In February 2023, Tesla implemented drastic cuts across its EV lineup, with Model Y seeing the biggest cut of up to USD 13,000. However, in the latest adjustment round, the price tag of the same model has gone up by USD 500.

Tesla CEO Elon Musk has already indicated more such price increases as the carmaker is trying to adjust to the massive demand. The company has reportedly decreased the price of its base Model 3 by USD 500 again and the vehicle buying cost is now starting at USD 42,990. Tesla is reportedly still not letting people order or giving a price on the Model 3 Long Range.

Tesla is also likely to update the Model 3 variant. The Model Y Long Range, which is the base version for new orders, is still having the same starting price of USD 54,990.

While the Model Y Long Range is the base trim available to order, buyers can still get the Model Y Standard Range AWD. However, Tesla has increased the price of that version by USD 500, thus revising the starting price to USD 51,490.

These price revisions come amid Tesla listing a quick delivery timeline by the end of 2023 March for a new Model Y Performance.

Tesla’s shares extended their breakneck rally in February 2023 to double from the lows touched in early January, helped by a rising appetite for growth and technology stocks, and signs showing that the demand for its electric vehicles is rebounding.

The shares closed up 3% at USD 207.32 in New York, capping a 104% gain from their January 6 intraday trough. The shares are bouncing off a 65% plunge in 2022.

As per a Bloomberg report, riskier growth stocks, which were beaten down hard in 2022 amid concerns about rising interest rates and a recession, have made a strong comeback in 2023 as optimism about the economy has returned and investors bet the US Federal Reserve’s aggressive rate-hike cycle is nearing its end.

At the same time, Tesla’s own earnings in January 2023, and a spate of positive headlines on tax credits for electric vehicles, have provided a further lift to the shares of the company.

“Tesla is rising so fast because of a market that believes the Fed is coming to the rescue. Good fourth-quarter results and price cuts to turbocharge demand also helped,” Patriarch Organization CEO Eric Schiffer said.

Early in February 2023, the Joe Biden administration mentioned expanding the newly-revamped electric vehicle tax credit to allow SUVs costing up to USD 80,000 to receive those credits.

However, the EV maker faces a worry as analysts of GLJ Research see a potential “Valentine’s Day Massacre” for the Tesla stocks, after weak China deliveries during the period of February 6 to 12, suggesting the price cuts in the world’s second-largest economy are not working.

The analysts also highlighted that Tesla sold just 6.963k cars in China during Valentine’s week. The figure, as per the GLJ Research, is just a fraction of the roughly 17.734K adjusted cars/week Tesla produced in Shanghai in January 2023, or just 39%, reported Investing.com.

“Stated more clearly, should TSLA’s 1Q23 domestic China sales come in below and/or around 100K, as the data currently suggests it will, we believe the stock would come under acute selling pressure,” the researchers commented.

The post Tesla adjusts electric vehicle prices again amid share gains appeared first on International Finance.

The central bank hinted about the possibilities of future rate hikes being kept in smaller margins, and in a rare occurrence this year, the dollar has gone down too.

However, any celebration would be premature here.

Understanding The US Inflation & Its Fallouts
Amid COVID, the CPI (Consumer Price Index, a key parameter in identifying inflation rate) started increasing in 2021 and reached 8.6% (highest since 1981) in October 2022.

This was the direct fallout of the US economic blueprints against COVID. Joe Biden introduced a USD 2.5 trillion stimulus program in 2021 and his predecessor Donald Trump too approved USD 900 billion worth of initiatives in 2020. All these resulted in prices going up.

The US Federal Reserve responded to it with rate hikes from the beginning of 2022, hurting the country even further.

Mortgage Mess
The average rate of 30-year-fixed home loans has now crossed the 7% mark, highest since 2008. Monthly payments of a median-priced home have already been over USD 600 since the start of 2022 and will rise further. All these have resulted in the house sales figures going down for more than six months. The National Association of Realtors is expecting home sales to fall by 9% in 2022 alone.

As per Realtor.com, the monthly payment on a median-priced home is now 78% higher for buyers, who are making a 20% down payment right now.

The latest mortgage application data shows a 1.9% decline. Applications to refinance climbed 5%, still down by a massive 86% from the same period in 2021.

