Month: May 2013

Narendra Modi at FICCI: Draghi confesses to Pope: We are frustrated, too

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

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What do you do when the pope tweets about rising unemployment in Europe, but the trillions of euros you have pumped into the financial system fail to get the economy going again?

That was the question CNBC`s Geoff Cutmore posed to European Central Bank President Mario Draghi at the end of Thursday`s press conference.

Only hours before, the pope wrote on his official Twitter account: “My thoughts turn to all who are unemployed, often as a result of a self-centered mindset bent on profit at any cost.”

(Read More: ECB`s Draghi: Easy Monetary Stance as Long as Needed )

Draghi, usually quite circumspect in his answers, wondered for a second if he should speak his mind, before confessing:

“We are … frustrated, yes certainly. We view improvements in the financial markets. We think financial markets are the only and the necessary channel through which monetary policy is transmitted.”

For months, the ECB has been hoping its ultra-easy money policy would translate into an improvement for the economy. Draghi said the central bank had been closely “trying to examine reality, to see whether these impulses we transmitted to the economy get translated into better welfare, lower unemployment, better economic activity.”

(Read More: ECB Rate Cut Could Be Too Little, Too Late )

But the ECB`s latest loan survey showed lending to nonfinancial firms continued to contract in March, by more than one percent on an annual basis.

Still, Draghi said the ECB was not ready to put more risk on its balance sheet by lending directly to the economy.

“You don`t go around with helicopter money, throwing money,” he said. “In Europe you go through banks, you don`t have capital markets as you have in the U.S., and so we have to go via the banking system.”

(Read More: ECB Under Political Pressure to Do More )

Draghi also said people urging the ECB to do more should keep in mind its mandate, which is solely to fight inflation, unlike the Federal Reserve`s dual mandate on growth and inflation .

The pope`s remarks on Twitter notwithstanding, Draghi`s comments were all about the limitations of central bank action.

“Many of the problems that we see today in competitiveness in the labor market, in the tax area, don`t have anything to do with monetary policy, neither can they be fixed with monetary policy,” he said.

What can solve this then, given the lack of political willpower after a five-year debt crisis? Divine intervention perhaps?

–By CNBC`s Deep Bagchee; follow him on twitter: @DeepBagchee

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

Here’s why Ashton Kutcher buys Into Bitcoin

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

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The “bitcoin revolution” is here, and it offers an investing opportunity, Ashton Kutcher tells the TechCrunch Disrupt conference Wednesday.

“I think bitcoins are obviously becoming more and more relevant,” said the actor, who is also founder of the A-Grade venture firm.

“The fact that people are hacking bitcoins really hard, it almost hearkens back to when banks first started and they didn`t have safe safes and people were going into the banks and just robbing money out of the safe. It actually validates the value of the money itself,” he said. “I think the fact that you can buy drugs and ammo with it is actually (a) validator of the currency itself.”

(Read More: Bitcoin Continues Plunge After `Powerful` Attacks )

But there`s also huge potential for the technology behind the decentralized currency, Kutcher said.

Bitcoin is a digital currency that is open source and has no central authority. Transactions and minting of bitcoins is maintained by the users in the bit coin network. (Learn More: CNBC Explains Bitcoin )

“The bigger thing with bitcoin is not bitcoin itself, but what does that decentralized technology really do?” Kutcher said.

(Read More: Winklevoss Twins Are Bitcoin Moguls )

For example, Kutcher said that the same technology could be used for cybersecurity.

Because of cyberthreats, governments are trying to regulate the Internet in a way that does not keep users anonymous. By using the same technology as bitcoin, people could anonymously monitor each other on the Internet for criminal behavior and this civic participation would help eliminate government intrusion, Kutcher said.

“The notion that we could civically monitor each other in an anonymous way actually keeps the anonymity of the Internet. We don`t have to worry about big brother,” Kutcher said. “The same infrastructure that built out bitcoin could be used in the security industry for mass good.”

