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Our take away from the last 24 hours news
US Federal Reserves: James Bullard (St Louis – Hawk) considers that the most accurate period when the Fed could drop “Considerable Time” was in October meeting (when the Fed is likely to end the QE-3 program). Loretta Mester (Cleveland – Leaning Hawk) said that the forward guidance should channel the reaction function to data (“I would like to see the forward guidance evolve over time to give more information about the conditions we systematically assess in calibrating the stance of policy to the economy’s actual progress and anticipated progress,” Mester said). The issue with Mester proposal is that it might be interpreted as a “golden rule” or “auto-pilot” when the market has proven to under estimating numerous factors when assessing interest rates path (e.g. consequence of the mid-term elections, geopolitical headwinds, effect of commodity prices decrease). We consider that Bullard proposed timing (drop “Considerable Time” as early as October) is too early because: 1) the FOMC have not a clear view of what could replace the “Considerable Time” language, 2) the US economy narrative might start to suffer from the effect of what could be the uncertainties should the Senate majority goes to GOP at that period, 3) Chair Yellen will not have the opportunity to explain the changes (no press conference in October). We consider that markets over reaction to the September meeting dots, excessive short fixed income positioning, and inability to challenge an excessively optimistic escape velocity scenario increase the change that the Fed will make no change to its forward guidance by October.
We have been arguing for a couple of months now that markets are extremely mispricing the Fed reaction function relative to the reaction function explained by the Fed leadership. In this week interview, Dudley (NY – Sole regional Fed permanent voter – close to leadership thinking) indicated that the economy should run “a little hot for some time before normalising rates.” Recent G-20, IMF and OECD downward revision to the US economy growth forecast indicate that the market is set to be surprise by the timing of a rate hike. We have been stressing since december 2013, that 1) the market consensus is excessively short fixed income (i.e. expecting a quick rate normalisation relative to the scenario supported by economic fundamentals), and 2) this is likely to translate into a short squeeze which might take place as soon as October or November (as we get closer to the mid-term elections). We consider that the USD strength is likely to reverse as soon as mid-October, when France will validate the change in EZ narrative, while the USD weakness will accelerate the closer we get to the mid-term elections, because operators will realise that a split government would make it even harder to struck bi-partisans compromises on fiscal budget, debt ceiling increase, immigration etc. These reforms are instrumental to create the conditions for escape velocity – without which the Fed has no justification to embark into a tightening mode -.
ECB: Is EUR recent weakening due to an existential threat (too much complacency) or is it the reflect of monetary policy divergence as Draghi argued? We believe that its a double effect. We have been quite vocal that markets are excessively pricing a monetary divergence, while Fed is likely to continue tightening macro prudential while being late in normalising. Furthermore, the EUR narrative amongst investors seems resuming existential threat (Eurozone will not be able to undertake the reforms, Germany will not pay for the “lazy” other countries, AfD and Front National will succeed in destroying the EZ and EU for the benefit of Eurasia, Scotland independence and Br-exit risk etc.). We have been indicating in our Europe Update that EUR is heading to become a reserve currency should France and Italy continue to undertake the reforms. For France, we should know as soon as mid-October whether the government will succeed getting the parliament backing to support the reforms. We consider that the likelihood is very high (though the narrative – rhetoric is captured by the anti – reforms). The introduction of structural reforms in France would help calm Germany – Northern European countries – nervousness vis-a-vis the prospect that Sovereign QE would be used to finance deficits and fiscal transfers (and refrain government from doing reforms). We consider that by mid October market sentiment is likely to shift more positive toward EZ, when France reforms votes (budget and responsibility pact) will clear the way for Germany to support EU Commission President Juncker EUR300bn investment plan. Furthermore, we consider that as soon as the banking sector on-going AQR [Asset Quality Review] review will be finalised, the EU banks will use the T-LTRO much more widely than the 1st experience to respond to the growing demand out of the SME sector. We disagree with consensus view that low T-LTRO demand is indicative of a low demand because this is much more likely to be attributable to the banking sector focus on reinforcing their solvency before AQR and undertaking additional credit risks (ECB loans demand survey continue to indicate an increasing demand coming from SMEs in the periphery).
Reserve Bank of Australia: In a context where the Australia housing market has been pointed out to be in a bubble (after the BIS meeting), the RBA offered a detailed report in which its highlight its view that Macro Prudential should be used as first line of defence against market frothiness. This report echoes the RBA and Australian government views earlier this month (please see our earlier daily briefings), that the housing market constitute a risk of frothiness but it NOT in a bubble right now. In a context, where inflation hawks want to see higher rates we forecast that RBA action will be dismissed and market will continue to focus on what could send the Australian economy over a cliff. A scenario which could not only help fixed income investors (should Central Banks undertake new QE programs), Gold – commodity standard bugs – should the crisis spread to a full fledge monetary armageddon -, Russia – which could reduce the pressure of the sanctions – and obviously the Terrorists alike ISIL which could claim a win over a “corrupted West” (in their parlance). Markets analysts are not able to link these interest groups yet but a complete information enabled by big data enables to connect these dots.
PBoC: China government is understood to be considering replacing Governor Zhou in the forthcoming IV-Plenum. Chatters see Guo Shuqing, Fmr. Chair of China Securities Regulatory Commission (CSRC, China’s SEC) and current governor of Shandong province to be the likely replacent. Mr. Guo Shuqing is well respected by the markets. His nomination would indicate that the PBoC has taken an accelerated path away from stimuli (a regime PBoC was into since 2008) toward accelerating RMB internalisation – through interest rates liberalisation and financial sector reforms.
Greece: Anonymous sources indicate change in tax system to enable banks improve their solvency through the use of Differed Tax Assets. This is a positive development ahead of the Asset Quality Review which is in line with our out-of-consensus constructive view on the Eurozone.
Brazil: as we were indicating in our recent notes and daily briefing, Brazil continue to search approaches to refrain from engaging into genuine structural reforms. We see any postponing of structural reforms as a very negative sign which would pursue Brazil stagflation economic scenario.
Russia: the World Bank joined other institutions in indicating that the cost of sanctions will be much more negative for Russia than for the global economy. We see the recent weaknesses to be short lived for the eurozone while Russia government attitude to avoid reforms (as conservatism struck a win in the public debate in the aftermath of the Ukrainian crisis). Energy prices weakening is the most worrying development for both the economic prospect as well as the stability of the Russian government (please see our Russia update note).
China: continue to take genuine action to reduce bad governance ahead of the IV-Plenum. This development, as we were indicating for months, is constructive and supportive to China aim to rebalance its economy while avoiding the hard landing scenario.
Ebola: The WHO and CDC have upward revised their estimates for the development of the outbreak. The worst case scenario can push the number of cases as high as 1.4 millions by beginning 2015. This estimates remain however very sensitive to the global coordination and response. During the recent weeks, we have highlighted that the global coordination has intensifying to: 1) fight disinformation (we were talking about it in our recent daily briefings), 2) provide short term medical assistance (France, US, Israel, etc.) with the help of military expertise – when numerous Western African countries are indicating the lack of medical personel – , 3) provide financial support (wealthy donors, government funding, NGO help etc.), and 4) fast track the Ebola drug trial (the drug has had a very good result in the experimental tests).
Notwithstanding the on-going difficulties, and the short term negative economic effect, we continue to believe that the fight against Ebola will succeed and will clear the way to the increase in Africa investment and economic support (cf. our note “This time for Africa” which stressed that Africa is heading to experience the same development China had experienced when it joined the WTO in 2001 with positive consequences for both Africa and the world economy). The global coordination triggered by the response to the terrorist risk might help responding to the Ebola risk as well (due to the threat a dirty weapon using Ebola virus constitute).
Gaza: As Egypt President el-Sisi intensifies the fight against the Muslim Brotherhoods, the political arm of the radical islam fighters (whose fighters include the hard-core liners ISIL and Al Qaeda), Egypt is re-gaining its leading role in the Palestinian – Israeli peace process. The pressure to reduce Israel’s defence budget aims bringing the hawks to consider peace solutions. Furthermore, at last, the terror financiers are brought to justice increase the likelihood to make the current fight against terror much more effective than it has been so far.
We are very optimistic (as we have been since the beginning of the Gaza crisis) that : 1) Hamas leadership will break from extremists and will recognise Israel – as Fatah did years ago – (though some radical fractions are already burgeoning with much less financial and arm support), 2) Iran will be instrumental in settling a long-term peace process (as the nuclear negotiation heads toward a civil nuclear Iran), 3) a LT peace process will help the development of Mediterranean sea gas exploitation (as it enables to return to the Israeli – Turkish normalisation, a process which was very close in April but has been postponed by the Gaza crisis).
Fight against ISIL success likelihood increases: the global community military action continue to enjoy a wide support (incl. Arab countries). The support is likely to intensify after the militants beheaded Herve Gourdel (a French citizen abducted in Algeria) and Philippines Militants threatened to harm a German.
The Social media is also joining the fight against the terrorist organisation, Muslims are making #NotInMyName viral to push the view that ISIL is NOT a State NOR represent Islam.
The terrorists organisations are currently in an escalation of violence due to the leadership a fight for Abou Moussab Al Zarkawi legacy. Fortunately for the global coalition fight, the “Murders in Iraq and Syria” known as ISIL, have no ideological leadership and will struggle to hire new fighter should the global community take the fight to the Social Media in genuine coordinated actions to : 1) fight bad governance, to justify 2) reducing mistrust. Unfortunately, mistrust and the “institutions are rotten to their core” mantra is helped by groups as wide as: Extreme right, gold bugs, 2nd amendment supporters and Bitcoin marketers… We are surprised how some “mainstream media” have joined spreading the same “mistrust” message for a clear agenda to avoid improving governance. This pressure is accelerating G-20 actions to push for tax evasion fight (OECD initiative) and improve governance.
Oil prices continue to come under pressure (in line with our recent energy update note). However, the situation on the ground continue to be fragile, with a new threats to the security of many countries from Egypt to US. The quickest the West recognises that the fight against ISIL and terrorists necessitate a fight against mistrust which spread not only in the jihadist internet web but also in the extreme right and gold bugs forums, the more the risk of isolated radicalised youth actions will decrease.
