Reprieve for Sterling, but will it last?

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

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Sterling rebounded mid-week as the likelihood of Scotland leaving the United Kingdom began to fade but could see further volatility before the official vote, analysts told CNBC.

A YouGov poll for the Sunday Times published over the weekend showed that the pro-independence `Yes` vote had garnered 51 percent of support, sending the pound spiraling to a 10-month low of USD 1.6050 on Tuesday.

However, the currency rebounded to USD 1.6190 in Asia early Thursday, as a spate of fresh polls indicated a `No` vote is back in favor.

“We continue to believe that when push comes to shove on September 18, the majority in Scotland will vote to remain part of the UK. The speed and velocity of the intraday rebound in GBP/USD suggests that many sterling traders share our view,” said Kathy Lien, managing director at BK Asset Management.

On September 18 Scottish citizens will vote on whether they would like to be independent from the United Kingdom. A vote to break away would lead to negotiations on whether Scotland keeps the pound as its currency, threatening the monetary union.

Questionable poll results

Although poll results have triggered strong currency reactions, their validity is questionable. A Suvation poll for the Daily Record published Wednesday showed the `No` vote was at 53 percent when discounting the 10 percent of people that haven`t made up their mind, giving the pro-UK campaign a six point lead and contradicting the YouGov poll.

“UK polls are notoriously unreliable, especially about such binary issues as independence with voters saying one thing but often doing the opposite in the privacy of the booth,” BK said in a note.

Meanwhile, UK online betting firm Betfair said the probability of a `No` vote remains at 70 percent with 2-5 odds across the board.

“There`s a lot of risk premium in cable at the moment because the stakes are so high, but most investors seem to be ruling out a worst case scenario of a `Yes` vote scenario,” said Sean Callow, senior currency strategist at Westpac.

“I would expect some volatility next week, but we could see a relief rally if we do get a `No` vote,” he added.

After the referendum

Beyond the vote, Callow expects the pound to linger in the low $1.60s before slipping to $1.58 by year-end.

“Sterling is more attractive than the euro  and the yen , but it`s not as competitive against the US dollar, and as long as those [US] rate hike expectations keep creeping up the greenback is going to thrive,” he said.

The dollar has rallied in the past few months as investors price in rate-hike expectations. Next week`s Federal Reserve policy statement will be watched closely for any change in language that could signal a near-term rate hike.

According to Lien, once the referendum has passed, investors should refocus on interest rate expectations, which have been the sterling`s primary driver recently.

On Wednesday, Bank of England Governor (BOE) Mark Carney said “the point where rates need to rise has moved closer,” with BOE members signaling a potential hike next spring.

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

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Apple Pay in Asia? Don’t put your money on it

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

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Apple’s new mobile payment system is to set to take the US e-commerce sector by storm but its launch in Asia remains far off, analysts said.

“Apple Pay will probably take at least four years to arrive in Asia,” said Ryan Huang, market strategist at IG in Singapore. Seeing as iTunes was only launched in Asia in 2012, nine years after its US debut, expectations aren’t high for an Asia expansion, he told CNBC in a phone interview.

Late on Tuesday, Apple unveiled a suite of new devices and a payment system called Apple Pay . The platform utilizes near-field-communication (NFC) and will be built into the iPhone 6 and iPhone 6 Plus to store debit and credit card information.

Asia’s cultural mindset towards NFC technology is a key challenge to Apple Pay’s expansion in the region, IG’s Huang said.

Read More Fashion world divided on first look at Apple Watch

“The region has dealt with NFC for a number of years, and it’s been a lackluster takeoff so far. The biggest hurdle is standards. Telecom firms took a long time to collaborate and have only just started to work together. For a long time, there was just one telecom working with Mastercard and another with Visa. It will take a long time for Apple to try and get a pipeline of retailers in Asia to get on board,” he added.

