Manufacturing in China grew at a faster pace in August after the weakest performance since early 2009 in July, signaling that the economy’s slowdown is stabilizing.
The purchasing managers’ index rose to 51.7 from 51.2, exceeding forecasts, a government-backed report showed. Seasonal factors might have had an effect because the index typically gains as factories restart following July maintenance, Mizuho Securities Asia Ltd. said. A separate PMI released by HSBC Holdings Plc and Markit Economics gained to 51.9 from 49.4.
Stocks in Asia advanced after the release offered reassurance that China’s moderation in growth isn’t deepening; any steeper slowdown would hurt a global recovery already hindered by elevated American unemployment. Signs of faster gains in prices in the report also underscored the need for policy makers to be on guard against inflation.
“China’s economic activity is decelerating, albeit gradually, on the way to realizing a soft landing,” said Shen Jianguang, an economist at Mizuho in Hong Kong. “Investment and production are decelerating less than feared.”
The MSCI Asia Pacific index of stocks gained 1.4 percent as of 5 p.m. Hong Kong time. At the same time, the Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, retreated 0.6 percent at the close.
Economists’ Forecasts
The August reading for the government index was more than the median 51.5 forecast in the Bloomberg survey of 17 economists. Fifty is the dividing line between expansion and contraction.
The HSBC PMI for July had showed the first shrinking in manufacturing in 16 months, and the government gauge, published by the Federation of Logistics and Purchasing, was the weakest since February 2009.
Domestic demand could help to support production and boost the economy. China’s passenger-car sales rose 59 percent in August from a year earlier, more than three times July’s pace, the China Automotive Technology & Research Center said today, helped by higher incentives by dealers.
Production and orders both accelerated in August, the federation’s report showed. The output index rose to 53.1 from 52.7 in July. A measure of new orders gained to 53.1 from 50.9 and an export-order index climbed to 52.2 from 51.2, according to today’s report from the federation.
U.S. Weakness
The U.S., China’s second-biggest trading partner after the European Union, said last week its economy expanded less than initially anticipated in the second quarter. China’s exports may also be hurt by moderation in growth of Europe’s services and manufacturing industries last month, as governments step up spending cuts to trim budget deficits.
America’s benchmark PMI gauge is forecast to drop to 52.7 in August from 55.5 in July, according to the median forecast in a Bloomberg survey before the report later today. India saw its manufacturing expansion cool “marginally” last month as exports and new factory orders weakened, according to a separate PMI released by HSBC. A euro-region factory PMI fell to 55.1 from 56.7 in the previous month.
China’s gross domestic product grew 10.3 percent from a year earlier in second quarter, lower than the 11.9 percent in January to March, as Premier Wen Jiabao’s government trims credit growth from last year’s record 9.59 trillion yuan ($1.4 trillion) and discourages multiple-home purchases to restrain a surge in property prices.
Rio Tinto Concern
Economic expansion in China, the world’s biggest metals user, will slow to as low as an annual 6 percent pace this decade after a three-decade run of 10 percent on average, according to Rio Tinto Group, the world’s third-biggest mining company. “China’s growth rates, as amazing as they are, are bound to flatten,” Tom Albanese, chief executive officer at Rio, said last month.
Contrasting the official manufacturing data, an export- order index in the HSBC PMI dropped to 49.5 last month from 49.8, indicating that “external demand is more likely to turn worse in the coming months” as domestic demand remains “resilient,” according to HSBC economist Qu Hongbin.
China’s demand remains a stimulus for economies including Australia’s, which a government report today showed grew at a faster pace than forecast in the second quarter. The nation’s GDP gained 1.2 percent from the previous three months, helped by Chinese purchases of iron ore and coal.
China won’t change its economic policies as growth slows this year, said Chinese central bank adviser Xia Bin, according to a Shanghai Securities News report on Aug. 30.
Inflation Watch
“The small rebound in August PMI indicated that China’s economy won’t see a steep correction,” said Zhang Liqun, a researcher at the State Council’s Development and Research Center, in today’s release. “Attention needs to be paid to the large rebound in the input price index, which may create pressure on companies’ costs.”
An input price index jumped 10.1 points in August to 60.5, according to today’s report.
It’s possible for China’s manufacturing to “temporarily” contract for one month or so as global trade softens and China’s economy slows, said Huw McKay, a Sydney-based senior economist for Westpac Banking Corp. He also said the government may boost fiscal spending and adopt a “more accommodative policy” in the fourth quarter.
The PMI, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 820 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.
Chinese officials may loosen the nation’s 7.5 trillion yuan loan target for 2010 to sustain growth, according to Wang Qing, chief economist for China at Morgan Stanley Asia Ltd. At Societe Generale SA, Hong Kong-based economist Glenn Maguire said there’s a 60 percent likelihood of China relaxing the loan target.
Wednesday, September 1, 2010
Biggest Ruble Bond Auction Planned After Interest Rate Held: Russia Credit
Russia plans its biggest sale of bonds in rubles amid expectations the central bank’s decision to keep benchmark interest rates on hold will lure demand for government debt.
The Finance Ministry will auction a total of 75 billion rubles ($2.4 billion) of so-called OFZs today, the largest amount offered since the central bank began collating the data in 2003. Russia sold less than 10 percent of the OFZs offered at last week’s auction, the lowest demand since at least the end of June, according to Bank Rossii data.
Finance Minister Alexei Kudrin is seeking to raise 1.2 trillion rubles of local debt financing to plug a budget deficit the government said in June could reach 2.4 trillion rubles, or 5.4 percent of gross domestic product. Bank Rossii left its refinancing rate at 7.75 percent yesterday and said in a statement that key rates will be unchanged in “coming months.”
“Investors may be less demanding of the government to pay higher yields now that rates will remain on hold for the foreseeable future,” Alex Ermak, a senior fixed-income analyst at the treasury department of OAO Sberbank, Russia’s biggest lender, said in a telephone interview yesterday. “It boosts the likelihood that the sale will go better than last week.”
Prime Minister Vladimir Putin’s administration has sold 263 billion rubles of OFZs so far this year, according to central bank data, or 22 percent of the target amount. The government may need to tap as much as 75 percent of the nation’s $40.6 billion Reserve Fund this year to help cover spending needs, Deputy Finance Minister Dmitry Pankin said in July.
Drought Effect
Russia will issue 35 billion rubles of existing bonds due in July 2015 and 40 billion rubles of securities due in August 2012, according to the Finance Ministry. Gains in the OFZs due July 2015 cut the yield to 7.19 percent today from 7.22 percent on Aug. 25, according to data compiled by Bloomberg. OFZs due in 2012 yield 5.82 percent, down 1 basis point, or 0.01 percentage point, in the past week. A rally in benchmark OFZs due Nov. 26, 2014 reduced the yield by 8 basis points since the Aug. 25 auction.
The yield on Russia’s dollar bonds due 2020 fell 13 basis points yesterday, the most since Aug. 2, to 4.73 percent. The bonds yield 4.67 percent today, down 5 points.
Investors have been anticipating Bank Rossii may lift interest rates as higher food prices caused by the country’s drought led banks including Citigroup Inc., UniCredit SpA and ING Groep NV to increase their inflation forecasts. Forward rate agreements pointed to a 55-basis point jump in rates over the next three months, Bloomberg data show.
Inflation may climb to as much as 8 percent this year because of higher food prices, Deputy Economy Minister Andrei Klepach told reporters in Moscow Aug. 30, revising a previous forecast of as little as 6 percent.
‘Supportive Factor’
Bank Rossii’s decision to keep rates on hold for coming months will probably be a “supportive factor” for the auctions today, said Mikhail Galkin, the head of fixed-income research in Moscow at VTB Capital, the investment banking arm of VTB Group, Russia’s second-largest bank.
“The central bank said we’re not seeing a monetary-driven inflation spike,” he said. “The short-term risk of rate hikes is now not on the table and the people that were alarmed may have calmed down a bit.”
The Finance Ministry’s Pankin didn’t respond to a telephone call seeking comment yesterday. Kudrin declined to comment on the possible outcome of today’s auctions when questioned by reporters in Moscow today.
The cost of protecting Russian debt against non-payment for five years using credit-default swaps fell 2 basis point to 177, according to data provider CMA at 9 a.m. in London. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Default Swaps
Russia credit-default swaps cost the same amount as contracts for Turkey, which is rated four levels lower at Ba2 by Moody’s Investors Service. The difference has narrowed from Russia being 40 points ahead on April 20.
The extra yield investors demand to hold Russian debt rather than U.S. Treasuries was 5 basis points lower at 234, according to JPMorgan EMBI+ Chase & Co. indexes. The yield difference compares with 164 for debt of similarly rated Mexico and 227 for Brazil, which is rated two steps lower at Baa3 by Moody’s.
The spread on Russian bonds is 64 basis points below the average for emerging markets, down from a 15-month high of 105 in February, according to JPMorgan indexes.
The ruble declined for a second day, slipping 0.1 percent to 30.8225 per dollar, after weakening 0.3 percent yesterday. The currency has dropped 1.8 percent so far this year. Non- deliverable forwards show the ruble at 31.0338 per dollar in three months, the weakest since Aug. 25.
‘Double Dip’ Risk
All 13 economists surveyed by Bloomberg predicted the refinancing rate would be left unchanged this week.
The rate decision was “widely expected,” so won’t have much impact on demand for OFZs, said Elena Kolchina, head of fixed-income products at Renaissance Asset Managers in Moscow, a unit of investment bank Renaissance Capital.
“Market participants are now more concentrated on global factors and concerns regarding a global double dip,” she said in an e-mailed response to questions from Bloomberg. “We don’t expect the auctions to attract high demand on the back of falling global equities and weaker oil.”
In the Aug. 25 auctions, Russia sold OFZs due June 29, 2011, at an average yield of 4.48 percent, 3 basis points more than the bonds’ 4.45 percent market yield on Aug. 24. The ministry also sold OFZs due Aug. 3, 2016, at an average yield of 7.39 percent, 8 basis points more than the 7.31 percent market yield the day before the auction, according to data compiled by Bloomberg.
At last week’s auction, Russia sold 3.1 billion rubles of the 33.5 billion rubles in June 2011 OFZs offered and 1.34 billion rubles of the 15 billion rubles of 2016 bonds, according to Bank Rossii.
Need for Martini
IFC Metropol, a Moscow-based investment bank, won’t be lured back to the OFZ market unless the government offers yields 10 to 15 basis points above the market rate, said Alexey Krivolap, the bank’s vice president of fixed income sales.
“We need more juice,” he said. “And if the volatility continues to increase just juice won’t be enough, we’ll need to add some martini in to it, that means 20 to 30 basis points.”
The Finance Ministry will auction a total of 75 billion rubles ($2.4 billion) of so-called OFZs today, the largest amount offered since the central bank began collating the data in 2003. Russia sold less than 10 percent of the OFZs offered at last week’s auction, the lowest demand since at least the end of June, according to Bank Rossii data.
Finance Minister Alexei Kudrin is seeking to raise 1.2 trillion rubles of local debt financing to plug a budget deficit the government said in June could reach 2.4 trillion rubles, or 5.4 percent of gross domestic product. Bank Rossii left its refinancing rate at 7.75 percent yesterday and said in a statement that key rates will be unchanged in “coming months.”
“Investors may be less demanding of the government to pay higher yields now that rates will remain on hold for the foreseeable future,” Alex Ermak, a senior fixed-income analyst at the treasury department of OAO Sberbank, Russia’s biggest lender, said in a telephone interview yesterday. “It boosts the likelihood that the sale will go better than last week.”
Prime Minister Vladimir Putin’s administration has sold 263 billion rubles of OFZs so far this year, according to central bank data, or 22 percent of the target amount. The government may need to tap as much as 75 percent of the nation’s $40.6 billion Reserve Fund this year to help cover spending needs, Deputy Finance Minister Dmitry Pankin said in July.
Drought Effect
Russia will issue 35 billion rubles of existing bonds due in July 2015 and 40 billion rubles of securities due in August 2012, according to the Finance Ministry. Gains in the OFZs due July 2015 cut the yield to 7.19 percent today from 7.22 percent on Aug. 25, according to data compiled by Bloomberg. OFZs due in 2012 yield 5.82 percent, down 1 basis point, or 0.01 percentage point, in the past week. A rally in benchmark OFZs due Nov. 26, 2014 reduced the yield by 8 basis points since the Aug. 25 auction.
The yield on Russia’s dollar bonds due 2020 fell 13 basis points yesterday, the most since Aug. 2, to 4.73 percent. The bonds yield 4.67 percent today, down 5 points.
Investors have been anticipating Bank Rossii may lift interest rates as higher food prices caused by the country’s drought led banks including Citigroup Inc., UniCredit SpA and ING Groep NV to increase their inflation forecasts. Forward rate agreements pointed to a 55-basis point jump in rates over the next three months, Bloomberg data show.
Inflation may climb to as much as 8 percent this year because of higher food prices, Deputy Economy Minister Andrei Klepach told reporters in Moscow Aug. 30, revising a previous forecast of as little as 6 percent.
‘Supportive Factor’
Bank Rossii’s decision to keep rates on hold for coming months will probably be a “supportive factor” for the auctions today, said Mikhail Galkin, the head of fixed-income research in Moscow at VTB Capital, the investment banking arm of VTB Group, Russia’s second-largest bank.
“The central bank said we’re not seeing a monetary-driven inflation spike,” he said. “The short-term risk of rate hikes is now not on the table and the people that were alarmed may have calmed down a bit.”
The Finance Ministry’s Pankin didn’t respond to a telephone call seeking comment yesterday. Kudrin declined to comment on the possible outcome of today’s auctions when questioned by reporters in Moscow today.
The cost of protecting Russian debt against non-payment for five years using credit-default swaps fell 2 basis point to 177, according to data provider CMA at 9 a.m. in London. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Default Swaps
Russia credit-default swaps cost the same amount as contracts for Turkey, which is rated four levels lower at Ba2 by Moody’s Investors Service. The difference has narrowed from Russia being 40 points ahead on April 20.
The extra yield investors demand to hold Russian debt rather than U.S. Treasuries was 5 basis points lower at 234, according to JPMorgan EMBI+ Chase & Co. indexes. The yield difference compares with 164 for debt of similarly rated Mexico and 227 for Brazil, which is rated two steps lower at Baa3 by Moody’s.
