Is Fed ready to begin the great taper? Markets say yes

WASHINGTON, September 15, 2013 (AFP) - Is the Federal Reserve ready to put the Great Recession behind it? Is the US economy prepared for it?

The markets think so, as the Fed's policy board prepares to meet on Tuesday and Wednesday to decide a momentous step: whether they begin cutting back its stimulus for the economy, $85 billion a month pumped in via bond purchases to fuel the engine.

Four months after Fed Chairman Ben Bernanke first suggested that the central bank could start to taper its stimulus program, called quantitative easing (QE), sometime this year, most expectations are that the Federal Open Market Committee (FOMC) will take the step.

And with Bernanke expected to step down at the end of January, many believe he needs to set the policy path now, rather than having it delayed for months until his successor settles into the job.

The prospect of less easy money from the Fed has already taken US stocks down from their all-time highs, and sent market interest rates climbing sharply. The yield on the benchmark 10-year Treasury bond has nearly doubled in four months, from 1.6 percent to 3.0 percent.

The anticipation has also wreaked havoc in emerging markets.

A pullout of foreign capital, driven by falling returns, turned into a flood outward when US bond yields rose. That sent authorities in countries like Indonesia, India and Turkey into a panic over their plummeting currencies.

And although that has drawn warnings to the Fed from around the world to not act too precipitously, analysts say the only question surrounding the taper is when, and how fast.

In his effort to remove any obscurity from Fed communications -- to make sure that everyone understands clearly what FOMC members are thinking -- Bernanke has set the course firmly to taper.

On May 22 he told a congressional hearing that the Fed could begin cutting the QE bond purchases "in the next few meetings" of the FOMC, while adding the condition, "If we see continued improvement, and we have confidence that that is going to be sustained."

Three weeks later he was more precise, saying the cutback could start "later this year" and be completely wound up by mid-2014.

But by July he was more cautious, voicing a worry over how government spending cuts might slow the economy through the rest of the year.

The minutes to the end-July FOMC meeting echoed that shift. Several members wanted to go ahead with the taper, while others counseled "the importance of being patient".

Economic data has backed both views. At the end of August the official estimate of US economic growth in the second quarter was raised to a solid 2.5 percent.

The August jobs report put the unemployment rate at 7.3 percent, compared with 8.1 percent a year earlier, and data on corporate and government layoffs has steadily improved.

But the report also showed a significant slowdown in new job generation for the June-August period. Gains in the unemployment rate were largely from the number of people dropping out of the jobs market altogether.

In addition, the rise in interest rates appears to have slowed the rebound of the property sector, and fresh retail sales data Friday suggested that, with the exception of buying new cars, US consumers were being very cautious about opening their wallets.

"Businesses aren't laying off workers -- the layoff rate is at a record low and initial unemployment insurance claims are trending down -- but they aren't hiring many, either," said Mark Zandi, chief economist at Moody's Analytics.

But as Zandi points out, the economy continues to heal, and the Fed's bond purchases -- aimed at holding down long-term interest rates -- have less impact as time passes.

Most analysts say there is not enough economic bad news for Bernanke to reverse course.

But the FOMC could cut its bond purchases by a small amount -- $5 to $20 billion out of the $85 billion total -- and then hold off on more cuts to see where the economy goes, analysts say.

Or it could put off the decision to one of the FOMC's two remaining meetings this year.

"The Fed will likely hold off on tapering at next week's meeting and move in December," said economists at IHS Global Insight in a report Friday, taking a minority view.

"The jobs market is simply too uncertain and there are risks on the horizon from Syria and congressional fiscal fights."

source: interaksyon.com

PSE among best stock markets in 2012

MANILA, Philippines - The Philippine Stock Exchange ranked third globally among top performing bourses last year in terms of domestic market capitalization, PSE reported on Tuesday.

Citing a report from the World Federation of Exchanges, the local bourse said that it was only outpaced by the stock exchanges in Turkey and Thailand after posting a 38.9 percent expansion in 2012. WFE is composed of 50 bourses all over the world.

“Ranking among the top markets around the world is a feat which I think all Filipinos can be proud of as we are pitted against the best of the best markets in these global rankings. This is a testament to what we have been saying that the Philippines is now indeed in the global radar for investments and these numbers prove our worth as a viable investment destination,” PSE President and Chief Executive Officer Hans Sicat said.

The report likewise noted that the PSE ranked third after the Saudi Stock Exchange and the Bermuda Stock Exchange after posting a 25.3-percent growth in the value trading turnover. It also placed fourth in terms of trades growth and fifth in terms of broad market index growth.

In 2011, PSE also ranked first in the growth of its broad market index, third in domestic market capitalization and fourth in trading turnover among 51 stock exchanges. PSE added that among the top performing stock markets in 2011, it was the only one which figured in the best performing markets list by posting growth across all growth metrics.

