Saturday, March 30, 2013

Economic Summary for the week ended 29th March 2013

Global - The world's major economies will see stronger growth this year, but Europe's recovery will continue to be slow, the Organisation for Economic Co-operation and Development (OECD) has said.
The OECD predicted stronger growth in the U.S., Japan and Germany. But it said concerns remained over the recovery of the wider eurozone.
It said governments would need to keep special measures in place to boost economic growth. Overall, the OECD forecast an average annualised growth of 2.4% among the seven biggest economies in the first quarter of this year.
That suggests a marked recovery from the last three months of 2012, when leading economies shrank at an annualised rate of 0.5%.
"The bottom line is that we are moderately more optimistic," the OECD's chief economist Pier Carlo Padoan told the Reuters news agency.
Cyprus - Stocks rallied on Thursday, sending the Standard & Poor’s 500 Index above its record closing level, and the euro rebounded from a four-month low as the reopening of banks in Cyprus eased concern about Europe’s debt crisis.
The S&P 500 jumped as much as 0.3% to 1,567.78 as of 11 a.m., eclipsing its previous all-time high of 1,565.15 set in October 2007, in response to the news.
China - China needs a "renewed reform momentum" to sustain long term growth, the OECD has said.
It said the financial sector, urbanization, state ownership and innovation were key areas for reforms. But it added that China had weathered the global financial crisis better than other OECD member countries.
It said China was on track to become the world's biggest economy by 2016, after allowing for price differences. "It is well placed to enjoy a fourth decade of rapid catch-up," the OECD said in a survey.
It also said that there were signs of China's economic growth picking up pace again after the recent slowdown. However, it warned that in order "to sustain vigorous and socially inclusive growth over the longer run, renewed reform momentum is required".
China/Brazil - China and Brazil have signed a currency swap deal, designed to safeguard against future global financial crises.
The pact, first announced last year, will allow their central banks to swap local currencies worth up to 190bn yuan or 60bn reais ($30bn).
Officials said this will ensure smooth bilateral trade, regardless of global financial conditions. Along with being the world's second-largest economy, China is also Brazil's biggest trading partner.
"If there were shocks to the global financial market, with credit running short, we'd have credit from our biggest international partner, so there would be no interruption of trade," said Guido Mantega, Brazil's economy minister.
The agreement was signed as part of the fifth Brics (Brazil, Russia, India, China and South Africa) summit being held in Durban, South Africa.
U.S. - The U.S. economy grew at a faster than expected 0.4% in the fourth quarter of 2012, the Department of Commerce has said.
The annualised figure was better than an earlier estimate of 0.1% growth, reflecting increased investments in plant and equipment. However, despite the upwards revision, the department warned that the economy remained "sluggish".
The latest figures were a marked slowdown from the previous quarter.
An acute fall in defence spending and government expenditures hurt economic output, said the department.
Spotlight on: Fund manager sentiment more positive on banks
Global fund managers are now more positive on banks than at any time in more than six years, research from Bank of America Merrill Lynch shows.
According to the latest BofA ML Global Fund Manager Survey, a net 14% of asset allocators had an overweight position in banks at the start of March. This is an 8% increase on the previous month and the most positive managers have been on the sector since December 2006.
The shift comes as investors moved money into assets that are driven by growth in the U.S. economy, such as financials, consumer discretionary companies and real estate. The allocation to U.S. equities reached its highest level since July 2012 last month, with 14% of fund managers now overweight here.
BofA Merrill Lynch chief investment strategist Michael Hartnett says: “Relative U.S. economic outperformance on the back of the housing market’s ongoing improvement and the energy independence story will lead a secular uptrend in the dollar.
“U.S. equities’ leadership in the ‘great rotation’ suggests developed market equities are the likeliest winner in this scenario.”
Despite asset allocators’ constructive stance on equities, there are signs that risk appetites have slipped slightly. The ML Risk & Liquidity Composite Indicator dropped one percentage point during the past month - its first decline in nine months.
