China targets trust firms in shadow-bank crackdown: sources: Thomson Reuters -
HONG KONG (Reuters) - China has issued stricter guidelines governing trust companies, two sources with direct knowledge of the rules told Reuters on Monday, in a bid to counter systemic risks posed by the biggest players in the country’s shadow-banking sector.
Trust companies are non-bank lenders that raise funds by selling high-yielding investments known as wealth management products (WMPs) and use the proceeds to fund loans to risky borrowers such as property developers, local governments and others to whom banks are reluctant to lend.
The new rules from the China Banking Regulatory Commission (CBRC) aim to reduce liquidity risks associated with off-balance-sheet WMPs by forbidding trusts from operating so-called “fund pools” that enable them to fund cash payouts on maturing products with the proceeds from new WMP sales. China’s securities regulator has compared such practice to a “Ponzi scheme”.
Regulators want trusts to strictly match each WMP with a specific set of underlying assets, rather than pooling cash and assets from different products together into common pools.
Trusts face pressure to use fund pools because doing so allows them to offer more attractive yields on the WMPs they sell. Such products typically carry a maturity of a year or less, even as the assets underlying such products are often longer-term loans that can’t be easily sold when the WMP matures and cash is due to investors.
Such risks came to the fore last June, when a nasty liquidity squeeze roiled China’s interbank money market, sending short-term borrowing rates as high as 30 percent. Money-market traders at the time cited the concentration of maturing WMPs as one factor contributing to excess cash demand.
Trust companies and banks often rely on borrowing from money markets to fund payouts on maturing WMPs for a few days until they complete fundraising on new products. - (MSN)
Amid Warnings of Low Inflation, J.P. Morgan says Prices Set to Rise - Real Time Economics - WSJ -
The IMF again sounded the alarm bell at the weekend over low global inflation. But has the worst of anemic price rises already passed the world economy? That, at least, is the view of J.P. Morgan & Chase economists.
In its weekly roundup of global economies, J. P. Morgan said it believed inflation has reached a low point after two-and-a-half years of falling price growth.
The bank noted that global consumer prices grew just 2% on year in February, their slowest pace since late 2009. Slowing growth in emerging markets, notably China, added to sluggish price growth in the U.S. and Europe.
But J.P. Morgan now expects inflation to pick up. There are a few factors at play.
1. Global growth is picking up, with the U.S. economy leading the way. This should “gradually turn the tide away from global disinflation,” the bank said.
2. Agricultural commodity prices are firming this year after a 23% slide from their June 2012 peak. Partly this is due to dry weather, which has hurt global cereal crop output.
3. Japan’s sales-tax increase on April 1 is also likely to add to the uptick in global prices in the short term, the bank said.
That doesn’t mean the specter of disinflation has disappeared. It remains a risk in Europe, where J.P. Morgan noted the central bank has been reluctant to use additional stimulus despite low inflation.The Bank of Japan also is expected to ease further this year as consumer demand fades in the wake of the sales-tax hike. Asia’s poor exports performance, and concerns over Chinese growth, add to the worries. - (WSJ)
China's ADIZ defends regional stability: Global Times -
China’s controversial air defense identification zone (ADIZ) in the East China Sea is an important strategic move to improve national defense and regional stability, according to a commentary published Monday in the Global Times, a tabloid under the auspices of the Communist Party mouthpiece People’s Daily…
…The nationalistic Global Times, however, has hit back at the criticism by claiming that the biggest threat to stability in the East China Sea is not the ADIZ, but rather the military bases the United States has been setting up all over the region and particularly in areas surrounding China.
The commentary says the US military has situated itself at the edges of China’s airspace and can use its AGM-86 subsonic air-launched cruise missile to strike China’s economic heartland, the part of the country stretching from northeast Heilongjiang province to southwest Yunnan province. This territory represents 36% of China’s land mass but accounts for 94% of the country’s population.
The Global Times commentary defended China’s new ADIZ on the basis that it is a tactic employed by more and more countries to improve their air defense position through extrapolating the range of enemy air raids and securing more valuable air defense warning time.
Further, the ADIZ also strengthen’s China’s ability to limit America and Japan’s aerial reconnaissance, Global Times said. Currently, US and Japanese drones have a radar imaging distance of about 200km and can conduct reconnaissance missions as far as China’s eastern inland provinces of Anhui and Jiangxi. But with the introduction of the ADIZ, China’s southeast coast is not within range for the drones.
The paper also accused US defense secretary Chuck Hagel of employing double standards when he slammed China for establishing the ADIZ with “no collaboration, no consultation” during his visit to Beijing last week. Japan had previously expanded its own ADIZ on two previous occasions, including as far as the vicinity of Taiwan’s territorial waters, but the US simply chose to remain silent, Global Times said.
