August 8th, 2014

China Reports Record Trade Surplus

• Unexpected growth of export and decline in import accelerated the growth in July
• ▲14.5% in exports (forecasted 7.5%), ▼-1.6% in imports YoY (forecasted 3.0%)
• Export growth was 7.2% and import growth was 5.5% YoY in June
• The U.S. and European recoveries will help sustain expansion in Chinese economy
• Exports ▲17% to E.U. YoY; shipments to the U.S. ▲12.3% YoY
• ▼ in imports may be attributable to falling commodity prices
• Sales to the biggest markets of the U.S. and Europe ▲
• The surplus suggests pressure on the yuan to appreciate will probably increase if the central bank doesn’t actively intervene in the foreign-exchange market
• While an official index showed manufacturing expanded in July at the fastest pace in more than two years, a private gauge of services dropped to the record low, hurt by a real-estate slump

Thought
     Statistical data shows that imports declined in July. Well, the total price of price declined, but not the number of it. For example, China's iron ore imports ▲11% while the price ▼14.5% for seven months. The average price of soybeans ▼3.9% while the volume ▲20.2%. So, these data showing that the world's second-largest economy still consumes a lot of worldly goods, which may boost global economy.

     For instance, Japanese biggest trading partner is China. Japan needs China to expand its economy to expand its economy. Expansion in China is a good news for Japan, which suffers from decreased household spending and industrial output.

BOJ Holds Stimulus as Weaker Economy Challenges Kuroda

• After recent production and export data highlighted weakness, the BOJ pushes to stoke faster inflation; maintaining record stimulus
• The central bank stuck with a pledge to increase the monetary base at an annual pace of $687 billion
• Outbound shipments unexpectedly ▼ in June, while output slumped the most in more than three years as retail sales ▼
• Exports ▼1.1% in Q2 QoQ even after yen weakened 17% against the dollar since December 2012
• Production ▼ 3.3% in June MoM; the most since March 2011
• Retail sales ▼7% in Q2 QoQ
• Showing an economy struggling to rebound from a sales-tax increase last quarter
• The Topix index of shares ▼2.4% today in Tokyo, its biggest in three months
• U.S. President Barack Obama authorized air strikes in Iraq
• “Japan’s economy is likely to continue recovering moderately with the effect (of an April sales tax increase) seen gradually subsiding,” said Kuroda. “Exports and output have been weakening, but a positive economic cycle remains in place as job and income conditions steadily improve.”
• Consumer prices ▲3.6% in June YoY, outpacing a 0.4% gain in labor cash earning
• Stripped of the effects of the higher sales tax, core inflation was 1.3%, more than halfway to the central bank’s target

Thought
    Kuroda's confidence is come from the trade statistics (first 20 days of July) shows that exports ▲ 4.7% while imports ▼2.8% YoY while export declined 1.9% and imports rose 8.4% last month. Even geopolitical issues hits the Japanese market hard, those issues are not permanent.
     What matters are how well global economy and domestic spending expand. Trade balance in July imply that global economy are getting on the track to economic recovery (with growth in China and U.S.), and household spending is getting better (even though it is still -3.0%). Yes, like what Kuroda said the economic expansion had a setback. But it will get back on track this month.

