Month: February 2015

Economists to PBoC: Just ease already

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

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The People`s Bank of China (PBoC) isn`t known for embracing global trends, but it`s now widely expected to follow the easing footsteps of its international peers after a raft of dismal data.

Twin purchasing managers` index (PMI) surveys for January released in the past 48 hours showed contractions in China`s factory activity. The government`s official PMI stood at 49.8, a more than two-year low, while HSBC`s private survey came in at 49.7, its second month below the 50 level that separates expansion from contraction. Other data over the weekend showed growth in the services sector dropped to a one-year low in January.

“We think the PMIs opened the window for a broad 50 basis-point RRR (reserve ratio requirement) cut in the first quarter,” said economists at Citi in a recent report, adding that the last round of country-wide RRR cuts was triggered by a below-50 PMI reading in late 2011.

Analysts at Mizuho Bank agreed: “With the Chinese economy facing headwinds from weaker European demand and disinflation, we see rising pressure for more stimulus measures, such as liquidity injections, interest rate cuts or RRR cuts,” the bank said in a note on Monday.

 However, some experts say the central bank is reluctant to unleash such measures due to concerns about credit flows, opting for small-scale options instead.

“Despite our long-held view for the PBoC to cut RRR, the central bank continues to maneuver market liquidity through reverse repos, suggesting its hesitation to embark broad-based easing in the near term,” said Australia New Zealand Banking Group (ANZ), referring to the bank`s injection of 45 billion yuan during Thursday`s weekly open-market operation.

Still, the majority of analysts expect that hesitancy to disappear. Richard Yetsenga, head of global markets research at ANZ, told CNBC that he expects a combination of rate cuts and RRR cuts either this quarter or the next.

Some experts may be quick to dismiss the PMI readings due to seasonality ahead of the Lunar New Year holidays this month, but other gloomy economic indicators also support easing calls. Data released last week showed fiscal revenue sliding to its lowest level in over two decades, while renminbi depreciation has triggered liquidity outflows, seen in the sharp drop in foreign exchange reserves in December.

On top of a RRR cut, Citi also expects a 25 basis-point interest rate cut sometime this month in light of the rising real cost of capital amid falling inflation. With annual consumer prices at five-year lows, deflationary pressure is making borrowing more expensive for companies. The seven-day repo rate, a measure of interbank funding, spiked in recent sessions and briefly topped 5 percent on Monday.

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

Alibaba’s magic carpet ride isn’t over

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

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Alibaba`s magic carpet ride came to a standstill on Thursday following an unexpected earnings miss and a clash with China`s government, but experts tell CNBC that the world`s largest e-commerce firm remains a compelling investment.

Shares plunged 10 percent after Alibaba reported a 40 percent rise in revenue for the last three months of 2014 year-on-year, below expectations for a 60 percent increase, with investors complaining that growth was too dependent on the annual Singles Day event. Thursday marked a rare falling out with the investor community following Alibaba`s wide-spread popularity since its market debut last September.

Alan Haft, Partner at Kelly-Haft Financial, called the selloff overblown. “This is like having a Ferrari and being bummed out that instead of doing 220 miles around the bend, it only did 210,” he said on Friday.

“Just buy on those dips because this is a great company for the long-term investor,” he added, noting that the profit numbers were still solid. Earnings per share (EPS) beat expectations by 6 cents while gross merchandise volume (GMV), i.e. the total of Alibaba`s online transactions, rose 49 percent.

“eBay would love to report those kind of numbers,” noted Martin Pyykkonen, managing director at Rosenblatt Securities.

Alibaba`s stock price has fallen over 20 percent since its November highs, but most analysts say they remain buyers at the current USD 89 level.

“Our target price is USD 118, so that represents a more than 30 percent upside from here,” said Cynthia Meng, managing director for China and Hong Kong Telecom, Media and Technology Equity Research at Jefferies.

“I would take the bigger picture view and say 40 percent revenue growth is still very fast; it`s still the dominant e-commerce company in China, and at just over 20x the 2016 estimate, it`s an attractive place to add to the stock,” said Josh Spencer, portfolio manager at T.Rowe Price.

Thursday`s selloff was made worse after China`s State Administration of Industry and Commerce accused the company on Wednesday of failing to crack down on counterfeit goods being sold on its websites. Experts call this a major headwind for Alibaba as Beijing is expected to clamp down on the intellectual property (IP) sector after targeting corruption and the environment for much of last year as part of President Xi Jinping`s plan to overhaul the Chinese economy.

“Is this the first shot across the bow from the government?” asked Jonathan Brodsky,managing director at Advisory Research.

