Asia Trades Higher With The Exception of Japan & Australia
By Patrick Rial and Shani Raja
Sept. 11 (Bloomberg) — Asian stocks rose and the MSCI Asia Pacific Index had its biggest weekly advance since July after Chinese economic data beat economist estimates. Japanese shares dropped on a worse-than-expected economic growth report.
Poly Real Estate Group Co., China’s second-largest developer by market value, advanced 3.7 percent in Shanghai after government reports showed industrial production and investment growth accelerated. Cnooc Ltd., China’s third-biggest oil company, rose 2.2 percent in Hong Kong as crude oil rose to the highest in more than a week. Dentsu Inc., Japan’s largest advertising agency, dropped 2.7 percent after the government revised economic growth figures lower and the yen strengthened.
The MSCI Asia Pacific Index added 0.4 percent to 117.59 as of 7:14 p.m. in Tokyo. It advanced 4.2 percent in the past five days, the most since the week ended July 24. The gauge has surged 60 percent in the past six months as economies recovered from the first global recession since World War II.
“There’s a lot of expectation priced in after the recent rally,” said Matt Riordan, who helps manage about $4.1 billion at Paradice Investment Management in Sydney. “Still, the economic data globally and earnings have tended to surprise on the upside.”
China’s Shanghai Composite Index rose 2.2 percent, while Hong Kong’s Hang Seng Index added 0.4 percent as Chinese industrial production climbed 12.3 percent in August from a year earlier. Japan’s Nikkei 225 Stock Average lost 0.7 percent while the Topix dropped 0.8 percent, the only key indexes in Asia to drop. Singapore’s Straits Times Index was little changed…..
By Sarah Jones
Sept. 11 (Bloomberg) — European and Asian stocks rose, sending the MSCI World Index higher for a seventh day, as Chinese economic data that exceeded estimates and increased forecasts for oil demand bolstered the earnings outlook for commodity producers.
BG Group Plc, Repsol YPF SA and BHP Billiton Ltd. climbed more than 1.5 percent as crude traded above $71 barrel in New York and reports showed industrial production and investment growth in China accelerated. Air France-KLM Group surged 6.9 percent after a report the airline is planning to restructure its cargo activities. Fiat SpA climbed 4.8 percent as Credit Suisse Group recommended the Italian carmaker.
The MSCI World of 23 developed countries gained 0.3 percent at 11:07 a.m. in London, while Europe’s Dow Jones Stoxx 600 Index added 0.6 percent. The regional gauge has climbed 3.5 percent this week, the biggest advance since July. The rally has driven valuations on the index to 46.7 times profit, the highest level since 2003, weekly Bloomberg data show.
“I don’t think the equity rally has to end at the current time,” Stephen Pope, chief global market strategist at Cantor Fitzgerald in London, said in a Bloomberg Television interview. “The economic numbers are looking a lot more healthy. The market still has a lot of scope to move forward.”…..
Oil prices hovered near $72 a barrel Friday as a drop in U.S. crude inventories suggested demand may be picking up and the dollar continued to slump against other currencies, boosting commodities.
By midday in Europe, benchmark crude for October delivery was down 19 cents at $71.75 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, the contract rose 63 cents to settle at $71.94.
Crude has traded between $65 and $75 for a few months as investors struggle to gauge the strength of the global economic recovery.
Evidence of a sustained rebound in crude consumption could trigger a break out of that price range, although many analysts predict oil prices will likely remain near current levels for some time.
“We continue to favor a range rather than a trend,” said Olivier Jakob from Petromatrix in Switzerland.
The Energy Information Administration said Thursday that crude inventories fell by 5.9 million barrels last week, more than three times estimates of analysts surveyed by Platt’s, the energy information arm of McGraw-Hill Cos.
Oil has jumped $4 this week as investors eyed rising stock markets and a slumping U.S. dollar. Some investors buy into commodities such as oil and gold as a hedge against inflation and dollar weakness.
The Dow Jones industrial average rose 0.8 percent Thursday for its fifth day of gains. On Friday, the euro rose to $1.4596 from $1.4574 late Thursday in New York and the British pound rose to $1.6709 from $1.6665, while the dollar slid to 90.90 Japanese yen from 91.74 yen.
The Organization of Petroleum Exporting Countries, which decided to leave output levels unchanged at a meeting Thursday in Vienna, said it was cautious about the outlook for an economic recovery.
“There remains great concern about the magnitude and pace of this recovery,” said OPEC, which pumps about 40 percent of the world’s oil production
In other Nymex trading, gasoline for October delivery fell 0.22 cent to $1.8014 a gallon, and heating oil retreated 0.77 cent to $1.79 a gallon. Natural gas was down 2.1 cents to $3.235 per 1,000 cubic feet.
