Senate Rejects House Spending Measure as Shutdown Looms

  In an article published in the Wall Street Journal of today the story of the showdown between
Democrats and Republicans continues:
"The Senate rejected a last-minute spending measure approved over the weekend by the House, tossing the fight back into the lap of House Speaker John Boehner with just hours to go until federal agencies begin cutting off services and furloughing workers.
The vote was 54-46 along party lines to reject a one-year delay of the health law, which was attached to a plan to fund the government through Dec. 15. The quick rejection left the nation on the brink of a partial government shutdown when the new fiscal year begins on Tuesday.
Senate Republican leaders were polling their members to find out whether they would support a one-week extension of funding. It is just one of several options being advanced. They were also polling members about the separate bill passed by the House to keep paying military personnel even if there is a shutdown.
With time running out, some of the more veteran House Republicans began calling on GOP leaders to drop the fight over the spending bill and shift the battle to a different front.

"We have tried robustly on the spending bill and it hasn't borne fruit," said Rep. Doug Lamborn (R., Colo.), now in his fourth term. He said Republicans could use other tactics to fight over the new health law, but "for this week we may have to give up."

"I would certainly discourage the Republican leadership from launching another volley back over to the Senate," Rep. Charlie Dent (R., Pa.) said on CNN. He said that "now that we've sent over two volleys to the U.S. Senate and they've rejected both, I think now it's imperative that we just fund the government."

Senate Republican leaders were polling their members to find out whether they would support a one-week extension of funding. It is just one of several options being advanced. They were also polling members about the separate bill passed by the House to keep paying military personnel even if there is a shutdown.

Argentina increases trade with China

Argentina is making room for China in its trade, decreasing, as a consequence, purchases from Brazilian companies. Argentine imports from the Asian country grew 64% between 2010 and 2013, driven by government orders of capital goods. Last month, a Chinese company defeated Brazilian contractors in Argentina’s current major public work, a deal of $4 billion. Both in the case of public works and in imports, the key for the Chinese breakthrough is lower-cost financing. 

Valor Economico

Valor International

Obama To Republicans:Back away from Government shutdown

In the middle of the showdon between Republicans and Democrats over a short-term budget resolution, President Barack Obama called on House Republicans, to set aside the short term
politics.

"He urged Republican lawmakers to back away from plans to attach amendments to a short-term resolution, such as stripping funding for his health-care law.

"We certainly don't allow domestic policy differences, on issues that are unrelated to the budget, to endanger not only our economy but the world economy," Mr. Obama said.

Mr. Obama's remarks came after both Republicans and Democrats dug in for a last-ditch battle in a budget fight that has brought the nation within hours of the first partial government shutdown in almost two decades".

Source: The Wall Street Journal

Berlusconi:L'esperienza di governo è finita

«La nostra esperienza di governo è finita» È ultimativo Silvio Berlusconi al termine della riunione coi suoi a Palazzo Grazioli, dove ha anche chiarito di aver «deciso lui» di chiedere ai ministri del Pdl di rassegnare le dimissioni dal governo.
Fine dei cinque mesi dell'esecutivo Letta, dunque? Sì, anche se Berlusconi garantisce che: « il decreto Iva sarà approvato. Abbiamo le coperture per 10 miliardi: no all'aumento di benzina e simili. È una follia l'aumento dell'Iva». E comunque «la linea politica economica di Letta minimalista e rinunciataria». Il Cavaliere dice «no a governicchi con maggioranze raffazzonate, transfughi e con gente scappata di casa». E chiede pure le dimissioni dei sottosegretari. Insomma, approvati i provvedimenti, «bisognerà tornare a votare»
Berlusconi torna sui motivi della scelta: «Ho deciso nella notte. Perché gli italiani non capivano come facevamo a stare al governo con la sinistra se i nostri deputati si erano dimessi». E continua: «Dobbiamo spiegare ai nostri cittadini le nostre ragioni Forza Italia non è una forza estremista e nessuno mi ha costretto a far dimettere i ministri». E, riguardo al clima agitato all'interno del partito, commenta: « Dobbiamo restare uniti, non dobbiamo dare all'esterno l'impressione che sta dando il Pd, i panni sporchi si lavano in casa. Quello che hanno fatto i ministri lo hanno fatto in buona fede ma abbiamo chiarito tutto.»
 E, a fine riunione, mentre la quasi totalità dei parlamentari del Pdl annuncia che voterà no alla mozione di fiducia del Premier l'unica voce contro sembra quella di Cicchitto: «O congeliamo le dimissioni dei ministri e, così facendo, vengono meno le ragioni per un voto di fiducia oppure il Pdl deve votare la fiducia». Così Fabrizio Cicchitto al termine della riunione del Pdl, sottolineando che questo è l'unico modo per fare ciò che Berlusconi ha detto e cioè votare delle misure in pochi giorni. E poi ha aggiunto: «Mi sarei augurato che all'intervento di Berlusconi fosse seguito un dibattito, anche convocando un'altra riunione domani. Ma mi è stato detto di no».

