Month: June 2013

Yellen should be next Fed chief: ex official

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

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Vice-chair of the Federal Reserve Janet Yellen is by far the most credible successor to central bank chief Ben Bernanke, former Fed Governor Robert Heller told CNBC on Wednesday.

Heller’s call comes amid talk that Bernanke could leave his post at the end of his term in January after US President Barack Obama hinted at the Fed chief’s departure in a television interview on Monday.

“Janet Yellen has the best resume for the job, bar none,” Heller told CNBC Asia’s “Squawk Box.”

“She has been a Fed insider for a long time… She has earned the job and is well qualified and Obama is also under pressure to nominate more women, so he would have to tell his own constituency that Janet wasn’t qualified and she is,” he added.

Yellen, aged 66, has been Fed vice chair since 2010 and is viewed as a strong contender to be the next head of the US central bank.

A Reuters poll on June 12 found that an overwhelming majority of economists predicted she would get the job.

Other contenders include Harvard economist Lawrence Summers, Timothy Geithner, Obama’s first-term Treasury secretary, Roger Ferguson, chief executive officer of TIAA-CREF, which manages retirement funds for many US schools and hospitals, and retired Fed vice-chairman Donald Kohn.

Heller said that if Yellen, who is known for her dovish stance on monetary policy, becomes Fed chief she could surprise markets with some bold initial moves.

“There is that irony that if someone is known as a dove, they first have to show that they are tough. So one would expect some of her early actions would be to surprise people on the hawkish side just to show she is macho,” he added.

When to Unwind QE?

Fears over the Fed moving to taper its USD 85 billion a month quantitative easing program has sent shock waves through financial markets in recent weeks.

A two-day Fed meeting ends later on Wednesday and is hotly anticipated as markets try to assess the Fed’s next move.

Heller said he expected the Fed to start unwinding its monetary stimulus in December.

“I think tapering will start in December or a bit earlier, the economy is doing reasonably well, muddling through with 2 percent growth. The Fed has leeway to start tapering off, if it were me I would start tapering right away,” said Heller.

He said that the biggest risk regarding the end of quantitative easing was not ending the program.

“The biggest risk is continuing down this road and saying just a little bit more and all will be well. All will not be well,” said Heller.

“We are building up enormous Federal debts and the Federal Reserve is buying up the entire Fed deficit and it’s being added to the enormous debt load that the country is under… that is a road to a disaster in the long run,” he 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

This man could be Russia’s next leader

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

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He helped put Russia’s economy back on track after the 1998 rouble crisis, and analysts say he’s the “only man” that could disagree with President Vladimir Putin over the economy, making him possibly Russia’s next prime minister. The only trouble is: Alexei Kudrin might not want the job.

The former minister of finance is widely tipped to replace Prime Minister Dmitry Medvedev, whose popularity has declined in public polls of late amid speculation of a growing rift with President Putin. Kudrin, on the other hand, is well known to economists and well-respected by the Russian public for his previous performance in government.

During his 11 years as the minister of finance from 2000 to 2011, Kudrin helped restore Russia’s public finances which were damaged after the 1998 currency crisis, when the government devalued the rouble and defaulted on its debt.

Speaking to CNBC at the Saint Petersburg International Economic Forum (SPIEF), Kudrin said that he was “not the person hiring” in the government and, as such, running the economy was not up to him.

Asked whether he would return to serve the economy again since public and economic opinion was so positive about his abilities, Kudrin was evasive.

“Of course, I’m ready to do that but to do that effectively I need some power and empowerment,” he remarked. “So far,I don’t see that the proper conditions have been created for me to do that.”

Despite the sharp rise in oil prices over the past decade Kudrin managed to keep fiscal policy relatively conservative. This allowed for a build-up of Russia’s oil funds which helped Russia withstand the global crisis in 2008 and 2009, Liza Ermolenko, emerging markets economist at Capital Economics, told CNBC.