In London, Brent crude lost 14 cents to $69.72 on the ICE Futures Exchange.
During early deals on Friday, the US dollar plunged to new multi-month lows against its Swiss, European and Japanese counterparts as a stronger than expected Chinese data added to economic recovery hopes, prompting investors to keep shifting funds to riskier and growth-linked currencies and thus reducing demand for the safe-haven greenback.
The dollar dropped to a 1-month low against the British pound, one-year trough versus the New Zealand dollar and a 2-day low versus its Australian and Canadian counterparts.
Roach Puts Odds of Global Relapse to 1 in 3
By Bloomberg News
Sept. 11 (Bloomberg) — Odds of a U.S.-led “relapse” into global recession may be as high as one-in-three if any shock to the world’s biggest economy adds to depressed consumer demand, according to Stephen Roach of Morgan Stanley.
Economies emerging from recession need a “growth cushion” to avoid the possibility of a repeated slump, Roach, chairman of Morgan Stanley Asia, said in an interview in Dalian, China, yesterday, where he was attending a World Economic Forum event.
“The consumer is still dead money, the consumer is not coming back,” Roach said. “I’d put the relapse odds one in four, maybe as high as one in three,” he said, referring to the danger of a renewed global slowdown stemming from a shock to the U.S. economy.
U.S. household incomes decreased in 2008 and the poverty rate rose to the highest since 1997, boosting concern that consumer spending will play a limited role in leading any recovery from the worst recession since the 1930s. Plunging home values and stock prices have fueled a record $13.9 trillion loss in household wealth in the U.S. since the middle of 2007.
The Federal Reserve this week said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, adding anecdotal evidence that the worst U.S. recession in seven decades is over.
The world’s largest economy contracted 1 percent from April through June, according to the Commerce Department. The drop was the fourth in a row, making it the longest contraction since quarterly records began in 1947.
‘Anemic’ Recovery
Roach said that the “anemic” recovery in the U.S. will make the economy more vulnerable to shocks — anything from storms to strikes — that could drag down global economic growth next year. While he didn’t rule out the possibility of a relapse into recession, he said he wasn’t “calling for a double-dip because I’m not calling for a shock.”
“The recovery is going to be so anemic, especially in the U.S., that the economy on an underlying basis is going to be a lot closer to the stall speed than would be the case in a normal V-shaped recovery,” Roach said. “Stall-speed economies are risky economies because if you have one of these shocks out of the blue and you’re barely growing at the stall speed or a little bit faster, you can have a relapse pretty darned quickly.”
Officials from the Group of 20 nations this month expressed caution on the world economic outlook and judged it premature to start unwinding record-low interest rates and about $2 trillion in fiscal stimulus.
U.S. Savers
“Over the next three to five years, given the savings imperatives of the American household sector, I think that the growth rate is going to be cut in half,” Roach said, referring to U.S. consumption. “For export-led economies in China and elsewhere in the region, the biggest source of external demand is going to be growing at best, half the clip.”
Treasury Secretary Timothy Geithner on Sept. 9 said the U.S. savings rate climbed to an average of 5 percent during the second quarter of this year from 1.2 percent at the beginning of 2008.
The U.S. has a “fair chance” of becoming a net saver as households are saving more, Gail Fosler, president of New York- based research group Conference Board, said in a speech in Singapore today.
China’s Industrial Production & Lending Advances
By Bloomberg News
Sept. 11 (Bloomberg) — China’s industrial production rose more than forecast in August, lending unexpectedly climbed and retail sales advanced, indicating growth in the world’s third- biggest economy is likely to accelerate.
Output at the nation’s factories gained 12.3 percent from a year earlier, the most since August 2008, the statistics bureau said in Beijing today. Local-currency new loans were 410.4 billion yuan ($60 billion), up from 355.9 billion yuan in July, the central bank reported.
Chinese shares rose as today’s figures showed that stimulus efforts are more than compensating for a collapse in exports, which dropped further in August. At the same time, faster credit growth may stoke concern about asset-price inflation. Bank of China Ltd. Vice President Zhu Min yesterday warned liquidity may cause “bubbles in commodities, stocks and real estate.”
“Policy stimulus is driving the recovery and China is poised to get more support from exports in coming months,” said Brian Jackson, Hong Kong-based senior strategist for emerging markets at Royal Bank of Canada. “That will give growth an extra push and allow policy makers to ease back on stimulus early next year.”
The Shanghai Composite Index closed 2.2 percent higher, helping pare losses last month that were stoked by concern about a slowdown in new lending from a record $1.1 trillion in the first half. The index is up 64 percent this year….
