Month: April 2013

Risk of bond market revolt in Japan: Expert

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

Listen to the Article (6 Minutes)

The Bank of Japan`s recent radical shift in monetary policy that targets an inflation rate of 2 percent in the next two years could back fire and spark a crisis in the country`s bond market, according to one expert.

“If Japan succeeds with its 2 percent inflation target, interest rates will rise at some point and they just need to reach 2.8 percent for the interest on government debt to equal government revenues,” James Gruber, author of “Asia Confidential” said, noting that interest on government debt takes up 25 percent of government revenues currently.

“The bond market will revolt well before it reaches that point though,” Gruber, who was formerly a fund manager, added.

The BOJ, which has traditionally adopted a cautious approach, shocked markets at its last meeting on April 4 when it said it would pump $1.4 trillion in to the economy to meet a 2 percent inflation target in around two years.

(Read More: After `Shock and Awe,` What Next From the BOJ? )

The Japanese government has enjoyed paying a low rate of interest on its debt for many years because sovereign bond yields have remained compressed in the face of deflation, which has plagued the economy for the past two decades. However, rising prices could significantly increase the interest payment burden for the government as bond holders demand higher yields.

Even if the government is not successful in driving up inflation, Gruber said risks still remain as debt will continue to balloon as the central bank pursues its asset purchase program. Japan`s government debt is estimated to reach 245 percent of gross domestic product this year – the highest in the world.

“Bondholders aren`t going to sit there earning less than 0.6 percent on Japanese government bonds while debt increases and the yen tanks,” he said.

In addition, Gruber said investors that assume the Japanese government bond market can never blow up as domestic Japanese own over 90 percent of the debt “are looking through the rear-view mirror.”

“Aging Japanese need to fund their retirements and won`t be able to support the government bond market as they`ve done in the past. Foreign investor holdings of government bonds are 9 percent and rising. These investors are going to want better returns for the risks that they`re taking on,” he said.

Concerns over the implications of “Abenomics” – Prime Minister Shinzo Abe`s push to revive the economy through aggressive monetary easing and fiscal stimulus – for the country`s bond market have been on the rise in recent weeks.

(Read More: Sentiment Turning for Japan Stocks? Foreign Buyers Bail )

Ratings agency Standard and Poor`s on Tuesday said it saw more than a one in three chance of a sovereign credit rating downgrade from risks associated with recent government initiatives and uncertainty of their success. SandP has an AA- long-term rating on Japan`s sovereign debt.

Copyright 2011 cnbc.com

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

ECB should weaken the euro: Bini Smaghi

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

Listen to the Article (6 Minutes)

The European Central Bank (ECB) needs to react to aggressive monetary policy in other parts of the world, a former governing council member of the central bank told CNBC.

“If you take Asia, the US and Europe, Europe is the weakest spot. So you`d expect the exchange rate of the euro to be weaker than the others, but that`s not what we`re seeing because of very aggressive monetary policy in other parts of the world, compared to Europe. So probably, Europe has to react to that,” Lorenzo Bini Smaghi, former ECB governing council member, told CNBC on Thursday.

Bini Smaghi`s comments follow a 25 percent weakening in the yen against the dollar since mid-November as the country`s central bank has pledged to pump USD 1.4 trillion into the economy in less than two years and double its monetary base.

Bini Smaghi said the Bank of Japan`s policies could create “problems down the road.”

“What are the Japanese doing with the money that they receive from the central bank in exchange for assets? They`re buying foreign assets, so the exchange rate is going down dramatically and this has an impact on the other economies of the world. They`re buying new assets, new risks, so this is having a big impact, and it is not clear that it will not create problems down the road,” he said.

Expectations have risen that the European Central Bank (ECB) will announce a 25 basis point rate cut when it meets next week. That follows a series of disappointing data from the region, including signs that Europe`s largest economy, Germany, was slowing down. The ECB has resisted cutting the benchmark rate since July 2012.

“It would not be counter-productive certainly, so I don`t think it would hurt. That could be a first step for trying to align monetary conditions to what is happening in the rest of the world and what Europe needs,” Bini Smaghi told CNBC at the Bellwether Europe business conference in London.

On Thursday, the German Chancellor Angela Merkel made a rare foray into the debate on central bank interest rates, saying that the ECB would have to raise interest rates if it were looking at Germany alone. But, she added, the ECB cannot do so because of the different financial needs of the 17-member euro zone.