Check out these related posts:
Why Finland Leads World in Bitcoin Search Traffic
Buying With Bitcoins
Bitcoin More a Dotcom Stock?

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

How low can you go? Bar is set low for jobs report

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

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The bar is low for the April jobs report.

The government`s monthly employment report is expected to show improvement over March but still deliver a fairly weak picture of job growth when it is released Friday at 8:30 a.m. ET Economists expect to see 145,000 nonfarm payrolls added in April, and the unemployment rate steady at 7.6 percent, after March`s disappointing 88,000 payrolls, according to Thomson Reuters.

But markets are already looking for a lower number, and traders say whisper numbers range anywhere from 110,000 to 130,000. Some of the issues are seasonal, and some may be weather-related due to the cold, snowy spring. But there should also be impact from government budget cuts, and a big factor is expected to be the reluctance of employers to hire in a slowing economy.

“I think April should be better than March, but 150,000 is roughly where we think things are going to be,” said Goldman Sachs Chief US economist Jan Hatzius. “The economy isn`t growing that fast.” Hatzius expects to see that level of job growth for several months before the economy picks up.

(Read More: Stocks and Bonds Fight, but Maybe Both Are Right )

Mark Zandi, Moody`s Economy.com chief economist, has a lower assessment of job growth, at just 120,000. “I don`t expect any substantive improvement in employment until later in the year. I think it`s going to go sideways for the next six months,” he said.

“We will downshift for the next six months, as we get through the sequester, health care and tax-increase effects,” said Zandi. “The fiscal headwinds are blowing really hard, and it`s hard for me to see how this doesn`t do some damage to the job market.”

The public sector lost an estimated 20,000 jobs in April, including from state and local governments, according to Diane Swonk, chief economist at Mesirow Financial. The “ sequester ,” or automatic budget cuts that hit all departments of the federal government, and especially defense, has sent a ripple across the economy.

“We lost some jobs, and got some employment cuts, but there was mostly collateral damage in the private sector for the sequester, not so much the government sector,” she said. Swonk expects a total of 140,000 nonfarm payrolls for April. “The numbers get bigger as we get to May and June.”

Swonk also expects another wave of teacher layoffs at the end of the school year. “I think we`ve got to get through June. I think we`ll see some better news as we get into July and August, but I think we`re also going to lose some educators. The pink slips are coming through,” she said.

Zandi said the shortened hours of workers furloughed due to cutbacks at government contractors could show up in the April report. He is also watching to see if there is any support of anecdotal evidence that employers are cutting back workers` hours so they would not have to pay health care under the new law.

(Read More: Goldman CEO: US Growth Potential Too Big to Fear )

“I think the key statistic to watch is hours worked. It was the one piece of encouraging data in last month`s report. If health care were having an impact you think it would show up in hours worked,” said Zandi.

The average workweek increased in March by 0.1 to 34.6 hours.

One silver lining in recent data is that jobless claims have shown improvement, indicating employers are not broadly cutting back on workers. Weekly unemployment claims fell by 18,000 to 324,000 for the week ended April 27, the lowest since January, 2008. That is the second week of decline. Importantly, the survey week for the April employment report did not see an improvement in claims, so the recent numbers are not a factor for the monthly number.

“I would expect claims to start rising again in the near future. I do expect the economy to slow, and it already is because of the fiscal headwinds,” Zandi said. He also expects companies to sit on the sidelines for a while. “That`s kind of their MO. It`s not like they increase layoffs. They just pull back on hiring and they don`t feel like filling jobs.”

How the markets will react to the number has yet to be seen, after two days of high volatility, on the downside for stocks after the Fed meeting, and on the upside after the European Central Bank cut rates .

(Read More: Markets Don`t Want a Strong Economy: Doll )

As for stocks, “They don`t have an anchor point here so it`d just tough to tell,” said Art Cashin, director of floor operations at UBS. “It depends where the money flows and some of its carry trades.”