The fight against mistrust is likely to accelerate with the global governance improvement. Furthermore, any advance in Iran nuclear talks will help Iran joining the fight against ISIL. The recent news flow out of ISIL indicates that the terrorist organisation is getting isolated and its power is weakening. Furthermore, the recent strikes have reduced Al-Qaeda operatives which were preparing attacks against the West (according to informations out of the intelligence community).
Russia: Ukrainian situation continues to calm down (BUT NOT deescalate). The Eastern Ukraine region self proclaimed republics autonomy perimeter continue to be the name of the game.
Too much autonomy (the current self proclaimed government are calling for a full fledge independence – which could give legitimacy to Crimea annexation-) would make Ukraine IMF program dead born (as Kiev government would be in the incapacity to deliver on governance improvement and structural reforms). At the other end, an autonomous regions which would bind by the IMF program reform will increase the ability of Kiev government to strengthen the Ukrainian economy along with the governance improvement. Thus, it would increase the likelihood of joining NATO. Russia is unlikely to let this scenario take place without a fight.
Therefore, the Kremlin is putting a lot of emphasis on how badly an isolated Russia would impact the global economy, while the Russian economy is preparing for this outcome (e.g. Russian corporations are considering spinning of their US subsidiaries, Wealth Fund is considered to be used to self-finance needed infrastructure investment, while international experts are rushing to find financial solutions for the New Russia political strategy). From the political spectrum, the opposition is organising itself should oil prices drop sustainably below $75bbl – this scenario is possible should the geopolitical blue sky scenario take place -. But the Kremlin is “threatening” oligarchs to keep them away from joining the opposition. For more analysis on this matter, please see our recent “Russia update note”.
US Tax inversion: As we were expecting since the announcement of Burger King deal (which has been widely reported as being solely pursuing tax inversion objective) we’ve indicated that this would sign the end of the system. US Treasury took actions to make it harder to execute such deals, while the tax reform seems in limbo due to DC gridlock. Administrative actions taken by Treasury Secretary Lew makes it harder to execute tax inversion but does not derail it entirely. We consider that G-20 initiative to undertake OECD proposal to reform the rule of “double non-taxation” (see our previous daily briefing) will help improve the tax governance (and incidentally the rise in the mistrust in the public institutions – which are seen to be colluding with businesses -). Markets have reacted negatively to the actions taken against tax loopholes, because these are seen to be the only remaining way for Corporations to improve their EPS (while demand continue to be subdued). We disagree with this view because G-20 initiatives to tackle “tax optimisation” will come along with more investments and fiscal stimuli which would help spur more economic demand.
US Economy: high frequency economic data continue to show a mixed message. The widely common economic forecast models have been weak understanding the current economic evolution. We have indicated in our article “Perceptions & realities : closing the gap between the two” that while the growth and inflation continue to be subdued to justify any urgent action from the Fed, there are genuine signs which indicates that growth potential will improve. In a nutshell, big data, technology, energy transition, lower commodity prices and better governance are the driver we see for the creation of goldilock conditions – not too hot, not too cold – which would enable spur sustainable growth and create the conditions for central banks to normalise (in a couple of years) the monetary policy without triggering a new financial crisis or excessive financial bubbles.
EU – Iran: PM Cameron met President Rouhani. This meeting is a first step in the execution of the plan we were forecasting in May (please see our Global Strategy report for more details) that as Russia isolates itself, EU will use Iran as a replacement. The reduction in Iran isolation will bring as well fossil energy investment to a country which has been under investing since the Islamic Revolution. This story is very positive for our scenario of EU energy union. As we were indicating yesterday in our Daily Briefing that it increases the likelihood for : 1) the nuclear negotiations will succeed (creating a civil nuclear Iran), 2) Iran sanctions will be lifted which increase supply and oil exploration investment (because Iran has been lacking investment due to the Western sanctions), 3) Iran will join the global coalition to fight against IS – but more importantly a “normalised relations with Iran” will help to find some political solution in Syria (a necessary step to avoid making Syria a safe heaven to terrorists)
France – Fmr. Pres. Nicolas Sarkozy come back: Paris appeals court suspends corruption prove into Sarkozy. This is clearing the way for the case to be dropped (please contact us, should you require more details on the juridical reasons of our forecast). This trend will help Sarkozy to increase his chances (already high) to secure the Presidency of the center right party (UMP). We’ve been indicating that Fmr. Pres. Sarkozy strategy evolves around championing good governance while moving away from the Radical right. We see these development as very positive for both France and EZ because Mr. Sarkozy come back will take the french opposition away from the EU-Skeptics and extreme right Front National.
Eurozone PMIs : As we were expecting in our Feb 27th note, and Russia update, the Eurozone economies are suffering from the Russia – Ukraine crisis. We have been saying that the tension with Russia will have short term negative effets as the manufacturers (specifically in Germany) has to mitigate the effect of the sanctions. BUT we continue to express confidence in our views that the Eurozone PMI are likely to rebound in October or November, thanks to the combined effect of: 1) Banks resuming lending as they will have dealt with the Asset Quality Review and will start to benefit from the combination of T-LTRO conditions and SMEs demand, 2) the new EU Commission undertakes genuine actions to speed up European integration (e.g. designated President Tusk Energy Union project), and infrastructure investment (designated President Juncker EUR300bn investment project), 3) a reduction in the excessive risk premium built due to the negative effects of the tension with Russia, and 4) the global collaboration which will bring more support to the energy transition, governance improvement and fight against terror (positive for jobs and growth and negative for energy prices – because it reduces the geopolitical risk premium -).
France: Merkel praised the reform agenda, reverted to Brussels on budget. On this matter Pierre Moscovici is likely to come under heavy pressure in his Oct. 2nd hearing to strengthen the impartiality should he agree to postpone France budget. This is natural development because Germany does not want to be seen as a “hegemonic force” in EU. However, any acceptance to accelerate EU integration and infrastructure investment will only come when France will pass it reforms (cf. comments from Finance Minister Sapin). Recent political gridlock (“les frondeurs”) and strikes are the reflect of the tension brought by the transformative reform agenda which is under way. We consider that EU and France has NO SURVIVAL CHOICE face of Russia should it derail from the reforms and the EU integration agendas. Therefore, we foresee that France will get more time to adjust its fiscal deficit should it undertake spending cuts (EUR50bn until 2017) which executing the “responsibility pact” (i.e. structural reforms).
China climate change: As we were indicating in our previous daily briefings, not only China has taken genuine actions to move toward more reforms but also the leadership has taken steps to help climate change. This has started when the social media has put mounting pressure after the episode of excessive pollution in Shanghai (beginning 2013, ahead of the Communist Party Congress).
China:Manufacturing data support our view that China is soft landing while rebalancing. Labor statistics showed that the manufacturers have started to rebalance their activities away from labor intensive (an objective already stressed by the Chinese leadership). These are in line with the objective to rebalance the economy away from credit driven investment. The government seems fearing that the economic rebalancing has not taken momentum yet although 1) labor intensive manufacturers are relocating in cheaper labor countries, 2) businesses are upgrading their business models, 3) President Xi has conducted many trade – investment agreement with Neighbours (after Premier Li did the same in Africa) to secure investment projects which use Chinese manpower – engineers know-how in this domaine, 4) China is gaining more military presence and has fluxed it mussels – e.g. China “Top Gun” intercept by a US fighter jet -, 5) China has signed many RMB agreement which reinforce the currency usage and prepare its full liberalisation – after Free Trade Zones (FTZ) have proven to be a success -, 6) China has undertaken a genuine fight against bad governance and better regulation – many examples in our recent daily briefings of fight against corruption and bad governance-. We see in FinMin Lou Jiwei comment an indication that not only China wants to create a reserve currency it does want it to be strong when Chinese leaders perceive the heavy pressure place on USD by a category of investors to avoid debasing the currency through deficit financing – although we consider that this worry is misplaced -.
Australia: Australia continues to be seen, by markets, as a derivative to the old Chinese model (i.e. commodity provider). This view explains the high beta between Australian assets and commodity prices (or China demand for commodities). This assumes that neither China nor Australia are conducting their rebalancing agenda. We do believe that the curent weaknesses offers genuine opportunity to benefit from the other drivers to the Australian economy which are not related to commodities. We see the current Australian Dollar weakness to continue at least until the USD start to weaken again when markets will realise that it has beaten too much on a quick rate normalisation. Meanwhile, from our previous daily briefing, we have gathered sufficient support to the view that the drivers of the Australian GDP are moving toward: 1) education, health and finance services provider to Asian neighbours, 2) innovation and digital sector, 3) energy resources export to Japan (the later contributes to our constructive view that the current negative Japan Energy Trade deficit will rebalance in the medium term – reducing Japanese Government bonds solvency risk – ).
New Zealand: Fontera payout cuts fuel concerns over NZ economic prospects. This increases the pressure on new PM Key Cabinet to accelerate the green shots of rebalancing and reforms. We have been indicating that NZ has already started a genuine shift toward new Tech agriculture, health and education services directed to Asian neighbours.The fact that PM Key secured another term supports our constructive scenario on NZ..
Japan: September PMI softening economic downgrade was widely expected. We see BoJ to keep the bazooka of QQE-2 un-tested until the JPY excessive depreciation and JGB solvency risk came down * investors are still short JGB expecting a Japan crisis *. The 2nd VAT hike will require some stabilisation at the current levels, though we expect that PM Abe will undertake the 2nd hike in steps, because BoJ is unlikely to be sufficiently confident to move ahead with more QQE while JPY is accelerating its depreciation. PM Abe voiced concerned over the JPY rapid depreciation, as he pointed (rightly in our opinion) to the increase in energy cost, which deteriorate further the energy trade deficit – and increase the risk of JGB solvency -.
