Wednesday, 10 July 2013

Asian Shares bullish after Fed Chairman comments

Asian shares climbed to a three-week high on Thursday on comments by Federal Reserve Chairman Ben Bernanke that highly accommodative monetary policy would be needed for the foreseeable future, and the dollar stabilized.

Financial markets have recently sold off on concerns that the Fed may begin to scale back its $85 billion a month bond-buying program as soon as September.
But Bernanke's remarks, which played down the strength of last week's June payrolls report, prompted investors to reassess the risk of an early end to the Fed's program. They cut long dollar positions and sent U.S. Treasuries prices higher.
Source: Xinhua

China launches treasury bond futures.

China's upcoming launch of treasury bond futures will provide a tool for managing interest rate risks, and it is a very good decision, the globally-recognized founder of financial futures said Sunday.
"In the long run, it will help the Chinese financial market become more liquid and more efficient," Leo Melamed, chairman emeritus of the Chicago Mercantile Exchange (CME), told Xinhua on the sidelines of the 5th China International Assets Management Conference, which closed here on Sunday.
The China Securities Regulatory Commission (CSRC) announced Friday that China will resume the issuance of treasury bond futures after 18 years of suspension. The trading is expected to start in about two months.
The bond futures mark the second product in China's financial futures portfolio, following index futures. The move to resume treasury bonds came amid China's deepening of market-oriented interest rate reforms, which have generated strong demand for hedging interest rate risks.
Melamed applauded the bond futures and said China's economic agenda should continue to evolve.
"China's corporations and its consumers have reached a stage where global risk management tools are essential as they seek higher growth on the world stage," said Melamed.

Source: Xinhua

South Korea's Central Bank worries about downside risks to growth

South Korea's central bank on Thursday worried about an early exit of U.S. quantitative easing and economic slowdown in China.
"Uncertainties over the possibility of an earlier-than-expected tapering of U.S. quantitative easing, a slowdown in Chinese economic growth and the implementations of fiscal consolidation in major countries remain as downside risks to growth," Bank of Korea (BOK) said in a statement following the July monetary policy meeting.
The BOK left its benchmark interest rate at 2.5 percent for two straight months in July amid lingering concerns over the early U.S. exit.
The better-than-expected employment data in the U.S. boosted concerns that Federal Reserve may taper its bond purchases earlier than market watchers had expected. Fed Chairman Ben Bernanke said in a speech overnight that highly accommodative monetary policy for the foreseeable future is "what's needed in the U.S. economy," trying to quell market jitters over the early exit.
On the domestic front, the central bank forecast that a negative output gap for the South Korean economy would be maintained for a considerable time, but it noted that the gap would gradually narrow. The negative output gap means actual GDP growth stays below the one for potential growth.
The central bank said that it will closely monitor the effects of May's rate cut and of fiscal stimulus, including the supplementary budget plan worth 17.3 trillion won (15 billion U.S. dollars) unveiled in April.
Source: Xinhua

South Korea Central Bank revises up gdp growth

- South Korea's central bank on Thursday revised up its 2013 growth outlook to 2.8 percent from an earlier forecast of 2.6 percent, reflecting positive effects from the prior policy rate cut and fiscal stimulus package.
Bank of Korea (BOK) Governor Kim Choong-soo told reporters that the bank upgraded its growth outlook for 2013 from 2.6 percent to 2.8 percent as expected. The growth outlook for 2014 was set at 4 percent.
His comments came after the central bank decided to keep its benchmark interest rate on hold at 2.5 percent, keeping its wait- and-see stance for two straight months.
Outlook for consumer price inflation was set at 1.7 percent in 2013 and 2.9 percent in 2014.
Source: Xinhua

Fifth Round of China U.S. Strategic Economic Dialogue

The fifth round of the China-U. S. Strategic and Economic Dialogue (S&ED) started here on Wednesday, as the two-day event will see leading officials from more than 20 departments and ministries of both countries talk on a wide range of topics covering political, security, economic and financial issues.
Acting as special representatives of Chinese President Xi Jinping, Chinese Vice Premier Wang Yang and State Councilor Yang Jiechi will co-chair the dialogue with U.S. President Barack Obama 's special representatives Secretary of State John Kerry and Treasury Secretary Jacob Lew.
Wang and Lew will co-chair the economic track talks, while Yang and Kerry will co-host the strategic track talks.
Speaking at the joint opening session of the S&ED, U.S. Vice President Joe Biden said the two countries have their disagreements. "But if we are straightforward, clear and predictable with one another, we can find solutions that work for both of us."
As U.S. and Chinese economies are increasingly interconnected, dialogue is better than confrontation and is important for both countries, Wang said at the event.
Good cooperation between China and the United States, the biggest developing country and biggest developed country respectively, "can serve as an anchor for world peace and stability and an engine for prosperity and development," he said.

