The MSCI Asia Pacific Index fell 0.4 percent by 11:45 a.m. in Tokyo. 05.08.14

Asian stocks dropped, with Shanghai shares retreating from the year’s highest close, and Australia’s dollar slipped as a private gauge of Chinese services industries fell to a record low. Emerging-market currencies climbed as corn and soybeans declined.

The MSCI Asia Pacific Index fell 0.4 percent by 11:45 a.m. in Tokyo. Standard & Poor’s 500 Index futures lost 0.1 percent after the U.S. gauge rebounded from its worst week since 2012. The Shanghai Composite Index decreased 0.3 percent and most Hong Kong shares declined. The Aussie weakened 0.1 percent to 93.23 U.S. cents. Malaysia’s ringgit gained 0.3 percent and Indian rupee forwards strengthened before a rates decision. Corn and soybeans lost 0.5 percent.

A purchasing managers’ index of China’s non-manufacturing sector fell to 50 in July, the borderline between expansion and contraction and the lowest reading in data from HSBC Holdings Plc and Markit Economics. Central banks in Australia and India are projected to keep interest rates unchanged today, with services data due from China to the U.K. and U.S. Tom DeMark, the developer of market indicators, said the Shanghai Composite Index will end its world-beating advance within days and fall about 10 percent.

“The Chinese PMI figures came in a bit below expectations, showing a stalling of the recent upturn in the Chinese data, so that’s putting some downward pressure on commodity currencies like the Aussie,” said Desmond Chua, a strategist at CMC Markets in Singapore. “The Aussie will remain above the 93 U.S. cents level unless we see a surprisingly bearish tone in the RBA statement.”

Bloomberg

Iraq Backs Kurdish Fight Against Jihadists

     The WSJ reports,"Prime Minister Nouri al-Maliki's authorization of air support came after the Kurdish forces, known as Peshmerga, lost a string of towns over the weekend to the militant group, which calls itself Islamic State. The Peshmerga had held off the insurgents in northwestern Iraq without central Iraqi government forces for nearly two months.

The Peshmerga's losses shocked officials, sparking new cooperation between two mutually hostile authorities—the central government in Baghdad and the Kurdish Regional Government, or KRG, in Erbil.

While Iraqi officials and analysts said they expected the security cooperation to focus on the immediate crisis, the move also could help to ease Iraq's tense political environment. Iraq's Shiite political blocs are negotiating on who to nominate as prime minister, a decision due constitutionally by Aug. 8.

Some analysts say any jointly coordinated success could also precipitate more American military support in Iraq, which both Baghdad and the Kurdish government have requested.

The new Islamic State offensive in northwest Iraq drove out thousands of residents and threatened a religious minority, the Yazidis, a small Kurdish-speaking community with a pre-Islamic faith long targeted by al Qaeda. The insurgents blew up two Yazidi shrines and rounded up some residents who hadn't managed to flee, Iraqi news agencies reported.

Iraqi Air Force jets started bombing targets in the town of Sinjar, west of Mosul near the Syrian border, and the broader area on Monday afternoon, Peshmerga spokesman Jabar Yawer said in an interview. The jets flew from and returned to Baghdad.

Monday's counteroffensive left the Kurdish fighters in control of Iraq's largest dam in Mosul, Mr. Yawer said, after Islamic State militants tried to seize it in their effort to control resources.

Iraqi and U.S. officials are concerned that any more territorial gains for the extremist group, an al Qaeda spinoff formerly known as ISIS, would help it consolidate its intended regional state.

"We have entered a new stage," said Falah Mustafa Bakir, the KRG's foreign minister, in a telephone interview. "We are on the offensive now and we need assistance to fight"Islamic State.

In a statement posted online Sunday, Islamic State called its attack against the Peshmerga an effort to "open up the border" between Nineveh province, whose capital Mosul the group seized in June, and Dohuk, the Kurdish-controlled province to its north.