In the bond market , yields rose Thursday as stocks rallied. “We certainly do care what the Fed thinks about the jobs report. If the unemployment rate is down because of a drop in the participation rate, then that`s not a worry,” said David Ader, chief Treasury strategist at CRT Capital. “Whatever tomorrow brings, if it`s another soft number – 120,000 or a bit lower – we are seeing this spring stall, which we have seen several times in the last few years and it`s very consistent. We`ll probably buy into that.”

Besides the jobs report, there is ISM nonmanufacturing data and factory orders, both at 10 a.m.

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

Investment bank bonanza: Best year since’02

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

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Despite regulatory pressure and the general negative public stigma, big banks are getting still bigger, and big American banks are doing even better against their global competitors.

The latest evidence of reasons not to feel sorry for large financial institutions comes from what they`re doing on the investment banking side.

As a share of the global total, US institutions have the largest slice of that business in 11 years, according to the latest data from Dealogic.

(Read More: Banks Rack Up Profits, but Investors Aren`t Happy )

In that period, the banking industry has seen a near-total collapse of the global financial system, the worst economy in more than 80 years and a regulatory regime aimed at retaliating against the banks for the damage they caused.

And yet, investment banking revenues have totaled USD 11.4 billion so far in 2013, 8 percent more than in the same period in 2012, which was a pretty good year.

That total is good enough for half of the global revenues, up from 47.5 percent last year and the greatest share since the 54.8 percent total in 2002, when the subprime mortgage market was just beginning to heat up. Risky home loans eventually would tank and trigger the global credit crisis.

(Read More: Cheap Money Bankrolls Wall Street`s Bet on Housing )

Though margins have been a concern, bank earnings have plowed to record highs.

The top five US bank holding companies-JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Citigroup (NYSE: C),Wells Fargo and Goldman Sachs (NYSE: GS)-had USD 8.8 billion of assets at the end of last year, up 3.5 percent from 2011.

The only modest downside has come from merger and acquisition revenues, which have fallen 19 percent, to $4.8 billion. But even there, U.S. banks are dominating the field with a 56.3 percent market share, up from 52.6 percent in the 2012 period.

Congress has sought to stem the possibility of banks` becoming too big to fail (TBTF) again, with questionable results.

In an analysis for clients, FBR Capital Markets sums up the battle this way:

“Critics of the largest US banks are concerned that another financial crisis will produce additional taxpayer funded bailouts. They note that in the past several years, the largest institutions have grown significantly while smaller institutions have failed.

“There are concerns that these largest institutions by virtue of an implied government backstop and their status as TBTF receive a subsidy by the markets that [gives] them an unfair advantage vis-a-vis smaller banks.”

(Read More: Foreign Holdings of US Securities Have Exploded )

But FBR concludes that legislation aimed at making sure big banks have 15 percent capital against assets probably won`t do much to slim down banks or affect their profitability in a meaningful way.

“At this time we do not see a materially negative outcome on the largest banks. That said, we would not be surprised for the regulators to work on tightening standards and requiring additional capital to have a provision they can point to as specifically ending TBTF.

“A downside scenario could see more aggressive oversight of certain banks regulators deem to have overly complicated and interconnected business lines and force the divestment of certain activities or higher capital charges.”

In the meantime, big banks keep chugging along.

The scorecard for investment banking has JPMorgan in the lead, with an 8.5 percent share of the pie, Bank of America second at 7.6 percent and Goldman Sachs coming in third with 6.6 percent.

Follow Jeff on Twitter @JeffCoxCNBC.com.

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

‘Dr Copper is sick,’ Dennis Gartman Says

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

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The move lower is base metals portends poorly for the US and global economies, commodities trader Dennis Gartman said Wednesday on CNBC.

“ Dr Copper Is Sick,” he said, adding that prices for aluminum and zinc were also heading lower. “And they don`t argue for good economic growth.”

On “ Fast Money ,” Gartman said that while the growing copper (CEC:Commodities Exchange Centre: @HG.1) inventories in Shanghai, London and the Comex (Exchange: .BRHG-XX) were nothing new, the move in other commodities were cause for concern.

