China's Merchants Bank H1 net profit higher 12.39% YoY

China Merchants Bank said on Saturday that its net profit climbed 12.39 percent from one year earlier to 26.27 billion yuan (4.24 billion U.S. dollars) in the first half of the year.

The growth was sharply lower than that posted in the same period of last year as the country's financial institutions felt the pinch of a slowing economy.

The bank attributed the increase in profit to net interest income gains and higher commission fees, which grew 8.71 percent and 45.54 percent year on year, respectively.

The value of the bank's total assets amounted to 3.81 trillion yuan as of the end of June, up 11.81 percent from one year earlier.

Its non-performing loans ratio went up 0.1 percentage point from the beginning of the year to hit 0.71 percent at the end of June.

US Investment Banks positive over China´s economy in H2

Foreign-funded institutions are optimistic about China's economic development arguing the country will face less risk of a severe slowdown, the China Securities Journal reported Friday.

JP Morgan Chase & Co. said three factors will support China's future economic recovery. These include robust investment in infrastructure and stable private input in the real estate sector, improving global economic circumstances in the second half of 2013, and the lagged effect of credit growth in the last quarter of 2012 and the first three months of this year.

JP Morgan maintained the forecast of China's yearly economic growth as 7.6 percent in 2013, with a steady and mild recovery in the next several quarters, according to the article.

Credit rating agency Moody's said the worst situation has already passed as July statistics showed that China's economy was returning to normal status, but recovery will be at a slow pace.

Goldman Sachs Group said that the Chinese central government is striving to stabilize the market and sustain economic growth before the approaching third plenary session of the 18th CPC Central Committee, according to the report.

Source:  Xinhua

China's outbound investment into the United States

The investment community has long awaited the growing wave of direct investment by China into the United States. Now, finally, despite continuing challenges, the US is swimming in Chinese capital. The Rhodium Group calculates that total Chinese direct investment in the US last year was US$6.5 billion, the highest ever, and the first half of this year has already seen US$4.7 billion of investment.
The first big wave of China's outbound investing was focused on natural resource and commodities plays. But, with the downturn in China's export economy and the related cooling of world commodities markets, such investments are less important. Today, a more urgent motivation to invest offshore is China's need to diversify its foreign reserve holdings.
The rational choice is for China to allocate more investments to the US, still by far the world's largest and strongest economy. US property markets are recovering, gross domestic product growth is back, employment is improving and US innovation continues to outpace the rest of the world.

Chinese banks face debt problems of local governments

In an article published yesterday in the Wall Street Journal about the financial sector in China says:
"The country's banking sector, a key part of a financial system that has powered China through three decades of breakneck expansion, is feeling the strain of years of rapid credit growth. Bank-fueled lending to state enterprises and local governments has led to overcapacity; serious debt problems for local governments, companies and lenders alike; and numerous white-elephant projects, from nearly empty malls and resorts to bridges to nowhere".
  The weakness at the banks is a major part of broader problems in China's financial sector. Many investors worry about the surge in off-balance-sheet loans employed by banks as a way to get around official lending limits, keeping the credit flowing to local governments and other high-risk borrowers. The surge in such "shadow-banking" activities prompted China's central bank to allow interbank borrowing costs to rise sharply in June—an attempt to rein in reckless lending. 
  The four largest state-owned banks by assets the Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd.—recently won board approval to issue up to a total of 270 billion yuan ($44.1 billion) in securities in the next two years.
  But the issue to raise more capital comes at a time of weak market sentiment.
China's banks have provided the resources necessary to finance the remarkable growth
rates of their economy. "In the process they surpassed their western rivals in market value,
as investors wanted a share of the country's growth". Based on market capitalization four
of the 10 largest banks in the world are Chinese.
   Much of that growth was built on politically directed lending. Some of it ended up establishing globally competitive industries ranging from steel to energy to solar panels. But a large portion also was used to build highways, railroads and other infrastructure projects sponsored by local governments.
  Assets in China's banking sector jumped 126.5% to about $21 trillion as of the end of last year from four years earlier, making it the fastest-rising banking system among emerging economies, according to Fitch Ratings Inc. But it also is the most thinly capitalized among those economies, with the amount of equity representing only 6.5% of total assets in China's banking system. By contrast, equity represents an average of 11.2% among 48 emerging economies.
  Most of the securities sales planned by the top four banks involve a kind of debt that banks can use to meet capital requirements and absorb losses from bad loans under new global and Chinese banking rules. The banks are seeking debt that doesn't mature for at least five years, providing a more stable source of liquidity than the short-term funds they lend to one another.

