July 31, 2014

Economy in U.S. grows more than forecast

• The economic expansion in the 2Q picked up where it left off last year, led by ▲ in consumer spending and business investment
• GDP ▲at a 4% in 2Q, exceeding the median forecast, after ▼2.1% in the 1Q.
• The increase matched the average growth rate from July through December of 2013; the strongest six months in a decade
• Policy makers also said slack in the labor market persists even as the economy is picking up, and repeated they will keep interest rates low for a “considerable time” after ending asset purchases
• Surge in inventories ▲1.7% MoM. Stockpiles were rebuilt at a $93.4 billion annualized pace after a $35.2 billion gain in the first three months of the year
• That could mean companies will keep tighter control on the number of goods on hand this quarter, which could cut into economic growth
• Consumer spending, which accounts for almost 70% of the economy, ▲2.5%
• Purchases of durable goods jumped at a 14% annualized rate, the fastest since the 3Q of 2009, when the recovery began
• Companies added 218,000 workers to payrolls in July exceeding the average for the year and showing improving demand is bolstering the job market
• The gain this month followed a 281,000 increase in June that was the strongest since November 2012
• Businesses are limiting dismissals and taking on more workers, spurring consumer confidence and laying the groundwork for a pickup in household spending

EU inflation slowed to 0.4% in July, lowest since 2009

• Euro-area inflation (ECCPEST) unexpectedly slowed in July to the weakest in almost five years, underscoring the European Central Bank’s concerns that the economy is too feeble to drive price growth
• For the past 10 months the inflation rate has been weaker than 1%, less than half the ECB’s goal, while joblessness has remained stubbornly near an all-time high for months
• It looks like inflation will stay under 1% this year
• It is because output gap and the spare capacity in the labor market are so big that they can’t exert much upwards pressure on prices
• For July, the core inflation rate, which excludes volatile items such as energy, food, alcohol and tobacco, clocked in at 0.8%, unchanged from the previous month
• The cost of services ▲ 1.3%
• Stimulus Effect
• The ECB’s announcement to have a negative deposit rate and a program to improve bank lending is its most significant policy to save the euro.
• The ECB warned the economy could take some time to respond to the barrage of stimulus and even left open the door for further action
• While the ECB’s measure have helped push the average yield on bonds from Europe’s most-indebted nations to a record low, they have not yet boosted prices, growth and lending
• The unemployment rate unexpectedly fell in June to 11.5% from 11.6% in May
• Joblessness continued to vary widely across the euro area in June, from a low of 5% in Austria to 24.5% in Spain

Japan’s Average Crash Earnings ▲0.4%

• It was ▲0.6% in May; MoM

Argentina Declared in Default by S&P as Talks Fail

• S&P declared Argentina in default after government missed a deadline for paying interest on $13 billion of restructured bonds
• Talks ended today without an agreement because the banks were unable to come up with a solution for a wider group of holdouts
• All holdout claims would total $15 billion to $20 billion.

Sources:

http://www.bloomberg.com/news/2014-07-30/argentina-defaults-according-to-s-p-as-debt-meetings-continue.html

http://www.bloomberg.com/news/2014-07-31/euro-area-inflation-slowed-to-0-4-in-july-lowest-since-2009.html

http://www.bloomberg.com/news/2014-07-30/economy-in-u-s-grows-more-than-forecast-after-smaller-drop.html

July 25, 2014

• Slower Japan inflation in June
• CPI excluding food ▲ from a year earlier
• CPI ▲ 3.4% in May
• It is because sales-tax increase in April. The government expects to see its goal, 2% inflation rate later this year.
• However, it may not easy since exports are weak, recovery in consumption has been slow and real income isn’t growing.
• Right now, Japan suffers from deflation and sale-tax looks for ▲consumption while Abe-economic depreciates Yen to increase exports. Yet statistic data shows that it is still tough.
• China July HSBC flash PMI at 52, an 18-month high
• It showed most of 11 sub-indices that measure output, domestic and foreign demand improved substantially from June.

• World’s biggest wealth fund reviews $8 billion Russian stake.
• It is reassessing its holdings in Russia as the EU considers sanctions against the country.
• The European Commission presented today a package of measures including the option of banning purchases of shares sold by Russian state owned banks.
• Russian stock market▼; Russia seems to be a threat to foreign investment.
• The benchmark ▼6.7% this year; Ruble ▼ by 6.2% this year.

• S&P warns Kazakh credit risk is ‘extremely high’ on banks
• Kazakh banks were burned by debt default after a collapse in real-estate prices
• S&P says that their risk appetites remain aggressive, reflecting opportunistic growth by some small and mid-size Kazakh banks as well as banks’ continued financing volatile real estate and construction projects.
• S&P predicts Kazakh lenders’ assets will surge about 15% in 2014~2015; outpacing GDP of 4.5%~5%
• Kazakh’s 38 banks had 32.2% of loans overdue by more than 90 days of July 1, compared with 30% last year and 33.5% in May

• Argentine debt mediator says time running short for deal
• Argentina faces its second default in 12 years unless it either pays the holdouts their court-awarded $1.33 billion plus accrued interest on defaulted bonds or agrees to a settlement
• Argentina can pay for it. Yet it is afraid of its outcome that other creditors might litigate and it might pay about up to $15 billion to creditors.

• IMF cuts 2014 global forecast after slowdowns in China and U.S.
• The world economy will advance 3.4% in 2014, less than 3.6% in April and stronger than last year’s 3.2%
• Next year’s growth will be 4%, compared with 3.9% in April
• Global growth is expected to rebound from the second quarter, but downside risks remain a concern
• Increased geopolitical risks could lead to sharply higher oil prices
• Financial market risks include higher-than-expected U.S. long-term rates and a reversal of recent risk spread and volatility compression
• Global growth could be weaker for longer, given the lack of robust momentum in advanced economies despite very low interest rate and easing of other breaks to the recovery
• In the U.S, the inventory overhang at the end of 2013 turned out to be larger than expected; exports declined sharply, demand dampened, and output contracted in a first quarter of 2014.
• In China, domestic demand moderated more than expected, reflecting the authorities’ effort to rein in credit growth and a correction to real estate activity.
• In other emerging market economies, weaker-than-projected growth resulted both from weaker external demand and, notably from the U.S and China, and, in a number of cases, softer demand with weaker investment growth.