On top of that, consumers need to foot the cost of an NFC-enabled sim card in most Asian countries. “Some cities like Hong Kong are embracing subsidized options, which will be a key driver for NFC growth in the future,” Huang said.

Content concerns

The move comes as more Asian users complain of not receiving enough content from Apple’s content provider, iTunes. Users that open an iTunes account in Asia often don’t get access to the same content as their American peers.

Varying content is a major drawback for the tech giant as it tries to ramp up its presence in the region, Bradley Gastwirth, chief executive officer of ABR Investment Strategy told CNBC on Wednesday.

“It’s very important for Apple to be successful in the Far East, it’s a major part of their growth initiative. Are they going to be successful? It remains to be seen,” he said.

Earlier this year, Apple announced a partnership with China Mobile, the world’s largest mobile operator, to sell iPhones to the network’s estimates 760 million subscribers.

However, not everyone is pessimistic. IHS Technology expects Apple to extend Apple Pay internationally as soon as possible.

“Apple’s product strategy is globally focused and as a result keeps variation in products, models and services to a minimum in order to maximize global-scale economies. Even when it launches in one country first, Apple ensures its product design is suited to selling worldwide as soon as Apple has overcome launch hurdles,” said Jonathan Cassell, senior manager, editorial, in a note.

Content rights, regulatory barriers and securing partnerships and distribution are key reasons for US-only Apple product launches, Cassell said, noting that Apple made 2013’s iPhone models available in over 60 countries within six weeks of its US launch.

Competition for Alibaba?

Experts don’t anticipate much competition for Alibaba’s payments platform, Alipay, already the largest mobile payments processor in the world.

“Apple and Alibaba have different markets. Alibaba will do well in China and Chinese e-commerce and Apple will do better in North America given their massive install base on iTunes,” said Gastwirth.

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IG’s Huang agreed, saying that AliPay operates in an “enclosed loop.” It’s very dominant in China and thus will be largely insulated from Apple due to regulatory hurdles, he said.

While Alipay is targeted towards Chinese consumers, it’s looking to bring online shopping opportunities outside of the mainland to its users.

In Taiwan, the service has teamed up with a department store to accept payments made by Chinese tourists using the Alipay Wallet app while Singaporean hotel Resorts World Sentosa has become the first vacation sport outside of China to accept Alipay. Most recently, the service partnered with US payments firm Stripe to allow Chinese shoppers tap into US and European businesses.”

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

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Should investors brace for another EM sell-off?

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

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Recent weakness in emerging market currencies has sparked worries that they could face a bout of pain reminiscent of last year’s sell-off, analysts told CNBC.

“Everything seems to be going against emerging market currencies right now,” Nizam Idris, currency analyst at Macquarie told CNBC, highlighting a number of headwinds including U.S. dollar strength, China growth worries and structural issues.

Ratings agency Moody’s put Brazil’s credit rating on negative watch on Tuesday citing tepid economic activity, deteriorating government accounts and declining investor confidence, triggering a sell-off across Latin American currencies. Concerns about U.S. interest rates exacerbated the decline; both the Brazilian real and the Colombian peso have lost around 2 percent against the dollar since Monday.

Read More China to become largest economy by 2024

“The Brazilian real, Colombian peso and Chilean peso all got smashed – I think it sends a message that emerging market and commodity currency rating is probably at the end of that up-cycle,” Idris said.

Dollar strength

Most currencies weakened against the US dollar early this week after research published by the San Francisco Fed on Monday indicated that investors expect the Federal Reserve to keep interest rates lower for longer, and to raise them more slowly, than the makers of U.S. monetary policy themselves expect.

“Overall if we do get a scenario where the dollar strengthens more broadly – and we do see that – then it will be pretty hard for most EM currencies to remain resilient… But we don’t see as an aggressive sell-off as we saw last year,” said Dominic Bunning, currency strategist at HSBC.

“The fact that we are seeing this in countries like Brazil is an indication that some of the broader pressures are building on emerging market currencies because of what’s happening in the external picture,” he added.