Its fighters have reached "the border triangle between Iraq, Syria, and Turkey," another statement said. "May God almighty allow his mujahedeen to liberate the whole region.""

Argentina's Economy and 2015 Presidential Elections

Argentina's Economy and the 2015 Presidential Elections

JULY 11, 2014

BY JENNY MANRIQUE

There’s more than a year to go until Argentina's October 2015 presidential elections, but campaign season unofficially kicked off last October when the headquarters of National Deputy Sergio Massa (Frente Renovador, or Renewing Front party) and current Buenos Aires Mayor Mauricio Macri (Propuesta Republicana, or Republican Proposal party—PRO) erupted in joy upon hearing the results of the 2013 legislative elections.
Massa—Argentine President Cristina Fernández de Kirchner’s former ally and chief of staff—split the votes of the Peronist party and received nearly four million votes, or 44 percent of the vote (becoming one of the most-voted candidates), to secure his seat in the Chamber of Deputies on October 27. He handily beat his opponent from the traditional Peronist-affiliated party,Frente Para La Victoria (Front for Victory—FPV) catapulting himself into the spotlight as a presidential contender. Meanwhile, Macri’s PRO won 16 new seats in the legislature. Amid a festive scene that resembled a political convention in the U.S., Macri launched his candidacy for president the same night.
Meanwhile, in the bunker of the ruling FPV coalition, President Fernández de Kirchner commemorated three years since the death of her husband, former President Néstor Kirchner, and celebrated her party’s continued reign as what she called “the strongest national political force” in Argentina. Today, the president has a number of potential successors—but Daniel Scioli, the current governor of Buenos Aires province, is the most likely candidate, according to the polls.
The Frente Amplio  (Broad Front—UNEN Coalition) candidate for 2015 will be announced after the party’s primaries on August 9, 2015, when political heavyweights such as Congresswoman Elisa Carrio, former Vice President Julio Cobos, and former Minister of the Economy Martín Lousteau will compete.
Next year’s election could lead to the first presidential runoff since they were established in the Argentine Constitution in 1994. The Peronist vote will go to either Scioli or Massa, while UNEN and PRO have flirted with the idea of creating an alliance to end the 12-year period of Kirchner and Fernández de Kirchner’s government—which many economists blame for the Argentine economy’s decline.
Although macroeconomics are not hugely important for average citizens, issues like poverty, inflation and exchange rates "will be put on the public agenda by the candidates," says Diego Coatz, chief economist at the Unión Industrial Argentina (Argentine Industrial Union—UIA).
Economic representatives of Argentina’s main political forces—minus those from the FPV, who declined to comment for this article—agreed to discuss five ways the next administration should address the economy.
1. Reduce inflation.
Among the countries analyzed in the April 2014 International Monetary Fund World Economic Outlook, only 10 had inflation rates higher than 10 percent in 2013—including Argentina and Venezuela in Latin America.
According to the Fundación de Investigaciones Económicas (Economic Research Foundation—FIEL), Argentina’s inflation rate rose 2.28 percentduring the month of May, due to the government’s devaluation of the peso in January and a drop in consumption. Yet various consulting firms estimatethat annual inflation in 2014 will reach 28 percent. While the actual measurement has been controversial, many citizens nevertheless feel thedecline of purchasing power and buy black market dollars.
“Inflation is not reduced through a recession or monetary tightening, but through inflation targets agreed upon with the private sector,” said Javier González Fraga, former president of the Central Bank of Argentina and an economist from the Unión Cívica Radical (Radical Civic Union—UCR)-Frente Amplio UNEN alliance. "It may take four years to bring [inflation] down to 4 percent, but on the basis of a solid fiscal policy."
Marco Lavagna, son of former Economy Minister Roberto Lavagna and head of Massa’s economic team, said that the Fernández de Kirchner government’s devaluation of the peso is just a temporary fix for a larger problem.
"The peso was devalued without a sustainable program that looks at fiscal, monetary and exchange rate policies as a whole. The government had been doing these fixes to get to 2015—first with the unsuccessful policy of ‘Precios Cuidados’ (freezing the price of specific goods), then asking the Central Bank to print lots of money and increasing interest rates," said Lavagna. "It is important that the Central Bank has an independent president and protects the Argentine peso’s value" he said.
2. Provide clear statistics.
Due to the controversy surrounding statistics from Argentina’s Instituto Nacional de Estadística y Censos (National Institute of Statistics—INDEC) to measure indices like inflation, poverty, growth or unemployment, the future of this office will be a huge challenge for the next president. In January 2007, former President Néstor Kirchner’s office fired at least 22 employeesresponsible for INDEC’s consumer price index. Since then, there has been a growing gap between Argentina’s official and unofficial consumer prices, and the opposition argues that the official statistics on inflation and other economic indicators are no longer reliable.
The dilemma is whether the new president should review the numbers retroactively, or start with a clean slate.

