For foreigners, grass still greener in the US

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

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A new global study reveals that foreigners are more upbeat about economic prospects in the US than Americans are, and it indicates that the Great Recession has been especially prolonged and widespread for Americans.

The Boston Consulting Group found that nonresidents cited economic opportunity, material well-being and cost of living as key reasons for wanting to live in the United States. Nonresidents ranked America No. 3 on the list of best countries to live, behind Australia and Canada.

Not surprisingly, survey respondents in the US chose English-speaking countries as their favorite places to live. US residents ranked it as their first choice, followed by Canada, Australia and the U.K. But unlike foreigners, Americans placed a much higher value on noneconomic reasons for living stateside, including political freedom, and cultural and religious tolerance.

“It`s revealing that nonresidents feel more positive about the economic opportunities in the US than residents,” said Christine Barton, a Dallas-based BCG partner who led the research on consumer attitudes and top places to live. “What the research may suggest is that the recession has tempered Americans` enthusiasm for economic opportunity,” she said.

While the BCG study uncovered pockets of economic doubt, it found that Americans broadly are optimistic compared with people in other developed nations. People globally have responded to hard times by becoming more resilient and adapting to a new “baseline” that includes nagging worries about retirement, job security and caring for aging parents, Barton said.

The study also unearthed generational differences about where to live and work. US millennials are looking abroad for opportunities; older people, anchored by families and other commitments, want to stay home and pin their hopes on the US economy.

Just ask John Bragg.

Bragg, 62, is general manager at Barn Light Electric, a small business in Titusville, Fla., that makes porcelain enamel fixtures-a rarity in U.S. manufacturing. He served in the army and Vietnam War, then transitioned to West Virginia`s coal mines. He worked there for 29 years, weathering strikes and unsteady paychecks before eventually making his way to Florida.

If his nephew hadn`t offered him a job at the lighting company, Bragg would be retired, he said. He counts himself among the lucky working Americans and is hopeful about the future-but with caveats.

“There is a lot of unemployment in the state, homes up for sale,” he said. The region, east of Orlando, has been hit by cutbacks at the nearby Kennedy Space Center. “I think the economy will come back, but I don`t think it will be high-paying jobs,” he added.

In fact, roughly 58 percent of jobs recovered from the recession are low wage, according to the National Employment Law Project. Low-tier positions grew 2.7 times as fast as mid- and higher-wage occupations.

Feeling hopeful

The BCG report is based on a survey of nearly 28,000 residents in 11 countries: the US, Canada, Germany, UK, France, Spain, Italy, Japan, Australia, Brazil and India. Global attitudes naturally have shifted in the recession`s wake.

In some southern European nations hit hard by the downturn, a minority ranked their native country as the top place to live. In contrast, Americans, as well as Australians, Canadians and the Japanese, wanted most to live in their home country.

But all is not rosy on US soil. The government reported Friday that 169,000 jobs were added in August, lower than expected. According to Pew Research Center analysis , the percentage of millennials (those between roughly 18 and 34) still living at home is the highest in four decades.

Despite such tepid economic news, people in the U.S. as well as globally are a hearty bunch. Consumers overall report an improvement in their emotional lives, peace of mind, optimism and stability from 2012 levels, Barton said.

Notable exceptions are France, Italy and Spain, where sentiment is down. As context, Spain`s unemployment rate was 26. 3 percent in the second quarter, down from 27.2 percent in the first quarter. The U.S. unemployment rate dropped to 7.3 percent last month-its lowest level since December 2008-but because of fewer people in the labor force.

Generational gap?

Younger people usually are optimistic, and millennials are contributing to the buoyant mood, Barton said.

But they don`t want just any opportunity to pay the bills. Instead, they seek enriching, international experiences. For example, American millennials show a strong preference for living in Europe and Japan, according to BCG research.

After five years of negotiating strategic partnerships at Google (NASDAQ: GOOG), Cynthia Yeung, 29, quit to join an entrepreneurship accelerator on a ship. The program, called Unreasonable at Sea, focuses on solving social and environmental challenges.

Working for corporate America, “it`s very easy to feel like you`re a cog in the wheel,” she said. “I didn`t want to solve first-world problems like `Do I need a second computer screen?` ” she said. “I want to have a direct, meaningful impact on people`s lives, their needs-not their wants.” The sea program ended, Yeung is hunting for her next adventure.

