News That Matters

Yesterday Spain asked for a “small” bail out, just for the banks. We all know how it started in Ireland. First the banks, then the rest. As we have been arguing, Spain is in denial when it comes to the economy (don’t confuse this with the IBEX index outperforming as we suggested a week ago). Montoro is assuring us, the men in black  won’t be visiting Spain. Let’s see about that.
European officials are weighing up a bailout programme for Spain that would aid its fragile domestic banking sector while imposing only “very limited conditionality” on Madrid, a concession that could make a reluctant Spanish government more willing to accept international assistance. Unlike earlier bailouts for Greece, Portugal and Ireland, the proposed Spanish rescue would require few austerity measures beyond reforms already agreed with the EU and could even dispense with the close monitoring by international lenders that has proved contentious in Athens and Dublin, according to people familiar with the plans.

The pattern is now all too familiar and has been a regular feature since the financial crisis. Fears of systemic stress and weak US economic data spark dramatic declines in Treasury yields, followed by the Federal Reserve launching a new round of bond purchases, confirming the pre-emptive positioning of bond investors. Against the backdrop of the eurozone crisis and a poor US jobs report for May, the big drop in Treasury yields and record low mortgage bond rates suggest this pattern may repeat itself and that a third round of quantitative easing, or QE3, looms when the Fed meets later this month.

The US Federal Reserve is set to propose new capital rules on Thursday, including a provision that will reverse a policy that has helped shield US bank capital levels from volatility, people familiar with the matter said. US banking industry groups and lenders, including Citigroup and Wells Fargo, have been trying to persuade lawmakers that the measure, which is among a batch of proposals to implement the Basel III accords, will hurt them relative to overseas competitors. They also say that they may have to curtail purchases of long-term US Treasuries and municipal debt.

Chinese direct investment into Europe tripled in 2011 to $10bn, according to a new study that estimates Chinese companies are in the early stages of a global shopping spree that could see them spend as much as $250bn-$500bn in the region by 2020. Although total Chinese outbound investment is still small compared to the size of its economy, most analysts believe the country is on the verge of ramping up its spending abroad, with crisis-hit Europe seen as one of the most attractive supermarkets.

The price of the world’s most important oil benchmark is being boosted by South Korean refiners buying on the back of a tax loophole involving North Sea oil.   The buying pressure started in December when refiners began exploiting the EU-South Korea free trade agreement signed in 2011, but, according to industry estimates, has now peaked with the Asian country’s refiners buying in May more than a quarter of the monthly production of Forties, the oil variety that largely sets the price of the Brent benchmark.
The European Central Bank kept interest rates steady despite a deepening downturn and slowing inflation, raising pressure on governments to take the lead in fighting Europe's escalating debt crisis. ECB President Mario Draghi played down the severity of the euro bloc's economic troubles and debt woes, saying that the economy should gradually recover later this year. Europe's debt crisis is "far away" from the severity of the collapse of Lehman Brothers nearly four years ago, he said. Still, Mr. Draghi opened the door to lower interest rates as soon as next month, saying the ECB stands "ready to act" if needed. "I don't think it would be right for monetary policy to fill other institutions' lack of action," he said after the ECB's monthly meeting, which occurred a day earlier than usual because of a public holiday Thursday in parts of Germany.

As France's new president, François Hollande, tackles the many challenges posed by the deepening euro-zone crisis, from Spain's troubled banking system to Greece's potential exit from the currency union, here's the latest: Many municipalities can't fund their investment projects. This is no small matter because local governments in Europe carry out the majority of public infrastructure investments, from roads to sewage to hospitals, including more than 70% of those in France. So at a time when governments across Europe are searching for sources of growth and employment, localities' funding squeeze is making their job harder. "The impact on economic growth will be substantial," said Bernard Dreyfus, an academic who studies local-government finances.