E.U. Trade Balance

• German exports in June ▲1.1% YoY; imports ▲2.1% YoY
• Seasonally adjusted, exports ▲0.9% and imports ▲4.5% MoM in June
• The highest MoM increase in imports since November 2010
• In May, exports ▼1.1% MoM, and imports ▼3.4% MoM
• In YoY, exports ▲ 4.3% and imports ▼0.4% in May
• A surplus of 16.5 billion euros (17.8 billion euros in May)
• French manufacturing output ▲1.6% MoM in June, after a fall in May by 2.3%
• Output also ▲ in industrial production as a whole (1.3% MoM after -1.6% in May)
• Led by ▲4.6% in transport equipment, ▲1.9% in electronic and machine equipment
• Manufacture of coke and refined petroleum product ▼2.6%
• Manufacturing output ▼ by 1.2% QoQ, and Industry output ▼ by 0.5%
• ▼6.8% of refined petroleum products, ▼5.0% of electrical equipment and ▼7.9% in miming and quarrying, while ▲7.6% in water supply
• U.K. trade deficit was estimated to have been 2.5 billion pounds in June, compared with 2.4 billion pounds in May 2014
• 9.4 billion pound deficit on goods, estimated surplus of 7.0 billion pound on services
• The trade in goods deficit ▲ by 0.3 billion pound compared with May 2014
• Exports of goods ▼ 0.4 billion pound
• Reflecting falls in oil and manufactured goods
• Imports of goods ▼0.1 billion pound
• Reflecting falls in imports of oil and aircraft; these falls were offset by increases elsewhere in manufactured goods
• In Q2, exports ▼0.5 billion to 71.3 billion pound. Imports ▲0.4 billion to 98.7 billion pound, reflecting increases in imports of ships, cars and medical and pharmaceutical products
  

Thought
     ▲Even their main industry is a service industry, industrial industry and manufacturing take up to 20% of the economy. German exports decline was expected as E.U. had a slow economic growth and expansion of geopolitical risks.

     Good news came from France, which ▲1.3% industrial output in June after -1.3% last month. Yes, industrial output has been declined by 0.5% QoQ, but its increment in June is a start of comeback. Production of petroleum product is still expected to decline as the U.S. President Barack Obama approrved to strike Iraq.

     U.K. trade deficit widened by 1.3 billion pound YoY. While balance in services stayed the same, deficit balance in goods, especially to non-EU had a big growth. It is from increases in manufactured goods, which imply that consumer spending has been increased. Despite the deficit widened, ▲imports of manufactured goods implies that consumer are looking for more goods, which would boost U.K. economy while service industry keeps expanding.

DJIA and S&P 500 showed a significant rise on August 8th, 2014. Russia seeks a de-escalation of the conflicts in Ukraine. Even more, S&P had dropped 3.9% from July 24 to yesterday as the conflict of Ukraine and war between Israel and Hamas get worse. Today's rise is more like rebounding from the loss as the expectation of de-escalation came out.

FTSE declined as trade deficit widened, and NIKKEI also declined by almost 3% as U.S. approved airstrike on Iraq, which will boost oil price. Increase in commodity price will be a risk for Japanese economy as it seeks for expanding trade balance.

Sources:
http://www.bloomberg.com/news/2014-08-08/china-reports-record-trade-surplus.html
http://www.bloomberg.com/news/2014-08-08/boj-holds-stimulus-as-weaker-economy-challenges-kuroda.html

August 5th, 2014

China Services Index Falls to Record Low

• The services Purchasing Managers’ Index ▼ to 50.0 from June’s 53.1
• Suggesting the government’s stimulus measures are failing to gain traction outside of manufacturing
• Signaled that ▼ home prices and new construction are dragging on services
• They account for almost half of GDP
• Showed the weakest expansion of new business in more than five years
• The services report contrasts with the manufacturing PMI, which ▲ in July to an 18-month high of 51.7
• This survey includes hotels and restaurants, transportation and storage, financial intermediation, renting and business activities and post and telecommunications

Shanghai index ▼ 0.15%















Indonesian Economic Growth Slows Challenge to Widodo

• Indonesia’s economic growth eased to the slowest since 2009 as exports and government spending ▼
• GDP ▲ 5.2% in Q2 YoY; ▲ 2.47% MoM
• Widodo promised 7% economic growth by improving infrastructure and manufacturing
• Export numbers have been coming in below expectations.
• Exports ▼ 1.04% YoY; Mining ▼ 0.15% while government consumption ▼ 0.71%. Household consumption ▲ 5.59% and investment ▲ 4.53%
• Monetary policy
• Subsidies that keep local fuel prices low have spurred energy imports
• Straining the trade balance and tying up funds that could be used to build roads, bridges and railways
• “Bank Indonesia cannot afford to ease monetary policy despite lackluster growth and contained inflation pressures. Focus remains on stability and keeping the current-account deficit in check.”