Meanwhile, you can often find Bragg working on the shop floor of the lighting company in eastern Florida. When he`s tinkering with a manufacturing process he`s unfamiliar with, he`ll huddle with colleagues around a YouTube video for tutorials.

Unlike millennials, American baby boomers and those older showed a strong preference for living in the US, according to BCG.

“I do think America is still a land of opportunity,” Bragg said. But that economic potential needs policy support focused on creating jobs, he said. “We need to get the politics out of it and get back to making and selling American products.”

–By CNBC`s Heesun Wee . Follow her on Twitter @heesunwee .

Copyright 2011 cnbc.com

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US recovery will aid emerging markets: StanChart CFO

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

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A US economic recovery would benefit – not hurt – emerging markets, the group finance director of Standard Chartered Bank told CNBC, but he stressed that it was wrong to view Asian economies as one homogeneous bloc.

Standard Chartered makes around four-fifths of its operating profit in Asia and the Middle East, and with fears of a slowdown in the region this year and beyond, analysts have grown concerned about the bank`s emerging market exposure.

(Read more: India and Indonesia:who has it worse? )

However, the firm`s group finance director Richard Meddings argued that, “what`s driving this reflection on Asia is actually rising dollar rates in the US, and therefore a move away from investing in Asia and investing more in the US to pursue those rates.”

He continued: “As the US recovers, steadily, the U.S. is 25 percent of global gross domestic product (GDP), and much of what Asia produces and manufactures or assembles is actually sold into the U.S., so actually you have a benefit lifting Asia as the U.S. recovers.”

Standard Chartered took a $1 billion hit on the value of its Korean business in August, pulling its first-half profit down over 15 percent from a year ago. It reported pre-tax profit of  USD 3.3 billion for the six months to the end of June, compared with USD 3.9 billion a year earlier due to the Korea write-down.

The bank also faced shareholder fury in March when it announced a profit fall, but said it was on course to achieve an eleventh consecutive year of record profits.

Meddings said the ongoing recovery in the US would guarantee Standard Chartered`s future, arguing that the firm would become a “more profitable franchise.”

He did add, however, that, “the next three to six months are likely to be a period of some turbulence across the markets until we get through this transition period.”

Standard Chartered was aided by a diversified portfolio, Meddings said, which was important amid the ongoing concerns about an Asian slowdown , as all economies were different.

“I think the concerns are too uniform. I think the overall market mood is to see Asia as one full block. In fact it`s not correlated. Different economies react differently according to their own individual shape,”he said.

Copyright 2011 cnbc.com

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Why Indonesia could be worse off than India

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

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The whipping boys of emerging Asian markets in recent times – Indonesia and India – have their fair share of problems, but analysts are singling out Southeast Asia’s biggest economy as the one in a more precarious position.

While both countries have wide current account deficits, analysts argue that Indonesia’s external situation is worse as the economy has moved quickly from a current account surplus just a couple of years ago into a hefty deficit.

Indonesia’s current account deficit widened to 4.4 percent of gross domestic product (GDP), or USD 9.8 billion, in the second quarter, compared with 2.6 percent of GDP in the previous quarter. In 2011, it recorded a current account surplus of USD 1.7 billion.

(Read more: RBI’s Rajan takes a deep dive to save the rupee)

By contrast, India’s improving current account deficit is expected to narrow considerably over the coming months led by a decline in non-oil imports and a rise in exports and remittance flows. Barclays forecasts the current account deficit will shrink to 3.7 percent of GDP, or USD 68.2 billion, from 4.8 percent last year.

“In Indonesia, on a 12-month basis, the current account deficit is actually increasing. Whereas in India, it is shrinking and we expect it to continue to narrow further,” Krishna Hegde, head of Asia Credit Research at Barclays told CNBC.

Hegde pointed to the high level of foreign ownership in Indonesia’s domestic bond markets, which makes its current account balance more vulnerable to a capital flight.

“Both current account deficits are funded to an extent by portfolio flows. While equity outflows are a risk for both countries – in the case of Indonesia, foreign investment in bond holdings is substantial,” he said.

About 30 percent of Indonesia’s onshore government debt is owned by foreigners, compared to 3 percent in India, which is among the lowest in Asia.