“For two consecutive years, our stock market has been recognized among the fastest growing markets. This just shows that our growth has been sustainable particularly as it founded on the increased economic activity in the country. We are excited about the outlook in 2013 as we also undertake new programs and introduce new products in our stock market to keep the growth momentum in the coming years,” Sicat added.

source: philstar.com

Wall Street falls in tech-led sell-off

NEW YORK - U.S. stocks fell on Tuesday, led by losses in technology after brokerage downgrades of Intel and other major companies as worries increased about third-quarter U.S. earnings.

Shares of Intel, the world's largest semiconductor maker, lost 2.7 percent to $21.90 after negative reports by at least two brokerages. Robert W. Baird & Co cut its price target on the stock to $26 from $32, citing weak demand for notebooks.

The news triggered selling of large-cap technology shares, including Oracle and Apple. Microsoft shares lost 1.7 percent to $29.28 and ranked as the biggest drag on both the Nasdaq and the S&P 500.

"It's a good bet that companies aren't significantly expanding their tech projects at this point," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Nine of the S&P 500's 10 sectors fell, with energy the one gainer for the day as crude oil prices jumped on concerns of a supply disruption in the Middle East.

Earnings warnings have left investors cautious after a rally that has driven the S&P 500 up nearly 16 percent so far in 2012, lifting it to an almost five-year high.

Among other large multinationals that have warned about earnings, citing weak demand in Europe and China, are FedEx Corp, Caterpillar Inc and Hewlett-Packard Co.

"Stocks had a big move for the year. Now people are waiting for more clarity on third-quarter results and fourth-quarter guidance," said Michael James, senior trader at Wedbush Morgan in Los Angeles.

Analysts expect quarterly earnings for S&P 500 companies to decline about 2.3 percent from the year-ago period, according to Thomson Reuters data.

At the close, the S&P 500 was 7.9 percent below its all-time closing high of 1,565.15, reached five years ago on this date.

The Dow Jones industrial average fell 110.12 points, or 0.81 percent, to 13,473.53 at the close. The S&P 500 lost 14.40 points, or 0.99 percent, to 1,441.48. The Nasdaq Composite dropped 47.33 points, or 1.52 percent, to close at 3,065.02.

About 5.8 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average so far this year of about 6.53 billion shares.

More than three issues fell for every one that rose in the NYSE. On the Nasdaq, about seven stocks fell for every two that rose.

Dow component Alcoa Inc reported quarterly results after the bell and its stock rose to $9.20, adding to the slight gain during regular hours. Alcoa closed at $9.13, up 0.1 percent, or 1 cent.

Shares of Netflix slid 10.9 percent to $65.53, reversing Monday's sharp gains after Bank of America Merrill Lynch cut the video streaming company's stock to "underperform" from "buy."

Chinese Internet company Baidu was also downgraded by Credit Suisse to "underperform" from "neutral." Its shares shed 6.8 percent to $106.49.

A number of issues traded on U.S. stock exchanges experienced sudden, big moves on Tuesday before resuming normal trading in the latest case of erratic activity in the stock market.

source: interaksyon.com

End-September forex reserves climb to $81.9-B

MANILA - The country's foreign exchange reserves rose to $81.9 billion in the first nine months of the year, the Bangko Sentral ng Pilipinas said on Friday.

In a statement, the BSP said the country's gross international reserves at end-September climbed $1.2 billion from the $80.7 billion in the first eight months of the year.

At the end-September level, the GIR could cover 11.8 months of imports of goods and payments for services and income.

Alternatively, the nine-month reserves could allow the country to pay 11.7 times over its short-term external debt based on original maturity, and 6.5 times over if based on residual maturity. Residual maturity incorporates principal payment of medium- to long-term debt that is due in the next 12 months.

The BSP ascribed the buildup in the country's reserves to income from its forex operations and investments abroad, as well as from revaluation gains on the central bank's gold holdings.

source: interaksyon.com

As Low Rates Depress Savers, Governments Reap Benefits

A consumer complaint is ricocheting around the world: low interest rates are eating away at savings.

Bill Taren, a retiree near Orlando, Fla., discovered in August that his credit union would pay only 0.4 percent annual interest on his saving account, even though inflation averaged 2.8 percent over the last year. So he and his wife decided to just stuff their money in the mattress, he says, because at least there “we can see the cash when we want.”

Jeanne and André Bussière, in Annecy, France, have a stable pension and a bank account that pays 2 percent interest — “almost nothing,” they say — even though the consumer price index rose an average of 2.5 percent over the last year.

Jiang Rong, an information technology professional in Xiamen, China, decided to dive back into the speculative real estate market rather than watch his savings wither at the bank. In China, too, the cost of living is outrunning savings, as local restaurants nearly double their prices.

The fact that interest yields are so low in so many parts of the world is no coincidence. Rates are determined not only by markets, but also by government policy. And right now many governments say they have good reason to keep their own borrowing costs as low as they possibly can. Just last week, the government’s report on job growth in the United States showed continued weakness, and an international forecasting group warned that the European economic powerhouse, Germany, will fall into recession later this year.