As per LendingTree data, credit card rates are positioned at 22.19%. Customers carrying balances against their cards will have to deal with higher interests on their accounts. Total credit card loans are at USD 935.42 billion right now, up 16.1% year over year and 3.5% quarter over quarter. Delinquent credit card loans surged to USD 20.27 billion from USD 16.24 billion in the linked quarter, an increase of 2.2% from 1.8% in the second quarter.

Monthly average payment a second hand car is around USD 564. The same rate was at USD 546 in March. For a new car, the interest rate of a 60-month loan period has gone up to 5.6%.

Paying Student Loans? Things Get Trickier
Around 44 million Americans have a combined debt of USD 1.75 trillion for their education. From 1991-92 and 2021-22, average tuition prices increased from USD 4,160 to USD 10,740 at public colleges alone. For private ones, the rate now stands at USD 38,070 from USD 19,360.

Recently, Joe Biden’s government has proposed a new plan for students, under which the monthly repayment of interest will be capped at 5% of the loan holder’s income. The remaining balance will be written off in case the original loan amount is USD 12,000 or less. However, things look murky here.

As per a report from The Balance, in 2020-2021 alone, the average cost of studying at a public four-year university totalled USD 43,280 for out-of-state students. In private ones, the cost climbed to UDS 54,880.

As per the 2019-20 fourth quarter stats, 11.1% of student loan borrowers were 90 days or more delinquent or in default on their loans.

Another study from the American Association of University Women (AAUW) says that women own nearly two-thirds of student loan debt, totalling almost USD 929 billion. The 2019 income data cites that full-time women professionals are earning approximately 82% of that of men’s income.

According to the National Center for Education Statistics, 71% of Hispanic and African-American students go for federal loans, compared to their white counterparts. While they end up with higher debt by the time of their graduation, within the communities, if the same AAUW survey is to be believed, women carry more debt. On the broader scenario, 34% of overall American women and 57% of Black females are unable to meet their financial goals, due to the debt crisis.

For those having loans from private banks, variable interest rates amid inflation will make the repayment tougher.

The total debt has gone down to USD 1.57 trillion from USD 1.59 trillion in the 2022 second quarter. It’s the largest decline since 2002. Although its good news, the crisis is not over yet.

Problems Arise At The Pension Front Too
As per Investopedia, some 79% of all retirees in the United States claim ‘Social Security Benefits’. This benefit gets annually revised, along with the inflation index. Year-over-year changes to consumer price indexes are the key parameter here when it comes to calculating the Cost of Living Adjustments (COLA) under the Social Security programme.

However, ‘The Senior Citizens League’ data show that these pension programmes have lost one-third of their purchasing power after 2000.

Despite most of the pension plans being responsive to customers’ COLA requirements, matching inflation figures of over 7% looks a tough ask here. To make matters worse, corporate pensions don’t offer COLA. Retirees having non-Social Security income sources are suffering due to loss in purchasing power.

As per the National Association of State Retirement Administrators Retirees estimates, inflation of 1% is reducing the value of a USD 25,000 worth annual pension benefit to USD 20,488 after 20 years. In case of consumer prices going up by 2%, the benefit is coming down to USD 16,690.

Retirees such as former teachers, firefighters, and cops are the real sufferers here.

As per the US Census Bureau information, some 11.5 million people were getting income from state and local-level pension plans in 2020. Most of these schemes provide a COLA to their recipients. The non-COLA ones rely on state legislatures or any other executive body to decide on post-retirement benefits for former state employees. There are over 5000 such state and local-level pension schemes across the country and to provide COLA to their customers, they take the inflation rate and the programme funding into consideration.

As per a CNBC report, some five million state-level government workers don’t have Social Security in their current jobs. The Center for Retirement Research says that if these workers don’t have alternative income sources, fighting inflation will be hard for them.

Slow Manufacturing & Job Market Slowdown
In the first three months of 2022, GDP saw a contraction. Domestic manufacturing too slowed down to its worst pace in nearly two and a half years in 2022 October. As per the Institute for Supply Management (ISM) data, its Purchasing Managers Index fell to 50.2 in October from the September tally of 50.9, and both are the lowest readings since COVID’s advent.