The spread on Russian bonds is 64 basis points below the average for emerging markets, down from a 15-month high of 105 in February, according to JPMorgan indexes.
The ruble declined for a second day, slipping 0.1 percent to 30.8225 per dollar, after weakening 0.3 percent yesterday. The currency has dropped 1.8 percent so far this year. Non- deliverable forwards show the ruble at 31.0338 per dollar in three months, the weakest since Aug. 25.
‘Double Dip’ Risk
All 13 economists surveyed by Bloomberg predicted the refinancing rate would be left unchanged this week.
The rate decision was “widely expected,” so won’t have much impact on demand for OFZs, said Elena Kolchina, head of fixed-income products at Renaissance Asset Managers in Moscow, a unit of investment bank Renaissance Capital.
“Market participants are now more concentrated on global factors and concerns regarding a global double dip,” she said in an e-mailed response to questions from Bloomberg. “We don’t expect the auctions to attract high demand on the back of falling global equities and weaker oil.”
In the Aug. 25 auctions, Russia sold OFZs due June 29, 2011, at an average yield of 4.48 percent, 3 basis points more than the bonds’ 4.45 percent market yield on Aug. 24. The ministry also sold OFZs due Aug. 3, 2016, at an average yield of 7.39 percent, 8 basis points more than the 7.31 percent market yield the day before the auction, according to data compiled by Bloomberg.
At last week’s auction, Russia sold 3.1 billion rubles of the 33.5 billion rubles in June 2011 OFZs offered and 1.34 billion rubles of the 15 billion rubles of 2016 bonds, according to Bank Rossii.
Need for Martini
IFC Metropol, a Moscow-based investment bank, won’t be lured back to the OFZ market unless the government offers yields 10 to 15 basis points above the market rate, said Alexey Krivolap, the bank’s vice president of fixed income sales.
“We need more juice,” he said. “And if the volatility continues to increase just juice won’t be enough, we’ll need to add some martini in to it, that means 20 to 30 basis points.”
U.K. Manufacturing Growth Slows to Weakest in Nine Months
U.K. manufacturing growth slowed to the weakest in nine months in August in a sign the economic recovery may be moderating. The pound dropped against the dollar.
A gauge based on a survey of companies by Markit Economics and the Chartered Institute of Purchasing and Supply fell to 54.3 from a revised 56.9 in July, London-based Markit said today. The median estimate of 23 economists in a Bloomberg News survey was for a reading of 57, down from an initial July level of 57.3. A measure above 50 indicates expansion.
While the U.K. economy grew at the fastest pace since 2001 in the second quarter, the biggest public-spending squeeze since World War II may weigh on the recovery. Bank of England Deputy Governor Charles Bean said on Aug. 28 that policy makers may need to increase monetary stimulus as spare capacity built up in the recession creates a drag on the economy.
“It’s pretty disappointing stuff,” said James Knightley, an economist at ING Financial Markets in London. “With fiscal austerity measures going to be stepping up in the coming quarters, our base case is more subdued growth and weak inflation pressures. The first rate hike is at least 12 months away.”
The pound fell as much as 0.4 percent against the dollar after the report. The currency was at $1.5388 as of 10:38 a.m. in London, up 0.3 percent on the day.
‘Tenterhooks’
Markit’s gauge of incoming new work rose for a 14th month, though at a slower pace than in July. A ratio of new orders to inventory dropped to a 17-month low, suggesting output may ease in the coming months, the report said. A measure of employment increased for a fifth month.
“The looming public-sector spending cuts are keeping U.K. manufacturers on tenterhooks and slowing the pace of recovery,” David Noble, chief executive officer at CIPS, said in the statement. “The government spending review in October should bring more clarity to the situation.”
In the neighboring euro area, manufacturing growth is also easing, with a gauge there slipping to 55.1 in August from 56.7 the previous month. The U.S. Institute for Supply Management’s factory index probably declined to 52.7 in August, the lowest since September 2009, according to the median estimate of 78 economists surveyed by Bloomberg News. The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time.
‘Momentum’
U.K. manufacturers have mixed views on the outlook for growth. Birmingham, England-based IMI Plc, a maker of pneumatic controls, said Aug. 26 first-half net income rose 83 percent. Chairman Norman Askew said in a statement that “whilst the general macro-economic environment remains uncertain, we are optimistic that the momentum seen in the first half will continue for the remainder of the year.”
Solihull, England-based Hill & Smith Holdings Plc, which supplies motorway barriers to construction companies, said Aug. 9 it’s “inevitable” that spending on new projects will fall when the government announces its spending review on Oct. 20.
U.K. gross domestic product rose 1.2 percent in the second quarter from the previous three months. Inventories rose by 983 million pounds ($1.5 billion) in the first evidence of stock- building by companies for seven quarters, according to the Office for National Statistics.
Policy makers held their bond-purchase plan at 200 billion pounds last month and the benchmark interest rate at a record low of 0.5 percent. They announce their next policy decision on Sept. 9.
A gauge based on a survey of companies by Markit Economics and the Chartered Institute of Purchasing and Supply fell to 54.3 from a revised 56.9 in July, London-based Markit said today. The median estimate of 23 economists in a Bloomberg News survey was for a reading of 57, down from an initial July level of 57.3. A measure above 50 indicates expansion.
While the U.K. economy grew at the fastest pace since 2001 in the second quarter, the biggest public-spending squeeze since World War II may weigh on the recovery. Bank of England Deputy Governor Charles Bean said on Aug. 28 that policy makers may need to increase monetary stimulus as spare capacity built up in the recession creates a drag on the economy.
“It’s pretty disappointing stuff,” said James Knightley, an economist at ING Financial Markets in London. “With fiscal austerity measures going to be stepping up in the coming quarters, our base case is more subdued growth and weak inflation pressures. The first rate hike is at least 12 months away.”
The pound fell as much as 0.4 percent against the dollar after the report. The currency was at $1.5388 as of 10:38 a.m. in London, up 0.3 percent on the day.
‘Tenterhooks’
Markit’s gauge of incoming new work rose for a 14th month, though at a slower pace than in July. A ratio of new orders to inventory dropped to a 17-month low, suggesting output may ease in the coming months, the report said. A measure of employment increased for a fifth month.
“The looming public-sector spending cuts are keeping U.K. manufacturers on tenterhooks and slowing the pace of recovery,” David Noble, chief executive officer at CIPS, said in the statement. “The government spending review in October should bring more clarity to the situation.”
In the neighboring euro area, manufacturing growth is also easing, with a gauge there slipping to 55.1 in August from 56.7 the previous month. The U.S. Institute for Supply Management’s factory index probably declined to 52.7 in August, the lowest since September 2009, according to the median estimate of 78 economists surveyed by Bloomberg News. The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time.
‘Momentum’
U.K. manufacturers have mixed views on the outlook for growth. Birmingham, England-based IMI Plc, a maker of pneumatic controls, said Aug. 26 first-half net income rose 83 percent. Chairman Norman Askew said in a statement that “whilst the general macro-economic environment remains uncertain, we are optimistic that the momentum seen in the first half will continue for the remainder of the year.”
Solihull, England-based Hill & Smith Holdings Plc, which supplies motorway barriers to construction companies, said Aug. 9 it’s “inevitable” that spending on new projects will fall when the government announces its spending review on Oct. 20.
U.K. gross domestic product rose 1.2 percent in the second quarter from the previous three months. Inventories rose by 983 million pounds ($1.5 billion) in the first evidence of stock- building by companies for seven quarters, according to the Office for National Statistics.
Policy makers held their bond-purchase plan at 200 billion pounds last month and the benchmark interest rate at a record low of 0.5 percent. They announce their next policy decision on Sept. 9.
China Currency Peg Won't Spur Higher Import Duties by Obama Administration
The Obama administration rejected a plea from U.S. manufacturers to increase duties on imports from China to compensate for the effects of a weak yuan.
Makers of aluminum and glossy paper said an undervalued currency acts as a subsidy for Chinese producers, letting them undercut their American competitors. The Commerce Department rejected those arguments in two decisions released yesterday.
The cases became the focus of advocates for manufacturers after the Treasury Department declined to label China a currency manipulator during a recession in which U.S. manufacturing employment stagnated. Lawmakers have vowed to seek legislation requiring the Commerce Department to act if it failed to do so on its own.
“The Commerce Department made its finding while still managing to ignore the elephant in the room, which is China’s currency manipulation,” Senator Charles Schumer, a New York Democrat, said yesterday in a statement. “Once again, even when the opportunity is thrust into its hands, the administration has refused to take action.”
The complaints were rejected because China’s currency policy isn’t “specific to the enterprise or industries being investigated,” Ronald Lorentzen, the Commerce Department official responsible for the decision, said in a statement.
Duties on Aluminum
The department yesterday also imposed preliminary duties of as much as 137.65 percent on the import of aluminum products from China used for door and window frames, gutters, car parts and furniture. All but two groups of producers of the goods will face those highest duties.
While the aluminum duties affect $514 million in imports, imposing tariffs based on China’s currency valuation would have given many more manufacturers grounds to file complaints against their competitors in China.
“It’s now up to Congress to pass legislation to strengthen and modernize our trade laws so that the devastating impact of currency manipulation can be factored into penalties,” said Scott Paul, executive director of the Alliance for American Manufacturing, which represents steelworkers and steelmakers. “There appears to be strong bipartisan support for holding China accountable and passing legislation.”
The decisions released by the Commerce Department yesterday didn’t deal with whether China’s currency is undervalued. They focused instead on whether China’s currency policies represent a financial contribution to exporters and provided specific benefit to those exporting the aluminum and glossy paper.
One Price
“The exchange system of China is ‘unified,’ meaning that there is only one ‘price’ for every user,” the department said. Under global trade rules, subsidies must be meet certain standards in order to be countered by duties, including being targeted.
China is the second-largest trading partner with the U.S., and it ran up a $119 billion trade deficit with the U.S. in the first half of 2010, putting it on a course to exceed last year’s total of $227 billion
China announced in June that it would adjust its peg of the yuan to the dollar. China kept the yuan stable at about 6.83 per dollar from July 2008 to June 2010, after allowing it to gain 21 percent in the previous three years.
The yuan “remains substantially below the level that’s consistent with medium-term fundamentals,” Nigel Chalk, the International Monetary Fund’s China mission chief, said last month.
Makers of aluminum and glossy paper said an undervalued currency acts as a subsidy for Chinese producers, letting them undercut their American competitors. The Commerce Department rejected those arguments in two decisions released yesterday.
The cases became the focus of advocates for manufacturers after the Treasury Department declined to label China a currency manipulator during a recession in which U.S. manufacturing employment stagnated. Lawmakers have vowed to seek legislation requiring the Commerce Department to act if it failed to do so on its own.
“The Commerce Department made its finding while still managing to ignore the elephant in the room, which is China’s currency manipulation,” Senator Charles Schumer, a New York Democrat, said yesterday in a statement. “Once again, even when the opportunity is thrust into its hands, the administration has refused to take action.”
The complaints were rejected because China’s currency policy isn’t “specific to the enterprise or industries being investigated,” Ronald Lorentzen, the Commerce Department official responsible for the decision, said in a statement.
Duties on Aluminum
The department yesterday also imposed preliminary duties of as much as 137.65 percent on the import of aluminum products from China used for door and window frames, gutters, car parts and furniture. All but two groups of producers of the goods will face those highest duties.
While the aluminum duties affect $514 million in imports, imposing tariffs based on China’s currency valuation would have given many more manufacturers grounds to file complaints against their competitors in China.
“It’s now up to Congress to pass legislation to strengthen and modernize our trade laws so that the devastating impact of currency manipulation can be factored into penalties,” said Scott Paul, executive director of the Alliance for American Manufacturing, which represents steelworkers and steelmakers. “There appears to be strong bipartisan support for holding China accountable and passing legislation.”
The decisions released by the Commerce Department yesterday didn’t deal with whether China’s currency is undervalued. They focused instead on whether China’s currency policies represent a financial contribution to exporters and provided specific benefit to those exporting the aluminum and glossy paper.
One Price
“The exchange system of China is ‘unified,’ meaning that there is only one ‘price’ for every user,” the department said. Under global trade rules, subsidies must be meet certain standards in order to be countered by duties, including being targeted.
China is the second-largest trading partner with the U.S., and it ran up a $119 billion trade deficit with the U.S. in the first half of 2010, putting it on a course to exceed last year’s total of $227 billion
China announced in June that it would adjust its peg of the yuan to the dollar. China kept the yuan stable at about 6.83 per dollar from July 2008 to June 2010, after allowing it to gain 21 percent in the previous three years.
The yuan “remains substantially below the level that’s consistent with medium-term fundamentals,” Nigel Chalk, the International Monetary Fund’s China mission chief, said last month.
Australia Growth Quickens to Fastest Pace in Three Years
Australia’s economy grew at the fastest pace in three years last quarter, stoked by China’s demand for iron ore, boosting the currency on speculation interest-rate increases will resume early next year.
Gross domestic product advanced 1.2 percent from the first quarter, when it rose a revised 0.7 percent, the Bureau of Statistics said in Sydney today. That beat the median estimate in a Bloomberg survey of 23 economists for a 0.9 percent gain.
China’s demand for iron ore and coal is prompting companies such as BHP Billiton Ltd. to expand production and mines, stoking an economy that was one of the few to skirt last year’s global recession. The faster-than-expected growth may not prompt the central bank to resume the most aggressive round of rate increases by a Group of 20 member until early 2011, partly because of signs that the global recovery may be slowing.
“Australia is continuing to outperform world growth standards,” said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. “Private consumption was firmer, plus export prices have supported growth.
“There is nothing to suggest a rate cut is on the cards,” she said. “The next move in rates will be upward and that will be in early 2011.”
The Australian dollar rose to 89.69 U.S. cents at 12:13 p.m. in Sydney from 89.49 cents just before the report was released. The two-year government bond yield advanced 3 basis points to 4.31 percent. A basis point is 0.01 percentage point.
The benchmark S&P/ASX 200 index extended gains after the report, climbing 1.9 percent to 4487.8 at 12:32 p.m. in Sydney.
Exports Surge
Exports advanced 5.6 percent in the quarter, adding 1.1 percentage points to GDP, today’s report showed. Household spending increased 1.6 percent, contributing 0.9 percentage point to GDP.