“When we see what`s happened in the past 24 hours, we`re not as focused on revenue or earnings. We`re looking at this issue with the government…we`ve been investing in China and wondering when IP law issue will evolve,” he continued.

But the government isn`t a challenge for all market players. Beijing recognizes that Alibaba is a shining star in the economy, so the fact that they are coming on strong is a sign that there`s a lot of good things to come for this stock, said Alan Haft of Kelly-Haft Financial.

“I actually perceive it as a positive because what the Chinese government is really saying to Alibaba and the international community is `clean up your act, we want to make this as legitimate of a company as possible`.”

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

If February’s like January, this market will kill it

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

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Asian stock markets are off to a winning start this year, getting a boost from lower oil prices and looser monetary conditions in the region.

The MSCI Asia-Pacific Index has risen almost 2 percent so far this year, ahead of the MSCI World Index, which is down around 1 percent.

“The monetary environment in the region is turning more accommodative, creating more liquidity. That`s positive for risk sentiment and equities,” Stephen Sheng, chief investment strategist at SHK Private told CNBC, citing recent monetary easing in China, India and Singapore.

“Meanwhile, lower oil prices are strengthening the outlook for many economies in the region since cheaper oil is favorable for domestic demand,” he added.

India races ahead

Leading the pack are Indian equities, which racked up gains of almost 8 percent in January, extending last year`s solid run.

The benchmark Sensex Index`s gains have been powered by an improving economic outlook thanks to the cheaper price of oil – which accounts for 35 percent of the country`s total imports – and easier monetary conditions after the Reserve Bank of India jumped on the easing bandwagon with a surprise interest rate cut mid-month.

“India`s performance came in stronger than most had expected. The recent rate cut helped – we were surprised they moved so quickly,” said Uwe Parpart, chief strategist at Reorient Group.

Parpart expects Indian stocks will continue to outperform this year. He is also upbeat on the outlook for Chinese and Japanese equities. The latter, however, have not kicked off the year with the same gusto as their South Asian counterparts. The benchmark Shanghai Composite  and Nikkei 225 are both up 1 percent year to date.

“Recent risk-off sentiment has led to a re-strengthening of the yen, but we won`t see if for that much longer. The yen will weaken to 125 against the dollar at some point this year and that will be a powerful driver of profits for Japanese companies,” he said. Parpart expects yen depreciation to be driven by a stronger dollar as the Federal Reserve gets closer to tightening its monetary screws.

Southeast Asia`s shining stars

Southeast Asian markets were not far behind India, with Vietnam, Thai and Philippines stocks rising 6.9 percent, 5.9 percent and 5.4 percent, respectively, in the first month of the year.

Gains in Vietnam have been fueled by attractive valuations and improving macroeconomic fundamentals. Meanwhile, cheaper oil has helped fuel gains in the Thai and the Philippine stock markets as both countries are net-oil importers, say strategists.

Oil prices have more than halved since last summer amid an environment of feeble global demand and strong supply growth.

While the fall in oil is a blessing for most of Asia, this is not the case for net-oil exporter Malaysia. Regardless, its stock market managed to eke out a gain of 1.2 percent.

“Malaysia`s will struggle because of lower oil prices, I expect it will underperform the region this year,” said Parpart.

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

Roubini on why Quantitative Easing isn’t working any more

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

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Unconventional central bank policies, including quantitative easing (QE) have failed to spur either inflation or growth as fiscal austerity continues to bite, Nouriel Roubini said in an op-ed for Project Syndicate.

“We live in a world in which there is too much supply and too little demand,” wrote Roubini, the bearish economist known as “Dr. Doom,” who successfully called the housing crash leading into the Global Financial Crisis. “The result is persistent disinflationary, if not deflationary, pressure, despite aggressive monetary easing.”

Read More Hot topic for the 1 percent at Davos: Inequality

The reason all that easing hasn`t caused inflation is because the post-2008 economic recovery has been anemic, amid a “painful deleveraging” after large buildups of both public and private debt, said Roubini, the head of Roubini Global Economics and a professor at New York University.

A host of factors have weighed on efforts to use monetary policy to spur inflation, he said, citing an output gap with firms facing limited pricing power and too many unemployed workers chasing too few jobs.

“Rising income inequality, by redistributing income from those who spend more to those who save more, has exacerbated the demand shortfall,” Roubini said.

He also noted that property markets where booms turned to busts and rising bubbles in some other markets also pose risks. In addition, weaker commodity prices, in part due to China`s slowdown, are spurring deflation, worsened by the mainland causing a global glut of manufactured and industrial goods, he said.

Unconventional policies try to prevent deflation by weakening the currency and improving exports, but this “is a zero-sum game that merely exports deflation and recession to other economies,” he said.