(Read more: Indonesia is latest emerging market whipping boy)

Also, unlike India’s economy, whose exports are likely to benefit from the plummeting rupee, Hegde said a significant portion of Indonesia’s exports are dollar-denominated commodities, which will not benefit much from a weaker rupiah.

The prospect of a scaling back of US monetary stimulus has battered both currencies in recent months, with the Indian rupee diving 17 percent in the last three months, and the Indonesian rupiah tumbling 13 percent in the same period.

“In India, currency depreciation is filtering into increased export volumes as is visible from the anecdotes we have seen from textiles and automobiles sector. We would expect to see the effect of the sharp depreciation in the rupee to translate into lower trade deficits after a couple of months,” Hegde noted.

From a growth perspective, Robert Prior-Wandesforde, director for Asia economics at Credit Suisse, expects India’s economy to begin recovering this year as Indonesia’s slowdown deepens.

“India has been slowing for three years. That makes me more optimistic that it can start to recover earlier,” said Prior-Wandesforde.

(Read more: Four reasons not to ‘throw in the towel’ for India)

India’s growth slowed to a four-year low of 4.4 percent year-on-year between April and June, from 4.8 percent in the previous three months. Indonesia’s economy expanded 5.8 percent during the same quarter, its slowest pace in nearly three years.

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European stocks looking good; The US? Not so much

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

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Citigroup’s global equity strategists see improvements in Europe’s economic outlook as a reason to be more optimistic on European stocks, but they are underweighting the US market, which is now seen as too richly valued.

Citi strategists have upgraded Europe’s equity markets to neutral and the UK to overweight. Economists at the bank have upgraded their 2014 GDP growth forecasts to 0.6 percent for Europe and to 2.1 percent for the UK

“[Emerging markets] and UK appear the cheapest of regions across the world, trading at 11.8 times and 13.3 times trailing PE, respectively,” they said.

Europe’s stock markets have been outperforming the U.S. since the SandP 500 hit a two-month low on June 24. The SandP is up 4.8 percent since then, but the Spanish stock market is up 12 percent, and France and the UK have gained 10.3 percent and 7.3 percent, respectively.

Of the BRICs, Brazil is up 12.5 and China is up 8.4 percent in that period, while Russia is up 4.3 percent and India just 0.1 percent.

September is typically the roughest month for stocks, and the Federal Reserve is preparing to taper its bond-buying program-seen as a positive for stocks. The S&P 500, up 16 percent year-to-date, also faces headwinds this fall because of the politics surrounding the budget and debt ceiling debates, earnings estimates that will likely be reduced and possible military action against Syria, Citi analysts say.

Bank of America Merrill Lynch analysts in a note this week pointed out that European equity funds had a record-breaking $12 billion in inflows over the past two months.

Citi strategists pointed to the euro zone and UK PMIs, both above 50 and showing expansion.

“We would caution against getting too excited,” the Citi analysts wrote. “Recovery is likely to be modest. Headwinds from de-leveraging and modest external demand are likely to limit the pace of recovery. Many challenges remain for politicians and policy makers. But the outlook across Europe looks brighter. Investor interest appears to be growing too.”

Other strategists have been moving money into Europe, as well as looking at ways to play Europe through U.S. stocks with exposure there.

Citi analysts are cautious about emerging markets and continue to lower GDP expectations. They also say risks to EM are possible U.S. military action against Syria and the Fed’s potential tapering, which has driven interest rates higher.

Copyright 2011 cnbc.com

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To taper or not taper: Jobs scrutinized for next Fed move

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

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Good news on the jobs front Thursday could sour the stock market`s early September rally.

ADP`s private sector payroll number at 8:15 am and weekly jobless claims at 8:30 am will be watched as key indicators on the employment picture ahead of Friday`s August nonfarm payrolls. The Friday jobs report is seen by some traders as make or break for the Fed`s decision later this month on whether to taper back its USD 85 billion monthly bond purchases.

Stocks rose Wednesday, with the Dow up 96 at 14,930 and the SandP 500 up 13 at 1653. The Nasdaq was up 36 at 3649.