Today’s report underscores Reserve Bank of Australia Governor Glenn Stevens’s view that the nation’s economy is expanding close to trend as income from exports surges, a key justification for raising borrowing costs six times between October and May.
Manufacturing in China, Australia’s largest trade partner, grew at a faster pace in August after the weakest gain since February 2009 in the previous month, signaling that the economy’s slowdown will be limited, a report showed today.
The Purchasing Managers’ Index rose to 51.7 from 51.2, exceeding the median forecast in a Bloomberg News survey, the Federation of Logistics and Purchasing survey showed today.
U.S., Japan
Australia’s economy grew 3.3 percent from a year earlier, today’s report showed. Economists forecast a 2.8 percent expansion. By contrast, GDP in the U.S. rose 3 percent in the second quarter and Japan’s increased 2 percent.
When asked whether the U.S. economy faces a double-dip recession, RBA Assistant Governor Guy Debelle said yesterday that “it’s a risk.”
Policy makers expect Australia’s annual growth to accelerate to 4 percent by the end of 2012, boosted by projects such as Chevron Corp.’s A$43 billion Gorgon natural gas venture in Western Australia, potentially stoking inflation pressures.
“History tells us that inflation can be a problem during resources booms, and while there are grounds for thinking it will be less of a problem this time than in the past, we need to remain alert to the risks,” central bank Deputy Governor Ric Battellino said last month.
Retail Strengthens
Reports yesterday showed the nation’s current-account deficit narrowed last quarter to the least since 2002, and retail sales and building approvals rebounded in July.
Still, there are signs that parts of Australia’s economy may slow. A report today by the Australian Industry Group and PricewaterhouseCoopers showed manufacturing growth eased in August to the weakest pace in five months, partly because of uncertainty about the outcome of last month’s national election.
Neither Prime Minister Julia Gillard nor opposition leader Tony Abbott gained a majority in the Aug. 21 election, meaning one side must win negotiations with independent lawmakers to form government. Those talks continue this week.
Concerns about slowing global growth may prompt policy makers to keep the overnight cash rate target at 4.5 percent on Sept. 7 for a fourth straight month, according to all 23 economists surveyed by Bloomberg late last week.
The Malaysian and Indonesian central banks will probably keep their interest rates unchanged this week to support their economies as the global recovery slows, surveys of analysts show.
Japan Stimulus
The Bank of Japan two days ago expanded a bank-loan program, stepping up its monetary policy stimulus for the first time since March, after the economy’s recovery weakened, and reports this week are forecast to show U.S. hiring and manufacturing probably cooled in August.
The U.S. Federal Reserve has left its benchmark rate in a range of zero to 0.25 percent and reiterated its pledge since March 2009 to keep rates very low for an “extended period.”
Stevens will probably boost Australia’s benchmark rate twice before the end of the year, according to Warren Hogan, chief economist at Australia & New Zealand Banking Group Ltd. in Melbourne.
Increased investment by mining companies “will put tremendous pressure on resources and ultimately prices in the economy,” Hogan said. “The RBA must lean into the domestic economy to free resources for this investment or risk a burst of inflation.”
Gross domestic product advanced 1.2 percent from the first quarter, when it rose a revised 0.7 percent, the Bureau of Statistics said in Sydney today. That beat the median estimate in a Bloomberg survey of 23 economists for a 0.9 percent gain.
China’s demand for iron ore and coal is prompting companies such as BHP Billiton Ltd. to expand production and mines, stoking an economy that was one of the few to skirt last year’s global recession. The faster-than-expected growth may not prompt the central bank to resume the most aggressive round of rate increases by a Group of 20 member until early 2011, partly because of signs that the global recovery may be slowing.
“Australia is continuing to outperform world growth standards,” said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. “Private consumption was firmer, plus export prices have supported growth.
“There is nothing to suggest a rate cut is on the cards,” she said. “The next move in rates will be upward and that will be in early 2011.”
The Australian dollar rose to 89.69 U.S. cents at 12:13 p.m. in Sydney from 89.49 cents just before the report was released. The two-year government bond yield advanced 3 basis points to 4.31 percent. A basis point is 0.01 percentage point.
The benchmark S&P/ASX 200 index extended gains after the report, climbing 1.9 percent to 4487.8 at 12:32 p.m. in Sydney.
Exports Surge
Exports advanced 5.6 percent in the quarter, adding 1.1 percentage points to GDP, today’s report showed. Household spending increased 1.6 percent, contributing 0.9 percentage point to GDP.
Today’s report underscores Reserve Bank of Australia Governor Glenn Stevens’s view that the nation’s economy is expanding close to trend as income from exports surges, a key justification for raising borrowing costs six times between October and May.
Manufacturing in China, Australia’s largest trade partner, grew at a faster pace in August after the weakest gain since February 2009 in the previous month, signaling that the economy’s slowdown will be limited, a report showed today.
The Purchasing Managers’ Index rose to 51.7 from 51.2, exceeding the median forecast in a Bloomberg News survey, the Federation of Logistics and Purchasing survey showed today.
U.S., Japan
Australia’s economy grew 3.3 percent from a year earlier, today’s report showed. Economists forecast a 2.8 percent expansion. By contrast, GDP in the U.S. rose 3 percent in the second quarter and Japan’s increased 2 percent.
When asked whether the U.S. economy faces a double-dip recession, RBA Assistant Governor Guy Debelle said yesterday that “it’s a risk.”
Policy makers expect Australia’s annual growth to accelerate to 4 percent by the end of 2012, boosted by projects such as Chevron Corp.’s A$43 billion Gorgon natural gas venture in Western Australia, potentially stoking inflation pressures.
“History tells us that inflation can be a problem during resources booms, and while there are grounds for thinking it will be less of a problem this time than in the past, we need to remain alert to the risks,” central bank Deputy Governor Ric Battellino said last month.
Retail Strengthens
Reports yesterday showed the nation’s current-account deficit narrowed last quarter to the least since 2002, and retail sales and building approvals rebounded in July.
Still, there are signs that parts of Australia’s economy may slow. A report today by the Australian Industry Group and PricewaterhouseCoopers showed manufacturing growth eased in August to the weakest pace in five months, partly because of uncertainty about the outcome of last month’s national election.
Neither Prime Minister Julia Gillard nor opposition leader Tony Abbott gained a majority in the Aug. 21 election, meaning one side must win negotiations with independent lawmakers to form government. Those talks continue this week.
Concerns about slowing global growth may prompt policy makers to keep the overnight cash rate target at 4.5 percent on Sept. 7 for a fourth straight month, according to all 23 economists surveyed by Bloomberg late last week.
The Malaysian and Indonesian central banks will probably keep their interest rates unchanged this week to support their economies as the global recovery slows, surveys of analysts show.
Japan Stimulus
The Bank of Japan two days ago expanded a bank-loan program, stepping up its monetary policy stimulus for the first time since March, after the economy’s recovery weakened, and reports this week are forecast to show U.S. hiring and manufacturing probably cooled in August.
The U.S. Federal Reserve has left its benchmark rate in a range of zero to 0.25 percent and reiterated its pledge since March 2009 to keep rates very low for an “extended period.”
Stevens will probably boost Australia’s benchmark rate twice before the end of the year, according to Warren Hogan, chief economist at Australia & New Zealand Banking Group Ltd. in Melbourne.
Increased investment by mining companies “will put tremendous pressure on resources and ultimately prices in the economy,” Hogan said. “The RBA must lean into the domestic economy to free resources for this investment or risk a burst of inflation.”
Europe Manufacturing Growth Slows as Germany, Italy Ease
Growth in Europe’s manufacturing industry slowed in August and export demand fell to the lowest in seven months, adding to signs the economy is cooling after the second-quarter surge.
A gauge of manufacturing in the 16-nation euro region declined to 55.1 from 56.7 in the previous month, London-based Markit Economics said today. That’s above an initial estimate of 55 released on Aug. 23. It’s the 11th straight month with a reading above 50, indicating expansion.
While Europe’s economy grew at the fastest pace in four years in the second quarter, companies have been largely reliant on export demand to boost sales. Stocks in Europe and the U.S. have dropped in the past two weeks on concern the global recovery is losing steam. In the U.K., manufacturing growth slowed to the weakest in nine months in August, while a gauge of U.S. factory activity probably also declined.
The recovery is “likely to remain bumpy and relatively gradual,” said Howard Archer, chief European and U.K. economist at Global Insight IHS in London. “While still pointing to decent manufacturing growth, the softer survey reinforces suspicion that euro-zone manufacturers will find it increasingly difficult to sustain their impressive performance.”
The euro rose against the dollar after the report and was at $1.2797 as of 10:35 a.m. in London, up 0.9 percent on the day.
Orders Weaken
A measure of manufacturers’ new orders fell to the lowest this year and a gauge of export orders declined for a fifth month, Markit said. Employment increased for a fourth month, led by Germany, the Netherlands and Austria.
Germany’s manufacturing index slipped to 58.2 in August from 61.2 in July, matching an initial estimate, while the gauge for France rose to 55.1, higher than estimated. Italy’s measure fell to 52.8, lower than economists had forecast.
A composite index based on a survey of euro-area purchasing managers in both services and manufacturing probably fell to 56.1 in August from 56.7, while an index of euro-area services probably slipped to 55.6 from 55.8. Markit is scheduled to release final figures for those indicators on Sept. 3.
China Growth
In the U.S., the world’s biggest economy, the Institute for Supply Management’s factory index probably declined to 52.7 in August, the lowest since September 2009, according to the median estimate of 78 economists surveyed by Bloomberg News. The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time.
A Chinese purchasing managers’ index released today by HSBC Holdings Plc and Markit rose to 51.9 in August from 49.4. A separate, government-backed PMI increased to 51.7 from 51.2, the Federation of Logistics and Purchasing reported.
The European Central Bank will publish new economic forecasts tomorrow for this year and 2011. In June, the Frankfurt-based central bank projected the euro-region economy to expand around 1 percent and 1.2 percent, respectively.
The euro’s 11 percent slide against the dollar this year may help shield exporters from a global slowdown by making their goods more competitive. Volkswagen AG’s Audi luxury brand will start selling the new A1 compact car outside Europe next year and is increasing production to meet higher demand, sales chief Peter Schwarzenbauer said on Aug. 24.
ECB council member Axel Weber has also signaled confidence in the outlook, saying on Aug. 27 that while the euro region won’t show “as high growth as before” over the coming months, the recovery remains “on track.”
“We are bordering on a self-sustaining recovery in Europe,” said Weber, who also heads Germany’s Bundesbank. “There is not much concern about a renewed recession.”
A gauge of manufacturing in the 16-nation euro region declined to 55.1 from 56.7 in the previous month, London-based Markit Economics said today. That’s above an initial estimate of 55 released on Aug. 23. It’s the 11th straight month with a reading above 50, indicating expansion.
While Europe’s economy grew at the fastest pace in four years in the second quarter, companies have been largely reliant on export demand to boost sales. Stocks in Europe and the U.S. have dropped in the past two weeks on concern the global recovery is losing steam. In the U.K., manufacturing growth slowed to the weakest in nine months in August, while a gauge of U.S. factory activity probably also declined.
The recovery is “likely to remain bumpy and relatively gradual,” said Howard Archer, chief European and U.K. economist at Global Insight IHS in London. “While still pointing to decent manufacturing growth, the softer survey reinforces suspicion that euro-zone manufacturers will find it increasingly difficult to sustain their impressive performance.”
The euro rose against the dollar after the report and was at $1.2797 as of 10:35 a.m. in London, up 0.9 percent on the day.
Orders Weaken
A measure of manufacturers’ new orders fell to the lowest this year and a gauge of export orders declined for a fifth month, Markit said. Employment increased for a fourth month, led by Germany, the Netherlands and Austria.
Germany’s manufacturing index slipped to 58.2 in August from 61.2 in July, matching an initial estimate, while the gauge for France rose to 55.1, higher than estimated. Italy’s measure fell to 52.8, lower than economists had forecast.
A composite index based on a survey of euro-area purchasing managers in both services and manufacturing probably fell to 56.1 in August from 56.7, while an index of euro-area services probably slipped to 55.6 from 55.8. Markit is scheduled to release final figures for those indicators on Sept. 3.
China Growth
In the U.S., the world’s biggest economy, the Institute for Supply Management’s factory index probably declined to 52.7 in August, the lowest since September 2009, according to the median estimate of 78 economists surveyed by Bloomberg News. The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time.
A Chinese purchasing managers’ index released today by HSBC Holdings Plc and Markit rose to 51.9 in August from 49.4. A separate, government-backed PMI increased to 51.7 from 51.2, the Federation of Logistics and Purchasing reported.
The European Central Bank will publish new economic forecasts tomorrow for this year and 2011. In June, the Frankfurt-based central bank projected the euro-region economy to expand around 1 percent and 1.2 percent, respectively.
The euro’s 11 percent slide against the dollar this year may help shield exporters from a global slowdown by making their goods more competitive. Volkswagen AG’s Audi luxury brand will start selling the new A1 compact car outside Europe next year and is increasing production to meet higher demand, sales chief Peter Schwarzenbauer said on Aug. 24.
ECB council member Axel Weber has also signaled confidence in the outlook, saying on Aug. 27 that while the euro region won’t show “as high growth as before” over the coming months, the recovery remains “on track.”
“We are bordering on a self-sustaining recovery in Europe,” said Weber, who also heads Germany’s Bundesbank. “There is not much concern about a renewed recession.”
Germany's Retail Sales Unexpectedly Declined Second Straight Month in July
Retail sales in Germany, Europe’s largest economy, unexpectedly fell for a second month in July after helping fuel record growth in the second quarter.
Sales, adjusted for inflation and seasonal swings, declined 0.3 percent from June, when they also dropped 0.3 percent, the Federal Statistics Office in Wiesbaden said in an e-mailed statement today. Economists forecast a gain of 0.5 percent, the median of 16 estimates in a Bloomberg News survey showed. In the year, sales increased 0.8 percent.
“Retail sales are highly volatile” and “have to be taken with a pinch of salt,” said Carsten Brzeski, an economist at ING Group in Brussels. “Private consumption surprised already in the second quarter and, backed by a strong labor market, more positive surprises seem to be in the offing.”
German consumer spending may get a boost as companies step up output and hiring to meet reviving export demand. Unemployment fell for a 14th month in August, business confidence surged to the highest in three years and GfK AG said its monthly index of household confidence also rose.
