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%

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.