Fund managers seem more willing to fund their equity purchases by dipping into their cash holdings. Some 28% say they would use cash to buy stocks, up from 22% in the February survey.
Asset allocators are also showing willing to sell government bonds to fund their equity purchases. Investors’ underweight to bonds rose from a net 47% to a net 53% this month.
However, BofA ML highlights challenges to the enthusiasm for US equities. “The biggest downside risks to investor positioning is anything that weakens the bullish dominance of the U.S. domestic demand story or a surprise jump in commodity prices and rates,” the report says.

Tuesday, March 12, 2013

Economic Summary for the week ended 9th March 2013

Emerging Market Stocks Make Gains
Emerging market stocks rose, heading for the biggest weekly gain in more than two months, as economic data from China to Japan and the U.S. bolstered confidence in the global expansion.
The MSCI Emerging Markets Index (MXEF) advanced 0.5 percent to 1,063.20 on Thursday in Hong Kong, a two-week high. The gauge has risen 1 percent this week, poised for its biggest weekly gain since 4 January. China exports rose more than forecast in February, data showed on Friday. Japan’s economy exited a recession, while jobless claims in the U.S. unexpectedly fell last week. Data on Friday may show U.S. employers added 165,000 people to payrolls in February and the unemployment rate held at 7.9 percent, according to economists.
“The market remains well supported because of the recent economic data, which is playing catch-up to investors’ expectations,” Geoffrey Ng, who helps oversee USD1.8 billion as chief executive officer at Hong Leong Asset Management Bhd., in Kuala Lumpur.
Malaysian Currency Volatilities
Currency swings are rising in Malaysia at the world’s fastest pace as concern mounts that the ruling coalition will lose its 55-year grip on power after attracting more foreign capital than any other emerging market except Mexico.
Three-month implied volatility for the ringgit, a measure of expected exchange-rate moves used to price options, jumped 2.2 percentage points to 7.4 percent in 2013, more than any of the main global currencies. The ringgit has lost 1.6 percent this year and reached a five-month low in February as Credit Suisse Group AG and ING Groep NV cut their forecasts.
Polls show support for Prime Minister Najib Razak, who embarked on a USD 444 billion development plan to build railways and power plants, is the lowest since 2011 ahead of elections due before the end of June. Investors may pull from the local bond market as much as USD 10 billion, or 24 percent of their total holdings, as opposition leader Anwar Ibrahim pledged to review highway-toll contracts and the granting of tax permits to large companies, according to Credit Suisse.
“The volatility rate reflects worries of capital outflows in the lead up to the election, which looks uncertain at this time,” Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore, said in an interview. “In the long term, I am still positive on the fundamentals of the ringgit and the bond market in Malaysia.”
Malaysia, Southeast Asia’s third-largest economy after Indonesia and Thailand, attracted investment, including bonds and stocks, equivalent to 4.5 percent of gross domestic product in the year through September, the second-highest percentage among 21 developing nations after Mexico, according to strategists at Goldman Sachs.
Rising strength of the US Dollar
The dollar rose to the strongest since August 2009 against the yen on speculation an improving U.S. job market will prompt the Federal Reserve to slow stimulus even as Japan pledges to extend so-called quantitative easing.
The U.S. currency gained versus all except two of its 16 major counterparts before a report that economists said will show American employers stepped up hiring in February. The euro strengthened for a third day against the yen as analysts said German data today will show industrial production increased for a second month in January. Sweden’s krona fell against the dollar and the euro after industrial production declined.
“There’s been a market realization that the real economy in the U.S. is in a growth phase,” said Peter Frank, global head of currency strategy at Banco Bilbao Vizcaya Argentaria SA in London. “That’s a really strong reason to be bullish on the dollar. By the end of this year, the Fed will start to give details of how it’s going to withdraw its accommodative policy. There’s nothing positive for the yen right now.”