However, BoJ might do some adjustment to its monetary program but nothing excessive. The news flow out of this weekend G20 meeting shows that the global community is gently pressing the government and the BoJ to pursue structural reforms, economic rebalancing, solvency improvement (through VAT 2nd hike commitment) and adequate monetary policy (not too hot – to avoid a crisis – not too cool – to avoid derailing the on-going portfolio rebalancing approach -). Japan continues to face heavy public pressure to rebalance its energy reliance to nuclear. While we believe that Japan will continue to press for reopening nuclear plants (when Nuclear Watchdog gives his green light), the medium to long term trend is that Japan will use Trade negotiation with neighbours to secure new energy sources while using this pressure to deregulate and move forward with Abenomics 3rd arrow (please see our Japan update for more on our views).
Central banks news
HIGHLIGHTS-Recent remarks by Federal Reserve officials
KANSAS CITY FEDERAL RESERVE BANK PRESIDENT ESTHER GEORGE
« My objective is not to raise rates quickly – I do not want to derail this recovery, » she said. « I think it is critical that we begin now to normalize those interest rates, to begin to allow the economy and the markets to allocate credit, to price risks the way they are intended to do. »
MINNEAPOLIS FEDERAL RESERVE BANK PRESIDENT NARAYANA KOCHERLAKOTA
Kocherlakota expected U.S. inflation to run below the central bank’s 2 percent target through 2018, giving the Fed room to keep stimulating the economy.
ST. LOUIS FEDERAL RESERVE BANK PRESIDENT JAMES BULLARD
Bullard told reporters the U.S. central bank needs to change its forward guidance on interest rates to make it more data dependent.
Still, he felt it would have been premature to remove the Fed’s reference to zero rates for a « considerable time » in September because the bank’s bond-buying program had not ended.
« A more natural juncture would probably be the October meeting, » Bullard said.
http://uk.reuters.com/article/2014/09/24/usa-fed-idUKL1N0RJ2QY20140924
Mester Says Guidance Should Show How Policy Reacts to Data
Federal Reserve Bank of Cleveland President Loretta Mester said forward guidance should be used as a “communications device” that signals how policy will respond to changes in economic conditions.
“I would like to see the forward guidance evolve over time to give more information about the conditions we systematically assess in calibrating the stance of policy to the economy’s actual progress and anticipated progress,” Mester said in a speech today in Cleveland.
New Research On The Impact Of Financial Deregulation Catches The Eye Of The Federal Reserve
« Many experts blame the crisis on laxer lending standards and higher-risk mortgage products, » says Marco Di Maggio, assistant professor of finance and economics at Columbia Business School. « In reality national banks and the mortgage deregulation of early 2000s plays a pivotal role in triggering the subprime crisis. While regulators might try to shift the blame, our research shows they were actually a big part of the problem to begin with. »
The research, titled « Credit-Induced Boom and Bust, » is co-authored by Marco Di Maggio of Columbia Business School and Amir Kermani of the University of California at Berkeley. It explores how the deregulation of state laws that restricted lending to riskier borrowers falsely inflated the market and later caused the financial crisis.
http://www.reuters.com/article/2014/09/24/ny-columbia-business-idUSnPn1tgVyN+85+PRN20140924
US Federal Reserves: James Bullard (St Louis – Hawk) considers that the most accurate period when the Fed could drop “Considerable Time” was in October meeting (when the Fed is likely to end the QE-3 program). Loretta Mester (Cleveland – Leaning Hawk) said that the forward guidance should channel the reaction function to data (“I would like to see the forward guidance evolve over time to give more information about the conditions we systematically assess in calibrating the stance of policy to the economy’s actual progress and anticipated progress,” Mester said). The issue with Mester proposal is that it might be interpreted as a “golden rule” or “auto-pilot” when the market has proven to under estimating numerous factors when assessing interest rates path (e.g. consequence of the mid-term elections, geopolitical headwinds, effect of commodity prices decrease). We consider that Bullard proposed timing (drop “Considerable Time” as early as October) is too early because: 1) the FOMC have not a clear view of what could replace the “Considerable Time” language, 2) the US economy narrative might start to suffer from the effect of what could be the uncertainties should the Senate majority goes to GOP at that period, 3) Chair Yellen will not have the opportunity to explain the changes (no press conference in October). We consider that markets over reaction to the September meeting dots, excessive short fixed income positioning, and inability to challenge an excessively optimistic escape velocity scenario increase the change that the Fed will make no change to its forward guidance by October.
We have been arguing for a couple of months now that markets are extremely mispricing the Fed reaction function relative to the reaction function explained by the Fed leadership. In this week interview, Dudley (NY – Sole regional Fed permanent voter – close to leadership thinking) indicated that the economy should run “a little hot for some time before normalising rates.” Recent G-20, IMF and OECD downward revision to the US economy growth forecast indicate that the market is set to be surprise by the timing of a rate hike. We have been stressing since december 2013, that 1) the market consensus is excessively short fixed income (i.e. expecting a quick rate normalisation relative to the scenario supported by economic fundamentals), and 2) this is likely to translate into a short squeeze which might take place as soon as October or November (as we get closer to the mid-term elections). We consider that the USD strength is likely to reverse as soon as mid-October, when France will validate the change in EZ narrative, while the USD weakness will accelerate the closer we get to the mid-term elections, because operators will realise that a split government would make it even harder to struck bi-partisans compromises on fiscal budget, debt ceiling increase, immigration etc. These reforms are instrumental to create the conditions for escape velocity – without which the Fed has no justification to embark into a tightening mode -.
S&P Sees Euro-Area Complacency as Draghi Sounds Deficit Warning
Sept. 24 (Bloomberg) — Euro-area bond yields near record lows are leading governments to be complacent, according to Standard and Poor’s head of sovereign ratings Moritz Kraemer.
His comments today coincide with European Central Bank President Mario Draghi and France’s nominee for European Commissioner Pierre Moscovici each saying that nations within the currency bloc need to act on fiscal deficits. After Draghi cut interest rates and announced new stimulus to spur the region’s economy on Sept. 4, the average yield on euro-area government debt dropped to the lowest since at least 1994, according to Bank of America Merrill Lynch indexes.
“The risk is indeed of complacency — that national governments think the rates are at historic lows because of their achievements on the reform agenda, while in fact most of it is due to the monetary policy stance,” Kraemer said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro in London. “This risk of complacency is something that we’ve been pointing out for well over a year now and we think this is more pertinent than it ever has been.”
Draghi Says Euro Level Reflects Monetary-Policy Paths
“The exchange-rate movement reflects the different path of monetary policies in Europe versus the monetary policies in other important countries,” Draghi said in an interview with Europe 1 Radio published on the ECB’s website today. “Our monetary policy will stay accommodative through time for an extended period of time while other countries’ monetary policies may gradually acknowledge that recovery is taking place in their countries.”
http://www.businessweek.com/news/2014-09-24/draghi-says-euro-level-reflects-monetary-policy-paths
ECB: Is EUR recent weakening due to an existential threat (too much complacency) or is it the reflect of monetary policy divergence as Draghi argued? We believe that its a double effect. We have been quite vocal that markets are excessively pricing a monetary divergence, while Fed is likely to continue tightening macro prudential while being late in normalising. Furthermore, the EUR narrative amongst investors seems resuming existential threat (Eurozone will not be able to undertake the reforms, Germany will not pay for the “lazy” other countries, AfD and Front National will succeed in destroying the EZ and EU for the benefit of Eurasia, Scotland independence and Br-exit risk etc.). We have been indicating in our Europe Update that EUR is heading to become a reserve currency should France and Italy continue to undertake the reforms. For France, we should know as soon as mid-October whether the government will succeed getting the parliament backing to support the reforms. We consider that the likelihood is very high (though the narrative – rhetoric is captured by the anti – reforms). The introduction of structural reforms in France would help calm Germany – Northern European countries – nervousness vis-a-vis the prospect that Sovereign QE would be used to finance deficits and fiscal transfers (and refrain government from doing reforms). We consider that by mid October market sentiment is likely to shift more positive toward EZ, when France reforms votes (budget and responsibility pact) will clear the way for Germany to support EU Commission President Juncker EUR300bn investment plan. Furthermore, we consider that as soon as the banking sector on-going AQR [Asset Quality Review] review will be finalised, the EU banks will use the T-LTRO much more widely than the 1st experience to respond to the growing demand out of the SME sector. We disagree with consensus view that low T-LTRO demand is indicative of a low demand because this is much more likely to be attributable to the banking sector focus on reinforcing their solvency before AQR and undertaking additional credit risks (ECB loans demand survey continue to indicate an increasing demand coming from SMEs in the periphery).
Australia’s central bank steps up warnings on mortgage lending
In a 64-page Financial Stability Review report, the Reserve Bank of Australia (RBA) said the crucial question for macroeconomic and financial stability is whether lending practices are conservative enough for the current combination of low interest rates, strong house price growth and higher household indebtedness.
“The Reserve Bank’s assessment is that the risk from the current strength in housing markets is more likely to be to future household spending than to lenders’ balance sheets,” it said.
“However, the direct risks to banks will rise if current rates of growth in investor lending and housing prices persist, or increase further.”
As a result, the RBA said it is discussing with the Australian Prudential Regulation Authority (APRA), and other members of the Council of Financial Regulators, “additional steps that might be taken to reinforce sound lending practices, particularly for lending to investors.”
The RBA said record low rates and intense competition among banks have fuelled growth in lending for investor housing to the point that it was “noticeably more so than for owner-occupier housing or businesses”.
http://uk.reuters.com/article/2014/09/24/us-australia-rba-financial-idUKKCN0HJ03U20140924
Reserve Bank of Australia: In a context where the Australia housing market has been pointed out to be in a bubble (after the BIS meeting), the RBA offered a detailed report in which its highlight its view that Macro Prudential should be used as first line of defence against market frothiness. This report echoes the RBA and Australian government views earlier this month (please see our earlier daily briefings), that the housing market constitute a risk of frothiness but it NOT in a bubble right now. In a context, where inflation hawks want to see higher rates we forecast that RBA action will be dismissed and market will continue to focus on what could send the Australian economy over a cliff. A scenario which could not only help fixed income investors (should Central Banks undertake new QE programs), Gold – commodity standard bugs – should the crisis spread to a full fledge monetary armageddon -, Russia – which could reduce the pressure of the sanctions – and obviously the Terrorists alike ISIL which could claim a win over a “corrupted West” (in their parlance). Markets analysts are not able to link these interest groups yet but a complete information enabled by big data enables to connect these dots.