“If this appointment does happen, it will signify a shift towards a more reform-orientated approach in policy making,” Ermolenko said. “[He] has a very good reputation among international investors and analysts, so his return to the government will definitely be welcomed by the markets.”

Russia is struggling with five consecutive quarters of slowing growth. In April, Russia’s economic ministry cut the country’s growth forecasts for 2013 from 3.6 percent to 2.4 percent. Kudrin told CNBC that to reverse Russia’s slowdown, the government needed to reform its business climate and dependency on natural resources for growth.

“I would like to see a comprehensive program to decrease Russia’s energy and oil dependency,” he said.

“Growth should come from other areas, for instance,transportations and communications but the government should also strive to make the rules transparent for investors to encourage investment.”

He said that Russia’s leaders had “not fully appreciated” the changes in Russia’s economic landscape and that the “weight of this under-estimate” was weighing on the country’s growth prospects. The system of governance as it stood was “not adequate for what we’re facing.”

“I talk extensively to foreign investors and institutions and they say that what they want to see is a fair set of rules [in the business environment] and transparent regulations.”

The country has been accused of making slow progress on structural reforms amid concerns over its over-reliance on a waning oil sector and signs of social unrest if the latest protests against Putin are anything to go by.

Furthermore, with relations between the president and prime minister – who was charged with reviving Russia’s economy – seemingly frosty, there is further reason to believe that Medvedev could be replaced by Kudrin, who is currently the dean of the Faculty of Liberal Arts and Sciences at St. Petersburg State University.

The one who can say ‘no’ to Putin

“The current prime minister is neither popular nor very effective and is increasingly described as hapless. Kudrin, on the other hand, is much respected in financial markets as well as in international policy circles

more broadly for being a credible economic reformer,” Marcus Svedberg, chief economist at independent asset manager East Capital, said.

Svedberg said that Kudrin was a “political heavyweight” who can stand up to the multitude of vested interests circulating in a resource economy like Russia. “And he is allegedly one of few, perhaps the only one, that can disagree with the president.”

The most difficult job as finance minister, Svedberg added, is “having the ability to say ‘no’.”

“Kudrin [said ‘no’] for over a decade and ultimately left when the prime minister did not listen. He should thus be well prepared for the job if offered to him, and it would be difficult to imagine a better prime minister for Russia at this particular point,” Svedberg said.

Kudrin resigned as finance minister in September 2011 due to disagreements with Medvedev over increases in military spending.

He has however shown a reluctance to enter the fray of government life again. He has reportedly been offered a number of ministerial positions but has so far declined the offers. Economists said that was due to differences in opinions on economic policy.

“I suspect that for now at least it is still quite unlikely that Alexei Kudrin returns to the government,”

Ermolenko said. “Only last month Mr Kudrin stated that he disagrees with ‘a whole range of decisions made by the government,’ which signals that significant changes are required before he changes his mind.”

Kudrin’s very public disagreement could be a sticking point for a Russian regime that likes to portray a united front. But Svedberg said Kudrin had been very careful in his choice of words.

“Although Kudrin left the government after a public disagreement with Prime Minister Medvedev, and has continued to criticize the government, he has made sure not to criticize President Putin. This means he is ’employable’ in this administration and has, according to rumors, already been offered several jobs. But he probably wants nothing below the premiership,” Svedberg 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

Oil set for further declines after ‘Black Thursday’

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

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Benchmark oil prices are set to decline further this week after the US Federal Reserve Chairman Ben Bernanke put markets on notice last Thursday that they will be weaned off the “easy-money” policies that have been so central to supporting risk assets such as commodities.

Dubbed “Black Thursday” by Commerzbank analysts, commodity markets suffered their biggest drop in a year and half, hit by bleak Chinese data and the Fed`s plan to slow its bond-purchase program by the end of the year.

The 19-commodity Thomson Reuters-Jefferies CRB index sunk 2.5 percent on Thursday, its sharpest decline since December 2011. Gold bore the brunt of the Fed-induced sell-off with bullion hitting a two-and-a-half year low. U.S. crude oil sank 3 percent. That helped ease the threat of triple-digits, offering a degree of relief for consumers.

Also read: Essar Energy reports pre-tax profit of $1.34 bn in FY13

Last week`s survey highlighted the risk of USD 100 US crude , but noted oil bulls needed a dovish Fed to take prices over the century mark. Furthermore, the critical level has proven a tough barrier to break and attempts to challenge the century mark had failed five times this year.

In terms of risk factors, strategists warned the jump in 10-year Treasury borrowing costs above the critical 2.50 percent mark on Friday, a near two year high, may be a negative cross-sector theme.

“This could very well turn into a summer of market discontent,” said Tom Weber, senior commodity advisor at Portfolio Managers, Inc. Commodity Futures and Options in Los Angeles. “The Question is: Are the bond vigilantes ready, willing and able to put the Fed to the test by pushing down prices, thereby raising yields?”

Dhiren Sarin, chief technical strategist for Asia-Pacific at Barclays also highlighted the risk from higher rates in the US: “The risk is the ongoing bond sell -off leads to profit taking in several other assets,” said Sarin, who has a bearish recommendation for oil this week. “Further, USD 100 tends to be a psychological hurdle for WTI and perhaps investors are tactically looking to go short against this level. However, we do not expect dramatic downside and would view weakness as a temporary correction.”

A little over 60 percent of respondents (eight out of 13) expect prices to ease further this week, about a third, or four respondents forecast prices to climb while one says prices will consolidate around current levels, according to CNBC`s poll. Jonathan Barratt, the chief executive officer of Barratt`s Bulletin, a commodity newsletter in Sydney said he established short positions, or bearish bets, on U.S crude at USD 99.04. “We went short at what now is a great level,” Barratt said. Looking into next month, Mark Waggoner of Excel Futures said US crude may drop to USD 84 as soon as Brent breaks USD 100.

US data this week – durable goods, new home sales and home price data on Tuesday are amongst some of the key scheduled releases – will be closely-watched by markets to determine how soon stimulus may start to be withdrawn.

Unless the data “relight the lantern at the end of the tunnel,” oil and the broader commodity complex is heading lower, Portfolio Managers` Weber 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

Is rebound in Japanese stocks for real?

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

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While stocks globally took a beating last week on worries about U.S. monetary stimulus ending and economic growth in China slowing, one major market staged a quiet comeback.

Japan`s Nikkei closed the week with a rise of over 4 percent, marking its first weekly gain in five weeks. The stock market opened 1 percent higher on Monday on weakness in the yen, before retreating slightly to trade flat around 13,227.

“Clearly a lot of volatility remains in global equity markets, but we believe that the Nikkei is on a generally upward trend,” said Makarim Salman, head of Japanese financials research at the brokerage Jefferies in Tokyo. “The yen is on a weakening trend and the earnings outlook has improved for Japanese corporates.”

(Read More: Brace for Data Deluge From Japan This Week )

Analysts said a move above 12,600 last week was positive for the Nikkei and the market should target the 14,500 level in the months ahead.

The Nikkei was knocked off a five-and-a-half year high in May as concerns about an end to US monetary stimulus , doubts about whether Japan`s radical economic policies can lift the economy out of the doldrums and a rebound in the yen encouraged investors to take profits on the market`s double-digit gains this year.

“The weaker yen is helping exporters and that`s the only difference between the Nikkei and other Asian markets,” said Desmond Chua, a market analyst at CMC Markets in Singapore.

The yen has weakened almost 5 percent against a broadly-robust dollar since hitting a two-month low earlier this month.

(Read More: Is the US Dollar Now Unstoppable? )

That`s helped Japanese stocks recover almost 7 percent from a two-month low hit in mid-June. Compare that with the SandP 500, which is down about 2.8 percent over the same period, and European shares which are down almost 3.5 percent.

Japan`s Topix index, which some analysts believe provide a better idea of underlying trends in Japanese stocks, is up more than 6 percent from a two-month low hit earlier in June.

(Watch Now: If You Buy Abenomics, Buy Now)

“Short-term volatility is still there given uncertainty over the Fed [US Federal Reserve], but we might start factoring in the positive impact of Japanese policies again and [Prime Minister Shinzo] Abe`s policies are also becoming a bit clearer,” said Chua.

Abe is widely expected to step up his efforts to reform Japan`s economy and improve its long-term growth prospects after next month`s elections to the upper house of parliament. On Sunday, the LDP made big gains in a Tokyo assembly election, which analysts say bodes well for the LDP`s performance in next month`s elections.

– 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

Volatility slams brakes on capital raising

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

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Global capital markets are reeling under the volatility brought about by the US Federal Reserve`s plans to wind down its monetary stimulus in the coming months.

While the global IPO (initial public offering) market is witnessing a pull back, bond market activity is currently at year-to-date lows as investors weigh the consequences of the Fed tapering.

For example, global debt markets saw only 213 deals in the week ended June 21 2013, the lowest year-to-date, according to global deal tracking firm Dealogic. The value of bond issuances stood at USD 66.7 billion – the third lowest so far this year.

“Bond market volatility is an immediate deterrent to debt issuance because companies cannot predict what the cost is going to be on issuing debt,” Uwe Parpart, head of research at Reorient Financial Markets told CNBC on Monday.

Yields on US Treasurys, which are used as a benchmark for pricing corporate debt, have since risen rapidly since May. 10-year Treasury yields have climbed, for example, from 1.62 percent to 2.52 percent currently.

The high yield debt space has taken a notable hit, with volume falling to USD 3 billion – the lowest since the first week of the year, which is typically a slower period for capital raising.

(Read More: Record Outflows FromUS Junk Bond Funds )

Junk bond issuances have boomed over the past year as companies took advantage of cheap borrowing costs alongside increased risk appetite. However, high-yield bonds are falling out of favor as an end to the Fed`s quantitative easing (QE) is expected to be followed by a rise in interest rates from record low levels, which would be negative for the price of bonds.

In the week ended June 12, investors pulled USD 6.48 billion out of high-yield bond funds, according to fund flow tracker EPFR, the second highest withdrawal since the company began tracking the funds in 2003.

(Read More: Junk Bond Volume Piling Up, but Trouble Lurks )

Reflecting risk aversion among bond investors, Kumar Palghat, founder and director of Kapstream, which runs fixed income funds, told CNBC that the firm has increased cash in their portfolio to 15 percent from 5 percent.

“The most difficult part about managing a bond portfolio now is you know the Fed has said they will start tapering off QE. We know the rate hike is a little further away in 2014-2015, but the market is going to anticipate the Fed at some point to start raising rates,” Palghat said.

(Read More: Bond Losses of USD 1 Trillion if Yields Spike, BIS Says )

IPO Pain

The IPO market is also beginning to feel the pain with the U.S. seeing the highest number of equity deals being withdrawn or postponed last week, according to Dealogic, year-to-date.

Brazil`s largest cement producer Votorantim Cimentos, for example, canceled its USD 3.46 billion IPO last week – the largest-ever IPO to be withdrawn or postponed in the US – due to unfavorable market conditions.

Even in Asia, Hong Kong`s IPO market is softening with casino operator Macau Legend Development considering cutting its fundraising size by almost half, according to Wall Street Journal, which also reported that hotel trust New World Development is delaying taking orders for its USD 1 billion IPO.

“When you have a bear market type of situation, people are withdrawing into cash and are reluctant to commit to anything. For an IPO this is the worst possible situation,” said Parpart.

Global equity markets suffered a broad-based selloff last week following the Federal Open Market Committee meeting in which Chairman Ben Bernanke said the central bank could begin to cut back on bond purchases “later this year,” if incoming data are consistent with its forecasts.

“You do not want to do an IPO when volumes are low and when the market is likely to continue dropping. It might just go belly up,” he added.

By CNBC`s Ansuya Harjani

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

Goldman joins bandwagon, downgrades China

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

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Goldman Sachs became the latest bank to downgrade China`s economic growth on Monday, saying tighter financial conditions and reforms are downside risks for the world`s second largest economy.

The bank cut China’s gross domestic product (GDP) growth forecast for the second quarter to 7.5 percent on the year from 7.8 percent previously. It also revised full-year growth estimates to 7.4 percent for 2013 and 7.7 percent for 2014, from 7.8 percent and 8.4 percent, respectively. The official growth target for the year is 7.5 percent.

“The recent tightening of the interbank market has sent a strong policy signal that the strong credit growth earlier in the year will likely not continue,” Goldman said in a note. “We estimate this to tighten the FCI [fixed capital investment] by another 30-40 basis points in the coming months, in addition to the FCI tightening of 100 basis points so far this year driven by the rapid yuan appreciation on a trade-weighted basis.”

China`s money market rates hit a record high last Thursday with the seven-day repurchase rate, a measure of interbank funding availability, rising above 10 percent, while the overnight repurchase rate jumped as high as 30 percent, creating panic among investors.

Despite the ongoing liquidity crunch, the country`s central bank – People`s Bank of China (PBOC) – has been reluctant to pump in cash and alleviate the credit squeeze. The bank said on Monday that overall liquidity in China`s financial system is at a reasonable level, Reuters reported. Interest rates were off last week highs, but still at elevated levels on Monday.

China`s recent attempts to tame informal lending and slow credit growth shows the government has focused priorities on reforms over growth, Goldman said.

“These policies help to foster more sustainable medium-term growth, but will test the government`s tolerance for a cyclical downturn,” Goldman said, adding that reforms from policymakers will be negative for economic growth in the near term.

Goldman has joined a slew of banks and international agencies that have downgraded China`s economic growth forecast in recent weeks, citing the government`s tolerance for slower growth amid implementing structural reforms. Nomura is going as far as to predict that GDP growth may fall below 7 percent in the second half of the year. China`s economy grew at its slowest pace for 13 years in 2012.

Fears of a hard landing in China have also been heightened by a series of economic data pointing to a pronounced slowdown in the second quarter. The closely-watched flash HSBC Purchasing Manager`s Index (PMI) fell to a nine-month low of 48.3 in June, worse than the final reading of 49.2 in May when the index moved into contractionary territory for the first time in seven months.

– By CNBC.com`s Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu

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

Brace for data deluge from Japan this week

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

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Japanese economic data are likely to be watched closely this week for solid signs of whether efforts to revive the world’s third largest economy are starting to work.

The rest of the region should have a relatively quiet week, although jitters about an unwinding of US  monetary stimulus and concerns about slowing economic growth in China could continue to drive market sentiment.
Inflation, household spending, industrial production and jobs numbers for May are all scheduled for release in Japan towards the end of the week.

“Japanese data due Friday are expected to show further gains in household spending, industrial production, manufacturing conditions and the labor market along with a further slowing in deflation,” Shane Oliver, chief economist at AMP Capital, said in a research note.

Economists polled by Reuters forecast Japan’s core consumer price index (CPI) was flat in May from a year earlier after a 0.4 percent decline in April.

Household spending is expected to rise 1.5 percent in May from a month earlier, compared with a 4.6 percent fall in April.

Last week’s data showed Japanese exports rose a stronger-than-expected 10.1 percent in May from a year earlier. Further signs of strength in the economy could boost sentiment in Japanese markets, which have sold off sharply in recent weeks amid some caution about the success of Japan’s economic policies.

India’s Deficit Woes

Elsewhere in Asia, Taiwan’s central bank meets on Thursday and India is expected to release its latest current account numbers on Friday.
India’s current account deficit hit a record USD 32.6 billion in the last three months of 2012, or 6.7 percent of gross domestic product, compared with about USD 22.3 billion in the previous quarter.

The figures are in focus as the rupee weakens against the dollar, pushing up the price of imports and threatening to exacerbate the deficit. The rupee hit a record low just shy of 60 per dollar last week.

Post-Fed Focus

After the Federal Reserve last week suggested that it could start to unwind its monetary stimulus program for the economy later this year, US economic data could also provide a steer for jittery markets.

US data released this week include durable goods, new home sales and home-price data Tuesday, and jobless claims and personal income numbers Thursday.

“The Fed said last week that they would look at economic data and if we see data showing general improvement, we could see more dollar strength,” said Chris Tedder, research analyst at Forex.com, referring to a rally in the dollar versus both major and emerging market currencies amid expectations for a tapering of Fed stimulus.

Investors were also expected to pay attention to developments in China, where there has been a severe strain in liquidity conditions over the past two weeks that has raised concerns about the financial risks facing the world’s second biggest economy.

“China’s cash squeeze has been completely overlooked over the last few weeks as the build-up to [Fed chief] Ben Bernanke’s speech [last week] reached fever-pitch and drowned everything else out,” said Evan Lucas, Market Strategist at trading firm IG.

— By CNBC.Com’s Dhara Ranasinghe, Follow her on Twitter:
@DharaCNBC

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

Feels overdone, but perhaps the selloff is justified

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

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Fears about the Federal Reserve unwinding its monetary stimulus have sent global markets into a tail spin this week and some analysts argue that the sell-off, rather than looking overdone, is in fact justified amid prospects for a major change in US monetary policy.

“I don’t think it’s an overreaction,” said Joel Stern, chairman and CEO of consulting firm Stern Stewart and Co on CNBC Asia’s “Squawk Box,” referring to a heavy sell-off in stocks, bonds, commodities and emerging market assets following comments from Fed Chairman Ben Bernanke on Wednesday that the days of easy monetary policy are nearing an end.

“I think it’s the beginning of something really quite terrible. I believe we’re going to have a major adjustment process,” Stern added.

On Friday, major Asian stock markets traded lower, tracking a sharp overnight sell-off on Wall Street. The MSCI Emerging Markets Index meanwhile fell over 1 percent, taking its losses for the past month to around near 9.5 percent.

While some market watchers say the sell-off is overdone, Stern said the reaction was justified, and investors should be very concerned about the impact of quantitative easing ending.

“Yesterday was a very important day… What prices do in markets is they ‘present value’ for the future, so today’s price reflects what is likely to happen in the future,” he said.

The Dow Jones Industrial Average and SandP 500 on Thursday suffered their worst day this year, closing more than 2 percent lower. The pain was not confined to equities, with gold prices also falling sharply and government bond yields spiking higher.

(Watch This: ‘Taper-Tantrum’ Overdone?)

“I wouldn’t say the market completely overreacted but there was partly an overreaction,” said Rob Aspin, head of equity strategy at wealth management group for Standard Chartered.

“The key message is that tapering will only occur if an improvement in the U.S. economy merits it, if the economy weakens then the tapering will be diluted. We don’t see tapering beginning until the first quarter of next year,” he added.

Uncertain Times

According to Bob Iaccino, chief market strategist at trading website Topsteptrader.com, the heavy sell-off in markets is to be expected given that the Fed has now outlined a timeline for when it might start to take back its monetary stimulus.

Fed Chairman Bernanke said on Wednesday said if the economy continues to improve, the asset-purchasing program that has helped fuel a rally in global risk assets could start winding down towards the end of 2013 and wrap up in 2014.

“When you look at what Bernanke said he gave a little bit of a schedule, which was a sooner than expected,” Iaccino told CNBC Asia’s “The Call.”

“He [Bernanke] was saying they would go on this path [tapering] if the economy continues on the trajectory they were going. The Fed has been wrong about their economic forecasts since the crisis started, so I don’t think anyone expects them to go on the path they laid out,” said Iaccino.

Stern said the end of the Fed’s quantitative easing program and headwinds facing other major economies raised the risk of a global recession next year and the prospect of further downside for risk assets.

“It’s possible we could dip into recession next year. I would say there’s a 70 to 75 percent chance of a recession,” 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

Allocations in emerging markets lowest since 2008

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

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Investor confidence in emerging markets is continuing to plummet, with a recent fund managers’ survey showing that equity investment in the group of countries has fallen to its lowest level since December 2008.

The BofA Merrill Lynch Fund Manager Survey for June showed that about 9 percent of asset allocators were underweight emerging market equities – the first underweight reading since 2009 and down from a 3 percent overweight position in May.

“A net 25 percent of the global panel say that emerging markets is the region they would most like to underweight in the coming 12 months – the lowest ever reading,” the BofA Merrill Lynch report said.

The bearish sentiment towards emerging markets is tied to investors’ growing belief that a hard landing in China is now the greatest tail risk to global markets, according to the survey. About 31 percent of the regional fund managers said that China’s economy will weaken in the next 12 months, compared with 8 percent in May.

“The biggest contrarian play in the market today is assets linked to China. The lows in emerging market equity and commodity allocations suggest the market has over-positioned itself for a shock from China,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research said.

Fears of a slowdown in the world’s second largest economy has led several major banks and international agencies in the past month to downgrade their growth forecasts for China in 2013, with some even calling for gross domestic product (GDP) to dip below 7 percent in the second half of the year. China’s official target for the year is 7.5 percent.

Emerging market equity funds, meanwhile, saw their largest outflow of the year with investors pulling USD 5.76 billion last week, according to data provider EPFR Global.

Stuart Oakley, managing director of Asian currency trading at Nomura said the emerging market sell-off has only just begun, and he expects the withdrawal of funds to accelerate when the Fed starts tapering on easing in September.

“There’s still a huge amount of foreign money invested in emerging market assets and in emerging market currencies. It could come out eventually,” Oakley told CNBC.

Where’s the Money Going?

As investors pull out of emerging markets, European equities are becoming more attractive, according to the BofA Merrill survey, which showed 6 percent of fund managers overweight the region’s stocks in June, a 14 percent swing from May when 8 percent were underweight.

“Equity allocations increased month-on-month across 13 of the 19 sectors assessed in Europe. The greatest positive swings came in telecoms, financial services, banks and chemicals,” the survey said.

Optimism within the region rose the most in the month, with 45 percent of European respondents expecting the euro zone economy to strengthen in the next year, up from 24 percent in the previous month.

“Investors can now see a certain level of stability returning to Europe’s economy and positioning for a recovery has started,” said John Bilton, European investment strategist at BofA Merrill Lynch Global Research.

The FTSEurofirst 300, a measure of top European equities, has jumped over 17 percent in the last 12 months.

– By CNBC.com’s Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu

Copyright 2011 cnbc.com

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Face masks, anyone? Singapore struggles with haze

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

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Smog so dense you can hardly see and people walking around with face masks on: scenes often associated with polluted Beijing actually describe Singapore, where the air quality has reached “hazardous” levels this week following burning to clear land in neighboring Indonesia.

Singapore`s Pollutants Standards Index hit 321 late on Wednesday, the highest since Southeast Asia`s prolonged haze crisis in 1997-1998 and well above the unhealthy threshold of 100.

Economists say the pollution levels are a bad omen for the economy which has been grappling with slow growth and high inflation.

A number of firms across the city-state have told workers to take precautions. Fast-food chain McDonald`s has stopped its delivery service, while significantly for food-loving Singapore, usually bustling cafes and restaurants have thinned out as consumers take the government`s advice and stay indoors.

“I looked forward to spending time in the green spaces in Singapore, but I haven`t been able to do that, I`ve been stuck inside,” said 39-year old British tourist Wendy McDonald, who is visiting Singapore with her family.

“There have been times when we would have normally planned to eat out but we`ve decided to stay in,” she said. “I am really worried about it, I don`t want to expose my kids to it, and I`ve developed a cough.”

The Singapore haze, an annual weather phenomenon caused by Indonesian crop burning, normally arrives around August to September, but this year the haze has come early and is much worse than normal.

The health impacts of the haze, which has a lingering smell of burnt wood, are a huge concern for local residents.

The Ministry of Health this week advised Singaporeans to limit prolonged or heavy outdoor activities as a result of the haze.

“There could be a significant impact on the economy this time round compared to previous years. If the haze gets worse the economic impact could be pervasive,” said Vishnu Varathan, market economist at Mizuho Corporate Bank.

According to Varathan, the impact on tourism will be particularly damaging for the Singapore economy which is increasingly dependent on domestic activity rather than exports, with the retail sector first in line for a hit.

Singapore`s economy grew at an annualized rate of 1.8 percent in the first quarter of this year compared with 3.3 percent in the previous quarter.

“On a domestic level the haze will have a clear impact on actual business activity as fewer residents will be out and about. It will also impact the level of visitors, as increasing numbers cancel trips. It will certainly impact retail, which will get the biggest impact from a slowdown in visitor arrivals,” Varathan added.

Staff at Lau Pa Sat, a famous “hawker centre” or food court in the city told CNBC that deteriorating air quality has hit customer numbers hard.

And according to Lau Chuen Wei, executive director at the Singapore Retail Association, retailers are experiencing a marked decline in traffic. Singapore is in the midst of the “Great Singapore Sale” that marks one of the busiest shopping periods of the year.

“Retail sale have declined by anything between 8 and 12 percent [because of the haze],” Lau said. “If this continues, the industry which is already faced with very high cost of operations, would certainly be badly hit and retailers, who are already struggling to hold on to their very slim margins, will see this being eroded further.”

On Thursday reports emerged that the Ministry of Manpower is considering issuing a stop-work order if the haze situation worsens severely and is mulling the closure of childcare centers and schools.

CNBC understands a number of corporations, including technology firm Blackberry, are sending daily emails to employees updating them on the situation and giving them the option to work at home.

“I used to live here and it was never this bad. I don`t think it would stop me coming back completely but I would definitely time my visit to avoid this time of year in future, while in the past I wouldn`t have even thought about it,” said McDonald, adding she would think carefully before planning her next trip to Singapore.

Mizuho Corporate Bank`s Varathan said office closures were unlikely as air conditioning systems mean office workers are relatively safe. However, industries where the majority of work is conducted outside could suffer a more severe impact, he said.

“We will see a slowdown in manufacturing, in port activity, rig-building, ship building, marine and offshore engineering activity,” he said.

On a broader scale, a severe worsening of the haze situation could go so far as to damage trade relations between Singapore and Indonesia, said Varathan, following reports on Thursday that the Singapore government had sent a delegation to Jakarta to discuss the deteriorating smog situation.

On the flipside, certain pockets of the economy are receiving a boost from the haze.
Anecdotal evidence suggests taxi firms are experiencing a spike in advance bookings as customers take steps to avoid stepping outside to hail a cab.

Sales of face masks and air purifiers are seeing brisk sales with a number of retailers such as drug store Watsons selling out of face masks due to strong demand.
Singaporean resident Vipin Ghelani said he was forced to go to six different stores in search of face masks on Wednesday.

“I went to five or six different places, including Guardian and Watsons (drug stores) and they were sold out everywhere,” he said.

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