The forward-looking new orders sub-index rose to 49.2 in October 2022, suggesting that domestic consumers are spending more. The measure of supplier deliveries fell to 46.8 recently, showing slower deliveries to factories amid falling demand.

The measure of manufacturers’ prices has dropped to 46.6, the lowest since May 2020. The same index has fallen nearly 50% since 2022 March.

Talking about job openings, the same ISM study shows 1.9 job openings for every unemployed individual currently, with the raw material prices falling in October, the first time in post-COVID era.

The US Department of Labour’s monthly survey said that in September 2022, job openings increased by 437,000 and brought the total tally to 10.7 million.

As per a Reuters survey, there are some 10 million vacancies in total right now. Out of these, hospitality services lead the tally with 215,000 job openings, followed by healthcare and social assistance (115,000), transportation, warehousing, and utilities (111,000).

However, not everything is rosy here. While vacancies decreased by 104,000 in wholesale trade, the finance and insurance industry has even lesser (83,000). Despite the job openings ratio increasing to 6.5% from 6.3% in August 2022, the overall hiring tally has come down to 6.1 million from 6.3 million around the same point in time.

Some 4.1 million workers quit their jobs in October. Wage growth has subsided too. As per data, average hourly earnings rose to 5% in 2021 and started its slowdown from there. The salary hikes are not keeping up with inflation.

The latest Labour Department data shows that the businesses hired at a brisk pace in 2022 November, amid the high inflation. Some 263,000 jobs were added, while the unemployment rate stayed 3.7%, still near a 53-year low.

The latest ISM Services PMI rose to 56.5 in November versus the 53.1 market forecast and 54.4 previous readings, whereas the factory orders also registered 1.0% growth compared to 0.7% expected and 0.3% prior.

However, analysts at Bank of America (BofA) think that the unemployment could climb in 2023.

US Rate Hike Affects Global Economy Too
With the dollar has been the strongest performing currency, investors are shifting their capital back into the US market with the hope of getting higher returns.

A strong dollar also means imports getting expensive, along with piling debt for countries.

As per a New York Times report, African countries are paying more for food, fuel, and medicine imports. Argentina, Egypt, and Kenya are closer to debt defaults, emerging markets are staring at a nosedive in foreign direct investments. While the euro is maintaining parity against the dollar, others are falling behind.

Indonesia saw public anger due to domestic fuel price hikes. Cafes have been shut down in Tunisia due to a shortage of subsidized sugar, coffee, flour, and eggs. Brazil, despite cutting fuel taxes and strengthening social welfare programmes, is struggling against soaring consumer goods prices.

Central banks in other leading economies have been raising interest rates throughout 2022 to bolster their currencies.

The aggressive fed rate hikes have been a decent solution against US’ domestic inflation till now, but it has taken a huge toll on the global economy in general. Henceforth, a balanced approach from the economic superpower is badly required here.

The post US’ inflation fight going nowhere appeared first on International Finance.

However, the question of whether the worst may be over after a year of explosive price growth was expected to be revived by data released recently that indicated that some inflation gauges had moderated in the two largest economies in the world.

Owing to a dramatic decline in the price of gasoline, consumer prices in the United States did not increase in July compared to June. This provided much-needed comfort to American customers on edge due to consistent price increases over the previous two years.

And while consumer prices increased less than anticipated, factory-gate inflation in China slowed to a 17-month low annually.

Most central bankers, including the US Federal Reserve, have given up trying to pinpoint the precise time when they anticipate the present rate of price growth to peak after wrongly predicting last year that high inflation would be a temporary one.
• According to US Central Bank: The second half of the year will see a slowdown in inflation
• According to the European Central Bank: The third quarter will be the peak
• According to the Bank of England: October will be the month

Here are some of the key data molding the inflation debate:

Raw materials getting cheaper

Energy and other raw materials, which were mostly to blame for the rise in consumer prices last winter, could portend lesser inflation this time around.

After surging earlier this year, prices of essential commodities including oil, wheat, and copper have plummeted recently. Following Russia’s invasion of Ukraine, prices for food and oil increased.

Prices dropped as a result of decreased international demand and slowing economies in China, the US, and Europe, where consumers are already battling with high prices.