Though bad for people trying to live off their savings, low interest rates happen to be quite good for anyone borrowing money, like governments themselves. Over time, interest rates below the inflation rate allow governments to refinance, erode or liquidate their debt, making it easier to live within their budgets without having to resort to more unpalatable spending cuts or tax increases.

Along with keeping rates low, governments are using a variety of tactics to encourage captive audiences, like pension funds and banks, to buy their debt. Consumers, in other words, are subtly subsidizing governments without even knowing it. Economists have compared this phenomenon to a hidden tax on people’s wealth.

“If you ask a central banker is that what you’re doing, and why you’re doing it, they’ll say ‘No, we’re just trying to get the economy going by making it easier for the private sector to borrow,’ ” said Neal Soss, chief economist at Credit Suisse. “But I have a syllogism for you: The government makes the rules. The government needs the money. So why should it surprise if the rules encourage you to lend the government money?”

This is not the first time governments have benefited by depressing interest rates, something economists refer to by the ominous name of “financial repression.”

In the three and a half decades after World War II, interest rates in the developed world were on average below zero after adjusting for inflation, according to Carmen M. Reinhart, a professor at the Kennedy School of Government at Harvard. This helped Europe, the United States and Japan slowly whittle away much of their war debt as their economies grew faster than their debt burden.

“The difference is that the postwar period was one of strong growth, when rebuilding and capital investment was going on across the Continent, and there were strong demographics,” said Stefan Hofrichter, the chief economist at Allianz Global Investors. “But these elements are not necessarily in place today.”

For that reason, economists are less certain that the success of the strategy will be repeated.

Many major economies are already slowing down, if not outright contracting. And the actions taken by governments to keep interest rates low can restrain how much savers have to spend and force fragile banks and pension funds to take on more risk. Ultimately, it could crowd out private borrowing.

Governments have different mechanisms to keep their borrowing costs artificially low.

The Chinese government can just make a call to banks and dictate how much they will lend and at what interest rate.

“By forcing them to lend at low interest rates, China’s central bank is taxing banks at high rates,” said Nicholas R. Lardy, a senior fellow at the Peterson Institute for International Economics. “They make it up to the banks by dictating that banks pay depositors even lower rates, so consumers are getting taxed too.”

Inflation-adjusted interest rates on one-year deposits have been below zero since late 2003, he said. China tightly controls how much money can leave the country, so individuals cannot seek higher yields elsewhere. As a result, Chinese families have been investing their growing incomes in real estate, which has led to a huge real estate bubble in some Chinese cities.

Democracies use more roundabout techniques.

“They have to work with their captive audiences — the pension funds, domestic insurance policies, banks, any domestic buyers they can find — to force-feed sovereign debt, sometimes under the euphemism of ‘macroprudential regulation,’ ” said Professor Reinhart.

Ireland and France, for example, have required or “encouraged” pension funds to invest in more government debt.

In Spain, fragile banks have been arm-twisted into lending to the government, which forces down the interest rates that the banks can pay to depositors. The Spanish government also capped the amount of cash that could be withdrawn from bank accounts, which prevented people from seeking higher yields elsewhere.

And in the United States, the Federal Reserve is buying up government debt to keep interest rates even lower than what markets would otherwise pay (and rates were low to begin with because investors from all over the world are buying up American debt because it seems relatively safe).

In the nearly four years that the Fed set its benchmark interest rate at zero, the government has saved trillions of dollars in interest payments. If interest rates today were what they were in 2007, the Treasury would be paying about twice as much to service its debt.

Inflation in the United States is very low by historical standards, but interest rates are so paltry that savers are losing money anyway.

“I got hit a couple of years ago pretty badly in the stock market, so now my savings are weighted mostly toward bonds,” said Dorothy L. Brooks, 65, who lives in Garland, Tex., and retired about a decade ago. She recently decided to go back to work as an assistant at a local school. “Now both investments are terrible. And I can’t put my money in a money-market account because that’s crazy. That just pays nothing.”

Of course, any economic policy will produce winners and losers, and it seems unlikely that policy makers are deliberately sacrificing retirees either to stimulate the economy or to grind down government debt. More likely, older Americans and other savers are just unintended casualties of policies aimed at other economic targets, particularly the policy making it easier for consumers and companies to borrow.

“If you care about the distribution effects of these policies, and being fairer to the elderly or other people, that seems to argue for carefully designed fiscal stimulus,” said Robert J. Shiller, an economics professor at Yale. “With fiscal stimulus you have more control over who gets taxed at what rate and so on. At least it’s more transparent anyhow.”

But, he added, “the whole reason we like using monetary policy is that it avoids those very political discussions of who gets taxed.”

source: nytimes.com

India GDP figures set to deepen gloom

MUMBAI - India is set to announce dismal new economic growth figures on Friday, with expansion in the April-June quarter forecast at near nine-year-lows.

