News That Matters

The rating agency Standard & Poor’s has cut the sovereign credit rating of Spain by two notches and placed the country on a negative outlook, saying it also expected the country’s economy to contract during 2012 and 2013. S&P said on Thursday that Spain’s budget trajectory was likely to deteriorate against the backdrop of a deteriorating economy and that the country may need to supplyfurther fiscal support for its banking sector. S&P lowered the country’s long and short-term rating to triple B plus/A2 from A/A-1, near the lower

Job growth in the 14 states pivotal to the presidential election has advanced at a slower pace than in the rest of the US over the past year, a potential source of concern for President Barack Obama’s re-election campaign. The 14 swing states generated 406,000 new jobs between March 2011 and March 2012, an increase of just 0.97 per cent relative to a base of 41.8m positions. This rate of payroll formation lags behind the remaining states and the District of Columbia, which have seen 1.22m new jobs over the past year, an increase of 1.36 per cent from a base of 89.3m positions in March 2011, according to FT calculations based on labour department data.

Investors have begun to pay especially close attention to Spanish and Italian banks.  Thanks to the billions of euros in cheap loans dispensed by the European Central Bank, the banks’ dealings have become linked to moves in their countries’ bonds. And that relationship could well determine the course of the eurozone crisis. At the heart of bond traders’ concerns is whether the banks are running out of money with which to buy their own governments’ debt. Both countries’ lenders took advantage of ECB’s emergency programme of three-year loans, known as the longer term refinancing operations (LTRO). They used much of the money to buy sovereign debt, helping drive down borrowing costs for Spain and Italy.

International attention over the past decade has focused on the rise of Brazil’s lower middle-class, who earn between R$1734 and R$7,475 per household a month and have turned the country into one of the world’s most promising consumer goods markets. But while this group accounts for more than half the population, it is the so-called B and A classes those earning more than R$7,475 that are poised to grow fastest in the coming years, analysts say.  Unlike China and India, Brazil’s growth story has been more about income redistribution than rapid expansion of gross domestic product. This has led to a ballooning of the lower middle class by nearly 60 per cent between 2003 and 2011, according to Professor Marcelo Côrtes Neri of the Getulio Vargas Foundation, an academic institution. Their numbers are set to grow another 12 per cent by 2014.
Asian stock markets were higher Friday as better-than-expected U.S. housing data lifted sentiment, but the upside was limited amid investor caution after Standard & Poor’s cut Spain’s investment-grade rating.  Japan’s Nikkei Stock Average added 0.2%, Australia’s S&P/ASX 200 rose 0.1%, South Korea’s Kospi Composite climbed 0.8% and New Zealand’s NZX-50 was up 0.4%. Dow Jones Industrial Average futures were down 25 points in screen trade.  Mixed earnings reports and outlooks were key drivers for Asian stocks Friday. Inc.’s aggressive spending translated into another quarter of outsize growth. The Seattle-based Internet retailer said profit for its first quarter dropped 35% to $130 million from a year earlier, as operating expenses outstripped revenue growth. Amazon has been shelling out hundreds of millions of dollars to build new warehouses, develop new technology and expand its digital library of books and movies. At the same time, Amazon’s first-quarter revenue jumped 34% revenue to $13.2 billion from a year earlier.

The Chinese central bank guided the yuan to a fresh record high for the second straight day Friday, amid renewed pressure from Washington for Beijing to let its currency appreciate more and as a high-level Sino-U.S. economic dialogue approaches.  The authorities’ aggressive move came despite growing consensus among investors that the days of fast yuan appreciation are over after Chinese leaders repeatedly described the currency as nearing fair value in recent weeks. A stable, if not weaker, outlook for the yuan is also supported by data showing a slowing China economy and shrinking current account surpluses for the exporting
The Bank of Japan on Friday said it will increase the size of its asset purchase program by 5 trillion yen ($61.88 billion) to a total of ¥70 trillion, while leaving its policy interest rate in the current target range of 0% to 0.1%. The increase in the size of the asset purchases, a quantitative easing measure aimed at improving demand, compared with the ¥5 trillion to ¥10 trillion addition that was already priced in by markets, according to a Reuters report. The BOJ said it would increase purchases of Japanese government bonds by about ¥10 trillion, while adjusting lower its purchases of another type of asset by ¥5 trillion.