Source: Xinhua

From Reuters: Japanese Consumer Confidence falls in JUNE


Japanese consumer confidence slipped in June, a Cabinet Office survey showed on Wednesday, indicating sluggish recovery in wages and employment may have hurt confidence.
The survey's sentiment index for general households, which includes views on incomes and jobs, was 44.3 in June, down from 45.7 in May.The survey also showed 83.9 percent of respondents expect prices to rise in the next 12 months, up from 83.1 percent in the May survey.

Precious Metals Quotes

Gold Price    3 Months Futures              US$ 1,284.57

Silver Price  3 Months Futures              US$     19.92

Government Bond Quotes

  Government Bonds
                                                                                       PRICE           YIELD
                                                                                     CHANGE           %
U.S. 5 Year7/321.409
U.S. 10 Year12/322.586
U.S. 30 Year17/323.623


 SOURCE: WSJ 10:49 PM EDT 7/10/2013

Europe: Q2 earnings high expectations in some sectors

ANALYSIS: Europe's food, drink, technology and financial companies are set to be the stars of the second-quarter earnings season thanks to a nascent regional recovery, while those selling to emerging markets may disappoint.
Market positioning and analysts' expectations suggest the results, which start in earnest next week, will be an improvement on the first three months of 2013 - when STOXX Europe 600 earnings undershot forecasts by 0.8 percent.
Although a weak euro ate into exporters' profits, oil prices sank and metals weakened during the quarter, the European economy finally showed signs of growth.
Consensus earnings expectations and forecasts from the historically most accurate analysts point to consumer staples - the makers and sellers of food, drink, household products and tobacco - delivering the biggest upside surprises.

Bernanke: A highly accommodative monetary policy is needed .

Bernanke, who addressed an economic conference in Cambridge, Massachusetts, on Wednesday said the Fed needed to keep a stimulative monetary policy in place given the low level of inflation and a 7.6 percent unemployment rate that "if anything overstates the health of the labour market."
"The overall message is accommodation," he said. A "highly accommodative policy is needed for the foreseeable future."
"Several members judged that a reduction in asset purchases would likely soon be warranted," the minutes of the June 18-19 meeting said. Even so, "many members indicated that further improvement in the outlook for the labour market would be required before it would be appropriate to slow the pace of asset purchases."
Financial markets see-sawed after the release of the minutes as investors tried to gauge the likelihood of a near-term pullback in the Fed's bond purchases. But stocks strengthened in after-hours trade and U.S. Treasuries rose after Bernanke reiterated the need for monetary policy accommodation for the foreseeable future and cast doubt over the strength of the U.S. labour market.
Source: Reuters

From Reuters: Fed Minutes Not So Hawkish

The U.S. dollar tumbled against the euro and yen on Wednesday after the minutes from the Federal Reserve's latest policy meeting dented expectations of a near-term reduction in stimulus by the U.S. central bank.

The dollar had rallied to three-year peaks against a basket of major currencies on Tuesday on bets the Fed may start slowing its $85-billion-a-month bond purchases as early as September, but the minutes suggested that might not be a sure bet.
Even as consensus built within the Fed in June about the likely need to begin pulling back on economic stimulus measures soon, many officials wanted more reassurance the employment recovery was on solid ground before a policy retreat.

United Nations: Progress in Battle against poverty

UNITED NATIONS - The United Nations has singled out China - the world's most populous country, with over 1.3 billion people - as one of the key success stories in the longstanding battle against poverty. Although extreme poverty rates have fallen in every developing region, says a new 60-page report released here, China is way ahead of the pack. 

In China, extreme poverty dropped from 60% in 1990 to 16% in 2005 and 12% in 2010. Still, "poverty remains widespread in sub-Saharan Africa and Southern Asia, although progress in the latter region has been substantial," according to the Millennium Development Goals [MDGs] Report 2013, released on Monday. 

