Japan enters recession, but service sector brightens | China's November trade figures show weakness | China's new leader strongly signals commitment to liberalization
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December 11, 2012
CFA Institute: Financial NewsBrief - Aisa Pacific Edition
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Monti departure in Italy shakes markets
Reuters
Fear spread in the eurozone in the wake of Italian Prime Minister Mario Monti's announcement that he was stepping down, with Italian borrowing costs surging and stocks falling. Meanwhile, Italy reported industrial output declined an unexpectedly sharp 1.1% in October, pointing to prolonged recession. Reuters (12/10), Financial Times (tiered subscription model) (12/10)
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Japan enters recession, but service sector brightens
Japan's economy has officially entered recession, contracting 3.5% in the third quarter after a revised 0.1% pullback in the second quarter. Also, Japan's unadjusted current-account surplus narrowed to $4.57 billion in October. "Speaking generally, exports have been the weakest link in recent data, and the direction exports take will be key for economic recovery," said Jun Kawakami, market analyst at Mizuho Securities. Meanwhile, sentiment in Japan's service sector improved in November, according to a Cabinet Office survey. Xinhuanet.com (China) (12/10), The Wall Street Journal (tiered subscription model) (12/10), Reuters (12/10)
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China's November trade figures show weakness
Only a day after the release of an array of strong economic figures, China reported a weak gain in November exports, highlighting the continued risk to China's economy posed by external factors in a still-struggling global economy. Exports were up 2.9% from a year before, a marked falloff from October's year-on-year gain of 11.6%, while imports were flat. Caijing Magazine online (12/10), The Wall Street Journal (tiered subscription model) (12/10)
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China's new leader strongly signals commitment to liberalization
Xi/Reuters
In a trip rich with symbolic meaning, Xi Jinping, China's new leader, visited Shenzhen, the country's pioneer zone for economic reform, signaling Xi's commitment to extend the country's liberalization. Honoring former leader Deng Xiaoping, Xi told a small crowd that "the decision the party's central leadership made about opening up and reform was correct. Hereafter, we will still go down this correct road." The Wall Street Journal (tiered subscription model) (12/9)
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OECD leading indicators point up for U.K. economy
Although fears of a triple-dip recession in the U.K. are growing, the Organization for Economic Co-operation and Development says its composite leading indicators point to a firming British economy. The indicators in the past have proved accurate in describing economic conditions six months in advance. The Telegraph (London) (tiered subscription model) (12/10)
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As French economy struggles, business confidence ebbs
Adding to signs the French economy might be slipping back into recession, a measure of business sentiment declined to 91 last month from a reading of 92 in October. "Clearly, things are not great, and the car industry in particular is a disaster. Consumer spending is depressed, and as long as the labor market remains unfavorable, confidence will remain weak," said Dominique Barbet, an economist at BNP Paribas in Paris. Bloomberg Businessweek (12/10)
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Index points to slower U.S. jobs growth
Although the latest figures show a decline in the U.S. unemployment rate, the Conference Board's Employment Trends Index predicts a slowing job market over the next few months. "Employment growth typically lags economic growth, and with the economy expected to decelerate in the current quarter and early 2013, a slowdown in employment won't be far behind," observed Gad Levanon, director of macroeconomic research at the Conference Board. Bloomberg Businessweek (12/10)
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CFA Institute survey more optimistic for '13, especially for U.S. equities
Reuters
The CFA Institute's annual survey of investors on the global outlook points to a good year for equities, particularly in the U.S. Caution, however, was still expressed in regard to an unsettled situation in Europe and in light of sharply divided opinion over China's prospects. The Wall Street Journal (tiered subscription model) (12/10)
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Investment professionals are cautiously optimistic about the global economy in 2013, but ethical culture within financial firms needs to be addressed. Click here to view and download the full report.