Fewer businesses are reporting rising input costs, and the increase in wholesale prices is declining in many regions of the world, which is already having an impact on several inflation indicators.

European energy bills not going down

European families are unlikely to see their energy costs decline any time soon as winter approaches the continent. Rationing has recently been discussed in the eurozone, particularly in Germany.

This is due to the fact that gas prices in Europe, which for many years has relied heavily on imports from Russia, are still four times higher today than they were a year ago and very close to record highs. The Nord Stream pipeline’s ability to transport gas has been the subject of much uncertainty.

When the present price restriction expires in October, consumers everywhere—including the United Kingdom, which has its own gas but very little storage capacity—will experience an increase in their electricity rates.

The end of August will witness the expiration of a subsidy at the gas pump, which is bad news for German drivers as well.

The post Global inflation reaching its climax soon appeared first on International Finance.

Fed Chairman Jerome Powell on Wednesday reassured investors that a further rate hike of more than 50 basis points is not something the company is actively considering. However, investors awoke Thursday with a binge-trading hangover, and markets plunged into the red. By midday, all of yesterday’s gains were erased and the market only got worse from there.

The Dow Jones Industrial Average fell 1,120 points, or 3.3%, while the S&P 500 fell 3.7%. The Nasdaq Composite had its worst day since 2020, falling 5.2%.

Danielle DiMartino Booth, the CEO and chief strategist for Quill Intelligence, a Wall Street and Federal Reserve research firm said, that he is in the markets for 25 years and has never seen anything like this. He stated that the massive drop only makes sense if one describes Wednesday’s surge as a melt-up.

According to Randy Frederick, managing director of trading and derivatives at the Schwab Centre for Financial Research, market drops are unusual and reminiscent of 2008 and 2009. However, economic conditions are far better now than they were at the start of the Great Recession, leaving analysts scratching their heads, he added.

Randy Frederick further on explained that the sharp fall might be a sign of market capitulation, in which panicked investors throw in the towel. He went on to say that capitulation can also signal a market bottom.

The post Dow plunges over 1,000 points amid fears over higher interest rates appeared first on International Finance.

According to a local media report, the Central Bank of the UAE will reduce  interest rates applied to the issuance of its Certificates of Deposits. This is in accordance with the decrease in interest rates on US dollar. 

The Central Bank of the UAE issues Certificates of Deposit to banks operating in the country. It is the monetary policy instrument used to make changes in interest rates to the UAE banking system.

The Federal Reserve cut interest rates for the third time this year. The move stems from an effort to ensure the US economy pass through the global trade war without entering into a recession. 

Kuwait slashed its discount rate by 25 basis points to 2.75 percent from three percent. That said, other major Gulf banks followed the Federal Reserve, a local media reported. 

Kuwait central bank said in a tweet that the decision is to “reduce the cost of borrowing in the Kuwaiti dinar, maintain a comfortable margin for the Kuwaiti dinar, and prove a supportive environment for investment.”

The Saudi Arabian Monetary Authority slashed its repo rate from 250 basis points to 225 basis points. Repo rate is what is used to lend money to banks. 

The Bahrain central bank has also cut all its key rates by 25 basis points. The bank cut one-week deposit facility to 2.25 percent, overnight deposit rate to two percent, one month deposit rate to 2.6 percent and lending rate to 4 percent from 4.25 percent.

The Federal Reserve rate cut has come at a time when leading Gulf countries such as the Kingdom and the UAE are facing slow growth.

The post GCC countries slash interest rates to lower loan costs appeared first on International Finance.

Gold Draws Strength From Dovish Turn In The FED

A key driver of our renewed confidence in gold is the end of the current rate hiking cycle for the FED. We no longer see any more rate hikes from the FED going forward. In addition, we also see a further risk of a rate cut from the FED in 2020. Interest rate futures are indeed pricing in increasing risks of a rate cut from the FED in 2020. Furthermore, the FED has also started to dial down Balance Sheet Reduction (BSR) and added that BSR will stop by September. This is very positive for gold.