"Rates must recalculate retroactively. There are treasuries paid with fake indices, and if some people have been scammed and can prove it, the state has to face the trials and the political and economic cost," said González Fraga.

For economist Coatz of the UIA, it is difficult to correct old statistics, because many distortions can be generated. However, Coatz said that it is important to understand that the numbers “should be recollected and issued by the government [rather than an independent organization], because it is a very high-cost task.”

3. Stabilize the exchange rate.

“Blue,” “green,” “pale blue,” “gray,” “stock,” “tourist,” “savings” and “official” have all become familiar terms to refer to the dollar in Argentina. This is one of the consequences of the currency exchange controls installed in 2011, which some analysts believe should be stopped in order to stabilize the foreign exchange policy.

"The government partially relaxed the restriction, allowing citizens to acquire dollars for savings—which made the gap between the official and parallel dollar drop. These measures will continue until the end of [Fernández de] Kirchner’s government, although the cost will be to slow the economy,” said analyst Federico Barani, an economist from the Instituto Tecnológico de Buenos Aires.

The PRO party argues that if the government continues to print money to finance the fiscal deficit, the exchange rate will continue rising. "The rate is not going to be low, for sure,” said Braun of the PRO. “The current market consensus talks about an official exchange rate closer to 9.5 [pesos per dollar] by year-end.”

According to the Argentine futures market Rofex, the official dollar will close at 9.29 pesos by the end of the year. Currently, the official rate is about eight pesos, while the parallel dollar about 12 pesos.

The clearest risk for devaluation is if unions demand wage increases and if more strikes occur, as they did in April. Salary negotiations in August will be another test for the government.

4. Return to the international market.

The recent agreement Argentina reached with the Paris Club of creditor nations to resume repayment of its $9.7 billion debt seems to be the first step in its return to international credit markets. Even some in the opposition recognized Economy Minister Axel Kicillof’s success in this matter. However, the U.S. Supreme Court’s rejection of Argentina’s appeal in its battle with holdout hedge funds will force the country to pay at least $1.3 billion. The Argentine government is currently negotiating a settlement with holdout creditors in New York. (Now Argentina is in default it didn't got a settlement with holdout creditors by the end of July)

"If the government manages to get funding to face debt maturities next year (which reach $10 billion), it means bringing dollars into the country, and the chances of [winning for] Scioli or any kirchnerismo candidate will increase," said Coatz of the UIA. "Otherwise, the option is to raise the rates, freezing pensions and curbing public investments—unpopular measures for the citizens”.

The next president will receive a robust economy, thanks to promising midterm investments: $15 billion for the Vaca Muerta oil field and an estimated $3.86 billion for mining projects in 2014. This scenario has turned Argentina into an attractive market for major European and U.S. multinationals, according to the latest Frontier Markets Sentiment Index.

However, the UNEN’s González Fraga recalled that in recent years, Argentina hasn’t signed any free trade agreements and instead “got stuck in Mercosur—an obstacle to integrate with Pacific countries. We must critically analyze the regional market and integrate with the world in a smarter way,” he said.

