irresponsible and reckless to raise the possibility of a U.S. default.

The United States faces a deadline of October 17 to raise its $16.7 trillion debt limit or risk an unprecedented debt default. The two issues of emergency funding for the government to operate and increase the U.S. borrowing authority started out separately in the House but have been merged by the pressure of time.

Source: LiveCharts

REPSOL MAY SELL MOST OF GAS NATURAL STAKE

Singapore´s sovereign wealth fund - Temasek - and Chinese petrochemical giant Sinopec have approached Spanish oil major Repsol about its stake in natural gas outfit Gas Natural, according to people close to the matter cited by the Financial Times. 

The Spanish firm´s managememt is said to be looking to sell 25 percentage points of its 30% stake, advised by Deutsche Bank and Citigroup. 

However, the company´s Asian suitors will have to see off the other parties who have also expressed their own interest in the stake. Amongst others Repsol is known to have had contact with EdF, GdF Suez, Algerian outfit Sonatrach, ENI and Mexican group Alfa. 

The rationale behind the stake sale is to help fund Repsol´s medium-term strategy to raise its reserve replacement ratio to 120% and follows the sale of its liquefied natural gas unit to Royal Dutch Shell, in February. The latter means that it can no longer hope to muster synergies between it and Gas Natural. 

However, Spanish daily Expansión wrote Monday that Repsol´s intentions had now changed somewhat. It is reported to now be mulling retaining Gas Natural´s electricity assets in Spain, but not those overseas, so as to then merge them with its own while at the same time hiving off the rest to a third party. 

Source:LiveCharts

World Bank cuts Growth Forecast for China and East Asia

"Developing East Asia is expanding at a slower pace as China shifts from an export-oriented economy and focuses on domestic demand. Growth in larger middle income countries including Indonesia, Malaysia, and Thailand is also softening in light of lower investment, lower global commodity prices and lower than expected growth of exports," the World Bank said in its East Asia Pacific Economic Update, which was released on Monday. 

According to the report, the World Bank cut forecasts for developing countries in the region to 7.1% in 2013 and 7.2% in 2014, from its prior projections last April of 7.8% and 7.6%, respectively. 

The lender also dropped its forecasts for China to 7.5% this year and 7.7% next year from its prior estimates of 8.3% and 8%, respectively.

LiveCharts

Greece may examine swapping its bailout loans with a 50-year government bond

Greece may be examining the possibility of swapping its bailout loans with a 50-year government bond as a means of achieving debt relief once it reaches a primary surplus this year. 

"Among the proposals being examined at a technical level as part of debt relief measures is issuing a long-term bond with a maturity of up to 50 years to possibly replace the bilateral loans from the first bailout," Reuters cited an official close to the negotiations as saying. 

Repayment of the bailout loans is scheduled to begin in 2025 but this swap would extend repayment by decades according to the report. 

Source: LiveCharts

Stephen Roach: How Big Is The Wealth Effect from Easy Money?

  "The Federal Reserve continues to cling to a destabilizing and ineffective strategy. By maintaining its policy of quantitative easing (QE) – which entails monthly purchases of long-term assets worth $85 billion – the Fed is courting an increasingly treacherous endgame at home and abroad.                                                                    By now, the global repercussions are clear,developing economies with large current-account deficits,namely
Brazil,India,Indonesia, Turkey and South Africa, which benefited the most from QE-induced capital inflows, and they were the first to come under pressure when it looked like the spigot was about to be turned off. 
  When the Fed stepped back in its announced tappering of its buying program of long term securities,they enjoyed a sigh-of-relief rally in their currencies and equity markets.

 But there is an even more insidious problem brewing on the home front. 

 It has shifted its focus from the price of credit to influencing the credit cycle’s quantity dimension through the liquidity injections that quantitative easing requires. In doing so, the Fed is relying on the “wealth effect” – brought about largely by increasing equity and home prices – as its principal transmission mechanism for stabilization policy.

There are serious problems with this approach. First, wealth effects are statistically small; most studies show that only about 3-5 cents of every dollar of asset appreciation eventually feeds through to higher personal consumption. As a result, outsize gains in asset markets – and the related risks of new bubbles – are needed to make a meaningful difference for the real economy.

   Second, wealth effects are maximized when debt service is minimized – that is, when interest expenses do not swallow the capital gains of asset appreciation. That provides the rationale for the Fed’s zero-interest-rate policy – but at the obvious cost of discriminating against savers, who lose any semblance of interest income.

   Third, and most important, wealth effects are for the wealthy. The Fed should know that better than anyone. After all, it conducts a comprehensive triennial Surveyof Consumer Finances(SCF), which provides a detailed assessment of the role that wealth and balance sheets play in shaping the behavior of a broad cross-section of American consumers.

In 2010, the last year for which SCF data are available, the top 10% of the US income distribution had median holdings of some $267,500 in their equity portfolios, nearly 16 times the median holdings of $17,000 for the other
 90%. Fully 90.6% of US families in the highest decile of the income distribution owned stocks – double the 45% ownership share of the other 90%
 The problem continues to be the crisis-battered American consumer. In the 22 quarters since early 2008, real personal  consumer expenditure, which accounts for about 70% of US GDP, has grown at an average annual rate of just 1.1%, easily the weakest period of consumer demand in the post-World War II era.
Trapped in the aftermath of a wrenching balance-sheet recession, US families remain fixated on deleveraging – paying down debt and rebuilding their income-based saving balances. Progress has been slow and limited on both counts.

QE benefits the few who need it the least. That is not exactly a recipe for a broad-based and socially optimal economic recovery".

Stephen Roach

Project-Syndicate