China Considers Replacing Central Bank Governor Zhou: WSJ
China may replace central bank Governor Zhou Xiaochuan as part of wider personnel changes as President Xi Jinping places allies in top government positions, the Wall Street Journal reported today.
The government hasn’t yet made a final decision about Zhou, the Journal said, citing the officials. The government’s personnel changes may come at the time of a major party meeting next month, it said. Zhou accompanied Premier Li Keqiang on a tour of Shanghai’s free-trade zone on Sept. 18 before its one-year anniversary.
PBoC: China government is understood to be considering replacing Governor Zhou in the forthcoming IV-Plenum. Chatters see Guo Shuqing, Fmr. Chair of China Securities Regulatory Commission (CSRC, China’s SEC) and current governor of Shandong province to be the likely replacent. Mr. Guo Shuqing is well respected by the markets. His nomination would indicate that the PBoC has taken an accelerated path away from stimuli (a regime PBoC was into since 2008) toward accelerating RMB internalisation – through interest rates liberalisation and financial sector reforms.
Economic News
U.S. new home sales at six-year high, but outlook challenging
(Reuters) – Sales of new U.S. single-family homes surged in August to their highest level in more than six years, a sign the housing recovery remains on course.
The recovery, however, will likely remain gradual against a backdrop of relatively high unemployment and sluggish wage growth, which are sidelining first-time buyers and keeping many young adults from seeking their own accommodation.
« This is welcome news in an otherwise mixed outlook, » said Diane Swonk, chief economist at Mesirow Financial in Chicago. « We are still a long way from the housing market recovering from the bust. »
http://www.reuters.com/article/2014/09/24/us-usa-economy-housing-idUSKCN0HJ1F720140924
Greek Banks See Tax-Credit Capital Boost as ECB Wraps Up Exam
Sept. 25 (Bloomberg) — Greek lenders bracing for the results of the European Central Bank’s health check next month are set for a capital boost from proposed changes to the country’s laws on deferred tax assets, said three people familiar with the matter.
The Finance Ministry in Athens submitted a bill to parliament yesterday that would allow the conversion of some of the assets into tax credits, which banks can count toward the capital they’re required to have on hand. When a company overpays taxes in one period, it can book a deferred tax asset that reduces its liability in the future.
The rule change, similar to laws passed in Portugal, Spain and Italy, would have a positive impact on banks undergoing the ECB’s Comprehensive Assessment, the people said, requesting anonymity to speak about the matter. One of the people said that under the ECB’s stress test, which has a three-year horizon ending in December 2016, the benefit to Greece’s four largest banks may be as much as 5 billion euros ($6.4 billion).
http://washpost.bloomberg.com/Story?docId=1376-NCF1KI6JTT9Z01-34SQEIH1ULOVASF87QFKO7BPV7
Greece: Anonymous sources indicate change in tax system to enable banks improve their solvency through the use of Differed Tax Assets. This is a positive development ahead of the Asset Quality Review which is in line with our out-of-consensus constructive view on the Eurozone.
Mantega Says Using Brazil Wealth Fund to Cover Budget Legitimate
Sept. 23 (Bloomberg) — Brazilian Finance Minister Guido Mantega defended today the use of the country’s sovereign fund to help meet fiscal targets in a year when Latin America’s biggest economy had its debt rating downgraded.
Brazil announced it will the withdraw 3.5 billion reais ($1.45 billion) from the sovereign fund to cover spending. The primary surplus, which excludes interest payments, was 1.22 percent of gross domestic product in the year through July, compared with the 1.9 percent target.
“The sovereign fund is a primary savings account we created in 2008 and is perfectly usable,” Mantega told reporters today in Brasilia. “Nothing is more legitimate than using that fund to cover part of expenses.”
http://washpost.bloomberg.com/Story?docId=1376-NCCYXS6JIJVX01-75JFF727O33T564JFI50KDCUHA
Brazil: as we were indicating in our recent notes and daily briefing, Brazil continue to search approaches to refrain from engaging into genuine structural reforms. We see any postponing of structural reforms as a very negative sign which would pursue Brazil stagflation economic scenario.
Russian Economy Outlook Dims for World Bank as Consumption Wilts
Anna AndrianovaSep 24, 2014 5:26 am ET
Sept. 24 (Bloomberg) — Russian consumption, which accounts for about half the $2 trillion economy, is falling victim to tensions over Ukraine, stalling the country’s “main growth engine,” the World Bank said in a report today.
Consumption growth will probably slow to 0.5 percent in 2015 and 0.6 percent in 2016 from about 2 percent this year, under the World Bank’s baseline scenario, which sees a period of “near-stagnation.” Gross domestic product will expand 0.5 percent in 2014, compared with 1.3 percent last year, and gain 0.3 percent in 2015 and 0.4 percent in 2016, the lender said.
“Consumption growth is currently moderating to a new and lower growth trajectory in an environment of subdued consumer sentiments,” the Washington-based bank said. “Geopolitical tensions are weighing down further on consumption growth.”
http://washpost.bloomberg.com/Story?docId=1376-NCCV436S972A01-5BD80OV5SG5RD2PKKNG4MU6VAI
Russia: the World Bank joined other institutions in indicating that the cost of sanctions will be much more negative for Russia than for the global economy. We see the recent weaknesses to be short lived for the eurozone while Russia government attitude to avoid reforms (as conservatism struck a win in the public debate in the aftermath of the Ukrainian crisis). Energy prices weakening is the most worrying development for both the economic prospect as well as the stability of the Russian government (please see our Russia update note).
China’s top economic policy maker stands trial for corruption
BEIJING: China’s former top energy czar and economic policymaker went on trial today for taking « advantage of his position » and accepting bribes worth $6 million, as the ruling Communist party’s anti-corruption drive intensified.
The trial of Liu Tienan, 59, a former head of the National Energy Administration and ex-deputy chief of the National Development and Reform Commission, began at Langfang City Intermediate People’s Court in Hebei province, a court statement said.
China: continue to take genuine action to reduce bad governance ahead of the IV-Plenum. This development, as we were indicating for months, is constructive and supportive to China aim to rebalance its economy while avoiding the hard landing scenario.
Ebola
Ebola Could Infect 1.4 Million by 2015
Between 550,000 and 1.4 million people in West Africa could be infected with the Ebola virus by January 20, 2015, according to a report issued on Tuesday by the U.S. Centers for Disease Control and Prevention (CDC).
The top range of the estimate, 1.4 million, assumes that the number of cases officially cited so far, 5,864 according to the count kept by the World Health Organization, is significantly underreported, and that it is likely that 2.5 times as many cases, or nearly 20,000, have in fact occurred.
http://english.chosun.com/site/data/html_dir/2014/09/24/2014092400720.html
Red Cross Team Attacked While Burying Ebola Dead
A Red Cross team was attacked while collecting bodies believed to be infected with Ebola in southeastern Guinea, the latest in a string of assaults that are hindering efforts to control West Africa’s current outbreak.
One Red Cross worker is recovering after being wounded in in the neck in Tuesday’s attack in Forecariah, according to Benoit Carpentier, a spokesman for the International Federation of Red Cross and Red Crescent Societies. Family members of the dead initially set upon the six volunteers and vandalized their cars, said Mariam Barry, a resident. Eventually a crowd gathered and headed to the regional health office, where they threw rocks at the building.
UN chief, British PM agree on need to aid Ebola-hit countries
UNITED NATIONS, Sept. 23 (Xinhua) — UN Secretary-General Ban Ki-moon and British Prime Minister David Cameron on Tuesday agreed on the need for « urgent and significant steps » to fight Ebola outbreak in West Africa and help the countries most affected by the virus.
http://news.xinhuanet.com/english/world/2014-09/24/c_127024466.htm
Mauritania calls for access to vaccines to fight Ebola crisis in West Africa
UNITED NATIONS, Sept. 24 (Xinhua) — Mauritania on Wednesday called on the world to work harder to provide vaccines to fight and prevent the outbreak of Ebola virus in West Africa, saying that « The sudden outbreak of Ebola virus in West Africa constitutes a major challenge. »
http://news.xinhuanet.com/english/africa/2014-09/25/c_133669794.htm
Massive Aid Needed for Ebola Outbreak as Outlook Worsens
Massive amounts of supplies and additional health workers are still needed in Liberia, Sierra Leone and Guinea to help control the Ebola outbreak there that may grow to more than 1 million infections under one worst-case scenario, according to aid agencies.
http://www.businessweek.com/news/2014-09-23/ebola-outlook-grim-as-study-predicts-21-000-cases-by-nov
FDA issues warning letters on Ebola treatment claims
Sept 24 (Reuters) – The U.S. Food and Drug Administration issued warning letters to three privately held companies marketing treatments that claim to prevent or treat Ebola.
The warning letters followed a review of the companies’ websites and social media accounts promoting the sale of the products.
http://www.cnbc.com/id/102030038
Inovio to start human trials of Ebola vaccine
(Reuters) – Vaccine developer Inovio Pharmaceuticals Inc said the company and its partner GeneOne Life Science Inc will start testing its experimental Ebola vaccine in humans in the first half of 2015.
http://www.reuters.com/article/2014/09/24/health-ebola-trials-idUSL3N0RP3SR20140924
Ebola: The WHO and CDC have upward revised their estimates for the development of the outbreak. The worst case scenario can push the number of cases as high as 1.4 millions by beginning 2015. This estimates remain however very sensitive to the global coordination and response. During the recent weeks, we have highlighted that the global coordination has intensifying to: 1) fight disinformation (we were talking about it in our recent daily briefings), 2) provide short term medical assistance (France, US, Israel, etc.) with the help of military expertise – when numerous Western African countries are indicating the lack of medical personel – , 3) provide financial support (wealthy donors, government funding, NGO help etc.), and 4) fast track the Ebola drug trial (the drug has had a very good result in the experimental tests).