Net Long Positioning Has Returned For Gold

In addition, since the start of the year, the USD has turned defensive. In particular, the USD retreated against most EM and Asian currencies. Against the Majors, the USD has managed to somewhat stay afloat. Renewed growth concerns across Europe had prevented the EUR from taking advantage of this dovish turn in the FED. Hence, it is no surprise that after a sustained drawdown across 2018, net positioning in gold has recovered to a healthy net long by the end of 1Q19. Previously, after a series of four rate hikes across 2018, gold positioning had dipped briefly to a net short in 4Q last year. This return of net long positioning can be taken as a sign of reallocation into gold.

China May Have Renewed Allocation Of Reserves Into Gold

Of interesting note is the renewed climb in China’s gold reserves. After holding steady at 59.24 mio oz across 2017 and 2018, China’s gold reserves started to climb across 1Q19, pass the 60.00 mio oz level to 60.26 mio oz by end Feb 2019. Strictly speaking, at just above 60 mio oz, China’s gold reserves is worth “only” USD 78 bn or barely 2.5% of China’s total reserves of USD 3.1 trn. This renewed climb in China’s gold reserves comes at a sensitive time during the US-China trade conflict. Officials from China’s State Administration of Foreign Reserves (SAFE) have made no particular mention of this, but China may have just embarked on a renewed allocation of reserves into gold.

We See Gold Rising To USD 1,400 / oz By End 2019

Overall, in view of the above positive drivers, 1) end to FED’s hiking cycle, 2) return of net long positioning and 3) possible renewed reallocation of gold from China’s reserves, we now expect further gold strength. We forecast gold to rise further to USD 1,350 / oz by 2Q19, USD 1,380 / oz by 3Q19, USD 1,400 / oz by 4Q19 and USD 1,450 / oz by 1Q20.

6 to 9 Months View

The monthly MACD for spot gold crossed into positive territory last month, the first time since February 2016 (see chart above). While a ‘positive crossover’ in MACD is generally viewed as a favourable development, other momentum indicators remain lackluster and spot gold does not appear to be ready for a sustained up-move (note that spot gold has been trading sideways for the past couple of years, holding within the 2016 range of $1,045.85/$1,374.90).

However, the underlying tone has clearly improved and for the next several months, the bias is for gold to move higher. That said, any advance in gold is expected to struggle to move above $1,400 as there is a stack of strong resistances just below this level (namely the 2018 peak of $1366.00, 2016 peak of $1,374.90 and the 2014 peak of $1,391.70). All in, there is a good chance that gold could at least test the cluster of strong resistance levels mentioned above but in view of the current lackluster momentum, any advance is expected to be slow and grinding. On the downside, a break below the $1,240.00 level would suggest gold could remain ‘caught’ within a sideway-trading range for longer.

Source: Global Economics & Markets Research, United Overseas Bank Group.

The post UOB Asset Management to normalise its position in gold market in 2019 appeared first on International Finance.

At the beginning of March 2019, the current US government ‘debt ceiling’ (a legislative cap on the amount of debt incurred by the US Treasury) will be reinstated. Failure to further increase the debt ceiling would soon render the US Treasury unable to raise funding for government operations through the bond markets. If the debt ceiling is not raised, the US could technically default on its debt—a spectre Economic fundamentals are unchanged certain to alarm investors across the globe.

However, this is an unlikely scenario, not least because the power lies entirely in the hands of US politicians, for whom there is no advantage in pushing the US into default. Nonetheless, the debt ceiling cannot be raised without a vote—a mechanism broadly seen as outdated and ineffectual, as well as wielding high economic risk. Further, the debt ceiling has been suspended for some time, prompting questions about its usefulness. The Republican Party has typically claimed that the vote serves a valuable function as a check on government spending, but President Trump has expressed support for removing the limit. As Congress reopens in Washington for 2019, the newly-Democrat House of Representatives (equivalent to the UK’s House of Commons) may seek to enact change.

Fending off a slowdown: What will China do next?

Another (far more orchestrated) political calendar date will also occur in March. China’s annual National People’s Congress (NPC) will be held on 5 March, with fiscal and GDP targets to be disseminated.