“I`ve been quite bullish of the economy here in the United States, but I think the base metals markets are making me look at things from an economic perspective a tad more pessimistically than might have only a very short while ago,” he said.

“The base metals do speak loudly, and they`re speaking very bearishly.”

Gartman also looked at pricing in one precious metal and crude oil.

“Gold (CEC:Commodities Exchange Centre: @GC.1) turned over today and turned over badly. I think it`s time to start selling gold after this very strong rally,” he said. “Crude oil (New York Mercantile Exchange: @CL.1) started to move down yesterday and collapsed today.

As a whole, commodities were providing a warning signal.

“Things start to look very ugly in the world of commodities, and I really do think that that portends ill for the domestic – and for the global – economy,” he said.

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

Where do the world’s happiest consumers live?

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

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Indonesia`s consumers are the most optimistic in the world, followed by those in India, the Philippines and Thailand, according to a survey published on Wednesday by market-research firm Nielsen.

Asia-Pacific countries made up seven of the 10 most confident countries globally in the Nielsen survey of global consumer confidence and spending intentions, conducted between February 17 and March 8.

The survey found that Indonesia is the world`s most optimistic country with a confidence index of 122 points in the first quarter of the year, up five points from the final quarter of last year.

(Read More: Golden Week Loses Its Shine for Hong Kong )

“Indonesian consumers are particularly buoyant due to strong domestic conditions,” Catherine Eddy, managing director for Nielsen in Indonesia said in a statement.

“An increase in the minimum wage has also resulted in more disposable income for those in formal employment, and there is a clear trend of consumers trading up to premium brands. As domestic consumption is the mainstay of GDP in Indonesia this augurs well for growth in the years ahead,” she said.

The minimum wage in some parts of Indonesia rose 40 percent earlier this year, in response to protests and threats of factory closures.

(Read More: Flood of Easy Money Putting This Region at Risk )

Southeast Asia`s biggest economy has enjoyed annual growth of more than 6 percent in each of the past three years. It has proved resilient in the face of weak growth globally, and expectations for a rise in consumer spending have raised the country`s appeal as a destination for foreign investment.

The country`s stock market has rallied about 15 percent so far this year.

Nielsen`s index of consumer confidence globally rose two points to 103 in the first quarter of the year. The top 10 countries listed for high levels of consumer optimism were: Indonesia, India, the Philippines, Thailand, Brazil, the United Arab Emirates, China, Hong Kong, Malaysia and Norway.

(Read More: Chinese Way of Doing Business: In Cash We Trust )

Asian countries where the Nielsen survey noted a significant rise in optimism among shoppers included South Korea and Japan; the latter of which has embarked on a concerted bid to revive economic growth and end two decades of deflation.

Nielsen`s consumer-confidence index for Japan rose 14 points to 73 in the first quarter.

(Read More: Conflicting Japan Data: What They Tell Us )

According to Nielsen, saving money was the main priority for consumers in the Asia-Pacific region, with 62 percent of those surveyed indicating that they save spare cash once essential living costs have been covered.

Asia-Pacific`s consumers are at least two times more likely to have spare cash than in any other part of the world, Nielsen said.

“The Asia-Pacific consumer continues to gain optimism, yet remains quite discerning and frugal, and will continue to prioritize saving and investment,” said Therese Glennon, APMEA region consumer insights leader at Nielsen said in a statement.

– By CNBC.Com`s Dhara Ranasinghe; Follow her on Twitter: @DharaCNBC

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

Watch what India’s Central Bank says, not does

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

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A widely-anticipated cut in interest rates by the Reserve Bank of India (RBI) on Friday is unlikely to get markets too excited. But what the central bank says just might, economists say.

The RBI is tipped to lower its key repo rate by 25 basis points to 7.25 percent to boost a weak economy, a move that would come in a week where the European Central Bank is expected to lower rates and the US Federal Reserve has held fast to its commitment to maintain aggressive monetary stimulus.