(Read More: Merkel Weighs In on Interest Rate Debate )

“If we want to get back to a bearable interest rate level, then we have to get over this internal division of the euro zone,” the chancellor said at a banking conference.

But Bini Smaghi suggested the ECB needed to do more than just cut rates.

“Some additional measures will be needed – it will depend on the economic conditions but clearly the fact that other central banks are taking further steps is a challenge for the ECB. You cannot just be the more conservative central bank, otherwise the impact will be on the exchange rate and this will be recessionary for Europe…One should not exclude anything down the road if the situation worsens.”

(Read More: Hopes for ECB Rate Cut Could Bring Big `Disappointment` )

On Friday, Spain is expected to unveil economic growth measures in a move that could heat up the European debate on austerity. Prime Minister Mariano Rajoy has been trying to get more leeway from the European Union on budget deficit targets as the country grapples with recession. Meanwhile, Italy`s new prime minister, Enrico Letta, told policymakers this week that “Europe`s policy of austerity is no longer sufficient.”

Bini Smaghi recognized that the political climate had changed, but said that countries that delay reforms, would be left with less room for maneuver: “You should distinguish austerity from reforms. The problem is that Europe needs reforms and growth can only happen if there are major social reforms. If countries cannot do that, they are left with austerity .”

-By CNBC`s Holly Ellyatt, follow her on Twitter @HollyEllyatt

Copyright 2011 cnbc.com

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

Why hype over dollar-yen at 100 is overdone

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

Listen to the Article (6 Minutes)

Currency markets have been on tenterhooks this week to see if the yen will finally hit the psychologically important level of 100 against the dollar. However, some analysts say the significance of such move should not be overdone.

“I think it could very well be today or this week, we are very close [to the yen hitting 100 per dollar]… But I don`t think there is nearly enough significance in hitting that level as one might think,” said Ilya Spivak, currency strategist at forex news site DailyFX.com.

Also read: Indian Rupee opens at 54.18/dollar, gains 20 paise

“If dollar/yen were to close above 100 and push meaningfully higher, that would be something. But without fundamental follow-through, it could be a hit that really peters out,” he added.

The yen weakened to around 99.94 against the dollar in early April after the Bank of Japan unveiled radical monetary policies. It flirted with the level again this week amid relief that G-20 nations shied away from criticizing Japan`s monetary policies at a gathering last week.

On Wednesday, the currency traded at about 99.5 to the dollar. It has weakened about 25 percent against the greenback since mid-November when Shinzo Abe, elected as Prime Minister in December, first pledged to revive the flagging Japanese economy.

Japan`s economic policies received some negative attention this week, after credit ratings agency Standard and Poor`s and the Organization of Economic Cooperation and Development both questioned the nation`s ability to revive economic growth.

The OECD praised Japan`s quantitative easing program, but urged structural reform, while SandP expressed doubts over whether the Japanese government could win its battle with deflation.

Other analysts say the 100-barrier on dollar/yen is an important psychological level for good reason.

“Yes it is just another number, but when you see it switch over to three numbers in front of the decimal point, that is a big psychological hurdle. We haven`t been there for a really long time,” Keagan York, head of FX strategy at Compass Global Markets told CNBC.

Another reason why a sustained move through 100 could be significant is that it could trigger renewed criticism about the level of the yen globally, analysts said.

Japan came under fire earlier this year from neighboring economies for pursuing policies that weakened its currency and gave exporters a competitive edge. And although Japan escaped directed criticism at the latest G-20 meeting, currency analysts say fears of a `currency war` could come back if the yen breaks through the 100-barrier.

“It is a possibility that if you unbalance the natural markets, other countries are going to catch up. Everybody is striving to keep the momentum building and keep their inflation above zero percent,” he said.

“It wasn`t that long ago we saw the Asian economic crisis and it is still in the forefront of (central bank) governors` minds, so the focus is going to be to keep their economies moving,” York added. “So if they have got to play with fire, then they have got to play with fire.”

Copyright 2011 cnbc.com

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

Is a key pillar of India’s economy in jeopardy?

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

Listen to the Article (6 Minutes)

For Gracie Salis, a 52-year-old Indian national living in the country`s financial capital Mumbai, the surge in fresh food prices and higher transportation costs stemming from a rise in fuel costs, has forced her to scale back on discretionary purchases.

