Japan's top banks with big profits in Q2

Japan's top three banks have booked big net profit gains in the April to June quarter as stock market rises helped boost their bottom line while the trio ramp up overseas expansion.

Mitsubishi UFJ Financial Group, the country's biggest lender, said Wednesday that its net profit surged 39.6 percent from a year earlier to 255.3 billion yen ($2.6 billion) in the quarter.Mitsubishi's results, mirrored by smaller rivals Mizuho Financial Group and Sumitomo Mitsui Financial Group, come as their stock trading businesses benefited from a surge in the Japanese stock market.
Tokyo's bid to kickstart Japan's lumbering economy with big government spending and massive monetary easing pushed down the yen, helping the country's hard-hit exporters.
That, in turn, saw investors pile into Japan's equity markets, pushing the Nikkei 225 stock index to a five-year high in May although it has slipped from its perch since then.

NewOnJapan

Precious Metals

Gold Price     3 months Futures   US$ 1,319.04

Silver Price   3 months Futures    US$      19.63

China's PMI 50.3 survey done by the National Bureau of Statistics

   The PMI survey released by the National Bureau of Statistics earlier on Thursday showed the index rising to 50.3 in July from 50.1 in June.

Investors trying to gauge what is happening in the world's second-largest economy also look at surveys on China's fledgling services sector, which has been holding up relatively well compared to the manufacturing sector.

China's official PMI suggest services are growing faster than manufacturing. The services measure has hovered between 53.9 and 56.7 in the past 12 months, while manufacturing has fluctuated between 49.2 and 50.9.

The official services PMI for July will be released on August 3, followed by the HSBC services PMI on August 5.

Source:  Reuters

HSBC PMI fell 47.7% in July MoM

The HSBC Purchasing Managers' Index (PMI), compiled by Markit Economics Research, fell to 47.7 in July from June's 48.2. It was the weakest reading since August 2012, and matched a preliminary figure published last week.
While keeping the door shut for big stimulus, the government has unveiled a series of polices to boost spending in social housing, urban infrastructure, high-speed rail and energy-saving industries, while offering tax breaks for small firms.

Source;  Reuters

China's top economic planner confident in a GDP growth rate of 7.5 %

China's top economic planner expressed confidence in achieving the 7.5 percent gross domestic product growth target this year through hard work after the government decided to adopt further measures to stabilize market expectations and release enterprises' vitality.
National Development and Reform Commission Minister Xu Shaosh stressed the need to maintain "moderately abundant" monetary liquidity and efficiently make use of credit and fiscal capital to support the industrial economy.

"Policy fine-tuning will be likely at the right time," he said.

"Diversified adjustments that take into consideration the different situations of regions, industries and enterprises will be taken in the second half" to strengthen enterprises' confidence by maintaining growth within a reasonable range and preventing risks, Xu said.

For the next step of reform, the minister also pledged the nation would launch demonstration projects for private funds to invest in infrastructure construction and public services, as well as eliminate unreasonable fees in banking services.

Source  Xinhua

U.S. Bank's Present Weakness their investments in long-term bonds and treasuries

The Wall Street Journal published an article today "about the new weakness in the balance sheets of

large banks : they hold so many bonds that they can't avoid trouble when interest rates rise"

When Fed Chairman announced that they would begin to taper their bond buys  long term

rates jumped by a full percentage point in May and June,and bank investments in mortgage-backed securities and Treasuries plummeted. Morgan Chase,Bank of America,Citgroup and Wells Fargo saw the holding of these assets fall by more than US$ 13 billion in Q2.

"Banks in recent years invested in bonds in search of returns as a way of making up for weak loan demand and billions in annual income lost to a slew of new U.S. regulations. But now the size of these portfolios is exposing banks to vulnerabilities even though their holdings are largely considered safe". "Bond instruments now comprise nearly 99% of the $1.159 trillion investment portfolios held by the top four banks", according to Charlottesville, Va., data provider SNL Financial.