Beijing has curtailed access to information often used by investors and short sellers to evaluate Chinese companies, which could further cloud an often murky market for foreign investors. A Chinese government agency that compiles extensive Chinese corporate records has begun to withhold information that includes financial reports, shareholder changes and assets transfers, according to lawyers, investors and research companies. The State Administration of Industry and Commerce declined to say whether it had moved to limit what it once made public, but the Beijing-branch of the agency said some lawyers in the past had abused the availability of data by selling
Australia's seasonally adjusted unemployment rate increased 0.2 percentage points to 5.1% in May, the Australian Bureau of Statistics reported Thursday. The rise met economists' expectations. The labor-force participation rate rose 0.3 percentage points in May to 65.5%, the statistics bureau said. The number of people employed increased by 38,900 to 11.54 million, while the number of unemployed increased by 22,400 people to 622,800. Stocks extended gains after the data,

U.K. manufacturing output is likely to shrink in 2012 as a result of the euro zone's flagging demand for U.K.-made goods, manufacturing organization EEF said Thursday. EEF said in a quarterly report that it expects output in the U.K. manufacturing sector to contract 0.1% in 2012, compared with a previous forecast for a 0.5% expansion. The sector makes up about 10% of the economy's overall output, which EEF expects will expand 0.3% this year. EEF blamed the revision to its forecast on poor demand in the recession-hit euro zone, a key destination for U.K. exporters, and a weaker-than-expected performance by the manufacturing sector in the first quarter. Official data showed manufacturing output was flat in the three months to March, while overall the economy shrank 0.3%.
The festering economic crisis in Europe could help determine the outcome of the U.S. presidential election, but don't expect President Barack Obama or his Republican rival, Mitt Romney, to spend much time talking about it. The November 6 election is widely expected to turn on the state of the U.S. economy, and the impact of Europe's slow-motion meltdown has begun hitting Wall Street, manufacturers and other businesses. U.S. households have lost $1 trillion in wealth since March as the euro zone crisis has pushed stock markets down, according to JP Morgan.
Investors seek the yen as a haven from turmoil sparked by a debt crisis, sending it to a postwar high against the dollar and threatening to deepen Japan’s economic stagnation. The year: 1995. It’s deja-vu for Japanese policy makers, who 17 years ago countered the surge in the yen with record intervention in the foreign-exchange market, driving it down by about 30 percent within five months. Like then, the currency is again trading at postwar highs, undermining Japan’s recovery from last year’s earthquake and tsunami as investors seek refuge from Europe.

Japan’s main opposition Liberal Democratic Party agreed to talks with the ruling Democratic Party on Prime Minister Yoshihiko Noda’s bill to double the consumption tax in order to pay for soaring welfare costs. LDP Secretary-General Nobuteru Ishihara announced the decision at a press conference today in Tokyo. His party has called for the DPJ to withdraw legislation to revise the social security system in return for support on the tax bill. Noda this week acceded to opposition calls to replace two of his Cabinet ministers in order to win support for the legislation, which he says is necessary to address a declining birthrate and aging society. Failure to raise the five percent tax threatens to worsen the world’s largest debt, an issue Fitch Ratings cited last month in cutting Japan’s credit rating.

