Friday, June 22, 2012

Economic Summary for the week ended 22nd June 2012

Spain - Spanish borrowing costs on 12 and 18-month bonds jumped to 5.1% at its first debt auction this week, since securing a EUR100bn ($126bn) bank bailout.
Madrid raised the intended EUR3.04bn but the interest rate payable rose from 3% at a similar debt sale on 14 May.
The government has denied that a more detailed independent audit of bank debts is to be delayed. The first audit, which will determine the size of bailout needed, is due to be published this week.
Japan - Japan's exports have risen the most in 17 months easing concerns about the impact of a global slowdown on the Japanese economy.
Exports rose 10% in May from a year earlier, boosted by a 38% increase in deliveries to the U.S. Shipments to China, Japan's biggest trading partner, also rose for the first time in eight months.
Japan's export-dependent economy relies heavily on demand from markets such as the U.S., Europe and China for growth.
India - Ratings agency Fitch has cut its outlook for the Indian economy to negative, saying the country's growth faces "heightened risks".
Fitch warned India's growth potential "will gradually deteriorate if further structural reforms are not hastened". It also added that the government had made little progress on reducing its deficit.
The downgrade comes just days after Standard & Poor's warned that India could lose its investment grade status. "India also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms," Fitch said in a statement late on Monday.
Emerging Markets - Emerging economies may set up a joint 'anti-crisis' fund if they do not receive enough say in decision making at the International Monetary Fund (IMF) under proposed voting reforms, a senior Russian official said.
The leaders of BRIC nations (Brazil, Russia, India and China), pledged at the Group of 20 summit in Mexico to contribute $75bn to boost the IMF's lending power but had sought to tie the loans to voting reforms.
"It is clear that BRIC countries have entered the stage when they can demand to be reckoned with (in the course of the IMF reform)," Deputy Finance Minister Sergei Storchak told reporters.
The five BRICS nations represent 43% of the world's population and approximately 18% of global economic output.
China - China plans to lower the entry barrier for foreign institutional investors looking to buy publicly traded securities in mainland exchanges, as part of reforms to add depth to the country's capital markets.
The government will cut the minimum requirement on assets under management to $500mn from $5bn for companies seeking a license under the Qualified Foreign Institutional Investor program, the China Securities Regulatory Commission said.
The changes are "very positive," Mark McCombe, Asia- Pacific chairman of BlackRock Inc., the world's largest asset manager, said in Hong Kong. "I think the underlying objective is to get more investment into China."
Markets - Goldman Sachs Group Chief Executive Officer, Lloyd Blankfein, said the firm will rely on the biggest emerging markets for most of its growth even amid increasing concern economic expansion in Brazil, Russia, India and China may be slowing.
"80% of the growth of our business is going to come from high-growth areas identified as BRICs," Blankfein said at the St. Petersburg International Economic Forum in Russia on Thursday. "Our footprint will correlate with the ring of growth in various places around the world, providing they have good open markets."
Commodities - Oil tumbled below $80 per barrel for the first time in eight months this week as U.S. inventories surged amid concern that the European debt crisis will drag down the global economy, reducing fuel demand.
Futures dropped as much as 1.9% to $79.92 per barrel, the lowest intraday level since Oct. 6. Prices have slumped 27% from this year's settlement high as U.S. stockpiles rose to the most in almost 22 years and growth slowed in the U.S., Europe and China.
Spotlight on: the power of wealth shifting East
The number of millionaires in Asia has overtaken North America for the first time, in a sign of wealth shifting across the globe due to the economic downturn, according to a new report.
In the Asia-Pacific region there are now 3.37 million men and women with more than $1m in the bank, compared with 3.35 million in North America, Capgemini and RBC Wealth Management's latest world wealth report has revealed.
But the overall level of wealth in North America is still the highest in the world, with its millionaires, such as Warren Buffett and Bill Gates, controlling $11.4tn, while Asian businessmen control $10.7tn, although wealth levels declined twice as fast in North America as in Asia in 2011.