Corriere della Sera

Senate Democrats say they will defeat Obamacare delay

Democrats who control the Senate were confident that they would defeat Republicans' efforts to delay "Obamacare" health reforms on Monday and send a "clean" bill to keep the federal government operating back to the House of Representatives.

As a midnight shutdown deadline loomed, senior Democratic aides said the Senate would take a simple majority vote shortly after 2 p.m. (1800 GMT) to strip two Republican amendments from the funding measure - one that would delay the healthcare reforms and another that would repeal a tax on medical devices that helps fund health insurance subsidies.

Democrats control the 100-seat Senate with 54 votes, including two independent senators.

Source: REUTERS

FMI: Emerging Markets Best Response to International Capital Inflows

Capital flows to emerging market economies are a source of particular and enduring concern to many policymakers. As seen in the 1997-98 Asian crisis, surging inflows can fuel excessive credit growth, expanded current account deficits, appreciated exchange rates and a loss of competitiveness—followed by painful adjustment when the inflows reverse. Countries often fight these buffeting winds with tight controls on exchange rates, capital flow management and aggressive interest rate movements.
 Instead of trying to resist foreign inflows, countries can bend. We find that the countries that proved to be more resilient to the turbulent gusts of international capital flows were not necessarily those that controlled the inflows, but those where foreign inflows were balanced by offsetting resident outflows.

What distinguishes countries where volatile capital inflows are balanced by offsetting resident outflows from those where they fuel destabilizing current account booms and busts?

We find that these countries typically have:

• strong institutions, such as independent inflation targeting central banks as well as fiscal policy rules that result in lower inflation and more countercyclical fiscal policy outcomes
• stronger financial supervision and regulation
• more flexible exchange rate regimes and limited restrictions on capital flows

 Many of these economies were once just as vulnerable to international capital flows as some of today’s economies. But, through a series of policy choices, they have been able to encourage much greater resilience in their economies.

Each of the countries we study improved their prudential regulation to limit excessive risk taking by domestic financial institutions. The countries also took steps to encourage the development of their domestic financial systems. For example, in Chile, allowing pension funds to invest more of their assets overseas provided the catalyst for the development of foreign exchange derivatives markets that allowed both the pension funds and domestic firms to better manage their exposure to exchange rate fluctuations. While in Malaysia there was a very deliberate and staged process whereby domestic financial strength was built before gradual re-opening of the financial account.

Importantly, floating exchange rate regimes appear to be a key element in encouraging domestic residents to buffer foreign capital inflows. In countries with managed exchange rates, domestic residents commonly react in similar ways to foreign investors – moving capital overseas when foreigners are withdrawing and keeping capital at home when foreigners are piling in. Conversely, in countries with more flexible exchange rate regimes, exchange rate fluctuations seem to serve to encourage domestic residents to repatriate funds when foreign residents are leaving.

Source: FMI

Behind Iran's overtures to Washington lie pent-up pressures for change - from sanctions and internal dissent to regional turmoil

Behind Iran's overtures to Washington lie pent-up pressures for change - from sanctions and internal dissent to regional turmoil - that are shaping a rare chance to end decades of hostility.

For new President Hassan Rouhani, speed is of the essence.

Sanctions are squeezing Iran's oil exports, economic misery is palpable, Arab Spring contagion poses a persistent threat and involvement in Syria's civil war is a drain on hard-pressed resources.

As well as addressing these pressures,Iran may be hoping its softer tone in nuclear talks with the West will bring longer term opportunities, diplomats say.

Ultimately Tehran desires Western recognition of what it sees as its legitimate interests in the wider region - in Syria and Lebanon where Shi'ite Muslim Iran supports the interests of its co-religionists and in its 'backyard' the oil-producing Gulf, where Iran seeks to expand its influence.

For now it is the threats that appear uppermost in the thinking of the Islamic Republic, as it surveys its diminished ecoonomic and regional upheaval.

Iran is adept at surviving economic pressure, but sanctions have bitten deeply. Existing U.S. and EU measures have reduced Iran's oil exports by more than half from pre-sanction levels of about 2.2 million barrels per day (bpd), costing Tehran billions of dollars in lost revenue a month.

The U.S. Congress could soon pass a bill to squeeze Iran's oil exports further. Deeper cuts in oil sales, if accomplished, could worsen the damage Western sanctions have already done to Iran's economy, which suffered a loss of about $26 billion in petroleum revenue in 2012 from a total of $95 billion in 2011; soaring inflation; and a devaluation of its currency, the rial.

In April, the International Monetary Fund forecast gross domestic product would shrink 1.3 percent in 2013 after contracting 1.9 percent last year.

Source: Reuters

U.K. "Help to Buy" Scheme brought forward

Banks accounting for about a third of the mortgage market will start offering taxpayer-subsidised mortgages in just over a week after the Government brought forward the launch date of its controversial Help to Buy scheme by three months. On the eve of the Conservative party conference in Manchester, David Cameron said that the state-backed lenders, Royal Bank of Scotland and Lloyds Banking Group, have signed up to the scheme and the launch date has been brought forward from January. Help-to-Buy will initially be available under the NatWest, RBS and Halifax brands but a Tory spokesman said that other banks are expected to take part over time, The Daily Telegraph report


  Source:  Livecharts

SANTANDER COULD CLOSE IN ON ALTAMIRA REAL ESTATE DEAL

Spanish lender Banco Santander may be close to selling its real-estate company Altamira Real Estate, in what has been labeled the "real-estate deal of the year" by Spanish daily Expansión.