“To be effective, monetary stimulus needs to be accompanied by temporary fiscal stimulus, which is now lacking in all major economies. Indeed, the euro zone, the U.K., the U.S., and Japan are all pursuing varying degrees of fiscal austerity and consolidation,” Roubini wrote.

He believes the International Monetary Fund`s prescription for public investment in infrastructure is “compelling,” but political constraints make it unlikely.

“This adds up to a recipe for continued slow growth, secular stagnation, disinflation, and even deflation,” Roubini said.

Concerns the global economy faces a self-defeating spiral are gaining currency with other analysts as well.

“We`re old, we`re indebted and we`re unequal. And if that happens, nominal growth just slows down,” Ajay Kapur, head of Asia-Pacific and emerging markets strategy at Bank of America Merrill Lynch, told CNBC.

“Old people don`t spend that much money. When you`re indebted, the productivity of credit growth goes down” and the savings rates of the rich have gone from 20 percent pre-crisis to 40 percent currently, Kapur said.

“Mathematically, it`s very difficult to push the economy forward, which is why you almost live in a world of perpetual QE, which is why we`ve been saying for a few years now that we`re going to see low interest rates pretty much forever.”

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

China final HSBC PMI at 49.7 in Jan, below flash reading

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

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China’s manufacturing sector remained in a poor state in January, a private survey showed on Monday, amid increasing speculation that policymakers will intervene with fresh measures to spur the economy.

The final HSBC Purchasing Managers’ Index (PMI) fell 49.7, a touch below its 49.8 flash reading, and after dipping to 49.6 in December. A reading below 50 indicates contraction.

The data comes a day after the government’s official PMI for January also dipped into contractionary territory for the first time in two and the half years, coming in at 49.8 and surprising market watchers who were expecting expansion.

China’s benchmark Shanghai Composite index widened losses to more than 2 percent on the news, hitting a near two-week low. Meanwhile, Hong Kong shares and the Australian dollar were little changed.

“Yesterday saw China logging its first manufacturing PMI contraction in over two years. Of particular concern, is that the employment sub-component is at its lowest level since February 2013 – as are new exports,” said Evan Lucas of IG Markets.

“The People’s Bank of China won’t be happy with the employment component and may look to continue its targeted measures of the past year to increase employment – this prospect may cause positive speculation in markets for more stimulus,”

The People’s Bank of China (PBOC) in November surprised markets with an interest rate cut, its first since 2012.

China’s economy has been battling sagging domestic demand, a weak property sector and volatile exports, even as it registered a 7.4 percent growth in 2014, its slowest pace in 24 years. Analysts project growth to fall to 7 percent this year.

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

Asian stocks lower as China PMI sparks growth fears

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

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Asian stocks started the week on the back foot, as data showing China’s manufacturing sector remaining in a poor state offset positive sentiment from a rebound in global crude oil prices.

The final HSBC Purchasing Managers’ Index (PMI) fell to 49.7, a touch below its 49.8 flash reading, and after dipping to 49.6 in December. A reading below 50 indicates contraction. The data comes a day after the government’s official PMI for January also dipped into contractionary territory for the first time in two and the half years, coming in at 49.8 and surprising market watchers who were expecting expansion.

US stocks declined on Friday, with benchmarks down for a second month, after data showed U.S. economic growth slowed sharply to a less-than-expected 2.6 percent in the fourth quarter. The Dow Jones Industrial Average fell 1.5 percent, while the S&P 500 declined 1.3 percent. The tech-heavy Nasdaq Composite shed 1 percent.

Mainland indices down

China’s benchmark Shanghai Composite index widened losses to more than 2 percent, hitting a near two-week low, following the Chinese PMI data. Insurance firms were among the top losers for the day, with China Pacific Insurance and China Life Insurance slumping more than 5.1 and 6.3 percent each.

In Hong Kong, the Hang Seng index held on to a 0.5 percent loss.

China Minsheng Banking skidded 5 percent in Hong Kong and 3.8 percent in Shanghai, following news that its president resigned hours after Chinese media reported he was being investigated by China’s anti-corruption watchdog.

Nikkei tanks 0.6 percent

Japan’s key Nikkei 225 index fell to a one-week low at the open, as dollar-yen pulled back below the 118 handle to a two-week low.

Exporter stocks languished as a result; Sony and Panasonic skidded 2.7 and 1.6 percent, respectively, while Nissan and Suzuki Motor eased 0.6 percent each.

Japan Airlines tanked 3 percent after it reported a 3.1 percent slip in its net profit for the April-December period last Friday.

ASX adds 0.7 percent

Australia’s benchmark S&P ASX 200 index was on course for an eight-session winning streak, while the Australian dollar inched up to USD 0.7783 to the dollar, ahead of the central bank’s monthly policy meeting tomorrow.