Notwithstanding the on-going difficulties, and the short term negative economic effect, we continue to believe that the fight against Ebola will succeed and will clear the way to the increase in Africa investment and economic support (cf. our note “This time for Africa” which stressed that Africa is heading to experience the same development China had experienced when it joined the WTO in 2001 with positive consequences for both Africa and the world economy). The global coordination triggered by the response to the terrorist risk might help responding to the Ebola risk as well (due to the threat a dirty weapon using Ebola virus constitute).
Gaza
Abbas to ask Security Council to end occupation in three years
Palestinian president says he will submit resolution after speech to UN General Assembly on Friday – and that if U.S. vetoes it, he’ll begin process of taking Israel to The Hague.
http://www.haaretz.com/news/diplomacy-defense/1.617533
UN General Assembly: Barack Obama calls for destruction of IS; Ban Ki Moon outlines world’s mounting woes
First a coalition of the willing, now an exhortation to all nations. US president Barack Obama has stood in front of the UN General Assembly and implored the world; « today, I ask the world to join », the destruction of Islamic State and its ilk.
http://www.abc.net.au/news/2014-09-25/un-general-assembly-highlights-mounting-world-conflict/5767512
Gaza: As Egypt President el-Sisi intensifies the fight against the Muslim Brotherhoods, the political arm of the radical islam fighters (whose fighters include the hard-core liners ISIL and Al Qaeda), Egypt is re-gaining its leading role in the Palestinian – Israeli peace process. The pressure to reduce Israel’s defence budget aims bringing the hawks to consider peace solutions. Furthermore, at last, the terror financiers are brought to justice increase the likelihood to make the current fight against terror much more effective than it has been so far.
We are very optimistic (as we have been since the beginning of the Gaza crisis) that : 1) Hamas leadership will break from extremists and will recognise Israel – as Fatah did years ago – (though some radical fractions are already burgeoning with much less financial and arm support), 2) Iran will be instrumental in settling a long-term peace process (as the nuclear negotiation heads toward a civil nuclear Iran), 3) a LT peace process will help the development of Mediterranean sea gas exploitation (as it enables to return to the Israeli – Turkish normalisation, a process which was very close in April but has been postponed by the Gaza crisis).
Iraq & Syria
US Hits Islamic State Group in Both Syria and Iraq
U.S. fighter jets and bombers expanded their aerial campaign against Islamic State targets Wednesday, striking the militants in both Syria and Iraq even as the extremists pressed their offensive in Kurdish areas within sight of the Turkish border, where fleeing refugees told of civilians beheaded and towns torched.
http://abcnews.go.com/International/wireStory/syrian-opposition-hit-assad-group-25719189
Oil slips to two-year low near $96 as Libyan output returns
UPDATE 1-Brent slips further below $97 because of ample supply
* Fall in Brent defies heightened political tensions
* U.S. carries out strikes on militants in Syria
* But focus is on heavy supplies, weak data
SINGAPORE, Sept 24 (Reuters) – Brent crude fell for a third day on Wednesday, slipping further below $97 a barrel as inflated supplies and weak economic data from Europe outweighed rising geopolitical tensions in the Middle East.
http://www.cnbc.com/id/102027480
Qatar, a partner in U.S. airstrikes, says Syrian regime main problem
(Reuters) – Qatar, which provided support for U.S.-led airstrikes in Syria this week, urged the international community to confront the Syrian regime, highlighting pressure by some of Washington’s Gulf Arab allies to widen its campaign against Islamic State.
Qatar is among five Arab nations including Saudi Arabia, United Arab Emirates, Jordan and Bahrain that joined in or supported U.S.-led airstrikes against Islamic State targets in Syria beginning late on Monday. U.S. officials said Qatar’s role consisted mostly of logistical support.
« The war of genocide being waged and the deliberate displacement carried out by the regime remain the major crime, » Qatar’s ruler, Emir Sheikh Tamim bin Hamad Al Thani, told the United Nations General Assembly in New York.
http://uk.reuters.com/article/2014/09/24/un-assembly-qatar-idUKL2N0RP28820140924
Barack Obama asks Iran to seize ‘historic opportunity’ of nuclear deal
« America is pursuing a diplomatic resolution to the Iranian nuclear issue, as part of our commitment to stop the spread of nuclear weapons and pursue the peace and security of a world without them. This can only happen if Iran takes this historic opportunity, » Obama said in his annual address at the General Debate of the UN General Assembly.
Obama urges global unity in Islamic State fight
UNITED NATIONS — U.S. President Barack Obama on Wednesday called for international cooperation in combating the Sunni extremists of the Islamic State group, which has seized wide swaths of territory across Iraq and Syria.
« ISIL must be degraded and ultimately destroyed, » Obama said in a speech here, using another acronym for the militant group also known as ISIS.
« The United States of America will work with a broad coalition to dismantle this network of death, » he vowed.
The U.S. has been leading military action against the Islamic State and recently expanded airstrikes to Syria. Obama said that his country did not plan to send troops but would train and equip moderates as well as continue airstrikes.
IS-Affiliated Extremists Claim Beheading of French Hostage
Jihadists linked to the Islamic State group claimed to have beheaded a Frenchman abducted in Algeria in a video posted online today, after Paris rejected their demand to halt strikes in Iraq.
Herve Gourdel, 55, was kidnapped on Sunday by Jund al-Khilifa, or « Soldiers of the Caliphate, » while hiking in a national park that was once a magnet for tourists but later became a sanctuary for Islamists.
Obama forges anti-ISIL coalition, but will it hang together?
(Reuters) – The Arabs are in. Turkey is on the fence. Britain, still smarting from an earlier Iraq war, is cautiously edging toward expanded action. Even Greece wants to help – if someone would tell it how.
Two weeks after he announced plans to form a « broad coalition » to fight the militant group Islamic State, President Barack Obama’s hopes for international support for actions in Iraq and Syria appear to be gelling.
But it remains to be seen whether this motley global crew, whose members have widely differing goals, can hang together for a mission that Obama has acknowledged could last for years, and which is bound to encounter difficulties – as well as both military and civilian casualties.
« The common threat gives the president an ability to bring together a broader coalition, » said former U.S. ambassador Edward Djerejian, who was involved in an earlier U.S.-led coalition to oust Iraq’s Saddam Hussein from Kuwait in 1991. Ironically, that coalition included Syria.
« We just don’t know how robust the coalition will be in terms of staying together. That’s a big question, » said Djerejian, director of Rice University’s Baker Institute.
http://www.reuters.com/article/2014/09/24/us-syria-crisis-coalition-analysis-idUSKCN0HJ00L20140924
Philippine Islamist militants threaten to kill German captives
(Reuters) – Al-Qaeda linked militants in the southern Philippines have threatened to kill two Germans hostages they have been holding since April unless Germany stops supporting U.S. action against Islamic State militants, the SITE monitoring service said.
http://www.reuters.com/article/2014/09/24/us-philippines-militants-idUSKCN0HJ0NQ20140924
Fight against ISIL success likelihood increases: the global community military action continue to enjoy a wide support (incl. Arab countries). The support is likely to intensify after the militants beheaded Herve Gourdel (a French citizen abducted in Algeria) and Philippines Militants threatened to harm a German.
The Social media is also joining the fight against the terrorist organisation, Muslims are making #NotInMyName viral to push the view that ISIL is NOT a State NOR represent Islam.
The terrorists organisations are currently in an escalation of violence due to the leadership a fight for Abou Moussab Al Zarkawi legacy. Fortunately for the global coalition fight, the “Murders in Iraq and Syria” known as ISIL, have no ideological leadership and will struggle to hire new fighter should the global community take the fight to the Social Media in genuine coordinated actions to : 1) fight bad governance, to justify 2) reducing mistrust. Unfortunately, mistrust and the “institutions are rotten to their core” mantra is helped by groups as wide as: Extreme right, gold bugs, 2nd amendment supporters and Bitcoin marketers… We are surprised how some “mainstream media” have joined spreading the same “mistrust” message for a clear agenda to avoid improving governance. This pressure is accelerating G-20 actions to push for tax evasion fight (OECD initiative) and improve governance.
Oil prices continue to come under pressure (in line with our recent energy update note). However, the situation on the ground continue to be fragile, with a new threats to the security of many countries from Egypt to US. The quickest the West recognises that the fight against ISIL and terrorists necessitate a fight against mistrust which spread not only in the jihadist internet web but also in the extreme right and gold bugs forums, the more the risk of isolated radicalised youth actions will decrease.
The fight against mistrust is likely to accelerate with the global governance improvement. Furthermore, any advance in Iran nuclear talks will help Iran joining the fight against ISIL. The recent news flow out of ISIL indicates that the terrorist organisation is getting isolated and its power is weakening. Furthermore, the recent strikes have reduced Al-Qaeda operatives which were preparing attacks against the West (according to informations out of the intelligence community).
Russia
Japan Steps Up Russia Sanctions, Protests Island Visit
Japan announced new sanctions on Russia, and lodged a protest after a senior official visited an island claimed by both nations, adding to tensions that have delayed a visit by Russian President Vladimir Putin to Tokyo.
Japan will ban the issuance of securities in Japan by certain Russian banks, and tighten restrictions on defense exports to Russia over the infiltration of troops into eastern Ukraine, the government said yesterday. Separately, Chief Cabinet Secretary Yoshihide Suga said the visit to the island by Sergei Ivanov, head of the Russian presidential administration, was “extremely regrettable.”
Japan targets Russia’s biggest banks, arms exports in new sanctions
Japan has limited operations with five Russian banks including top lenders Sberbank and VTB, and arms exporters over Moscow’s involvement in the Ukraine crisis, according to Chief Cabinet Secretary Yoshihide Suga.
http://rt.com/business/190204-japan-russia-sanctions-ukraine/
Polish miners block Russian coal imports at border
WARSAW, Sept 24 (Reuters) – More than 200 Polish miners blocked trains carrying Russian coal at a border passage in northern Poland to protest against the cheaper Russian coal being brought in at a time when local mines are struggling, mining union leaders said on Wednesday.
http://af.reuters.com/article/commoditiesNews/idAFL6N0RP0AO20140924
Putin Ally Rotenberg’s Italian Assets Frozen Over Sanctions
Sept. 23 (Bloomberg) — Italy froze luxury properties belonging to Arkady Rotenberg, a Russian billionaire blacklisted by the European Union over the war in Ukraine for being one of President Vladimir Putin’s “cronies.”