Read More Emerging markets: The risks markets may be missing

 The China factor

“The second part of the argument for weaker EM is probably China,” Idris said, noting the debate about whether China faces a hard landing will likely continue.

Investors remain concerned about slowing growth in the world’s second-largest economy after gross domestic product growth slowed to 7.4 percent on year in the first quarter. Despite above-view growth of 7.5 percent in the second quarter mixed data on the manufacturing sector, industrial output and retail sales have raised speculation about potential stimulus from the Chinese central bank.

“If we do get weak data out of China, then commodity prices and currencies will come under pressure,” Idris added.

Idris told CNBC Dollar strength has been the main driver of EM currency weakness thus far but said we could soon see a shift to domestic fundamentals meaning there will be more differentiation in the currency moves. He noted that the Malaysian ringgit, New Zealand dollar and Indonesian rupiah would likely come under greater pressure.

Read More Are emerging market equities finally catching up?

Asia vs Latin America

Asian currencies could fare better than their Latin American equivalents in the event of a broader sell-off, Bunning said.

“For a lot of Asian currencies interest rate differentials are a lot higher than they were in the last Fed rate hiking cycle in 2004, whereas in Latin America the interest rate differentials aren’t as positive as they were in the past, so that’s one aspect that favors Asian currencies versus some others in emerging markets,” he added.

Bunning also said that the dynamics of many Asian emerging market economies have shifted somewhat over the past year, relative to where they were during the time of last year’s taper tantrum induced sell-off.

Fundamentals in India, for instance, have improved due to increased foreign direct investment and a narrower current account deficit, Bunning said. Thus a repeat of the Indian rupee’s 26 percent decline against the U.S. dollar last year is unlikely.

Conversely, some emerging market currencies which weren’t as vulnerable last year have become more vulnerable, he said, highlighting the Malaysian ringgit due to the country’s smaller current account surplus on a historical basis.

Indonesia’s rupiah, which was hit hard last year, remains vulnerable due to the country’s widening current account deficit, while the Philippine peso and Thai baht are still vulnerable but to a lesser degree, he added.

Read More Calls to scoop up emerging market assets grow louder

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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

How low will yen go? Depends on the dollar

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

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The resurgent US dollar has trumped most major currencies in its march higher, not least the Japanese yen, whose recent slide against the greenback is raising policymakers` eyebrows.

Dollar-yen spiked to a six-year high this week, touching a high of 106.46 on Tuesday. The move triggered warnings by Finance Minister Taro Aso and Economics Minister Akira Amari, who cautioned that further sharp declines in the currency are not desirable.

The yen`s near-term outlook hinges on the direction of the US dollar, say analysts, who expect further downside in the Japanese currency.

“The US dollar index  is approaching early 2013 highs, a break of which would see it trade at its highest since 2010. Japan has perhaps been the biggest beneficiary of this,” said Stan Shamu, market strategist at IG.

The greenback has stormed higher on a strengthening American economy and the prospect of higher US interest rates as the Federal Reserve unwinds its easy monetary policy.

“The US is recovering – the question is the pace, and not the direction,” added Callum Henderson, global head of FX research at Standard Chartered.

By contrast, the yen – which has hovered around the 102 level against the dollar for much of this year – saw a pronounced sell-off in the last month, falling over 4 percent against the greenback.

According to Emma Lawson, senior currency strategist at the National Australia Bank, the yen has also been hampered by soft economic data and increasing chatter than the Bank of Japan  (BoJ) may step in with more stimulus to support the economy.

“The yen is an under-performer due to the increased risk of more QQE (quantitative and qualitative easing) from the BoJ, the relative under-performance of the economy and the structural deterioration in the external accounts,” said Lawson, who has a year-end dollar-yen target of 108.

