Japan's economy grew 2.6% in Q2 less than forecast

Japan's economy logged a third quarter of growth in the three months ending June, but the increase was much smaller than expected.

The economy grew 2.6 percent on an annualized basis in the April to June quarter, lower than 3.6 percent growth forecast according to Reuters and follows the 4.1 percent growth in the first quarter, government data showed on Monday.Quarter on quarter growth came in at 0.6 percent, versus expectations of 0.9 percent and compared to the 1 percent figure logged in the first quarter.
The figures are seen as an important indicator in determining whether the government moves forward with plans to raise the consumption tax in April 2014, say economists. The decision is expected to be made on September 9 following the release of revised second quarter gross domestic product data.

Source NewsOnJapan

Precious Metals Prices

Gold Price Futures   3months       US$   1,329.73

Silver Price Futures  3months       US$       21.02

China to spur technological innovation

China will speed up development of the energy-saving sector and make it a pillar of the national economy by 2015, top policymakers said on Sunday.

The State Council vowed in a statement to spur technological innovation, expand demand for energy-saving products and boost the environmental-protection service industry.

According to the State Council, the value of the energy-saving industry's output will reach 4.5 trillion yuan ($728 billion) by 2015, an average annual growth of 15 percent.

Wang Xiaokun, an energy analyst at Sublime China Information, a Chinese commodities consulting firm, said the policy gives clear direction to the industry and brings opportunities to investors, including private companies.

The government will play a leading role and allow non-State capital to invest in energy-saving projects.

"The government encourages low-carbon and energy-saving development, which means business opportunities to the suppliers for such industries," said Wang. "For instance, the equipment manufacturers for power plants and grid will benefit from the policy."

Source: Xinhua

Futures contracts and leverage. Part I

One of the hard lessons for thousands of individual investors are the  losses in net worth that the volatitility of the futures contracts can bring to investors in commodities, not only in this market
but also in the spot market because there is only a difference between both prices, depending on market conditions contango or backwardation,and of course in the price of the shares of the companies that produce commodities

  For example one futures contract for gold controls 100 troy oz of gold. Being more specific when
you buy a futures contract you are entering into an agreement to buy gold in the future(usually 3months) longer deliveries have less liquidity. Right now in the Comex the margin is 25%, that
means that you buy 100 troy oz whose market value is US$ 132,990 with US$ 33,247.50. If the price of gold falls, you will have to increase your deposit,or you will be automatically liquidated if you
don't answer to a margin call.
  Now the futures market is called a paper market, for one simple reason,many market participants
don´t take the delivery of their futures contracts, they liquidate them before their expiration or they renew them for a later delivery

   So it is absolutely true that this market can bring high volatility in prices,and for long periods of time
the quantities involved in the futures contracts surpass the quantities that can be delivered in the
physical market of a commodity.
  If you add to this the low interest rates, the quantity of money in the banking system stemmed by
QE,and the leverage that the futures contracts bring. The picture is very clear.
   The trauma of the stock market crash of 2007-8 should have brought more market regulations,one of the big  reasons of this long recession is the still present deleveraging of american households.
  For me this means increased supervision and regulations of ALL kinds of leverage
  Of course I'am not saying that the only reason e.g for the correction of the gold price and its volatility is because of the futures market, but it brings a distinguishing feature that can be easily manipulated,by big investment banks,big speculators and hedge funds. Or not?
   

UN President view solid growth in China's economy

 President of the United Nations General Assembly Vuk Jeremic said Friday that the Chinese economy is one of the strongest performers worldwide and offers optimism to the world economy.

Jeremic, president of the 67th session of the UN General Assembly, made the comments in a joint interview with Chinese media in Beijing.

He said one of the most significant reference points to the world economy is China's economic situation. If China is going in the right direction, the rest of the world will be going in a good direction economically. If China is having difficulties, everybody is going to have difficulties.

In the first half of the year, China's economic growth slowed to 7.6 percent.

"The growth, which some people question that whether this is good enough or strong enough... I don't really think that there are too many countries in the world that can have 7.6-percent growth, a very stable one," he said.

"I understand that of the 7.6-percent growth rate, 7.5 percent can be attributed to domestic demand, so we are talking about really 'solid' growth, perhaps not 10 percent like China used to have," he added.

Jeremic praised China for showing the strength and resilience in the face of international challenges.
Source: Xinhua

Why so many market crashes and bubbles since the 70's ?

We are always shocked by what we have read or heard about the Depression of 1920-21 and  the
Wall Street Crash of 1929 and the the market crash and depression of 1937-38.We have heard or/and read about unwise monetary restrictive policies and ultra protectionist trade responses by Goverments
which exacerbated these crisis, and that now, are past experiences with hard lessons learned.