“I think the market`s still vulnerable to further pull back here,” said Andrew Burkly, head of institutional portfolio strategy at Oppenheimer Asset Management. “It`s good news is bad news for the stock market here near term. I think that still puts pressure on the market.” Stronger economic data and the potential for a Fed tapering of its bond buying has pushed rates higher along the curve.

Also read: Upbeat Fed outlook suggests QE tapering is near

“The 10-year is at 2.9 percent. Psychologically, as you get closer to 3 percent, it puts pressure on the market,” he said.

The ISM manufacturing survey helped lift yields Monday when it was reported at a surprisingly high 55.7. ISM non-manufacturing data is due for release at 10 am Thursday, and it is expected to come in at 55, weaker than the 56 last month. Economists will be watching the labor component of that number for clues on hiring in August.

ADP is expected to show creation of 178,000 jobs, a rough indicator for the jobs report. Economists are looking for a consensus 180,000 nonfarm payrolls for August and an unemployment rate of 7.4 percent.

Claims are expected to come in at 330,000, just below last week`s 331,000, signs of an improving job market. The report is relevant to the jobs report only in that it will tell whether the trend of lower claims is continuing. There is also factory orders at 10 am and chain stores are to report monthly sales.

Rate Watch

As the 10-year Treasury note hovered around 2.9 percent Wednesday, the 2-year rose to 0.47 percent, its highest level since July, 2011. “When the short end is moving like this, you’re pricing in rate hikes sooner,” said Burkly.

Also read: Where did earnings go? Profit outlook gets gloomy

Tom Simons, money market economist at Jefferies, said the 2-year is sensitive to the expectations for Fed tapering but also the ultimate move by the Fed to raise rates, which it is not expected to do until 2015.
But uncertainty around who the next Fed chairman will be and the composition of the future Federal Reserve board has also contributed to some selling at the short end.

“We`re looking at that point where Obama is going to have to submit his nomination for Fed chairman, and it`s looking more and more like Larry Summers. I don`t think it`s a bargaining chip in the whole Syria debate but it`s one more thing on the plate,” said Simons.

Simons said a new Fed led by Summers could alter the Fed`s current policy on forward rate guidance, and there is speculation that a Summers` Fed may move faster to raise the Fed funds target rate than the time frame that is currently expected.

“We`re looking for the October meeting to be when they announce tapering…I `m thinking now it`s starting to matter much less when they decide to taper. It`s become evidently clear it`s coming at some point,” he said.

Also read: Saving habits backslide as recession`s impact fades

However, Jack Ablin, CIO at BMO Private Bank, and other strategists do see a chance that President Obama backs down on his expected nominee, former Treasury Secretary Summers, opposed by some Democrats in Congress. Fed Vice Chair Janet Yellen had been Wall Street`s favorite candidate and was once seen as the front runner by a large margin.

“I think the Syria debate, in my view, probably helps Janet Yellen`s chances. He`s right to get Congressional votes and he might throw in a chip on that one,” said Ablin.

Simons said the board could also change dramatically, and Yellen`s seat may become open if she is not named. Besides Bernanke, Fed Gov. Elizabeth Duke has resigned, as has Cleveland Fed President Sandra Pianalto. Fed Gov. Sarah Raskin was named Deputy Treasury Secretary and is also leaving.

As markets adjust to the view the Fed will cut its bond purchases, Ablin said he thinks stocks are starting to tolerate higher yields.

“I think if you look at correlations over the last couple of months, there is a shift and we are now seeing an environment where we have higher stock prices with higher yields. I`m encouraged by that. It probably represents to me a very healthy bond market at the expense of bond holders,” he said.

Also read: Labor outlook: `It`s just a very tough job market`

What Else to Watch

Both the European Central Bank and the Bank of England hold rates meetings Thursday, and will release decisions ahead of the US market open.

Minneapolis Fed President Narayana Kocherlakota speaks at 9 am

Syria

President Obama and other leaders of the G20 nations gather in St. Petersburg Thursday. Investors will be watching for any reaction to the President`s proposal to strike Syria for using chemical weapons on its citizens. Russia opposes the move. Obama canceled his meeting with Russian President Vladimir Putin in Moscow.

Congress will continue to consider whether to approve the Administration plan for a missile attack on Syria. The Senate Foreign Relations Committee Wednesday approved a resolution for an attack against Syria in retaliation for its use of chemical weapons but it prohibited the use of troops.