The assets are valued at as much as 28 million euros ($36 million) and include the Berg Luxury hotel in Rome and properties in Sardinia, according to an Italian finance police official who asked not to be identified because he isn’t authorized to speak to the press.
http://washpost.bloomberg.com/Story?docId=1376-NCCRGP6TTDS101-5B8GLJ4KGB0131RFRJH47711VS
U.K. Winter Gas Rises From Seven-Week Low Before Three-Way Talks
U.K. winter natural gas prices climbed from their lowest level in seven weeks as Russia, Ukraine and the European Union prepare to seek a gas deal before the start of the heating season.
Gas for the six months from October on Britain’s National Balancing Point advanced as much as 1 percent on the ICE Futures Europe exchange in London after earlier losing as much as 1 percent. Top energy officials from Russia, Ukraine and the EU are set to meet in Berlin on Sept. 26 to discuss the gas dispute between the two countries.
The winter contract has lost 4.4 percent since June 16, the day Russia halted gas supplies to Ukraine in a debt and price dispute that echoed similar conflicts that reduced flows to Europe in 2006 and 2009. Ukraine, which transports 15 percent of Europe’s gas demand, will seek “some volume of gas” from Russia’s OAO Gazprom at a provisional price until April, EU Energy Commissioner Guenther Oettinger said yesterday.
Ukraine Urges Rebel Withdrawal as Obama Presses Moscow
Ukraine urged pro-Russian separatists to stop shelling government troops and start withdrawing their heavy weapons, while President Barack Obama said Russia must choose peace to have U.S. sanctions lifted.
Separatists shelled government troop-held Donetsk airport and a checkpoint in the area, wounding eight servicemen, military spokesman Andriy Lysenko told reporters in Kiev today. He said Russia provided no information to Ukraine about the content of a fourth aid convoy that is on its way to the region.
http://www.businessweek.com/news/2014-09-23/ukrainian-unrest-eases-as-nato-says-russia-cuts-presence
Obama, at UN, condemns Russian aggression, calls for international unity against ISIS
Obama criticized what he described as Moscow’s outlook as “a vision of the world in which might makes right—a world in which one nation’s borders can be redrawn by another.” He called upon other countries to be on “the right side of history” in dealing with Russia’s international actions.
Russia: Ukrainian situation continues to calm down (BUT NOT deescalate). The Eastern Ukraine region self proclaimed republics autonomy perimeter continue to be the name of the game.
Too much autonomy (the current self proclaimed government are calling for a full fledge independence – which could give legitimacy to Crimea annexation-) would make Ukraine IMF program dead born (as Kiev government would be in the incapacity to deliver on governance improvement and structural reforms). At the other end, an autonomous regions which would bind by the IMF program reform will increase the ability of Kiev government to strengthen the Ukrainian economy along with the governance improvement. Thus, it would increase the likelihood of joining NATO. Russia is unlikely to let this scenario take place without a fight.
Therefore, the Kremlin is putting a lot of emphasis on how badly an isolated Russia would impact the global economy, while the Russian economy is preparing for this outcome (e.g. Russian corporations are considering spinning of their US subsidiaries, Wealth Fund is considered to be used to self-finance needed infrastructure investment, while international experts are rushing to find financial solutions for the New Russia political strategy). From the political spectrum, the opposition is organising itself should oil prices drop sustainably below $75bbl – this scenario is possible should the geopolitical blue sky scenario take place -. But the Kremlin is “threatening” oligarchs to keep them away from joining the opposition. For more analysis on this matter, please see our recent “Russia update note”.
US News
New unrest in Ferguson after Michael Brown memorial burned
FERGUSON, Mo. – Violence broke out again in Ferguson, Mo., a community still reeling from the effects of an unarmed teen gunned down by a white police officer last month.
A group smashed up the windows of a beauty supply store, and gunshots could be heard nearby, according to witnesses.
http://www.cbsnews.com/news/tensions-mount-in-ferguson-again-after-michael-brown-memorial-burned/
Facebook to cut ties with conservative policy group
Facebook will likely end its relationship with a controversial conservative policy organization, The Chronicle learned Tuesday.
http://www.sfchronicle.com/news/article/Facebook-to-cut-ties-with-conservative-policy-5776055.php
OBAMA URGES WORLD TO FOLLOW US LEAD ON CLIMATE
UNITED NATIONS (AP) — The only thing rising faster than heat-trapping gases Tuesday were the statements of urgency by world leaders, who told each other at a United Nations summit how seriously they take global warming. Binding commitments and action are to come.
President Barack Obama pressed other countries to follow the United States’ lead on the issue, even as the summit revealed the many obstacles that stand in the way of wider agreements to reduce heat-trapping pollution.
« The United States has made ambitious investments in clean energy and ambitious reductions in our carbon emissions, » Obama said. « Today I call on all countries to join us, not next year or the year after that, but right now. Because no nation can meet this global threat alone. »
Hillary Clinton Leads $600 Million Effort to Educate Girls
Hillary and Chelsea Clinton, along with the Brookings Institution, are spearheading an almost $600 million effort to help disadvantaged girls, mostly in Sub-Saharan Africa and Southwest Asia, attend secondary school.
Hillary Clinton announced the effort today at the annual meeting of the Clinton Global Initiative, which with the Center for Universal Education at Brookings helped draw participation. More than 30 groups have committed to the project.
“We know when girls have access to quality education in both primary and secondary schools, cycles of poverty are broken, economies grow, glass ceilings crack and potential is unleashed,” Clinton said.
Obama says global climate deal must include emerging economies
« This time we need an agreement that reflects economic realities in the next decade and beyond, » Obama said.
« It must be ambitious because that’s what the scale of this challenge demands. »
Obama said that prior to taking the podium, he met with China’s vice premier Zhang Gaoli and they agreed that the world’s two biggest emitters « have a responsibility to lead. »
http://www.reuters.com/article/2014/09/23/us-un-climatechange-obama-idUSKCN0HI23G20140923
US Tax inversion: As we were expecting since the announcement of Burger King deal (which has been widely reported as being solely pursuing tax inversion objective) we’ve indicated that this would sign the end of the system. US Treasury took actions to make it harder to execute such deals, while the tax reform seems in limbo due to DC gridlock. Administrative actions taken by Treasury Secretary Lew makes it harder to execute tax inversion but does not derail it entirely. We consider that G-20 initiative to undertake OECD proposal to reform the rule of “double non-taxation” (see our previous daily briefing) will help improve the tax governance (and incidentally the rise in the mistrust in the public institutions – which are seen to be colluding with businesses -). Markets have reacted negatively to the actions taken against tax loopholes, because these are seen to be the only remaining way for Corporations to improve their EPS (while demand continue to be subdued). We disagree with this view because G-20 initiatives to tackle “tax optimisation” will come along with more investments and fiscal stimuli which would help spur more economic demand.
US Economy: high frequency economic data continue to show a mixed message. The widely common economic forecast models have been weak understanding the current economic evolution. We have indicated in our article “Perceptions & realities : closing the gap between the two” that while the growth and inflation continue to be subdued to justify any urgent action from the Fed, there are genuine signs which indicates that growth potential will improve. In a nutshell, big data, technology, energy transition, lower commodity prices and better governance are the driver we see for the creation of goldilock conditions – not too hot, not too cold – which would enable spur sustainable growth and create the conditions for central banks to normalise (in a couple of years) the monetary policy without triggering a new financial crisis or excessive financial bubbles.
Europe News
UK recalls lawmakers to vote on air strikes against Islamic State in Iraq
(Reuters) – British lawmakers will vote on Friday whether to join U.S.-led airstrikes against Islamic State militants in Iraq after Baghdad requested help, the British government said on Wednesday.
« I have requested that Parliament be recalled to debate the UK response to the Iraqi government’s request for support against ISIL (Islamic State), » British Prime Minister David Cameron said on Twitter.
Baghdad had asked for British air strikes to support its operations against the Islamist fighters, a spokesman for Cameron said.
http://www.reuters.com/article/2014/09/24/us-iraq-crisis-britain-idUSKCN0HJ0TI20140924
Top UK Al-Qaeda cleric Abu Qatada cleared of terror charges and freed in Jordan
The radical Muslim preacher Abu Qatada has been acquitted of terrorism charges by a Jordanian court. Qatada, who was accused of being involved in the planned “Millennium plot” terror attacks, was released from prison just hours after the verdict.
http://rt.com/uk/190212-abu-qatada-jordan-court/
Cameron Meets Rouhani as Iran Ties Thaw Since Embassy Raid
U.K. Prime Minister David Cameron met Iranian President Hassan Rouhani in New York, signaling a thaw after the countries broke off ties when the British embassy in Tehran was attacked three years ago.
Rouhani has sought to end Iran’s global isolation and repair an economy hurt by sanctions, which will be removed in return for curbs on Iranian nuclear work if a final deal is reached. At the World Economic Forum in Davos in January, he hosted a group of oil executives. Companies including Royal Dutch Shell Group, Europe’s biggest oil company were forced to stop doing business in Iran by the sanctions.
“European oil companies would like to be there because Iran still has considerable reserves,” said Amrita Sen, chief oil market analyst at Energy Aspects Ltd. in London. “It could be very lucrative, but for now it’s too early to say there will be an opening for those oil companies in Iran.”