The energy sector cheered an 8 percent gain in crude oil last Friday; Origin Energy climbed 3.2 percent, while Santos, Oil Search and Woodside Petroleum made gains between 0.9 and 2.3 percent.

JB Hi-Fi pared gains to slip modestly into negative territory on news of a 2 percent fall in first-half profit, advancing more than 2 percent early Monday. Westpac is also in focus as Brian Hartzer starts as the bank’s new Group CEO today. Shares of the lender advanced 1 percent.

Meanwhile, investors will be digesting renewed uncertainty in Canberra, following a voter backlash in a state poll and a slump in a personal approval rating for Prime Minister Tony Abbott over the weekend.

Kospi up 0.1 percent

South Korean shares edged up in early trade as most index heavyweights saw a higher open.

Posco, which skidded nearly 8 percent last Friday following a dismal fourth-quarter operating profit, added 0.2 percent, while Samsung Electronics, the heaviest weighted stock on the Kospi index, rose by the same margin. Oil-related counters also reap gains at the open, with SK Innovation and S-Oil bouncing up 4 percent each.

But LG electronics – the world’s number 2 TV maker – remained bogged down by weaker-than-expected profit for the October-December period, sagging 0.5 percent.

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

Recession or recovery? Markets, data differ on US economy

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

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Markets are throwing off some very negative signals about the U.S. economy. However, with economic data remaining relatively strong, the overhanging question is whether investors will begin to take those bad signs to heart.

Crude oil, typically taken as a barometer of industrial and consumer demand, continues its incredible plunge. The critical commodity has lost some 60 percent of its value in the past seven months, falling to levels not seen since the depths of the financial crisis in 2009.

Meanwhile, Treasury yields plumb new lows, with the 10-year yield falling below 1.7 percent on Friday even as the Federal Reserve looks to hike short-term rates. Across the Atlantic, German 10-year notes are yielding about 0.3 percent, and the Swiss 10-year yield is actually negative.

“If Rip Van Winkle were to wake up today and see where oil is and where bond yields are…he would be very tempted to say that we must be in a recession,” said Nicholas Colas, chief market strategist at Convergex.

But of course, the U.S. is not in a recession. Even though Friday’s gross domestic product (GDP) number showing annualized growth of 2.6 percent in the fourth quarter was a bit of a disappointment, full-year growth came in at 2.4 percent.

Separately, the employment numbers have been even better, which is set to be confirmed on Friday, when the Bureau of Labor Statistics is expected to report the 12th straight month of 200,000-plus gains in nonfarm payrolls.

Bright spot in a cloudy world

The outlook in much of the world, however is significantly cloudier. Europe and Japan are fighting disinflation and the specter of recession, which goes a long way toward explaining why yields are so low. Meanwhile, slowing growth in China is further tamping down oil demand (though crude oil’s biggest problem is overwhelming supply).

Read More: Picking up the pieces of the ECB’s QE

Ironically, the very market moves that would cause a long-sleeping financial observer to wonder if the U.S. is in the grips of recession are actually somewhat positive for the American economy and for equities. Low yields makes it relatively more attractive to hold stocks.

And low oil prices reduce energy costs for Americans and businesses, albeit punishing for energy companies. Indeed, it is no coincidence that consumption was a bright spot in Friday’s GDP report, with real personal consumption spending rising by an annualized 4.3 percent in the quarter.

When it comes to the more narrow issue of the next move for stocks, however, the tie-breaker between markets and data must be corporate profits. After all, tracking the state of the U.S. economy is all well and good, but stocks are ultimately valued based on their expected stream of future earnings.

Even though analyst expectations for the first quarter of 2015 have come down of late (as estimates tend to do as the actual results draw nigh) FactSet reports that analysts expect S&P 500 companies to earn $122.05 in 2015, which would be a record high.

Read More: Sticker shock—Stock valuations at 10-year high

Additionally, many market participants believe that accomodative central bank actions will continue to provide strong support to stocks while crushing bond yields.

“Any metric you followed 20 years ago doesn’t matter, because you’re dealing with massive central bank manipulation and accommodation in an attempt to keep everything steady,” said Michael Block, chief strategist at Rhino Trading Partners. “That’s just the world we’re in.”

Block continues to be bullish on stocks due to the perceived “central bank put,” though he says that volatile day-to-day moves will become the norm—which is causing considerable angst in the money managing community.

“The right thing to do is just the stay the course, but it’s very hard for asset managers to buy things and walk away from them.”

Unless, of course, they follow Mr. Van Winkle’s lead and fall asleep for 20 years.

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