While a weak currency is generally positive for an economy like Japan that relies heavily on exports, the soft yen has yet to boost exports in a big way. Exports rose for the first time in three months in July, but it`s unclear if the momentum will continue as Japanese companies have been slow to expand their businesses.

There are also concerns a weak yen would be counterproductive for corporate Japan as it raises the import costs of fuel and raw materials, although most analysts aren`t too worried at this point.

“A weakening of the currency takes time to work through the economy, but it will be welcomed. The authorities have already warned on sharp moves in the currency – they prefer a weaker yen but not volatile changes. These are typical comments,” said Lawson.

On a technical basis, Stanchart`s Henderson says the dollar-yen`s steady climb this year signals further gains to come.

“Our forecast for the year end is 106 but certainly there is risk to the upside to that,” said Stanchart`s Henderson. “What`s impressive about this rise in dollar-yen is the very gradual nature of it. Typically, when you see the end of the trend, you see accelerated gains. We haven`t seen that yet.”

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

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Is JD.com a better buy than Alibaba?

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

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As Chinese internet behemoth Alibaba prepares to list on the New York stock exchange later this month in what is set to be the largest initial public offering in US history, some analysts argue that its main rival JD.com could offer a better bet.

“We prefer the business model of JD.com,” Jeff Dorr, equity analyst at J Capital Research, told CNBC Asia`s ” The Rundown .” “We just feel that with an 80 percent market share [in China] for Alibaba at this stage they can really only grow in line with the market… and with JD.com having 20 percent share we feel that over time there`s room for JD.com to take share and capture greater growth.”

Alibaba`s IPO has been the subject of much anticipation this year, with many analysts viewing the company as an ideal way to tap into China`s fast-expanding e-commerce sector.

On Friday Alibaba – which offers its customers a platform to shop online, sell unwanted goods and make online payments – said it expects to price its IPO between USD 60 and USD 66 per share to raise as much as USD 24.3 billion. At  USD 66 per share Alibaba would be valued at USD 163 billion.

Bumper second-quarter earnings have also helped the company`s investment case. Sales in the second quarter rose 46 percent to USD 2.54 billion, and net income nearly tripled to USD 1.99 billion from the year prior.

JD.com, the second largest e-commerce firm in China, carried out its IPO in May, raising USD 1.78 billion. Its share price has since risen around 70 percent. Its second-quarter earnings weren`t quite as encouraging – its net loss widened to 582.5 million yuan (USD 93.9 million) in the quarter ended June 30.

According to Shiv Putcha, associate director with IDC`s Asia/Pacific Consumer Mobility and Social Consumer Research team, JD.com still represents a more attractive investment despite the second-quarter blip, predominantly because of its backing by Chinese internet giant Tencent  who own an 18 percent stake in the firm.

TenCent owns WeChat – China`s largest messaging app – and plans to link its 355 million users to JD.com through an exclusive shopping channel only available on the messaging application.

“JD is much stronger today on the mobile side through its integration with Tencent and WeChat. Obviously Alibaba is the biggest e-commerce company in China, but it has been lagging Tencent in mobile because of WeChat,” Putcha told CNBC.

“Alibaba`s strength is on the traditional e-commerce side in terms of logistics etc. But if you`re trying to get traction in mobile what you really need is skill but what they have if the online world isn`t quite replicated in mobile… they have a lot of work to do,” he added.

J Capital Research`s Dorr said he also had concerns over Alibaba`s ability to crack the US market. “In the US competition is a bit stiffer than it is in other emerging markets, with Amazon  and eBay firmly entrenched. I do expect that Alibaba will have a more difficult time getting into the US market,” he said.

IDC`s Putcha agreed: “It will be a massive IPO but I don`t see it as an automatic success. They are going into markets with well-established players. The most challenging part will be the execution on the ground, and they are trying to develop their presence in these markets through acquisitions. But these things take time, they will not be a market leader within a year.”

Not all analysts CNBC spoke to saw JD.com as a more attractive investment, however.