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Emerging Asia rout start of a multi-year bear market?

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

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Emerging markets in Asia appear to have stabilized in recent days, but market watchers believe the sell-off is far from over, with one analyst warning that the rout may be just the beginning of a multi-year bear market in the region.

According to Paul Krake, founder of Hong Kong investment firm View from the Peak: Macro Strategies, the winding down of the Federal Reserve’s monetary stimulus, widely expected to begin this month, would likely be accompanied by a dovish statement saying monetary policy will be kept easy for a long period.

“That leaves us with developed market central banks that are extremely dovish – Japan, the Fed, the ECB,” which will continue to encourage investors to stay exposed to these markets at the expense of emerging markets (EMs), he said.

(Read more: Larry Summers the next big risk for emerging markets? )

This will exacerbate outflows from EMs, drag their currencies down further and force central banks to keep their monetary policy tight. “Currency weakness will mean they have to stay hawkish,” he added.

The tight monetary policy in EMs, which could hamper growth, adds to concerns over their wide current account deficits and gives investors more reason to sell.

“That’s a toxic mix for emerging markets over the medium to long term,” he said, expecting the turmoil to last for three to five years.

“This is just the beginning of something very, very structural,” Krake, added. “It means a continuation of the developed market over the emerging market theme.”

He doesn’t expect emerging markets to find valuation support any time soon. “Ex-Korea, you haven’t had earnings estimates come down anywhere near enough. You’re going to have negative profit growth in India this year; consensus is still 10 to 15 percent. It’s just not going to happen.”

Problems in the longer term

Kumar Palghat, managing director of Australia-based fixed-income focused Kapstream Capital, also expressed concerns about the longer-term prospects for EMs.

“Our major concern is, how do you protect [against] capital losses not for the next three months or six months, but for the next 12 to 18 to 24 months,” said Palghat, which has about A$6 billion ($5.39 billion) under management.

Since the tapering move indicates interest rates are set to rise, Kapstream has gone “quite defensive,” putting 25 percent of client portfolios into cash, he told CNBC.

But not all of Asia is getting tarred with the same brush. “The ultimate driver is actually the fact that the U.S. economy, the European economy and lately the Chinese economy are doing better than investors had thought,” Michael Kurtz, global head of equity strategy at Nomura, told CNBC.

“That growth recovery is clearly creating new opportunities in Asia in more externally focused markets,” such as Korea, Taiwan and China, 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

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Why oil prices may remain strong, war or no war

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

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Uncertainty over rising tensions in Syria has driven oil prices to fresh highs in recent weeks, but analysts say the bullish sentiment is expected to stay regardless of whether or not the scenario escalates into a full blown war.

“Even if there is a war in Syria or no war in Syria I think oil will remain strong,” said Sean Hyman, editor of Moneynews at the monthly newsletter Ultimate Wealth Report. “WTI could go from USD 108 to USD 117 [a barrel] and Brent could go from USD 115 to USD 125 [a barrel] very easily.”

“You’ve got strikes of oil workers in Libya…you’ve got Egypt really still in limbo with their government…and you’ve also still got what could turn into a war in Syria. I believe you’ve got a big case for oil and oil stocks to go higher,” he said.

Syria tensions were renewed this week after key US Congressional leaders voiced their support for President Barack Obama’s call for a military strike against Syria to retaliate against its use of chemical weapons against civilians, making the likelihood of action look more imminent.

Libya’s oil production has fallen to about one sixth of its pre-2011 civil war levels in recent weeks due to a month-long disruption by armed security guards who shut the country’s main export ports. Meanwhile an attack on a ship passing through the Suez Canal over the weekend has flagged continued geopolitical risk in Egypt.

Han Pin Hsi, global head of commodities at Standard Chartered, said if Syria tensions ease, he doubted Brent would spike as high as USD 125 a barrel. It would likely trade in a USD 105-USD 115 a barrel range, while WTI would trade at a USD 5 discount to Brent, he said.

“Oil will remain firm because of risks to supply from other oil producers: Iran is not coming back quickly, there are issues with Libya and tensions in the Middle East North Africa area will keep oil firm,” he said.

However, oil could reach USD 125 a barrel if tensions in Syria escalate, Hsi added.