Non-binding offers are expected in the coming days and may include bids from large international funds such as Cerberus, Centerbridge, Apollo and Lone Star.

The Altamira deal is dubbed 'project bison,' after the prehistoric paintings located at the Altamira caves near the northern Spanish city of Santander, from which the group´s Chairman, Emilio Botín, hails.

Up to 10 foreign investors are reported to be interested in the company, including its real-estate management platform, with its approximate 300 employees and an exclusive contract for the sale of apartments for a decade.

Several Spanish banks have been letting go of their property management operations in order to refocus on their core business.

"These types of deals are a very good sign - no one buys a platform to stay in a country for a year," said Fernando Acuna of property management firm Taurus Iberica.

"These will give the funds a deep knowledge of what is going on (...) and allow them to manage other assets which they might buy but which don't belong to the bank."

Shares of Banco Santander were down 1.5% to €5.99 on Monday morning in Madrid.

Source: LiveCharts

EUROZONE INFLATION LEAVES DOOR OPEN TO ECB RATE CUT

Eurozone inflation continued to drop in September and is currently at its lowest reading since early 2010, leaving room for the European Central Bank (ECB) to embark on further quantitative easing. 

Specifically, headline inflation for the region dropped to 1.1% year-on-year during the month, from the prior month´s reading of 1.3%. 

The consensus estimate had been for an advance of 1.2%. 

The ECB's target rate is "below, but close to, 2% inflation". In this context, Capital Economics commented that the data showed that "the ECB has plenty of scope to loosen monetary policy further. At the very least, further action to boost liquidity in the banking sector looks increasingly likely." 

The ECB will take its next monetary policy decision on Wednesday.

Source: LiveCharts

Showdown in the U.S.,political troubles in Italy and downward revision of China's PMI puts global markets under pressure

U.S. stock futures and the dollar came under pressure on Monday as a shutdown of the U.S. government seemed ever more likely, while the euro had political troubles of its own as the Italian government teetered on the edge of collapse.

Hardly helping was a surprise downward revision to activity in China's factory sector. While the final HSBC Purchasing Managers' Index (PMI) did edge up to 50.2 in September, that was well down on the preliminary reading of 51.2.

The end result was a shift out of equities and toward safe havens including the yen, Swiss franc and some sovereign debt. U.S. Treasuries also benefited from a view that the economic damage done by a government closure would be yet another reason for the Federal Reserve to keep interest rates low for longer.

Source: Reuters

China funds trim suggested stock, cash allocations, raise bonds

 Chinese fund managers trimmed their suggested equity and cash holdings for the next three months, while raising bond allocations on fears that a rally in high-growth stocks has outpaced fundamentals, according to a Reuters poll.

Average recommended stock weightings in a portfolio fell to 83.8 percent in September from 85 percent a month earlier and to 9.9 percent from 10.7 percent for cash, while climbing to 6.4 percent from 4.4 percent for bonds, according to a monthly poll of eight China-based fund managers conducted last week.

"There is a risk that stocks that have rallied strongly, particularly those driven by several popular investment themes earlier this year, could correct as we go into year's end," said a Shanghai-based fund manager.

The ChiNext Composite Index .CHINEXTC of mainly technology-related high growth start-up counters has surged nearly 70 percent in 2013 and currently trading at 52 times price-to-earnings, outshining the large cap-focused CSI300 . The large-cap index is up 19 percent from its June low but is still down 5 percent so far this year and is trading at 14.5 times.

Some respondents also said some good opportunities could emerge if initial public offerings in the A-share market resume at moderate valuations. Investors have suffered when IPOs were priced at excessively high valuations in the past, only to see share prices dive on listing debuts.

IPOs in the mainland have been suspended for nearly a year in a bid to reform the capital raising process with protecting investors' interests among its the regulator's aims.

Source: Reuters

China September final HSBC PMI disappoints

"China's factory sector grew only slightly in September as domestic demand faltered, a private survey showed, an unexpectedly weak outcome that suggests a firm rebound in Asia's economic powerhouse still remains elusive.

The final HSBC Purchasing Managers' Index (PMI) edged up to 50.2 from August's 50.1, figures on Monday showed.

Although a five-month high and showing the sector was growing, the survey was disappointing for investors as it was well below last week's flash reading of 51.2, with domestic orders weaker than preliminary estimates suggested.

New export orders picked up the slack, climbing to 50.7 from 47.2 in August to be above the 50-point mark separating expansion from contraction. After seasonal adjustments, however, the expansion was slight, HSBC said.

The Australian dollar, a proxy for growth in the world's second-largest economy, fell a quarter of a cent on the disappointment that activity was not as strong as hoped.

"The final reading was weaker than the flash and it showed that activity has weakened in the last 10 days," said Tao Wang, an economist at UBS in Hong Kong, adding a rebuilding of stocks by firms that had led the economic pick-up was slowing.