  Q2  losses didn't affect banks' earnings because of  accounting rules that allows institutions to keep any paper losses on long-term bonds out of the profit-and-loss statement. As a result, the four biggest banks were able to churn out more than $20 billion in net income during the quarter, a 33% increase YoY.

But analysts said "the unrealized accounting losses, which result from a quarterly evaluation by the banks of how much the securities are worth, could hurt banks in the long run. They can reduce the banks' reported book value, or net worth, and have the potential to eat away at the capital they hold to protect against future losses". 

"Bank of America's unrealized losses on its long-term bond holdings more than doubled to $7.71 billion in the second quarter from $3.48 billion in the first quarter. Income tied to the value of investment portfolios held by J.P. Morgan Chase & Co. and Wells Fargo & Co. went down by slightly more than $3 billion apiece, while the value of Citigroup Inc.'s holdings decreased by $2.86 billion. In all cases the movements represented less than 2% of the value of the banks' total portfolios".

 At Bank of America, mortgage bonds issued by  Fannie Mae, Fredy Mac and

Ginnie Mae represent 84% of the bank's $241 billion securities portfolio.

China: Overcapacity in steel industry sends it to a loss

For the first half, the profits of members of the China Iron and Steel Association (CISA) hit 2.27 billion yuan, with an average profit margin of 0.13 percent, the lowest among all industries, said the CISA on Wednesday.

Steel prices have been dropping since February. At the end of June, the price of steel products fell 6.45 percent compared with the beginning of this year, and down 14.7 percent year on year, according to the CISA.

Oversupply in the steel sector will continue amid the country's economic slowdown, the CISA warned, as the country has been pushing forward economic reforms.

China's economic growth slowed to 7.5 percent in the second quarter from 7.7 percent in the first three months, as the government deliberately tamed the pace to avoid bubbles.

China's output of pig iron, crude steel and steel products still expanded to 357.54 million tonnes, 389.87 million tonnes and 516.96 million tonnes in the first half, up 5.7 percent, 7.4 percent and 10.2 percent year on year, respectively, according to the CISA.

Moreover, the amount of steel being stored by CISA member mills increased 225,000 tonnes, up 1.75 percent year on year, which further lifted the business cost, the CISA said.

During the January-June period, CISA members saw their sales revenues reach about 1.8 trillion yuan, up 0.94 percent year on year. But 35 out of 86 CISA members reported losses, the association added.

The MIIT confirmed that the ministry and the National Development and Reform Commission, China's top economic planner, are currently working on a plan to eliminate outdated production capacity in the steel industry.

To ease overcapacity in affected industries, the MIIT on July 25 ordered some 1,400 companies in 19 sectors, including steel, to eliminate outdated production capacity by September and eliminate excess capacity by the end of the year.

Source: Xinhua 

China can break out of the middle-income trap

In his book, Breakout Nations: In Pursuit of the Next Economic Miracles, which has just been published in Chinese as well as in a paperback edition, Ruchir Sharma, head of emerging market equities at Morgan Stanley and leading economic commentator, makes the case that China alone among the BRICS nations (Brazil, Russia, India, China, and South Africa) will make it to the next stage.

He believes it will be able to move on from its 2012 per capita income level of $6,091, according to the World Bank, to around $20,000 within 15 years, providing a comfortably high income.

He makes the point, however, that it will be easier for China to move up the ladder if it sets its growth targets lower at a more sustainable 5 to 6 percent.

Chasing higher rates of growth through excessive investment in infrastructure, he argues, carries the risk of a bust that could see it behaving like a yo-yo in the middle-income trap like many other countries before it.