Federal Reserve Vice Chairman Janet Yellen said “stalled” improvement in the labor market and weakening financial conditions may call for the central bank to boost its record monetary easing. “Scope remains for the FOMC to provide further policy accommodation,” Yellen said in Boston yesterday. “It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest.”
Former President Bill Clinton told CNBC Tuesday that the US economy already is in a recession and urged Congress to extend all the tax cuts due to expire at the end of the year. In a taped interview aired on "Closing Bell," the still-popular 42nd president called the current economic conditions a "recession" and said overzealous Republican plans to cut the deficit threaten to plunge the country further into the debt abyss. (Clinton's office released a statement after the interview). "What I think we need to do is find some way to avoid the fiscal cliff, to avoid doing anything that would contract the economy now, and then deal with what's necessary in the long term debt-reduction plans as soon as they can, which presumably would be after the election," Clinton said.
Developments from Europe's debt crisis already have had a negative impact on the U.S. economy, a top Federal Reserve official said Wednesday. In a speech in Bellevue, Wash., San Francisco Fed President John Williams said demand for U.S. exports has been cut, as the value of the dollar has risen and investors have flocked to the safety of Treasurys. Investors are also avoiding risky assets more generally, including U.S. stocks and corporate bonds.
Worker productivity fell by the largest amount in a year from January through March. The steeper drop than first estimated suggests companies may need to hire to keep pace with demand. The Labor Department said Wednesday that productivity fell at an annual rate of 0.9% in the first quarter. That's faster than the 0.5% decline first estimated last month. Labor costs rose 1.3%, down from an initial estimate of 2%. Compensation costs were smaller. Productivity is the amount of output per hour of work. It fell at a faster rate than first estimated because revisions showed less output and slightly more hours worked. The government provides two estimates for productivity and labor costs for each quarter.
Spain will try to raise money on credit markets on Thursday days after it said it was all but blocked from them. The planned move - a test of market confidence in its ability to pay - comes amid reports Spain has been seeking a bailout from eurozone funds. Spain's economy minister on Wednesday dampened speculation of a bailout. The US president spoke separately on Wednesday to German Chancellor Angela Merkel and Italian PM Mario Monti to discuss economic conditions in Europe. Barack Obama also called jointly with UK Prime Minister David Cameron for an "immediate plan" to restore confidence.

Google has demonstrated new mapping technologies in an effort to reassert its position as a market leader. While it boasts one billion users, Google Maps has recently seen defections by some key developers and partners.  Reports suggest Apple may abandon Google Maps next week at its annual developer conference. They suggest Apple may announce its own mapping application to replace Google Maps on its smartphones and tablets.  To counteract any negative publicity, Google executives held a media event on Wednesday in San Francisco to preview new mapping features and trumpet a decade of achievements in digital mapping, including its use of satellite, aerial and street-level views.

New French president Francois Hollande has unveiled details of a plan to lower the retirement age to 60 for some workers - a key election pledge. His predecessor, Nicolas Sarkozy, had faced strong opposition when he raised the retirement age by two years to 62. The move in 2010 sparked weeks of strikes across the country, mainly by public service workers. The decision comes as the EU warns that France will struggle to meet its fiscal targets without spending cuts. Details of the partial rollback of Mr Sarkozy's reforms were presented to cabinet on Wednesday, and are expected to take effect by way of a decree later this year.
Acquisitions of foreign companies by UK businesses have fallen to their lowest level in 25 years as corporate Britain takes shelter from the recession and eurozone crisis.  The value of cross-border acquisitions by British businesses tumbled from £12.6bn in the fourth quarter of 2011 to just £700m in the first quarter of 2012, according to the Office of National Statistics (ONS). This is the lowest quarterly level for acquisitions since the ONS series began in the first quarter of 1987. Bankers blamed the slowdown in dealmaking on a combination of factors, the major reason being the uncertainty caused by the eurozone debt crisis and concerns that it could trigger another banking crisis. Confidence among company executives to push ahead with takeover deals has also been hit by the wave of institutional shareholder activism in the UK.
The number of devices connected to mobile phone networks will overtake the number of people on Earth within five years, according to the technology group Ericsson. There will be 9bn mobile subscriptions by 2017, up from 6.2bn at the start of this year, while the US census bureau predicts the global population will have reached 7.4 billion in five years. Driven by demand for video, internet usage and storage of electronic files in the "cloud" rather than on home or office computers, traffic over mobile networks will grow even faster than subscriptions.
Gold prices ended a shade higher after a choppy session o n W ednesday, as an encouraging assessment of the US economy by the Federal Reserve wiped out the safe-haven metal's early peak at a one-month high built on speculation of more monetary easing from central banks. The metal fell more than $US20 an ounce or 1 per cent from the month-high earlier in the session after the Fed said in its latest "Beige Book" summary of national activity that economic growth picked up over the last two months and hiring showed signs of a modest increase. Silver outperformed gold and finished up 3 per cent as US equities and industrial commodities rallied on better economic sentiment on growing hopes of a European bailout for Spain's troubled banks. Some investors lessened their bullish bets on gold after its 4.3 per cent rally on Friday, when surprisingly weak US payrolls data reignited talk of another round of monetary easing from the Federal Reserve. Traders said gold could further unwind its gains if central banks do not commit to more stimulus.