Chinese authorities introduced a number of stimulus measures in 2018 (largely focused on domestic consumers), but as the impact of tariff wars with the US begins to show up in economic data, authorities urgently need to further ease financial conditions. Indeed, China’s manufacturing PMI (purchasing managers’ index – an important marker of economic health) contracted in December, falling for the first time in 34 months, leading to fresh but relatively small easing efforts in recent days. More significant policy announcements may follow when the NPC meets in March.

Trading places: One new trade deal in place, another in the pipeline?

Hidden among news of investment market turbulence and a US government shutdown over the festive period, a new global trading agreement – the

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—came into force on 30 December 2018. The CPTPP is the successor to the TransPacific Partnership (TPP), a proposed trade agreement which became defunct once the US withdrew its signature in 2017. The new agreement eliminates tariffs across a comprehensive range of goods and services between 11 nations, including Australia, Mexico and Japan. Collectively, these signatories equate to the world’s third largest free trade area after the North America Free Trade Agreement (NAFTA) and the EU, with positive potential for global growth.

Meanwhile, trade talks between the US and China may be evolving, but China is also hedging its bets. The Regional Comprehensive Economic Partnership (RCEP)—a trading bloc that would encompass 16 Asian and Australasian nations—remains tabled for completion, perhaps this year. The RCEP would create the world’s largest trading bloc, covering around half of the world’s population (3.6 billion people) and approximately 40% of global GDP. Not only could the deal reduce tariffs on thousands of products, but it could also simplify supply chains by substantially opening up access in nations with relatively high trade barriers.

The stabilisers are off: European bond markets without the ECB

Six years after President Mario Draghi vowed to do ‘whatever it takes’ to support Heartwood strategies, visit the eurozone economy, the European Central Bank (ECB)’s generous quantitative our website or contact your easing (QE) programme has drawn to a close. Despite slowing data in the local representative. eurozone, the ECB has no plans to purchase eurozone bonds in 2019, but will maintain its current interest rate levels at least until the summer.

But the end of QE in December came with a health warning. Draghi cautioned that growth in the single currency region would be limited to 1.7% in 2019, citing geopolitical factors and protectionism, as well as vulnerabilities in emerging markets and financial market volatility. As 2019 begins in earnest, investors will soon see how eurozone bond markets will fare without the support of their central bank.

Pragmatic or unrealistic: Interest rate hikes in the US

As usual, the US Federal Reserve (Fed) will hold eight regularly scheduled meetings throughout the year in 2019. Under the tenure of Chair Jerome Powell these meetings have all become potential candidates for rate changes, as they are all followed by press conferences. Historically, this was only the case for half of all meetings, so not all held the true potential for significant policy changes. By extension, the new setup allows the Fed considerably more flexibility, while introducing some slight additional uncertainty for market expectations.

When the US Federal Reserve announced its latest interest rate hike (in December 2018), it also dialled down its forecasted number of hikes for the year ahead, from three to two. While this pointed to pragmatism on the Fed’s part, some investors believe even this reduced number of interest rate rises may be unrealistic and predict that 2019 could actually see the Fed cut rates.

The Fed’s ongoing interest rate rises are already showing up in various corners of the world, with emerging markets (which have borrowed meaningfully in US dollars) enduring a rise in their borrowing costs. As a result, Fed policy remains a key known risk going into 2019.

By Graham Bishop, investment director at Heartwood Investment Management, the asset management arm of Handelsbanken in the UK.

The post Five things to look out for in 2019 appeared first on International Finance.

London, May 13: Global economic growth, dragged down primarily by a disappointing performance by Japanese manufacturers on the eve of the second quarter, eased to a six-month low in April, an independent study released last week showed while a second set of data portrayed a grim picture for emerging economies led by China.

A British research body, however, predicted a pre-2008 scenario for the UK from June, while across the Atlantic, the US Federal Reserve saw the American economic activity “picking up” despite unattractive first quarter growth numbers.

The JP Morgan Global All-Industry Output Index – which is produced by JP Morgan and economy tracker Markit – posted 52.8 in April from 53.5 in the preceding month, to signal a worldwide expansion for the 19th successive month.

On the flipside, the JP Morgan report said, rates of expansion eased in both the manufacturing and service sector globally. “Manufacturing production increased at the slowest pace since last October, while activity growth at service providers was identical to February’s four-month low,” it added.