Inditex SA, Europe’s biggest clothing retailer, is in talks with landlords to open more stores in Germany, the Financial Times Deutschland newspaper reported Aug. 12. Henkel AG, the German maker of Persil detergent, raised its full-year earnings outlook on Aug. 4 after second-quarter profit almost doubled.
Household spending rose 0.6 percent in the second quarter from the previous three months, when it dropped 0.1 percent. The economy expanded 2.2 percent in that period, the fastest pace in two decades and more than twice the euro region’s growth rate.
“What is coming through more and more is evidence of improving domestic demand,” Goldman Sachs Group Inc. Chief Global Economist Jim O’Neill said in an interview on Bloomberg Television’s “InsideTrack” with Deirdre Bolton on Aug. 25. “It’s been such a long time since the German consumer has been spending. If it were for real, it’s going to turn out to be major.”
Sales, adjusted for inflation and seasonal swings, declined 0.3 percent from June, when they also dropped 0.3 percent, the Federal Statistics Office in Wiesbaden said in an e-mailed statement today. Economists forecast a gain of 0.5 percent, the median of 16 estimates in a Bloomberg News survey showed. In the year, sales increased 0.8 percent.
“Retail sales are highly volatile” and “have to be taken with a pinch of salt,” said Carsten Brzeski, an economist at ING Group in Brussels. “Private consumption surprised already in the second quarter and, backed by a strong labor market, more positive surprises seem to be in the offing.”
German consumer spending may get a boost as companies step up output and hiring to meet reviving export demand. Unemployment fell for a 14th month in August, business confidence surged to the highest in three years and GfK AG said its monthly index of household confidence also rose.
Inditex SA, Europe’s biggest clothing retailer, is in talks with landlords to open more stores in Germany, the Financial Times Deutschland newspaper reported Aug. 12. Henkel AG, the German maker of Persil detergent, raised its full-year earnings outlook on Aug. 4 after second-quarter profit almost doubled.
Household spending rose 0.6 percent in the second quarter from the previous three months, when it dropped 0.1 percent. The economy expanded 2.2 percent in that period, the fastest pace in two decades and more than twice the euro region’s growth rate.
“What is coming through more and more is evidence of improving domestic demand,” Goldman Sachs Group Inc. Chief Global Economist Jim O’Neill said in an interview on Bloomberg Television’s “InsideTrack” with Deirdre Bolton on Aug. 25. “It’s been such a long time since the German consumer has been spending. If it were for real, it’s going to turn out to be major.”
Yuan Bonds With Longer Maturities Will Soon Come to Hong Kong, HSBC Says
Yuan bonds with longer maturities will soon be sold in Hong Kong as more institutional investors hold the currency, said Wing Wu, head of debt capital markets China at HSBC Bank (China) Co.
“With more and different institutional investors allowed to hold renminbi, I’m sure the tenor will be extended as the market develops,” Wu said in an interview in Beijing yesterday. Maturities are “restricted by the retail depositors who have a short, two-to-three year investment horizon.”
The longest maturity note so far was a Chinese Ministry of Finance bond last year due October 2014, according to Bloomberg data. Hong Kong Monetary Authority Chief Executive Norman Chan has said recent moves by China increase the city’s appeal as an offshore center.
China is seeking to promote the yuan as a global currency and push its use in cross-border trade, which more than doubled in the second quarter from the first. In February foreign companies were permitted to issue yuan-denominated bonds through Hong Kong, a former British colony with a separate legal system. Haitong Securities Co.’s Hong Kong unit won approval to set up a fixed-income fund in the city that will invest in yuan assets outside china.
McDonald’s Corp. sold 200 million yuan ($29 million) of 3 percent notes due in September 2013 in August. Yuan deposits in Hong Kong rose 15.6 percent in July to a record 103.7 billion yuan, the highest since yuan accounts were allowed to be set up in February 2004, according to HKMA figures yesterday. That’s still only 1.8 percent of overall Hong Kong deposits.
Foreign Interest
“Foreign companies are very interested in renminbi funding,” Wu said. “At the moment, offshore renminbi market is easier to access than onshore bond market.”
Foreign multinationals with China operations such as Wal- Mart Stores Inc. will probably lead a further wave of issuance, he said. Bentonville, Arkansas-based Wal-Mart, the world’s largest retailer, said in March it was considering selling bonds in yuan. Still, sending money back to China requires approval from the People’s Bank of China and other authorities, Wu said, the same process companies must go through to transfer U.S. dollars to their China-based operations.
China Development Bank
China Development Bank Corp. applied for approval to sell up to 5 billion yuan of bonds in Hong Kong this year, a person familiar with the matter said Aug. 9. Bank of China Ltd. is looking at issuing as much as 5 billion yuan in the city, President Li Lihui said Aug. 26.
Once maturities on bonds are extended in Hong Kong, an offshore yield curve will develop, Wu said. Yields on yuan bonds sold in the city are slightly lower than those sold in China due to lack of supply, he said.
China Development Bank’s 2 billion yuan of 2.45 percent two-year bonds sold in the city and due August 2011 yielded 1.422 percent as of 11:30 a.m. in Hong Kong, according to the Treasury Market Association. The lender’s 30 billion yuan of 2.15 percent, three-year notes due December 2011 that were sold in China yielded 2.35 percent, according to China Foreign Exchange Trade System prices on Bloomberg.
Ten years ago when Wu first worked in China’s debt markets, he said there were only about a dozen bonds sold each year by major state-owned groups like the Ministry of Railway, China Three Gorges Corp. or China Mobile Ltd. This year there have been almost 600 bonds issued, according to Bloomberg data.
“In the early days we were desperate for institutional investors,” he said. “Now you have foreign investors coming in.”
“With more and different institutional investors allowed to hold renminbi, I’m sure the tenor will be extended as the market develops,” Wu said in an interview in Beijing yesterday. Maturities are “restricted by the retail depositors who have a short, two-to-three year investment horizon.”
The longest maturity note so far was a Chinese Ministry of Finance bond last year due October 2014, according to Bloomberg data. Hong Kong Monetary Authority Chief Executive Norman Chan has said recent moves by China increase the city’s appeal as an offshore center.
China is seeking to promote the yuan as a global currency and push its use in cross-border trade, which more than doubled in the second quarter from the first. In February foreign companies were permitted to issue yuan-denominated bonds through Hong Kong, a former British colony with a separate legal system. Haitong Securities Co.’s Hong Kong unit won approval to set up a fixed-income fund in the city that will invest in yuan assets outside china.
McDonald’s Corp. sold 200 million yuan ($29 million) of 3 percent notes due in September 2013 in August. Yuan deposits in Hong Kong rose 15.6 percent in July to a record 103.7 billion yuan, the highest since yuan accounts were allowed to be set up in February 2004, according to HKMA figures yesterday. That’s still only 1.8 percent of overall Hong Kong deposits.
Foreign Interest
“Foreign companies are very interested in renminbi funding,” Wu said. “At the moment, offshore renminbi market is easier to access than onshore bond market.”
Foreign multinationals with China operations such as Wal- Mart Stores Inc. will probably lead a further wave of issuance, he said. Bentonville, Arkansas-based Wal-Mart, the world’s largest retailer, said in March it was considering selling bonds in yuan. Still, sending money back to China requires approval from the People’s Bank of China and other authorities, Wu said, the same process companies must go through to transfer U.S. dollars to their China-based operations.
China Development Bank
China Development Bank Corp. applied for approval to sell up to 5 billion yuan of bonds in Hong Kong this year, a person familiar with the matter said Aug. 9. Bank of China Ltd. is looking at issuing as much as 5 billion yuan in the city, President Li Lihui said Aug. 26.
Once maturities on bonds are extended in Hong Kong, an offshore yield curve will develop, Wu said. Yields on yuan bonds sold in the city are slightly lower than those sold in China due to lack of supply, he said.
China Development Bank’s 2 billion yuan of 2.45 percent two-year bonds sold in the city and due August 2011 yielded 1.422 percent as of 11:30 a.m. in Hong Kong, according to the Treasury Market Association. The lender’s 30 billion yuan of 2.15 percent, three-year notes due December 2011 that were sold in China yielded 2.35 percent, according to China Foreign Exchange Trade System prices on Bloomberg.
Ten years ago when Wu first worked in China’s debt markets, he said there were only about a dozen bonds sold each year by major state-owned groups like the Ministry of Railway, China Three Gorges Corp. or China Mobile Ltd. This year there have been almost 600 bonds issued, according to Bloomberg data.
“In the early days we were desperate for institutional investors,” he said. “Now you have foreign investors coming in.”
Malaysia, Indonesia May Hold Interest Rates as Risks Cloud Global Recovery
Malaysian and Indonesian policy makers will probably keep interest rates unchanged this week to support their economies as the global recovery slows.
Fifteen out of 17 economists surveyed by Bloomberg News predict Bank Negara Malaysia will leave its benchmark overnight policy rate at 2.75 percent tomorrow after three consecutive increases, while two expect another boost to 3 percent. Bank Indonesia will keep its reference rate at 6.5 percent on Sept. 3, according to 16 out of 17 economists in a separate survey.
Most Asian central banks have raised rates in recent months to stem price pressures or normalize borrowing costs as the region led the world out of last year’s recession. The monetary tightening may slow as policy makers from the U.S. to Japan take steps to shore up growth amid signs the world’s biggest economies are cooling.
“While Asian central banks cannot ignore the strong growth in the region’s economies, they are likely to be wary of the uncertain prospects facing the U.S.,” said Rahul Bajoria, a Singapore-based economist at Barclays Plc. “Manageable inflation conditions give policy makers some leeway to balance growth and inflation” in most Asian nations, he said.
The U.S. Federal Reserve “will do all that it can” to ensure a continuation of the economic recovery, Chairman Ben S. Bernanke said Aug. 27, adding that growth during the past year has been “too slow” and unemployment too high. The U.S. economy grew at a 1.6 percent annual pace in the second quarter, less than previously estimated.
Japanese Stimulus
The Japanese government this week pledged 920 billion yen ($11 billion) in stimulus to protect the economy from slower growth and fallout from the yen’s appreciation. Officials will consider compiling an extra budget if needed, Prime Minister Naoto Kan said Aug. 30.
Malaysian policy makers led by Governor Zeti Akhtar Aziz have raised interest rates by 0.75 percentage point since the start of March to reduce what they say is the risk of financial imbalances that may be caused by keeping borrowing costs too low for too long.
A report last month showed the economy grew near the fastest pace in a decade last quarter, with gross domestic product climbing 8.9 percent from a year earlier. Zeti said growth may exceed 6 percent in 2010. Malaysia’s consumer prices rose 1.9 percent in July, the biggest increase in 14 months.
Slower Tightening
Malaysia’s monetary policy is “forward-looking” and the current rate is “consistent and appropriate” based on the outlook for inflation and growth, the governor said Aug. 18. The ringgit has gained 9.3 percent against the dollar this year as the economy strengthened, the biggest increase in Asia outside Japan.
Bank Negara “gives the impression that the ‘normalization’ phase is about complete and from here, the tangibly slower global growth outlook argues for a slower pace of tightening, skipping some meetings,” said Sean Callow, a senior foreign- exchange strategist in Sydney at Westpac Banking Corp.
Indonesia has refrained from following neighbors from India to South Korea and Thailand in raising borrowing costs this year as President Susilo Bambang Yudhoyono targets annual growth of 6.6 percent. The reference rate is at the lowest level since its introduction in July 2005.
Inflation in Southeast Asia’s largest economy accelerated to a 16-month high of 6.44 percent in August, a government report showed today.
Fasting Month
Prices rose last month as the world’s most populous Muslim nation observed the fasting month of Ramadan and families began preparations for the Eid-ul-Fitr celebration. Higher electricity costs also added to inflation.
“Despite this, Bank Indonesia is unlikely to alter its policy rate for now,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “The central bank’s mantra is likely to remain the same, that food inflation is not to be fought with an interest-rate increase.”
Food prices rose 13.2 percent in August from a year earlier, after a 14.1 percent gain in July, the statistics bureau said. Food costs rose 0.5 percent in August from the month before, when it climbed 4.7 percent.
“The policy to increase food supply and distribution was a success,” Bank Indonesia Deputy Governor Hartadi Sarwono said in an e-mailed response to questions from Bloomberg. “We will see, and hope this trend will continue so we don’t need to raise the interest rate.”
The Indonesian rupiah’s gains may also help damp price pressures. The currency has climbed 4.3 percent against the dollar this year.
Fifteen out of 17 economists surveyed by Bloomberg News predict Bank Negara Malaysia will leave its benchmark overnight policy rate at 2.75 percent tomorrow after three consecutive increases, while two expect another boost to 3 percent. Bank Indonesia will keep its reference rate at 6.5 percent on Sept. 3, according to 16 out of 17 economists in a separate survey.
Most Asian central banks have raised rates in recent months to stem price pressures or normalize borrowing costs as the region led the world out of last year’s recession. The monetary tightening may slow as policy makers from the U.S. to Japan take steps to shore up growth amid signs the world’s biggest economies are cooling.
“While Asian central banks cannot ignore the strong growth in the region’s economies, they are likely to be wary of the uncertain prospects facing the U.S.,” said Rahul Bajoria, a Singapore-based economist at Barclays Plc. “Manageable inflation conditions give policy makers some leeway to balance growth and inflation” in most Asian nations, he said.
The U.S. Federal Reserve “will do all that it can” to ensure a continuation of the economic recovery, Chairman Ben S. Bernanke said Aug. 27, adding that growth during the past year has been “too slow” and unemployment too high. The U.S. economy grew at a 1.6 percent annual pace in the second quarter, less than previously estimated.
Japanese Stimulus
The Japanese government this week pledged 920 billion yen ($11 billion) in stimulus to protect the economy from slower growth and fallout from the yen’s appreciation. Officials will consider compiling an extra budget if needed, Prime Minister Naoto Kan said Aug. 30.
Malaysian policy makers led by Governor Zeti Akhtar Aziz have raised interest rates by 0.75 percentage point since the start of March to reduce what they say is the risk of financial imbalances that may be caused by keeping borrowing costs too low for too long.