But other market crashes and bubbles have happened long past these previous experiences, and they have become ever more often. I will mention them by calendar ocurrence, The 1971 Brazilian Market
Crash, the 1973-74  stock market crash, the silver Thursday 1980, 1982 the Souk Al-Manakh stock market crash,the Japanese asset price bubble 1986-1991, Black Monday 1987, Rio de Janeiro Stock Exchange Collapse 1989,Friday 13th mini-crash 1989,Black Wednesday 1992,The Dot-com bubble
(1995-2000), The Asian Fiancial Crisis 1997, The October 27,1997 mini-crash,the 1998 Russian
Financial Crisis, Economic Effects of September 11th attacks 2001, 2002 market crash,Chinese stock
Bubble,U.S real state bubble 2003-2008,US stock market crash 2007-2008 Great Recession,Flash crash 2010.


 I will write  on stock market crashes that have their origin in loose monetary policies,low and even negative real interest rates,in economies with low inflation in terms of CPI, which create
mis-allocation of resources and bubbles in asset clasess

   The mandate of Central Banks is only to have price stability and full employment?

    

Precious Metals Prices

Gold Price Futures           3 months          US$  1,309.59

Silver Price Futures         3 months          US$       20.37

Japan Debt in the ‘Quadrillion’ Zone

According to an article published in the Wall Street Journal today,Japan’s central-government debt topped the quadrillion-yen mark for the first time ever in the second quarter.
The central government’s outstanding liabilities totaled ¥1.009 quadrillion ($10.44 trillion) at the end of June, up from Y991.601 trillion three months earlier. 

The figure is more than 200% of what Japan’s economy, the world’s third-largest, produces per year. That’s by far the highest debt load among industrialized economies.

Add some ¥200 trillion of outstanding long-term municipal debt and the ratio jumps to 250%.

Still, the data may help Prime Minister Shinzo Abe to follow through with a plan to raise the consumption tax.

“Given that the fiscal deficit is running high and government debt outstanding has already reached extremely high levels, it’s quite important for the government to show a clear path toward fiscal consolidation, and implement it,” Bank of Japan Gov. Haruhiko Kuroda said Thursday.

The debate over the plan to raise the 5% sales tax to 8% in April and 10% in October 2015 has intensified recently as two of Mr. Abe’s economic advisors say the hike should be phased in more slowly to cushion any blow to growth and let the recovery take root. 

The Japanese central bank, Finance Ministry and International Monetary Fund are trying to refute the arguments for delaying the planned tax hikes. Mr. Kuroda said Japan’s recovery is solid enough to take tax hikes in stride.

Unnerving tax-hike proponents is the fact that Mr. Abe belongs to a group of so-called “reflationists,” whose want to rely mainly on monetary easing to revive Japan’s deflating economy. Many of them prefer to rely more on growth than on tax hikes to fix government finances.

Backers and critics of the tax plan are closely watching initial estimates for Japan’s April-June quarter gross domestic product, out Monday morning. Mr. Abe has said that data point will be key in deciding whether he will push the tax rate higher next year.

Source: WSJ

BOJ: Keeps ultraloose monetary policy

The Bank of Japan on Thursday maintained its ultraloose monetary policy introduced in April and left unchanged its assessment of the national economy that it is "starting to recover moderately," after upgrading the view for seven consecutive months.

On Japan's consumer prices that turned higher in June for the first time in one year and two months, the central bank said the size of the year-on-year increase in the index is likely to expand gradually. The BOJ is aiming to achieve an inflation target of 2 percent in about two years.

Source:  NewsonJapan

China's fixed asset investment grew 20.1%

China's urban fixed-asset investment grew 20.1 percent year on year in the first seven months, staying flat from the figure for the first half, the National Bureau of Statistics announced on Friday.

Source:  Xinhua

China's: Industrial output rose 9.7% in July

China's industrial output growth picked up in July, according to data released Friday by the National Bureau of Statistics (NBS).

Industrial value-added output expanded 9.7 percent year on year in July, 0.8 percentage point higher than June's 8.9 percent and the highest growth in past five months, data show.

The industrial output growth data reflected a similar acceleration in the manufacturing purchasing managers index (PMI), which rose slightly to 50.3 percent in July from 50.1 percent in June, according to survey results published by the China Federation of Logistics and Purchasing and the NBS last week.

On a month-on-month basis, industrial output growth in July added 0.88 percent from June, according to the NBS.

During the first seven months of the year, industrial value-added output increased 9.4 percent year on year.

State-owned enterprises registered an annual growth rate of 8.1 percent in July, while overseas-funded companies posted growth of 7.9 percent in the month. Joint-equity companies led the gains by expanding 11.1 percent in the month.

Source:  English.news.cn

China's retail sales grew 13.2% in July

China's nominal retail sales grew 13.2 percent year on year in July to 1.85 trillion yuan (300.2 billion U.S. dollars), the National Bureau of Statistics (NBS) announced on Friday.

The growth rate was down by 0.1 percentage point from June, but it was higher than the 12.7-percent growth for the first half of 2013, according to NBS data.

Sovereign Funds of Gulf Cooperation Council

Assets accumulated by sovereign wealth funds (SWFs) of Gulf Cooperation Council (GCC)
countries as a whole amount to more than $1.8 trillion  or 34% of $5.4 trillion assets         accumulated by SWFs worldwide . The capitalization of SWFs is only about a
quarter of that of other types of funds, such as pension or mutual funds, but unlike such funds
GCC SWFs continued to expand very rapidly after the crisis on the back of rising oil prices.
The largest GCC SWFs were established in the 1950s and in the 1970s in the wake of decolonization and oil shocks, when Gulf monarchs began to consolidate their ownership over their
own oil production. Most of the smaller GCC SWFs, however, appeared after 2000, when average oil prices progressively quintupled from $20 per barrel (pb) to more than $100 pb, swelling balance of payment surpluses in oil-exporting countries.

The GCC Sovereign Funds *           US$ Billion Dollars

          UEA                                             816.6

          Saudi Arabia                                538.2

          Kuwait                                         342

          Qatar                                            115

          Oman                                               8.2

          Bahrain                                            7.1

          *Sovereign Wealth Fund Institute

           Pierre Kohler

           United Nations Organization
           

Precious Metals Prices

Gold Price Futures        3 months     US$  1,314.93

Silver Price Futures      3 months      US$      20.21

China's CPI grew 2.7% YoY in July

China's consumer price index (CPI), a main gauge of inflation, grew 2.7 percent year on year in July, staying flat from the figure for June, the National Bureau of Statistics (NBS) announced on Friday.

The figure was lower than market expectations of an increase of 2.8 percent, and remained well below the government's full-year target of 3.5 percent.

The NBS attributed the inflation growth mainly to rises in food prices on a year-on-year basis, which went up 5 percent in July. Food prices weigh about one third in calculation of the CPI.

Yu Qiumei, a senior statistician with the NBS, said China's consumer prices have stayed relatively stable. "Compared on a monthly basis, the July CPI grew 0.1 percent from June, and food prices in July also stayed flat from a month ago," Yu said.

China's Trade report shot copper to a two month high

According to an article published in the Wall Street Journal today,"copper futures shot to a two-month high after data showing imports by top consumer China rose to the highest level in 14 months in July.
The most actively traded copper contract, for September delivery, rose 9.75 cents, or 3.1%, to settle at $3.2705 a pound".
"Chinese exports and imports both rose more than economists had expected last month, a sign that the second-largest economy may be steadying following a slowdown during the first half of the year.
Chinese exports rose 5.1% in July from the same month a year earlier, data released on Thursday showed, reversing a 3.1% drop the previous month".

"China's copper imports in July rose 12% from a year earlier, to 410,680 tons, the most since May 2012.

Analysts with Commerzbank said in a note that traders in China likely took advantage of the lower global copper prices to stock up".

Stephen Roach: China crash syndrome

Excerpts

''China crash syndrome once again.Never mind the recurring false alarms over the past couple of decades. This time is different, argues the chorus of China skeptics".
"Yes, China’s economy has slowed. While the crisis-battered West could only dream of matching the 7.5% annual GDP growth rate that China’sNational Bureau of Statistics reported for the second quarter of 2013, it certainly does represent an appreciable slowdown from the 10% growth trend recorded from 1980 to 2010".
 But the skeptics are not only worried by a possible hard landing,they also concerned over excessive debt and
fears of a fragile banking system,and about the property bubble. And the lack of meaningful progress to change
the export led and fixed investment model, to one driven by private consumption.
"The rebalancing of any economy – a major structural transformation in the sources of output growth – can hardly be expected to occur overnight. It takes strategy, time, and determination to pull it off. China has an ample supply of all three".

"It is far too early to expect significant shifts in the major sources of aggregate demand. For now, it is much more important to examine trends in the potential determinants of Chinese consumption.