Millionaires in the U.S., Japan and Germany still make up more than half the world's richest, but total world wealth levels fell for the first time since the worst of the economic downturn in 2008.
In the U.K., which has the fifth highest number of millionaires, membership of the elite club dropped 2.9% from 454,300 to 441,300, while both Germany and France saw increases.
The world's wealthiest have $42tn at their disposal, down 1.7% on 2010, with all regions seeing a fall, except the oil-rich Middle East.
Jean Lassignardie, corporate vice president of Capgemini, said: "Europe will be top of mind for investors, as repeated flare-ups [in the eurozone] are likely to keep markets on edge. Additional drivers such as the economic performance in China, mature market headwinds, global political leadership changes and policy decisions will all play key roles in determining whether 2012 drives increases."
Several emerging markets saw wealth levels drop, in particular India and Hong Kong, which saw their number of millionaires fall by a fifth.
Researchers calculated millionaires as individuals who have the funds to invest at least $1m, and revealed that 9.9 million have between $1m and $5m.
This group grew slightly, 1.1%, but the richest section, with more than $30m at their disposal, dropped 2.5% to 100,000 people, with the value of their wealth also down nearly 5%.
The drop is linked to some of their holdings in higher-risk investments such as hedge funds, private equity and real estate.
India was worst hit due to "a slump in its equity-market capitalisation and its currency in 2011 as a lack of faith in the political process and the slow pace of domestic reformed disappointed investors," according to the report.
It added: "Also hard hit in 2011 were the millionaire populations of Singapore and Poland, which both suffered the direct effects of the eurozone crisis. Singapore saw a drop in exports, and Poland in foreign investment."
George Lewis, group head of RBC wealth management, explained: "The aggregate wealth of high net worth individuals declined overall, as market volatility took its toll.
"It is significant that for the first time this year there are now more high net worth individuals in Asia-Pacific than in any other region. However, losses in key markets such as Hong Kong and India meant that wealth contracted in Asia-Pacific overall."

Saturday, June 16, 2012

Economic Summary for the week ended 15th June 2012

Global - Developing nations should brace themselves for weak growth and "tougher times", the World Bank has warned this week.
It said that there may be "a long period of volatility in the global economy" as the eurozone debt crisis escalates. The bank forecast that developing economies will grow by 5.3% this year, down from 6.1% in 2011.
It urged policymakers to take adequate long-term measures to ensure that they can sustain growth.
"Developing countries should focus on productivity-enhancing reforms and infrastructure investment instead of reacting to day-to-day changes in the international environment," said Hans Timmer, director of development prospects at the World Bank.
Japan - Japan's core machinery orders, a key indicator of capital expenditure, rose more than forecast in April in a positive sign for the economy.
The figures come amid fears that a slowing economy coupled with a strong yen might see manufacturers shift production overseas. However, analysts said the data showed that firms were confident about growth.
"The machinery orders are an early indicator of how the economy is doing, giving us an hint of investment trends," Martin Schulz of Fujitsu Research Institute in Tokyo said.
China - The International Monetary Fund (IMF) has flagged "significant downside risks" to China's growth outlook, but stands by Beijing's ability to support the world's second largest economy. Concluding its latest annual economic health check of the country, the IMF predicts that growth will moderate at about 8% this year, down from the 9.2% seen in 2011.
David Lipton, first deputy managing director of the IMF, says: "We support the authorities' ongoing effort to promote higher quality growth while at the same time fine-tune macroeconomic policies to help ensure that growth does not slow too much."
Emerging Markets - Emerging-market stocks rose this week, putting the benchmark index on course for its biggest weekly gain in four months, on speculation central banks will take steps to shelter economies from Europe's debt crisis.
"It looks like global central banks are already prepared for aid packages in case economies slow further and Greece's problem deteriorates," Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co., said.
Emerging-market funds lured inflows of $920m during the week ended June 13 after China cut interest rates and Spain asked euro-region governments over the weekend for as much as EUR100bn to help shore up its banking system.