The dollar advanced 0.8 percent to 95.54 yen on Friday morning in London after climbing to 95.61, the highest level since 13 August 2009. The U.S. currency rose 0.1 percent to USD 1.3092 per euro after dropping 1.1 percent on Thursday, the biggest decline since 10 January. The yen fell 0.7 percent to 125.11 per euro.
Spotlight on Thai Stocks
Never before have Thai stocks rallied so much at a time when foreign investors were heading for the exit.
The benchmark SET Index (SET) rose 4.6 percent last month even as international money managers sold a net USD 583 million of the nation’s shares, the biggest outflow among the top 10 Asian markets. The advance, propelled by USD 611 million of purchases by domestic investors, is the largest for any month when net overseas withdrawals exceeded USD 500 million.
Thai citizens are driving equity gains as the nation’s USD 377 billion economy grows at the fastest pace since at least 1993 and local incomes climb. While Morgan Stanley is advising clients to cut stock holdings after valuations rose to record highs, Aberdeen Asset Management and ING Investment Management are still bullish. The SET index has recovered every time when foreign selling coincided with monthly losses since September 2008, rallying an average 22 percent in the next 12 months.
The SET index is up 13 percent this year. The MSCI Southeast Asia Index (MXSO) has advanced 4.9 percent in 2013, while the MSCI Emerging Markets Index has increased 0.5 percent.
Outflows from Thai stocks last month compare with USD 1.2 billion of inflows into Indonesia and USD 146 million of net purchases in the Philippines. The Jakarta Composite Index and the Philippine Stock Exchange Index both climbed 7.7 percent in February.
Capital outflows and Thailand’s widening current-account deficit spurred the government to devalue the baht on July 2, 1997, a move that helped spark the Asian financial crisis. Foreign investors withdrew about 30 billion baht, or USD 1 billion at current exchange rates, from Thai stocks in the 12 months ended June 1997.
Thailand’s economy and its financial markets have become more resilient to foreign withdrawals, according to ING’s Huang. The nation’s foreign-exchange reserves have grown more than 500 percent since the Asian crisis to about USD 179 billion as of 22 February, central bank data shows. Thailand will probably record a current-account surplus equivalent to 0.1 percent of gross domestic product in 2013, data from the International Monetary Fund show.
GDP expanded 18.9 percent in the three months through December, the fastest pace since Thailand began compiling figures in 1993, as manufacturing rebounded from the worst floods in almost 70 years in 2011, the government said on 18 February. The economy grew 6.4 percent in 2012, compared with the decade average of 4.2 percent. The expansion may slow to between 4.5 percent and 5.5 percent this year, according to government estimates.
Rising incomes and tax incentives for long-term investment have spurred more Thais to put money in stocks. The country’s per-capita GDP has increased to about USD 5,850 from USD 3,900 five years earlier, according to the Washington-based IMF. Thailand allows citizens to make tax-free investments of as much as 1 million baht a year into retirement and long-term equity funds.
The long-term prospects for Thailand’s economy and stock market are both positive because infrastructure spending is increasing and the country is luring foreign direct investment, Medha Samant, an investment director at Fidelity Worldwide Investment, which oversees about USD 240 billion, said by phone from Hong Kong on 28 February. The USD 1.2 billion Fidelity Thailand Fund (FIDLTHI) returned about 13 percent this year.
Prime Minister Yingluck Shinawatra’s government approved on 27 February a 2 trillion baht infrastructure-spending plan to build high-speed trains and mass transit networks.
“The next catalyst will be when the government starts to disburse money regarding these projects,” Pong Ho Yin, a Hong-Kong based money manager at Allianz Global Investors, said. “That will provide more confidence to the foreigners.”
Earnings in the SET index will probably climb 28 percent in the next 12 months, versus 18 percent for MSCI’s developing-nations gauge, according to projections coomplied by Bloomberg.
Many Thais “have had great success and spectacular returns by investing in companies with sound fundamentals such as strong earnings growth,” according to Sompong Cholkadeedamrongkul, a 60-year-old private investor in Bangkok. “There were several occasions that heavy selling by foreign investors gave me opportunities to buy shares of those companies at bargain prices.”