   Source: The Wall Street Journal

US Housing Starts in July

Housing made somewhat of a comeback in July and taking into account wet weather on the east coast should be taken as stronger than face value. Housing starts in July rebounded 5.9 percent after falling 7.9 percent in June. The July starts annualized level of 0.896 million units nearly matched the consensus forecast for 0.900 million units and was up 20.9 percent on a year-ago basis.  The boost in starts was led by a monthly 26.0 percent jump in the volatile multifamily component after a 24.8 percent fall in June. The single-family component dipped 2.2 percent after rising 1.2 percent the month before. By region, the gain in July starts was led by the Northeast with a monthly 40.2 percent surge, followed by gains of 25.4 percent in the Midwest and 7.2 percent in the West. The South declined 7.0 percent on the month. Permits returned to a moderate uptrend. Permits made a 2.7 percent comeback after dropping 6.8 percent in June. July's annualized pace of 0.943 million units was up 12.4 percent on a year-ago basis. Market expectations were for 0.935 million units for July permits. Housing data are weak currently due to atypically wet weather on the east coast and there is uncertainty from mortgage rates going up from worries about Fed tapering. But the trend still appears to be a moderate uptrend-especially as short supply of houses on the market is boosting construction.

Housing starts retrenched sharply in June on a downswing in the volatile multifamily component. And atypically wet weather likely weighed on starts. Housing starts in June fell back 9.9 percent, following an 8.9 percent surge in May. The June starts annualized level of 0.836 million units was up 10.4 percent on a year-ago basis. June's starts level was the lowest since August 2012. The decrease in starts was led by a monthly 26.2 percent drop in the multifamily component after a 28.2 percent jump in May. The single-family component slipped 0.8 percent, following a 0.5 percent rise in May. Permits also dropped sharply on a plunge in the multifamily component. Permits fell 7.5 percent in June after dipping 2.0 percent the prior month. June's annualized pace of 0.911 million units was up 16.1 percent on a year-ago basis. Source  Bloomberg

Fed Bullard hinting small reductions in bond buying

"The Federal Reserve could hedge its bets by making small moves rather than large, aggressive ones when it starts pulling back on its $85 billion-a-month bond-buying program, said James Bullard, president of the Federal Reserve Bank of St. Louis.

"A larger move would be interpreted as a faster pace of reduction," he said Thursday. "A smaller move would be considered a more hedged bet, a slower rate of reduction in purchases."

He didn't elaborate on what amount would constitute a small pullback or a larger one"

Source: WSJ

Once again individual investors flocking into risky new "generation" investment products

According to an article published in the Wall Street Journal today, "individual investors are pouring tens of billions of dollars into a new generation of complex investment products, and regulators are raising concerns that not all buyers understand the costs and risks.
 The products often employ sophisticated strategies that aren't used by traditional stock and bond funds. They include betting against stocks, or shorting them, using derivatives or leverage to amplify bets, and buying unusual assets such as privately issued junk bonds.

A total of $59 billion poured into alternative mutual funds this year through July, according to Morningstar, making it by far the fastest-growing mutual fund category.

The figure reflects new investments into such funds minus withdrawals. The jump in those seven months was bigger than any previous full-year increase. The alternative mutual funds attracted $25.6 billion in additional assets in 2012".

Wall Street regulators are always "concerned" but when they apply regulations they are always too little and too late.

Source: The Wall Street Journal

Precious Metals Prices

Gold Price Futures     3 months        US$   1,368.46

Silver Price Futures    3 months        US$       23.02

China's CNOOC to build first floating LNG terminal in Tianjin

The CNOOC Gas and Power Group, a wholly-owned subsidiary of CNOOC, China's largest offshore oil and gas producer, said Thursday that its first floating liquified natural gas (LNG) project has gone through government approval.

The floating LNG terminal project, located in north China's Tianjin Municipality, will be the first of its kind to be built in the country, the company said.