Japan’s GDP Grew Less Than Expected, But Still Positive @ 2.3%
By Jason Clenfield and Tatsuo Ito
Sept. 11 (Bloomberg) — Japan’s economy unexpectedly grew less than initially estimated in the second quarter as companies cut spending and stockpiles fell.
Gross domestic product expanded at an annual 2.3 percent pace in the three months ended June 30, slower than the 3.7 percent reported last month, the Cabinet Office said today in Tokyo. Economists surveyed by Bloomberg News forecast the figure to be unchanged from the preliminary estimate.
Today’s report shows Japan’s recovery from its deepest postwar recession is even weaker than previously thought, and intensifies pressure on the incoming government, led by Yukio Hatoyama, to resuscitate household demand. With unemployment at a record high and one-third of factory capacity idle, Japanese growth may depend on overseas demand.
“It’s hard to say when the economy will return to where it was before the unprecedented contractions in previous quarters,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “The DPJ will be forced to come up with more specific growth strategies to help the economy.”
The Nikkei 225 Stock Average fell 0.4 percent at the lunch break in Tokyo. The yen traded at 91.41 per dollar from 91.65 before the report was published.
From the previous quarter, the world’s second-largest economy grew 0.6 percent, less than the 0.9 percent the Cabinet Office estimated last month. That compares with a 0.1 percent contraction in Europe and a 0.3 percent drop in the U.S.
In a sign that overseas demand is holding up, reports from China today showed industrial production rose the most since August 2008 and new lending unexpectedly accelerated.
Stockpiles Decline….
Taiwan’s Shares Expect to Rise As They & China Forge a New Relationship of Cooperation
By Weiyi Lim and Veronica Navarro Espinosa
Sept. 11 (Bloomberg) — Taiwan’s stock exchange expects initial share sales to surge for the rest of the year as the island seeks to end six decades of hostility with China.
Taiwan is expected to have 10 to 15 more new listings for the rest of the year, Schive Chi, chairman of the stock exchange, said yesterday at a New York conference. A total of 12 companies have gone public on the Taiwan exchange so far in 2009, according to the island’s bourse.
“The Taiwan Stock Exchange is attractive to investors,” Lawrence Shan, a senior vice president at the exchange, said by phone today. “Our price-earnings ratio is so strong now because of warming relations with China.”
Cross-strait ties reached their warmest in six decades under President Ma Ying-jeou, as his efforts led to the start of direct commercial flights with China, where mainland tourists have made 375,000 trips across the Taiwan Strait. Both sides are also in talks to open up industries ranging from banking to technology.
Taiwan’s benchmark Taiex index is valued at 24.15 times this year’s earnings, the second highest in Asia after Japan, according to data compiled by Bloomberg.
The news listings will come from companies that already trade on other exchanges, Schive added…..
Flu Pandemic Gives Vaccine Makers A Boost
By Julie Steenhuysen – Analysis
CHICAGO (Reuters) – Tiny companies with big ideas for making flu vaccines have captured the attention of investors and governments looking for a quicker way to make a vaccine against the pandemic of swine flu.
But while the vaccine rush has given companies new opportunities for grants and some the chance to test their technologies on people, few will actually have an H1N1 vaccine any time soon, analysts and vaccine experts said on Tuesday.
The World Health Organization forecasts that as much as a third of the world’s population, or 2 billion people, will eventually become infected with the new H1N1 virus, a tempting market for many companies.
“There’s a lot of companies that put out these press releases because they’re looking for investor money,” said Dr. Greg Poland, a vaccine researcher at the Mayo Clinic in Rochester, Minnesota, who tests new vaccines….
Geithner Looks For Less Government Involvement
By Glenn Somerville and David Lawder
WASHINGTON (Reuters) – U.S. Treasury Secretary Timothy Geithner said Thursday a strengthening economy means the government can end some of the extraordinary support it put in place for markets and prepare for a slow recovery.
Appearing before the Congressional Oversight Panel for the $700 billion Troubled Asset Relief Program, Geithner said the economy was in far better shape now than a year ago when it was “on the verge of collapse,” though it still had problems.
“As we enter this new phase, we must begin winding down some of the extraordinary support we put in place for the financial system,” he said. “We are now in a position to evolve our strategy as we move from crisis response to recovery.”
Geithner faced a grilling from the TARP panel members, who wanted to know why taxpayer-provided aid was so available for financial firms but not to other types of businesses. He suggested the decision to aid banks was paying off.
At a later town hall meeting carried by CNBC television, Geithner told questioners that he was confident China will remain a big buyer of U.S. debt securities because it also wants to see the global economy regain its balance.
But he said there must be tighter controls over risk-taking by banks, calling that “a critical part of creating a more effective financial system.” He also said they will include tying executives’ pay more tightly to performance in future.