"The numbers will be bad," Siddhartha Sanyal, chief India economist with Barclays Capital told AFP ahead of the publication of the data, which is expected to deepen the gloom surrounding Asia's third-biggest economy.

"Industrial growth is likely to be flat, inflation is high and it is unclear what the government can do in the next three to six months," Sanyal said.

He forecasts India's gross domestic product (GDP) grew at the same rate as the previous quarter at 5.3 percent, a high figure by the standards of developed countries but far below the near double-digit growth of much of the past decade.

Leif Eskesen, HSBC's chief India economist predicts the same, saying "growth will be muted due to global headwinds and the lack of structural reforms in India."

India's once booming industrial sector is in crisis, with output contracting by a shock 1.8 percent in June due to high borrowing costs, declining confidence and falling demand.

Overseas investor confidence in the Indian economy is also on the wane, as shown by figures for foreign direct investment (FDI) for the quarter to June which tumbled year-on-year by 67 percent to $4.43 billion,

Global rating agencies like Fitch and Standard and Poor's have lowered their outlook on India's investment-grade rating amid rising worries about the government's deteriorating finances and negative current account.

The central Reserve Bank of India has also warned the country's economic prospects are unlikely to improve in the near-term, due to high inflation, the lack of reform and the impact of poor monsoon rains on farm output.

The RBI has kept interest rates on hold since April -- when it cut rates for the first time in three years by 50 basis points -- and economists do not expect the bank to lower rates in a hurry.

While other central banks around the globe have been easing interest rates to revive their troubled economies, the RBI says a cut in government subsidies and revival of investment are needed to remove chronic bottlenecks in the economy.

Wholesale inflation stands at 6.87 percent -- above the bank's comfort level of five to six percent -- while the consumer price index, which covers a smaller band of goods, is at 9.86 percent.

Business leaders and industry want collective action from the government and the RBI to boost growth.

"Immediate policy actions are needed, both by the government and RBI, to arrest the downward spiral in industrial growth," director-general of Confederation of Indian Industry Chandrajit Banerjee said last week.

But Jigar Shah, head of research with Kim Eng Securities, warned: "The mood is downbeat and people have no hope left from the government.

"The only positive is that things possibly cannot get worse."

India's economy is expected to grow 6.7 percent in the current fiscal year, according to a forecast by an advisory panel to the prime minister, while many economists see it as even lower.

The government -- damaged by a series of corruption scandals -- is struggling to introduce legislative reforms in parliament due to protests from the opposition which is demanding Prime Minister Manmohan Singh resign.

India's national auditor last week criticised Singh's government for giving away coal blacks since 2004 in a murky allocation process rather than selling them via a transparent auction.

In figures that have since been hotly contested, the auditor said companies given valuable resources had made windfall profits of 1.85 trillion rupees or $33 billion, a part of which could have gone to the national exchequer.

source: interaksyon.com

Spain recession deepens as austerity weighs

MADRID - Spain's economy shrank further in the second quarter of the year and a slump in domestic spending accelerated, signaling a protracted recession as the country presses on with efforts to slash its public deficit.

Gross domestic product fell by 0.4 percent in the second quarter of the year, according to final data that confirmed a preliminary reading. But on an annual basis it dropped by 1.3 percent, worse than initial estimates of 1.0 percent.

Spain's economy fell back into recession in the first quarter of the year, when output fell 0.3 percent, and government estimates show GDP will probably fall for this year and next year as it pushes through further measures aimed at slashing a bloated deficit.

The data came a day after Spain said its economy performed less well than expected in both of the last two years.

On Tuesday, the National Statistics Institute, INE, also revised down 2011 fourth quarter GDP to -0.5 percent from -0.3 percent.

Close to record high borrowing costs and an economy showing little sign of picking up any time soon is nudging Spain closer to calling for a European bailout, which analysts say is only a matter of time.

"With much more fiscal austerity in the pipeline and unemployment at astronomic highs, the risks are clearly tilted towards a more protracted recession," said Martin van Vliet, economist at ING.

He expected Spain to make a formal request for additional external financing in mid-September or October. Spain has already negotiated up to 100 billion euros in aid for its ailing banks.

Tuesday's data showed exports provided a degree of support for the economy, growing by 3.3 percent year-on-year in the second quarter. That compared with a fall of 3.9 percent in national demand, after a revised fall of 3.2 percent in the first quarter.

Spain's government is hoping that exports will put the economy on the road to recovery. But a slowdown in the wider euro zone, where most of the country's goods are shipped, could test that theory.