It said in a statement that it will spend 3.3 billion yuan (534.7 million U.S. dollars) to build the floating LNG terminal, which will ensure fast supplies and shorten the construction period for its Tianjin LNG project by up to four years.

The floating LNG project will supply 3 billion cubic meters of gas each year, according to the company. However, the company did not say when construction on the floating facility will be completed.

Source: Xinhua

China strongly protested visit of Japanese cabinet members to Yakusuni Shrine

China has strongly protested against and condemned the visits of Japanese cabinet members to the controversial Yasukuni Shrine on Thursday.

Vice Foreign Minister Liu Zhenmin summoned Japanese ambassador to China Masato Kitera and lodged representations over the issue, Chinese Foreign Ministry spokesman Hong Lei said.

It is an open challenge to historical justice and human conscience that Japanese cabinet members visited the shrine which honors Class-A war criminals on the 68th anniversary of Japan's surrender in World War II, Hong said. He added that it severely hurts the feelings of people in victim countries in Asia, including China.

The Yasukuni Shrine issue reflects whether Japan can correctly understand its own militarism and history of aggression, as well as respect the feelings of people in victim countries in Asia, Hong said.

"The attitude of those in power in Japan toward historical issues, including the shrine issue, concerns the political foundation of China-Japan relations," Hong said.

In whatever forms and names the Japanese leaders visit the shrine, the nature is that they attempt to deny and glorify the militarism and history of aggression and challenge the results of World War II and the post-war international order. This will draw firm opposition and unanimous condemnation from China and other Asian countries, he said.

Hong reaffirmed that Japan can only face the future by looking in the mirror of history. He urged Japan to deliver their commitment to deeply reflect upon their history of aggression and make real efforts to gain trust from the international community.

"Otherwise, Japan's relations with its neighboring Asian countries will have no future," the spokesman said.

Repeated visits to the shrine by Japanese leaders and lawmakers have become a major obstacle for Japan to mend ties with its neighbors, especially China and South Korea, which suffered from Japan's invasion during World War II.

Government Bonds

Government Bonds

                                                                                Price        Yield
                                                                               Change        %

U.S. 5 Year			0/32	1.526
U.S. 10 Year			-1/32	2.776
U.S. 30 Year			-2/32	3.812
Germany 2 Year			0/32	0.247
Germany 10 Year			0/32	1.888
Italy 2 Year			0/32	1.874
Italy 10 Year			0/32	4.247
Japan 2 Year			0/32	0.114
Japan 10 Year			-4/32	0.758
Spain 2 Year			0/32	1.721
Spain 10 Year			0/32	4.447
U.K. 2 Year			0/32	0.428
U.K. 10 Year			0/32	2.685

Source : WSJ

Japan's Government: Economy approaching end to deflation

Japan is approaching an end to deflation, the government said on Thursday, offering its most upbeat view on prices in nearly four years as a steady pick-up in the economy allows more companies to pass on rising costs to consumers.

The government also revised up its assessment on the job market to say it is "improving," as falls in the yen triggered by Prime Minister Shinzo Abe's reflationary policies boost manufacturers' profits and push down the jobless rate to levels before the collapse of Lehman Brothers.

"Recent price developments indicate that deflation is ending," the government said in a monthly economic report for August, offering a brighter view than last month when it said deflationary pressures were easing.

But it is too early to declare that Japan has made a sustained exit from deflation, according to an official who briefed journalists on the report, noting that doing so would require more lasting rises in consumer prices.

Japanese consumer prices rose in June for the first time in more than a year, although most of the increase was due to higher electricity bills rather than stronger demand that could drive a durable recovery.

The government has described the economy as in deflation since November 2009. Removing the word "deflation" from the report, or declaring that deflation is over, would herald a major success in its battle with price declines.

Source :  NewsOnJapan

Precious Metals Prices

Gold Price Futures        3 months       US$  1,324.66

Silver Price Futures       3 months       US$      21.79

Marc Faber thoughts on the price of gold

 “Maybe gold is signaling a deflationary collapse of all asset prices.