Falling commodity prices and signs that price pressures are easing suggest that in addition to a rate cut, India`s central bank could shift to a dovish stance on monetary policy, which in turn could pave the way for more rate reductions in the months ahead, analysts said.

“We expect a very substantive change in the tone of the statement because, on balance, the last statement was on the hawkish side,” said Deutsche Bank Chief Economist Taimur Baig.

“We expect a major shift towards a dovish tone given the rather dramatic changes in commodity prices in the last few weeks,” he added, referring in particular to a slide in oil and gold prices that bode well for India`s inflation outlook.

Jitters about the global growth have helped knock oil and gold prices down roughly 10 percent each since the RBI last met in March and delivered its second rate reduction of the year.

India`s key inflation gauge 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 in the past.

Baig, who has forecast monetary easing at the RBI`s May and June meetings, said he might be inclined to factor in more rate cuts depending on the tone of the statement.

Analysts said there was also a chance that the RBI could also ease tight monetary conditions by lowering its cash reserve ratio (CRR), currently at 4 percent, on Friday.

“A 50 basis point CRR cut to 3.50 percent ranks high on the cards for us as a complement to a 25 basis point repo rate cut to 7.25 percent,” analysts at Mizuho Bank said in a note. “And if the RBI unexpectedly takes a less dovish stance in favor of price stability we think a CRR cut will be preferred to a repo rate cut.”

What Next?

Glenn Levine, senior economist at Moody`s Analytics in Sydney, said there was scope for a more aggressive monetary policy from the RBI given a weak economy.

Data on Thursday highlighted the fragile outlook for Asia`s third largest economy. The HSBC Manufacturing Purchasing Managers` Index dipped to 51.0 in April from 52.0 in March, falling for a second straight month to its lowest level since November 2011.

India`s economy grew at a decade-low pace of 5 percent in the fiscal year which ended in March 2013 and analysts said the focus will be on the next set of GDP numbers due later this month.

“The Q1 GDP numbers come out at end of May and if that shows deterioration in growth, the RBI will probably cut rates in June,” said Levine.

Some analysts said they would not rule out the prospect of an aggressive half-point rate cut on Friday.

“Markets are expecting a 25 basis point cut and there is a slim chance that they (RBI policy makers) could be aggressive and deliver a 50 basis point cut,” said Sanjiv Dhawan, managing director at JV Capital Services in Mumbai.

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

Apple Bonds: ‘Market is going to be all over it’

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

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Apple`s groundbreaking move to issue debt could be just the thing the battered company needs to rehabilitate its image with investors.

The tech giant Tuesday booked a USD 17 billion deal that will come in six parts, with pricing of the floating- and fixed-rate debt combination near top-quality investment grade.

The debt offering included fixed and floating-rate notes, ranging from 3 years to 30 years, with extremely low interest rates such as 0.45 percent for the three-year fixed and 3.85 percent on the 30-year.

The bonds were priced to yield more than their comparable Treasury bonds but less than previously expected. The USD 4 billion offering of five-year fixed notes was expected to yield 0.40 percentage points more than the comparable Treasury bond; the USD 5.5 billion in 10-year notes, 0.75 percentage points more; and the USD 3 billion in 30-year notes, 1 percentage point more.

Sources said the company is expected to offer USD 55 billion in debt by 2015, and that total orders for the first round alone were more than USD 50 billion, above original estimates of USD 42 billion.

International demand was huge, underwriting sources said – 15 to 20 percent of overall orders.

On its surface, the record-setting debt will be used to make good on a share buyback program.

Closer to the core, though, the move will show Apple (NASDAQ: AAPL) is serious about rewarding shareholders who have stuck with the company, and will provide a carrot for a new wave of investors in the fixed income space.

(Read More: Apple Opens Bond Deal, Which Could Break Records )

“The market is going to be all over it,” said Todd Duvick, corporate credit analyst at Stifel Nicolaus. “It`s a name that everyone follows and they`re comfortable with. From a credit perspective it`s going to be a good diversification name for a lot of accounts.”