Oil rose for a third day on speculation that monetary policy makers will act to spur economic growth, boosting fuel demand. Futures climbed 0.9 per cent after Federal Reserve Bank of Atlanta President Dennis Lockhart said a fragile recovery may require more stimulus. European Central Bank President Mario Draghi said officials stand ready to act as the euro region's expansion outlook worsens. Oil reduced intraday gains after government data showed inventories dropped less than expected. "The market is expecting some type of monetary easing programs and that would most likely help the market in terms of providing some stability," said Kyle Cooper, director of commodities research at IAF Advisors in Houston. "The inventory report showed there is no shortage of crude."
Chinese consumers will be the leading buyers of luxury goods brands by 2015, snapping up pricey items at home and abroad, according to a study published on Tuesday by the Boston Consulting Group (BCG). 'We predict that by 2020, more than 330 cities in China will have the same level of disposable income that Shanghai had in 2010, and that by 2015, China will become the world's largest luxury market,' the BCG said.
A Chinese government agency has revealed that it will propose a more flexible pension system to central authorities at an appropriate time to keep a balance between employment and expected shortfall in retirement payments. The Ministry of Human Resources and Social Security said in a written statement posted on its website Wednesday that the ministry is conducting research into the retirement and pension system, and will submit the proposal at an appropriate time after listening to comments from all circles. In China most men retire at 60 and women at 50. And China is facing a ballooning deficit in the country's retirement pension funds due to an aging population.

China has issued a policy offering preferential rates of tax for private investment, a move to assist investors in accessing the country's state-dominated sectors. The State Administration of Taxation (SAT) said in a statement released on Wednesday that the tax policy, compiled according to existing regulations, covers six major tax categories and 33 subitems. It comes after several long-monopolized sectors opened to private capital, a move anticipated by the market since May 2010, when the government published an instruction encouraging the participation of private investment in state-run sectors to increase the economy's efficiency.

Brazil's finance minister said Wednesday that a lower inflation rate in May will help cut the country's annual basic interest rate, currently at its lowest level of 8.5 percent. Guido Mantega made the remarks following a report released earlier by Brazil's national statistics institute IBGE, which said the inflation rate in Brazil fell from 0.64 percent in April to 0.36 percent in May, marking the smallest hikes in prices in 20 months. Mantega said according to the report, the annual inflation rate was currently under 5 percent, representing a fall compared with last year.

South Korean economy grew 0.9 percent in the first quarter from three months earlier due mainly to the front-loaded fiscal spending, a data released by the central bank showed Thursday. Real gross domestic product (GDP), the broadest measure of economic performance, expanded 0.9 percent in the first quarter from three months before, unchanged from a preliminary estimate of a 0.9 percent growth unveiled around a month earlier, according to the Bank of Korea (BOK). From a year earlier, the real GDP grew 2.8 percent during the January-March period, unchanged from a previous estimate of 2.8 percent growth.

South Korea's money supply grew 0.6 percent in April from a month earlier as households deposited more money in bank accounts amid growing concerns over Europe's debt crisis, the central bank said Thursday. The country's M2, so-called broad money, reached a seasonally- adjusted 1,778.3 trillion won (1.52 trillion U.S. dollars) in April, up 0.6 percent from a month earlier, according to the Bank of Korea (BOK). From a year before, the seasonally-unadjusted M2 expanded 5.5 percent, up from a 5.7 percent on-year expansion tallied in March. The April figure came after households increased their time deposits with maturity of less than 2 years due to growing demand for safe assets caused by the resurfacing European debt crisis.