Following the launch of the report in Geneva, UN secretary-general Ban Ki-moon hailed the MDGs as "the most successful global anti-poverty push in history". 

Despite impressive achievements at the global level, the study said, 1.2 billion people are still living in extreme poverty. While trumpeting some of the successes, including big gains in improved health and reduction in hunger, the report says progress towards achieving the MDGs has been uneven.

Government Bonds Quotes


Government Bonds





Price changeyield%
U.S. 5 Year-3/321.511
U.S. 10 Year-8/322.670
U.S. 30 Year-17/323.683
Germany 2 Year-2/320.109
Germany 10 Year4/321.646
Italy 2 Year-4/322.026
Italy 10 Year-7/324.432
Japan 2 Year0/320.136
Japan 10 Year4/320.857
Spain 2 Year-6/322.047
Spain 10 Year-23/324.766
U.K. 2 Year-2/320.378
U.K. 10 Year5/322.415

Currencies Quotes


  FXA                             91.45                               Australian Dollar

  FXC                             94.59                                Canadian Dollar

  FXE                           127.18                                Euro

  FXY                            97.62                                 Yen

  FXF                            101.39                                Swiss Franc

Mexico Closer to lift restrictions in Real Estate Properties

Mexico is poised to lift century-old restrictions on foreign ownership of property along its coasts and borders, a move real-estate developers believe could boost the nation's vacation-home market.
But now, Mexican real-estate brokers and developers are backing a constitutional amendment that would remove those prohibitions, though only for residential properties. The amendment—sponsored both by the Institutional Revolutionary Party and the National Action Party—recently passed the lower house and now is in the Senate.Mexico currently prohibits foreign ownership of land within 50 kilometers (31 miles) of the coast or 100 kilometers of an international border. The limits were written into Mexico's 1917 constitution because of worries about U.S. expansionary ambitions at the time. Mexico lost about half its territory to the U.S. in the mid-1800s after the annexation of Texas and the Mexican-American war. An exception was created in the 1970s to allow foreigners to acquire property through a special trust in partnership with a bank, a time-consuming and complicated process that many potential buyers find unappealing.

Precious Metals Quotes

Gold Price      3months Futures                US$ 1,255.23

Silver Price    3months Futures                US$      19.25

In Vegas they are plenty empty houses but not for sale

"According to the WSJ in Vegas there are plenty of empty houses, but they're just not for sale.
Indeed, it is a lopsided equation. The number of available homes has plunged here after a sweeping state law subjected lenders to stiff new foreclosure rules and penalties. With banks exercising caution, many homeowners—including those seriously delinquent on their loans—have been allowed to remain in place. As a result, there is little on the market at a time when first-time buyers and real-estate speculators are anxious to tap both cheap prices and low-interest mortgages.
Many real-estate agents, home builders and consumer advocates argue that the law, intended to remedy foreclosure-processing abuses, has backfired. Some owners who are behind on payments aren't maintaining their homes as banks refrain from eviction proceedings. The perverse outcome: Inventory shortages have spurred new developments despite a glut of properties stuck in foreclosure limbo.
"The people hurt most by this law are the middle class.Until last decade's housing boom, prices didn't rise much here, making it possible for casino dealers or cocktail waitresses to buy into the American dream. Now, a tight market is pushing up values and making it harder for buyers to find homes to purchase.

A slower Growth in China A better Place for U.S. Economy.

According to an article published in the Wall Street Journal today,a slower growth in China's Economy and the credit crunch that monetary officials are implementing, heightened concerns about rising debt loads and the safety of China's banks.
 The latest Chinese indicators(see previous posts on this blog) show a slower chinese economy
but "this is definitely bad for commodity suppliers like Brazil and Indonesia. It's also likely to drag on economies in China's nearby orbit such as Korea and Taiwan"
 From the perspective of the U.S, however, a slower China is arguably a good thing. ‪America's exposure to Chinese demand is limited. Goldman Sachs calculates that companies in the S&P 500 directly attribute a mere 5% of revenue to emerging markets, and just 1% to China.
That might understate the figure somewhat, as companies break down revenue into catch-all overseas categories such as Asia-Pacific that might include China along with Japan and others. And while China isn't the biggest chunk of revenue, it has been an important source of revenue growth.
 There are two additional benefits from the Chinese growth slowdown:
1. A slowing China means lower global demand and more room for the Fed to keep the monetary taps open.(So it allows more QE).
2. At a slower rate growth China will demand less oil,iron ore and copper. So that is good for everyone else's input costs, including U.S consumers and companies that rely on raw marterials. The journalist of the WSJ argues that the new leaders of China are pushing for an 
end to the building boom(I would never arrive to this conclusion knowing the future policies of growth led by Premier Li Keqiang,although he is not keen to a real state boom, he is committed to urbanization in China)
"The more important thing about China's slowdown is that it's a necessary part of Beijing's goal to rebalance the economy away from reckless investment toward more sustainable consumer-led growth". ‪ 
 As readers of this Blog have a more closer knowledge of the reality of China and its leaders, so it will be up to you to draw your own conclusions on these matters.