The softer-than-expected final HSBC PMI reading was in line with investor bets that China's economy is stabilizing, even if the revival is feeble and perhaps short-lived. Indeed, parts of the PMI poll suggested the economy is not out of the woods.

Factories cut jobs for the sixth consecutive month in September. And although output and new orders grew in September, HSBC noted the expansion was fractional after seasonal adjustments. In fact, it said some firms reported a contraction in output, citing unstable economic conditions.

"Growth is bottoming out on Beijing's mini-stimulus," Qu Hongbin a HSBC economist said, noting however that growth in domestic demand was unchanged from August.

Beijing's support and firmer growth in the United States, China's second-biggest export market, have put a floor beneath China's economy, which has slowed in 12 of the last 14 quarters".

Source: Reuters

Precious Metals Prices 09/29/2013 10.18p.m. Eastern Time

Gold Price Futures          3 months        US$   1,339.41

Silver Price Futures         3 months        US$        21.67

Japan:Boxed in by tax hike, Abe bets on business

Prime Minister Shinzo Abe's long-awaited decision this week on whether to go ahead with the first stage of doubling the sales tax is a major political gamble that proved career-ending for his predecessors, analysts say.

Since sweeping December elections on a ticket to kick-start the world's third-largest economy, the prime minister launched an unprecedented policy blitz - dubbed "Abenomics" - that appears to be taking hold as the economy expands and the stock market roars.

Abe underscored that early success with an upbeat speech to the New York Stock Exchange last week, calling for investors to get on board with his bid to regain Japan's one-time economic glory.

"Japan, as the third-largest economic powerhouse on the planet, will be back in full force again," he promised.

But his decision on hiking the tax levy, seen as crucial to chopping Japan's massive national debt, threatens to sink Abe's growth plans and subsequently his popularity.

Few, however, see the 59-year-old as having much choice, given the size of the national debt, proportionately the worst among the world's richest nations at more than twice the size of the economy.

The International Monetary Fund, among others, has been calling on Tokyo to fix its books, after credit rating agencies lowered their ratings on Japan.

NewsOnJapan

Japan's consumer prices up 0.8% in August

Japan's consumer prices rose 0.8 percent in August from a year earlier on higher gasoline and other energy prices, posting the highest margin of increase since November 2008, government data showed Friday.

The core consumer price index, excluding fresh foods, stood at 100.4 against the 2010 base of 100, the Ministry of Internal Affairs and Communications said. It registered the third straight month of increase.

In addition to rising energy prices, a narrower margin of decline as well as an increase in some durable goods pushed up overall prices, the ministry said.

NewsOnJapan

China Central bank has reiterated policy coordination

China's central bank has reiterated its commitment to a prudent monetary policy while also pledging to make its policy more targeted and coordinated to support the real economy.

"The central bank will fine-tune its policy in a timely and proper manner to seek a balance between stabilizing growth, advancing restructuring, promoting reforms and preventing risks," said a statement released on Sunday after a regular meeting of the People's Bank of China.

The bank vowed to optimize the distribution of financial resources to create a steady environment for China's ongoing economic restructuring and upgrading.

It also reiterated its pledge to push forward market-oriented reforms in its interest rate and exchange rate mechanisms.

The latest comments came amid the country's increasing efforts to deepen financial reforms.

China on Sunday opened a pilot free trade zone in Shanghai, which will be a test bed for a wide range of market-oriented reforms, including easing restrictions on finance, investment and trade, a move widely hailed as a crucial step in the country's reform and opening up.

Source: Xinhua

China's market feels muscle of first tourism law

"The cost of a four-day package tour to Hong Kong was about 2,500 yuan (around 400 U.S. dollars) previously, but it is as much as 5,000 yuan during the holiday," said Liu, 27, who works for an Internet company in Beijing.

The bad news for people of mainland China  is that both package and individual tour prices are expected to skyrocket from Oct. 1 when China's first tourism law comes into force.

These price rises are, in a large part, because of the law, but they are certain to unleash a torrent of gripes and acrimony in an already complaint-riddled industry. The hope is that the new regulations will help the industry to regulate iteslf in the long run.

The law includes provisions to counter the practice of zero, or even negative, fare tours. These are tours sold at or below cost price to lure ingenuous travelers who are then forced to purchase goods or tip guides while on holiday.

Travel agencies will be prevented from selling services at unreasonably low prices, or to profit by arrangements with designated stores. Travellers will not be obliged to accept any paid extras other than those specifically mentioned in contracts.

For time immemorial tour guides and travel agencies have been suspected of sharing profits with owners of stores, of taking commissions and kickbacks, but this will be illegal as of October.

"The domestic travel agency arena is a very competitive one. It's hard for travel agents to survive through low-price services alone," said Li Guang, general manager of the compliance office of the China Youth Travel Service (CYTS), one of China's leading travel agencies.

The law also address the problems of unfair competition and wanton price hikes which have bedevilled the travel industry for years and exasperate the public.

"These are deep-rooted problems which attract a lot of complaints. The the key to fixing these problems lies in strict implementation of the law," said Li Xinjian, a professor with the tourism management department in Beijing International Studies University.