“My salary hasn`t risen at the same level as the increase in prices. Vegetables like onions and potatoes have doubled from a year and a half ago; taxi and auto rickshaw fares have gone up. We cannot afford to live lavishly,” Salis, a hair stylist who works at a five-star hotel in the city, told CNBC.

Also read: Brent holds above $100; weak economic outlook caps gains

As a result, Salis has been cutting back on non-essential spending such as clothing, and opting to dine at home instead of eating out.

Salis is one of many consumers across Asia`s third largest economy who are turning cautious on spending. The pullback in private consumption, the bedrock of India`s economy that makes up around 60 percent of gross domestic product (GDP), is posing a threat to the country`s fledgling recovery, said economists.

“Private consumption has been dropping at a fast pace over the last year. It`s a major factor driving the slowdown. We aren`t seeing signs of a turnaround,” said Rahul Bajoria, economist at Barclays, adding that the bearishness is also being felt in the stock markets.

“Sentiment among consumers is quite negative. You can even see among retail investors in the stock market – they aren`t allocating money to stocks,” he added.

Private consumption grew 4.6 percent in the October to December months, a sharp slowdown from the 7-10 percent growth rates seen in the past decade. The weak consumer sentiment is showing up in various sectors of the economy, from air travel to the once thriving auto industry.

Domestic air travel fell 9 percent in February year on year, according to the International Air Transport Association, compared to an average rise of 3.9 percent globally. Car sales declined by around 7 percent in the year to March 2013, compared with the same period a year earlier, the first contraction in more than a decade.

Even consumer sectors that have traditionally seen double digit annual growth, such as apparel or fast moving consumer goods (FMCG), for example, are now seeing single digit growth, said Arvind Singhal, managing director of Technopak, a management consulting firm.

The cutback in spending comes amid decelerating growth in the economy. India`s economy grew at a decade-low pace of 5 percent in the fiscal year which ended March 2013.

“Uncertainty in terms of the economy and job security is holding consumers back from buying big ticket items like cars and real estate,” said Dheeraj Sinha, chief strategy officer, South and Southeast Asia at global advertising and marketing agency Grey. “Also, middle class consumers are feeling the pinch of inflation,” he added.

Easing Inflationary Pressures?

Still, Technopak`s Singhal believes the slump in consumer sentiment has reached a bottom, pointing to positive expectations for the June-September monsoon season – which is constructive for consumption in rural areas – and signs of moderating inflation.

India`s headline wholesale price index (WPI), which is closely watched by the country`s central bank, eased to below 6 percent in March for the first time since 2009, a sign that the days of stubborn inflationary pressures may finally be behind the economy.

While logging double digit increases, consumer price inflation has also been easing. Consumer price inflation was 10.4 percent in March, significantly below February`s 10.9 percent. It is expected to moderate to around 7 percent by March 2014, according to Morgan Stanley.

“With inflation under control, lending rates will come down, leaving companies with more capital to invest…investment leads to job creation,” he said.

Leif Eskesen, chief economist, India and ASEAN at HSBC agreed, noting that he expects a pickup in consumption later in the fiscal year ending March 2014.

“We expect a slight uptick in consumption growth as consumers become more confident about the economy and employment prospects,” he said.

Economists forecast a gradual recovery in India`s economy of around 6 percent in the current fiscal year, as government spending and monetary easing help to spur domestic demand.

Copyright 2011 cnbc.com

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

Making a clean sweep of a ‘dirty’ business in India

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

Listen to the Article (6 Minutes)

A new kind of “dirty” business is becoming the latest frontier in the bottom-of-the-pyramid market in India, with a number of start-ups seeing a huge opportunity in building and maintaining toilets as more than 600 million Indians still defecate in the open, according to the World Health Organization.

Bindeshwar Pathak, who launched India`s first paid toilet way back in 1974 told CNBC that there were just not enough toilets in a country of a billion people.

“You need private companies to take on the mantle and there is money to be made here,” said Pathak whose non-profit organization Sulabh International runs 8,000 toilets in 23 states in India, of which 5,000 are profit-making paid toilets that subsidize the others in the network.