Cantor Fitzgerald analysts predicted a “food fight” once the issuance hits.

“It`s been kind of telegraphed since they released earnings,” said Jeff Glenn, vice president of trading at Breckinridge Capital Advisors. “The deal has been well-received. …From the last update, the deal is already very over-subscribed.”

While Apple has some USD 170 billion cash on its balance sheet, about USD 100 billion is tied up overseas, making the debt issuance necessary.

(Read More: Apple Earnings Beat, Company Hikes Dividend )

“Buyers are going to try to elbow each other out. They`re going to try to put in big orders, and they`re going to get a small percentage of their orders filled even if it ends up being USD 15 billion,” said Marilyn Cohen, CEO at Envision Capital Management.

“Aren`t they the lucky guys that they`re doing this at almost generational lows in yields?” she added. “All very impressive, in spite of stubbing their toes.”

(Read More: Why Apple`s Still a `Buy` )

The move also comes as Apple`s stock is finally showing signs of life after stumbling more than 18 percent this year. Shares rose more than 3 percent in Tuesday trading. The stock also got a boost on reports Tuesday that Alisher Usmanov, the richest man in Russia and Britain, has bought a USD 100 million stake. (Read More: Russia`s Richest Man Buys USD 100 Million Apple Stake )

Despite earnings that raised concerns over margins, the stock`s recent performance has been positive, a reflection that the buyback program and the debt that will be issued to cover it have helped stoke new interest.

“This is truly a commitment to execute on that USD 100 billion buyback to shareholders,” said Amit Daryanani, equity analyst at RBC Capital Markets, which has an “outperform” rating with a USD 550 price target on Apple. “This stock is very undervalued. The gross margin pressures, while they are real, might not be as severe as the stock price is implying.”

– Kayla Tausche contributed to this story.

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

Fall in new factory orders to trigger China action?

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

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China`s relatively benign manufacturing data triggered little reaction from Asian markets on Wednesday, but analysts said the real story was the substantial fall in new factory orders, which they believe has the potential to trigger stimulus action from the government.

China`s official Purchasing Managers` Index (PMI) for April dipped to 50.6 from a March figure of 50.9, according to data from the National Bureau of Statistics, missing a Reuters forecast of 51.0. A figure above 50 indicates expansion, while sub-50 number shows contraction.

(Read More: China Factory PMI Raises Doubts About Economy`s Strength )

The surprise fall didn`t alarm the market watchers CNBC spoke to, but they expressed concerns over a sub-index measuring new orders, which fell from 51.7 in April to 52.8 in March, its lowest level since January.

“The headline figure was pretty much the same as March, but that is not the main story,” said Alistair Chan, economist at Moody`s Analytics. “The biggest surprise drop was in new export orders which showed a lot of manufacturers are experiencing a slowing in export sales.”

Chan said the upshot was that China`s government was now more likely to implement stimulus measures, which could lead to a bounce in China`s economy late this year.

Evan Lucas, market strategist at IG Markets, said the dip in the new orders suggested that China still faces headwinds from Europe`s debt crisis.

(Read More: Why China Market Bulls Aren`t Surrendering )

“It is another bit of skepticism on Chinese growth. The drop in new orders… reflects the softness coming from China`s biggest trading partner Europe,” he said.

“This could probably increase the likelihood that China will stimulate, which could explain why the Australian dollar traded slightly up following the announcement,” he said. The Australia dollar is especially sensitive to economic data from China, its biggest export market.

Beijing has implemented a slew of stimulus measures since later 2011 to avert a hard landing, including two interest rate cuts and three reductions in lenders` reserve requirement ratios (RRR). The government also unleashed a $157 billion infrastructure stimulus package late last year to keep the economy chugging along.

There has been no major stimulus since, and experts believe any further boost from the government will come in small doses.