Euro-Area Services Grew Less Than Initially Estimated in July

• Markit Economics’ Purchasing Managers Index ▲ to 54.2 from 52.8 in June
• A composite index of services and manufacturing increased to 53.8, also lower than previously estimated
• Services indexes ▲ in Germany, France and Spain in July
• In Italy, the gauge ▼ 52.8 from 53.9 in June, which was the highest since 2010
• Markit said the recovery in Italy also “remained solid” last month, with France remaining the euro area’s “laggard,” as a slight rebound in services was offset by a “deepening downturn” at manufacturers

U.K. Services Surge at Fastest Pace in Eight Months

• Its Purchasing Managers’ Index for services, the biggest part of the economy, jumped to 59.1 from 57.7 in June; the highest since November and the 19^th straight month above the 50 level
• “The sustained strength will add to calls for interest rates to start rising later this year”
• A composite index covering services, manufacturing and construction ▲ to 58.8 in July from 57.9 in June

FTSE 100 index ▲ 0.07%















Euro zone June retail sales show strongest YoY rise in seven years

• June retail sales ▲ 0.4% MoM; 2.4% YoY
• The strongest YoY rise since March 2007
• Germany and France see the fastest YoY ▲ since February 2011
• The annual rise was driven by a 3.0% ▲ in sales of non-food products
• Electronics, computers, books or textiles
• Also followed by a 2.0% increase in the volume of sales of food, drinks and tobacco
• Analysts saw modestly improving labor markets in most countries and very low consumer price inflation providing some support to consumer spending over the coming months and help euro zone recovery to gradually gain traction
• Unemployment was the lowest level since September 2012
• Inflation remains in the ‘danger zone’ of below 1% since October last year

Sources: http://www.bloomberg.com/news/2014-08-05/china-services-index-falls-to-record-low.html

http://www.bloomberg.com/news/2014-08-05/u-k-services-surge-at-fastest-pace-in-eight-months.html

http://www.reuters.com/article/2014/08/05/eurozone-economy-retail-idUSL6N0QB2YE20140805
http://www.bloomberg.com/news/2014-08-05/indonesia-s-gdp-growth-slows-in-challenge-to-widodo-expansion.html

S&P 500

August 4, 2014

Banco Espirito Santo Junior Bonds Slide as Bilout Forces Losses

• Portugal will spend 4.9 billion euros to rescue its largest listed bank
• The Bank of Portugal will take control of Bank Espirito Santo’s assets and deposit-taking operations by transferring them to a new company, Novo Banco, into which it will inject money from its Resolution Fund
• The fund will finance the rescue with a Treasury loan to be repaid by Novo Banco’s eventual sale to private investors
• The Portuguese state will lend the fund 4.4 billion euros
• Banco Espirito Santo has been forced to take public money after regulators uncovered potential losses on loans to other companies tied to the Espirito Santo group and ordered the lender to raise capital
• The government funds would only be available as a last resort
• The Portuguese government loan for the BES rescue will use up a large chunk of the 6.4 billion euros left over from a fund earmarked to aid the country’s banks as part of its EU/IMF bailout

Ghana Turns to IMF for Help as Currency Crisis Deepens

• Ghana will seek immediate talks with the IMF to help its currency crisis
• Its currency has plunged 36% against the dollar this year
• The investors lost faith in the government’s ability to curb spending and rein in a current account deficit that’s set to exceed 10% of GDP this year
• Yields on the nation’s Eurobonds due August 2023 fell the most in more than two weeks after President John Dramani Mahama instructed his economic advisers to “open discussions” with the Washington-based lender
• The finance minister said the government preferred a “home-grown strategy” to an IMF loan and planned to sell $1.5 billion Eurobonds by the end of the month
• The Cedi dropped by 6.2% on July 30, the day after he said; it is unsure whether it will seek IMF assistance
• The sale may be delayed if it’s allowed by the IMF or the amount may be smaller than that sought by the government
• The IMF will support the program as soon as a formal request is received
• A weaker currency has spurred inflation to 15% in June, prompting the central bank to increase its benchmark interest rate by 1% to 19% on July 9
• Ghana’s government is struggling to narrow the budget deficit as wages for state workers ballooned to almost 70% of tax income
• Terkper last month revised the 2014 fiscal-gap target to 8.8% of GDP from 8.5%
• The shortfall will probably exceed 10% of GDP for a third consecutive year
• The current-account deficit may average 11.1% of GDP this year
• The shortfall was 12.3% in 2013