Pathak thinks it is a viable business given the huge demand-supply gap in this sector. For example, almost 50 percent of all households in India lack toilet facilities, according to latest Indian Census figures. Now contrast this with another fact: more than 60 percent of households have a telephone connection, of which 52 percent have mobile phones.

Read More: Opportunistic Indians Ride China`s Economic Boom 

This anomaly has caught the attention of a few entrepreneurs who are smelling cash in the toilet business. When entrepreneur Rajeev Kher started his portable toilet business Saraplast in 1999 he faced not just social ridicule from family and friends but also from banks, financiers and potential recruits. “I had no products to show, collateral to give or proven financial model to argue the case for the toilet business,” he told CNBC.

It did not help either that traditionally the work of cleaning toilets in India has been culturally and socially considered the lowest form of menial labor. But Kher remained undaunted, initially sourcing demo portable toilets from Germany for free and touring the country on a pick-up truck to showcase them personally to potential customers.

The persistence paid off. After 14 years, his company has a country-wide network of 3,000 `3S Shramik` brand of toilets with 250 maintenance staff. The company had a turnover of 135 million rupees (USD 2.5 million) in 2012.

Early Mover Advantage

Delhi-based Dipesh Bhutani spotted the opportunity in portable toilets as early as 1996 when he noticed the difficulty faced by family members while shopping or attending an outdoor wedding or religious ceremony. “If this was the situation in the capital of India, I could sense that portable toilets would work and make money,” said Bhutani. Today his portable toilet business under the brand `Super Loo” are available in 12 Indian cities and range from single commodes to air-conditioned toilet vans.

According to Business Innovation Facility (BIF) an international facilitator of social enterprise, in urban Indian slums alone, an estimated 75 million people have no access to individual or shared toilets. This puts the immediate demand in 2013 for urban slum toilets at 1 million seats based on a ratio of 80 per seat.

“The toilet business presents the same opportunity today that bottled water presented a couple of decades ago. Nobody thought Indians would pay for water; but they did. Now they are ready to pay for clean and hygienic toilet facilities,” Kher said.

The economic prosperity of Asia`s third largest economy that has grown until recently at over 8 percent, has given rise to a consumer class that is now willing to pay for products and services that improve quality of life – from clean drinking water to toilets to hygiene products.

According to the BIF, slum households it surveyed in the three cities of Delhi, Bangalore and Pune last year were willing to pay for clean and hygienic mobile toilet facilities. In Bangalore, for example, slum residents pay Rs 300 to Rs 500 per month per family on use of brick and mortar toilets, but 69 percent of them complained of long waiting time at community toilets where the person to seat ratio was 200.

The entry barrier for portable toilets is relatively low for entrepreneurs. Compared to traditional brick-and-mortar structures, portable toilets have low set-up time, low cost-per-seat, do not need elaborate government clearance or real estate to become functional, according to market participants.

Demand is also robust in the urban market for social events, sports meets, religious gatherings, political rallies and construction sites.

Read More: How Gold`s Fall Will Affect World`s Biggest Consumer

“Construction sites are turning out to be a major market for our portable loos as Indian cities are pushing the pedal on new projects like airports, metros and retail, commercial and residential infrastructure,” said Sorabh Singh, business development manager for ASAP Infra that branched out of real estate in 2008 to provide prefabricated construction solutions to corporates, including portable toilets. “The business of portable toilets is non-seasonal, scalable and sustainable,” he added.

Investors Pour In

Seeing the growth potential of this market, venture capitalist and private equity players are also adding `toilet` assets to their portfolio. In 2009, venture capital fund Aavishkaar picked up a 21 percent stake in Saraplast for Rs 30 million.

Read More: India, Home of Outsourcing, Wants to Make Its Own Chips

The company is now finalizing a second round of funding to scale up operations. Kher has plans to provide more than a million toilet maintenance services a week throughout the country and also in the offing is a waste treatment plant to generate bio-energy from toilets.

“Given that the size of the sanitation market is USD 7 billion in the US where sanitation is not even a big issue, there is no reason why sanitation cannot be a USD 10 billion industry in India,” said Noshir Colah, operations partner at Aavishkaar.

Clearly, a set of early movers, risk-taking entrepreneurs and far-sighted investors are hoping to make a clean sweep in the `dirty` business that others hesitate to enter.