Tourism insiders argue that the new round of price rises shows China's travel market returning to normal.

"Price wars were vicious in the past, while the recent rises are a sort of reasonable return to fair competition," said Wang Yanqi, director of the Research Center of Leisure Economy of China.

China's domestic travel market is the world's largest. Domestic tours totalled 2.96 billion in 2012, according to the China National Tourism Administration.

"The new law is not to impose restrictions on tourism shopping, but to target guides or agencies charging hidden commissions," said to Li Guang.

There are also calls for strict supervision of prices at popular locations.

"If prices were at normal levels in tourist attractions, there would be less scope for illegalities such as forced purchases and outrageous commissions," Wang Qiyan added.

Source: Xinhua

Faith in Economic revival put to test

Yet another budget showdown in Washington and yet another government crisis in Italy herald more turbulence for a global economy growing below trend. On top of these problems, banks and households in Europe are still shedding debt, several big emerging economies are slowing and markets are struggling to decode the Federal Reserve's policy signals. Yet there is a guarded confidence at some banks that a recovery, not powerful but worthy of the name, might finally be within reach.

Credit Suisse, for instance, is pencilling in 3.8 percent global growth for 2014, up from 3.0 percent this year and surpassing what it sees as the trend rate of 3.5 percent.

A lessening of fiscal headwinds will be important in allowing the hoped-for pickup in the United States, said John Calverley, head of macroeconomic research with Standard Chartered Bank in Toronto.

"So you should start to see growth moving up well into the 2.5, 3.0 percent range, maybe more, over the next couple of years," he said. The U.S. economy has expanded at an average pace of less than 2 percent in the last four quarters.

But that view could be sorely tested in coming days.

The White House, in its fourth major budget standoff with Congress since 2011, has vowed to veto a bill

approved by the Republican controlled  House of Representatives,to delay Democratic President Barack Obama's landmark healthcare law for a year as part of an emergency spending bill.

Italy's political instability has also revived concerns about its stagnant economy. Centre-right leader Silvio Berlusconi effectively brought down the government of Prime Minister Enrico Letta by pulling his ministers out of the cabinet on Saturday, further delaying agreement on changes intended to reduce debt and revive growth.

Source: Reuters

Brazil:Natural gas production grows faster than oil's

The Brazilian natural gas production growth curve is decoupling from oil’s. Since January 2012, when the country achieved the last monthly record of oil production (2.231 million barrels per day), that indicator has continued to fall and currently stands at 1.974 million barrels/day (11% less than the record level).  In the same period, the country’s natural gas production hit seven monthly records and reached 78.5 million cubic meters per day, 10.4% more than the volume recorded early last year.

According to Marcelo Colomer, an expert at UFRJ’s Energy Economy group, about 85 % of the Brazilian production of natural gas depends directly on oil production, by means of associated natural gas. “The trend is natural gas production becoming a little more independent," he says.

The decoupling of natural gas and oil production will also depend on the successful exploration of areas that will be offered at the 12th Round of Auctions of the National Agency of Petroleum, Natural Gas and Biofuels (ANP). Scheduled for November, the auctions will offer blocks with potential for the development of unconventional resources such as shale gas, whose production is booming with competitive costs in the US.

Gas Energy consulting firm director Marco Tavares also believes the growth of natural gas production in the country. According to him, the expansion of oil and gas is shifting from the Campos Basin to the Santos Basin, where the gas/oil ratio – which indicates the amount of gas produced for the same volume of oil – is greater.

Mr. Tavares says that, in the best case, the Campos Basin produces 80 meters cubic of gas for each cubic meter of oil. The pre-salt layer of the Santos Basin has an average of 220 cubic meters per cubic meter of oil after carbon dioxide is filtered out.

What now is a positive factor may turn into a problem. Brazil will probably double its domestic production of natural gas by 2020, but there is not a market for this energy resource at its current prices, which are considered high.

Source: Valor Economico

Economic Structural Change Vital to Successful Development

When a country shifts from being a largely agrarian economy to one based on services or industry, it is said to have undergone “structural change”. This has happened in some Asian countries, contributing largely to their economic development. Many low-income countries, however, have yet to undergo this 
process of structural transformation.

Harvard University professor of economics, Dani Rodrik. 

All sustained episodes of growth are underpinned by fundamental structural change. Of course, you can get growth spurts because of an improvement in the terms of trade or a sudden burst of capital inflows. But those tend to peter out unless there is the emergence and expansion of new industries, and movement of labor from traditional industries into modern industries. This is the essence of structural change. Without these things happening, a country is not likely to achieve long-term growth.

Asia has been the archetypal example of a traditional model of economic development for those economies with surplus labor and very low productivity levels, which are dependent on subsistence agriculture.

Then, new industries started to emerge, mainly in urban areas, and although still poorly educated, farmers became more productive factory workers. They were able to increase their income, and could send their children to school. This increased productivity has also set in motion a self-sustaining process of improvement in human capital skills.

It has happened in many Asian countries—Japan being the earliest example of a non-western country to industrialize. South Korea and Taiwan quickly followed, and from the 1960s through late 1970s, more Southeast Asian countries became industrialized, most notably China.