Ratings - The credit ratings of Spain and Cyprus have been cut by rating agency Moody's. The move follows a EUR100bn ($126bn) bailout of Spain's banks by fellow eurozone countries agreed over the weekend. Cyprus is expected to seek its own bailout in the coming days.
Spain's government faces its highest borrowing costs in debt markets since joining the euro, as lenders fear for the country's future in the eurozone.
Spain's rating was cut three notches, from A3 to Baa3 - one notch above junk.
Cyprus' rating fell two notches, from Ba1 to Ba3, pushing it deeper into junk status.
Greece/Global - 10 million Greeks will vote on Sunday for a decision that may determine the fate of the world's first democracy and the future of the Euro.
The June 17 vote will determine whether Greeks, in a fifth year of recession, accept open-ended austerity to stay in the euro or reject the conditions of a bailout and risk the turmoil of becoming the first to exit the 17-member currency. World leaders have said they'd prefer a pro-euro result, underscoring concern over global repercussions.
"I want Greece to remain in the euro zone, but Greeks must understand that this requires a relationship of trust," French President Francois Hollande said. "If the impression is given that the Greeks want to distance themselves from their agreed commitments and to abandon every prospect of recovery, there will be countries in the euro zone that will prefer to terminate Greece's presence."
Commodities - The price of oil rose the most in more than two months on speculation the Federal Reserve will loosen monetary policy to spur growth and as OPEC (organisation of the Petroleum Exporting Countries) members were asked to cut production that exceeds their current output ceiling.
Oil advanced 1.6% as a worse-than-expected jobless claims report fuelled expectations that Fed policy makers will announce new stimulus measures next week. OPEC Secretary-General Abdalla El-Badri said the group's production is approximately 1.6 million barrels a day above the 30 million target renewed on Thursday.
Spotlight on: Investor trends & fighting inflation
Despite rising concerns about meeting investment goals, most investors are "stuck in place" with current portfolio allocations, according to findings released from the latest "Barometer" survey of investors and advisors conducted by BlackRock.
Only around one in 10 investors is making portfolio adjustments, as the results suggest uncertainty in the face of volatility is battling optimism about the future direction of the market.
While trying to manage the challenges of uncertain and volatile markets, many of the investors surveyed are also grappling with the profound financial management challenges of retirement planning.
Nearly half of investors, 46%, say they are considering a later retirement than they initially planned, up from 30%a year ago. Their advisors, polled in a separate survey, point to concerns about longevity of savings, severe loss of portfolio, and market volatility as the top three factors affecting retirement timing.
Of those surveyed, 62% of investors said they were optimistic about the market's performance over the next six months. Yet when asked to describe today's environment, investors are most likely (57%) to characterize conditions as "uncertain," and only 15% described the markets as full of opportunity.
As a result, investors are sticking with their current portfolio allocations, with nearly half, 46%, making no changes. The percentage of investors adjusting portfolios has dipped from 21% six months ago, to 11% today.
Investors are uncertain not just about the markets generally, but also about how specifically to deploy their money. The number one reason investors are holding onto cash, according to the survey, is "uncertainty about where to invest" followed by a belief that it's a poor investing environment and fear of losing money.
"Uncertainty is often a crippling factor when it comes to investing and all too often, when uncertain, investors do nothing at all," Mr. Porcelli commented. "However, many investors don't realize that when you factor in inflation, staying in cash can lead to a deccumulation of assets rather than accumulation of assets over time."
56% of advisors and 67% of investors said that while they consider the impact of inflation on their savings, they are not focused on it. However, most advisors (87%) anticipate inflation will increase over time.
"Inflation risk is the danger that an investor's portfolio returns will not keep pace with inflation, eroding the purchasing power of income over time," added Mr. Porcelli. "Inflation is harder to notice on a one, two, or three-year basis, but our research has shown that inflation of just 3% can reduce the purchasing power of a portfolio by 50% over a 25-year time frame."