Geithner said banks that received capital injections have repaid more than $70 billion, reducing the government’s total investment to $180 billion. and estimated another $50 billion will be repaid over the next 12 to 18 months.
STILL A ROCKY ROAD…..
OECD Indicator Points to A Stronger Recovery
PARIS (Reuters) – The economic outlook improved in most countries in the 30-nation OECD area and clear signs of recovery can be seen in the major seven economies, an OECD survey said on Friday.
The Paris-based Organization for Economic Cooperation and Development said its composite leading indicator (CLI) for the OECD-area rose to 97.8 in July from 96.3 in June.
The indicator for the major seven economies rose to 97.5 from 95.9.
The report is in line with other recent data and comments from officials that the outlook for world economy has improved.
“OECD composite leading indicators for July 2009 show stronger signs of recovery in most of the OECD economies,” the report said.
While recovery was expected in most economies, France and Italy were faring better and might expand, it said.
The indicator for Japan rose to 94.9 in July from 93.5 in June and in the United States, it climbed to 96.0 from 94.4.
Britain’s leading indicator rose to 100.6 from 99.3 and the OECD also forecast a recovery.
The CLIs for China, India and Russia all rose.
Brazil’s indicator moved up only slightly, to 97.4 from 97.2 in June and was the only country facing a possible trough.
However, the OECD noted: “The signs from Brazil, where a trough is emerging, are also more encouraging than in last month’s assessment.”
For a link to the full report on the OECD website, please click on: here
A Rising Market Has People Spending Again
The NYT reports that small investors are believing in the stock market, after recently getting clobbered. Of course, if they’re only getting back in now, they’ve missed a ton of the upside.
What’s more interesting, though, is the way the market has a pro-cyclical effect on the broader economy. Even if the benefit is mainly psychological, the rising market has people spending money again:
Daniel Kelhoffer, 67, an investor in Georgia, visited his son in Germany this summer and cruised the lake near his house in his wooden 1959 Chris-Craft motorboat, encouraged by the steady rise in his monthly account statements. Joseph Fredrick, an investor in Cincinnati, exulted that, largely because of his financial adviser, his portfolio had fallen only 12 percent since the market tanked.
In North Carolina, a retired Wachovia executive, Robert Paynter, lost tens of thousands of dollars when his stock options and Wachovia shares hit the skids. In October, he told The New York Times that he felt as if he were witnessing his own death with each plunge of the stock market. This summer, he bought a year-old Corvette convertible. And while he and his wife canceled a trip to Europe, they are contemplating a Mediterranean cruise next year.
“I’m feeling a whole lot better,” he said. “As ugly as it got, I never got to a point where I thought I was going to have to go back to work or miss a meal. I can take a lot bigger hit than I thought I could.”
Will Baltic Dry Index Forecast The Next Leg Down ?
Excellent chart here from the Trader’s Narrative blog. Is the Baltic Dry Index foreshadowing the next leg down in the bear market?
* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.
Some Say We Still Risk Deflation
Despite a 50% rally in equities and the recent surge in gold prices there continue to be little to no signs of inflation in the economy. Consumer credit is still collapsing and banks are still hoarding cash. Perhaps most importantly, the velocity of money actually continues to decline:
SocGen’s Albert Edwards believs the ECRI’s leading indicators are forecasting a drastic and devastating decline in core inflation:
But it is collapsing core inflation that poses the greatest risk to the global economy going forward. We highlighted last week that core CPI inflation descends rapidly, with a lag, after the recession ends. If core US CPI inflation falls by around the 3% shown in the chart below over the next year, that will take the yoy rate to minus 1.5%! Hence the growth in nominal
quantities (e.g. corporate revenues) is set to see disappointing lower highs in this upturn after lower lows. And that, in our view, is just a prelude to a 2010 collapse into outright deflation.
All of this makes you wonder just how real the rally in stocks has been and how much of it has been purely based on government stimulus and the return of confidence – perhaps overconfidence.
Source: SocGen
* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.
Chinese Trade Balance Still Shows Problems
In what should be one of the largest periods for the Chinese exports it is actually one of the worst. This is the peak time for worldwide retaillers to be receiving goods from China for the upcoming holiday shopping season.
Either retailers are waiting for the last minute to determine what (and how much) they will commit money to, or they just don’t see the demand to justify ordering large quantities of goods.
Just released were the figures for August 2009:
(CH) CHINA AUG TRADE BALANCE: $15.7B V $13.6BE ($10.6B PRIOR)
– Exports Y/Y: -23.4% v -19%e (-23% prior)
– Imports Y/Y: -17% v -10.5%e (-15% prior)