Far from causing “misunderstandings” as Hagel had suggested, China’s ADIZ actually benefits the maintenance and promotion of national interests of countries in the East China Sea and improves regional stability, the commentary concluded. - (Want China Times)
'Phantom' protects marine resources -
The patrol vessel Hakuo Maru is being dubbed the ‘phantom’ or ‘death’ ship by Chinese and South Korean fishermen for its tendency to suddenly appear when they are violating Japan’s …
Fed dropped jobless target in secret meeting - The Fed - MarketWatch
Two largest economies:
Germany’s service sector grows at weakest pace in 5 months.
Meanwhile France’s service field went back into expansion territory.
Overall a bullish shade to the data, since after all there is growth, but it remains choppy and uneven…though not in the usual scenario (Germany doing better / France struggling).
China services activity ticks up in March: HSBC PMI -
(Reuters) - Activity in China’s services industry rose to a four-month high in March, a private survey showed on Thursday, even as persistent weakness in manufacturing has reinforced fears of a sharper-than-expected economic slowdown.
The Markit/HSBC Services Purchasing Managers’ Index (PMI) increased to 51.9 in March from February’s 51.0, buoyed by strong employment, a second successive rise taking it further above the 50 level that separates expansion from contraction.
"The HSBC ChinaServices PMI suggests a modest improvement ofbusinessactivities in March, with employment expanding at a faster pace,” HSBC chief China economist Hongbin Qu said in a statement accompanying the release.
On Wednesday, China’s cabinet said it would accelerate constructionof rail projects and cut taxes for small firms, in what appear to be the first steps it has taken this year to steady theeconomy.
The Markit/HSBC PMI found that service-sector firms remained very optimistic in March, generally expecting businessactivity to be higher than current levels in one year.
Services made up 46.1 percent of gross domestic product in 2013, having overtaken manufacturing as China’s biggest employer in 2011. It has weathered the global slowdown much better than the factory sector. - (Reuters)
This data, in addition to firmer energy consumption numbers in February, imply that the China is not crashing and is cause for optimism.
The Spider-Infested Mazdas Are Back -
Mazda is recalling 42,000 vehicles to check for yellow-sac spiders that block fuel lines and bite people.
While a spider-infested car does seem problematic, the creepy factor isn’t the impetus for the recall. Attracted to the fuel, the spiders get into and block the fuel line, pressure builds, the tank starts leaking, and the gas catches on fire. In short, a bunch of baby spiders may literally blow up your Mazda. The company is recalling 42,000 vehicles to check for insects—all Mazda6 sedans built from 2009 to 2011—and this isn’t even the first time this problem has surfaced. After a 2011 recall of 52,000 vehicles, Mazda installed a special spider-blocking spring, but the little eight-eyed gas huffers found a way around it. Spiders 2, Mazda engineers 0. — (Bloomberg)
This is pretty ridiculous and gave me a good laugh.
UPDATE 2-Brazil raises key interest rate to two-year high -
Reported Apr 2. (Reuters) - Brazil raised interest rates for the ninth straight time on Wednesday, prolonging one of the world’s longest-running monetary tightening cycles after a surge in food prices stoked already high inflation in an election year.
Although another rate hike in May has not been ruled out, the statement signaled that the bank would be very sensitive to upcoming economic and inflation indicators to decide whether to continue raising borrowing costs or end the cycle.
Many analysts have said the bank could very well end the tightening cycle in May to avoid hampering the growth of an economy that has been stuck in a rut for the last three years.
The central bank will have to find the right balance that allows it to ease inflation and avoid further slowing growth as President Dilma Rousseff prepares to run for re-election in October.
Another inflation bout caused by a rise in food prices as a severe drought hit crops in southeastern Brazil has threatened to push inflation above the ceiling of the official target range of between 2.5 and 6.5 percent. - (Reuters)
Brazil February Industry Output Rises Second Straight Month -
Brazil’s industrial production in February rose for the second straight month, as the central bank continues to boost rates to combat above-target inflation in the world’s second-biggest emerging market.
A third straight month of growth would turn “the outlook for the rest of the year suddenly a lot brighter,” said Daniel Snowden, emerging marketsanalyst at Informa Global Markets, by phone from London. “It’s good we had another positive month, and the year-on-year pace of 5 percent is something we hadn’t seen for a long time.”
“We had a disastrous end to 2013 for industry, and a strong start to 2014,”Neil Shearing, chief emerging markets economist at Capital Economics, said by phone from London. “But the strong start only reversed last year’s fall. It doesn’t look like very strong growth, but by the same token things aren’t collapsing.” - (Bloomberg)
Neil Shearing’s comment sounds about right.
US Auto Sales Accelerated on the Drive Thru March -
April 1, 2014U.S. auto sales went out like a lion in March.
Automakers said Tuesday that new car and truck sales picked up speed halfway through the month, culminating in a strong final weekend. Toyota dealers had their two best sales weekends of the year at the end of the month, the company said.
"We’re optimistic that momentum will spring us into April," said Bill Fay, who manages the Toyota division in the U.S. - (ABC News)
This was certainly a bullish print and gives solid footing to the bullish “weather induced crappy economic data” thesis.