*BlackRock's "Barometer" research is conducted online, two times per year, with support from research firm Market Strategies International. For the latest wave of the research, conducted from April 23 to May 7, 353 investors and 377 financial advisors were polled. All of the investors surveyed work with financial advisors, and 93% are age 56 or above, reflecting a general focus on investors in their peak wealth accumulation phase and dealing with the potential or actual financial management implications of retirement. All those surveyed had $250K or more in investable assets.

Friday, June 1, 2012

Economic Summary for the week ended 1st June 2012

Brazil - Brazil is on the brink of a "historic" shift towards a lower interest rate regime that will change the foundations of the country's financial and investment industries, says the head of its stock exchange.
Interest rates in Brazil were reduced to record lows on Thursday, being cut by 50 basis points to 8.5%. It is thought that Brazilian savers and investors are likely to start moving from simple deposit accounts and bonds to other more sophisticated forms of investment, including equities.
"Brazil's savings culture is one of inflation and fixed-income investments. This may change it all," Edemir Pinto, chief executive of BM&FBovespa, one of the world's largest exchange companies by market capitalisation, told the Financial Times.
India - The Indian economy grew at the slowest rate since 2003 in the first three months of 2012, due to a widening trade gap and poor investment.
India's gross domestic product (GDP) rose 5.3% in the first three months of 2012, down from 7.8% in the same period last year, official figures show. The growth figure was well below market expectations of 6.1%.
India is the third-largest economy in Asia but has been struggling with inflation and currency weakness.
Philippines - The Philippine economy beat expectations and expanded by 6.4% in the first quarter to become one of east Asia's top performers, boosted by services such as tourism and business outsourcing, as well as consumer and government spending.
Analysts had been pessimistic as exports, which make up around 35% of economic output, had begun to slip in March. With demand from Europe and Asia slowing, they had projected growth in the first three months of the year of around 4.5%.
Instead, the country posted the highest first-quarter economic growth in east Asia except China, said Arsenio Balisacan, the Philippines' economic planning chief.
U.S. - The number of Americans applying for unemployment insurance payments rose last week to a one-month high, a sign that progress in reducing joblessness may be stalling.
First-time claims for jobless benefits increased by 10,000 to 383,000 in the week ended May 26 from a revised 373,000 the prior week, the Labour Department said on Thursday.
Increased firings weaken the prospects for accelerating job growth, which in turn could weigh on consumer spending, the biggest part of the economy.
Germany - Germany's unemployment rate slid to a new two-decade low in May, bucking a Europe-wide trend as the financial crisis continues.
The jobless rate declined to 6.7% from 6.8% in April after revisions, the Federal Labour Agency in Nuremberg said on Thursday. The number of people out of work was unchanged at 2.87 million.
Spain - Madrid was dealt a double blow on Thursday after it emerged that almost EUR100bn in capital had left the country in the first three months of the year and the head of the European Central Bank criticized its handling of Bankia, the troubled Spanish lender.
Data published by Spain's central bank showed EUR97bn had been pulled out in the first quarter (around a 10th of the country's GDP) as concerns mounted over Madrid's ability to contain its economic and financial crises, which have forced government borrowing costs to euro-era highs.
Commodities - Gold is poised for the worst run of monthly losses in more than 11 years as concern that Europe's fiscal crisis is escalating drove investors to seek the dollar as a haven over the precious metal.
Bullion is 6.1% lower in May for its biggest drop this year as the dollar rallied 5.1% against a six-currency basket including the euro.
Sectors - Luxury stocks have outperformed over the last six years despite the global financial crisis, figures from S&P Indices show.
The S&P Global Luxury Index delivered annualised returns of 9.3% in the six years to March 31, against the 6.2% per annum seen in the S&P Global Broad Market Index and the 4.9% in the S&P Global BMI Consumer Discretionary Index.
Liyu Zheng, research director at S&P Indices, said "The drivers of the index and its constituent stocks are increased demand for luxury goods and services, especially from emerging markets and the rapid expansion of retail networks in high potential markets."
Consumer demand in the Asia Pacific region was cited as the main driver of the index's outperformance. Although just 4.2% of the index's constituents are based in Asia, more than half have significant exposure to the region.
