NEWS,09.08.2012

China's inflation slows to 1.8% low

Chinese inflation hit a two-and-a-half-year low in July, official data showed on Thursday, giving the government further policy leeway to boost weakening growth. The country's consumer price index (CPI) rose 1.8% year-on-year (y/y) last month, the National Bureau of Statistics said, the fourth straight month of y/y easing and the lowest level since January 2010.The slowdown potentially gives authorities more ammunition to light a fire under the world's second-largest economy, which grew 7.6% in the second quarter for its worst performance since the height of the global economic crisis in 2008-2009.Authorities this year have taken measures including the rare step of slashing interest rates twice in quick succession while also lowering requirements for how much money banks must keep in reserve.Chinese leaders, including Premier Wen Jiabao, have expressed concern over the weakness in the economy and have hinted that the government may need to take further action to bolster growth.Sun Junwei, China economist at HSBC in Beijing, said the figure was in line with expectations and confirmed that inflation overall is trending downward."In general, China's inflation will likely be moderate and controllable in the future, which offers room for China to further loosen its (monetary) policy," she said.Sun added that if other economic data due out later on Thursday comes in worse than expected there could be a further cut in interest rates or bank reserve requirement ratios in August.China is scheduled to announce July figures in industrial production, fixed asset investment and retail sales later Thursday.Helping suppress the overall consumer price index was a decline of 0.9% in prices for transportation and telecommunications, according to the data.Inflation for the first seven months of 2012, meanwhile, was 3.1%, the bureau said."Inflation continues to peel off rapidly, highlighting an output gap that the government is trying to plug with rising state investment," economists at IHS Global Insight said in a report after the release of the July data.Producer price inflation (PPI), a leading indicator, declined 2.9% in July from the same month last year for the fifth straight month of contraction.Producer prices "continue to highlight the severe deflationary pressure rippling across the country", IHS Global Insight said, noting that "deflation, not inflation, is the greatest short-term threat to the Chinese economy".

Eurozone GDP to fall by 0.3% this year

The eurozone economy will contract by 0.3% in 2012 before recovering more slowly than expected next year to expand by 0.6%, a poll conducted by the European Central Bank (ECB) revealed on Thursday. The data came from the Survey of Professional Forecasters which the ECB carries out on a quarterly basis. It was published in the Frankfurt-based bank's monthly bulletin.The previous SPF survey predicted a 0.2% contraction for eurozone gross domestic product (GDP) this year and a 1% expansion in 2013.Recession-inducing austerity measures in some euro countries and "higher uncertainty" over the resolution of the single currency's debt crisis were "the main factors behind the downward revisions," the ECB said.Forecasters also said that eurozone unemployment would stay at its current high of 11.2% throughout 2012 and increase to 11.4% in 2013. Inflation was projected to fall from 2.3% to 1.7% over the same period.The ECB said it expected "weak" economic activity both in the second and third quarter of 2012 and only a "very" gradual recovery afterwards. "Risks surrounding the economic outlook for the euro area continue to be on the downside," it noted.The European Union statistical office, Eurostat, is to publish GDP figures for the second quarter of the year on Tuesday.

India's shock fall in industrial output

India's industrial production contracted by a shock 1.8% from a year earlier in June, as manufacturing output shrank in Asia's third-largest economy, official figures showed on Thursday, The data underscored the massive job ahead for India's new pro-market finance minister, P. Chidamabaram, who pledged this week to "restart the growth engine" of India's sharply slowing economy.Manufacturing output, which accounts for three-quarters of the index of industrial production, fell 3.2% from a year earlier in June, according to the government data.Manufacturing has been undermined by high interest rates to combat stubbornly high inflation, falling business confidence and Europe's debt crisis which has hit exports.The 1.8% shrinkage in output by factories, mines and utilities in June was the third contraction in four months and followed a revised 2.5% production rise in May.The industrial output reading was far below analysts' expectations, which were for an increase of 0.80%, according to a Dow Jones Newswires poll.The weak performance is likely to pile pressure on the central bank to ease interest rates to spur growth.The bank has said it wants inflation to come down before cutting borrowing costs, but Chidambaram has already indicated he wants lower rates, saying "sometimes it is necessary to take carefully calibrated risks".The weak numbers come as the left-leaning Congress-led government is under pressure over a string of graft scandals and its attempts to liberalise the still inward-looking economy to spur growth have led to gridlock in parliament.India's once-booming economy grew just 5.3% between January and March, its slowest annual quarterly expansion in nine years.Capital goods output, an important investment indicator, slid 27.9% in June from a year earlier.Goldman Sachs economist Tushar Poddar, who recently pared his full fiscal year growth forecast to 5.7% in contrast to the central bank's expectation of 6.5% expansion, saw more tough times ahead."Weak monsoons are also likely to impact rural consumption demand and exacerbate weakness in investment demand," Poddar said ahead of the data.Citibank has said if a nationwide drought is declared, which would be the country's third in a decade, growth could be as low as 4.9% as hundreds of millions of farmers depend on the annual rains for their income.