“There are a couple of factors working in Alibaba`s favor,” said Ryan Huang, market strategist at IG. “Unlike Alibaba, JD.com has a different business model, where it holds inventory in warehouses – akin to Amazon… Alibaba functions more as a market place listing, so it holds less inventory risk. This is also one reason behind the gap in their profit margins.”

“For the latest quarter ended June, Alibaba`s profit margin was above 40 percent, compared to JD.com`s which was 2 percent. Between the two, an investor looking to bet on China`s e-commerce boom story is likely to find more comfort in Alibaba`s fundamentals,” he added.

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

A sugar rush may be coming, traders say

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

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Cutbacks in the world`s largest sugar producer could end a multi-year supply glut, sending prices higher next year, according to traders.

Brazilian producers, who accounted for over 40 percent of sugar exports last season according to the US State Department of Agriculture, are closing mills and reducing sugarcane investments following four straight seasons of excess production, sparking bullish calls on the sweetener.

“We reiterate our view that production shortfalls could cause consumption to exceed production in the coming season, leading to a drawdown in inventories built up over the past four years,” Abah Ofon, agricultural commodities research at Standard Chartered told CNBC on Monday.

To boot, sugarcane industry group Unica slashed its 2014-15 output forecast in the country`s Centre South region, which accounts for nearly 90 percent of domestic production, by 1.1 million tons as a result of a drought earlier this year.

Calls for a recovery in sugar prices come even as the overall market mood remains bearish. On Monday, prices fell to a fresh seven-month low of 14.93 cents, well below the 100 day moving average of 17.38. Over the past two weeks, sugar has fallen over 2 percent and is down nearly 9 percent year to date.

In August, the International Sugar Organization (ISO) forecast extended price weakness and a 1.3 million ton production surplus for the year starting in October.

“The ISO believes that, even with the small forecast surplus, global fundamentals are unlikely to support a rise in market values from current values,” the organization said in a report, warning that consumption must outpace supply by at least 3 million tons in order for prices to recover.

Still, the organization noted Brazil`s worsening prospects, forecasting overall output to drop nearly 2 percent next season.

Standard Chartered says the trend in sugar futures justifies its bullish stance: “The futures curve is actually trading in contango, so the market is expecting prices to head higher as we move into next year,” Ofon continued.

The bank is long on sugar`s March 2015 contract and forecasts prices to rise above 18 U.S. cents a pound by year-end.

Recent data support the optimistic mood. In the week to last Tuesday, speculators trimmed net short positions in white sugar options on NYSE Liffe by 117 lots, according to the exchange.

Will prices hit companies?

Higher sugar prices are unlikely to hit food producers, experts say.

“Even with higher prices, there will still be a lot of supply in the market. Of course, companies may hike their prices a little but it won`t be a situation where there`s an outright sugar deficit. The market will just change to a buyer`s market form seller`s market,” said Avtar Sandhu, senior manager of commodities at Phillip Futures.

Phillips expects sugar to hit 19 cents on average in 2015, despite the threat of a stronger dollar amid speculation of higher US interest rates next year. Commodities that have bearish fundamentals will be hit by a strengthening greenback. If sugar`s fundamentals change, it won`t be impacted as much, Sandhu explained.

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

Scottish referendum: Why Asia should worry

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

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Investors would be mistaken to assume that the implications of the upcoming Scottish referendum are limited to the UK, analysts told CNBC.

In a few weeks Scottish citizens will vote on whether they would like to be independent from the United Kingdom. Until recently, a `no` vote was expected, but a Sunday Times poll published last weekend showed 51 percent of respondents would vote for independence.

Sterling fell 1.3 percent to a 10-month low against the dollar overnight and is down around 3 percent month-to-date.

If Scotland were to divorce the UK there could be broad implications for global financial markets, according to Evan Lucas, market strategist at IG.

