August 13, 2014

China Credit Gauge Plunges as Expansion in Money Supply Slows

• China’s broadest measure of new credit ▼ to the lowest since the global financial crisis
• China’s new credit was $385 billion in July (forecasted $780 billion), compared with $1,080 billion in June
• Softness in the housing market is becoming an increasingly drag on the economy
• Property investment ▲13.7% in the first seven months from a year ago, down from an annual rise of 14.1% in the first half
• Newly started property construction ▼12.8% YoY in the seven months
• Property sales ▼16.3% in July, compared with ▼0.2% in June
• Industrial output unexpectedly slowed
• Factory production ▲9% YoY; ▲9.2% in June, fixed-asset investment growth ▼ to 17% YoY (forecasted 17.4%)
• Retail sales ▲12.2% in July YoY (forecasted 12.5%)
• Aggregate financing was 273.1 billion yuan ($44.3 billion) in July
• The aggregate-financing number had three negative components for the month to make the broader figure less than new yuan loans
• Negative bankers’ acceptance bills (416 billion yuan), foreign-currency loans (16.9 billion yuan), and trust loans (15.8 billion yuan)

Thought:

Today's economic indicators are warning sign. Especially decline in new credit shows that PBOC's monetary policy is not working well; people still don't borrow money to invest even though interest rate is low. Additional stimulus is expected even the PBOC suffered from greater budget deficit

Japan’s Economy Shrinks the Most Since 2011 Quake on Tax

• As consumption and investment ▼ after an April sales-tax increase aimed at curbing the world’s biggest debt burden
• GDP ▼6.8% YoY (forecasted -7.1%), compared with ▲6.1% in Q1; ▼1.7% QoQ (forecasted -1.8%) compared with ▲1.5% in Q1
• Household consumption ▼ at an annualized pace of 19.2% QoQ, while private investment ▼9.7%
• The higher sales tax hit consumers who’ve seen little growth in incomes and rising costs of living as the BOJ strokes inflation with unprecedented easing
• CPI ▲3.6% in June YoY – nine times the increase in total cash earnings – with food prices ▲5.1%
• Imports tumbled 20.5% YoY while exports fell 1.8%
• The GDP deflator ▲2% YoY, the first increase in 19 quarters
• The gain reflected the impact of the higher sales levy as well as a rise in material prices and personnel costs

Thought

Depreciated Yen caused increase in net exports. Yet slowdown economic growth and sales-tax have hurt the economic growth. However, stock market already reflected in the market. In fact, Q3 GDP expected to rebound and additional stimulus by BOJ is expected as well.

Korea Unemployment Rate

• Labor force participation rate ▲63.2% in July; ▲0.8% YoY
• The number of employed persons ▲2.0% YoY
• Regular employees ▲3.0%, temporary employees ▲4.7%, daily workers ▼3.3% MoM
• The unemployment rate marked 3.4% in July, ▲0.3% YoY, compared with ▲3.6% last month

Thought

While MoM both regular and temporary employees increased this month, there is a good sign that YoY temporary employees is declined more than 5% while regular employees still increased. Along with additional stimulus expected Aug. 14, Korean market is promising.

Rise in labor market will promote higher income, which increases household spending. After Sewol crisis, which declined household spending in Q2, domestic consumption is expected to rebound.

Worst Retail Sales Showing in Six Months in Slow Start to Third Quarter

• Retail sales was unchanged in July QoQ (forecasted 0.2%) after ▲0.2% in June
• Greater employment opportunities have yet to translate into the incomes needed to invigorate consumers
• A sign the economy will have trouble sustaining the Q2 pickup in growth
• Core retail sales, which exclude cars, gas stations, buildings, etc, ▲0.1%, compared with ▲0.5% last month.
• The U.K. labor-market data showed wages ▼0.2% YoY in Q2 (forecasted -0.1%), the first decline since 2009, compared with ▲0.4% in Q1.
• Even with increased hiring, wages are lagging behind. That’s why ▼unemployment rate doesn’t reflect on retail sales
• With inflation ▲ to 1.9% in June, real wages for many Britons are continuing to decline
• Unemployment is 6.4% compared with 6.3% last month. Jobless claim ▼33,600 (forecasted -30,000). It is the lowest level since 2008

Thought

While inflation rate increases and unemployment drops, U.K. economy looked promising. However, unemployment declined while household income stays almost the same (even declined this month). Core retail sales increased little, which means that housing sales is declining. U.K. just started to expand, but it will slowdown if it can't help the income issue.

Spanish Prices Drop at Fastest Pace Since 2009 Credit Crunch

• As declining wages curbed the pricing power of retailers, Spanish prices ▼0.4% YoY (forecasted 0.3%). Core inflation was 0% and prices ▼1.5% on the month
• Greece and Portugal suffer from deflation and inflation close to Italy, so as Spain now
• Economists forecast euro-area inflation 1.2% next year, compared with ECB’s goal of under 2%

Thought

It is one of the big issues that ECB should consider. Along with Greece, Portugal and Italy, Spanish economy is not going up even stimulus implemented. ECB is expected to put additional stimulus soon.