The country desperately needs to stimulate growth to help it meet the public deficit targets agreed with the European Union.

source: interaksyon.com

Recession sure, but eurozone analysts see green shoots too

BRUSSELS - Is the eurozone locked into a prolonged recession set to run right through 2013? Or do the latest economic data actually indicate that the crisis-hit currency area is turning a corner?
With at least an outside chance that the region's jobless could cross the threshold of 18 million when up-to-date unemployment figures are issued next week, it might seem like an odd time for analysts to pose that question.
Like the eurozone's political leaders, they are to an extent divided -- but keenly-watched growth statistics or indicators are increasingly being interpreted as evidence that austerity pain is starting to deliver long-term gain.
Late-August has seen the European Union announce that eurozone growth slipped back into reverse over the second quarter of 2012, with a 0.2-percent contraction -- but that the currency area also logged a record trade surplus (14.9 billion euros, or $18.4 billion) and bumper cash earnings from exports (12.7 billion euros) in the latest figures for June.
Subsequent commercial surveys of private business activity also gave mixed signals, with a seventh monthly decline in a row in August marked by the rate of contraction gathering pace in Germany -- while easing in France.
Rob Dobson of research firm Markit said the latest snapshot from its regular Purchasing Managers Index (PMI) implied that the eurozone was facing a 0.5-0.6 percent drop in eurozone gross domestic product (GDP) for the third quarter.
That would meet the widely accepted definition of recession, two successive quarters of economic contraction, and Dobson warned that "it would take a substantial bounce in September to change this outlook."
He said Germany's "export engine has slammed into reverse gear," despite what Julian Callow of Barclays called a "significant depreciation" in the euro's effective exchange rate, an annualised eight percent when measured against a trade-weighted index.
Slowing Chinese imports holds the key on that front despite sharply improved export performance over the past year for weaker Mediterranean economies, and Julien Manceaux of ING Bank said the PMI data "confirms that the decline in eurozone GDP in the second quarter is likely to be the first leg of a technical recession."
More and more of these number-crunchers, though, say a way through the crisis maze is opening up.
Christian Schulz of Germany's Berenberg Bank says the data pattern confirms that "by tackling internal imbalances through structural reforms and front-loaded austerity, the 17 (eurozone) countries are becoming more competitive on the global stage.
"Exports are the ultimate yardstick," he said, and while "the weaker euro and lower commodity prices" boosted performance, he stressed "additional reasons for the success: austerity, unemployment and deleveraging have reduced demand for imports in many crisis countries."
Schulz argued that better growth figures in the United States and Japan stemmed from their relying, like Britain, "on their central banks to stimulate the economy and postpone painful adjustments."
Colleague Holger Schmieding has gone further, stating that under the sort of "tough love" advocated by the European Central Bank, "we may be witnessing the birth pains of a stronger, more coherent and more dynamic economic and political entity in Europe."
Marie Diron of Ernst & Young Eurozone Forecast said that the PMI data "supports our view that, while probably shrinking further, the eurozone economy is not falling off a cliff."
She highlighted better results in the manufacturing sector.
Ratings giant Moody's, which led the downgrading of ever-bigger eurozone countries since Greek public debt discrepancies first surfaced in late 2009, says there has seen "significant progress" around eurozone governments.
"However, the correction is at best only half-way complete," its economists cautioned, urging unwavering discipline in the "unwinding" of "accumulated vulnerabilities" it blamed not on governments, but on "private sector overspending, which was itself financed by core countries' capital flows."
If Greece does leave the eurozone some time next year, as tipped by the likes of IHS Global Insight and Capital Economics, that too will be seen by these harder-line observers as the eurozone getting leaner and fitter for the challenges ahead.
Even in non-euro Britain, influential commentators are pressuring the Conservative-led UK government in London to follow Germany's lead.
Finance minister "George Osborne is studying what Germany got right," a key Daily Telegraph columnist wrote on Friday, highlighting "'mini-jobs' contracts that allow a worker to earn 400 euros a month tax-free on the condition that they can be sacked at any moment."
The newspaper predicted short-term pain if Osborne voluntarily takes the same medicine prescribed to the eurozone periphery -- but also general election victory in 2015.

source: interaksyon.com

Asian markets higher despite eurozone uncertainty

HONG KONG - Asian shares edged higher in quiet trade Tuesday, shrugging off eurozone debt worries even after Germany and the European Central Bank dampened hopes for action to drive down borrowing costs.

Tokyo's Nikkei index added to the previous day's gains, rising 0.13 percent as the dollar held on to recent gains against the yen amid a continued shift away from the safe haven Japanese currency.

Hong Kong was flat, Sydney climbed 0.67 percent, Shanghai was up 0.55 percent, and Seoul gained 0.47 percent.

German news weekly Der Spiegel reported Sunday that the ECB was considering buying bonds issued by heavily-indebted eurozone countries in a move that would ensure borrowing costs did not rise beyond a pre-determined level.

But an ECB spokesman brushed aside the report as "absolutely misleading", while another at the German finance ministry said such an action would be "be very problematic."