Source: ChinaDaily

Petronas delays to 2018 US$ billion petrochemicals complex

State oil firm Petronas will start up its $19 billion petrochemicals complex in Malaysia in 2018, the company said, signaling a further delay in the country’s largest-ever infrastructure project.
A source familiar with Petronas’ business strategy told Reuters the project had been complicated by a need to secure water supplies as well as cater for proposed international partners.
Petronas had already put back the project from late 2016 to early 2017 in June and revised the final investment decision  to the first quarter next year, citing state government problems in relocating villages and graves from the 2,000 hectare-site, five times the size of New York’s Central Park.
Petronas had already put back the project from late 2016 to early 2017 in June and revised the final investment decision  to the first quarter next year, citing state government problems in relocating villages and graves from the 2,000 hectare-site, five times the size of New York’s Central Park.
“As a result of the revised final investment decision date, the RAPID refinery is scheduled to be ready for start-up in Q4 2017 and the remaining plants within the complex is scheduled to be commissioned in 2018,” Petronas said in a statement.
This is at least six months later than market expectations after local media had cited Petronas CEO Shamsul Azhar Abbas in June as saying the start date for phase one of the RAPID project had been pushed back to early 2017.
Delays in the project — a cornerstone of Prime Minister Najib Razak’s Economic Transformation Program aimed at doubling Malaysians’ incomes by 2020 — could slow an economy whose oil and gas sector makes up a fifth of GDP.
The complex is the largest single investment in Malaysia, and aims to grab a chunk of the $400 billion global market for speciality chemicals used in products from LCD televisions to diapers.
Its location at the southernmost tip of the peninsula, just 10 km from Singapore’s east coast, is part of a vision for a “Greater Singapore” energy trading hub that would rival competitors such as China.

Source:  Arab News

Precious Metals Prices

Gold Price   3months Futures      US$  1,310.38

Silver Price 3months Futures      US$       19.51

Government Bonds Quotes

Government Bonds Quotes

                                                                                         Price           Yield
                                                                                       Change            %

U.S. 2 Year			-1/32	0.340
U.S. 5 Year			-11/32	1.466
U.S. 10 Year			-18/32	2.684
U.S. 30 Year			-19/32	3.722
Germany 2 Year			0/32	0.163
Germany 10 Year			-1/32	1.676
Italy 2 Year			0/32	2.022
Italy 10 Year			-1/32	4.415
Japan 2 Year			0/32	0.121
Japan 10 Year			0/32	0.797
Spain 2 Year			0/32	1.920
Spain 10 Year			1/32	4.656
U.K. 2 Year			0/32	0.318
U.K. 10 Year			-11/32	2.359

  Source  WSJ

Japan's industrial production drops -3.3% in June MoM

"Japan's industrial production dropped a seasonally adjusted 3.3 percent in June from the previous month in the first decline in five months, due mainly to weaker output of automobiles and electronic parts, government data showed Tuesday.

It was the sharpest fall since March 2011, when it plunged 16.5 percent in the wake of the earthquake and tsunami disaster, the Ministry of Economy, Trade and Industry said.But the ministry maintained its basic assessment in the preliminary report, saying production has shown "signs of picking up at a moderate pace," given that output grew on a quarterly basis in the April-June period, and it will likely mark a sharp rise in July, a ministry official said".

NewsOnJapan

BOJ Governor QE is creating favorable changes in the Economy

The Bank of Japan's accommodative monetary policy introduced in April has been right on track, creating favorable changes in the economy, BOJ Governor Haruhiko Kuroda said Monday.
It has been three months since the introduction of QE , and there have been favorable developments spreading to financial markets and the real economy, and the public's expectations for economic activity and prices are improving"he said.
 "Inflationary expectations are rising, thanks to the aggressive easing'', the BOJ governor said. "He then offered the view that the nation's core consumer price index, excluding fresh food prices, is highly likely to show year-on-year rises of about 2 percent toward the latter half of the BOJ's projection period through fiscal 2015".

Source; NewsOnJapan

Xi Jinping. An advocate to build China into a Maritime Power

President Xi Jinping an advocate to build China into a maritime power. The country will pursue "converging interests" with other countries in oceanic development.

