Guardian and Washington Post win Pulitzer prize for NSA revelations -
The Guardian and the Washington Post have been awarded the highest accolade in US journalism, winning the Pulitzer prize for public service for their groundbreaking articles on the National Security Agency’s surveillance activities based on the leaks of Edward Snowden.
Berlin and Paris ‘ruled Irish taxpayer should bail banks’ -
Germany and France, rather than the European Central Bank, made the decision that Irish taxpayers should bail out the banks, states a new book.
The claim that Berlin and Paris initiated the move against Ireland, rather than the ECB, is made in a newly published book, Europe’s Puppet Master. It has caused some upset in the capitals and in Brussels as it is based on confidential reports made by diplomats who attended the EU leaders’ summits during the crisis and is supported by insights from insiders.
Their account calls into question the independence of the ECB.
U.S. retail sales rise in March to highest level since 2012 -
U.S. retail sales increased in March by the most since September 2012 as Americans bought more cars, clothing and garden supplies, helping the economy recover from a weather-depressed start to the year.
Economic rebound continues. I’d like to see the YoY numbers though. Will post those soon.
Don’t bank on China’s financial reform Outside the Box -
Reforming China’s economy begins with the banking system. Except the banking system might not be ready.
…there are significant problems in implementing changes.
First, China’s economic model requires keeping China’s cost of capital low to facilitate its investment strategy. Reform would increase capital costs as credit risk would be priced correctly, undermining the low profitability and solvency of many businesses. Higher rates would stress many borrowers.
Second, Chinese banks need to manage rising bad debts. Rating-agency Fitch Ratings has argued that Chinese banks may have unrealized losses in excess of that reported due to improper treatment, such as restructuring loans to avoid recognizing them as non-performing. These losses may be greater than the total capital and reserves of Chinese banks.
Third, Chinese banking crises resulting from bad debts is traditionally dealt with by maintaining access to deposits, low rates and a guaranteed wide spread between borrowing and lending costs. Deregulation would destabilize this process.
These factors dictate that any reform will be slow, at best.
China’s capital account is partially open. Foreign direct investment by “qualified” investors, including for short-term periods, is allowed within specified limits. In addition, local and foreign businesses and investors have access to a variety of unofficial techniques to undertake capital transfers, although these are slow, cumbersome, expensive and potentially illegal.
This creates tensions between domestic policy objectives and the management of the value of the currency. Large foreign capital inflows require the People’s Bank of China (PBOC), the central bank, to undertake money-market operations to remove excess liquidity while maintaining the desired value of the currency.
Like deregulation of interest rates, Chinese authorities have committed to the removal of controls on capital flows, albeit on an unspecified time scale. But the risk of deregulation is significant. Reforms may affect the flow of credit in the economy and negatively impact domestic demand. Capital flows also affect the ability of the PBOC to use the level of the yuan as a policy tool.
…speculative capital inflows have been strong, seeking to benefit from the perceived undervaluation of the yuan. However, Chinese authorities fear destabilizing outflows if the capital account is liberalized and the yuan trades at fair value. Outflows might be exacerbated by flight capital. Trapped domestic savings may exit the country as investors seek alternatives to low-yielding bank deposits or speculative property, or in order to diversify their investments or seek protection against political and social instability.
These risks are exacerbated by the increasing scale of the China carry trade. Investors have purchased yuan investments financed in foreign currency to benefit from higher Chinese interest rates. Chinese domestic borrowers have increasingly borrowed in foreign currency (U.S. dollars DXY +0.30% , yen USDJPY +0.13% and euroEURUSD -0.18% ) to reduce interest costs. Both investors and corporations have also sought to benefit from the expected appreciation of the yuan. In addition, myriad derivative strategies to take advantage of the carry and the currency movements have also been implemented.
Interestingly, the Bank for International Settlements has warned that China’s banking system has large and rapidly growing net foreign liabilities.
Large capital outflows would result in these strategies suffering losses and being reversed. This would result in the tightening of domestic liquidity and higher interest rates, setting off financial instability and a domestic contraction. - (Marketwatch)
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)