In Japan, sales levy increases – from 5 percent to eight percent and the first such hike in 17 years –came into effect in April.  Companies and consumers flocked to make purchases before the levy hike, pushing the country’s industrial production to its highest point since June 2011 in March. Output, however, has waned since then.

Analysts are more upbeat about the UK. Its economy could be back to its pre-meltdown figures in June, the National Institute of Economic and Social Research (NIESR) said last Friday, while official statistics showed manufacturing gathering steam and trade figures improving in March.

An industry body had earlier said the critical construction sector had also registered a slight upswing in April.

“Subject to data revisions and the uncertainties surrounding any out of sample predictions, it can reasonably be expected that the peak will be regained within the next month or so,” added NIESR, Britain’s longest established independent economic research institute.

The big disappointment, of course, was the performance of the BRIC economies. The HSBC Emerging Markets Index, a monthly indicator derived from PMI surveys, continued to indicate only a marginal increase in output across global emerging markets in April. Outputs fell in China, Brazil, India and Russia, the HSBC data showed.

“Russia is seeing its steepest downturn since the height of the global financial crisis,” said Chris Williamson, Chief economist at Markit, which helped HSBC prepare its report.

“China’s PMI is signalling contraction for a third month running, suggesting GDP growth will weaken further in the second quarter, while Hong Kong, India and Brazil are also contracting, albeit at only marginal rates,” Williamson added.

GLOBAL CONTRACTION

Meanwhile, the global slowdown mainly reflected a sharp downshift in the performance of the Japanese economy, said the JP Morgan-Markit survey report, which was prepared in association with two leading organisations dealing with supply management – the International Federation of Purchasing and Supply Management, Switzerland and the Institute for Supply Management, US.

The survey said Japan’s output declined at “the steepest pace for almost three years”, with activity falling markedly at both manufacturers and service providers, and the PMI output indices for these sectors falling by 8.0 and 5.8 points respectively.

“This mainly reflected the payback from a sales tax increase in Japan earlier in 2014, however, raising hopes that the downturn will prove only temporary,” said the report.

Outside of Japan, the rate of output expansion, on average, ticked slightly higher in manufacturing and held steady in the services economy.

The UK and Ireland remained leading lights in the global economic upturn. Growth of UK’s all-industry output rose to a five-month peak that was among the highest in the series history.

UK’s NIESR said that after growing only very marginally in 2012, growth accelerated rapidly, the economy was now growing at around 3 percent year-on-year.

“We forecast GDP growth of 2.9 per cent this year, an upward revision of 0.4 percentage points on our forecast published just three months ago,” it said in its report. “This means that GDP will exceed its previous peak in 2008 in the next few months, although per capita GDP still remains well below its previous peak, and will not exceed it before 2017.”

JP Morgan said that Ireland, meanwhile, saw its fastest expansion of output since June 2006. Activity growth also held steady at a robust clip in the US and hit a near three-year peak in the euro zone. All of the big-four euro area economies reported higher output.

Higher global economic output reflected a solid increase in inflows of new business. With demand and activity levels rising, companies implemented a further expansion of payroll numbers.

Employment increased for the 50th successive month globally, with jobs growth registered in the US, the euro zone, Japan, the UK, Ireland and Brazil.

Price pressures rose slightly in April. Input cost inflation accelerated from the previous month, while output charges increased at the fastest pace in almost three years. Selling prices were raised in the US, Japan, the UK, India, Brazil and Russia.

“The global PMI eased to a six-month low in April,” said David Hensley, Director of Global Economics Coordination at JP Morgan.

“However, it remains at a level consistent with trend global growth, which would be a good outcome considering the likely contraction in Japan following the VAT hike,” Hensley added. “PMI details indicate that global manufacturing continues to outperform the remainder of the economy.

BRIC WORRIES

HSBC-Markit said emerging markets generally fared worse than developed nations, with the all-industry business activity declining in China, India, Brazil and Russia.

The HSBC Emerging Markets Index rose marginally to 50.4 in April from 50.3 the month before, but was well below the eight-and-half-year-long trend level of 53.9. “April data indicated falling output in the four largest emerging economies,” the report said.