From this perspective, there is good reason for optimism, especially given accelerated growth in China’s services sector – one of the key building blocks of a consumer-led rebalancing. In the first half of 2013, services output ( expanded by 8.3% year on year – markedly faster than the combined 7.6% growth of manufacturing and construction.

Moreover, the gap between growth in services and growth in manufacturing and construction widened over the first two quarters of 2013, following annual gains of 8.1% in both sectors in 2012. These developments – first convergence, and now faster services growth – stand in sharp contrast with earlier trends.
Indeed, from 1980 to 2011, growth in services output averaged 8.9% per year, fully 2.7 percentage points less than the combined growth of 11.6% in manufacturing and construction over the same period. 
The recent inversion of this relationship suggests that the structure of Chinese growth is starting to tilt toward services.

In 2011, Chinese services generated 30% more jobs per unit of output than did manufacturing and construction. This means that the Chinese economy can achieve its all-important labor-absorption objectives – employment, urbanization, and poverty reduction – with much slower GDP growth than in the past. In other words, a 7-8% growth trajectory in an increasingly services-led economy can hit the same labor-absorption targets that required 10% growth under China’s previous model.
That is good news for three reasons. First, services growth is beginning to tap a new source of labor-income generation, the mainstay of consumer demand. Second, greater reliance on services allows China to settle into a lower and more sustainable growth trajectory.
And, third, growth in the embryonic services sector, which currently accounts for just 43% of the country’s GDP, broadens China’s economic base, creating a significant opportunity to reduce income inequality.

 Far from crashing, the Chinese economy is at a pivotal point. The wheels of rebalancing are turning. While that is not showing up in the composition of final demand (at least not yet), the shift from manufacturing and construction toward services is a far more meaningful indicator at this stage in the transformation.
Slowly but surely, the next China is coming into focus. China doubters in the West have misread the Chinese economy’s vital signs once again".

Stephen Roach
Former Chairman of
Morgan Stanley Asia
Project Syndicate

China: Local Governments meet revenue targets in H1 2013

"Property boom helps provinces, cities hit half-year targets, despite slowdown in the overall economy

Local governments' fiscal revenue in the first half of this year generally slowed down compared with a year earlier but its growth was much faster than that of the central government because of surging housing-related revenues.

So far, 31 provinces, municipalities and autonomous regions across China's mainland have released their half-year fiscal reports. Although all have fulfilled their six-month targets, growth has significantly slowed, providing evidence of the slowing economy's toll on tax revenue.

Nationally, China's local fiscal revenue in the first half grew 13.5 percent to 3.628 trillion yuan, down from 14.4 percent growth a year earlier. But the growth of local fiscal revenue was well above the central government's 1.5 percent gain.

China's eastern regions maintained a steady revenue growth, while the figures for central and western regions generally fell to more than 10 percent. It was higher than 20 percent just two or three years ago.

While inland regions struggled, coastal regions maintained a steady growth rate, thanks to a booming property market in the first six months .

In Shandong province, brisk property transactions sent the province's fiscal revenue up to 253.6 billion yuan, a rise of 12.5 percent over a year before. Tax collected from the housing market totaled 43.2 billion yuan. Although it only contributed 17 percent of public finances, it accounted for 53.7 percent of the increment".

China Economic Net

China's exports improve in July

China's exports went up 5.1 percent year on year to 185.99 billion U.S. dollars in July, recovering from a tumble in June, according to data on Thursday.

Imports also rebounded last month, gaining 10.9 percent to 168.17 billion U.S. dollars, the General Administration of Customs said in a statement.

Total foreign trade grew 7.8 percent in July from a year earlier to 354.16 billion U.S. dollars, after it recorded a year-on-year decline of 2 percent in June.

The trade surplus narrowed by 29.6 percent year on year to 17.82 billion U.S. dollars last month, as import gains outpaced export gains, customs data showed.

In July, two-way trade with the EU and the United States rose 5 percent and 10 percent over a year earlier respectively, as compared with a year-on-year drop of 5.4 percent and 8.3 percent respectively with the two economies in June.

Zhuang Jian, an Asian Development Bank economist, expected China's foreign trade to perform better in the second half, but said great difficulties and uncertainties still lie ahead.

Zhuang said China should continue to optimize its export structure, enlarging the share of electronic and machinery products.

Exports of electronic and machinery products grew by 4 percent to reach 102.85 billion U.S. dollars in July, accounting for 55.3 percent of total exports. The proportion was 57.8 percent in the first half, indicating more efforts in the coming months.