“So far it`s only affected stocks and currencies with exposure to Scotland. However if Scotland were to leave the UK, all bets are off, and there are plenty of `what if` scenarios… we simply can`t predict how big the fallout would be,” said Lucas.

A vote to break away would lead to negotiations on whether Scotland keeps the pound as its currency, threatening the monetary union. Furthermore, the UK`s current account deficit would increase substantially if it lost 90 percent of its oil and gas assets, which are Scottish owned.

Asia isn`t immune

“It will impact Asia, the tricky thing will be how to quantify it – right now it is as much of a binary risk rather than a tail risk,” said Vishnu Varathan, market economist at Mizuho Corporate Bank.

A potential break-up of the UK could impact Asian investments in two ways, Varathan said.

“If you get any fluctuation in gilt yields, that will have a knock-on effect on yields across the global markets,” he said.

“Also many Asian investors have exposure to UK and Scottish-based financial institutions from asset managers to banks to insurers, while these institutions also hold Asian assets, so they may divest to cover positions too,” he added.

UK government bond yields have traded lower recently on expectations that much of Scotland`s financial services industry would relocate to London, but Varathan said gilt yields could spike if a `yes` vote occurs and depending on how assets and liabilities are split.

“If the fiscal burden for what remains of the UK goes a lot higher, that could push yields up as markets would expect more bond supply to come on to the market because of the higher debt obligations vis-à-vis the augmented GDP (gross domestic product) of the UK,” said Varathan.

“Durable impact will be difficult to pin down until we get further clarity, but in the meantime the uncertainty will play out as sterling weakness and weaker markets in Asia as well, so we could see equities coming off and bond yields coming off,” he added.

Another implication from a `yes` vote could be that domiciled entities in Scotland may have to look offshore, as funds would likely exit the UK, IG`s Lucas said: “Banks may find themselves looking for a new place to domicile. Singapore, for example, would be a very attractive place for Asian-facing UK business.”

Ahead of the vote, stocks, currencies and equities with exposure to Scotland are expected to continue weakening, Lucas said, especially with two more opinion polls due before the vote.

Among companies to watch Lucas flagged National Australia Bank because of its exposure to Scotland through Clydesdale Bank, along with Royal Bank of Scotland, Standard Life, Varr, Weir Group and Aberdeen Asset Management.

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

Watch out: Central bank shock potential

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

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As the 2008 economic crisis took hold, central banks around the world scrambled to prop up their economies. The result: monetary easing on a global scale.

However there`s been fierce debate over whether these stimulus efforts – such as the US Federal Reserve`s massive bond-buying program – could have done more harm than good.

David Tice, president of Tice Capital and founder of the Prudent Bear Fund, warned last month that a jolt to international confidence in central banks would lead to a 30 to 60 percent market decline.

We take a look at three of the world`s key central banks, and the global risks they pose.

US Federal Reserve

The Fed cut interest rates and launched three bond-buying – or quantitative easing (QE) – programs between late 2008 and 2012 in an effort to stimulate the US economy. The move has proved controversial, with some economists arguing that QE was nothing more than a temporary fix.

Now, the Fed is looking to end its QE program with a USD 15 billion reduction in monthly purchases in October – which, according to some experts – poses risks of its own.

James Rickards, economist and author of New York Times best seller “The Death of Money”, highlighted that when the Fed tapered off its previous QE programs, the stock market and the economy stalled.

“It`s happening again, but in slow motion because the QE3 taper was gradual and from a higher level,” he told CNBC. “When this third taper is done in November, the weakness will become apparent.”

Bank of England

Much like in the US, economists in the UK are also falling over themselves to predict when the first interest rate hike from its five-year low of 0.5 percent will come. For the first time in three years, Bank of England (BoE) policymakers were split at its August meeting, with Monetary Policy Committee (MPC) members Martin Weale and Ian McCafferty voting for a rise in interest rates.