If the first-quarter gross domestic product report is an animal, then economists say it’s more a workhorse than a pony. The report will show the economy “plugging along and it will not be spectacular or something to write home about,” said Sung Won Sohn, a professor at California State University Channel Islands. “It is not something to get excited about,” agreed Bernard Baumohl, managing director of The Economic Outlook Group. Economists polled by MarketWatch expect a 2.7% growth rate in the first quarter, slightly slower than the 3.0% rate in the fourth quarter.

Japanese retail sales blew past estimates in March, offsetting a disappointment for industrial output and some uninspiring numbers elsewhere Friday in a heavy day for national economic data. Retail sales rose 10.3% in March compared to the year-earlier period, the Finance Ministry said, much better than the 3.5% rise expected by economists surveyed by Dow Jones Newswires.  However, the increase was driven by a large gain in car sales after government subsidies were introduced for more energy efficient cars, according to Dow Jones Newswires.  Industrial production came in below economists forecasts, rising 1%, the Ministry of Economics, Trade and Industry said, with the result missing a 2.4% increase expected by the market.

Australia’s forthcoming budget will include a forecast for the economy to grow by 3.25% in the 2012-2013 fiscal year, the Australian newspaper reported Friday, without citing sources.  Growth will slow in the 2013-2014 fiscal year to 3.0%, the newspaper added
U.S. economic growth likely cooled modestly in the first quarter as replenishing of inventories by businesses slowed, though stronger demand for automobiles and a lift to homebuilding from warm weather blunted the blow. Gross domestic product is expected to have expanded at a 2.5 percent annual rate, according to the median of a Reuters poll. That would be a moderation from the fourth quarter’s 3.0 percent pace, but decidedly stronger than economists’ predictions early in the quarter for growth below the 1.5 percent level.

Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday he believes the U.S. central bank will have to raise interest rates in mid-2013, not late 2014 as suggested in this week’s policy decision. For a third meeting running, Lacker was the lone dissenter against the Fed’s calendar-linked interest rates guidance. “I dissented because I do not believe economic conditions are likely to warrant an exceptionally low federal funds rate for this length of time,” Lacker said. “My current assessment is that an increase in interest rates is likely to be necessary by mid-2013 in order to prevent the emergence of inflationary pressures.”
The World Bank is helping assess Myanmar’s debt level as it rekindles relations with the country 25 years after stopping loans, an official at the lender said. The Washington-based World Bank will open an office in Myanmar in June, Pamela Cox, the bank’s vice president for East Asia, told reporters today. The lender and the International Monetary Fund are gathering data about the nation’s debt sustainability, she said. “This is to see how much debt stress this country is going to be under once it normalizes relations and how much debt should be forgiven,” said Cox, who will travel to the country in June to meet with authorities. “We’re not at the stage of loans yet.”

Forget Beijing or Shanghai. Porsche AG, Maserati and Bentley Motors Ltd. are taking the fight for China’s rich to the deserts of Inner Mongolia. The maker of the 911 sports car opened a dealership in Ordos — a sparsely populated mining city known as home to Genghis Khan’s mausoleum — in March after sales jumped 10-fold in four years to 200 vehicles, according to the head of Porsche China. Executives at Volkswagen AG (VOW)’s Bentley andFiat SpA (F)’s Maserati said they also plan to open showrooms in the city.

old traders are more bullish after central banks expanded their bullion reserves and hedge funds increased bets on a rally for the first time in three weeks. Fourteen of 28 analysts surveyed by Bloomberg expect prices to gain next week and nine were neutral, the highest proportion in two weeks. Mexico, Russia and Turkey added about 44.8 metric tons valued at $2.39 billion to reserves in March, International Monetary Fund data show. Fund managers raised their so-called net-long positions by 2.5 percent in the week ended April 17, according to the Commodity Futures Trading Commission.
Treasury Secretary Timothy Geithner said Thursday the United States was willing to open up its markets to China and give it more access to U.S. technologies if Beijing made progress on issues that concern the United States. so Thursday, a top GOP lawmaker pressed the Obama administration to increase pressure on China to make currency and trade reforms. The comments came ahead of the U.S.-China Strategic and Economic Dialogue meetings in Beijing next week.
The Irish government on Thursday said Ireland’s bailout program passed its sixth and latest review by the International Monetary Fund, European Union and European Central Bank — its troika of international lenders. “In line with each of the previous five quarterly reviews Ireland has continued to achieve all of the targets set under our program of assistance,” Finance Minister Michael Noonan and Public Expenditure Minister Brendan Howlin said, in a joint statement. The officials said Ireland’s 2011 deficit at 9.4% of gross domestic product was significantly ahead of the 10.6% target and that the country remains on track to meet its 8.6% deficit target in 2012. The ministers said more than 70% of available funds under the 67.5 billion euro ($89.5 billion) bailout have been drawn down.
Greece should not have joined the euro, a former head of the German central bank, who was central to eurozone policymaking at the time, has said.  But Ernst Welteke, who was Bundesbank president from 1999-2004, told the BBC that none of the eurozone’s problems would be solved if Greece left.  He added there should be greater transfer of wealth from richer parts of the eurozone to poorer parts. He said he was confident measures were in place to ensure the euro’s survival.  “The euro is not in as big a danger as is often recorded,” Mr Welteke told Business Daily on the BBC’s World Service. “The euro has been stable [for] 10 years, inside and outside the European Monetary Union (EMU).”