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Market Activities
INTERNATIONAL MARKETS OVERVIEW
European and U.S. stocks edged higher Monday, with the exception of Italian bank stocks, which took a hit after Prime Minister Mario Monti's announcement that he intends to step down. The Stoxx Europe 600 ended the day 0.14% higher at 279.55, and the S&P 500 was up a scant 0.03% at 1,418.55. Here is a continuously updated list of global stock indexes. The Wall Street Journal (tiered subscription model) (12/11), The Wall Street Journal (tiered subscription model) (12/10), CNNMoney (12/10)
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Better numbers out of China, U.S. cheer Asian markets
Stronger economic numbers reported Sunday by China and improving employment figures in the U.S. lifted Asian shares Monday. The Nikkei edged up 0.07% to 9,533.75, the Hang Seng added 0.39% to 22,276.72, the Kospi was unchanged at 1,957.42, and the S&P/ASX rose 0.13% to 4,557.90. MarketWatch (12/10)
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Economic Trends & Outlook
No Indian rate cut is expected this month
India's central bank is likely to reduce banks' cash reserve ratio by a quarter of a percentage point next week but leave interest rates untouched until at least January, Bank of America Merrill Lynch predicts in a report. "We expect the RBI to resume cutting rates only from January -- 75 basis points till July -- once inflation peaks off. ... [However,] "RBI rate cuts will not transmit into lending rate cuts unless the liquidity situation improves," the report said. The Hindu Business Line (India)/Press Trust of India (12/10)
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U.S. sees India rising as China levels off
Reuters
Between now and 2030, India's rate of economic growth is likely to grow as China's fades, elevating India to the status of economic powerhouse that China holds today, according to a report by the U.S. National Intelligence Council. The report notes India's working-age population will continue to increase after China's peaks in 2016. The Economic Times (India)/Press Trust of India (12/10)
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South Korea again exceeds US$1 trillion in yearly trade
South Korea's total trade volume exceeded US$1 trillion for the first time last year and has done so again in 2012, according to the Ministry of Knowledge Economy. However, the final figure for this year is expected to be down somewhat from 2011. The Korea Herald (Seoul)/Yonhap News Agency (12/10)
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Taiwan exports rise slightly, with further small gains seen for 2013
Reuters
A modest 0.9% year-on-year gain in exports for Taiwan in November is likely to set the pattern moving into the new year, the Ministry of Finance says. A more robust pickup in exports is unlikely, just as "a patient with chronic disease cannot recover instantly," commented Yeh Man-tsu, the ministry's chief statistician. China Economic News Service (Taiwan) (12/10)
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Long, tricky transition to consumer-driven economy is seen for China
China's transition to a consumer-driven economy is no small task, likely requiring many years and the overcoming of many obstacles along the way, the Conference Board predicts. "The state-led, investment-driven growth model that has been driving growth for the last 30 years, closely related to exports, needs to diminish. The investment model relies on consumer savings, household savings and investment in real estate to survive. So you have this difficult shift where the investment model needs to be de-emphasized without slowing the economy too much and at the same time consumption drivers need to be enhanced," said the board's China expert, David Hoffman. The Business Times (Singapore) (12/10)
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Capital Markets & Financial Products
Yen-denominated emerging-market bond issuance jumps in 2012
Bonds denominated in yen -- so-called samurai bonds -- from emerging markets have surged this year, to US$7 billion so far, compared with last year's total of US$4.4 billion. Financial Times (tiered subscription model) (12/7)
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China regulator issues opinion amid Ponzi fears
Amid fears of an enormous Ponzi scheme, the China Banking Regulatory Commission says wealth-management products not issued by banks probably should remain in the shadow banking system while banks should provision for WMPs they issue. An investor protest last week raised concerns that loosely regulated WMPs could undermine China's financial system. AsianInvestor.net (12/10)
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Ethics & Standards
U.S. fines Standard Chartered $327 million
Reuters
Concluding an investigation into Standard Chartered's dealings with Iran and other nations, U.S. authorities announced the bank would pay a $327 million fine for sanction violations. The penalty relates to StanChart activities from 2001 to 2007. The Wall Street Journal (tiered subscription model) (12/10)
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