According to it, overall business activity across the Chinese manufacturing and services sectors declined slightly for the third month running, the longest sequence of contraction in over five years.

Meanwhile, private sector output in Russia fell at the fastest rate since May 2009. Indian business activity fell for the ninth time in 10 months, albeit marginally, while Brazil posted a fractional decline for the second time in four months.

“The weakness of the survey data adds to fears that emerging market languidity will continue to act as a dampener on global economic growth in coming months,” said Markit economist Williamson. “The concern is that the moribund economic picture is also broad-based, encompassing Asia, South America and Africa.”

The post Global economic growth falters at start of Q2 appeared first on International Finance.

10th December 2013

The US Federal Reserve announcement delaying the start of a slowdown in asset purchases gives Asian markets a bit of a reprieve but does not change the basic picture that the US is embarking on a gradual normalization of its monetary policy.

The big question is whether that normalization will keep driving investors out of Asian markets, further sapping the wind from the region’s economic sails and all but wrecking the most vulnerable economies, as happened in 1997 during the Asian financial crisis.

The quick answer is “no”. A repeat of the 1997 crisis, when investors fled in droves and economies tanked, is not likely. Foreign exchange reserves are healthy in most countries, currencies are far more flexible, foreign debts are lower, most economies have current account surpluses and most countries have some room for monetary and fiscal adjustment should it be needed. The growing use of local currency bonds instead of foreign debt means borrowers are not as affected by currency devaluation, and longer tenors in foreign borrowing also means constant refinancing is not needed.

However, there are certainly risks ahead and markets and economies need to work now to brace themselves for a period of higher borrowing costs, some market volatility and slower economic expansion. Even before the latest market turmoil, growth was slowing, particularly in China, the world’s second largest economy.

As quantitative easing begins to subside, it will be harder and more expensive for enterprises and governments to raise funds, especially in foreign currencies. That will hurt a region desperate to boost investment, particularly in the infrastructure needed to keep economies expanding.

Asia has a huge stockpile of foreign reserves but they have been invested more in foreign markets like the US than in emerging Asian markets. The key is to mobilize these funds for longer-term investments that would power economic growth. Aside from keeping any potential crisis at bay, it would feed private business in driving growth. Government stimulus spending kept the region’s economies chugging along after the 2008-09 global financial crisis. Now, the baton must be passed to the private sector.

But mobilizing capital for private investment to drive growth is tricky. Since the 1997 Asian financial crisis, local currency bonds have emerged as an alternative to bank financing or foreign borrowing. Although bond markets have grown dramatically – from about $800 million to $6.5 trillion in the last 12 years – they have a long way to go before reaching the levels required to fuel economic growth and, more importantly, infrastructure spending. Regulatory issues and market structures have made it unduly difficult for regional investors to invest in regional markets. This must change if mobilizing Asian savings for Asian investment is to become reality.

Take infrastructure, for example. With the prominent exception of China, the region missed an opportunity to ramp up infrastructure spending in the post-global financial crisis period of ample, quantitatively eased, liquidity. Now, with financing conditions becoming less favorable, tougher times are ahead. This is where bond financing, for example, can serve to bridge the financing gap – by attracting a new class of investors. Institutional investors like pension funds can build stable cash flows from infrastructure projects by holding long-term bonds.

But to create vibrant bond markets that offer long-term financing for long gestation infrastructure, much more needs to be done. For the part of projects to be financed by bank, securitization can help manage risk and lengthen repayment deadlines. And governments and multilateral lenders can provide guarantees to boost potential bond issuance to investment grade.

To ease worries among lenders about whether projects are viable or not, governments can make it mandatory for infrastructure projects to provide information on the key financial and performance variables. Investors need to trust issuers, the market and the project itself. But governments can do most to mobilize finance by continuing to improve the investment climate – most visibly by building a predictable and transparent legal and regulatory environment.

Emerging Asia is most certainly not on the brink of financial crisis. But recent market turmoil should stand as a warning to Asia’s policymakers that the region is facing a new, more unpredictable future where greater efforts have to be made to get the financial and physical infrastructure needed to keep the region’s economies forging ahead.

Source: Asian Development Bank

The post Now invest in Asia’s future appeared first on International Finance.