If this were indeed the case I suppose I would rather own gold than

government bonds, high yield bonds and equities. If this scenario were

to pass it would lead to even more money printing around the world,” 

Source:  Marketwatch

US PPI July

PRODUCER PRICE INDEXES - JULY 2013


The Producer Price Index for finished goods was unchanged in July, seasonally adjusted, the 
U.S. Bureau of Labor Statistics reported today. Prices for finished goodsmoved up 0.8 percent 
in June and 0.5 percent in May. At the earlier stages of processing, prices received by manufacturers of intermediate goods also were unchanged in July,and the   crude goods index 
rose 1.2 percent. On an unadjusted basis, prices for finished goods advanced 2.1 percent for the 
12 months ended July 2013.

EU zone economy grew 0.3% in Q2

The euro-zone economy emerged more strongly than expected from its longest postwar contraction in the three months to June, but a resolution to its banking and fiscal crises remains a distant prospect.

The European Union's official statistics agency Wednesday said the combined gross domestic product of the currency area's 17 members was 0.3% higher than in the first three months of the year, but 0.7% lower than in the second quarter of 2012. It was the fastest quarterly expansion since the first three months of 2011.

The median forecast offered by 19 economists who were surveyed by The Wall Street Journal last week was for a quarter-to-quarter expansion of 0.2%, and a year-to-year decline of 0.8%.

The euro zone's return to growth after six

straight quarters of contraction was driven by Germany, its strongest and largest economy. It recorded the fastest expansion among large developed economies during the quarter.

Germany's GDP, the broadest measure of goods and services produced across the economy, swelled 0.7% in the second quarter from the preceding period, in line with economists' forecasts. That equals annualized growth of 2.9%, the statistics office said.

Source: WSJ

EU Indicators

June 2013 compared with May 2013
Industrial production up by 0.7% in euro area
Up by 0.9% in EU27
In June 2013 compared with May 2013, seasonally adjusted industrial production
 grew by 0.7% in the euro area
(EA17) and by 0.9% in the EU272
, according to estimates released by Eurostat, the statistical office of the
European Union. In May3
 production decreased by 0.2% and 0.4% respectively.
In June 2013 compared with June 20124
, industrial production increased by 0.3% in the euro area and by 0.4% in the EU27.
In June 2013 compared with May 2013, production of durable consumer goods grew by 4.9% in the euro area and
by 4.2% in the EU27. Capital goods increased by 2.5% in both zones. Intermediate goods rose by 0.5% in the euro
area and by 0.8% in the EU27. Non-durable consumer goods fell by 0.6% and 0.3% respectively. Energy dropped
by 1.6% in the euro area and by 1.3% in the EU27.
Among the Member States for which data are available, industrial production rose in fourteen and fell in eight. The
highest increases were registered in Ireland (+8.7%), Romania (+5.7%), Poland (+3.1%), Germany and Greece
(both +2.5%), and the largest decreases in the Netherlands (-4.1%), Portugal (-2.8%) and France (-1.5%).
In June 2013 compared with May 2013, production of durable consumer goods grew by 4.9% in the euro area and
by 4.2% in the EU27. Capital goods increased by 2.5% in both zones. Intermediate goods rose by 0.5% in the euro
area and by 0.8% in the EU27. Non-durable consumer goods fell by 0.6% and 0.3% respectively. Energy dropped
by 1.6% in the euro area and by 1.3% in the EU27.
Among the Member States for which data are available, industrial production rose in fourteen and fell in eight. The
highest increases were registered in Ireland (+8.7%), Romania (+5.7%), Poland (+3.1%), Germany and Greece
(both +2.5%), and the largest decreases in the Netherlands (-4.1%), Portugal (-2.8%) and France (-1.5%).
In June 2013 compared with June 2012, capital goods grew by 3.3% in the euro area and by 3.2% in the EU27.
Durable consumer goods fell by 1.0% in the euro area and increased by 0.1% in the EU27. Non-durable consumer
goods dropped by 1.1% and 0.5% respectively. Intermediate goods declined by 1.3% in the euro area and by 0.7%
in the EU27. Energy decreased by 1.7% and 2.9% respectively.
Among the Member States for which data are available, industrial production rose in eleven and fell in eleven. The
highest increases were registered in Romania (+9.6%), Poland (+5.3%) and Estonia (+4.7%), and the largest
decreases in Finland (-5.9%), Bulgaria (-4.4%) and the Czech Republic (-3.0%)

Source Eurostat

Mexico´s president proposes to open oil sector to foreign investors

President Enrique Pena Nieto has proposed reforms that will encourage foreign and domestic investment in the industry.