Deutsche Bank has reported a sharp fall in profits, in part due to weaker performance in investment banking during the eurozone debt crisis. Net income for the first three months of the year was 1.4bn euros ($1.9bn; £1.1bn), down 35% on the 2.1bn euros the bank made a year earlier.  Revenue was down 12% at 9.2bn euros. The bank said although the business environment was “more stable” than at the end of last year, it was “far less favourable” than a year earlier. Germany’s biggest bank also took a 257m euro hit after writing off its holding in pharmaceutical company Actavis.
The case for more money printing to bolster the recovery has been strengthened by the UK’s slump back into recession, a leading Bank of England rate-setter has said. Martin Weale, a member of the Monetary Policy Committee, on Thursday said: “The argument [for quantitative easing] is stronger than it would have been had the economy shown growth”. His comments run counter to the Bank’s clear recent signal that QE is likely to have stopped at £325bn.  Following the 0.2pc contraction in the three months to March and 0.3pc in the final quarter of 2011, economists have called for low interest rates for the foreseeable future and for the Coalition to start taking decisive action. “We do not have a growth strategy. That’s a problem,” said Vicky Pryce, the former joint head of the Government Economic Service.

Here is some food for thought, if you are a China “take-over-the-world” bull. I have just been listening to a talk on the Chinese housing market by Xianfang Ren, Beijing analyst for IHS Global Insight. Land sales make up 30pc of total tax revenue for the central government and 70pc for local government. (For those of us who watched the Irish state balloon on the back of property taxes when they had  a fat budget surplus this has a familiar ring.) Construction makes up 10pc of total jobs, and a further 20pc indirectly in cement, steel, metallurgy etc. The government is building 36m homes for the poor, but that will start to run down in two years or so. Residential investment typically peaks at 8pc to 9pc of GDP for emerging nations during their catch-up growth spurts. It is already 12pc in China. Japan’s ratio peaked in 1973, long before the property price bubble burst. China has almost certainly peaked too on this crucial measure.
Royal Dutch Shell beat forecasts with an 11 per cent rise in fourth-quarter profit, as higher oil prices outweighed the impact of lower US petrol prices. Europe’s largest oil company by market capitalisation said today its current cost of supply (CCS) net income was $US7.70 billion. Excluding one-offs, the result was $US7.27 billion, compared with a forecast for $US6.70 billion in a company poll of analysts. Shell lifted its target for assets sales in 2012 to $US4 billion from $US2-3 billion, echoing an industry trend of companies trying to churn their portfolios more regularly. By jettisoning mature assets earlier in their life cycle, companies hope to focus reserves on higher growth activities.
Just two days after the McGuinty Liberals’ first minority government budget passed a crucial vote, one of the world’s major credit rating agencies downgraded Ontario, citing the province’s swollen debt burden and tough economic times ahead. Moody’s Investors Service’s decision Thursday to downgrade Ontario followed a stern warning and dimmer outlook issued one day earlier from Standard & Poor, another influential credit rating agency.  Finance Minister Dwight Duncan acknowledged that the move by Moody’s was serious but he also attempted to play down the sour financial news. Moody’s downgrade could make Ontario’s government bonds less attractive to investors and could also make it more expensive to borrow money at a time when the province’s debt is mounting.
Japanese game giant Nintendo on Thursday posted its first-ever annual loss since becoming a public company, blaming a soaring yen and price cutting on its consoles for losing about US$530 million (S$660 million). The Kyoto-based company said it lost 43.2 billion yen (S$660 million) in the fiscal year through March, reversing a year-earlier profit of 77.62 billion yen, although the result was not as bad as the 65 billion yen loss it had forecast this year.
South Korea’s current account balance posted a surplus of 3.04 billion U.S. dollars last month, keeping its surplus for two months in a row, the central bank said Friday.  Current account surplus reached 3.04 billion U.S. dollars in March, up from a revised surplus of 560 million dollars tallied in February, according to the Bank of Korea (BOK). The South Korean economy logged its first current account deficit in 23 months in January, but the balance shifted into the surplus in February helped by growing exports, which account for more than half of the economy. The current account is the broadest measure of international trade, including goods, services and investment income.
S&P credit analyst Takahira Ogawa listened politely as officials at India’s finance ministry made an hour-long pitch for a ratings upgrade, citing economic growth prospects, revenues and their efforts to contain the government’s fiscal deficit. At the meeting two weeks ago, officials argued that tax returns were rising and debt levels were on the decline compared to gross domestic product, two officials who were at the meeting told Reuters. Singapore-based Ogawa gave no sign of what he was thinking – and could not immediately be reached for his version of events – but evidently he left unconvinced.