Liu Ligang said the long-expected detailed plan on building a pilot free trade zone in Shanghai is likely to be announced in late August or early September, which will give a boost to the service trade.

Source:   Xinhua

China's innovation ability looms large

The UK lags behind China and the US on investing in technology to drive innovation, according to a survey of business leaders across Britain.
In an Accenture survey two months ago of 500 executives and public sector leaders, more than two-thirds of those business leaders said China would reach or pull ahead of Europe in innovation by 2023. However, two-thirds of those polled also said European industry was still competitive internationally.

China spent about 1 trillion yuan ($160 billion) in research and development in 2012, accounting for a little less than 2 percent of its gross domestic product. About 74 percent of that investment was made by businesses.

As leaders of the second-largest economy vow to move to an innovation-driven society by 2020, the investment in GDP has increased 20 percent each year for the past six years.

The US is still leading China in total government and private-sector investment in R&D, with nearly a double amount. However, the White House Council of Advisors on Science and Technology warned that if the current trend continues, China may overtake over the US within a decade.

Ann Lee, an adjunct professor at New York University, said China is still not taking a lead in disruptive technological breakthroughs.

It is getting closer because China is catching up in its understanding of current technologies and will eventually be in a position to contribute more to breakthrough technologies," said Lee, author of the book What the US Can Learn from China.

Source: China Daily

Trade deficit narrows between China and U.S.

United States exports to China, which have been growing in recent years, increased 4.5 percent in June, narrowing the trade deficit between the world's two largest economies, according to US Commerce Department figures released on Tuesday.

Exports to China -- one of the fastest-growing markets for US goods -- were up 4.2 percent for the first half, the new data show.

Guo Feng, a senior economist at the Institute of International Finance, said that US-China trade dynamics were affected by China's currency rate and increases in certain categories of US goods in June.

The Chinese interbank cash crunch in June may have had some negative impact on exporters, and China increased imports from the US of goods such as machinery and agricultural products in June,"he added.

The yuan has appreciated by 1 percent against the dollar since the beginning of 2013.

The new US trade figures show imports from China fell 2.2 percent, lowering the contentious US trade deficit with China to $26.6 billion from $27.9 billion in May.

China remained the US' third-largest export market after Canada and Mexico, purchasing nearly $110 billion in US goods in 2012, according to the Washington-based US-China Business Council, which represents more than 200 US companies doing business in China.

China:Why Hasn’t Loan Growth Generated Economic Growth?

"In its latest monetary policy report (in Chinese), China’s normally tight-lipped central bank offered various explanations, some more reassuring than others:

• Loans going into areas that don’t immediately generate growth — like land needed for construction projects.

• Hoarding of cash by businesses at a time of economic uncertainty, with some businesses using funds to make more loans at a higher interest rate.

• Old industries fading away and new industries firing up both need credit, but neither generates stellar output.

• A more sophisticated financial system takes longer to get credit to end users.

The central bank sees risks — especially with businesses sticking to their credit-hoarding ways despite a shift to lower potential growth. But overall they strike a reassuring tone. Wide gaps between growth in credit and the real economy are not uncommon, they say, especially during slowdowns".

Source: WSJ

Japan: pump price tops 160 yen for 1st time in nearly 5 years

The average retail price of regular gasoline in Japan as of Monday topped 160 yen per liter for the first time since October 2008, government data showed Wednesday.

The increase reflects continuing high prices of crude oil due to concerns about political uncertainty in Egypt as well as the weakening yen.

The average gasoline price climbed 1.3 yen from a week before to 160.1 yen per liter, the Agency for Natural Resources and Energy said.

Japanese companies increase summer bonuses

Average summer bonuses that major Japanese companies agreed to pay rose for the first time in two years in 2013, a private-sector survey showed Wednesday.

This year's summer bonuses totaled 809,502 yen per unionized worker, topping 800,000 yen for the first time since 2008, according to the survey by the Japan Business Federation.They represented an increase of 4.99 pct from a year earlier

China: CRC to increase railway investment

State-owned railway giant China Railway Corporation (CRC) has announced a plan to raise fixed-asset investment to 660 billion yuan (106.5 billion U.S. dollars) this year to boost railway development.

The amount, 10 billion yuan more than the investment target set earlier this year, has been interpreted as a signal that greater investments will be made in infrastructure to boost the economy, sources with the CRC said.

About 5,500 kilometers of railway lines will be put in operation, bringing the total length of railways in operation to 100,000 km by the end of 2013. Express rails are expected to exceed 10,000 kilometers.

In the first seven months of this year, the CRC has invested 261.7 billion yuan in railway fixed assets, up 16 percent year on year.