EU – Iran: PM Cameron met President Rouhani. This meeting is a first step in the execution of the plan we were forecasting in May (please see our Global Strategy report for more details) that as Russia isolates itself, EU will use Iran as a replacement. The reduction in Iran isolation will bring as well fossil energy investment to a country which has been under investing since the Islamic Revolution. This story is very positive for our scenario of EU energy union. As we were indicating yesterday in our Daily Briefing that it increases the likelihood for : 1) the nuclear negotiations will succeed (creating a civil nuclear Iran), 2) Iran sanctions will be lifted which increase supply and oil exploration investment (because Iran has been lacking investment due to the Western sanctions), 3) Iran will join the global coalition to fight against IS – but more importantly a “normalised relations with Iran” will help to find some political solution in Syria (a necessary step to avoid making Syria a safe heaven to terrorists)
Paris appeals court suspends corruption probe into Sarkozy – report
A French court has suspended an investigation launched in July against former French President Nicolas Sarkozy for corruption and influence-peddling, AFP reported on Wednesday. The Paris appeals court decided the previous day to drop the probe and does not have to give a reason, a source close to the inquiry said. The decision came days after he announced his political comeback. Sarkozy still remains mired in several other judicial matters, including for alleged corruption.
France – Fmr. Pres. Nicolas Sarkozy come back: Paris appeals court suspends corruption prove into Sarkozy. This is clearing the way for the case to be dropped (please contact us, should you require more details on the juridical reasons of our forecast). This trend will help Sarkozy to increase his chances (already high) to secure the Presidency of the center right party (UMP). We’ve been indicating that Fmr. Pres. Sarkozy strategy evolves around championing good governance while moving away from the Radical right. We see these development as very positive for both France and EZ because Mr. Sarkozy come back will take the french opposition away from the EU-Skeptics and extreme right Front National.
Air France strike enters its 10th day as pilots protest Transavia Europe
Paris: Confusion reigns over Air France’s plan for its low-cost subsidiary that has been at the heart of a bitter and costly strike, as the government and management contradicted each other.
As the strike at Europe’s second-biggest flag carrier stretched into its 10th day, Transport Minister Alain Vidalies told French radio on Wednesday the airline had scrapped plans to expand its Transavia budget subsidiary.
« The Transavia Europe project has been abandoned by management, » Vidalies told RMC radio.
Euro Drops to 14-Month Low Amid Stimulus Speculation
The euro fell after Germany’s Ifo institute said its business climate gauge slid to 104.7, the lowest since April 2013, from 106.3 in August. The report followed purchasing-managers’ indexes yesterday that showed growth in euro-area manufacturing and services slowed this month.
Eurozone PMIs : As we were expecting in our Feb 27th note, and Russia update, the Eurozone economies are suffering from the Russia – Ukraine crisis. We have been saying that the tension with Russia will have short term negative effets as the manufacturers (specifically in Germany) has to mitigate the effect of the sanctions. BUT we continue to express confidence in our views that the Eurozone PMI are likely to rebound in October or November, thanks to the combined effect of: 1) Banks resuming lending as they will have dealt with the Asset Quality Review and will start to benefit from the combination of T-LTRO conditions and SMEs demand, 2) the new EU Commission undertakes genuine actions to speed up European integration (e.g. designated President Tusk Energy Union project), and infrastructure investment (designated President Juncker EUR300bn investment project), 3) a reduction in the excessive risk premium built due to the negative effects of the tension with Russia, and 4) the global collaboration which will bring more support to the energy transition, governance improvement and fight against terror (positive for jobs and growth and negative for energy prices – because it reduces the geopolitical risk premium -).
France: Merkel praised the reform agenda, reverted to Brussels on budget. On this matter Pierre Moscovici is likely to come under heavy pressure in his Oct. 2nd hearing to strengthen the impartiality should he agree to postpone France budget. This is natural development because Germany does not want to be seen as a “hegemonic force” in EU. However, any acceptance to accelerate EU integration and infrastructure investment will only come when France will pass it reforms (cf. comments from Finance Minister Sapin). Recent political gridlock (“les frondeurs”) and strikes are the reflect of the tension brought by the transformative reform agenda which is under way. We consider that EU and France has NO SURVIVAL CHOICE face of Russia should it derail from the reforms and the EU integration agendas. Therefore, we foresee that France will get more time to adjust its fiscal deficit should it undertake spending cuts (EUR50bn until 2017) which executing the “responsibility pact” (i.e. structural reforms).
China News
U.S. and China announce plans to curb greenhouse gases
At a summit Tuesday to kick off the drafting of an international climate change accord, President Obama spoke bluntly of American responsibility for global warming and pledged that ambitious steps would be unveiled over the next year to cut greenhouse gas emissions.
Obama was followed by Chinese Vice Premier Zhang Gaoli, who said that China would put forth a plan in early 2015 to reach a peak in its greenhouse gases « as soon as possible » and scale back emissions thereafter.
The announcements by leaders of the two top emitters of greenhouse gases fed a cautious optimism among many observers that after decades of limited action, the international community is moving to take meaningful steps to address climate change.
I don’t like to defend the U.S. administration’s climate policy, and there’s still a lot to be done, but what I heard the president say today was that we need to lead.
– Michael Brune, executive director of the Sierra Club
http://www.latimes.com/nation/la-na-climate-summit-20140924-story.html
China reaffirms resolve to fight climate change
UNITED NATIONS, Sept. 23 (Xinhua) — China on Tuesday reiterated its commitment to the common battle against climate change and pledged to help boost South-South cooperation in dealing with the global threat.
Speaking at the UN Climate Summit as Chinese President Xi Jinping’s special envoy, Vice Premier Zhang Gaoli also urged members of the international community to make concerted efforts so that the 2015 Paris conference will reach an agreement as scheduled.
« China attaches great importance to addressing climate change, and is ready to work with the international community to actively tackle the grave challenge of climate change, » Zhang said.
As Xi has pointed out, responding to climate change is what China needs to do both to achieve sustainable development at home and to fulfill its international obligations as a responsible major country, he added.
« This is not at others’ request but on our own initiative, » said the vice premier.
http://news.xinhuanet.com/english/china/2014-09/24/c_127024444.htm
China climate change: As we were indicating in our previous daily briefings, not only China has taken genuine actions to move toward more reforms but also the leadership has taken steps to help climate change. This has started when the social media has put mounting pressure after the episode of excessive pollution in Shanghai (beginning 2013, ahead of the Communist Party Congress).
Airbus Sees $4.6 Trillion Jet Market as China Tops U.S.
Airbus Group NV (AIR) predicted airlines will buy planes worth $4.6 trillion at list prices over the next 20 years, with Chinese domestic travel surpassing the U.S. as the largest single aviation market within a decade.
Airlines will need 31,400 new jetliners and freighters during the period — 2,180 or 7 percent more than suggested in Airbus’s previous 20-year forecast a year ago — with passenger growth remaining at 4.7 percent annually, the company estimates.
Fitch: China’s Rebalancing Means More Volatility Expected
HONG KONG/SINGAPORE, September 24 (Fitch) Recent data showing a slowdown in Chinese investment and industrial-production growth could indicate that policy-driven macroeconomic rebalancing is taking effect, says Fitch Ratings. The period of adjustment was always likely to see a pick-up in macroeconomic volatility, and a smooth outcome is not assured. However, any sustained rebalancing and a reduction in growth led by credit-fuelled-investment would diminish the structural vulnerabilities factored into the sovereign credit profile. […]
Banking IT Market in China to Grow at 11.39% CAGR by 2018
ReportsnReports.com offers « Banking IT Market in China 2014-2018 » research report in its store. In today’s information age, business framework needs new capabilities in banking for success. IT has been changing the way organizations control and run their business and participate in various markets. IT has significantly improved the productivity of the Banking sector in the fields of customer relationship management, enterprise resource planning, and employee productivity. The Banking sector in China is highly dependent on IT that helps access, store, transmit, and manipulate information with a high degree of accuracy and least redundancy. As a result, banks in China are aggressively adopting IT to optimize their business processes and enhancing the performance.
Reform, not monetary stimulus, is China’s only choice to revive growth
China’s economy continues on a downward trend. The main reason is the lack of significant reforms to implement the decision of the party Central Committee’s third plenum. Sentiment, both at home and abroad, is at the lowest point in a quarter of a century. If reforms remain just talk, not action, the downward spiral could trigger a financial crisis.
To stabilise the economy, China must cut taxes by 1 trillion yuan (HK$1.26 trillion) or more. Value-added tax should be cut to 13 per cent, from 17 per cent, the top personal income tax rate slashed from 45 per cent to 25 per cent, and contributions to social funds halved for three years.
The central government should issue fiscal bonds to plug the resulting shortfall. To ensure the fiscal deficit is temporary, it should cap spending by local governments and the companies under their control.
Chinese President & Premier call for expanded cooperation with Russia
http://news.xinhuanet.com/english/video/2014-09/24/c_133667595.htm
China:Manufacturing data support our view that China is soft landing while rebalancing. Labor statistics showed that the manufacturers have started to rebalance their activities away from labor intensive (an objective already stressed by the Chinese leadership). These are in line with the objective to rebalance the economy away from credit driven investment. The government seems fearing that the economic rebalancing has not taken momentum yet although 1) labor intensive manufacturers are relocating in cheaper labor countries, 2) businesses are upgrading their business models, 3) President Xi has conducted many trade – investment agreement with Neighbours (after Premier Li did the same in Africa) to secure investment projects which use Chinese manpower – engineers know-how in this domaine, 4) China is gaining more military presence and has fluxed it mussels – e.g. China “Top Gun” intercept by a US fighter jet -, 5) China has signed many RMB agreement which reinforce the currency usage and prepare its full liberalisation – after Free Trade Zones (FTZ) have proven to be a success -, 6) China has undertaken a genuine fight against bad governance and better regulation – many examples in our recent daily briefings of fight against corruption and bad governance-. We see in FinMin Lou Jiwei comment an indication that not only China wants to create a reserve currency it does want it to be strong when Chinese leaders perceive the heavy pressure place on USD by a category of investors to avoid debasing the currency through deficit financing – although we consider that this worry is misplaced -.
Australia News
Employers on the hunt for workers again
Whether or not you believe the most recent strong jobs figures, there are other signs business is hiring again.
Two new surveys highlight renewed demand for workers, and if you live or are prepared to move to NSW, the chance of securing a job is even better.