A report last month showed the economy grew near the fastest pace in a decade last quarter, with gross domestic product climbing 8.9 percent from a year earlier. Zeti said growth may exceed 6 percent in 2010. Malaysia’s consumer prices rose 1.9 percent in July, the biggest increase in 14 months.
Slower Tightening
Malaysia’s monetary policy is “forward-looking” and the current rate is “consistent and appropriate” based on the outlook for inflation and growth, the governor said Aug. 18. The ringgit has gained 9.3 percent against the dollar this year as the economy strengthened, the biggest increase in Asia outside Japan.
Bank Negara “gives the impression that the ‘normalization’ phase is about complete and from here, the tangibly slower global growth outlook argues for a slower pace of tightening, skipping some meetings,” said Sean Callow, a senior foreign- exchange strategist in Sydney at Westpac Banking Corp.
Indonesia has refrained from following neighbors from India to South Korea and Thailand in raising borrowing costs this year as President Susilo Bambang Yudhoyono targets annual growth of 6.6 percent. The reference rate is at the lowest level since its introduction in July 2005.
Inflation in Southeast Asia’s largest economy accelerated to a 16-month high of 6.44 percent in August, a government report showed today.
Fasting Month
Prices rose last month as the world’s most populous Muslim nation observed the fasting month of Ramadan and families began preparations for the Eid-ul-Fitr celebration. Higher electricity costs also added to inflation.
“Despite this, Bank Indonesia is unlikely to alter its policy rate for now,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “The central bank’s mantra is likely to remain the same, that food inflation is not to be fought with an interest-rate increase.”
Food prices rose 13.2 percent in August from a year earlier, after a 14.1 percent gain in July, the statistics bureau said. Food costs rose 0.5 percent in August from the month before, when it climbed 4.7 percent.
“The policy to increase food supply and distribution was a success,” Bank Indonesia Deputy Governor Hartadi Sarwono said in an e-mailed response to questions from Bloomberg. “We will see, and hope this trend will continue so we don’t need to raise the interest rate.”
The Indonesian rupiah’s gains may also help damp price pressures. The currency has climbed 4.3 percent against the dollar this year.
Manufacturing in U.S. Probably Grew at Slower Pace in August
Manufacturing probably expanded in August at the slowest pace in almost a year, showing the industry that led the U.S. in recovery is now part of the economic slowdown, economists said before reports today.
The Institute for Supply Management’s factory index dropped to 52.7, the lowest since September 2009, from 55.5 in July, according to the median estimate of 78 economists surveyed by Bloomberg News. Readings greater than 50 signal growth. Other reports may show construction spending fell and hiring slowed.
Factories may throttle back production as companies like Intel Corp. signal weaker consumer spending and others scale back inventory rebuilding. A further slowing in manufacturing threatens to stall the U.S. expansion as the housing market struggles and companies limit hiring.
“Manufacturing has completely passed its peak,” said Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York. “The once-strong pillar of growth is starting to fade.”
The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 49.9 to 56.
While manufacturing is cooling, a slumping housing market following the expiration of homebuyer incentives is depressing construction. Spending on all projects dropped 0.5 percent in July after a 0.1 percent gain a month earlier, according to the median estimate of economists surveyed before a Commerce Department’s report at 10 a.m.
ADP Report
A slowing economy is making companies reluctant to hire. ADP Employer Services may report 15,000 jobs were added by companies in August, the fewest since February, according to the survey median. The report is scheduled for 8:15 a.m.
Economists project in two days that a Labor Department report will show companies may have added 42,000 workers to their payrolls in August. The average from May through July was 51,000 jobs, down from 200,000 in the previous two months.
Manufacturing, which accounts for about 11 percent of the economy, spearheaded the recovery from the worst recession since the 1930s as rising export demand led companies to ramp up spending on equipment and to replenish stockpiles.
Shares of manufacturers have gained this year compared with a decline in the broader indexes. The Standard & Poor’s Supercomposite Industrial Machinery Index has increased 6.2 percent this year through yesterday, while the S&P 500 has dropped 5.9 percent.
Regional Figures
Regional factory reports showed the manufacturing expansion has weakened. The Federal Reserve Bank of Philadelphia’s general economic index contracted this month for the first time in a year, while the New York Fed’s gauge rose less than forecast.
Fed Chairman Ben S. Bernanke last week said the central bank “will do all that it can” to ensure a continuation of the economic recovery, and outlined steps it might take if growth slows.
“Investment in equipment and software will almost certainly increase more slowly over the remainder of this year, though it should continue to advance at a solid pace,” Bernanke said.
Intel last week cut its third-quarter revenue projection. The world’s biggest chipmaker cited weaker-than-expected consumer demand for personal computers in mature markets as the reason for the adjustment.
Cisco Systems Inc., the world’s largest maker of networking equipment, in August forecast first-quarter sales that missed analysts’ estimates. Chief Executive Officer John Chambers said the San Jose, California-based company was seeing “unusual uncertainty” and getting “mixed signals” about the health of the economy.
Some U.S. manufacturers are benefiting from growth overseas. Caterpillar Inc., the Peoria, Illinois-based maker of construction and mining equipment, may add as many as 9,000 workers worldwide this year, Chief Executive Officer Doug Oberhelman said at a meeting with analysts Aug. 19.
Bloomberg Survey
================================================================
ADP ISM ISM Construct
Payroll Manu Prices Spending
,000’s Index Index MOM%
================================================================
Date of Release 09/01 09/01 09/01 09/01
Observation Period Aug. Aug. Aug. July
----------------------------------------------------------------
Median 15 52.7 55.3 -0.5%
Average 10 52.8 55.6 -0.5%
High Forecast 55 56.0 59.0 0.5%
Low Forecast -50 49.9 52.0 -1.6%
Number of Participants 35 78 16 50
Previous 42 55.5 57.5 0.1%
----------------------------------------------------------------
4CAST Ltd. -50 51.0 --- -1.3%
ABN Amro Bank --- 53.0 --- ---
Action Economics 0 53.0 54.0 -0.6%
Aletti Gestielle SGR --- 52.7 55.0 ---
Ameriprise Financial Inc 30 52.5 56.0 -0.5%
Banesto 25 54.1 --- -0.5%
Bank of Tokyo- Mitsubishi --- 52.6 --- 0.0%
Barclays Capital --- 52.5 --- -0.2%
Bayerische Landesbank --- 53.5 --- ---
BBVA -20 53.5 55.0 -0.5%
BMO Capital Markets 20 53.0 55.0 -0.5%
BNP Paribas --- 52.5 --- -0.8%
BofA Merrill Lynch Research 10 52.5 --- -0.7%
Briefing.com 0 53.0 --- -0.5%
Capital Economics --- 52.0 --- 0.2%
CIBC World Markets --- 54.0 --- ---
Citi --- 52.0 --- -0.7%
ClearView Economics --- 53.0 52.0 -0.4%
Commerzbank AG --- 53.0 --- ---
Credit Agricole CIB --- 52.0 --- ---
Credit Suisse --- 52.0 59.0 ---
Danske Bank --- 53.6 57.5 ---
DekaBank --- 53.5 --- -0.6%
Desjardins Group --- 52.0 --- -1.0%
Deutsche Bank Securities 15 52.0 --- 0.4%
Deutsche Postbank AG --- 53.0 --- ---
DZ Bank 30 52.8 --- ---
Exane --- 52.2 --- -0.5%
First Trust Advisors --- 54.5 --- -0.6%
FTN Financial --- 54.0 --- ---
Goldman, Sachs & Co. --- 52.0 --- -1.6%
Helaba --- 53.0 --- ---
High Frequency Economics 0 52.0 --- 0.0%
HSBC Markets -20 51.5 --- -0.7%
Hugh Johnson Advisors --- 56.0 --- ---
IDEAglobal 45 55.0 --- -0.5%
IHS Global Insight --- 51.5 --- -0.4%
Informa Global Markets 55 54.8 55.5 -0.8%
ING Financial Markets 35 54.0 55.0 -0.3%
Intesa-SanPaulo --- 52.0 --- -1.2%
J.P. Morgan Chase --- 52.5 --- -0.7%
Janney Montgomery Scott 15 52.8 --- -0.3%
Jefferies & Co. 25 54.0 --- -0.1%
Landesbank Berlin --- 52.0 --- -0.5%
Landesbank BW 35 51.0 --- ---
Maria Fiorini Ramirez --- 52.0 --- ---
MFC Global Investment 30 52.0 55.0 -0.8%
Mizuho Securities 20 52.0 --- -0.8%
Moody’s Economy.com -5 52.7 --- -0.7%
Morgan Keegan & Co. --- --- --- -0.5%
Morgan Stanley & Co. --- 52.5 --- 0.3%
National Bank Financial --- 53.5 --- ---
Natixis 30 53.4 --- ---
Nomura Securities Intl. 10 53.5 --- ---
Nord/LB 15 52.0 55.0 ---
Pierpont Securities LLC --- 53.0 --- ---
PineBridge Investments --- 53.8 --- 0.5%
PNC Bank --- 51.5 --- -1.2%
Prestige Economics --- 52.5 --- ---
Raiffeisen Zentralbank --- 53.0 57.0 ---
Raymond James --- 54.1 --- -0.6%
RBC Capital Markets --- 52.0 --- ---
RBS Securities Inc. --- 53.2 --- ---
Scotia Capital 10 52.0 --- ---
Societe Generale --- 52.5 --- ---
Standard Chartered -10 51.5 --- ---
State Street Global Markets 0 52.6 56.2 -0.4%
Stone & McCarthy Research --- 51.9 --- -0.4%
TD Securities 5 52.1 57.0 -0.3%
Thomson Reuters/IFR -35 50.1 --- -0.1%
Tullett Prebon --- 53.8 --- ---
UBS --- 54.0 --- -0.3%
Union Investment 30 54.5 --- ---
University of Maryland 20 55.0 56.0 -0.5%
Wells Fargo & Co. --- 54.8 --- -0.8%
WestLB AG 30 54.0 --- -0.5%
Westpac Banking Co. -20 49.9 --- -1.5%
Woodley Park Research 18 51.5 --- -1.0%
Wrightson ICAP -50 53.5 --- -0.5%
================================================================
The Institute for Supply Management’s factory index dropped to 52.7, the lowest since September 2009, from 55.5 in July, according to the median estimate of 78 economists surveyed by Bloomberg News. Readings greater than 50 signal growth. Other reports may show construction spending fell and hiring slowed.
Factories may throttle back production as companies like Intel Corp. signal weaker consumer spending and others scale back inventory rebuilding. A further slowing in manufacturing threatens to stall the U.S. expansion as the housing market struggles and companies limit hiring.
“Manufacturing has completely passed its peak,” said Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York. “The once-strong pillar of growth is starting to fade.”
The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 49.9 to 56.
While manufacturing is cooling, a slumping housing market following the expiration of homebuyer incentives is depressing construction. Spending on all projects dropped 0.5 percent in July after a 0.1 percent gain a month earlier, according to the median estimate of economists surveyed before a Commerce Department’s report at 10 a.m.
ADP Report
A slowing economy is making companies reluctant to hire. ADP Employer Services may report 15,000 jobs were added by companies in August, the fewest since February, according to the survey median. The report is scheduled for 8:15 a.m.
Economists project in two days that a Labor Department report will show companies may have added 42,000 workers to their payrolls in August. The average from May through July was 51,000 jobs, down from 200,000 in the previous two months.
Manufacturing, which accounts for about 11 percent of the economy, spearheaded the recovery from the worst recession since the 1930s as rising export demand led companies to ramp up spending on equipment and to replenish stockpiles.
Shares of manufacturers have gained this year compared with a decline in the broader indexes. The Standard & Poor’s Supercomposite Industrial Machinery Index has increased 6.2 percent this year through yesterday, while the S&P 500 has dropped 5.9 percent.
Regional Figures
Regional factory reports showed the manufacturing expansion has weakened. The Federal Reserve Bank of Philadelphia’s general economic index contracted this month for the first time in a year, while the New York Fed’s gauge rose less than forecast.
Fed Chairman Ben S. Bernanke last week said the central bank “will do all that it can” to ensure a continuation of the economic recovery, and outlined steps it might take if growth slows.
“Investment in equipment and software will almost certainly increase more slowly over the remainder of this year, though it should continue to advance at a solid pace,” Bernanke said.
Intel last week cut its third-quarter revenue projection. The world’s biggest chipmaker cited weaker-than-expected consumer demand for personal computers in mature markets as the reason for the adjustment.
Cisco Systems Inc., the world’s largest maker of networking equipment, in August forecast first-quarter sales that missed analysts’ estimates. Chief Executive Officer John Chambers said the San Jose, California-based company was seeing “unusual uncertainty” and getting “mixed signals” about the health of the economy.
Some U.S. manufacturers are benefiting from growth overseas. Caterpillar Inc., the Peoria, Illinois-based maker of construction and mining equipment, may add as many as 9,000 workers worldwide this year, Chief Executive Officer Doug Oberhelman said at a meeting with analysts Aug. 19.