The anti-corruption drive launched by the Philippine government, the massive infusion of public funds in infrastructure projects, and the fiscal reforms instituted by the administration of Philippine President Benigno Aquino are now paying off. In fact, Moody's Analytics, the economic research unit of Moody 's Investors Services, has raised its economic growth forecast for the Philippines this year to 4.7 percent from 4 percent. In its latest report on the Philippines, Moody's cited the government's anti-corruption drive and big push for infrastructure development as factors could help attract foreign investors and speed up the country's economic growth.
The Prime Minister, Dr Manmohan Singh, today said that work will be awarded for three new greenfield airports at Navi Mumbai, Goa and Kannur (Kerala).  “Also, two new hubs will be developed in the country making us a destination as well as a transit point,” he said in his closing remarks at the meeting to finalise the targets for infrastructure fiscal 2012-13.  The Prime Minister said that works will also be awarded for new international airports at Lucknow, Varanasi, Coimbatore, Tiruchi and Gaya. Acknowledging that the targets were certainly ambitious and impressive, he said, “The challenge now is to work together to achieve these targets. I would urge all the Ministries to go the extra mile in implementing what we have planned. I would expect them to very expeditiously resolve any inter-ministerial differences that might arise as we move forward.”

Jolted into action following the country's GDP growth plunging to a nine-year low of 5.3 per cent during the fourth quarter of 2011-12, the government on Wednesday decided to set in motion a host of measures to kick-start key infrastructure development projects and thereby provide a catalyst to revert the economy to a higher growth trajectory. At a meeting held by Prime Minister Manmohan Singh to finalise the infrastructure sector targets for the current fiscal, investment allocations were sought to be almost doubled for a number of key segments such as ports and shipping, roads, airports, and railways.  Dr. Singh set an investment target of at least Rs. 2 lakh crore for core sector projects in the current fiscal in a bid to revert back to nine per cent economic growth.
The recent weakness of the ruble may not affect inflation this year, Central Bank Chairman Sergei Ignatyev said Wednesday, reiterating that the bank aims to keep annual inflation at between 5 and 6 percent. “How is the ruble’s weakness going to affect inflation? It’s possible that it will not at all,” Ignatyev told the International Banking Conference in St. Petersburg. “If the ruble remains at the current level, we may see some impact, but I think it will not be strong and will be spread over time.” Consumer prices advanced 3.6 percent in May from a year earlier, the State Statistics Service said Tuesday. Prices rose 0.5 percent from a month earlier.  The Central Bank has sold about $200 million a day in the last three days to halt the ruble’s decline, Ignatyev said. The bank may have to sell as much as $700 million of foreign currency a day to support the ruble if oil prices continue to fall, he added.

The National Petrochemical Company’s managing director said that Iran plans to increase its petrochemical output by more than 5 million tons to 49 million tons in the current calendar year which ends on March 20, 2013. Abdolhossein Bayat told the Mehr News Agency that Iran has designed and implemented 69 new projects to boost its petrochemical output to around 100 million tons by 2015.  The country’s installed petrochemical production capacity is currently over 55 million tons per year, he noted.

Japan is preparing to submit a bill to parliament as early as this week to enable its government to provide cover for tankers bringing in Iranian crude once a European Union ban on insurance takes effect on July 1, Japanese officials said. Like South Korea, Japan has been lobbying the EU to continue to be exempted from the ban on insurance and reinsurance of Iran’s oil exports, which is part of a raft of Western. But Japan’s transport ministry is now preparing a bill covering a sovereign insurance scheme to get round the European Union sanctions, and which cabinet ministers are expected to approve as early as this week, the officials said.  The scheme would enable the Japanese government to directly make the insurance payments necessary in case of a critical incident, said one official, who declined to be identified as he is not authorized to talk to the media.

Iranian and Russian trade and industry ministers met in Beijing today on the sidelines of the Shanghai Cooperation Organization (SCO) summit and discussed ways to expand trade and industrial ties. Iranian Industry, Mine and Trade Minister Mehdi Ghazanfari said that Iran is currently exporting cars to Russia. He expressed preparedness to sign preferential trade agreement with Russia, the IRNA News Agency reported.  He added that the annual bilateral trade is around $4 billion, but the two sides have the potential to raise the figure to $8 billion.