Germany's central bank, the Bundesbank, said such bond purchases "should be viewed critically and entail, not least, substantial stability policy risks".

Borrowing costs for Spain and Italy have shot up towards levels that forced Greece, Portugal and Ireland to seek a bailout.

European markets had advanced in early trading on the Der Spiegel report but turned down after ECB and German officials dismissed the story.

US stocks closed flat in quiet trade that still had enough might to push Apple to become the world's most valuable company of all time with a total market value of $623.52 billion.

That surpassed the previous record of $619 billion set by software titan Microsoft in 1999, during the dot-com boom years.

The Dow Jones Industrial Average slipped 3.56 points to close at 13,271.64.

The S&P 500-stock index lost a bare 0.03 points at 1,418.13, while the tech-rich Nasdaq edged down 0.38 points to 3,076.21.

In oil markets, New York's main contract, West Texas Intermediate light sweet crude for September delivery, fell eight cents to $95.89 a barrel while Brent North Sea crude for delivery in October gained 19 cents to $113.89.

Gold was at $1,621.69 at 0310 GMT, compared to $1,615.20 on Monday.

In other markets:

-- Jakarta, Kuala Lumpur, and Manila were closed for public holidays.

source: interaksyon.com

Economists to BSP: Forget inflation, tackle peso first

MANILA - Economists on Friday called on the Bangko Sentral ng Pilipinas to set aside worries over meeting its inflation target, and instead tackle the problem of the continued appreciation of the peso.

During a forum organized by the Philippine Exporters Confederation, economists from the private sector said the monetary authorities' efforts to stem the peso's rise are not enough, adding that more should be done to help exporters, business process outsourcing companies and the families of OFWs.

They said many instruments are at the disposal of the BSP if only it could temporarily abandon its mandate of inflation targeting, as other central banks in the world are doing.

University of Asia and the Pacific economics professor Victor Abola said the BSP's fears of expanding money supply accelerating inflation is unfounded.

Abola said money growth of above 20 percent in fast-growing countries did not result in high inflation, adding that there was no long-term relationship between the two.

"GDP growth in the Philippines is negative to inflation because you are able to supply the demand. So actually right now before they lowered the monetary policy rates, the monetary policy was tight because money growth was only at 7 percent then economic growth at 6.4 percent," Abola said.

With inflation no longer a concern, the BSP is free to move and put a clamp on the appreciating peso by cutting its key interest rates further, to as low as 3 percent for the overnight borrowing rate. This would keep foreign capital seeking higher yields from entering the country, Abola said.

Last month, the Monetary Board reduced its overnight borrowing and lending rates to 3.75 and 5.75 percent, respectively. Analysts said this surprise move by the BSP was not done to boost growth but rather to keep the peso from firming up against the US dollar.

Raul Fabella, University of the Philippines economist and national scientist, said the government must subsidize the BSP to the tune of P30 billion so it can absorb the losses when it buys dollars to defend the local currency.

"BSP loses when it purchases dollars using the pesos in the SDAs borrowed from local commercial banks, to sterilize inflow of dollars," Fabella said, referring to the special deposit accounts.

"Money lost by the central bank for sterilization is a good use of the money. It is towards a very healthy foreign exchange," he added.

Sterilization is done to temper the value of the local currency against its foreign counterpart and in the case of BSP, it is done by buying more dollars from the market to weaken the peso. Bankers had been saying the BSP was intervening in the market from time to time, to keep the local currency from rising too much.

HSBC earlier said the BSP may be prompted to cut interest rates rather than incur more losses with its purchase of dollars, if not for price pressures from food and oil.

Fabella said the reason the BSP would rather borrow from the SDAs than print more money is its fear of increasing money supply, which at a certain level is inflationary.

"So if BSP can't print money, then the [national government] subsidy is money well-spent," Fabella said.

Abandon inflation targeting

Exporters, however, had been asking monetary authorities to take the drastic measure of keeping the exchange rate fixed at a certain level, just like what the Swiss central bank did.

"If you want to keep exchange rate fixed, you are no longer inflation targeting, then you devalue the peso," Fabella said.

It would be easier for the BSP to let the currency stay at P42 for 10 years simply by buying huge volumes of dollars, higher than the amount monetary authorities are currently allocating for this.

This is where the P30 billion would come in, Fabella said.

But Ernest Leung, former finance secretary, said the BSP does not need the subsidy because when it buys all the dollars at P40 and the peso weakens to P45:$1, then it would have posted foreign exchange gains.

"The BSP has a range of tools it can use but a good question is why is it not employing these? They're too beholden to foreign fund managers around them, telling them what to do," Leung said.

De facto capital controls

Filomeno Sta. Ana, Action for Economic Reforms executive director, said that all the moves of the central bank are in the right direction so far, with it intervening in the market every now and then.

It also loosened its monetary policy last month, on top of the announcement that it would keep foreign funds from getting into the SDAs.