EU Creating Agency for Troubled Banks

The European Commission proposed on Wednesday creating an agency to salvage or shut failed banks, but the absence of an immediate support fund to pay for a clean-up means it may struggle to do its job.
Working  with the European Central Bank as supervisor, the new authority is supposed to wind down or revamp banks in trouble. It is the second pillar of a 'banking union' meant to galvanise the euro zone's response to the crisis.
If agreed by European Union states, the agency will be set up in 2015 and will eventually have the means to impose losses on creditors of a stricken bank, according to the blueprint.
But the new authority will be handicapped by the fact that it will have to wait years before it has a fund to pay for the costs of any bank wind-up it orders. In practice, this means it could be very difficult to demand any such closure.
Source: Reuters

"Bernanke Schock"

 In bringing an end to its quantitative easing, U.S. Fed needs to ensure it does not create global financial instability
Two weeks after the "Bernanke shock", the stock and currency markets have returned to a close-to-normal state. On June 19, when Chairman of the U.S. Federal Reserve, Ben Bernanke, gave a clear signal the Fed would gradually reduce and ultimately quit its quantitative easing, 340 billion U.S. dollars evaporated in the world bond market, and world stock markets tumbled.
However, the top concern for emerging economies, including China, is the outflow of capital. According to EPFR Global, which tracks cross-border capital flows, after the Fed initiated its third round of quantitative easing in September 2012, roughly 90 billion U.S. dollars flew to the stock markets of emerging economies during the 17 weeks between Sept 1, 2012 and Jan 2, 2013, compared to only 15.9 billion U.S. dollars during the whole of 2011. However, the trend had started to reverse even before the Bernanke shock, with a net outflow of 5 billion U.S. dollars from emerging economies in the week ended June 5.
The restrengthening of the U.S. dollar may cause the emerging economies even more concern. The strong dollar from 1979 to 1985 contributed to the Latin America debt crisis in the 1980s. A strong dollar from 1995 to 2002 also contributed to the Asia financial crisis in 1997 and 1998, the Russian financial crisis in 1998, the Brazilian financial crisis in 1999 and the Argentine financial crisis in 2001. If the dollar appreciates by another 10 percent in the next 12 months, the leading emerging economies will face serious trouble.
The Fed's decision to tap easy money is necessary. Although QE measures have helped the U.S. economy to recover, they would have been harmful to the U.S. and world economy in the long run. The basic function of quantitative easing is merely an expansion of liquidity and leverage, instead of supporting innovation and the real economy.
A long period of very low interest rates in an economy brings misallocations of resources and a 
mispricing of risk,in different asset classes and the building of bubbles in the prices of these.
International experiences in the past three decades have also shown that an economy, including its currency, is relatively vulnerable to international fund flows and financial speculation if it does not have a strong, sound real economy, and thus depends too much on liquidity supplies. Germany, for example, has never worried about the US's quantitative easing policies. China needs to focus its financial sources on technology, business innovation and improving people's welfare, and it needs to take control of the liquidity supplies to the real estate sector. Local governments should suspend land supply for commercial use for six months and curb their town-making ambitions. They should also reduce their debts and let the market and businesses decide investment projects, based on feasible returns. Only in this way, can China withstand global financial instabilities.
Meanwhile, the Fed needs to carefully consider the timing and speed of its quantitative easing reduction and exit, taking into account not only the U.S. economic situation, but also the world markets. A fast rebound in the U.S. bond interest rates will tend to reverse the world capital flows too fast and cause instabilities, especially in emerging economies. A quick rebound in the dollar will also tend to have serious impact on other currencies, and this should be gradual as well.
Source: China Daily

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