With potato prices ruling at Rs 20 a kg in retail in the domestic market, traders from Jammu and Kashmir have started importing potato from the two Line of Control (LOC) trade posts of Srinagar and Poonch. With zero import duty on import at the LOC trade points, Pakistani potato is cheaper than the Indian variety by 20% to 40%. India’s potato production is expected to be 33.5-34 million tonne this year, which is 10-15% less than last year. This is due to lower production in Bihar, West Bengal and certain parts of Uttar Pradesh. With a small crop to be harvested in Himachal Pradesh, Maharashtra and Karnataka in August, prices are expected to remain steady this year. “A good bumper crop in Pakistan coupled with a stronger Indian Rupee against the Pakistani Rupee are creating opportunities for traders to import Pakistani potato,” said Sachid Madan, director, Technico Agri Sciences (a subsidiary of the cigarette to hotel major ITC Ltd).

India is expected to have a normal monsoon for the third consecutive year, boosting prospects of good harvests and higher rural incomes. “This year, monsoon as a whole is most likely to be normal which largely means normal farm production,” said Earth Sciences minister Vilasrao Deshmukh.  Monsoon rains irrigate 65% of farms in the world’s second-biggest producer of rice, wheat, sugar and cotton. The farm sector accounts for about 15% of India’s nearly $2-trillion economy and provides livelihood to over 58% of the population. “A good monsoon is a lifeline for Indian farmers and the country’s food security. It impacts the economy because agriculture and rural incomes are linked to processing, manufacturing and fast moving consumer goods industry,” said National Centre for Agricultural Economics and Policy Research, principal scientist, Pratap Singh Birthal.
The chief of the Organization for Economic Cooperation and Development (OECD) said Friday he expects South Korea’s economy to continue to grow despite difficulties in the global economy. OECD Secretary-General Angel Gurria made the remark during a meeting with South Korean President Lee Myung-bak, according to presidential spokesman Park Jeong-ha. Gurria said, however, that South Korea has one of the fastest rates of population aging among the OECD members and should try to address the problem, according to the spokesman. During the meeting at Lee’s office in Seoul, Gurria handed Lee copies of the OECD’s report on the Korean economy.
The Economic Development Ministry expects the country’s economy to grow 3.4 percent this year before expanding 4.7 percent in 2015, according to an updated version of the forecast that was  approved at the Presidium meeting chaired by Prime Minister Vladimir Putin on Thursday. But it remained unclear whether the new government to be formed after Putin moves to the Kremlin next month will choose to proceed with developing innovations or continue to rely on the burgeoning energy sector. “There’s no final decision yet,” Deputy Economic Development Minister Andrei Klepach told journalists after the Presidium meeting.  “We have two options, two scenarios at the moment. Another round of discussion will be held and after that the government will come to a decision either way,” he said, RIA-Novosti reported.
The global economic situation has been getting better so far this year but the recovery is still fragile, China’s Prime Minister Wen Jiabao said in Warsaw on Thursday. Wen, on his first visit to Poland in more than two decades, also said China is ready to reduce trade imbalances with eastern and southern European countries and would set up a dedicated fund as well as a credit line for that purpose.
Super Mario has been in the office for a while now, but what has the ECB actually accomplished since he joined, except the mighty LTRO? Yes, the LTRO was a great liquidity injection, where Spanish banks have been buying Spanish bonds. This is just like moving money from the left to the right pocket, with leverage….With the ECB balance sheet having expanded aggressively, we should be asking ourselves; are they in control of the situation? From Macrobusiness.