Tuesday, March 5, 2013

Economic Summary for the week ended 1st March 2013

India - India's finance minister has announced an unexpected rise in public spending for the next financial year in an attempt to revive its sluggish economy. However, he vowed to cut the country's deficit as he unveiled new taxes on the super rich as well as large businesses.
Chidambaram said that increased foreign investment was key to reviving growth in India's economy. The budget comes at a time when India's growth rate has slowed, hurt by both global and domestic factors.
Asia's third-largest economy is projected to grow by 5% in the current financial year, far below the 7.6% growth projected in last year's budget.
China - China’s transition toward consumer-led growth and away from exports may be occurring faster than the government realizes.
Official data may have understated household consumption and incomes by $1.6tn last year, according to estimates by Morgan Stanley.
The reason being that China’s statisticians haven’t kept pace with structural changes in household spending such as housing and health care, which have grown rapidly, Hong Kong-based strategists Jonathan Garner and Helen Qiao said.
The finding suggests that such spending amounts to about 46% of GDP, higher than the 35% generally estimated and well below that of other large economies during periods of rapid growth, the report said.
That means the shift to consumption-driven growth and away from exports has been under way for some time, Garner and Qiao said. And it implies that household spending as a share of GDP has risen 2.4% points since 2008, while the official data suggests a 0.5% point decline.
Emerging Markets - Bubbles have yet to form in emerging market bonds and equities, according to Capital Economics, although there is a risk of this happening in the coming two years.
Emerging markets have seen renewed interest from investors of late. As a result, the JP Morgan Emerging Market Bond Plus index’s yield recently dropped to a record low of 4.5% while the annual average return of the MSCI Emerging Market equity index has been 20%, in dollar terms, for the past four years.
In its latest Global Markets Focus report, Capital Economics says: “Although these developments have prompted claims that a bubble is forming in financial markets in the emerging world, we are unconvinced.
“Looking ahead, though, a bubble could form in the next two years particularly in dollar-denominated emerging market bonds, primarily as a result of monetary stimulus in advanced economies.”
U.S. - Orders for durable goods in the U.S. fell 5.2% in January, the first fall in five months, as orders for aircraft fell.
Excluding transportation orders, which can be volatile, orders rose 1.9%, the highest rate since December 2011, said the Commerce Department.
Factories saw a 6.3% rise in demand for non-defence capital goods, pointing to a rebound in business confidence.
Meanwhile, separate data suggested that sales of previously-owned U.S. homes continued to recover in January.
Europe - A new cap on bankers' bonuses agreed in Brussels on Thursday was hailed by its supporters as a breakthrough to rein in the financial sector, but dismissed by critics as a reckless move that would drive bankers abroad or force up their base pay.
Bankers in Europe could be barred from receiving bonuses equal to more than their base salaries as soon as next year, following agreement in Brussels on Thursday. Shareholders would be allowed to vote to raise the cap to double base pay, but no higher.
The cap addresses public anger at what many European politicians describe as rampant greed in the financial sector. Many people on the continent blame huge bonuses for encouraging bankers to take outsized risks that caused the 2008 financial crisis, when banks had to be bailed out with public funds.
Europe - European stocks climbed on Thursday, with the benchmark index heading for its ninth straight monthly gain, as European Central Bank President Mario Draghi and Federal Reserve Chairman Ben S. Bernanke signalled they would maintain monetary support measures.
“Thanks to a strong mix of positive business results and signals of central banks remaining expansive, the upward trend on equity markets is strengthened and may continue,” said Daniel Gschwend, portfolio manager at Diem Client Partner AG in Zurich, which oversees more than 1bn Swiss francs ($1.08bn) in assets. “Looking at this long winning streak, however, I expect a substantial correction will soon be needed.”
Italy –The FTSE 100 and stockmarkets on the continent fell on Wednesday on the back of renewed uncertainty in the eurozone, following an election in Italy ending in stalemate.