Bloomberg Survey
================================================================
ADP ISM ISM Construct
Payroll Manu Prices Spending
,000’s Index Index MOM%
================================================================
Date of Release 09/01 09/01 09/01 09/01
Observation Period Aug. Aug. Aug. July
----------------------------------------------------------------
Median 15 52.7 55.3 -0.5%
Average 10 52.8 55.6 -0.5%
High Forecast 55 56.0 59.0 0.5%
Low Forecast -50 49.9 52.0 -1.6%
Number of Participants 35 78 16 50
Previous 42 55.5 57.5 0.1%
----------------------------------------------------------------
4CAST Ltd. -50 51.0 --- -1.3%
ABN Amro Bank --- 53.0 --- ---
Action Economics 0 53.0 54.0 -0.6%
Aletti Gestielle SGR --- 52.7 55.0 ---
Ameriprise Financial Inc 30 52.5 56.0 -0.5%
Banesto 25 54.1 --- -0.5%
Bank of Tokyo- Mitsubishi --- 52.6 --- 0.0%
Barclays Capital --- 52.5 --- -0.2%
Bayerische Landesbank --- 53.5 --- ---
BBVA -20 53.5 55.0 -0.5%
BMO Capital Markets 20 53.0 55.0 -0.5%
BNP Paribas --- 52.5 --- -0.8%
BofA Merrill Lynch Research 10 52.5 --- -0.7%
Briefing.com 0 53.0 --- -0.5%
Capital Economics --- 52.0 --- 0.2%
CIBC World Markets --- 54.0 --- ---
Citi --- 52.0 --- -0.7%
ClearView Economics --- 53.0 52.0 -0.4%
Commerzbank AG --- 53.0 --- ---
Credit Agricole CIB --- 52.0 --- ---
Credit Suisse --- 52.0 59.0 ---
Danske Bank --- 53.6 57.5 ---
DekaBank --- 53.5 --- -0.6%
Desjardins Group --- 52.0 --- -1.0%
Deutsche Bank Securities 15 52.0 --- 0.4%
Deutsche Postbank AG --- 53.0 --- ---
DZ Bank 30 52.8 --- ---
Exane --- 52.2 --- -0.5%
First Trust Advisors --- 54.5 --- -0.6%
FTN Financial --- 54.0 --- ---
Goldman, Sachs & Co. --- 52.0 --- -1.6%
Helaba --- 53.0 --- ---
High Frequency Economics 0 52.0 --- 0.0%
HSBC Markets -20 51.5 --- -0.7%
Hugh Johnson Advisors --- 56.0 --- ---
IDEAglobal 45 55.0 --- -0.5%
IHS Global Insight --- 51.5 --- -0.4%
Informa Global Markets 55 54.8 55.5 -0.8%
ING Financial Markets 35 54.0 55.0 -0.3%
Intesa-SanPaulo --- 52.0 --- -1.2%
J.P. Morgan Chase --- 52.5 --- -0.7%
Janney Montgomery Scott 15 52.8 --- -0.3%
Jefferies & Co. 25 54.0 --- -0.1%
Landesbank Berlin --- 52.0 --- -0.5%
Landesbank BW 35 51.0 --- ---
Maria Fiorini Ramirez --- 52.0 --- ---
MFC Global Investment 30 52.0 55.0 -0.8%
Mizuho Securities 20 52.0 --- -0.8%
Moody’s Economy.com -5 52.7 --- -0.7%
Morgan Keegan & Co. --- --- --- -0.5%
Morgan Stanley & Co. --- 52.5 --- 0.3%
National Bank Financial --- 53.5 --- ---
Natixis 30 53.4 --- ---
Nomura Securities Intl. 10 53.5 --- ---
Nord/LB 15 52.0 55.0 ---
Pierpont Securities LLC --- 53.0 --- ---
PineBridge Investments --- 53.8 --- 0.5%
PNC Bank --- 51.5 --- -1.2%
Prestige Economics --- 52.5 --- ---
Raiffeisen Zentralbank --- 53.0 57.0 ---
Raymond James --- 54.1 --- -0.6%
RBC Capital Markets --- 52.0 --- ---
RBS Securities Inc. --- 53.2 --- ---
Scotia Capital 10 52.0 --- ---
Societe Generale --- 52.5 --- ---
Standard Chartered -10 51.5 --- ---
State Street Global Markets 0 52.6 56.2 -0.4%
Stone & McCarthy Research --- 51.9 --- -0.4%
TD Securities 5 52.1 57.0 -0.3%
Thomson Reuters/IFR -35 50.1 --- -0.1%
Tullett Prebon --- 53.8 --- ---
UBS --- 54.0 --- -0.3%
Union Investment 30 54.5 --- ---
University of Maryland 20 55.0 56.0 -0.5%
Wells Fargo & Co. --- 54.8 --- -0.8%
WestLB AG 30 54.0 --- -0.5%
Westpac Banking Co. -20 49.9 --- -1.5%
Woodley Park Research 18 51.5 --- -1.0%
Wrightson ICAP -50 53.5 --- -0.5%
================================================================
South Korea's Trade, Inflation Figures Signal Resilience to Global Risks
South Korea’s exports gained for the tenth straight month in August and consumer prices rose, signaling the economy’s resilience to global risks may prompt the central bank to boost borrowing costs.
Overseas shipments increased 29.6 percent from a year earlier and the trade surplus will be $32 billion for 2010, up from a previous forecast of $20 billion, the Ministry of Knowledge Economy said in Gwacheon today. The rate of growth in consumer prices was unchanged at 2.6 percent for the third consecutive month, according to a separate report.
Exports fueled 7.2 percent second-quarter economic growth in South Korea even as slowdowns in the U.S., Japan and China dimmed the global growth outlook. The Bank of Korea left its benchmark interest rate unchanged at 2.25 percent in August, while indicating it may add to July’s 0.25 percentage-point increase to damp price pressures stoked by the domestic recovery.
“The central bank now has many reasons to move rates again,” said Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul. “I won’t be surprised to see another 25-basis-point hike next week and this won’t be the end of changes for the year.”
The won climbed the most since June 21 after the inflation and export figures were released, advancing 1.2 percent to 1,184.78 per dollar at 3:27 p.m. in Seoul, according to data compiled by Bloomberg. The benchmark Kospi share index jumped 1.3 percent.
Inflation Risk
Consumer prices may rise above 3 percent in the fourth quarter and reach 3.4 percent in 2011, central bank Governor Kim Choong Soo said last week. July’s rate increase “may not be sufficient” and future moves will depend on domestic and global economic developments, he said. Kim and the policy board next meet to decide on the benchmark rate on Sept. 9.
The monetary authority’s inflation target is 2 percent to 4 percent on average through 2012. The government is increasing power and gas prices over August and September, which may push consumer price growth higher up the target range. The tariff gains will add about 0.1 percentage point to inflation, Finance Ministry Director General Yoon Jong Won said on July 30.
“Price pressures are likely to rise later this year, but inflation has been steady over the last few months,” said Brian Jackson, senior emerging markets strategist at Royal Bank of Canada in Hong Kong. “We continue to expect the BoK to increase policy rates by another 50 basis points by the end of the year, but we think they will likely wait until the fourth quarter rather than delivering another rate hike at their meeting next week.”
Export Competitiveness
The won has declined 1.75 percent this year, one of the weakest performers in Asia, boosting the export competitiveness of companies including Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, and Hyundai Motor Co., South Korea’s largest automaker.
Exports will rise 26 percent to $458 billion in 2010, the economy ministry said, with imports gaining 32 percent to $426 billion. The current-account surplus widened to a 16-month high of $5.88 billion in July, previous data showed.
The “weaker currency can help make up for lower global demand,” Kwon Young Sun, an economist at Nomura Holdings Inc. in Hong Kong, said this week. The benchmark rate will rise another 50 basis points to 2.75 percent by year-end unless the global economy falls into a “double-dip recession,” Kwon said.
Asia-Pacific central banks from Taiwan to Thailand, India and Australia have boosted borrowing costs this year, judging price pressures outweighed global risks including cooling economic growth in major economies and Europe’s sovereign-debt crisis.
Australian, Indian Growth
Australia’s economy grew at the fastest pace in three years last quarter, a report showed today, boosting the nation’s currency on speculation interest-rate increases will resume early next year.
India’s economy expanded at the fastest pace in 2 1/2 years, according to data released yesterday, increasing pressure on its central bank to extend the most aggressive round of monetary- policy tightening in Asia.
Economic growth will accelerate to 5.9 percent this year, more than an April projection of 5.2 percent, and cool to 4.5 percent in 2011, the Bank of Korea has said.
Overseas shipments increased 29.6 percent from a year earlier and the trade surplus will be $32 billion for 2010, up from a previous forecast of $20 billion, the Ministry of Knowledge Economy said in Gwacheon today. The rate of growth in consumer prices was unchanged at 2.6 percent for the third consecutive month, according to a separate report.
Exports fueled 7.2 percent second-quarter economic growth in South Korea even as slowdowns in the U.S., Japan and China dimmed the global growth outlook. The Bank of Korea left its benchmark interest rate unchanged at 2.25 percent in August, while indicating it may add to July’s 0.25 percentage-point increase to damp price pressures stoked by the domestic recovery.
“The central bank now has many reasons to move rates again,” said Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul. “I won’t be surprised to see another 25-basis-point hike next week and this won’t be the end of changes for the year.”
The won climbed the most since June 21 after the inflation and export figures were released, advancing 1.2 percent to 1,184.78 per dollar at 3:27 p.m. in Seoul, according to data compiled by Bloomberg. The benchmark Kospi share index jumped 1.3 percent.
Inflation Risk
Consumer prices may rise above 3 percent in the fourth quarter and reach 3.4 percent in 2011, central bank Governor Kim Choong Soo said last week. July’s rate increase “may not be sufficient” and future moves will depend on domestic and global economic developments, he said. Kim and the policy board next meet to decide on the benchmark rate on Sept. 9.
The monetary authority’s inflation target is 2 percent to 4 percent on average through 2012. The government is increasing power and gas prices over August and September, which may push consumer price growth higher up the target range. The tariff gains will add about 0.1 percentage point to inflation, Finance Ministry Director General Yoon Jong Won said on July 30.
“Price pressures are likely to rise later this year, but inflation has been steady over the last few months,” said Brian Jackson, senior emerging markets strategist at Royal Bank of Canada in Hong Kong. “We continue to expect the BoK to increase policy rates by another 50 basis points by the end of the year, but we think they will likely wait until the fourth quarter rather than delivering another rate hike at their meeting next week.”
Export Competitiveness
The won has declined 1.75 percent this year, one of the weakest performers in Asia, boosting the export competitiveness of companies including Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, and Hyundai Motor Co., South Korea’s largest automaker.
Exports will rise 26 percent to $458 billion in 2010, the economy ministry said, with imports gaining 32 percent to $426 billion. The current-account surplus widened to a 16-month high of $5.88 billion in July, previous data showed.
The “weaker currency can help make up for lower global demand,” Kwon Young Sun, an economist at Nomura Holdings Inc. in Hong Kong, said this week. The benchmark rate will rise another 50 basis points to 2.75 percent by year-end unless the global economy falls into a “double-dip recession,” Kwon said.
Asia-Pacific central banks from Taiwan to Thailand, India and Australia have boosted borrowing costs this year, judging price pressures outweighed global risks including cooling economic growth in major economies and Europe’s sovereign-debt crisis.
Australian, Indian Growth
Australia’s economy grew at the fastest pace in three years last quarter, a report showed today, boosting the nation’s currency on speculation interest-rate increases will resume early next year.
India’s economy expanded at the fastest pace in 2 1/2 years, according to data released yesterday, increasing pressure on its central bank to extend the most aggressive round of monetary- policy tightening in Asia.
Economic growth will accelerate to 5.9 percent this year, more than an April projection of 5.2 percent, and cool to 4.5 percent in 2011, the Bank of Korea has said.
Ozawa Pledges Yen Intervention, Futenma Renegotiations in DPJ Campaign
Ichiro Ozawa kicked off his campaign to become Japan’s prime minister with a pledge to intervene in currency markets to weaken the yen from a 15-year high and to renegotiate an agreement to move a U.S. Marine base on Okinawa.
Ozawa would take “every measure” to keep the yen from rising, including intervention, he said in a statement released in Tokyo today. He also vowed to introduce a 2-trillion-yen ($23.7 billion) economic stimulus, more than double that planned by Prime Minister Naoto Kan, the ruling party colleague he is seeking to replace.
“Advocating intervention is one thing; implementing that policy is a different matter altogether,” said Hideo Kumano, a former Bank of Japan official and now chief economist at Dai- Ichi Life Research Institute in Tokyo. “There’s nothing on how he would get international cooperation for such an effort.”
Ozawa’s policy platform for the Sept. 14 Democratic Party of Japan leadership election focuses on issues that contributed to the party’s losses in July’s upper-house election. The winner of that ballot is ensured of being prime minister because the DPJ controls parliament’s lower house.
While polls show the public favor Kan over Ozawa, 68, by a four-to-one margin, the election for DPJ president will be conducted by parliamentary lawmakers, local assembly members and regional officials. The votes of the first group are worth more than twice that of the next two combined.
Futenma Dispute
Ozawa’s pledge to renegotiate an accord with the U.S. to keep the Futenma air base in Okinawa would reopen a dispute that damaged ties with the White House and led to the resignation of Kan’s predecessor, Yukio Hatoyama, in June.
The race raises the possibility of Japan’s sixth prime minister since 2006 and comes as Kan’s administration is focused on alleviating the impact of a strong yen on the export-driven economic recovery. Kan two days ago unveiled a planned 920 billion yen stimulus to boost employment and help businesses threatened by the yen and persistent deflation.
Ozawa, who is under investigation for his role in a campaign-finance scandal, is a former party leader and its top election strategist. Kan met with Ozawa yesterday and declined to promise to give Cabinet or party posts to his supporters.
‘Clean and Open’
“I want to make the DPJ clean and open,” Kan said during a joint press conference with Ozawa today. “Now that Mr. Ozawa seeks the position of DPJ leader and prime minister, he needs to explain more clearly” his role in a case that led to the indictment of three aides for violating campaign financing laws.
Prosecutors have declined to charge Ozawa after a one-year investigation. A civilian panel has recommended indicting him in the case.
Ozawa today pledged to honor the DPJ’s campaign vow to double a monthly childcare allowance to 26,000 yen, which the government dropped in June in the face of concerns over expanding the world’s largest public debt. Kan replied by saying he hopes to gain public understanding given falling public revenue.
Ozawa, who heads the DPJ’s largest faction, is risking divisions in a party that came to power for the first time a year ago. The winner in the ballot is ensured of being prime minister because the DPJ controls the lower house of parliament.
“Kan will be a very weak prime minister even if he wins the race, and it will be very difficult to accomplish anything,” said Yasunori Sone, a political science professor at Tokyo-based Keio University. “Ozawa cannot exercise his leadership either because the public isn’t persuaded by his explanations for the money scandals.”
Ozawa would take “every measure” to keep the yen from rising, including intervention, he said in a statement released in Tokyo today. He also vowed to introduce a 2-trillion-yen ($23.7 billion) economic stimulus, more than double that planned by Prime Minister Naoto Kan, the ruling party colleague he is seeking to replace.
“Advocating intervention is one thing; implementing that policy is a different matter altogether,” said Hideo Kumano, a former Bank of Japan official and now chief economist at Dai- Ichi Life Research Institute in Tokyo. “There’s nothing on how he would get international cooperation for such an effort.”
Ozawa’s policy platform for the Sept. 14 Democratic Party of Japan leadership election focuses on issues that contributed to the party’s losses in July’s upper-house election. The winner of that ballot is ensured of being prime minister because the DPJ controls parliament’s lower house.