China Central Bank Signals No Broad Monetary Easing

• The country’s credit and money supply ▲ rapidly that it will refrain from broader monetary easing to support growth
• “Our existing money supply and credit are already relatively large and their growth is also high.” Said the People’s Bank of China
• The central bank has turned to unconventional tools including relending and selective cuts to banks’ reserve requirement ratios to channel credit to areas highlighted by Premier Li Keqiang, including public housing and small companies
• “Restructuring and reform of the economy remains an arduous task. It’s not appropriate to expand overall liquidity sharply to solve structural problems,” said the PBOC
• The PBOC reiterated its “prudent” monetary-policy stance and pledged to “keep overall liquidity stable while improving its structure”
• It will exploring resolving local-government debt problems in “market-oriented” ways
• The PBOC created a revamped relending tool known as pledged supplementary lending to manage medium-term interest rates and lower the cost of financing for some industries and lenders
• The PBOC conducted a $162 billion transaction with China Development Bank
• “It will “deepen reform” of CDB to support shantytown redevelopment and city infrastructure”

China Services Index Drops to Six-Month Low on Property

• The non-manufacturing PMI ▼ to 54.2 from 55.0 in June
• Highlights the danger a correction in the property market poses to growth in the world’s second-biggest economy and contrasts with a government report last week that showed manufacturing expanded at the fastest pace in more than two years
• The IMF warned that real estate is the biggest near-term risk to the economy
• A gauge of business expectations in the survey ▲ to 61.5 in July from 60.4 in June
• Services accounted for 46.4% of GDP in the first half of 2014
• 1.3% ▲ than the same period a year earlier
• Expansions in services quickened to 8% in the first half from 7.8% in the 1Q
• Compared with a 7.4% pace in manufacturing and construction industries
• Purchasing managers in services industries was 53.1 in June; the highest in more than a year

Sources:

http://uk.reuters.com/article/2014/08/04/uk-portugal-bes-cenbank-idUKKBN0G30TA20140804

http://www.bloomberg.com/news/2014-08-03/portugal-takes-over-banco-espirito-santo-in-6-6-billion-bailout.html

http://www.bloomberg.com/news/2014-08-04/ghana-turns-to-imf-for-emergency-help-as-currency-crisis-deepens.html

http://www.bloomberg.com/news/2014-08-03/china-services-index-drops-to-six-month-low-on-property.html

Dow Jones increased by 0.46%














Korean won appreciated by 0.04%, Japanese yen depreciated (again) by 0.02% against U.S. dollar.

EUR/USD depreciated by 0.04%

Energy sector increased by 1.61%, cons disc sector increased by 1.01% while utilities decreased by 1.23%

August 1, 2014

Philippines Ready to Act for Inflation Goal, Tetangco Says

• The Philippine central bank will take further policy action if there are risks to its inflation target
• It raised its benchmark interest rate for the first time since May 2011, and said the price-gains target for next year could be at risk
• Inflation expectations remain elevated even as liquidity growth is seen to continue to moderate
• Money supply rose 23% in June from a year ago, the slowest pace in a year, while net bank lending eased from a month earlier

So, Philippine government already has increased its reserve requirement twice this year, and yet it couldn't control the inflation rate. It hardly looks like Philippines government will control the inflation rate unless it can get enough food supply from other countries. Even it does so, Philippines government will pay lots of extra money to buy the foods, and it will eventually harm the economic growth.

