Month: July 2016

Iron ore seems to be finally turning a corner

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The market for iron ore has in decline since 2011 amid an extended commodities crash, but things may be turning the corner for the steel-making commodity.

How strong the recovery will be, however, remains uncertain. The world’s biggest iron ore producers have maintained their output guidance for 2016, as China’s appetite for the commodity firms, but supply growth is unlikely to return to old highs anytime soon.

On Thursday, Brazilian iron ore giant Vale gave an encouraging outlook in its second-quarter results announcement, noting a rise in global steel production, which it said grew 6.1 percent on-quarter in Q2. In China alone, steel production growth was 9.2 percent in that period.

“Steel demand improved in China, supported by the credit easing started in 2H15,” Vale said.

“Investments in the housing sector increased while investments in infrastructure remained stable in 1H16. The higher steel demand boosted prices and encouraged worldwide production.”

The world’s biggest producer expects higher iron ore supply in the second half of the year, on the back of seasonal factors.

Last week, Vale reported 86.8 million metric tons of production in the second quarter of 2016, just slightly below the 89.3 million ton record it set in Q2 2015.

Vale’s assessment came after investment bank Goldman Sachs on Wednesday raised its three- and six-month iron ore price forecast to $50 and $40 a ton respectively, from $45 and $35 a ton, due to low steel inventories and a fall in the Chinese yuan against the dollar.

“The most important channel, in our view, is the market interpretation that CNY depreciation signals upcoming credit easing,” wrote Goldman analysts.

Credit easing in China would boost lending and economic activities such construction.

The improved market outlook is a turnaround from December when spot iron ore prices hit all-time lows around $37 a ton. Prices have since rallied on increased building activities in China, the world largest iron ore consumer, and were trading around USD 59 a ton on Friday.

China said in May it planned to invest 4.7 trillion yuan (USD 720 billion) on 303 transport infrastructure projects over three years.

Reports from Australian miners Rio Tinto and BHP Billiton also showed production this year largely on track. Rio Tinto said last week that the company was on target to meet production guidance for the full-year 2016, while BHP said it missed its own iron ore guidance narrowly due to the Samarco dam disaster that shut down the Brazilian mine.

Vale has maintained its 2016 output guidance, forecasting output at the lower end of the 340-350 million ton range.

Despite the firm output forecasts, however, iron ore output growth has slowed.

BMI Research said in a note this week that global iron ore production would grow “minimally” from 3,149 million tons in 2016 to 3,275 million tons by 2020 — or just 0.1 percent a year, down significantly from the average growth rate of 4.8 percent from 2011 to 2015 – as lower prices forced high-cost producers to shut.

“On the one hand, supply growth will be primarily driven by Australia and Brazil on the back of expanding output by major miners, such as Rio Tinto, BHP Billiton, Vale and Fortescue Metals Group,” the BMI analysts wrote.

“On the other hand, miners in China, which operate on the higher end of the iron ore cost curve, will be forced to cut output due to continued iron ore price weakness.”

In June, an annual survey of 50 leading Australian mining executives showed sentiment had finally started to improve, after several years of gloom amid a commodity price slump that saw iron ore prices plunge more than 70 percent from 2011 highs.

According to by Newport Consulting, 43 percent of respondents were upbeat about industry prospects for the year ahead — more than double the 16 percent who gave the same answer a year ago.

It was also the first time in three years that sentiment took an upturn, although some analysts still advocated caution.

A jump in public infrastructure investment led by Chinese state-owned enterprises (SOE) has raised questions about the quality of growth and sustainability of demand, analysts have noted, given concerns about the debt load of SOEs and the sustainability of some of their business in China’s new consumption-led economy.

Data showed first-half fixed asset investment grew 9 percent from a year ago, but private sector fixed-asset investment grew just 2.8 percent in same period, down from 3.9 percent growth in the first five months, indicating headwinds in the private sector from slowing exports and macroeconomic jitters.

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How slow is US economic growth? ‘Close to zero’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While 2016’s anemic growth level isn’t an automatic disqualifier for an interest rate increase, the bar just got a little higher.

Friday’s GDP reading fell below even the dimming hopes on Wall Street. The 1.2 percent growth rate in the second quarter combined with a downward revision to the first three months of the year to produce an average growth rate of just 1 percent.

In total, it was far below the Wall Street forecast of 2.6 percent second-quarter growth and didn’t lend a lot of credence to a Fed statement earlier this week that sounded more confident on the economy. 

In short, they are not numbers upon which a rate hawk would want to hang one’s hat.

“We’re tired of talking about rate hikes when it’s not going to happen for a while,” Diane Swonk of DS Economics told CNBC. “I really think the Fed is sidelined until the end of the year.