While polls show the public favor Kan over Ozawa, 68, by a four-to-one margin, the election for DPJ president will be conducted by parliamentary lawmakers, local assembly members and regional officials. The votes of the first group are worth more than twice that of the next two combined.
Futenma Dispute
Ozawa’s pledge to renegotiate an accord with the U.S. to keep the Futenma air base in Okinawa would reopen a dispute that damaged ties with the White House and led to the resignation of Kan’s predecessor, Yukio Hatoyama, in June.
The race raises the possibility of Japan’s sixth prime minister since 2006 and comes as Kan’s administration is focused on alleviating the impact of a strong yen on the export-driven economic recovery. Kan two days ago unveiled a planned 920 billion yen stimulus to boost employment and help businesses threatened by the yen and persistent deflation.
Ozawa, who is under investigation for his role in a campaign-finance scandal, is a former party leader and its top election strategist. Kan met with Ozawa yesterday and declined to promise to give Cabinet or party posts to his supporters.
‘Clean and Open’
“I want to make the DPJ clean and open,” Kan said during a joint press conference with Ozawa today. “Now that Mr. Ozawa seeks the position of DPJ leader and prime minister, he needs to explain more clearly” his role in a case that led to the indictment of three aides for violating campaign financing laws.
Prosecutors have declined to charge Ozawa after a one-year investigation. A civilian panel has recommended indicting him in the case.
Ozawa today pledged to honor the DPJ’s campaign vow to double a monthly childcare allowance to 26,000 yen, which the government dropped in June in the face of concerns over expanding the world’s largest public debt. Kan replied by saying he hopes to gain public understanding given falling public revenue.
Ozawa, who heads the DPJ’s largest faction, is risking divisions in a party that came to power for the first time a year ago. The winner in the ballot is ensured of being prime minister because the DPJ controls the lower house of parliament.
“Kan will be a very weak prime minister even if he wins the race, and it will be very difficult to accomplish anything,” said Yasunori Sone, a political science professor at Tokyo-based Keio University. “Ozawa cannot exercise his leadership either because the public isn’t persuaded by his explanations for the money scandals.”
Philippines Says Budget Deficit May Narrow Next Year as Growth Accelerates
The Philippines may narrow its budget deficit next year to the smallest since 2008 as economic growth accelerates, Finance Secretary Cesar Purisima said.
The 2011 shortfall may shrink to as little as 226 billion pesos ($5 billion), or 2.5 percent of gross domestic product if the economy expands 7 percent, Purisima told reporters in Manila today. Growth this year may reach or exceed the top-end of the government’s 5 percent-to-6 percent goal, Economic Planning Secretary Cayetano Paderanga said.
The Southeast Asian nation is targeting annual growth of as much as 8 percent starting next year, betting that investments in railways, roads and ports will create jobs and boost trade. The peso may appreciate in the “near term” as the economy expands and remittances sent home by Filipinos overseas buoy spending, central bank Governor Amando Tetangco said today.
“The market is looking beyond this year’s deficit and to a longer-term scenario that the government can deliver on its promise to bring its fiscal house in order,” said Malou Liwag, senior vice president for treasury marketing at Philippine National Bank in Manila. “The targets are credible and achievable,” she said.
The Philippine peso rose 0.5 percent to 45.135 per dollar as of 1:49 p.m. in Manila, climbing by the most in a week. The yield on the 7 percent peso bond due January 2016 fell 2 basis points to 5.46 percent, the lowest level since the notes were first sold last year.
Gross domestic product increased 7.9 percent from a year earlier last quarter, compared with a revised 7.8 percent gain in the three months through March.
The Bureau of Internal Revenue, which accounts for two- thirds of state earnings, may have difficulty meeting its August collection goal and revenue may start recovering in September, Commissioner Kim Henares said. The Bureau of Customs’ August revenue target of 23.5 billion pesos is “a challenge,” Commissioner Angelito Alvarez said.
The 2011 shortfall may shrink to as little as 226 billion pesos ($5 billion), or 2.5 percent of gross domestic product if the economy expands 7 percent, Purisima told reporters in Manila today. Growth this year may reach or exceed the top-end of the government’s 5 percent-to-6 percent goal, Economic Planning Secretary Cayetano Paderanga said.
The Southeast Asian nation is targeting annual growth of as much as 8 percent starting next year, betting that investments in railways, roads and ports will create jobs and boost trade. The peso may appreciate in the “near term” as the economy expands and remittances sent home by Filipinos overseas buoy spending, central bank Governor Amando Tetangco said today.
“The market is looking beyond this year’s deficit and to a longer-term scenario that the government can deliver on its promise to bring its fiscal house in order,” said Malou Liwag, senior vice president for treasury marketing at Philippine National Bank in Manila. “The targets are credible and achievable,” she said.
The Philippine peso rose 0.5 percent to 45.135 per dollar as of 1:49 p.m. in Manila, climbing by the most in a week. The yield on the 7 percent peso bond due January 2016 fell 2 basis points to 5.46 percent, the lowest level since the notes were first sold last year.
Gross domestic product increased 7.9 percent from a year earlier last quarter, compared with a revised 7.8 percent gain in the three months through March.
The Bureau of Internal Revenue, which accounts for two- thirds of state earnings, may have difficulty meeting its August collection goal and revenue may start recovering in September, Commissioner Kim Henares said. The Bureau of Customs’ August revenue target of 23.5 billion pesos is “a challenge,” Commissioner Angelito Alvarez said.
Jewish Gene, Muslim Brain Miss Bundesbank Goal: Matthew Lynn
A Jewish gene? Immigrants who are making Germany dumber? It is hard to imagine what precisely was running through the mind of Bundesbank board member Thilo Sarrazin when he was promoting his new book on what he sees as the decline of the German nation.
Forget any posturing on Sarrazin’s part as some sort of German patriot, or as a defender of the country and its people. One thing is certain: By choosing to write his book, and then by hanging on to his position amid calls for him to step aside, he is trashing the reputation of a proud German institution.
The only intellectually and morally respectable course for him to take now is to resign immediately and to apologize for the embarrassment he has already caused the central bank and its president, Axel Weber. If he doesn’t resign, he should be considered as nothing more than a self-publicizing crank.
When Sarrazin sat down to write his book, whose title translates as “Germany Does Away With Itself,” he must have known his views were inflammatory. He argues that Muslims have more problems assimilating into European societies than other minority groups. Migrants from countries such as Turkey and Morocco depend on the state and are making the country “dumber,” he claims.
To make matters worse, in an interview with the Welt am Sonntag newspaper, Sarrazin was quoted as saying Jews have “a particular gene” that sets them apart.
Smart Enough
Not surprisingly, Sarrazin has run into a storm of publicity. Presumably that was what he planned: He is smart enough to know what kind of reaction his book would stir up. Chancellor Angela Merkel urged the Bundesbank to act, calling Sarrazin’s comments “completely unacceptable.”
Even so, Sarrazin is hanging on to his job, resisting the pressure to quit. Bundesbank President Weber may be keen for him to leave, even though there is little provision to sack Sarrazin under the bank’s rules. In any case, Sarrazin has already done huge damage to the Bundesbank’s reputation.
This isn’t an issue about freedom of speech, though that is how Sarrazin has tried to portray it. It is an issue of respect and responsibility. On both measures, he has failed to live up to the standards that the country has a right to expect from someone appointed to the board of the central bank.
There are no circumstances in which it is acceptable for a German politician or central banker to start discussing a “Jewish gene.” It would be wiser to leave the topic to biologists and geneticists, rather than central bankers.
Sarrazin’s Motives
Given the historical record, there is no justification for any senior German figure to make a comment on the subject. His only motive in raising it was to attract attention.
There is an important debate to be had about how much migration any country needs, and who should be allowed in. A nation such as Germany, with a very low birth rate, is likely to need more people in the decades to come. That raises challenges of making sure the newcomers fit into the existing society. The more honest and open the discussion about that, the better.
It is perfectly legitimate to raise issues about immigration. It is acceptable to discuss how Muslim communities integrate in traditional European societies. There is no need for a politically correct taboo on mentioning the subject.
Yet, none of the points that Sarrazin makes on immigration is particularly original. You can find plenty of books, and lots of websites, where the same arguments are made. You can agree or disagree with them, depending on how compelling you find the points on both sides of the debate.
Sarrazin has been in hot water before. Last October, his responsibilities at the Bundesbank were reduced after he said that most immigrant Turks and Arabs “keep producing more little girls in headscarves.” He later apologized for the comments.
This time he may have gone too far. He has exploited his job title to promote an incendiary book, which has nothing to do with the bank’s mandate. If he resigns, he will show that he still has some respect for the Bundesbank’s standing in German society. That’s what a true patriot would do.
(Matthew Lynn is a Bloomberg News columnist and the author of “Bust,” a forthcoming book on the Greek debt crisis. The opinions expressed are his own.)
Forget any posturing on Sarrazin’s part as some sort of German patriot, or as a defender of the country and its people. One thing is certain: By choosing to write his book, and then by hanging on to his position amid calls for him to step aside, he is trashing the reputation of a proud German institution.
The only intellectually and morally respectable course for him to take now is to resign immediately and to apologize for the embarrassment he has already caused the central bank and its president, Axel Weber. If he doesn’t resign, he should be considered as nothing more than a self-publicizing crank.
When Sarrazin sat down to write his book, whose title translates as “Germany Does Away With Itself,” he must have known his views were inflammatory. He argues that Muslims have more problems assimilating into European societies than other minority groups. Migrants from countries such as Turkey and Morocco depend on the state and are making the country “dumber,” he claims.
To make matters worse, in an interview with the Welt am Sonntag newspaper, Sarrazin was quoted as saying Jews have “a particular gene” that sets them apart.
Smart Enough
Not surprisingly, Sarrazin has run into a storm of publicity. Presumably that was what he planned: He is smart enough to know what kind of reaction his book would stir up. Chancellor Angela Merkel urged the Bundesbank to act, calling Sarrazin’s comments “completely unacceptable.”
Even so, Sarrazin is hanging on to his job, resisting the pressure to quit. Bundesbank President Weber may be keen for him to leave, even though there is little provision to sack Sarrazin under the bank’s rules. In any case, Sarrazin has already done huge damage to the Bundesbank’s reputation.
This isn’t an issue about freedom of speech, though that is how Sarrazin has tried to portray it. It is an issue of respect and responsibility. On both measures, he has failed to live up to the standards that the country has a right to expect from someone appointed to the board of the central bank.
There are no circumstances in which it is acceptable for a German politician or central banker to start discussing a “Jewish gene.” It would be wiser to leave the topic to biologists and geneticists, rather than central bankers.
Sarrazin’s Motives
Given the historical record, there is no justification for any senior German figure to make a comment on the subject. His only motive in raising it was to attract attention.
There is an important debate to be had about how much migration any country needs, and who should be allowed in. A nation such as Germany, with a very low birth rate, is likely to need more people in the decades to come. That raises challenges of making sure the newcomers fit into the existing society. The more honest and open the discussion about that, the better.
It is perfectly legitimate to raise issues about immigration. It is acceptable to discuss how Muslim communities integrate in traditional European societies. There is no need for a politically correct taboo on mentioning the subject.
Yet, none of the points that Sarrazin makes on immigration is particularly original. You can find plenty of books, and lots of websites, where the same arguments are made. You can agree or disagree with them, depending on how compelling you find the points on both sides of the debate.
Sarrazin has been in hot water before. Last October, his responsibilities at the Bundesbank were reduced after he said that most immigrant Turks and Arabs “keep producing more little girls in headscarves.” He later apologized for the comments.
This time he may have gone too far. He has exploited his job title to promote an incendiary book, which has nothing to do with the bank’s mandate. If he resigns, he will show that he still has some respect for the Bundesbank’s standing in German society. That’s what a true patriot would do.
(Matthew Lynn is a Bloomberg News columnist and the author of “Bust,” a forthcoming book on the Greek debt crisis. The opinions expressed are his own.)
Manufacturing Expansion Slows `Marginally' as Exports, New Orders Weaken
India’s manufacturing expansion cooled “marginally” last month as exports and new factory orders weakened, HSBC Holdings Plc and Markit Economics said.
The purchasing managers’ index, run by the two, fell to 57.2 from 57.6 in July, according to an e-mailed statement today. A reading above 50 indicates expansion.
Today’s report highlights the Reserve Bank of India’s concerns about risks to growth from a faltering global recovery even as it tries to slow price gains. Economists expect the central bank to add to its four interest-rate increases this year as inflation stays around 10 percent.
“There is still plenty of fire power to come from industry even though year-on-year growth may not look as stellar as in the recent past,” Frederic Neumann, co-head of Asian economic research at HSBC, said in the statement. “Inflation continues to threaten.”
He expects the RBI to raise rates by a quarter-point at its next monetary policy announcement on Sept. 16.
The index of new factory orders declined to 62 in August from 62.8 in July and exports slipped to 55.5 from 57.4, according to the statement.
By contrast, China’s manufacturing grew at a faster pace last month after the weakest performance since early 2009, a PMI report backed by the government showed today.
Stocks Gain
Stocks in Asia advanced after China’s PMI data offered reassurance that the nation’s moderation in growth isn’t deepening; any steeper slowdown in China would hurt a global recovery already hindered by elevated American unemployment.
The Bombay Stock Exchange’s Sensitive Index gained 0.7 percent at 11 a.m. in Mumbai, while the yield on the benchmark 10-year government bond fell 1 basis point to 7.92 percent. The rupee gained 0.4 percent to 46.90 against the dollar.
India’s manufacturing data comes after the statistics office yesterday reported that the nation’s $1.3 trillion economy expanded 8.8 percent in the three months through June, the fastest pace in 2 1/2 years, indicating consumer demand remains strong in Asia’s third-largest economy.
Reserve Bank Governor Duvvuri Subbarao has undertaken the most aggressive round of rate-increases among Asian central bankers this year, boosting the reverse repurchase rate to 4.5 percent and the repurchase rate to 5.75 percent. Malaysia is second with three moves.
Inflation Pressures
In India, inflation pressures are “coming up sharply” even as the global economy has moved to a state of “less comfort,” central bank Deputy Governor Subir Gokarn said Aug. 25. Balancing the two risks while setting rates is the RBI’s challenge, he said.