Mexico's oil industry is dominated by the state oil firm Pemex, but it needs investment and expertise to develop new oil and gas fields.

Currently, private companies can be awarded service contracts within the oil industry.

If the reforms go through, analysts say the liberalisation of the oil sector could double foreign investment in Mexico, giving the economy the biggest boost since the country joined North American Free Trade Agreement (NAFTA) twenty years ago.

BBC Correspondent in Mexico, Will Grant said: "The reform won't be simple to get through congress.

"The government faces a complicated task in negotiating with all sides, including the powerful unions.

"Yet, there is a growing sense among ordinary Mexicans that Pemex is no longer fit for purpose, is an aging and out-dated institution and that root and branch reform is probably needed," he said.

A large share of Pemex's profits support government spending which has hampered the company's ability to fund new projects.

The government has warned that Mexico faces becoming a net oil importer as early as 2018, if major new oil projects cannot be developed.

Foreign oil companies, including BP and Exxon Mobil, are waiting to see the details of the reforms to see exactly what investments will be allowed.

According to figures from OPEC, Mexico is the world's 10th-biggest producer of crude. Production has fallen by 25% since hitting a peak of 3.4m barrels per day in 2004.

Source  BBC

Precious Metals Prices

Price of Gold Futures        3months        US$   1,334.74

Price of Silver Futures       3months        US$       21.28

Strategic cooperation between Singapore's Hyflux and China's Sichuan Province

Singapore's leading water treatment firm Hyflux said Monday that it has inked an exclusive strategic cooperation framework agreement for an eco project in China's Sichuan Province.

The project, named Hejiang Fobao Yulanshan Mountain Wetlands project, is planned "to be a world-class ecological and environmentally friendly development consisting of residential, commercial, recreational and tourism developments."

Hyflux, through its wholly-owned subsidiary, Hyflux Management and Consultancy Pte Ltd signed the agreement with Hejiang County People's Government and Sichuan Hengxin Weiye Investment Co., Ltd.

The Hyflux said during the six-month validity period of the agreement, it will conduct feasibility studies with Hengxin Weiye Investment. The two companies will also work with local government of Hejiang County "on the features and other details of the project, including the design and development of sustainable water infrastructure and other environment related facilities."

Abe to revise Japanese pacifist Constitution

Japanese Prime Minister Shinzo Abe said Monday that to revise the country's war-renouncing constitution is a historic duty of him, local media reported.

The prime minister made the remarks in a speech at Nagato city in Yamaguchi prefecture. He said he would achieve the goal in order to make Japanese children be proud of their country through educational reform, reported Japan's broadcaster NHK.

Japan revised several versions of history textbooks, whitewashing its war crimes in the World War II. The move has drawn strong opposition from neighboring countries that suffered Japan's aggression during the war.

Japan's current constitution, also known as the pacifist constitution, renounced the country's rights to announce war against other countries.

However, Japanese rightwing politicians called for revising the constitution and upgrading the country's Self-Defense Forces to a full national army, triggering international concerns over the issue.

Globalization in trade and integration of capital Markets and its repercussions in inflation and asset prices

"Many economists argue that monetary policy should aim at stabilizing inflation as traditionally measured, for example, by consumer price developments. However, there is a good deal of evidence that overheating can manifest itself even under conditions of price stability as conventionally defined and that it may show up in balance sheets, in asset prices, or in the form of financial fragilities. I also believe that there is a basis at least for the hypothesis that the forces of globalization in both goods markets and financial markets are contributing to dampen pressures on goods and services prices while at the same time increasing the risk that potential inflationary pressures show up in asset markets instead. This is consistent with the view of some economists that the risk of asset market bubbles may be greater at low rates of inflation in goods and services prices. The question then arises whether the focus of monetary policy should be expanded to help stabilize asset markets. 
Let me stress immediately that I share the concern of those who argue that monetary policy should not attempt to target asset prices. However, this does not imply that monetary policy should not pay attention to the consequences of asset price developments.
These issues have become more pressing in light of the integration of capital markets which may be contributing to cyclical divergences across countries.
  At the same time, global competitive forces help to keep goods prices inflation relatively low in countries with strong economic expansions. The tendency for the capital inflows to lead to exchange rate appreciation is also a factor that is helping to keep our traditional measures of inflation in check, thereby muting or delaying the signals of inflationary pressures that we are accustomed to monitor. As a result, there is a risk that we may continue to experience macroeconomic instability with boom and bust cycles as seen in the past, even in the absence of strong inflation signals from our traditional indicators. To reduce this risk, I believe that monetary authorities need to pay more attention to asset markets and to unsustainable balance sheet developments. The implication is that interest rates will probably still need to vary a great deal over the business cycle even if inflation is relatively low".

