August 14, 2014

BOK Cuts Rate for 1^st Time Since May 2013 to Boost Growth

• Risking inflaming record household debt as it backs government efforts to spur the economy
• Lowered the interest rate to 2.25 from 2.5
• Last month, BOK added 11.7 trillion won ($11.3 billion) stimulus
• Lower borrowing costs could encourage households to add to debt that was 135% of disposable income at the end of 2013
• Reduction follows the decision to expand a lending program for smaller firms by 3 trillion won
• Also unveiled the fiscal package and other measures aimed at boosting credit and encouraging companies to distribute more of their profits in wages and dividends
• Lower borrowing costs, combined with looser rules for home mortgages may accelerate the growth of household debt
• The government plans to boost household income and create more jobs to address the debt issue

Thought

Along with additional government stimulus, BOK decreases interest rate to boost economic growth. This decreased interest rate will take time to interfere economy. The government's goal is to expand real estate. Market already expected BOK to cut the rate; the market reflected the rate before it is announced.

China Seen Taking Steps to Aid Growth After Credit Plunge

• China’s ▼ in credit expansion last month and unexpected slowdown in investment spending flashed warnings on growth
• A property slump and dangers from rising bad loans are making it tougher to sustain the growth in China
• Tools include programs such as pledged supplementary lending that can direct credit to the economy, cuts in reserve requirements or interest rates, and fiscal spending on railways and affordable housing

Euro-Area Pickup Stalls as Big Economies Fail to Grow

• GDP was unchanged QoQ; ▲0.7% YoY
• Germany’s economy ▼0.2% QoQ, the first contraction since 2013
• France unexpectedly stagnated. Italy experienced recession with GDP ▼0.2% QoQ
• Spanish economy expanded at the fastest pace since 2007
• Consumer price ▼0.7% MoM compared with ▲0.1% last month; ▲0.4% YoY
• Core consumer price ▼0.8% MoM, and ▲0.8% YoY
• The Ukraine crisis is also weighing on the economies of eastern Europe
• The Czech unexpectedly stagnated last quarter and Romania’s economy ▼1% QoQ
• Polish growth slowed to 0.6% from 1.1%, and Hungary’s expansion cooled to 0.8% from 1.1%, while still beating estimates

Thought

Slow growth in euro area is anticipated and already reflected in the market. All important economic indicators such as PMI, factory orders and retail sales implied that growth in E.U. was slow down (and somehow contracted) in Q2.

As Ukraine crisis eased and additional stimulus is expected from ECB, the second half will rebound its economy. Yet there are sill risks. As U.S. quickly recovers from the recession, it may start tapering sooner than anticipated. It may effect financial market and therefore E.U.

France Risks EU Deficit Clash After Scrapping Targets

• The French government abandoned its 2014 deficit targets after the economy unexpectedly failed to growth for a second straight quarter
• Risking a clash with European partners striving to meet their own fiscal goals
• French GDP stagnated in Q2; 0% changed (forecasted ▲0.1%)
• The European Commission has already allowed France to delay deficit targets twice in the wake of the region’s sovereign debt crisis
• “While the Q2 weakness should remain temporary for Germany, France remains mired in stagnation due to lack of reform. We expect France to continue to underperform the currency area as a whole.”

Jobless Claims in U.S. Rise to Highest Level in Six Weeks

• Jobless claims ▲ by 21,000 to 311,000, the highest in six weeks (forecasted 295,000)
• The jump represents a departure from a run of low readings that showed employers had been holding firm on staffing levels in order to keep up with demand
• More muted firings typically pave the way for acceleration in job growth
• Employers added more than 200,000 workers to payrolls in July for a six straight month – the first time that’s happened since 1997. Employment ▲209,000 after a 298,000 increase in June
• The jobless rate ▲ to 6.2% from almost six-year low of 6.1%
• Job openings ▲ in June to the highest level in more than 13 years

Thought

This jobless claims is announced weekly. It means that it is highly volatile. Yes, jobless claim increased this week yet the job market is significantly improving (yet Yellen said that there is still room for improvement).