According to Marco Lavagna, another topic to address is energy policy. “In the past two years, Argentina has lost 40 percent of its Central Bank reserves due to imports of oil and gas,” he said.

"The political parties began to adhere to the 14 strategic points agreement for the future of energy policy, which has a long-term vision of 25 years,” Lavagna said, referring to a 14-point energy agreement signed so far by Sergio Massa from the Frente Renovador last May and Ernesto Sanz from the UCR in June. “The country has to give a signal of trust for the investment flows.”

5. Provide targeted subsidies.

The La Asignación Universal por Hijo (Universal Child Allowance—AUH) is a conditional cash transfer program implemented by the Fernández de Kirchner government to encourage low-income Argentine families to send their children to school. All presidential candidates have promised to maintain the program if they win the presidency.

Broadening subsidies for the population under 18—and pensions for those over 65—are policies that all presidential candidates appear to support. Nevertheless, opposition parties criticize the extended policy of subsidies for basic services that President Néstor Kirchner began in 2003 to promote consumption after the 2001 crisis. "It has ended up benefiting the wealthy, who pay monthly electricity and gas bills of less than $10 and $5 per month, respectively,” analyst Federico Barani argued.

"The 30 percent of [Argentines] living below the poverty line are the ones who should pay minimum rates for public services,” said Braun of the PRO. "The same policy should apply to taxes: more taxes on assets, and less on medium-sized businesses. To fight poverty, we need to promote investments and to develop agro-industries," he concluded.

There are many challenges for Argentina’s next president. Whoever succeeds Fernández de Kirchner in 2015 will have a chance to enact the changes outlined above and strengthen the Argentine economy.

Brent Crude Oil in longest contango since 2011

Brent crude oil steadied around $105 a barrel on Monday, close to a four-month low, as worries about oversupply outweighed concerns over violence in North Africa and the Middle East.

A supply glut in West African and European markets dragged Brent down 3.3 percent last week with the front Brent futures contract touching $104.39, its lowest since early April.

North Sea crude for immediate delivery has now been at a discount to futures in a formation called a contango for the longest period since 2011, indicating a well-supplied market.

The fall came despite conflicts in key oil producers Iraq, Libya that could disrupt oil production in future.

Brent crude was up 14 cents to $104.98 a barrel by 1400 GMT, after falling $1.18 on Friday to $104.84 a barrel, its lowest settlement since April 2.

U.S. crude crept up 2 cents to $97.90 after ending last week at its lowest settlement since Feb. 6. The U.S. contract futures fell more than 4 percent last week in the biggest weekly decline since January.

"Physical markets may be just starting to stabilise, but are still relatively weak," said Olivier Jakob at Petromatrix consultancy in Switzerland. "Brent is still in a contango."

Jakob said escalating violence in Iraq and Libya would continue to offer some support oil prices in the coming week.

"Libya is really going down the wrong way. Production has been slowly coming off," he said. "Libya could quickly return to a much lower production level."

Libya's oil output dropped to around 450,000 barrels per day (bpd), down from 500,000 bpd last week, but a spokesman for the National Oil Crop said oilfields were still secure despite clashes between rival factions in capital Tripoli.

More than 20 people had been killed in clashes around the capital on Sunday and fighting led to a huge fire raging at the city's fuel depot, as battles raged for control of the capital's airport in the worst violence since the 2011-NATO-backed civil war.

Commerzbank oil analyst Carsten Fritsch said oil prices could rise significantly if the situation deteriorated further.

"Market participants are doing an excellent job of ignoring the geopolitical risks," he said in a note to clients. "The oil market has settled into a dangerous state of complacency."

In Iraq, July oil exports increased to an average of 2.44 million barrels per day (bpd), up from 2.42 million bpd in the previous month, despite shipments from major oilfields around Kirkuk being suspended due to fierce fighting in the north of country.
Kurdish peshmerga forces said they planned a counter-offensive against Islamic State fighters who seized Ain Zalah oilfield and the country's largest dam on Sunday.

Source: Reuters