Copyright 2011 cnbc.com

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

At $14m, diamond is investor’s best friend

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

Listen to the Article (6 Minutes)

Between 2001 and today, stock prices are up about 30 percent. Diamonds, however-at least certain huge diamonds – have done far better.

Sotheby`s yesterday sold a 74.79 carat white diamond for USD 14.2 million, far above the pre-sale estimate of USD 9 million to USD 12 million. Five bidders were vying for the unnamed rock, which has a coveted “D” color designation.

Sotheby`s says the same diamond sold in 2001 for USD 4.3 million, meaning the value more than tripled and provided an annual return of more than 20 percent.

The pear-shaped diamond was part of a record-breaking jewelry sale for Sotheby`s, which brought in USD 53.5 million-the most ever for a spring jewelry auction. Many of the pieces were from the family of Jay Gould, the financier, railroad magnate and archetypal “robber baron” of the 19th century.

One sale doesn`t make a trend, and the jewel market is highly prone to fakes, theft and sudden price shifts. But the white diamond`s sale offers further evidence of the roaring bull market in hard assets (diamonds being the hardest of assets). From collectible cars and coins to stamps, wine, art and real estate, the wealthy continue to move more of their money into investments they can touch, feel and, if possible, enjoy.

Especially in today`s volatile financial markets, top-quality hard assets have become increasingly attractive as safe stores of value. The Sotheby`s sale follows a string of other big diamond sales in recent years, including the USD 115 million Liz Taylor jewelry sale in 2011.

“I generally think of top-quality diamonds not in terms of wealth creation, but instead as wealth retention, tangible assets that have global appeal and global value,” said Lisa Hubbard, chairman of Sotheby`s North and South American International Jewelry division

Sotheby`s released very little information about the age or origin of the USD 14 million stone. It would only say that it`s not “historic” in terms of age.

Still, the pear-shaped super-bling was a great investment for the seller. And, if nothing else, a great accessory for the buyer.

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

How China’s rich are souping up Rolls Royces

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

Listen to the Article (6 Minutes)

From in-built fridges to partition walls, Rolls Royce owners in China are investing a sizable sum of cash to soup up the interiors of their ultra-luxury vehicles, the company`s CEO Torsten Muller-Otvos said.

“In China, people are investing quite substantial money in the interior in the cars – not so much flashy colors on exteriors – very much interior driven: fridges, (safe) boxes, humidors, partition walls, are attractive in the market,” Muller-Otvos told CNBC on the sidelines of the Shanghai Auto Sow on Friday.

Outside the mainland, he added, some high net worth individuals are going to even greater lengths to embellish their Phantom or Ghost, pointing to extravagances including starlight headliners, customized embroidery of family crests, jewelry boxes and champagne coolers as the most popular.

Muller-Otvos noted that while China – the company`s second largest market after the United States – has witnessed a pullback in sales following the government`s recent crackdown on conspicuous consumption among government officials, he is not worried about the slowdown in demand.

“We have seen a certain slowdown in demand. It may be a temporary effect, let`s wait and see, I`m not really worried,” he said.

Taking into account the growth in ultra-high net worth individuals in the world`s second largest economy, that should signal a “bright future”, he concluded.

China`s ultra-high net worth population is expected to increase by 9 percent to 12,250 in 2013, while the combined net worth of these individuals will rise by 8 percent to reach $1.7 trillion, according to data from wealth intelligence firm Wealth X.

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

Mark Mobius: Here’s why I am still bullish on China

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

Listen to the Article (6 Minutes)

Leading emerging markets investor Mark Mobius is still bullish on China, despite the country`s disappointing economic growth in the first quarter.

“The new administration in China is just getting its game going, I think that growth engine will continue and so we remain bullish on China,” Mobius, executive chairman of Templeton Emerging Markets Group, told CNBC on Thursday.

China, which is currently the world`s second largest economy, will grow at 7-8 percent per annum over the next few years, forecast Mobius.

Although China has seen a 10 percent correction in mainland equities over the past two months, Mobius remains confident, and said that any investment exposed to Chinese consumers could prove attractive.

“Once the banks get their balance sheets in order, they will be attractive as they are consumer related, along with the oil companies, which are consumer led to some extent,” he said.

Mobius, who has more than 30 years of experience in emerging market investing, also favors frontier markets. “Frontier markets are where the action is now. When you look at Africa, there are lots of liquidity problems but it still looks very compelling,” he said.