Or, perhaps, longer.

Market expectations for the next Fed hike had been sliding as the release of the GDP report got closer, and they plunged afterward. The fed funds futures market Friday morning was indicating just a 34.4 percent chance of a rate rise this year, with the next move pushed out until well into 2017. A day earlier, the futures market had moved to just over 50 percent for a 2016 move. The Fed last hiked in December 2015, which was the first move after eight years of keeping the overnight rate near zero.

To be sure, GDP growth is just one input for the central bank. Ostensibly, the Fed’s mandate is to ensure full employment and price stability, and it has come close to achieving the former while continually falling short of the latter.

Friday’s data, despite the weak headline number, offered some hope.

The GDP miss came in good part because of a tumble in inventories, which subtracted 1.16 percentage points. At the same time, consumer spending showed a robust 4.2 percent gain, the best number in a year and a half. Separately, the employment cost index, a Labor Department measure that is said to be watched closely by Fed Chair Janet Yellen, rose at a 0.6 percent quarterly rate, in line with expectations and reflecting an annualized increase of 2.3 percent in employee compensation costs.

But the Fed has been warning about weak business investment, and Friday’s data showed those concerns were well-founded.

Business investment fell 2.2 percent, its third consecutive quarterly decline. Gross private domestic investment tumbled 9.7 percent, and residential investment, which had been on the rise, reversed course and declined 6.1 percent, the first decrease since early 2014.

Those numbers act as a counterweight to the declining jobless rate, which is down to 4.9 percent.

“What is really worrying is that pace has still been enough to reduce the unemployment rate further, suggesting that the economy’s potential growth rate could conceivably be close to zero,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a note. The headline jobless rate has been declining, in part, due to a generational low in labor force participation, suggesting that outside a decline in labor slack, there’s little moving economic growth.

As a result of Friday’s news, Capital sliced its full-year GDP expectation from 2 percent to 1.5 percent.

In a year when the Fed was supposed to be on an orderly rate-hike pace of one per quarter, Wall Street now is talking about an economy that’s not going anywhere and a central bank that will follow suit.

“The U.S. consumer is the only thing keeping the U.S. economy out of a recession and we’ve heard just this week the worries over auto sales and weakness for restaurants,” Peter Boockvar, chief market analyst at The Lindsey Group, said in a note. “I’m not calling for a recession, but will zero to slightly negative growth feel much different than 1 percent growth?”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bank of Japan ups ETF purchases, keeps interest rates steady

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Bank of Japan (BOJ) pledged to increase purchases of exchange-traded funds (ETF) but kept interest rates steady at the close of its two-day meeting on Friday, confounding market expectations of hefty stimulus.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Under govt pressure, BOJ mulling specific steps for easing

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Japan industrial output up in June in sign of recovery

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Japan’s industrial output rose 1.9 percent in June, government data showed on Friday, in a sign that demand is starting to pick up.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 2.4 percent in July and increase by 2.3 percent in August, data showed.

The government changed its assessment of industrial production, saying it was stagnating but that some areas were showing recovery. Last month, the ministry simply said industrial output was stagnating.

Meanwhile, Japanese retail sales fell 1.4 percent in June from a year earlier, slightly less than a median forecast for a 1.5 percent decline, government data showed.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Uber, Didi hail china’s new taxi app rules

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asia mixed; ASX up 0.1, Kospi up 0.2%, Nikkei down 0.2%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian markets were mixed in early trade on Friday, with a slew of earnings and data due throughout the session, as well the Bank of Japan’s (BOJ) keenly awaited monetary policy decision.

Australia’s ASX 200 index traded up 0.12 percent, with the energy and material sub-indexes dropping in early trade. In Japan, the Nikkei 225 was down 0.23 percent, while the Topix was down 0.29 percent. Across the Korean Strait, the Kospi was up 0.15 percent.

“The market is positioned for easing from the BOJ and this could come in many guises,” said Chris Weston, chief market strategist at brokerage firm IG.

Analysts broadly expect the BOJ will introduce fresh stimulus measures, which could include pushing interest rates deeper into negative territory or expanding its asset-purchase program, which buys securities including Japanese government bonds and exchange-traded funds.

On the fiscal front, Japanese media agency Jiji reported that Prime Minister Shinzo Abe was preparing a stimulus package worth 28 trillion yen ($265.30 billion), which exceeded initial estimates of around 20 trillion yen.

“Many feel [the government stimulus package] has been rushed through to put additional pressure on the BOJ,” said Weston.