South Korea exports jump, but cloudy outlook seen prompting rate cut

• S. Korea Trade Balance ▲$2.5 billion MoM; ▲5.5 billion in May
• A combination of still-tepid global demand and weak domestic consumption are causes
• A rate cut may help the economy to boost domestic consumption as well as business sentiment
• Crucially, South Korea’s manufacturers are not selling enough to their biggest export market China. Export to China ▼7.0% in July YoY
• However, sales to U.S. ▲19.4% and to EU ▲11.5%

The Korean government is about to spend $40 billion stimulus, and seem like decreasing interest rate by 25bp. The market index is increasing with that expectation. What I'm afraid is those stimulus would help the domestic spending, but the Korean economy is highly depended on exports. Slow growth in China (so as other countries) and appreciated Korean Won are the issues the Korean government needs to solve as well.

China Manufacturing Gauge Rises to Two-Year High

• China’s manufacturing expanded in July at the fastest pace in more than two years
• PMI was at 51.7 MoM; It was 51.0 in June
• Signaling a pickup in economic growth is strengthening amid government support policies
• Government Stimulus
• Tax cuts for small companies, speeding up public investment and fiscal spending
• The central bank cut reserve requirements for some banks and turned to unconventional tools such as relending to boost credit
• “The economy is clearly improving, driven mostly by government infrastructure investment”

Sources:

http://www.bloomberg.com/news/2014-08-01/china-s-manufacturing-gauge-rises-to-two-year-high.html

http://www.reuters.com/article/2014/08/01/southkorea-economy-idUSL4N0Q627P20140801

http://www.bloomberg.com/news/2014-08-01/philippines-ready-to-act-for-inflation-goal-tetangco-says-1-.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.

July 24, 2014

• 한국 2/4분기 GDP 발표
• ▲0.6% QoQ, (consensus was 0.7% QoQ)
• ▲Exports, ▼Domestic Demand
• 세월호, 이동통신사 영업정지, 대규모 감원 등의 여파
• ▲Capital investment, ▲construction investment, ▲exports
• 소비심리가 안 좋음, 지식재산생산물투자(지출부문) ▼4.2% YoY
• 재정부장관: 기금운용을 통해 11조 7천억원 규모의 재정지출 확대, 각종 금융지원 29조원으로 확대
• 주택지원(6조원), 중소기업.상인지원(2.4조원), 관광산업(1천억), 농수산물(1천억)
• 산은.기은.수은 등의 정책금융 확대(10조원), 외평기금의 외화대출 지원 확대(5조원), 안전투자 펀드 조성(5조원)

• July PMI in EU announced: 54. , ▲1.2p MoM; matching three-year high record in April
• The pickup came after negative deposit rate
• Targeted loans to bolster lending, growth and inflation rate running
• Manufacturing index rose to 51.9 from 51.8 in July, while the gauge for services jumped to 54.4 from 52.8.
• GDP in China 2^nd Q: 7.5%; matching the government’s target.
• PMI was 52.0p; 50.7 in June.
• Japan trade deficit expands after exports unexpectedly drop from a year earlier
• Exports ▼2% while imports ▲8.4% YoY
• Declined 5.1% in electrical machinery exports
• Exports to U.S. ▼ by 2.2%; automobile shipments ▼ by 6.8%, 3.8% to Asia while ▲ by 1.5% to China and 6.4% to EU
• Imports of mineral fuels were 8.3%; about 31.4% of inbound shipment
• Took the largest portion of the imports
• Exports of auto vehicle ▲by 0.9%, but transport equipment ▼ by 0.9%

• Singapore Central Bank says it’s too early to ease property curbs
• Singapore is the Asia’s second-most expensive housing market
• The central bank signaled its determination to extend a campaign that begun in 2009 and include tighter mortgage rules and extra taxes.
• Residential values in the island-state dropped for a third quarter in the three months through June, the longest losing streak in five years.
• Home prices will probably extend decline as the government sticks with curbs.