NEWS,16.06.2012

Greece election 'euro versus drachma'

 

Conservative leader Antonis Samaras has told Greeks they face a stark choice between staying in the euro or a "nightmare" return to the drachma in an election that threatens to send shockwaves through the single currency.Samaras's New Democracy party is neck and neck with the radical leftist SYRIZA going into Sunday's pivotal vote, with SYRIZA leader Alexis Tsipras threatening to tear up the punishing terms of the 130 billion euro bailout that is keeping Greece from bankruptcy.Addressing supporters at his final campaign rally, Samaras pledged again to renegotiate the bailout's punishing terms in order to promote growth and jobs, but said that to go head to head with the country's European partners would mean the end of Greece's euro membership."We are going into an election to decide the future of Greece and of our children," Samaras, 61, told the crowd of several thousand waving Greek and EU flags in the capital's central Syntagma square."The first choice the Greek people must make is: euro versus drachma.""There are some outside Greece who want the country to be the black sheep and push it out of the euro. We will not please them," Samaras said, in a speech laced with the anti-immigrant rhetoric on the rise in Greece as the economy flounders.Neither party is expected to win outright, and negotiations will follow to create a pro- or anti-bailout coalition government.Nightmare Euro zone officials have hinted they might give a new Greek government some leeway on how it reaches debt targets set by the EU/IMF bailout package, but there would be no change to the targets themselves.Greece's lenders say they will turn off the taps if the country rejects the bailout. Tsipras says Europe is bluffing - it cannot afford to cut Greece loose and risk the contagion for the much larger economies of Spain and Italy, he argues.Greeks say overwhelmingly that they do not want to leave the euro, but neither do they want the pension, job and wage cuts arising from the bailout which have helped condemn the country to five years of record-breaking recession."I'm optimistic because I hope people will think as Greeks when they vote and not give in to anger," 61-year-old pensioner Anthi Zoitou said during Friday's rally."I voted for another party ... in the previous election," said 32-year-old economist Antonis Kargas, "but will vote for New Democracy now. The dilemma facing Greece is whether it holds onto its European prospects."Sunday's vote is a re-run of a May 6 election that produced stalemate.Tsipras has rejected forming a government of national unity, but Samaras said the country could not afford a third election."We cannot withstand it," he said. "We are in favour of renegotiating (the bailout) for jobs and to remain in the euro; this is what the Greek people want.""Should young people have opportunities to work or will we allow today's incredible unemployment to become a nightmare?"

Investors seek shelter before Greek vote

Traders and investors are taking all bets off the table before this weekend’s Greek elections, which may decide whether Athens stays in the eurozone. Greece votes on Sunday in a second attempt to choose a government that will decide whether to back the terms of its international bailout. G20 officials say central banks are ready to act to calm markets if needed. But investors are not taking any chances. “People are just totally hands off, they don’t want to know. Why would anyone want to deal this side of the weekend?” said Steve Larkins, head of sales trading at Seymour Pierce. “With the Greek elections coming up, Monday morning could be a disaster for someone taking a big bet over the weekend.” Hedge funds, typically among the most aggressive market players, are also wary, taking on only 10%-30% of their maximum permitted bets on risky assets, said Gerry Fowler, global head of equity and derivative strategy at BNP Paribas. “There are so many risks that just can’t be modelled... it really creates a market where no one can do anything with conviction and it’s a matter of wait and see,” he said. Global fund managers’ cash balances have jumped to 5.3% this month, their third-highest level on record, according to a Bank of America Merrill Lynch survey. Equities investors have been reluctant to roll over, or replace, options contracts which expire on Friday, as they opt for neutral positions. Some 1.4 million futures contracts on Euro STOXX 50 index of eurozone blue chips are yet to be rolled over, according to Eurex data. Shake out The shaking out of positions has led to high volumes. Monday was the Euro STOXX 50 index’s most active day of 2012 and this has been one of the year’s most active weeks. In currency markets, the euro has rallied versus the dollar  - arguably a counter-intuitive move given the eurozone crisis. Traders say the rebound has been driven by investors’ desire to unwind the large number of net short bets built up in the single currency. “As far as the euro/dollar is concerned, I am going square into the Greek elections. I have a feeling, either way, things will drag on for a while and that gives us enough reaction time,” Stuart Frost, head of Absolute Returns and Currency at fund manager RWC Partners. Position squaring was a factors behind a selloff this week in safe haven German government debt, which had been a favourite place for investors to sit out the crisis, even if that meant paying Berlin for the privilege. “Positioning is pretty square,” said one London-based bond trader. “People might still be a little bit long in longer-dated bonds but that’s probably because they haven’t been able to get out... A lot of bets have come off the table.” Another trader said the moves in the Bund futures signalled “that a lot of desks are either taking less risks themselves or have been told (to) stop taking risk until after the election”. Most sellers of insurance against a default on Greek government debt, known as credit default swaps (CDS), declined to quote before the weekend, dealers said. “I’d be surprised if anyone would want to dive in before the election with (Greek) bonds trading at 10 cents on the euro. "If we get some stability with the election then we’d expect trading to pick up again,” said one head of European credit trading at a major US bank. Ready for rollercoaster Investor nervousness is evident in the big gap between actual volatility on the Euro STOXX 50, which has fallen to two-month lows below 20, and the implied volatility as measured by the VSTOXX which has stayed stubbornly high around 32. “The spread between realised and implied volatility has gone up in a way that would explain the market is pricing in some Greek weekend risk,” said Abhinandan Deb, European head of equity derivatives research at Bank of America Merrill Lynch. Implied volatility reflects options pricing and is a measure of expected price swings. In the currency market, one-week implied volatilities have jumped to around 15.40%, the highest in six months and almost double the level of realised volatility. “Expect a rollercoaster in the markets,” said Stefan Angele, head of investment management, Swiss & Global Asset Management, although he advised keeping some positions, such as an "underweight" stance on the financial sector. With so much nervousness and so much money off the table, the markets could be poised for wild swings come Monday morning. “There is a gigantic number of shorts in euro/dollar so any headline that comes out over the weekend that indicates that Europe is safe will create the scope for a massive squeeze up on Monday,” said Jeremy Batstone-Carr, director of private client research investment strategy at Charles Stanley.