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

Sliding Yen could herald new Asia crisis: Strategist

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

Listen to the Article (6 Minutes)

The falling yen coupled with a fall-off in Chinese investment inflows “increasingly resembles” the run-up to the 1997 currency crisis, said Albert Edwards, Societe Generale`s ultra-bearish strategist.

“It seems investors may have forgotten that yen weakness was one of the immediate causes of the 1997 Asian currency crisis and Asia`s subsequent economic collapse,” Edwards wrote in a global strategy note on Wednesday.

Also read: Global mkts: Yen firms, investors dump gold and crude 

Edwards, who recently returned from meeting clients in Hong Kong and Singapore, forecast the Bank of Japan will lose control of its recently launched program of aggressive monetary easing, leading to spiraling inflation and an increasingly unsustainable debt position.

“If the market really believes the Bank of Japan is committed to the 2 percent inflation target (and I certainly do), then Japanese bond yields will quickly attempt a move above 2 percent,” he said.

“If the Japanese government bond yield begins to rise, then an unsustainable debt position becomes even more obviously unsustainable and the government will be obliged to ramp up its quantitative easing operations to pin yields at low levels.”

“I certainly expect accelerating quantitative easing to undermine the yen further, and the market to anticipate this,” he added.

Edwards warned investors they should expect money to pour out of Japan in the same way it did after the BoJ`s foreign exchange intervention in 2004.

“Who will be a beneficiary of this carry trade? Probably high yield GIIPS [Greece, Italy, Ireland, Portugal and Spain] bond yields and the euro. And hence the periphery will appear to have been `fixed`. Who will suffer? Germany, as the euro soars,” he said

A weak yen combined with deteriorating balance of payments situations in China and other major emerging markets is reminiscent of the mid-1990s, said Edwards.

“When I see a sharp rise in China` s real exchange rate and deteriorating Balance of Payment, it rings alarm bells. China is not the most vulnerable of the emerging markets currencies to a weak yen, but this conjunction could easily trigger a currency crisis as growth is crushed. High levels of foreign exchange reserves are no protection,” Edwards added.

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

Where’s gold headed? It’s anybody’s guess

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

Listen to the Article (6 Minutes)

As gold bounces back from its worst two-day sell-off in 30 years that spooked investors and upset market estimates, analysts remain divided on where gold prices are headed from here.

In the bear camp, Andrew Dale, Asia head of resources research at Macquarie Securities, told CNBC that gold doesn`t appear to have much steam to go beyond USD 1,400 an ounce.

“The investment drivers for the metal have come under pressure and there`s no reason right now to see any huge gains back to previous levels,” Dale said, citing easing inflation, the strength of US equity markets and outflows from exchange-traded funds as the major causes behind the weakness in gold.

The precious metal that hit a two-year low of USD 1,321 per ounce on Tuesday was trading 0.6 percent higher on Wednesday in Asian trade. It is still, however, down about 18 percent year to date and far away from its peak of USD ,1,920 reached in September 2011.

Gaurav Sodhi, resources analyst at investment firm Intelligent Investor, said the sentiment for gold has changed after a 12-year bull run and he doesn`t expect it to “alter” anytime soon.

“I think what we`re seeing today [Wednesday] is just a bounce and there could be further weakness in that gold price,” Sodhi said.

Last week news that Cyprus could be selling its gold to fund its debt scared markets and this could set the precedence for other European central banks to follow suit, Sodhi added.

But the bearish sentiment is contrasted by optimism that gold will head higher after this rout. According to HSBC, a recovery in jewelry and gold coin sales, stimulated by demand from India and China and mine expansion plans as productions costs fall will lead prices higher.

“It may take a long time for investor confidence to return. But we do believe gold is becoming oversold and that tighter supply/demand fundamentals and a still positive macroeconomic background, will eventually lead to a steady grind higher,” HSBC said in a note.

Bank of America Merrill Lynch Global Research backed that sentiment saying a pick up in jewelry demand should support the USD 1,500 an ounce level, adding that it`s “highly unlikely” that other European periphery countries like Portugal and Greece would start selling their gold.

Accelerating inflation, European central bank easing and emerging markets buying gold for reserves will support gold prices in the second half of the year, according to BofA Merrill Lynch Global Research.

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