London Leads U.K. Housing Slowdown After Carney Warnings

• An index values in London ▼ to 10 from 30 in June, the lowest since March 2011
• Also shows that surveyors have cut their forecast for price growth as stricter lending rules and the prospect of increased borrowing costs weigh on the market
• In July, demand in the capital ▼ at the fastest pace in six years, after a surge in prices over the previous year stretched affordability and prompted concern a bubble may be forming

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

August 7th, 2014

ECB Holds Rates as Ukraine Turmoil Menaces Recovery Hopes

• The ECB kept interest rate unchanged at record lows as Ukraine crisis gets worse
• Deposit rate -0.1% and marginal lending rate 0.4%
• Draghi says that conflict in Ukraine and sanctions against Russia is hurting trade
• “The euro-zone recovery is very fragile and the macro situation fluid. Expect Draghi to elaborate on spillover risks from the Russia-Ukraine crisis.”
• Large-scale asset purchases are an option for dealing with a severe economic shock
• The Bank of England’s Monetary Policy Committee also kept its key interest rate unchanged
• At a record-low 0.5% while its bond-purchase plan stayed at $631 billion

Thought
    Market would expect an additional stimulus to boost economy. Even Italy's recession and ▼ German factory order was due to geopolitical risks, it is obvious that euro-area is not expanding as what it expected.
     Unemployment rate is still high, consumer spending and inflation rate are still below is target. Will E.U. go over the financial crisis (even though it is going over now) soon without additional monetary/fiscal policy? I doubt it. Tensions are getting higher everyday and there are pessimistic economic data showing that its monetary policy is not working enough.

Jobless Claims Fall as Average Drops to Eight-Year Low

• Fewer Americans filed applications for unemployment benefits
• A sign the labor market continues to gain momentum
• ▼14,000 to 289,000 (forecasted ▲ to 304,000)
• Companies are holding on to more workers in an effort to keep up with increased orders and stronger consumer demand, contributing to a virtuous cycle of growth as the economy accelerates
• Fewer layoffs and more jobs would support further gains in income and household spending
• U.S. employers added more than 200,000 works to payrolls in July
• Climbed by 209,000 after 298,000 gain in June, while the jobless rate ▲ to 6.2%
• More Americans entered the labor force seeking work
• Federal Reserve policy makers are monitoring the labor market’s progress as they wind down their stimulus program. Yet they  said that there is still room for improvement

Thought
     Consumer and household spending takes about 70% of economy. As more people seek for job and hired, it is more likely that consumer and household spending will rise. It is also a good sign that the Fed thinks that there is a room for improvement in the labor market. It means that the Fed will keep the low interest rate while purchasing bonds.

Consumer Credit in U.S. Rise on Demand for Car, Student Loans

• ▲$17.3 billion in consumer credit followed a $19.6 billion in May
• Non-revolving loans, including borrowing for cars and college tuition, climbed $16.3 billion
• Revolving credit, which includes credit-card balances, ▲$914.5 million, the smallest advance since February, after a $1.74 billion gain in May
• Stronger employment and gains in home values are giving households the confidence to borrow and make big-ticket purchases such as cars and appliances
• Banks also are showing greater willingness to lend, which could boost consumer demand

Thought
     Even consumer credit declined compared with last month, it still raised by $17.3 billion this month. While labor market shows a significant improvement, other data like manufacturing PMI (55.8 in July), Core Durable Goods Order increased 1.4% in June and Consumer Confidence level increased to 90.9 in June as well.
     So I believe that lower level of consumer credit is not a big concern since the economy is expanding; people don't need to use a lot of credits to buy things. Of course, it is related with household spending but other data shows that household spending is increasing.

S&P500 ▼0.56%, and DJIA ▼0.46% as well. Utilities, which was declined by 1.28% yesterday, had a comeback rise by 1.14%. Russian sanction on U.S., 28 nations of E.U., Australia and Canada on their meat, fish, fruits and other food was one of the main issues in the market. Despite jobless claim was lower than forecast, it wasn't big enough to stop the decline.

USD has been appreciated by 0.03%. Geopolitical risk gets greater and there was no surprise in ECB monetary policy committee. Yet, Draghi speech suggested that economic contraction in EU is temporarily made no big change in EUR/USD currency market.