These Asian countries have focused on achieving rapid industrialization through outward-oriented, or export oriented, industrialization. They have been very pragmatic and eclectic in the types of instruments they used. 

What would be some barriers to structural transformation

in some African and Latin America countries—what we have seen is an obsessive attachment to a particular ideology. For example, during the 1960s and 1970s, many countries took import substitution to extremes.

in the 1990s, these countries were encouraged to focus on the fundamentals, and structural transformation would follow automatically. This did not quite work out for them.

The principle concern, then, is for a country to do its homework and figure out what are the problems that would affect structural change.

about countries that are rich in natural resources

Those countries come with a set of advantages and the belief that having natural resources can make them richer more quickly. But there is also the disadvantage of being natural resource rich, because the country can suffer from so-called “Dutch disease,” which means that non-natural resource sectors tend to be very unprofitable. For example, those countries exporting natural resources like oil or copper may find it much harder to use modern manufacturing techniques competitively.

There is really no good way out of this situation. I think the amount of diversification that can be achieved by resource-rich countries is limited vis a vis resource poor countries.

The best route for those resource-rich countries looking to diversity is to develop the fundamental capabilities and skills of their human capital to help improve productivity in the service sectors, rather than focusing solely on manufacturing. While this is a longer process, they have still the cushion of natural resource wealth in the short term.

IMF Survey

U.S.Mortgage Bonds Without Government Backing Face Tough Time

  According to an article published today by the Wall Street Journal:
"The market for mortgage bonds that aren't backed by the government suffered a setback this month, when one offering was shelved and another had to slash its price amid tepid investor demand".

"The struggles reflect the fits and starts suffered by banks and mortgage finance firms trying to revive the market for bonds backed by mortgages without government support, or so-called nonagency debt. The market for such bonds essentially collapsed under high default rates and poor investment performance during the financial crisis, following trillions of dollars of issuance during the housing boom.

The market was largely dormant until earlier this year, when more frequent sales to investors hungry for higher-yielding bonds lifted volume for 2013 to $12 billion. But investors have become more demanding since U.S. Treasury yields started rising in May.Government officials and regulators have been eager for nonagency mortgage market to recover, anticipating it can fill a void in home loan finance as they work to wind down U.S. housing-finance firms Fannie Mae and Freddie Mac. To reduce the roles of Fannie and Freddie, the Federal Housing Finance Agency is requiring the firms to sell debt that transfers some risks of default to private investors.

Investors remain especially concerned with the impact rising interest rates could have on nonagency bonds backed by jumbo loans–the ones packaged up by PennyMac and Shellpoint. Jumbo loans are those that exceed the $417,000 limit for government backing in most regions.

The Jumbo loan borrowers, are typically the slowest to refinance their debt as mortgage rates increase, which means mortgages can remain in the bonds longer than anticipated. That leaves investors with a bond filled with longer-term assets that pay lower rates than newer bonds, which pushes down the value of the debt.

Investors also worry they will have trouble exercising their right to demand lenders repurchase bad mortgages, a practice that at the heart of legal fights over boom-era loans. And the small size of the new-issue jumbo bond market makes it harder to trade the issues, discouraging some investors."

IMF Concludes 2013, Consultation with Italy Part I

Italy’s economy has been in recession for almost two years. GDP contracted by 2.4 percent in 2012, and at a similar annualized rate in the first half of 2013. The contraction was led by a sharp fall in domestic demand, reflecting tight credit conditions, fiscal adjustment, and depressed confidence. The unemployment rate is at post-war highs of 12 percent, with youth unemployment nearing 40 percent. Weak demand has also contributed to the narrowing of external imbalances. The current account deficit has declined from 3½ percent of GDP in 2010 to near zero in the first half of 2013, reflecting mainly a collapse in imports and steady exports.
A modest recovery is expected to start in late 2013, supported by net exports. After sharp declines in previous years, domestic demand is expected to recover slowly in the face of stiff headwinds from tight credit conditions. On this basis, growth is projected at -1.8 percent this year, before rising to 0.7 percent next year.
The ratio of nonperforming loans has almost tripled since 2007, while outflows of nonresident deposits and limited access to wholesale financing have raised the cost of funding. Credit conditions remain tight. 
Notwithstanding the weak economy, stress tests results suggest that the Italian banking system as a whole is able to withstand the losses under an adverse macroeconomic scenario.
The nominal budget deficit fell to 3 percent of GDP in 2012 on the back of sizeable fiscal adjustment, allowing the country to exit from the European Union’s Excessive Deficit Procedure, and is projected to be close to that level in 2013. In structural terms, the overall balance is projected to be near zero this year. 
After fiscal consolidation,and the announcement of the ECB of its outright money transactions,sovereign yields have fallen considerably.Debt, however, continues to rise and is forecast to exceed 130 percent of GDP in 2013.

In the absence of further structural reforms, medium-term growth is projected to remain low. The origins of Italy’s low trend growth pre-date the crisis and stem from its stagnant productivity, difficult business environment, and leveraged public sector.