"That is de facto capital control. It is already a form of capital control. They just don't want to announce it as such for fear of receiving negative reactions from foreign investors," Sta. Ana said.

Capital controls are installed by monetary authorities around the world to keep foreign money from coming in, to keep their own currency from rising too much.

"If we want to be competitive and grow, we need to undervalue the peso. For me inflation targeting is already secondary. There is a lot of debate about inflation targeting and that is now discredited," Sta. Ana said.

"I think presently they have already abandoned inflation targeting. Even in the BSP charter, their real mandate is 'price stability' but now their definition of inflation targeting has become rigid, it's not really in black and white. But all over the world inflation targeting is no longer employed," he said.

To keep the peso undervalued, Sta. Ana said the BSP should print more money to buy the dollars. The BSP has enough room to do that since money supply growth is only at 7 percent, way below the inflationary threshold of 20 percent.

source: interaksyon.com

Eurozone headed back towards recession

BRUSSELS - The eurozone veered back towards recession with the latest growth figures out on Tuesday showing its economy shrinking by 0.2 percent and analysts warning of falling economic output right through 2013.

Germany steered clear of the worst of the debt crisis to post better-than-expected growth of 0.3 percent in the period from April to June, and France held on for zero growth, but the experts saw precious little good news going forward.

"The big picture is that the economic growth required to bring the region's debt crisis to an end is still nowhere in sight," said London-based Jonathan Loynes of Capital Economics.

"The slowdown has spread from the periphery into the core," said Tom Rogers, an analyst with Ernst & Young in London, one of many analysts to highlight a growing "north-south divide."

"Positive readings in Germany and the Netherlands (0.2 percent) are to be welcomed, but with conditions in the rest of Europe deteriorating further, and export markets farther afield also cooling, it is looking increasingly likely that output in the core economies will contract during the second half of the year," Rogers added.

Italy's economy lost 0.7 percent during the quarter and Spain 0.4 percent, with the economic implosion in Greece continuing unabated -- a 6.2 percent contraction after a 6.5 percent contraction in the first quarter of 2012.

These were to be expected, but, said Howard Archer of IHS Global Insight, it was "notable and worrying that GDP also contracted in Belgium and Finland," by 0.6 percent and 1.0 percent respectively.

Tipping an overall GDP contraction for the eurozone in 2012 of 0.5 percent, he said these countries "are being dragged down by the problems of Greece, Spain, Italy and Portugal."

He said IHS forecasts thereafter "are based on the assumption that Greece leaves the eurozone around mid-2013.

"We expect a strong policy response to limit the fall-out but modest eurozone recession is still expected as a consequence in the second half of 2013," Archer added, tipping a 0.2 percent contraction for next year too.

A recession is commonly defined as two consecutive quarters of contracting activity. The eurozone posted flat growth in the first quarter of this year.

The flash estimates from the EU also show how badly Europe now lags behind its main economic and trade partners, with comparative Eurostat figures saying GDP rose by 2.2 percent quarter-on-quarter in the United States and 3.6 percent in Japan.

"Only once the Eurocrisis is back under control can a rebound in investment lead to a return to trend growth in core Europe," said Christian Schulz of Berenberg in a note issued in London.

He highlighted France as a case apart between Germany and similarly-structured neighbouring economies such as Austria that are broadly holding on, and the tumbling economies of the south.

"In terms of economic confidence, it remains firmly part of core Europe, but it is losing competitiveness ... France has to bring down its excessive public deficit eventually," he underlined.

Schulz noted France is continuing to lose competitiveness to southern eurozone countries going through difficult adjustments, with imports outpacing exports and taking the trade deficit to record highs.

French Finance Minister Pierre Moscovici, whose Socialist government has to cut its budget deficit from around 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013, called the result "very weak" but held to the government's forecast for 0.3 percent growth in 2012.

Germany's economy grew fractionally faster than the 0.2 percent forecast by analysts, but slower than the 0.5 percent seen in the first quarter.

"Positive impulses came from both consumer spending and from net foreign trade," national statistics office Destatis said.

Not all experts were gloomy for Germany's prospects, Newedge Strategy analyst Annalisa Piazza stating that "the German economy remains relatively resilient and the expected effects of the eurozone debt crisis remained limited."

source: interaksyon.com

Improving Economy

MANILA, Philippines — The country’s economic growth will likely be accelerated by increased public spending, investment, and private consumption over the next two years, says the Asian Development Bank (ADB).

A bright forecast that we should work at and realize.

***

However, long-standing structural weaknesses remain an obstacle to realizing the government’s 7-8% growth target, the ADB points out.

Let’s heed the warning of ADB: Ay, may Dapat pang Baguhin!

***

ADB’s Asian Development Outlook (ADO) forecasts Gross Domestic Product (GDP) growth for the Philippines to recover to 4.8% in 2012 and 5.0% in 2013, from only 3.7% in 2011.

Up, up, from awry.