Trends - Goldman Sachs has identified four countries that will drive global growth over the coming decade alongside the so-called Bric nations of Brazil, Russia, India and China.
The bank, which gave the investment world the concept of Bric ten years, says Mexico, South Korea, Turkey and Indonesia will be among the fastest growing countries of the next decade.
Katie Koch, from the office of the chairman at Goldman Sachs Asset Management, told the Morningstar Investment Conference 2012 that to label these eight nations as emerging markets is "quite insulting".
According to Goldman Sachs, these eight markets will be the top contributors to global growth over the next ten years. The smallest contributor of these eight, Turkey, is expected to contribute the same amount to global growth as the UK over this period.
Spotlight on: A shift to the East
East Asia is a region that is getting noticed. At the World Economic Forum in Bangkok over the next two days, the main topics of discussion will be how best to develop its opportunities and tackle its problems.
But can the region really help offset the slowdown that has hit the U.S. and Europe,and can it get the global economy motoring again?
While East Asia may not be the best-known of global regions, it contains a mix of established powerhouses, such as China, and so-called 'frontier' destinations such as Indonesia, Thailand, Vietnam, Singapore and the Philippines.
With the U.S. and Europe stuck in a period of slow growth and recession, East Asia is becoming increasingly important, not just to local companies but also the global economy.
"It is the rise of the East that is driving the fundament shift in the world's centre of economic gravity," says Pushan Dutt, a professor of economics at business school Insead. "East Asian economies are starting to have a much bigger share of global GDP, they are key to the global production chain and a large chunk of the world's population lives here."
According to the World Bank, the developing East Asia region, which includes China, grew by 8.2% in 2011.
Even if you exclude China, the world's second-largest economy, the region's growth rate was still a healthy 4.2% and it is forecast to expand by 5.2% in the current year.
One of the key factors helping growth has been increasing domestic demand and coverage. As the economies have grown, so have income levels, giving more spending power to consumers.
East Asia has also benefited from growth in the size of the working-age population.
Not only has that ensured a steady supply of labour, it also means that more people have been earning money, which they have been either saving or spending, helping underpin growth in their respective economies.
Growing domestic consumption has also helped offset a slowdown in exports from the region after demand from key markets such as the U.S. and Europe slowed.
Analysts say that East Asian consumers are likely to play an increasingly bigger role in global growth. "Currently the world suffers from a lack of demand," says Mr Dutt of Insead. "The U.S. and Europe are not consuming enough and you need an alternate source of demand, for which East Asia is a potential candidate."
The other main factor behind East Asia's expansion has been the rise in investment, both domestic and foreign.
Many of the region's economies are at a developing stage, which means that governments in those countries have been allocating resources and funds to improve infrastructure.
"Within the region, there is a huge demand for investment, especially in infrastructure, but also in areas such as sanitation, clear drinking water and housing," says Prakriti Sofat, an economist with Barclays Capital.
In its latest report on the region, the World Bank noted that higher investment, particularly in infrastructure, "offers the potential to sustain growth" in the region.
At the same time, the region has also become the destination of choice for foreign investors.
Emerging economies in East Asia accounted for 43% of all foreign direct investment in developing areas globally last year.
Yet while there are a lot of positives, the region is not immune from problems. There is no doubt that a slowdown in China, which comprises 80% of developing East Asia's GDP, would significantly damage the region's prospects.
However, some analysts also believe that if the slowdown in China is a gradual one, then it might in fact be beneficial for the other economies of East Asia.
With China consuming less, commodity prices would drop, putting a cap on inflation and freeing up money for development projects and spending, says Ruchir Sharma, managing director of Morgan Stanley and the author of Breakout Nations.
He adds that with manufacturing costs also rising in China, other nations may be able to start ramping up their own manufacturing operations. "As costs in China go up, manufacturing could be moving more to places such as Indonesia, Philippines and Thailand," he explains.
A shift of manufacturing would most likely be accompanied by increased investment and job creation, which in turn would help stoke consumer demand and spending.