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 11, 2014

European Stocks Gain with Asia as Bonds Slide; Won Climbs

• As tension eased in Ukraine and t U.S. showed signs of pushing back militants in Iraq
• The euro weakened
• U.S. equities rallied on Aug. 8 Russia said warplanes ended drills near Ukraine. Israel and militants in the Gaza Strip agreed to an Egyptian-brokered truce

Treasuries Fall as Geopolitical Tensions Ease, Yields Dim Allure

• Treasuries ▲as easing political tensions in Ukraine and Gaza reduced demand for the safest assets before the U.S. sells $67 billion of notes and bonds this week
• Gains last week pushed 10-year yield to the lowest in more than a year, with the extra yield on the securities over the consumer-price index reaching the narrowest since April 2013 as geopolitical unrest fueled haven demand
• Treasuries have still underperformed stock this year, with the MSCI All-Country World Index ▲4.4% including reinvested dividends
• While U.S. economic growth rebounded last quarter from the biggest contraction in five years, inflation that has held in check helped lure investors to fixed-income securities

Thought

Like what I told in the "August Week 2 Preview," treasuries fall and stock index rises as geopolitical risks ease. Investors are frightened by geopolitical risks too much. A lot of economic indicators signs a positive signal, especially in U.S., China and U.K.

Fed’s Fischer Says Participation Drop May Reflect Slow Growth

• He said sluggish labor supply growth is a “source of concern”
• It may contribute to a slowdown in longer-run output of economy
• Which also faces a drag from housing and “broad based” slowing across emerging markets
• Falling labor-force participation largely reflects an aging population, though there’s “considerable uncertainty” about how much is due to the sluggish economy
• Share of working-age people in the labor force is 62.9%, near the lowest since 1978
• “Many of those who dropped out of the labor force may be discouraged workers. Further strengthening workers back into the labor market…”
• For the U.S., weakness in housing markets, a drag from government budget cuts and weaker European growth are “all prominent factors that have constrained the pace of economic activity”
• Recoveries in advanced economies have been “well below average” while the pace of growth developing nations “has been disappointing”
• Fischer said the so-called quantitative easing program has been “largely successful.”
• “Raising the rate of interest paid on excess reserves should play a central role in the eventual normalization of short-term interest rates. An overnight reserve repo facility could also play a useful part in setting a floor under money market rates."

Thought

high unemployment rate and increment in discouraged workers and part-time-job-for-economic-reason employ are the issues here. In fact, discouraged workers have been declined from 988 to 741 over a year. But what Fischer worries is that it tends to increase last three months (697K in May, 741K in July). It means that more people quit looking for a job, which will eventually decrease household spending and hurt economy.

Today, I'd like to focus on Asian market

Most of Asian stock increased today. NIKKEI raised 2.38%, which is the biggest increase in three months. Shanghai and Shenzhen also increased 1.38% and 1.48%.

They commonly had a big slump last week. Today's increment is more like a rebound from last week's slump. As geopolitical risks ease and big economic indicators await later this week, investors' expectation rose.

U.S. stock market showed increment yesterday; S&P 500 increased by 0.28%. Thanks to good earning on Sysco, CONS STPL sector increased by 0.76%.

Trading volume was significantly low. As economic indicator and earning season is almost over, there is engine to boost the stock market for now. Good news came from Fischer yesterday that the Fed considers the rising interest rate is the last resort, which means that it has no plan to do it soon. As the Fed keeps the fiscal policy as it is now, no surprise downturn or Fed taping is expected for a while.

EUR depreciated as ECB considers to use monetary policy as growth slowdown recently.

Overall, today's market shows a restricted movement. Not all geopolitical risks are solved (even though it eased) and no significant indicators have released. Similar movement is expected today

Sources:

http://www.bloomberg.com/news/2014-08-11/treasury-real-yield-at-15-month-low-before-67-billion-of-sales.html

http://www.bloomberg.com/news/2014-08-11/fed-s-fischer-says-participation-drop-may-reflect-slow-growth.html