Rising demand for cars and bank loans provides evidence of growing consumption in the South Asian nation.
Sales at companies including Maruti Suzuki India Ltd. and Ford Motor Co. climbed 38 percent in July from a year earlier to a record 158,764 vehicles, according to the Society of Indian Automobile Manufacturers.
Bank lending to businesses and individuals grew 20.14 percent in the two weeks to Aug. 13 from a year earlier, which is near the fastest pace since January 2009.
India’s growth may accelerate to 8.5 percent in the 12 months to March 31, the fastest pace in three years, Morgan Stanley economist Chetan Ahya said in a note yesterday, citing a revival in rural demand.
About three-fifths of India’s 1.2 billion people live in the countryside and depend on agriculture for their livelihood.
Adequate rains in the June-September monsoon season, the main source of irrigation in the country, may yield “bumper” harvests, Farm Minister Sharad Pawar said in August. Last year’s rains were the least since 1972.
The central bank said last week that controlling inflation will remain its priority as demand surges.
The purchasing managers’ index, run by the two, fell to 57.2 from 57.6 in July, according to an e-mailed statement today. A reading above 50 indicates expansion.
Today’s report highlights the Reserve Bank of India’s concerns about risks to growth from a faltering global recovery even as it tries to slow price gains. Economists expect the central bank to add to its four interest-rate increases this year as inflation stays around 10 percent.
“There is still plenty of fire power to come from industry even though year-on-year growth may not look as stellar as in the recent past,” Frederic Neumann, co-head of Asian economic research at HSBC, said in the statement. “Inflation continues to threaten.”
He expects the RBI to raise rates by a quarter-point at its next monetary policy announcement on Sept. 16.
The index of new factory orders declined to 62 in August from 62.8 in July and exports slipped to 55.5 from 57.4, according to the statement.
By contrast, China’s manufacturing grew at a faster pace last month after the weakest performance since early 2009, a PMI report backed by the government showed today.
Stocks Gain
Stocks in Asia advanced after China’s PMI data offered reassurance that the nation’s moderation in growth isn’t deepening; any steeper slowdown in China would hurt a global recovery already hindered by elevated American unemployment.
The Bombay Stock Exchange’s Sensitive Index gained 0.7 percent at 11 a.m. in Mumbai, while the yield on the benchmark 10-year government bond fell 1 basis point to 7.92 percent. The rupee gained 0.4 percent to 46.90 against the dollar.
India’s manufacturing data comes after the statistics office yesterday reported that the nation’s $1.3 trillion economy expanded 8.8 percent in the three months through June, the fastest pace in 2 1/2 years, indicating consumer demand remains strong in Asia’s third-largest economy.
Reserve Bank Governor Duvvuri Subbarao has undertaken the most aggressive round of rate-increases among Asian central bankers this year, boosting the reverse repurchase rate to 4.5 percent and the repurchase rate to 5.75 percent. Malaysia is second with three moves.
Inflation Pressures
In India, inflation pressures are “coming up sharply” even as the global economy has moved to a state of “less comfort,” central bank Deputy Governor Subir Gokarn said Aug. 25. Balancing the two risks while setting rates is the RBI’s challenge, he said.
Rising demand for cars and bank loans provides evidence of growing consumption in the South Asian nation.
Sales at companies including Maruti Suzuki India Ltd. and Ford Motor Co. climbed 38 percent in July from a year earlier to a record 158,764 vehicles, according to the Society of Indian Automobile Manufacturers.
Bank lending to businesses and individuals grew 20.14 percent in the two weeks to Aug. 13 from a year earlier, which is near the fastest pace since January 2009.
India’s growth may accelerate to 8.5 percent in the 12 months to March 31, the fastest pace in three years, Morgan Stanley economist Chetan Ahya said in a note yesterday, citing a revival in rural demand.
About three-fifths of India’s 1.2 billion people live in the countryside and depend on agriculture for their livelihood.
Adequate rains in the June-September monsoon season, the main source of irrigation in the country, may yield “bumper” harvests, Farm Minister Sharad Pawar said in August. Last year’s rains were the least since 1972.
The central bank said last week that controlling inflation will remain its priority as demand surges.
Toyota Prius May Lead Japan Car Sale Collapse as Subsidies End
The Prius hybrid has spearheaded sales growth for Toyota Motor Corp. in Japan for more than a year, helped by government subsidies. The model will likely bear the brunt of plunging demand as the support ends.
“A collapse in sales is unavoidable,” said Hiromi Inoue, the new-car sales chief for Tokyo Toyopet Motor Sales Co. “The daily pace of orders for the Prius is already dropping. We are bracing ourselves for the coming crisis.”
The number of customers signing up to buy a Prius at Tokyo Toyopet’s 66 showrooms has dropped to about eight a day from 20 in June, Inoue said. Industrywide, car sales in Japan are expected to plunge 23 percent in the six months beginning in October from a year earlier, according to the Japan Automobile Dealers Association.
Demand for the Prius surged after the third-generation model went on sale in May 2009 and the government introduced the incentive plan a month later. Under the program, consumers can apply for a 250,000 yen ($2,963) subsidy if they scrap a car more than 13 years old to buy a more fuel- efficient one, or 100,000 yen for a new car bought without scrapping the older one.
Dealer Incentives
In the six months through June, Prius deliveries more than tripled to 170,426 and made up 20 percent of Toyota’s total domestic sales. Prius orders are already slumping because a backlog means cars bought now won’t be delivered in time to receive the handouts, Inoue said. Other Toyota models have quicker delivery periods and should still qualify, he said.
“Toyota dealers will likely try to minimize the sales drop with their own incentives,” said Yoshiaki Kawano, a Tokyo-based analyst at consulting company IHS Automotive.
Toyota fell 2.4 percent to close at 2,860 yen in Tokyo. The carmaker, based in Toyota City, Japan, has declined 26 percent this year, compared with the benchmark Nikkei 225 Stock Average’s 16 percent drop.
The fallout when subsidy programs ended in Germany and the U.S. may signal what lies ahead for Japan’s automakers.
In Germany, incentives totaling 5 billion euros ($6.4 billion) for buyers of new vehicles who turned in old ones boosted sales 23 percent last year, according to the VDA auto industry association. Without further subsidies, new car registrations in the country slumped 29 percent in the first seven months of 2010, according to the association.
U.S. Rebates
The U.S. government offered $2.88 billion in rebates last year for the replacement of vehicles for buyers who traded in older cars and trucks for more fuel-efficient models, yielding almost 700,000 sales, of which Toyota accounted for more than 19 percent.
Toyota’s U.S. sales fell 3.2 percent to 169,224 vehicles, and Prius sales dropped 26 percent to 14,102, last month compared with a year earlier, when the model benefited from the nation’s “cash for clunkers” program. Gasoline prices have also stabilized, pushing demand back to larger vehicles, said Jessica Caldwell, director of industry analysis for Edmunds.com in Santa Monica, California.
Toyota’s sales drop in Japan may be partially offset by the introduction in December of an updated Vitz compact, Japan’s third-most popular standard car for the first six months of the year, IHS Automotive’s Kawano said.
Corporate Demand
Japan sales of the Prius surged even as Toyota suffered its greatest vehicle-recall crisis. Few orders were canceled even after Toyota recalled 223,000 hybrid cars in Japan on Feb. 9 to fix brake systems, said Takeshi Fushimi, director of the auto dealers association.
In place of the subsidy, Toyota dealers will likely offer their own discounts using cash saved from money allocated for recall-related repairs, said Koji Endo, an auto analyst at Advanced Research Japan in Tokyo.
While Toyota gave dealers about 20,000 yen for each recalled Prius, the actual repair costs didn’t reach half that amount, Endo said.
Tokyo Toyopet, the city’s largest Toyota dealer group, is providing discounts worth about 50,000 yen for options such as high-performance lights and roof antennas, he said. Demand from corporate clients, which make up almost 40 percent of Tokyo Toyopet’s sales, may also help stem the drop, he said.
Honda, Nissan
Discounts on sticker prices “can become like drugs,” Inoue said. “So we don’t have a policy of offering them.”
Still, some customers have already managed to snag deals. Chieko Kameda, who ordered her Prius June 26, said her dealer in Mita, central Tokyo, gave her a discount of almost 100,000 yen if she agreed to place an order that day. Her dealer informed her that by the time her Prius is delivered in September, money for the subsidy program may have run out, Kameda said.
Rivals also face declines from October. Honda Motor Co.’s Japan sales may drop 21 percent to 290,000 in the fiscal second half from 367,718 a year earlier, the Tokyo- based carmaker’s Executive Vice President Koichi Kondo said July 30.
Nissan Motor Co.’s drop may be limited to 1 percent as the Yokohama-based company plans to introduce a new Serena minivan in September and has already introduced a new March compact and Juke compact crossover, Kawano said. A new Elgrand minivan also hit showrooms Aug. 18.
Nissan’s Japan market share will rise to 14 percent in the fiscal second half from 13 percent a year earlier, while Toyota’s share will fall to 27 percent from 33 percent, Kawano said. Minicar makers such as Suzuki Motor Corp. and Daihatsu Motor Co. will also gain since subsidies for their models were less than for standard cars, he said.
Electric, hybrid, natural-gas and some diesel vehicles will still qualify for an exemption from the country’s weight and purchase taxes, and other fuel-efficient models will be given tax breaks.
“We’ll remind customers of the reduced taxes,” Inoue said.
“A collapse in sales is unavoidable,” said Hiromi Inoue, the new-car sales chief for Tokyo Toyopet Motor Sales Co. “The daily pace of orders for the Prius is already dropping. We are bracing ourselves for the coming crisis.”
The number of customers signing up to buy a Prius at Tokyo Toyopet’s 66 showrooms has dropped to about eight a day from 20 in June, Inoue said. Industrywide, car sales in Japan are expected to plunge 23 percent in the six months beginning in October from a year earlier, according to the Japan Automobile Dealers Association.
Demand for the Prius surged after the third-generation model went on sale in May 2009 and the government introduced the incentive plan a month later. Under the program, consumers can apply for a 250,000 yen ($2,963) subsidy if they scrap a car more than 13 years old to buy a more fuel- efficient one, or 100,000 yen for a new car bought without scrapping the older one.
Dealer Incentives
In the six months through June, Prius deliveries more than tripled to 170,426 and made up 20 percent of Toyota’s total domestic sales. Prius orders are already slumping because a backlog means cars bought now won’t be delivered in time to receive the handouts, Inoue said. Other Toyota models have quicker delivery periods and should still qualify, he said.
“Toyota dealers will likely try to minimize the sales drop with their own incentives,” said Yoshiaki Kawano, a Tokyo-based analyst at consulting company IHS Automotive.
Toyota fell 2.4 percent to close at 2,860 yen in Tokyo. The carmaker, based in Toyota City, Japan, has declined 26 percent this year, compared with the benchmark Nikkei 225 Stock Average’s 16 percent drop.
The fallout when subsidy programs ended in Germany and the U.S. may signal what lies ahead for Japan’s automakers.
In Germany, incentives totaling 5 billion euros ($6.4 billion) for buyers of new vehicles who turned in old ones boosted sales 23 percent last year, according to the VDA auto industry association. Without further subsidies, new car registrations in the country slumped 29 percent in the first seven months of 2010, according to the association.
U.S. Rebates
The U.S. government offered $2.88 billion in rebates last year for the replacement of vehicles for buyers who traded in older cars and trucks for more fuel-efficient models, yielding almost 700,000 sales, of which Toyota accounted for more than 19 percent.
Toyota’s U.S. sales fell 3.2 percent to 169,224 vehicles, and Prius sales dropped 26 percent to 14,102, last month compared with a year earlier, when the model benefited from the nation’s “cash for clunkers” program. Gasoline prices have also stabilized, pushing demand back to larger vehicles, said Jessica Caldwell, director of industry analysis for Edmunds.com in Santa Monica, California.
Toyota’s sales drop in Japan may be partially offset by the introduction in December of an updated Vitz compact, Japan’s third-most popular standard car for the first six months of the year, IHS Automotive’s Kawano said.
Corporate Demand
Japan sales of the Prius surged even as Toyota suffered its greatest vehicle-recall crisis. Few orders were canceled even after Toyota recalled 223,000 hybrid cars in Japan on Feb. 9 to fix brake systems, said Takeshi Fushimi, director of the auto dealers association.
In place of the subsidy, Toyota dealers will likely offer their own discounts using cash saved from money allocated for recall-related repairs, said Koji Endo, an auto analyst at Advanced Research Japan in Tokyo.
While Toyota gave dealers about 20,000 yen for each recalled Prius, the actual repair costs didn’t reach half that amount, Endo said.
Tokyo Toyopet, the city’s largest Toyota dealer group, is providing discounts worth about 50,000 yen for options such as high-performance lights and roof antennas, he said. Demand from corporate clients, which make up almost 40 percent of Tokyo Toyopet’s sales, may also help stem the drop, he said.
Honda, Nissan
Discounts on sticker prices “can become like drugs,” Inoue said. “So we don’t have a policy of offering them.”
Still, some customers have already managed to snag deals. Chieko Kameda, who ordered her Prius June 26, said her dealer in Mita, central Tokyo, gave her a discount of almost 100,000 yen if she agreed to place an order that day. Her dealer informed her that by the time her Prius is delivered in September, money for the subsidy program may have run out, Kameda said.
Rivals also face declines from October. Honda Motor Co.’s Japan sales may drop 21 percent to 290,000 in the fiscal second half from 367,718 a year earlier, the Tokyo- based carmaker’s Executive Vice President Koichi Kondo said July 30.
Nissan Motor Co.’s drop may be limited to 1 percent as the Yokohama-based company plans to introduce a new Serena minivan in September and has already introduced a new March compact and Juke compact crossover, Kawano said. A new Elgrand minivan also hit showrooms Aug. 18.
Nissan’s Japan market share will rise to 14 percent in the fiscal second half from 13 percent a year earlier, while Toyota’s share will fall to 27 percent from 33 percent, Kawano said. Minicar makers such as Suzuki Motor Corp. and Daihatsu Motor Co. will also gain since subsidies for their models were less than for standard cars, he said.
Electric, hybrid, natural-gas and some diesel vehicles will still qualify for an exemption from the country’s weight and purchase taxes, and other fuel-efficient models will be given tax breaks.
“We’ll remind customers of the reduced taxes,” Inoue said.
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