(Read More: Has China`s Economy Hit a `Dead End`? )

“We could see more monetary stimulus like more bank lending, the approval of more public infrastructure projects and potentially the easing of restrictions in the housing market,” said Chan.

Already, in mid-April, the banking regulator relaxed rules of bank lending to local governments in a bid to boost economic growth.

“We have already seen an increase in bank lending which is a sign that the government is concerned about weak growth,” said Chan, who forecast China`s economy to grow 7.9 percent this year.

Analysts have been growing increasingly concerned about outlook for China`s economy after its 2012 growth of 7.8 percent was the weakest level since 1999.

First quarter gross domestic product growth was also disappointing, coming in at a worse than expected 7.7 percent, down from 7.9 percent in the previous quarter. At the weekend, data showed China`s industrial companies had grown by around 5 percent last weekend, markedly below a 17 percent rise in January and February, casting worries over the health of Chinese industrial sector.

A slowdown in China is a worry for investors worldwide, especially as other major economies and regions including the U.S. and Europe are showing signs of slowing. Last Friday US GDP logged 2.5 percent growth, below expectations of 3 percent. The euro zone economy shrank 0.6 percent quarter on quarter in the last three months of 2012.

(Read More: Why China`s Property Market Is Getting Scary )

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 rate cut just became even more likely

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

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The odds of a rate cut by the European Central Bank (ECB) increased significantly on Tuesday after euro zone inflation eased to 1.2 percent in April, the lowest level since February 2010.

To give you an idea of just how important that number is,economists were expecting inflation of 1.6 percent and the reading for March was 1.7 percent. The ECB`s own inflation target is 2 percent.

So when ECB policymakers gather in Bratislava on Thursday, inflation is going to be furthest from their minds.

(Read More: Inflation Fall, Joblessness Point to ECB Rate Cut )

Instead, record unemployment in the euro zone could refocus attention on the region`s recession. The unemployment rate in the single currency zone is now at a record 12.1 percent and 19.2 million people are out of work, the highest number since the creation of the euro in 1999.

Youth unemployment rates look scary, with 59.1 percent of Greeks under the age of 25 unemployed, while 55.9 percent of young Spaniards are without work.

“Latest comments by a number of senior ECB officials indicate that an interest rate cut is very much on the cards for Thursday, and we think the bank is more likely than not to act. If the ECB does hold fire on interest rates next Thursday, it is very likely only delaying the inevitable,” Howard Archer, chief U.K. and European economist at IHS Global Insight wrote after Tuesday`s data release.

Already, there are fears that southern Europe`s recession is spreading north. In a poll by Reuters, 43 of 76 economists said they expected the central bank to cut rates by 25 basis points to a new record low of 0.5 percent.

(Read More: Spain`s Economic Siesta Continues )

But according to asset manager Coutts, cutting rates alone won`t be enough and the ECB should pump money into the economy via a TARP (Troubled Asset Relief Program)-like scheme. That program was created by the U.S. government in an attempt to stem the financial crisis.

“Non-functioning banking systems are the issue, rather than an absence of liquidity. So for ECB action to be truly effective, we think it needs to include direct lending by either the ECB itself or some supra-national agency (e.g. the European Investment Bank), bypassing the dysfunctional banks,” Norman Villamin, Europe chief investment officer at Coutts said last week.

The hopes of an ECB rate cut have buoyed markets over the past week. The STOXX 600 index has risen 5.2 percent over the past two weeks, while bond yields have fallen across the euro zone, with Italian 10-year yields falling to 3.88 percent and Spanish bond yields falling to 4.11 percent.

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

“When it comes to financial conditions, it`s just the sovereign that`s benefiting from the more favorable perceptions of Spain. Borrowing costs for businesses and households remain punitive and show how the transmission mechanism is still impairing the European Central Bank`s monetary policy,” Nicholas Spiro, managing director of Spiro Sovereign Strategy said on Tuesday.

— By CNBC`s Deep Bagchee; Follow him on twitter: @DeepBagchee

Copyright 2011 cnbc.com

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

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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