“It’s anyone’s guess what would happen to oil then, but we would probably see a spike. But oil at USD 125 a barrel would be a significant headwind for the already fragile global economy, causing a lot of problems, so it would not be sustainable for long,” he said.

Last week, Societe Generale analysts laid out a case for Brent to spike to USD 150 a barrel temporarily if Syria’s supporters seek to punish the U.S. and its allies for a military strike, a development many industry watchers see as a worst case scenario.

Last week US crude reached its highest level in over two years, while Brent crude moved to its highest level since February. They have since pulled back; on Wednesday, Brent traded at USD 115.77 a barrel at mid-morning in Asia, while WTI traded at USD 108.29 a barrel.

Copyright 2011 cnbc.com

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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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Baptism of fire for India’s new central bank chief

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

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Raghuram Rajan becomes India’s central bank chief this week and the well-respected economist is expected to come under immediate pressure to restore confidence in the country’s battered currency.

Rajan succeeds Duvvuri Subbarao as Reserve Bank of India Governor under bleak circumstances: the Indian rupee has shed over 25 percent of its value against the US dollar in the space of three months, the economy is growing at its slowest rate since 2009 and inflation is high.

Also read: Goldman upgrades China growth, cuts India outlook

India, Asia’s third largest economy, is facing its worst predicament since 1990-1991 when a balance of payments crisis led to a sharp devaluation in the rupee, economists say.

Rajan officially becomes RBI Governor on Wednesday and will take charge operationally on Thursday.

“In some ways you could argue that Rajan has made his first mistake before he’s formally started in not being active enough in reassuring markets about his commitment to stabilize the rupee,” Robert Prior-Wandesforde, director for Asia economics at Credit Suisse, told CNBC Asia’s “Squawk Box.”

“The market has been crying out for some jaw-boning from him. I hope the RBI and government together set currency stability as their chief priority. If they do not, the rupee could continue to drop, inflation will rise and rates will be forced higher,” he added.

The middle of a storm

The rupee closed at about 67.63 per dollar on Tuesday, off last week’s record high of 68.8. Analysts say that steps such as last week’s decision by the RBI to provide dollars directly to state oil companies have helped shore up the battered rupee, but more needs to be done to restore confidence.

India’s wide current account deficit and the slow pace of economic reforms have put the country at the center of the storm sweeping through emerging markets, as investors brace for an unwinding of the US monetary stimulus that has pumped liquidity into global markets in recent years.

Worries about Fed tapering have led to an exit of cash from emerging markets. India’s stock market, for instance, has tumbled more than 10 percent since late July and the broader MSCI emerging markets stock index has shed about 4 percent over the same period.

Also read: Emerging Asia rout start of a multi-year bear market?

“The market is saying all the money that flooded into India has been misspent, funding a credit bubble, so when that is being unwound you have to kill domestic demand in order to come back to a surplus,” independent economist Andy Xie told CNBC.

“India is facing the same situation as Thailand did 15 years ago when it tried to hold onto growth,” he added. “It is very dangerous to change the captain in the middle of a huge storm.”

The right guy?

One thing that Rajan, a former chief economist at the International Monetary Fund, has in his favor is that he is viewed with credibility in financial markets.

“One is tempted to say that if Rajan can’t help restore confidence in India’s battered currency, nobody can,” Nicholas Spiro of Spiro Sovereign Strategy said in a note.

Others add that the sell-off in the rupee has been blown out of proportion and Rajan would do well to turn the market’s focus to how the central bank will help boost economic growth.

Data last week showed India’s economy expanded 4.4 percent year-on-year in the April to June period, well short of analyst forecasts for a 4.7 percent rise.

Economists have slashed their forecasts for the full year growth ending in March 2014, highlighting just how much India’s economy has slowed from the 8 percent plus growth rates enjoyed just a few years ago.

Also read: The rupee rout will be over soon

“The best thing he [Rajan] could do is call the currency speculators’ bluff and say: we’re not focused on every day currency moves but long-term growth,” said Stuart Oakley, managing director for Asian currency trading at Nomura.

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Vodafone CEO: We will spend cash pile on our networks

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

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Vodafone’s priority following the USD 130 billion sale of its stake in Verizon Wireless will be to use the cash pile for accelerating investment in its own wireless networks, Vittorio Colao, CEO, Vodafone told CNBC late Monday.