Sources:

http://www.bloomberg.com/news/2014-08-07/ecb-holds-rates-as-ukraine-turmoil-menaces-recovery-hopes.html

http://www.bloomberg.com/news/2014-08-07/jobless-claims-in-u-s-fall-as-average-drops-to-eight-year-low.html

http://www.bloomberg.com/news/2014-08-07/consumer-credit-in-u-s-rises-on-demand-for-car-student-loans.html

August 6th, 2014

Italy Recession, German Orders Signal Euro-Area Struggle

• Italy’s economy shrank 0.2% in the Q2 after contracting 0.1% in Q1
• It is a preliminary estimate. Will be updated on Aug. 14 along with Germany, France and Spain
• 74.0% Service industries, 23.9% manufacturing, 2.1% Agriculture
• “Today’s data are a serious reason for concern and confirm that the euro-area recovery is still sluggish at best”
• However, its industrial production ▲0.9% MoM in July; compared with -1.2% in June
• German Factory Orders ▼ 3.2% in June from May
• The E.U. agreed last week on its widest-ranging sanctions on Russia
• Russia counts Germany as its biggest trading partner in Europe
• German Vice Chancellor blocked a deal for Rheinmetall AG to build a military training center east of Moscow in light of the sanctions

Thought
    Even ECB proposes negative interest rate to boost economy and inflation, geopolitical risks and unemployment hold back its effect. For example, even Italy's unemployment rate fell to 12.3% from 12.6% in June, it is still higher than EU unemployment rate (10.4%).

     Germany's factory order has been decreased by geopolitical risks as well. It is not about it's policy or economic environment. Its economy expects to rise once the risks are solved.

U.K. House Prices Rise at Fastest Pace Since 2006

• U.K. house prices ▲1.4% MoM in July (▲0.4% forecasted); -0.4% in June
• “Demand continues to be supported by a continuing economic recovery, growth in employment, improving consumer confidence and low mortgage rates”
• The market is cooling after stricter lending rules took effect; the price may decrease soon
• There is “uncertainty over the true state of the housing market”

U.K. Industrial Production Increases Less Than Forecast

• Industrial Production ▲0.3% in June (forecasted ▲0.6%), when it ▼0.6% in May
• ▲1.2% YoY (forecasted ▲1.5%); ▲2.3% in May
• Output in Q2 rose 0.3%, below 0.4% estimated published in last month’s GDP data
• Manufacturers battling a stronger pound and strains in the euro area
• Last week, new orders survey was 51.5
• Showing that factory growth cooled to the slowest pace in a year in July as new orders and output cooled

Thought
     Since few days ago, IMF kept warning that overpriced housing may hurt U.K. economic expansion. U.K. recently got out from recession and fully expanding its economy. Interest rate, which will be decided tomorrow, will be the key for its future growth. BOE would decline the interest rate if it believes housing price is too high, but it is unlikely that the global economy is yet to be fully expanded.

Trade Gap Shrinks to Five-Month Low as U.S. Imports Drop

• The trade deficit in the U.S. unexpectedly narrowed in June
• The biggest drop in imports in a year
• The economy moved closer to energy independence
• The gap ▼7% to $41.5 billion (forecasted $44.8 billion)
• Imports dropped 1.2%
• The drop in purchases of foreign goods include decline in autos and cellular phones, while petroleum imports were the lowest in more than three years
• Yet it seems like to be rebounded by growing household spending and business investment
• Exports ▲0.15 to a record $195.9 billion
• Sales of civilian aircraft, pharmaceuticals and chemicals were among the biggest gainers
• Mixed signals
• Recent data signal a mixed performance for growth outside the U.S.
• In the U.K. index of services expanded in July to the highest level, while a similar measure in the euro area grew less than initially estimated
• China’s growth accelerated for the first time in three quarters after the government speed up spending and freed up more money for loans to counter a property slump

     It was quite a dynamic day. Even the index stayed almost stayed constant, but there were a lot of ups and downs in the market today. Geopolitical risks hit the market, which contributed to decline industrial sectors. Decline in energy import and oil stock raised energy sector.

Despite recession in Italy and decline in factory order in Germany, EUR/USD stayed almost constant, increased by 0.01%

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 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