Euro zone unemployment rate stable in February| Reuters -
Reported Apr 1st
(Reuters) - Unemployment in the euro zone declined slightly in February, although the rate remained at 11.9 percent after downward revisions of the past few months, the European statistics office Eurostat said on Tuesday.
Eurostat, which had initially reported a figure in January of 12.0 percent, said the rate had been stable since October 2013.
Unemployment eased slightly in Spain to 25.6 percent from 25.8 percent, while France,Italy and the Netherlands saw minor increases in the number of unemployed people.
For job seekers under the age of 25, the situation improved in February, with a youth unemployment rate of 23.5 percent in the euro zone from 23.6 percent in January.
The number improved most markedly in Austria and Spain, while those under the age of 25 seeking jobs in Portugal increased from the previous month.
In the 28-member European Union, overall unemployment decreased to 10.6 percent in February from 10.7 percent in January. - (Reuters)
The tick down is certainly a step in the right direction but the journey out of the crisis remains fraught with risks. I remain pessimistic and see persistently high unemployment contributing to increasing political risk over the coming months. May’s a coming and will be a flashpoint in elevated political risk in the region.
ECB dismisses deflation fears, says ready to act - Boston.com -
Reported Apr 3, 2014
BRUSSELS (AP) — The European Central Bank on Thursday dismissed fears that consumer prices might fall in the 18-nation eurozone, a situation that would drag down the economy. It stressed, however, that it is ready to counter that threat in new ways if needed.
Another drop in the inflation rate in March, to 0.5 percent, raised concerns the eurozone might slip into deflation, when consumers put off purchases in hopes of bargains later and companies cut prices to entice buyers. Such a downward spiral can snuff out economic growth for years.
After the ECB decided to leave its main interest rate at a record-low 0.25 percent Thursday and not provide any further stimulus, President Mario Draghi noted the inflation figures are consistent with the bank’s forecasts of a ‘‘prolonged period of low inflation.’’
But to show it is not complacent about the danger, the central bank beefed up its rhetoric.
Draghi said the ECB’s governing council is unanimous in its determination to maintain a highly accommodative monetary policy stance and is ready to swiftly use ‘‘unconventional measures … to cope with the risk of a too-prolonged period of low inflation.’’
Such measures could include a new round of cheap loans to banks or large-scale purchases of financial assets, the so-called ‘‘quantitative easing’’ the U.S. Federal Reserve has been doing. That would increase the amount of money in the economy and aim to lower market interest rates and stoke inflation. But such a move faces legal, political and technical obstacles.
The ECB could also trim its deposit rate below zero, effectively penalizing banks for holding money at the ECB instead of lending it out.
Draghi said unlike in its previous monthly meeting, all measures within the ECB’s mandate — including quantitative easing — were discussed.
Analysts said the ECB’s statement showed it is increasingly worried about the stubbornly low inflation, but is not at a point yet where it would act.
Carsten Brzeski of ING Bank noted Draghi’s tone clearly indicates it’s ‘‘on even higher alert than before.’’
While quantitative easing still seems unlikely, Brzeski said, the ECB made it clear that such measures were now backed by all ECB members — including the German central bank governor Jens Weidmann, who had opposed such ideas in the past.
He noted the unexpectedly low inflation data for March was also influenced by seasonal factors, meaning the rate may well rise next month.
In a rare public rebuke, Draghi rejected advice by International Monetary Fund chief Christine Lagarde that the ECB should ease its monetary policies to boost inflation.
Draghi grinned as he took a question on Lagarde’s comments, causing laughter during the press conference in Frankfurt.
‘‘The IMF has been of recent extremely generous in its suggestions on what we should do or not do,’’ he said, adding that the ECB’s views ‘‘are in essence different.’’ - (AP via Boston.com)
Before the ECB was mentioning that the core CPI was remaining resilient and was a reason for not taking action. A decrease from 1% to 0.8% in this measure takes out this leg of the stool. As I covered in my macro commentary a couple of months back, Draghi’s playing a dangerous game here.
Europe’s Recovery Diverges as Italy Jobless at Record -
Europe’s two-speed economy was underscored in data today showing strengthening in the German labor market just as Italy’s jobless rate reached a record.
In Italy it rose to 13 percent, while inGermany the locally defined jobless rate for March stayed at the lowest in at least two decades.
“While we might be seeing a recovery more generally in the euro area, the pace of that expansion is unlikely to be sufficiently strong to make a serious dent on the unemployment picture,” said Timo del Carpio, an economist at RBC Capital Markets in London.
International investors are returning to the euro, including to nations that received bailouts in the depths of the crisis. U.S. exchange-traded funds show net inflows of $634 million into Spain this year, marking an increase of 71 percent, according to data compiled by Bloomberg. Flows into Greece have increased 77 percent to $102 million.
Still, Europe’s fragile labor market remains a concern for its leaders with February unemployment rates varying from a low of 4.8 percent inAustria to 25.6 percent in Spain. Greece, which last reported in December, had a jobless rate of 27.5 percent. Among people under the age of 25, unemployment in the 18-nation currency bloc stands at 23.5 percent. — (Bloomberg)