While acquiring overseas assets is an option, that won’t be immediate.

“We will be a great data company, we will do it investing in ourselves, and if we find good opportunities, eventually buying assets. But we will continue to be disciplined and value oriented as we have been in the last years,” Vittorio Colao, CEO, Vodafone told CNBC late Monday.

After the close of trade on the London Stock Exchange Monday, Vodafone confirmed the sale of its 45 percent stake in Verizon Wireless to Verizon Communications, in the third largest deal in corporate history after Vodafone’s USD 203 billion takeover of Germany’s Mannesmann in 1999 and AOL’s USD 181 billion acquisition of Time Warner the year after.

The company wants to use the cash to launch a £6 billion (USD 9.3 billion) investment plan named Project Spring to speed up the introduction of 4G networks and increase investment in installing fiber optic cables to offer faster broadband services to customers.

The majority, or 71 percent, of the deal’s proceeds, however, will be handed back to shareholders. The company plans to return USD 84 billion in cash and shares to shareholders.

“Let me say that this is a very large deal. We are fortunate enough that the size of the deal itself allows us to return a large percentage to shareholders. But even the remaining 21 percent is large enough to strengthen the company and to allow us to accelerate our strategy,” Colao said.

Responding to speculation that the smaller Vodafone entity may emerge as an acquisition target for AT&T, the largest U.S. telecoms group, he said: “I would not speculate about situations that are not present. I have to remind everybody that we have a great company, a great strategy. And this strategy we’re confident will generate good returns to shareholders. This company, this brand has chapter three of its history to write.”

Copyright 2011 cnbc.com

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Larry Summers the next big risk for emerging markets?

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

Listen to the Article (6 Minutes)

Thought speculation about Federal Reserve tapering was bad for emerging markets? Then just wait to see what happens if Larry Summers is appointed as the next US central bank chief, analysts say.

They argue that if Summers replaces Ben Bernanke, whose second term as Fed chairman expires in January, any scaling back in the central bank’s asset-purchase program would be ramped up by the hawkish Summers and deal a further blow to battered emerging markets.

Also read: Obama source predicts Summers will be named Fed chief soon

Paul Krake, founder of the consultancy View from the Peak: Macro Strategies, said that it isn`t when the Fed starts to take back its massive monetary stimulus but who takes over as Fed chairman next year, that`s important to markets right now.

“The US president is a pretty important job; but ask the Indians, the Indonesians, the Brazilians who`s had more influence over their lives and the answer would be the Fed chief,” he told CNBC.

“Larry Summers is not an advocate of QE [quantitative easing] and the reality is that all things being equal, he will unwind QE fast,” Krake added.

Emerging markets from Brazil to India and Turkey have been hit hard since May on talk of an unwinding of the U.S. monetary stimulus that has provided global markets with liquidity in the past few years.

Talk that Larry Summers, a former Treasury secretary, is the choice candidate to become the next head of the Fed has gained ground in recent weeks. The other favored candidate is Janet Yellen, currently the Fed`s vice chairman.

Also read: Summers as Fed chief is a ‘black swan’ event, analysts warn

Break in continuity?

Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank in Singapore, said markets would view Summers becoming Fed chief as a break in the continuity in policy making.

“Markets would prefer Janet Yellen to become the next Fed chief to continue the policies we are familiar with under Bernanke,” Idris said. “A Summers appointment would be taken as a policy break and so you need to price a risk premium into emerging markets as a result and emerging markets would weaken on talk of a Summers appointment,” he said.

Also read: Wall Street wants Yellen, not Summers, as next Fed chief

According to research from Bank of America Merrill Lynch (BofAML), what happens in the US has a disproportionate impact on Asian markets, with the transition in the Fed chairmanship one challenge for regional markets.

“In the months preceding, and immediately after a transition of the Fed chairmanship, interest rates almost always rise,” BofAML said in a note published on Monday.

This is important because rising government bond yields in the US have been cited as one of the reasons encouraging money to leave emerging markets.

“The problem for the new Fed chief is to manage market expectations and that could be a challenge for Summers,” Kumar Palghat, founder and director at Kapstream Capital, told CNBC Asia`s ” Squawk Box ” on Tuesday.

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