August 12, 2014

German Investors Confidence Slumps on Ukraine Crisis

• German investor confidence ▼ to the lowest level since 2012; The ZEW index of investor and analyst expectations ▼ to 8.6 (forecasted 18.2) in August from 27.1 in July
• The eight consecutive monthly decline and the biggest in more than two years
• Crisis in Ukraine rose and a sluggish euro-area recovery
• A gauge of current condition ▼ to 44.3 in August (forecasted 44.3) from 61.8 in July. A measure of expectations for the E.U. ▼ to 23.7 (forecasted 43.1) from 48.1

U.K. Food Sales Plunge Amid Supermarket Price War

• U.K. food sales by value ▼ the most in at least 5 ½ years in the three months through July
• Because of price cuts by supermarkets, the British Retail Consortium said
• Continued aggressive discounting by Britain’s supermarket chains may help support consumer spending at a time of record-low wage growth
• But bad for retailers?
• While food sales ▼ in the three months through July, total sales ▲ 1.3%, driven by home and furniture spending. The increase was below the twelve-month average of 2.3%
• In July, total sales ▲ 1.3% YoY

India CPI Tops Estimate in Test for Rajan (central bank governor) as Industry Moderates

• The CPI ▲ 7.96% in July YoY (forecasted 7.4%); compared with ▲7.46% in June
• Industrial production ▲3.% in June YoY (forecasted 5.4%); compared with ▲5% in May
• Finance Minister Arun Jaitley backed Rajan’s Aug. 5 decision to keep the benchmark rate unchanged at 8% for a third meeting
• The highest borrowing costs threatens to narrow the budget deficit to a seven-year-low
• A Reserve Bank of India panel proposed adopting a 4% CPI target by 2014 +_ 2% points as part of an overhaul that would also establish an independent monetary policy committee
• Monsoon rains are the main threat to inflation. It was 17% below average, putting India on course for its driest year since 2009
• A crop failure can spur consumer prices, where food accounts for about 50% of the CPI basket

  

Asian market continued to rebound but it shows a restricted movement without specific economic indicator. The investors still wait for Wednesday and Thursday's releases to forecast economic growth.

ZEW index had not affected the market on Aug. 12; economic slowdown in E.U. will affect Asian market.

In fact, ZEW index widely impact on Europe and U.S. stock market

German index ▼1.21% as ZEW index indicates growth will be slowed as Ukraine tension rises. In fact, today's market was shaken when Russian trucks deliver aids to Ukraine, non-military action. It shows how investors are scared of tensions in Ukraine as you see in the graph below.

U.S. market was affected by European market

But trading volume was significantly low, which means that investors still look at how things go. The market is most likely to move as economic indicators such as European (and U.S.) GDP, inflation and unemployment are released.

Decline in energy sector is significant. Slow growth will decrease the demand of energy and it affects the sector these days.

USD appreciated against EURO as German ZEW index shows weakness and Ukraine tensions rises. However, the decline eased as the market continued. It forecasts that the decline is a temporary.

USD/JYP still goes up and down several days within a restricted range. Yet significant movement is expected if the BOJ added monetary policy to boost growth as Q2 GDP is largely contracted.

Sources:

http://www.bloomberg.com/news/2014-08-12/german-investor-confidence-slumps-as-ukraine-crisis-worsens-1-.html

http://www.bloomberg.com/news/2014-08-11/u-k-food-sales-plunge-amid-supermarket-price-war.html

http://www.bloomberg.com/news/2014-08-12/india-cpi-tops-estimate-in-test-for-rajan-as-industry-moderates.html

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 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 30, 2014

Japan’s output drops most since 2011 as consumers spend less

• Japanese Industrial Output (-3.3% MoM) in June
• ▲0.7% in May
• The widening impact to the economy of April’s sales-tax increase
• The manufacturing sector has cut back in response to  a slump in consumer spending and a failure of exports to pick up even after an 19% drop in the yen last year
• Japan’s economy doesn’t have a driving force, with consumer spending and exports having stalled
• Transport equipment ▼3.4% MoM
• Outputs of desktops, mobile phones and other communication equipment ▼9%
• Shipments tumbled for a fifth straight month, helping to ▲inventories which rose the highest since November 2012
• In contrast to Japan, South Kora’s industrial production surged 2.9% MoM in June, the most since 2009 September
• Question now is whether Abe will increase the levy to 10% from 8%

Skipped meals show pain as Philippine rate rise nears

• Inflation rate in the Southeast Asia nation more than doubled in less than a year, ▲to 4.4%
• Philippine government expects to have an immediate action
• The monetary authority has increased the reserve requirement ratio twice this year and the special deposit account rate once
• Higher interest rate may hurt demand in an economy. Q1 GDP ▲5.7%, which is below 6% for the first time in nine quarters.
• The government approved a plan to import an additional 500,000 metric tons of rice, and some prices of some items such garlic and oil have eased in recent weeks
• High food price is a potential economy growth risk. Food prices surged 7.4% in June YoY, the fastest pace in 2009, boosted by rice
• Malaysia ▲interest rate for the first time in more than 3 years
• India in June pledged to offload 5 million tons of rice at subsidized rate to stabilize rice at subsidized rate to stabilize prices

Consumer Confidence in U.S. jumps to highest since 2007

• Consumer confidence level ▲ to 90.9 Mom; 86.4 in May
• Increased employment opportunities led to brighter views of the U.S. economy
• Gas prices are low and equip markets remain robust as well
• Home prices rose in the 12 months ended in May at the slowest pace in more than a year as a lull in residential real estate limited appreciation
• Higher mortgage rates and strict lending standard are restraining demand, which will probably prompt sellers to lower expectations of how much they can get for their properties
• The unemployment rate dropped to an almost six-year low of 6.1%
• The difference between those who say jobs were hard to get and those who said employment opportunities were plentiful was the smallest since May 2008

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.