Source: IMF 

Ukraine Faces Old-Style Emerging Market Crisis

 According to an article published in the Wall Street Journal of today:
"Ukraine faces and old style emerging market crisis, a currency pegged to the dollar,falling foreing exchange reserves, mounting  debt-service needs and a potential standoff with the International Monetary Fund are familiar ingredients for emerging-markets veterans. Ukrainian dollar-denominated bond yields have hit 10%, but investors should remain wary.
It took full advantage of easy money conditions earlier this year, raising $2.25 billion from international markets. But times have changed. Ukraine's economy stagnated in 2012 and is now turning down again, and government promises of reform have fallen short. Last week, Moody's cut it's debt rating to Caa1 and threatened to downgrade it again, a decision that probably cuts Ukraine off from markets.
That leaves an uncomfortable position. The central bank's foreign-exchange reserves have fallen to $21.7 billion, covering less than three months of imports—a level the IMF regards as critical. Meanwhile, Ukraine faces foreign-debt service payments of $10.8 billion to the end of 2014, Moody's says. Ukraine has adopted unorthodox tactics, including borrowing short-term in dollars in the domestic market and raising a $750 million syndicated loan with help from Russia's Sberbank.

The coming months are crucial. Ukraine is angling to sign a trade deal with the European Union. That might help with gaining support from the IMF, potentially boosting capital-markets access. But 2010's IMF package quickly went off the rails after the government backtracked on promises to raise gas and heating tariffs, which are heavily subsidized and politically sensitive. A deal with the EU could yet cause a backlash from Russia, which accounts for 30% of Ukraine's trade, according to Standard Bank.

Ukraine could yet face a currency crisis that would put it under severe pressure''.

The Big Challenge for the Fed is a sustainable recovery of the Economy

According to an article published in the Wall Street Journal:
""The Federal Reserve has plenty of items on its list of things to worry about. But a fear that its policies might inculcate another batch of asset bubbles is no longer as high on it.

But since late May, when Chairman Ben Bernanke first indicated the Fed might start reeling in its bond-buying program, investors have become much more gun-shy about reaching for yield. That is because long-term interest rates rose sharply—while the yield on the 10-year Treasury has fallen since the latest Fed meeting, at 2.64% it is still well above its early May lows.

Shares of real-estate investment trusts, whose steady dividends were drawing in yield-hungry investors, have fallen sharply, for example. 

 The Fed has, even if inadvertently, bought itself some breathing room on this front. The bigger challenge is pushing the economy into sustainable recovery".

U.S. Consumer Sentiment fell to 77.5 in September

U.S. consumer sentiment slid in September to its lowest in five months as consumers saw higher interest rates and sluggish economic growth ahead, a survey released on Friday showed.

The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment slipped to 77.5 in September from 82.1 in August - the lowest final reading since April.

The September figure was lower than the 78.0 economists had expected in a Reuters poll, but higher than a mid-month preliminary reading of 76.8.

Looming Congressional showdowns over a possible government shutdown and the need to raise the debt ceiling or else face the possibility of default have renewed worries about fiscal policy and legislative gridlock.

Other gauges also hit their lowest final reading since April: the gauge of consumer expectations, at 67.8, and the index of current conditions, at 92.6.

Economists fear consumer sentiment could weaken further if higher interest rates start to slow momentum in a housing revival that has been one of the brightest spots in the overall U.S. recovery.

The one-year inflation expectation rose to 3.3 percent from 3.0 percent while the five-to-10-year inflation outlook edged up to 3.0 percent from 2.9 percent.

Source: Reuters

Brazil: Gerdau Group bets on Efficiency and Diversification

Until 2007, with the exuberance of the global steel market, driven by China, Gerdau group went on a shopping spree. It has gained strength, expanded its geographic reach and took the opportunity to start diversifying. Thus it became the largest manufacturer of long steel in the Americas - second in the world - and one of the global leaders in steel for the automotive industry. The 2008 crisis that shook the world's economies demanded a new strategic configuration.

Currently, the global industry scenario is of steel oversupply, competition with Chinese, Russian, Korean and Turkish products, difficulties to export, depressed prices and tight profit margins. The strategy is: more horizontal and vertical diversification in the production chain and seeking management, efficiency and cost gains to stay competitive.

“Today, our focus involves flat steel, with projects in Brazil, investment in iron ore, expanding the specialty steel business in Brazil and the US and entry into India, and management to have efficiencies in all our operations,” the businessman says.

This year the company merged Gerdau Aços Longos in Brazil with Açominas, creating a single company, Gerdau Aços Brasil.

“We are firmly working in this strategy to differentiate ourselves, seeking better earnings,” the executive says. 

Currently, with annual sales of around 19 million tons of steel, the group gets 36% of its revenues in Brazil, 30% in the US, 21% in specialty steels (Brazil, US and Spain) and 13% in Latin America. Sales totaled R$38 billion last year. In generating operating profit, Brazil accounts for almost three-fifths - around 58%. Then it comes specialty steel with 21%, the US with 12% and Latin America with 9%. The installed capacity in 60 plants and rolling mills is 25.5 million tons. The group occupies the fourteenth position in the world ranking of the World Steel Association (WSA).