Flemming Larsen, the deputy director of research at the IMF

Speech at the Conference, June 11th 1999

Global Economic and Financial Developments in the 1990s and Implications for Monetary Policy. 

Mexico's PRI party agrees with reform in energy legislation

Mexico should not be fearful of change when it comes to reforming the country’s aging energy sector, said Institutional Revolutionary Party (PRI) Parliamentary Coordinator Manlio Fabio Beltrones Rivera on Sunday.

 “We want a transformational reform that creates jobs and social wellbeing and reduces energy prices,” Beltrones said. Beltrones made his comments the same day President Enrique Peña Nieto announced that he will present his proposals for energy reform on Monday.

 Peña Nieto had previously been scheduled to present the bill last week but he delayed it at the last minute. Peña Nieto is expected to propose introducing foreign capital into what is currently a state-run hydrocarbon industry — a move that has sparked divisions between those who see it as the fastest way to modernizing the sector’s ailing industry and those who feel it would compromise Mexico’s patronage of its natural resources, currently protected by the Constitution.

 “The great majority of Mexicans have the plain conviction that governance of denial and simplification has produced stagnation, isolation and frustration,” Beltrones said. Democratic Revolution Party (PRD) Parliamentary Vicecoordinator Miguel Alonso Raya said Mexico must not give in to pressure for the country to give up its reserves.

 “We shouldn’t give in to pressures to relinquish our hydrocarbon reserves, or to those who want to modify the constitution and who look to appropriate part of the earnings of our reserves through concessions,” Alonso Raya said.

Source: The News Mexico

China unveils financial support for small businesses

China's cabinet on Monday unveiled details of financial support for the cash-strapped small businesses which play a key role in growth and employment.

Credit growth to small enterprises should not be lower than total credit growth. The incremental amount should not be less than that recorded a year earlier, read a statement by the State Council.

Village banks, credit companies and other small financial institutions are encouraged to set up branches in areas where small businesses are concentrated.

Private banks, financial leasing companies and consumer financial companies are also encouraged to set up in those areas.

"Private capital should have easy access to the finance industry. Small financial institutions can provide effective services and promote fair competition," the statement noted.

With the economy slowing for several quarters, the government is looking to small businesses to stabilize growth and employment.

According to the Ministry of Industry and Information Technology, 99 percent of companies registered in China are small or medium enterprises. They provide up to 80 percent of urban jobs and 60 percent of economic output.

Source Xinhua

Housing investment in Beijing -8.8% YoY

Housing investment in Beijing fell 8.8 percent year on year to 74 billion yuan (12 billion U.S. dollars) in the January-July period, as home price caps dented investment, data released Monday showed.

During the period, total property investment rose at a year-on-year rate of 1.2 percent, which indicated a slowing growth, to 164.4 billion yuan, the municipal bureau of statistics said in a statement.

Zhang Dawei, director of Centaline Property's research center, said property developers couldn't get satisfactory presale prices when applying for presale permits due to housing price caps that were implemented in March, thus affecting sales and investment.

At the end of July, 64.4 million square meters of residential housing was under construction, down 3.3 percent from a year earlier.

Property sales climbed 20.8 percent year on year to 9.9 million square meters in the seven months. Of the total, home sales grew at a slower annual rate of 16.7 percent to 7.25 million square meters.

Housing sales have slowed sharply since March, when a 20-percent tax on capital gains from property sales went into effect along with tighter purchasing restrictions aimed at cooling off the market.

Source  Xinhua