The Department of Employment’s latest vacancy report shows that over the past year internet advertisements for NSW jobs have soared more than 21 per cent, almost double the pace of Australia as a whole.
Overall, job ads rose 3.8 per cent in August to be 12.8 per cent higher over the year.
Recruitment company Hudson has found hiring intentions are at an 18-month high with one in four of 4000 employers surveyed looking for new staff in 2014.
Australian laws to criminalise travel to terror hotspots
Tougher counter-terror laws to be introduced to Australia’s parliament on Wednesday would make it a crime to travel to places considered terror hotspots, punishable by up to 10 years’ jail.
The changes are in response to concerns by the government that some 60 Australians have travelled to Iraq and Syria to fight alongside jihadists, and could return home and commit violence.
The Counter-Terrorism Legislation Amendment (Foreign Fighters) Bill proposes to make it an offence to enter, or remain in, a so-called ‘declared area’ where the foreign minister is satisfied a terrorist organisation is engaged in hostile activity.
‘Bigger threat than terrorism’: Barack Obama signals Australia, India and China must improve on climate change
NEW YORK: Barack Obama has signalled to developed economies such as Australia and emissions-heavy emerging giants such as India and China that they must lift their games on cutting pollution – declaring « nobody can stand on the sidelines anymore ».
Critics slam Financial Services Council proposal to set up regulatory body
Critics have slammed the call for an independent governing body for the financial planning industry as little more than a « distraction » from the Abbott government’s controversial financial advice rules, which are likely to face a Senate vote this week.
The Financial Services Council said on Tuesday it was so concerned about the level of public distrust in Australia’s financial planning industry that it wanted the government to establish an independent Advice Competency Standards Board comprising « key industry stakeholders », such as the Australian Securities and Investments Commission and the Tax Practitioners Board, to regulate the industry and boost its standards.
FSC chief executive John Brodgen said significantly improved adviser education, increased powers for ASIC and greater disclosure of experience and ownership were needed to increase public confidence in financial advice.
« Self-regulation is no longer a credible option for establishing higher standards, » Mr Brogden said.
Researchers trial CAT scan that can predict heart attacks
RESEARCHERS are hoping to prove a commonly used scan can forecast when a person might have a heart attack — helping 9000 susceptible patients annually.
A Monash University team is using CT scans of a person’s heart to check whether they can tell if the plaque in their blood vessels is likely to rupture and cause a heart attack.
The procedure could replace the invasive angiogram where a thin plastic tube is threaded through the largest artery in the body to the heart, and X-rays of the blood vessels are taken showing a dye moving through them to detect any blockages.
Heart Foundation funded researcher, Dr Dennis Wong, is reviewing scans of 4,000 patients who have experienced chest pain and following them up annually for three years to see if they suffer a heart event.
Australia: Australia continues to be seen, by markets, as a derivative to the old Chinese model (i.e. commodity provider). This view explains the high beta between Australian assets and commodity prices (or China demand for commodities). This assumes that neither China nor Australia are conducting their rebalancing agenda. We do believe that the curent weaknesses offers genuine opportunity to benefit from the other drivers to the Australian economy which are not related to commodities. We see the current Australian Dollar weakness to continue at least until the USD start to weaken again when markets will realise that it has beaten too much on a quick rate normalisation. Meanwhile, from our previous daily briefing, we have gathered sufficient support to the view that the drivers of the Australian GDP are moving toward: 1) education, health and finance services provider to Asian neighbours, 2) innovation and digital sector, 3) energy resources export to Japan (the later contributes to our constructive view that the current negative Japan Energy Trade deficit will rebalance in the medium term – reducing Japanese Government bonds solvency risk – ).
New Zealand News
Fonterra forecasts fight over dairy as milk prices sour for farmers
Australian dairy farmers can expect to earn less in coming months, with the world’s biggest milk exporter forecasting softer farm gate prices.
The grim outlook comes as New Zealand’s Fonterra said competition in Australia’s milk supply pool had wiped $37 million off its local earnings in the year to July 31.
Fonterra’s chief financial officer, Lukas Paravicini, said the company had grappled with « significantly higher » input costs, which is mainly payments to farmers, as global milk prices soared in the past year.
« We follow the market price and the market price has increased in Australia significantly in the last year, » Mr Paravicini said.
« If you take the reference of whole milk powder, that’s gone up 65 per cent. Spikes of 65 per cent are very hard for any consumer business to absorb. »
Dairy payout cuts fuel concerns for New Zealand economic growth
WELLINGTON, Sept. 24 (Xinhua) — Dairy giant Fonterra announced Wednesday it is looking to slash payouts to New Zealand’s pillar dairy farming sector on the back of weakening global demand, prompting concerns over New Zealand’s economic growth.
Fonterra Co-operative Group Ltd. cut its forecast farmgate milk price for the 2014-2015 season from 6 NZ dollars (4.84 U.S. dollars) to 5.30 NZ dollars (4.28 U.S. dollars) per kilogram of milk solids.
Chairman John Wilson said the lower forecast reflected continuing volatility, with the Fonterra’s GlobalDairyTrade price index falling 6 percent in the past two fortnightly auctions.
http://news.xinhuanet.com/english/business/2014-09/24/c_133668322.htm
New Zealand: Fontera payout cuts fuel concerns over NZ economic prospects. This increases the pressure on new PM Key Cabinet to accelerate the green shots of rebalancing and reforms. We have been indicating that NZ has already started a genuine shift toward new Tech agriculture, health and education services directed to Asian neighbours.The fact that PM Key secured another term supports our constructive scenario on NZ..
Japan News
Japan PMI shows manufacturing picked up in third quarter, more data needed for tax hike decision
(Reuters) – Japan’s manufacturing activity picked up in the third quarter, a survey showed, but economists say they need more information on wages and consumer spending to determine whether the government should raise the sales tax again next year.
An improving corporate sector is certainly welcome news for Japanese Prime Minister Shinzo Abe after the economy contracted sharply in the second quarter following the first of two increases in the sales tax.
But the government, which is monitoring third-quarter economic data to decide whether to raise the sales tax again, is likely to remain cautious for fear that consumer spending may not fully recover. Abe is to make a final decision by the end of the year.
« Conditions for Japan’s manufacturers are improving, and this is in line with an improvement overseas, » said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
http://uk.reuters.com/article/2014/09/24/uk-japan-economy-pmi-idUKKCN0HJ03C20140924
At U.N., Abe to vow more active role for Japan in Africa peacekeeping
NEW YORK – Prime Minister Shinzo Abe plans to vow in a speech at the United Nations on Friday that Japan will take a more active role in U.N.-led peacekeeping operations in Africa and support U.S. President Barack Obama’s initiative to quickly deploy peacekeepers in the region, a draft of the speech showed on Tuesday.
Japan says visit by Putin aide to disputed island « regrettable »
(Reuters) – Japan will lodge a protest with Russia after President Vladimir Putin’s chief of staff visited a contested island chain, but there would be no change to Tokyo’s policy to maintain dialogue with Moscow, Japan’s top government spokesman said on Wednesday.
http://in.reuters.com/article/2014/09/24/japan-russia-idINKCN0HJ0BX20140924
CHINA, JAPAN RESUME TALKS OVER MARITIME ISSUES
BEIJING (AP) — China and Japan resumed high-level talks on maritime issues this week, in a sign that they want to improve relations badly strained in recent years by territorial disputes and wartime historical issues.
Senior ministry officials met for two days in China’s eastern city of Qingdao to exchange views on issues in the East China Sea and maritime cooperation, China’s official Xinhua News Agency said Wednesday.
Japan’s Foreign Ministry said the two sides agreed to hold talks on setting up a maritime hotline between their defense ministries.
Japan’s Kyodo News agency also reported that a Chinese vice premier separately commented on Wednesday that he wants an early resumption of a high-level economic talks with Japan, which have been suspended since 2010.
Wang Yang, the vice premier who oversees international trade, made the remarks when he met a Japanese business mission headed by Toyota Motor Corp. Honorary Chairman Fujio Cho, Kyodo said.
UBIC Obtains New Japanese Patent for Technology Related to Predictive Coding<2158.T>
TOKYO, Sept. 24, 2014 (GLOBE NEWSWIRE) — UBIC, Inc. (Nasdaq:UBIC) (TSE:2158) (« UBIC » or « the Company »), a leading provider of international litigation support and big-data analysis services, today announced that the Japan Patent Office has recently issued a Notification of Decision of grant to the Company for a new patent related to « Predictive Coding ». The necessary procedures for patent registration have already been executed, and the patent is currently pending issuance.
http://www.reuters.com/article/2014/09/24/idUSnGNX8fVzpn+1c8+GNW20140924
Japan: September PMI softening economic downgrade was widely expected. We see BoJ to keep the bazooka of QQE-2 un-tested until the JPY excessive depreciation and JGB solvency risk came down * investors are still short JGB expecting a Japan crisis *. The 2nd VAT hike will require some stabilisation at the current levels, though we expect that PM Abe will undertake the 2nd hike in steps, because BoJ is unlikely to be sufficiently confident to move ahead with more QQE while JPY is accelerating its depreciation. PM Abe voiced concerned over the JPY rapid depreciation, as he pointed (rightly in our opinion) to the increase in energy cost, which deteriorate further the energy trade deficit – and increase the risk of JGB solvency -.
However, BoJ might do some adjustment to its monetary program but nothing excessive. The news flow out of this weekend G20 meeting shows that the global community is gently pressing the government and the BoJ to pursue structural reforms, economic rebalancing, solvency improvement (through VAT 2nd hike commitment) and adequate monetary policy (not too hot – to avoid a crisis – not too cool – to avoid derailing the on-going portfolio rebalancing approach -). Japan continues to face heavy public pressure to rebalance its energy reliance to nuclear. While we believe that Japan will continue to press for reopening nuclear plants (when Nuclear Watchdog gives his green light), the medium to long term trend is that Japan will use Trade negotiation with neighbours to secure new energy sources while using this pressure to deregulate and move forward with Abenomics 3rd arrow (please see our Japan update for more on our views).
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