There will likely be further pressure on the BOJ to act, after data released from Japan’s Bureau of Statistics before market open showed inflation declined for the month of June.

Nationwide, the consumer price index (CPI) fell 0.4 percent on-year, while the core CPI, which excludes fresh food items, dropped 0.5 percent on-year. The so-called core-core CPI, which excludes food and energy items, gained 0.4 percent on-year.

July inflation numbers for Tokyo, which are available a month in advance compared to the nationwide data, also fell. Core CPI for Tokyo was down 0.4 percent on-year.

Japan’s household spending fell 2.2 percent on-year in June, a relatively steep decline compared to a Reuters poll that predicted a 0.3 percent drop. The country’s seasonally adjusted unemployment rate for June was at 3.1 percent, a 0.1 percent drop from the previous month.

Data from Japan’s Ministry of Economy, Trade and Industry (METI) showed industrial production rose 1.9 percent, suggesting an uptick in demand.

The government said chemicals, excluding drugs, transport equipment and fabricated metals industries contributed to the increase, and a survey of manufacturers by METI showed they expected production to rise 2.4 percent in July and 2.3 percent in August.

The Japanese yen maintained its strength against the dollar, trading at 104.54, compared to levels near 107 in the previous week.

Meanwhile, South Korea will release its retail sales and industrial production numbers. Australia’s second quarter producer price index numbers are also expected.

In company news, shares of Nomura traded up 6.76 percent, after Reuters reported the bank is planning a 45 billion yen buyback of up to 2.6 percent of its shares. In its earnings numbers, Nomura said its April-June net profit dropped to 46.83 billion yen, from 68.7 billion yen a year earlier, said Reuters.

Sony, Mazda Motor and Panasonic are among the companies releasing earnings on Friday.

US stocks closed mostly higher on Thursday, with the Nasdaq composite closing up 15.17 points, or 0.3 percent, at 5,154.98, its highest level of the year so far, helped by gains in major tech names such as Facebook and Amazon closing more than 1 percent higher each.

The Dow Jones industrial average closed near flat at 18,456.35, while the S&P 500 index closed 3.48 points higher, or 0.16 percent, at 2,170.06.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Citi sees ‘gradual shift towards helicopter money’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Citi has forecast a “gradual shift towards helicopter money” by advanced economies, as countries struggle to boost growth and inflation in uncertain geopolitical climes.

That could be viewed as a move towards helicopter money, defined by Citi as a “temporary fiscal stimulus financed by a permanent monetary expansion.” Others define it simply as central banks injecting cash directly into the real economy.

“Amid large uncertainties, the policy outlook is once again of major importance. In our view, there is a gradual shift in policy orientation towards helicopter money,” Citi analysts including Chief Economist Willem Buiter said in a report on Wednesday.

Citi forecasts “moderate further easing” by the Bank of Japan this week and a new round of a quantitative easing from the Bank of England (BoE) next month.

However, Bank of Japan Governor Haruhiko Kuroda ruled out using helicopter money to underwrite Japan’s budget deficit in a radio interview broadcast by the BBC last week. The BBC said the interview was conducted in mid-June.

BoE Governor Mark Carney said shortly after the Brexit vote on June 23 that “some monetary policy easing will likely be required over the summer,” but the bank surprised markets by holding interest rates at 0.5 percent this month.

Bank of America Merril Lynch Global Research said this week that helicopter money from the Bank of Japan was “unlikely,” while Daiwa Capital markets said hopes of it were “bound to be dashed.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Shell sees quaterly profits plummet 70% as low oil price bites

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Credit Suisse back in black with $172 million Q2 net income

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Credit Suisse reported net income of 170 million Swiss francs (USD 172.4 million), beating Reuters poll expectations of a loss of CHF192 million.

The Swiss banking giant said it made a group pre-tax income of CHF199 million in the three months to June 30, an improvement on the pre-tax loss of CHF484 million reported in the first quarter.

Net revenues were CHF5.4 billion, up 6 percent on CHF5.1 billion in the first quarter but down 16 percent against CHF6.5 in the same period a year ago.

Chief Executive Tidjane Thiam said that the bank had been able to improve its performance in the second quarter in order to return to profit, despite the volatile environment. It was helped by significant wealth management asset inflows and a profitable quarter with increased market share at the investment banking and capital markets business.

“Markets were particularly challenging towards the end of 2Q16 in connection with the UK referendum on EU membership,” Thiam said in a statement released with the quarterly results.

In a letter to shareholders, Thiam and Urs Rohner, Credit Suisse’s chairman, said that they remained cautious in their outlook for the second half of 2016 “in view of the uncertainty created by significant geopolitical and macroeconomic concerns.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow