Month: February 2014

What India needs to do to stamp out poverty

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

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India can potentially achieve an average economic growth rate of 7.8 percent and help eradicate poverty by implementing reforms that boost job creation in the non-farm sector and increase productivity in agriculture, McKinsey Global Institute said in a new report.

India`s economy, the third biggest in Asia after China and Japan, grew 4.5 percent in the 2012/2013 fiscal year, slowing from 6.7 percent in the previous one.

Sluggish economic growth, high inflation, and a failure to implement long-term economic reforms have hurt the appeal of local assets in the past year and put India in the `fragile five` category of emerging markets seen as most vulnerable to an unwinding of US monetary stimulus.

In its report released Thursday, McKinsey said it had developed a new metric called the empowerment line, which determines the level of consumption needed for a person to fulfill basic needs that include food, housing and drinking water, sanitation and health care.

“The report finds that 56 percent of India`s population lacks the means to meet all of these basic needs. Some 680 million Indians live below the Empowerment Line-more than 2.5 times the population of 270 million below the official poverty line,” McKinsey said. “Without concerted reforms, more than one-third of the population would remain below the Empowerment Line in 2022.”

India has a population of about 1.2 billion and the world`s biggest democracy goes to the polls later this year.

McKinsey urged reforms in four key areas and first up was accelerating job creation.

“India needs reforms that unlock the economy`s potential to add 115 million non-farm jobs by 2022,” McKinsey said. “This would absorb the expected growth of 69 million in the working-age population, raise the labor force participation rate by some 2 to 3 percentage points, and reduce the share of farm jobs from 49 percent of total employment in 2012 to 37 percent in 2022.”

The second area of reform India should focus on is raising farm productivity, McKinsey said.

According to the consultancy firm, increasing investment in agriculture infrastructure and research can help raise the average farm yield per hectare to about 4.0 metric tons by 2022 from 2.3 metric tons in 2012.

“This would bring India`s yields in line with those in other emerging Asian countries. Gains in agricultural productivity would also accelerate the transition of labor to more productive non-farm jobs,” the report said.

The last two areas of reform should focus on increasing spending on basic services and making those services more effective, McKinsey said.

It added that public spending on social services needs to almost double to USD 226 billion by 2022 from USD 118 billion in 2012. It said that the impact of increased spending would be “magnified” if more of that expenditure reaches those who need it.

“If India increases funding for basic services but does not improve on this current performance, nearly Rs. 545,000 crore (USD 113 billion) of social service spending will fail to reach intended beneficiaries in 2022, up from about Rs. 285,000 crore (USD 59 billion) today,” the McKinsey report said.

It pointed to measures put in place by other countries to deliver more effective public services such as using technology to streamline and monitor operations.

– Writing by CNBC`s Dhara Ranasinghe. Follow her on Twitter at @DharaCNBC

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

Frail EMs hot topic for G20 meeting

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

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The frail state of emerging markets is expected to be high on the agenda when the world’s 20 major economies meet in Australia this weekend.

Major developing countries such as Argentina, Brazil, Turkey and India have been hit by brutal selling — first in May and June last year and again at the start of the year – amid jitters about the impact of an unwinding of the US Federal Reserve’s monetary stimulus program.

(Read more: Market looking worn as traders ignore data)

And in particular, the US is expected to come under pressure to be more mindful of emerging markets as it unwinds an ultra-easy monetary policy put in place in the wake of the global financial crisis.

“A key question to be addressed is how episodes of financial market volatility are affecting emerging market economies,” Australian Treasurer Joe Hockey said in a speech to the Institute of International Finance (IIF) in Sydney, adding that he expected a number of countries to make their concerns clear to the US at this weekend’s G20 meeting.

“There is no doubt that the Fed needs to be aware of the international implications of its actions and be mindful of them, but ultimately the Federal Reserve has to operate in a manner that is consistent with its domestic mandate. Within that mandate it will clearly take into account international feedback effects on the US economy,” he said.

The Fed scaled back its USD85 billion-a-month stimulus program by USD10 billion in December and by a further USD10 billion in January.

An exit of cash from emerging markets on Fed tapering has hit emerging-market currencies, for instance the South African rand hit a five-year low and the Turkish lira hit a record low in January. Stock markets have also been pummeled, with Brazil’s benchmark stock index down almost 10 percent since the start of the year.

Added to that is growing political risk, with India, Turkey, Brazil, South Africa and Indonesia, collectively known as the ‘Fragile Five,’ all facing elections this year.

Political unrest and violence this week in Egypt, Libya, Ukraine and Venezuela have only added to the concerns about fragile emerging markets.

(Read more: Six boiling cauldrons around the world)

“Emerging markets remain at the top of the news whether it’s South Africa or Brazil or India. So that will be a real topic of discussion here [in Sydney],” Tim Adams, president and CEO at the IIF told CNBC.

The International Monetary Fund said on Wednesday that advanced economies must avoid scaling back stimulus too quickly given a weak global economic recovery, with recent market volatility highlighting key risks in some emerging markets.

(Read more: IMF sees risk in cutting back stimulus too quickly)

“I’ve talked to Janet Yellen at the Fed and Mark Carney at the Bank of England, and they are very sensitive to the spillover effects of their policy direction,” said Adams, a former US under secretary of treasury for international affairs.

“I think there’s a great dialogue between central bank heads, we’re certainly going to see that here over the next couple of days,” he added. “And some of this [market volatility] is the natural extension of a massive shift away from extraordinary supportive monetary policy to a very different regime.”

That view was shared by Thierry Apoteker, the CEO, founder and chief economist at T-A-C Financial.

“It’s clear from the Fed’s perspective that they know their decisions have an influence but they also realize that If there is a progressive monetary normalization, it’s also because the US economy is expanding and the overall impact on world economy should be positive,” he told CNBC Asia’s “Squawk Box.”

— Writing by CNBC’s Dhara Ranasinghe. Follow her on Twitter at @DharaCNBC

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

China factory activity slows to 7-month low

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

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China’s manufacturing activity slowed to a seven-month low in February, a private survey showed on Thursday, once again stirring concerns over the health of the world’s second-largest economy.

The flash Markit/HSBC Purchasing Managers’ Index (PMI) fell to 48.3 from a final reading of 49.5 in January.

This is the second straight month the PMI has fallen below 50, which signals contraction.

“Economic activity has slowed in early 2014. Tighter credit in the fourth quarter of 2013 has made inventories more difficult to finance, prompting manufacturers to destock in February,” said Bill Adams senior international economist with financial services firm PMC.

Also Read: Mark Mobius says emerging market rout is bottoming out

The reaction in markets was swift; the Australia dollar fell half a US. cent to USD 0.8957, from $0.9004 before the data, while Aussie stocks turned negative. Austalia is particularly sensitive to data from China, its top export market.

Chinese stocks also pared gains, with the Shanghai Composite trading up 0.7 percent compared with its earlier rise of over 1 percent. Hong Kong’s Hang Seng was down 1 percent.

A breakdown of the PMI showed new orders falling to 48.1 from 50.1 in January, and production dropping to 49.2 from 50.8. New export orders, however, rose to 49.3 from 48.4.

According to Zhiwei Zhang of Nomura, the figures back the bank’s view that China will struggle to maintain its rebound.

“We reiterate our view that the recovery in China is not sustainable and that GDP (gross domestic product) growth will slow to 7.5 percent year-on-year in the first quarter and 7.1 percent in the second quarter, despite favorable base effects,” he said.

“We expect the government to loosen monetary policy in the second quarter to support growth,” he added.

Earlier this week, China’s central bank unexpectedly drained 48 billion yuan ($7.9 billion) from money markets following a boom in lending at the start of the year, a sign that the tightening bias by the central bank remains in place.

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

The China risk you may have forgotten about

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

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China`s shadow-banking problems may have grabbed headlines, but its long-bubbling property sector continues to pose risks to the economy, analysts said.

The property market is the biggest concern about China right now, Adrian Mowat, chief Asian and emerging market equity strategist at JPMorgan, told CNBC.

“We do have a habit of talking about irrational exuberance about three years too early. And people have sort of taken their eye off that particular bubble,” he said.

Home prices in many Chinese cities have continued to set records over the past year despite the government`s four-year long campaign to cool the market. Some local governments were forced into a fresh round of curbs in November, with measures including raising minimum down payments for second homes and promising to supply more land for building residential properties.

The size of the rises from a year earlier are certainly large: In December, average new home prices in 70 major cities on the mainland rose 9.9 percent from a year ago, the 12th consecutive annual rise and the same as the previous month`s record gain, according to data from the National Bureau of Statistics.

Mowat isn`t alone in considering the property sector a key risk. Credit Agricole is concerned that an excessive price correction could threaten the country`s growth prospects.

“It takes only 3.5 years of average annual disposable income to buy a home in the U.S., compared to as much as 22.5 years of urban disposable income in China,” Credit Agricole said in a note.

“This makes inaccessibility of housing a big social issue and threatens a sharp correction, which – given that residential construction accounts for about 10 percent of GDP (gross domestic product) – poses a large risk to growth,” it said.

The strong rises in property prices and sales continued in January even as China moved to rein in credit growth, UOB KayHian said in a note last week. It noted that developers spent around 248 billion in January to replenish their landbanks, up around 37 percent from the monthly average in 2013.

Those purchases are spurring concerns both that developers are taking on more debt even as monetary policy is tightening and that more projects will come up for sale this year, potentially leading to oversupply if the market slows, UOB KayHian said.

“Banks` tightened lending policy and various cities` cooling measures have not dampened buyers` sentiment,” UOB KayHian said, noting the average selling prices for homes continued to rise in January, up 0.63 percent from December, according to data from Chinese real-estate internet portal Soufun. “Our concern is that the herd mentality has prompted buyers to push forward their home purchase, meaning that demand could fall sharply when sentiment turns.”

To be sure, concern over the property market isn`t universal, with some believing the sector can continue to grow.

“China property is still a fast-growth sector,” Deutsche Bank said in a note last week.

“We see the current high sales volume as sustainable in the long term, with little risk of a substantial price bubble,” it said. “The policy/reform focus of the new leadership is highly supportive of structural long-term end-user demand in the China property market.”

The bank estimates the urbanization focus could spur demand for 10 million residential units a year through 2030.

-By CNBC.Com`s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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 the big money is betting on gold now

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

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Options traders are betting big on gold. Three massive trades in the gold ETF executed over the past three weeks imply a belief that gold will rise by 5 to 7 percent by the end of the year.

Of all the options currently trading in the SPDR Gold Trust (GLD), the most active is the December 130-strike call, with nearly 66,000 contracts currently open on the name. The volume came almost entirely on three days—Jan. 31, when 24,000 of these calls were traded, the subsequent trading day, Feb. 3, when 21,500 more calls were traded, and this past Thursday, when volume topped 20,000.

Since buying a call gives an investor the right, but not the obligation, to buy shares of a stock or ETF at a given strike price, these purchases will make money if the gold ETF is above USD 130 by more than the cost of the calls at December expiration.

That means that at a price of USD 6.75, which is where the December 130-strike calls were trading on Thursday, the trade will only be profitable if the GLD rises from $127.40 to $136.75, which implies a gold price of about USD 1,425.

(Read more: Now that gold touched USD 1,300, here’s what’s next)

What makes the action more interesting is that it is not simply the product of widespread demand. On Thursday, 19,000 December 130-strike call contracts traded, meaning that USD 12.8 million was outlaid for that single trade. That would seem to indicate that the trades are being made by an institutional player with seriously deep pockets.

“Either they’re getting out of stock, or they think gold is going significantly higher,” said Brian Stutland of the Stutland Volatility Group. “But they would have to be thinking that gold’s going to USD 1,400 sometime soon.”

If the ETF is trading below USD 130 in mid-December when the trade expires, then the call is rendered worthless, and the entire amount of money outlaid is lost.

(Read more: This will drop gold to USD 1,000: Credit Suisse pro)

Gold has had a very strong start to the year, rising 8 percent as it attempts to bounce back from a miserable 2013.

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

Election year for emerging markets: What to expect

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

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It’s election year for major emerging market economies from India to Brazil.
And political risk falls at a time when investors are assessing just what an unwinding of US monetary stimulus means for the developing world.

The so-called ‘Fragile Five’ – India, Indonesia, Brazil, South Africa and Turkey – all hold elections in the months ahead, with corruption just one theme expected to be feature highly.

(Read more: Fragile Five face low risk of full-fledged crisis: Roubini)

“There has been a notable shift in market concerns about emerging markets over the past month or so,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy. “While the May to August 2013 phase of the sell-off was dominated by fears about balance of payments weaknesses, the current phase is about a broader set of risks, in particular growth, the credibility of the policy-making regime and the political climate in general.”

Here’s a run-down of what to expect in five key emerging markets.

Indonesia

Election due: Elections for a new parliament expected in April, followed in July by a presidential election. If there is no clear winner in the first round of voting in the presidential election, a second round is expected to take place in September.

Backdrop: Like its emerging market peers, Indonesia has come under pressure from an unwinding of U.S. monetary stimulus that has exposed economic weaknesses such as a wide current-account deficit. The central bank has hiked rates five times since the middle of last year to prop up a crumbling currency. While the economy, the biggest in Southeast Asia, grew a better-than-expected 5.72 percent on year in the fourth quarter, economists say political uncertainty, the impact of monetary tightening and a controversial mineral export ban will all be headwinds in the coming months.

Key election themes: Endemic corruption, poor infrastructure, under investment in health and education.

Expected outcome: Analysts say it’s unlikely that any one party will win an outright parliamentary majority. The best case scenario for markets, they say, is one in which a big party wins a sizeable chunk of seats that enables it to form a coalition with one or two other parties. The country’s main political parties include President Susilo Bambang Yudhoyono’s Partai Demokrat and the opposition Democratic Party-Struggle run by former President Megawati Sukarnoputri.

Candidates for the presidential election are not expected to be announced until after the parliamentary vote. One potential candidate is popular Jakarta governor Joko Widodo, known as Jokowi. He is viewed as a favorite to win if selected to run.

The wild card: Watch the youth vote. Of the projected 187 million eligible voters in this year’s elections, over a third will be between the age of 16 and 20. Indonesia’s politicians face a young electorate that is increasingly online and this could well shape the political landscape in the years ahead, analysts say.

View from the experts: “From the market perspective, a Joko government might be the best case scenario – primarily for the chance of breaking the parliamentary deadlock, which has held back tough economic reforms,” says Wellian Wiranto, an economist at OCBC Bank.

India

Election due: National elections due by May; no date set yet.

Backdrop: India, Asia’s third biggest economy and the world’s largest democracy, was one of the hardest hit emerging markets last year. Its currency slumped to a record low last August, as investors punished the country for not doing more to tackle a wide current-account deficit, address a sluggish economy and implement structural reforms. The start of 2014 has been far more positive, with a concerted bid by India’s central bank to contain the crisis. The government in its budget this month meanwhile unveiled indirect tax cuts to help woo voters.

Key election themes: Consumer inflation, running at an annual rate above 9 percent, and rampant corruption.

Expected outcome: Opinion polls suggest the ruling Congress party is heading for defeat at the hands of the opposition Bharatiya Janata Party’s (BJP).

The wild card: The anti-corruption Aam Aadami Party has shaken things up, winning the hearts and minds of an electorate dismayed with corruption. The party made a spectacular debut in Delhi state elections at the end of last year, winning 28 of the 70 seats up for grabs. Whether it can replicate that success across the country now remains to be seen.

(Read more: India’s hottest startup is a political party)

View from the experts: “The main thing now is that we get a stable and effective government,” said Standard Chartered Senior Economist Anubhuti Sahay. “Since 2010, policy making has not happened at the required pace, so the election could be a turning point for the economy and that would mean the investment environment improves.”

South Africa

Election due: General election scheduled for May 7.

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Backdrop: South Africa’s economy grew 0.7 percent on quarter in the third quarter of 2013, the slowest pace in more than four years, and sticky inflation stood at an annual 5.4 percent on year in December. Its currency, the rand, hit a five-year low against the dollar in January, exacerbating labor disputes and a wide current-account deficit.
Key election themes: Unemployment running at about 24 percent, poor infrastructure, labor unrest, a weak economy and corruption.

Expected outcome: The African National Congress (ANC) is expected to extend its 20-year hold on power but with a reduced minority in the 400-seat parliament amid corruption scandals and civil unrest. The ANC has won each of the last four elections by a landslide, winning more than 60 percent of the popular vote. The Democratic Alliance is the official opposition and currently holds 67 seats to the ANC’s 264.

The wild card: According to the Council on Foreign Relations (CFR), a think tank, the Economic Freedom Fighters (EEF), founded by former head of the ANC’s youth wing Julius Malema is something to watch. The EEF favors wholesale nationalization of land and industry and appeals directly to the poor in townships and rural areas. Some analysts say the EEF could win as much as 10 percent of the vote – a development that would be an “earthquake,” the CFR said.

View from the experts: “Conventional wisdom is that this will be the most competitive election in the country’s post-apartheid history,” analysts at CFR wrote last month. “Should the ANC’s share of parliamentary seats fall below 60 percent, there likely will be a strong move to replace [President Jacob] Zuma as party leader–and as chief of state. However, it is difficult to imagine that the ANC will ‘lose’ its majority in parliament.”

Turkey

Election due: Local elections scheduled for March; presidential elections set for August. Parliamentary elections due in 2015.

Backdrop: Prime Minister Tayyip Erdogan’s AK Party, which has been in power since 2003, faces a tough time heading into these elections. A high-level bribery and corruption scandal involving government allies sparked street protests late last year. The Turkish lira meanwhile slumped to a record low against the dollar in January, forcing the country’s central bank to hike interest rates, which in turn threatens to hurt the economy.

(Read more: Turkey: What’s going on and why you should care)

Key election themes: Corruption, inflation.

Expected outcome: Erdogan has dominated Turkish politics for more than a decade and won credibility for delivering economic stability. A survey by SONAR research, one of Turkey’s main pollsters, last month put support for the AK Party at 42.3 percent, two percentage points below its last poll in August 2013 and below the 50 percent won by the AK in the 2011 election, Reuters reported. While a corruption scandal has hurt the party’s popularity, it remains comfortably above the opposition in opinion polls.

The wild card: The outcome of local elections in March is something to watch closely and could be a key factor in determining whether Erdogan runs as a presidential candidate.
View from the experts: “Next month’s local elections will provide the first real test of the popularity of Erdogan’s AKP which has been losing support since the Gezi park protests last May,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy.
“If the AKP were to lose Istanbul and [the capital] Ankara, recriminations would ensue and Erdogan may even decide not to run for the presidency in elections later this year. However, the AKP is still very popular in rural Anatolia and the political opposition in Turkey remains weak and lacks credibility,” he said.

Brazil

Election due: Elections for a new president and parliament are expected on October 5.

Backdrop: Brazil, the biggest economy in Latin America, faces an uncertain election year. Its stock market, down more than seven percent so far this year, has been battered by Federal Reserve tapering fears. A severe drought is stretching the country’s finances, the central bank has hiked interest rates by 325 basis points since April last year to contain inflation and last year a small demonstration against a 50-cent rise in bus fares exploded into the biggest street protest Brazil has witnessed in years.

Key election themes: Poor public services, rising living costs and deteriorating public finances and corruption.

Expected outcome: President Dilma Rousseff from the Workers’ Party is running for re-election and despite the weak economic backdrop she is the favorite to win. The outcome however, could still be a close call, analysts say. Other candidates include Marina Silva, an environmentalist and former environment minister.

(Read more: Brazil needs investors to reclaim BRIC growth)

The wild card: The World Cup. What exactly does soccer have to do with an election? Well, potentially a great deal if shutdowns associated with preparing or hosting the sporting event takes a toll on the economy, analysts say. A law passed last year gives the 12 cities hosting matches and the states in which they are located the right to declare special holidays on game days, Reuters reported. While it’s not yet clear whether these holidays will go ahead, the impact is certainly something to watch.

View from the experts: “The poorer have tended to be loyal supporters of [former President Luiz Inacio Lula da Silva] Lula/Dilma, since the government’s social programs benefited them,” said Guy Burton, assistant professor, School of Politics, History and International Relations, University of Nottingham, Malaysia. ” It’s also the case that the support of the Workers Party has shifted over the last decade, from its core base in the industrial urban heartland and trade union movement of the south, including Sao Paulo to the poorer, rural, less educated and marginal Northeast.”

— Writing by CNBC’s Dhara Ranasinghe. Follow her on Twitter at @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

Yuan takes another step forward as a world currency

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

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Australia`s stock exchange operator ASX and Bank of China said on Tuesday that they will provide a yuan settlement service to Australian and Chinese financial markets by mid-year, marking the latest step in the yuan`s development as a global currency.

China is Australia`s biggest trading partner and Australian firms have increasingly been settling their Chinese trade in yuan rather than US dollars, according to local media reports.

The new yuan settlement service will allow Australian firms to make trade and investments with China through the ASX, which has a “proven market infrastructure,” the ASX said in a statement.

“What today is about is a milestone in the journey Australia and China are taking together,” Australia`s Assistant Treasurer Arthur Sinodinos told CNBC`s Asia Squawk Box .

Chinese authorities have been stepping up efforts to improve the use of the yuan, which remains tightly controlled by Beijing.

In October for instance, China launched a currency swap deal with the euro zone.

The yuan, also known as the renminbi, is now one of the world`s ten most frequently traded currencies, the Bank of International Settlements said last September.

Sinodinos told CNBC that Australia was not perturbed by recent signs that China`s economy is losing its momentum.

“Australia takes a long-term view of the China relationship. China is going through a transition. Their transition will lead to consumption-led growth, it will lead to increased demand for a diversified group of products and services,” Sinodinos said.

“Australia`s economy is also going through a transition where we`ve had growth based on record levels of resource investment. We`re diversifying our economy as well and we`re well placed to service many of these emerging needs from China,” he added.

Australia, Japan and the US are the only countries to allow full convertibility of the yuan, according to media reports.

– Writing by CNBC`s Dhara Ranasinghe. Follow her on Twitter at @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

What the Fed will tell markets this week

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

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The Federal Reserve is set to release the minutes from its January FOMC meeting on Wednesday, and market participants are sure to closely sift through them for any clues about the future of quantitative easing.

“The minutes are going to be important, and there’s always some morsel that people tend to gravitate toward,” said Deutsche Bank’s chief US economist, Joseph Lavorgna. “My guess is that in these minutes, it will relate to the outlook.”

For any group that relies on economic data to determine its next move, this is a difficult time. Two straight employment reports have shown markedly weak gains in nonfarm payrolls (113,000 in January and a marginally adjusted 75,000 in December) but the extent to which bad weather adversely impacted those numbers is being rigorously debated.

New Fed Chair Janet Yellen, for one, told the House Committee on Financial Services on Tuesday that she was “surprised by the weak jobs reports in December and January, but we have to be careful not to jump to conclusions when interpreting what those reports mean—there were weather factors—we’ve had unseasonably cold temperatures that may be affecting economic activity in the jobs market and elsewhere. The Committee will meet in March. We will have a broad range of data on the economy to look at, including another jobs report.”

However, LaVorgna points out that the February employment report could also be marred by weather conditions, given that last week’s massive storm came on a survey week for the report.

Ironically, the storm even caused the Senate Banking Committee to postpone the second day of Yellen’s congressional testimony, which had been planned for Thursday.

(Read more: US Senate postpones Yellen hearing as snow nears)

The Fed’s minutes could consequently shed some light on exactly how much weakness the FOMC needs to see before it deviates from its course of tapering quantitative by USD 10 billion per month.

“The minutes will probably round out some of the things Chair Yellen said” in her testimony, LaVorgna told CNBC.com. “She said the Fed won’t deviate unless there is a material markdown of outlook. That tells me that weather considerations aside, the Fed probably won’t deviate from their plan in March, and that’s what I’m guessing will be the message in the minutes.”

(Read more: This jobs report should keep Fed Chair Janet Yellen up at night)

This could put a bid under the market, some traders say.

“I think we’re all going to be focused on the language of the minutes yet again,” said Jeff Kilburg of KKM Financial. “The Fed’s been driving the market for a long time, and Yellen still has the wheel.”

The minutes, which are slated for release at 2 pm EST on Wednesday, will shed light on the decision-making and debate that marked former Fed Chairman Ben Bernanke’s last meeting, which was held on Jan. 28 and 29.

As for the Fed’s next move, that will be announced on March 19, after the next FOMC meeting.

—By CNBC’s Alex Rosenberg. Follow him on Twitter: @CNBCAlex.

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

3 Mins Read

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

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

Gold’s rally may struggle towards USD 1,350

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

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Gold may extend gains to fresh three-month highs this week as mixed US economic data encourages safe-haven buying though some warn the rally may be capped around USD 1,350.

A US data-heavy schedule this week may drive gold higher if releases including the closely-watched housing and inflation numbers print below forecasts and help weaken the US dollar, though extreme winter weather may distort the readings.

(Read more: Is China using gold to internationalize the yuan?)

“Don’t expect the economic news to clarify much though weaker indicators or lower inflation numbers could give gold a further lift,” said Jeffrey Nichols, Managing Director at American Precious Metals Advisors.

Almost two-thirds of those polled, 63 percent or (12 out of 19), say gold will push higher this week, while 21 percent (4 out of 19) warn of pullback and 16 percent (3 out of 19) say prices will consolidate at current levels.

“Sentiment towards gold has turned around,” said Edmund Moy, Chief Strategist at Morgan Gold and a former director of the US Mint. “Gold will continue to rise if this week’s big data dump continues to show mixed results.”

Mixed economic numbers if they do materialize – muddied by the extreme weather – mean that it’s unlikely that the US Federal Reserve will cut monthly bond purchases beyond the current gradual pace.

“With (Janet) Yellen admitting that the economy clearly needs more work, more money printing will help gold’s position at USD 1,300 and beyond,” said Scott Carter, chief executive officer of Los Angeles-based Lear Capital.

Spot gold jumped 4 percent last week, its biggest weekly gain since August while gold futures rose for a ninth session on Monday marking their longest winning streak since July 2011.

CNBC’s survey results correspond with data from IG Markets which shows 74 percent of their more than 501 clients with open positions expect gold prices to rise. IG Markets strategist Kelly Teoh marked USD 1,350 as the next level gold needs to cross to solidify the uptrend.

(Read more: This will drop gold to USD 1000: Credit Suisse pro)

Hedge funds and money managers raised their bets in gold futures and options to a three-month high, Commodity Futures Trading Commission data showed last Friday, underscoring further short-term bullishness.

‘Thin air’

Meanwhile, gold holdings held by global exchange-traded funds have stabilized. According to data compiled by UBS, global ETF gold holdings rose last Thursday by some 240,000 ounces, which the bank said is the largest daily inflow since October 2012, Forbes reported on January 14.

Though negative respondents to the survey formed a minority this week, gold bears suggested bullion’s ascent is showing signs of exhaustion. The next phase of the leg up may only add another USD 30 or USD 40 an ounce to the price before running into resistance, some say.

Gold’s “getting into thin air up here,” said Simon Grose-Hodge, Head of Investment Advisory, South Asia at LGT Bank. And while Hans Goetti, head of investment, Asia at BIL said gold’s technical picture has improved, he flagged USD 1,360 as the next important resistance level. “If that is broken on the upside it would indicate that the USD 1,180 level is a double-bottom.”

(Read more: China’s 500-tonne gold gap fuels talk of stockpiling)

Technical analysts interviewed by CNBC in mid-January correctly predicted a recovery in the gold price to USD 1,280 after bullion’s crushing 30 percent dive last year and while many considered USD 1,300 tough resistance, that target too has been broken.

Gold’s bust through USD 1,300 forced even had hardened gold bears to pay heed. It was “technically strong” crossing the 200-day moving average with “decent support,” said Mark Keenan, Cross Commodity Research Strategist at Societe Generale. Long positions, or bullish bets, held by speculators were “not too elevated” while most importantly ETF holdings appear to be turning around, he said.

While Keenan admitted “some additional strength is likely,” the current period should be viewed as a “fresh selling opportunity” as the US Federal Reserve continues ‘tapering’ or reducing the pace of monthly bond purchases, he said.

Commerzbank also remain cautious about gold’s outlook. Although momentum and an improving technical picture “points to further price rises in the short term,” recent price increases “took place relatively quickly and were also fairly pronounced, meaning that correction potential is building up,” it wrote in a report.

— By CNBC’s Sri Jegarajah. Follow him on Twitter: @cnbcSri

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Japan’s economic growth disappoints in fourth quarter

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

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Japan’s economy grew 0.3 percent in the fourth quarter of last year from the previous one, below analysts’ expectations in Reuters poll for a 0.7 percent gain, data on Monday showed.

While the data was weaker than expected it marked the fourth straight month of expansion as a pick-up in consumption and capital spending helped support the world’s third biggest economy.

On an annualized basis, Japan’s economy grew 1 percent in the fourth quarter against expectations for a 2.8 percent rise.

“We thought there might be a chance of a weaker number, because despite a pick-up in consumption we have had weaker export data and disappointing machinery orders data for December,” Alvin Liew, senior economist at UOB told CNBC Asia Squawk Box.

“The weak data does reinforce our expectations that the Bank of Japan will come in with additional monetary stimulus and we are looking at an additional 10 trillion yen perhaps this year,” he added.

The BOJ concludes a two-day policy meeting on Tuesday and is not expected to make any changes to its monetary policy given that it already has a hefty asset-purchase program in place.

Analysts have been anticipating an expansion of that stimulus to offset the impact of a planned rise in Japan’s sales tax in April.

“The BOJ is probably not seriously going to change monetary policy until April,” Sean Callow, senior currency strategist at Westpac Bank in Sydney, said.

Japanese markets appeared to shrug off the weaker-than-expected economic data in their stride, with the benchmark Nikkei-225 stock index opening 0.2 percent higher.

Still, the slowing momentum in Japan’s economy was a worrying sign especially as the country braces for the impact of the sales-tax hike, analysts said.

“The momentum has gone in Japan,” said Paul Donovan, deputy head of global economics at UBS. “What would help Abe is the TPP [Trans-Pacific Partnership].That [trade deal] would give [Prime Minister Shinzo] Abe an external force to go to the internal grups that areresisting change.”

Analysts added that Monday’s data was likely to re-focus attention on Abe’s long-term agenda for reviving the Japan’s economy, which for years has grappled with poor economic growth and deflation.

Abe is determined to cut Japan’s corporate tax rate, Chief Cabinet Secretary Yoshihide Suga told Reuters at the weekend.

Such a move is seen as a necessary step to boost the global competitiveness of corporate Japan and make the country more attractive to foreign investment.

“Corporate reforms do appear to be taking their time but we could see a corporate tax cut of 2-3 percentage points over the next six months,” said Liew UOB.

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