“The possibility of an increase in the Bank rate is now `in play`,” Investec`s Philip Shaw said in a note. “From here on, we might begin to see markets becoming a little jittery over a possible move ahead of each meeting.”

Central bank head Mark Carney`s reputation was called into question after he unveiled Fed-style forward guidance in August 2013, and said rates would not rise until the U.K. unemployment rate hit 7 percent. This, however, happened much quicker than happened; by April 2014, and Carney was forced to revise his guidance.

For Steen Jakobsen, chief investment officer at Saxo Bank, the BoE`s credibility – or lack of it – also poses a risk.

“Economies are sophisticated,” Steen said. “The BoE now needs to provide the market with a more sophisticated response – and there`s a risk they won`t be successful in this.”

Poor communication is very dangerous for central banks, which rely on carefully-crafted statements to guide market expectations. If faith in a central bank`s communication is lost, investor confidence could be hit, leading to volatility in stock and currency markets, and uncertainty the broader economy.

European Central Bank

In the euro zone, however, it`s a very different story.

At its September meeting, the ECB unveiled yet more stimulus measures designed to bolster the region, where an economic recovery has struggled to take hold. Growth-sapping low price growth has dogged the euro zone, with inflation falling to just 0.3 percent in August and unemployment remaining stubbornly high at 11.5 percent.

The central bank cut its three main interest rates further, and announced it was going to start buying asset-backed securities in an effort to boost the availability of credit. The next step, according to some analysts, is the launch of a full-blown QE program, like that of the Fed`s.

Nick Beecroft. chairman and senior market analyst at Saxo Capital Markets UK, told CNBC this will be launched by the end of the year, but added: “the ECB, and specifically the (German) Bundesbank, will have to be dragged kicking and screaming to this”.

Andrew Kenningham, senior global economist at Capital Economics,added: “The risk is that they don`t do actually do it… There`s an element of bluff on the part of Mario Draghi. He can promise to do things, achieve quite a lot just by promising, and then don`t have to do it.”

Even if Draghi does launch Fed-style QE, Kenningham questioned how successful it would even be. “It`s worth trying, but we`re not at all clear it would have a massive effect,” he said.

If the ECB doesn`t act in the way most expect, markets could be hit hard, as most investors have priced in further stimulus from Draghi. It could also hit the bank`s credibility, limiting the power of any future policy announcements.

Be careful what you wish for

One further potential pressure point is a growing divergence between the major advanced economies, with speculation of Fed and BoE tightening as the ECB (and Bank of Japan) inch towards further stimulus.

Currency traders in particular should be watching the situation, Steen warned. The dollar has strengthened significantly against the euro in anticipation of Fed tightening and ECB easing.

But forex markets should be wary on counting on central bank to make the right move.

“I`m perplexed that the market continues to listen to and believe central banks,” Steen added. “In the recent past, they have been very wrong.”

-By CNBC`s Katrina Bishop

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 to be biggest economy by 2024 in dollar terms

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

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China is set to overtake the US  as the world`s largest economy in US dollar terms over the next decade, according to a new report by IHS Economics.

IHS measured the size of China`s economy in US dollar terms, rather than using purchasing power parity – a technique used to determine the relative value of different currencies – which other research houses have used in the past.

Last month, the International Comparison Program – backed by the World Bank and the United Nations – forecast China could overtake the US as soon as this year, based on the PPP measure. The research puts China`s gross domestic product (GDP) at 87 percent of the US  in 2011, compared to 43 percent in 2005.

Those who use the PPP measure argue that it is a more accurate measure of the cost of living. IHS told CNBC it chose to evaluate the size of China`s economy in dollar terms because it was a more definitive measure.

“Over the next 10 years, China`s economy is expected to re-balance towards more rapid growth in consumption, which will help the structure of the domestic economy as well as growth for the Asia Pacific (APAC)as a region,” said Rajiv Biswas, chief Asia economist for IHS Economics.