China will safeguard its maritime rights and interests, and make overall plans and take all factors into consideration, he said.

Xi said China will adhere to the path of peaceful development, but "in no way will the country abandon its legitimate rights and interests, nor will it give up its core national interests."

The president said China will "use peaceful means and negotiations to settle disputes and strive to safeguard peace and stability."

"In the 21st century, oceans and seas have an increasingly important role to play in a country's economic development and opening up to the outside world'', he said.

'"Their status has become more prominent in regards to safeguarding state sovereignty, national security and development interests, as well as the advancement of a country's ecological civilization.

The oceans and seas have an increasingly important strategic status concerning global competition in the spheres of politics, economic development, military, and scientific and technology'', he said.

Source Xinhua

U.K. Barclays bank to increase capital by nearly US$20 billion

 According to an article published yesterday in the Wall Street Journal,'''British bank Barclays PLC unveiled plans Tuesday to increase its capital levels by nearly $20 billion"'. 

"Even as Barclays addressed one of regulators' main concerns about the bank.
A British regulatory agency is planning an enforcement action against the bank over a 2008 fundraising deal with Qatari investors, people familiar with the probe said.
Barclays's capital-raising exercise was larger than investors expected. It followed intense pressure from British regulators, who are demanding that U.K. banks have enough capital to avoid taxpayer bailouts if they encounter financial problems.

Barclays said it will fill a £12.8 billion ($19.64 billion) capital hole identified by regulators by selling £5.8 billion of new shares and £2 billion of convertible bonds as well as by shrinking its balance sheet.

The move by Barclays is the latest in a sudden of efforts by European lenders to convince regulators and investors that they have fortified themselves against future crises. Deutsche Bank AG, for example, said Tuesday that it plans to get rid of about €250 billion ($331.58 billion) of assets, or 16% of its total, to improve its capital ratios".

Source  WSJ

MBA Mortgage Applications

Composite Index - W/W Change	-1.2 %	-3.7 %
Purchase Index - W/W Change	-2.0 %	-3.0 %
Refinance Index - W/W Change	1.0 %	-4.0 %

A roughly 1 percentage point rise in mortgage rates the last three months, a rise that reflects expectations for Federal Reserve tapering of asset purchases, is a major factor holding down home sales right now, reflected in Monday's surprise decline in pending home sales. The first set of housing data to signal the rate effect way back in May was the Mortgage Bankers Association's weekly mortgage application report where the purchase index is down another 3.0 percent in the July 26 week. The index is up only 5.0 percent year-on-year compared to a 15 percent year-on-year pace for existing home sales and a nearly 40 percent pace for new home sales. At least these were the year-on-year readings as of June with purchase application data pointing to a slowing ahead for these year-on-year sales rates.

Source Bloomberg

U.S. GDP Q2 Growth at 1.7%. Better than expected.

Gross domestic product grew at a 1.7 percent annual rate, the Commerce Department said on Wednesday, stepping up from the first-quarter's downwardly revised 1.1 percent expansion pace.

Economists polled by Reuters had forecast the economy growing at a 1.0 percent pace after a previously reported 1.8 percent advance in the first three months of the year.

A rebound in business spending, export growth and a sharp moderation in the pace of decline in government outlays boosted economic growth in the April-June period, offsetting a slowdown in consumer spending and a steady rate of inventory accumulation.

The government has implemented some changes in how it calculates GDP. For example, research and development spending will now be treated as investment, and defined benefit pension plans will be measured on an accrual basis, rather than as cash.(Read Previous Post)

Other details of the report showed exports rebounded, showing the largest percentage gain since the third quarter of 2011, even as demand weakened in Europe and China. But the increase was not enough to offset a rise in imports, leaving a trade deficit that weighed on growth.

There was good news from the housing sector, with double-digit growth for spending on residential construction. Housing, which triggered the 2007-09 recession, is growing strongly, helping to keep the economic recovery anchored.

Source   Reuters