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 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

July 29, 2014

New Sanctions Readied by U.S., EU as Russia Prepares

• The U.S and European Union may impose tougher sanctions against Russia
• As Vladmir Putin’s government sought replacements for defense imports and considered restrictions on some agriculture products from America and its allies.
• The new sanctions are aimed at “key sectors” of Russia’s economy
• Finance, defense and energy
• However, Russian government says that sanctions won’t achieve their goal and Russia will become self-sufficient
• Russia also signaled possible retaliation that it may ban imports of chicken from the U.S and fruit from Europe because of concern about contamination.
• Russia was the second-largest market after Mexico, for U.S chicken last year. It counts about 7% of U.S poultry exports
• The U.S is likely to deny Russian access to oil-production equipment that could be used in the Arctic and deep waters, and add more banks and energy companies to the list of those banned from U.S financing

Japan’s Retail Sales Drop in Challenge to Abe Reflation

• Japan’s retail sales feel more than forecast in June, capping a weak quarter that challenges Abe’s bid to reflate the economy while heaping a heavier tax burden on consumers
• Sales ▼0.6% YoY; forecast was ▼0.5%
• In the second quarter, sales ▼7% QoQ
• Abe is counting on consumers to bear a higher sales
• The Bank of Japan drives the cost of living upward with record monetary easing
• The risk is that spending fails to regain vigor, sapping strength from an economy lacking support from exports
• The effort to recover domestic demand is running up against a failure of companies to pass along record cash holdings in the form of higher wages that could help households cope with rising prices and the heavier tax burden
• The minimum wage stays the same since May from a year earlier
• Unemployment ▲ to 3.7% (3.5% previous month)
• However, labor force ▲by 120,000 people
• It indicates that the current level of vacancies still points to further declines in the jobless rate in coming months
• Pending Home Sales Index ▼1.1% (102.7 in June, 103.8 in May)
• It ▼7.3% YoY (110.8 in 2013 June)
• However, the index is still above 100 for the second consecutive months
• The market is stabilizing, but ongoing challenges are impending full sales potential
• Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved
• However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates

S. Korea June trade data offers mixed picture on economy

• The current account registered surplus of $7.92 billion for June 2014(▼ by 12.8%)
• The goods account surplus narrowed to $6.65 billion from $9.13 previous month
• The service deficit ▲ to $0.58 billion from $0.34 billion
• Exports ▼ to $50.28 billion from $52.38 billion (▼4.0%)
• Imports ▲ to $43.63 billion from $43.25 billion(▲0.9%)
• The services account deficit ▲$0.58 billion from $0.34 billion
• The other business services account deficit worsen
• The financial account recorded net outflow of  $9.84 billion
• Up from $8.13 billion the previous month
• Direct investment recorded outflow of $2.06 billion (▼$2.06 billion)
• ▼ from $3.34 billion, as foreign direct investment shifted to a net inflow
• Portfolio investment recorded a net outflow of $4.22 billion (▲$4.22 billion)
• ▲ from $3.31 billion, as inflows of foreign investors’ equity securities ▼
• Other investment recorded a net inflow of $0.28 billion
• ▼ sharply from $3.95 billion due mostly to increased lending by domestic financial institutions
• Reserve assets ▲ by $4.54 billion