This surge in consumer spending will see China`s nominal gross domestic product hit USD 28.25 trillion by 2024 from its current USD 10 trillion, larger than the USD 27.31 trillion projected for the US , the research firm said. US nominal GDP currently stands at USD 17.4 trillion.

“In 2025, if we were to take a global economic snapshot,China`s economy will play an even bigger role as a key driver of global trade and investment flows,” Biswas said, adding that China`s share of world GDP is forecast to rise from around 12 percent in 2013 to 20 percent by 2025.

Rapid consumer growth will likely see the Chinese consumer market grow to USD 10.5 trillion by 2023, around three times larger than Japan, which will sit at USD 3.7 trillion, IHS said.

While many other research houses agree that China will eventually overtake the US economy they do differ on the timing. London-headquartered news publication The Economist forecasts China will become the largest economy in 2021, while London based consultancy Center for Economic and Business Research forecasts a later date of 2028.

The impact of China`s rapidly expanding consumption is being felt across Asia Pacific. One key sector is tourism; Chinese tourism spending rose 26 percent in 2013 on the previous year to USD 129 billion, making China the largest source of tourism in spending globally, according to United Nations data.

Thailand, in particular, has benefited, with Chinese tourism visits up 68.8 percent in 2013 compared to 2012 to 4.7 million visitors.

Copyright 2011 cnbc.com

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We need a trade deal with the US: EC Commissioner

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

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The European Union needs to secure a free trade deal with the US , Jyrki Katainen, former Finnish prime minister in the running for vice presidency at the European Commission, told CNBC.

Talks on the EU-US  free trade deal, known as the Transatlantic Trade and Investment Partnership, or TTIP, began last year and have faced opposition in Europe.

French politician Marine Le Pen, president of the right wing Front National Party, is campaigning against the deal, arguing that unfettered transatlantic commerce would damage vulnerable national industries and hit employment.

But Katainen, who currently serves as the European Commissioner for Economic and Monetary Affairs, fully backs the deal.

“We need a free trade agreement with the United States,” he said, adding that an energy union and a single market were also pivotal.

“These are the issues which could help all of Europe increase competitiveness, increase competition, and this is the way we get more jobs…We need more opportunities for our small and medium-sized [companies,] but also for the bigger companies, to go to the US  market,” he added.

The European Commissioner also reiterated his view that structural reform is still a much-needed objective in Europe and acknowledged that increasing demand is an important factor in stimulating growth.

“The European economic challenges are more structural in nature than cyclical… what I personally hope is that all the member states would do more on the structural side, like with the labor market, in some countries we need pension reforms, in some countries we need a better single market in order to strengthen competitiveness,” he said.

“Because we are not only competing between ourselves in Europe, but we should be more competitive on a global scale,” he added.

Scottish independence

A huge talking point in Europe at the moment is the Scottish referendum on September 18, especially after a Sunday Times poll revealed Scottish people are leaning towards a `yes` vote, marking a shift in sentiment.

Many analysts believe that if Scotland separates it could send tremors through Europe, because of what it means for the U.K.`s economy and political power, and for other smaller regional groups in Europe.

Katainen declined to comment on the implications of the referendum, but hinted that a weaker UK wouldn`t be positive for Europe.

“I don`t want to speculate about the result of the Scotland referendum because it`s not my duty at all, but what we need in Europe is a strong United Kingdom influencing matters when we are developing Europe,”he said.

“The only thing I want is stability, whatever threatens stability I hope that we can solve it,” he added.

The European Commissioner also commented on Ukraine and said the European Union would remain a strong partner to Ukraine during its time of crisis, but said the troubled economy would also have to do its part.

“Of course it means that there must be a strong commitment of decision makers in Ukraine to follow the path of rule of law, of democratic and transparent society,” he added.

President of the EC Jean-Claude Juncker is expected to appoint approximately six new vice presidents in around two weeks` time.

Copyright 2011 cnbc.com

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