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%