***

“Remittance and lower inflation will sustain private consumption, and strong business sentiment will continue to support private investment… However, issues like poor infrastructure and weak governance must be tackled if the country’s economic gain are to benefit all,” says the ADB country director.

Action, reforms, and growth for all.

***

The Philippine economy likely grew faster this first quarter than the 3.7 percent recorded in the fourth quarter of last year, says Socio-Economic Planning Secretary Cayetano Paderanga.

Internal forecast is also favorable.

***

“Infrastructure spending is all over. Business optimism is high and investor confidence has improved,” Paderanga adds.

Yes to more public spending, business optimism, and confidence.

***

The Philippine government needs to show evidence of sustained reforms to secure investment grade, adds Fitch Ratings.

Okay, let’s improve our “structural factors” and raise our ratings.

***

Finance Sec. Cesar Purisima assures that the country will move toward an investment upgrade through reforms such as sustained improvement in the government’s debt portfolio through longer maturities and more local fund sourcing.

Yes to reforms and upgrade!

***

Meanwhile, the country’s export earnings post a 14.3 percent growth in February this year to $4.43 billion, from the $3.86 billion recorded in February of 2011, reports the National Statistics Office (NSO).

Yes to improving exports statistics. And sell “made in the Philippines” better!

article source: mb.com.ph

Asian shares fall on sluggish US jobs

TOKYO—Asian shares fell on Monday as a sharp slowdown in US jobs growth raised concerns about the strength of the world's largest economy, prompting investors to curb risk exposure ahead of more US data and earnings as well as figures from China this week.

Friday's data showed US payrolls grew by 120,000 in March, far below the expected gain of 203,000 jobs for the smallest rise since October, keeping the door open for the Federal Reserve to provide more monetary support to the fragile economy.

Industrial commodities such as copper and oil fell on growth worries while the potential for more Fed easing helped gold rebound but pressured the dollar.

MSCI's broadest index of Asia Pacific shares outside Japan slipped as much as 0.8 percent to near a four-week low hit last week. US stock futures fell more than 1 percent on Friday after the jobs data.

Japan's Nikkei average closed down 1.5 percent, after sliding as much as 1.6 percent to a one-month low earlier, with a firmer yen also dampening sentiment.

"Price actions after the jobs data show that markets had been excessively pricing in the US economic recovery and must now fill the gap between the reality and prices built on perceived strength of the economy," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory Co.

"Markets will continue to focus on global data this week to gauge what price levels would match the real economy," he said.

Some Asian markets, including Australia and Hong Kong, and European markets remain closed on Monday.

China in focus

China's annual inflation rate hit 3.6 percent in March, with volatile food prices leading a temporary rebound that pushed costs above expectations but left intact the view that Beijing has the flexibility to ease monetary policy to support growth.

Producer prices eased 0.3 percent on the year, against a 0.2 percent fall forecast, sparking concerns that it indicated weakening demand.

"My concern is not about CPI, it's about PPI," said Ren Xianfang, an analyst at IHS Global Insight in Beijing. "Since the final quarter of last year, it has been falling towards deflationary territory and now it has been realized. This will affect our outlook about how fast the economy is recovering."

Data due this week from China, the world's second-largest economy after the United States, also include trade due on Tuesday and first-quarter gross domestic product due on Friday.

China's economy likely grew at its slowest pace in nearly three years between January and March at just 8.3 percent, still well above the government's full-year growth target of 7.5 percent and pointing to a soft landing of the economy.

Demand outlook softens

Shanghai copper fell as much as 0.9 percent earlier on Monday before paring some losses on hopes appetite from top copper consumer China will remain with further monetary easing.

Oil was weighed by demand growth concerns, as well as easing worries about supply disruptions. Brent crude slipped as much as $1.26 to $122.17 a barrel from Thursday's settlement after Iran agreed to resume talks with top world powers this week on the country's nuclear program, raising hopes of a peaceful end to the standoff that has rattled the oil market for months.

US oil shed as much as $1.44 from Thursday's settlement to $101.87 a barrel. Oil markets were closed on Friday due to Good Friday.

Spot gold rose 0.9 percent at $1,643 an ounce.

The dollar extended its loss against the yen on Monday to hit a one-month low of ¥81.19, but was up 0.2 percent against the euro at $1.3067.

The dollar may remain pressured as currency speculators trimmed their long positions in the latest week, while net shorts on the yen shrank slightly from the previous week. To be short a currency is to bet it will decline in value, while being long is a view its value will rise.

Barclays Capital analysts said it was too early to conclude US jobs growth has entered a falling trend as cyclical sectors such as manufacturing and leisure remained relatively strong.

For more clues, US markets will focus on the earnings season, with earnings likely rising 3.2 percent for the first quarter. But that figure dwindles to 1.8 percent on the year when excluding Apple Inc, the world's biggest company by market value. —Reuters

source: gmanetwork.com