Italy faces political deadlock after its election failed to produce a clear winner. In a shock result, comic Beppe Grillo’s anti-establishment 5-Star Movement became the country’s strongest party but no-one was able to secure a majority.
Leeds University Business School professor of monetary economics Giuseppe Fontana told the BBC: “It is not difficult to speculate that this morning markets and policymakers are asking the big question - what is the future of the euro area?.
“Italy is the third largest economy in the eurozone area and there is a question about is this a way, a democratic way, to tell markets and policymakers to change course about austerity measures and start to stimulate again the economy?”.
Germany - German retail sales rose the most in more than six years in January as falling unemployment bolstered consumer confidence.
Sales, adjusted for inflation and seasonal swings, jumped 3.1% from December, when they dropped 2.1%, the Federal Statistics Office in Wiesbaden said today. That’s the biggest increase since December 2006, the office said.
“Domestic demand in Germany is solid, driven by a stable labor market and higher real wages,” said Carsten Brzeski, senior economist at ING Group in Brussels. “With foreign demand picking up as well, the German economy should return to growth in the first quarter.”
Spotlight on: Future for gold?
Marlborough Fund Manager’s Angelos Damaskos says that money printing is the only option available to many western economies struggling under the weight of debt, which will boost both inflation and the price of gold.
The U.S. administration managed to agree a partial deal on the "fiscal cliff" negotiations on New Year’s Eve.
Nevertheless, full agreement is still subject to the resolution of a number of issues, the most important being approval by Congress to raise America’s debt ceiling.
This would allow it to borrow more to refinance existing obligations in addition to financing the stimulus programmes launched recently; tantamount to an agreement to print more money while borrowing more from abroad.
There are two other important issues relating to cutting government expenditure and raising taxes to reduce the deficit in cash-flow.
An increase in the debt limit would exacerbate the situation, leading to higher inflation due to the additional liquidity and a subsequent dampening of economic growth.
The second concern is that cutting government expenditure while raising taxes would also negatively impact growth and employment and disincentivise new investment in productive capacity.
Understandably, politicians are undecided. Their position is similar to a household earning less than their regular outgoings, having no savings and piling on debt via credit cards and bank overdrafts.
Finding ways to reduce expenses requires undesirable adjustments to lifestyle, while possibilities to increase income are hard to find.
At the same time, creditors are knocking on the door, asking when they might get their money back. The economic activity of the household will have to be reduced if it is to avoid losing valuable assets to the banks.
The main advantage of a public body in control of its own finances, such as the U.S., is that it can print money to inflate the value of the debt.
The difficulty is doing this without angering its creditors, who may ask for their money back. It is a fine-balance politically, with politicians walking the tightrope.
The European Union is in a similar, possibly worse, situation. The additional burden of cultural differences among member states makes reaching an agreement on debt levels, cuts in expenditure and a fiscal union difficult.
Under the circumstances, many investors sense the risk that the value of their money held in U.S. dollars or euros could fall.
The potential loss in purchasing power due to increased money supply and the consequent inflation could be significant. In their quest for alternative stores of value, many look to gold as a safe-haven.
This investment demand has propelled the gold price to a six-fold increase over the last 12 years.
Many now believe that, as the governments of the U.S. and E.U. have stated their intent to print more money in order to stimulate their economies, the debt problems might be resolved sooner rather than later.
They therefore suggest that we saw the peak in the price of gold when it reached $1,927 per ounce in 2011.
This argument ignores the potential impact of inflation and the economies' inability to invest in new productive capacity.
Other more cautious investors are still looking for stores of value, such as gold. As more people become convinced that their money is at risk of losing its value, a rush to buy gold could push its price to a much higher level than that reached in 2011.
Damaskos’s belief that this situation is likely to happen in the next 12 months as politicians struggle to find alternative ways to resolve the debt problems and the electorate becomes restless. When the gold price reaches new highs, the current undervaluation of gold mining shares will be stark for all to see, causing a sharp re-rating of the sector.