In Mexico, Gerdau is investing $600 million in a heavy profiles plant, within a plan to meet Americas demand for this product also from Brazil and the US. This project aims mainly toward import substitution and export to regional markets. “In the region, there is much to do in infrastructure in Peru, Colombia, Guatemala, Chile, Venezuela and Mexico itself.” The plant will have capacity of 1 million tons of steel and 700,000 end products (profiles).

Source: Valor International

London Stocks Fall Sharply on U.S. Concerns

UK markets were registering heavy losses on Friday morning as investor scaled back risk ahead of the weekend, as concerns over monetary policy and budget talks in the US continued to dampen sentiment.

Negotiations in Washington continue to limit upside on markets with investors nervous ahead of the October 1st deadline, hope that politicians can agree on a extension to the current debt-ceiling limit of $16.7tn to avoid a government shutdown when the new fiscal year begins. 

According to analyst Mark Zandi from Moody's Analytics, a three-to-four-week shutdown could shave 1.4 percentage points off US economic growth in the fourth quarter. He currently estimates an expansion of 3% without a government closure.

FTSE 100: SSE, Centrica attempt to rebound

Utility peers SSE and Centrica were high risers this morning, rebounding after some sharp falls earlier in the week following Ed Miliband's proposals to freeze energy bills if Labour is voted into power in 2015. Centrica has specifically attacked the plans, saying that it would not be "economically viable" to operate if prices were controlled against a background of rising costs.

Randgold Resources was a heavy faller after Bank of America Merrill Lynch cut its gold-price forecast by 17% to $1,294 an ounce for 2014. Nevertheless, the bank said Randgold remains amount its preferred 'buys' in the sector due to low costs, a rising grade profile and strong balance sheet. TheStreet Ratings, however, cut its rating for the stock from 'buy' to 'hold'.

Other miners, including Antofagasta, Vedanta Resources, Rio Tinto, Anglo American and BHP Billiton, were also providing a drag on markets today as metal prices fell. Rio was shrugging off some upbeat comments from Nomura which labelled it as "one of the cheapest stocks" within its peer group.

SABMiller, Diageo and Coca-Cola HBC were trading lower this morning after Credit Suisse downgraded the European beverages sector from 'overweight' to 'benchmark', saying it is the "third-most expensive sector in Europe [...] and has the second-worst earnings revisions".

Second-tier miners were performing in line with their FTSE 100 peers today as metal prices declined. EVRAZ, 
Polymetal, Hochschild, Centamin, Petra Diamonds and Kazakhmys were among the worst performers.

Source: LiveCharts

Jack Ma wants to keep a tight grip on Alibaba's Board

Alibaba Group Holding Ltd founder Jack Ma wants to keep a tight grip on the Chinese e-commerce company he founded even after he takes it public, and U.S. law gives him several ways to do so.
A source close to the company told Reuters that Alibaba, now effectively controlled by a group of 28 "partners" including Ma, senior executives and other insiders, is intent on keeping a similar structure when it goes public. Listing in the U.S. makes that possible, a key consideration in choosing New York over Hong Kong, the source said.
 Many U.S. companies, including Facebook and Google, use a dual-class stock structure to keep power within the hands of the companies' founders, Alibaba is likely to pursue a different approach, the source said.

But several corporate lawyers, said that one likely route for the 28 partners would be to list Alibaba by effectively creating a new partner that would become the publicly traded company.

Setting up the corporation that way - known as an "Up-C corporation," or umbrella partnership - can give the original partners much stronger voting rights, lawyers said.

While Japan's Softbank Corp, which owns 35 percent of Alibaba, and Internet company Yahoo, with 24 percent, each have a seat on Alibaba's four-person board of directors, neither company is represented among the 28 partners. In fact, there are no outside investors in the partners' group.

The partners' powers may increase after the IPO as it gains control of an expanded board of directors. Yahoo will lose its board seat when it sells half its stake in Alibaba in the IPO.

Under the structure the company envisions, Alibaba's shareholders would still have the ability to approve or reject all the directors. 

Source: Reuters

ECB'S GUIDANCE DETERRED VOLATILITY, BIAS REMAINS TOWARD RATE CUTS, SAYS CœURÉ

European Central Bank (ECB) member Benoît Cœuré noted that the implementation of a forward guidance has deterred market volatility and the Eurozone monetary authority continues to have an easing bias which makes further rate cuts possible.

While admitting that it was too early to determine if the forward guidance had "worked", Cœuré was convinced that in its absence, "money market rates would have displayed more upward volatility than was observed." 

The ECB member did make clear that the central bank was not targeting specific value for money market rates, but sought to make sure that "their fluctuations remain within reasonable bounds and do not hurt economic recovery". 

According to Cœuré, the guidance itself is a useful tool that "explicitly incorporates an easing bias, thereby accounting for the possibility of further cuts in policy rates". 

The majority of analysts currently expect ECB rates to remain at 0.5% until April 2015 and, rather than a cut, expect another round of long-term refinancing operations (LTROs) designed to flood credit markets with liquidity. The new LTRO could be implemented as soon as the end of the year, according to a recent Reuters poll. 

Source: LiveCharts