Sharp eurozone budget cuts counterproductive, OECD warns | White House says budget talks still under way, deal likely | U.S. capital goods orders up strongly
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November 28, 2012
CFA Institute: Financial NewsBrief - Aisa Pacific Edition
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New aid for Greece is agreed to on third try
Juncker/Reuters
The latest attempt to bail out the Greek economy won agreement on the third try among international lenders Tuesday, clearing the way for €34.4 billion in aid. Looking ahead, analysts say the deal implicitly recognizes that some form of debt restructuring and forgiveness is likely in the longer term. Financial Times (tiered subscription model) (11/27), Reuters (11/27)
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Sharp eurozone budget cuts counterproductive, OECD warns
Austerity-inspired spending cuts across the eurozone are stifling economies, the Organization for Economic Cooperation and Development warns, calling for moderation in attempts to rein in deficits during a double-dip recession. "If the situation deteriorates further, those countries with fiscal space should use it, by possibly adding some stimulus or further discretionary easing if need be," said OECD chief economist Pier Carlo Padoan. Reuters (11/27)
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White House says budget talks still under way, deal likely
Denying earlier Republican remarks indicating U.S. budget talks had stalled, the White House said Tuesday that a deal remains within reach and negotiations are proceeding. An administration spokesman also said the White House rejects suggestions by some Democrats that the deadline to avert sharp spending cuts and tax increases be allowed to pass. Fox Business/MarketWatch (11/26)
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U.S. capital goods orders up strongly
Reuters
U.S. core capital goods orders jumped 1.7% in October. It was the biggest increase since May, but economists said such gains might not be sustained if Congress and the White House fail to reach a budget deal by year's end. The Washington Post (tiered subscription model)/The Associated Press (11/27), Reuters (11/27)
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With a caveat, OECD projects strong 2013 for China, Asia
With a strong cautionary note due to the threat posed by the eurozone crisis, the Organization for Economic Cooperation and Development predicts 8.5% growth for China's economy next year, down from an earlier projection of 9.3%. Elsewhere in Asia, Japan is seen slowly emerging from a deflationary cycle, albeit with a huge debt overhang, while the region as a whole is expected to be a performance standout globally. China Daily (Beijing) (11/28), The Wall Street Journal (tiered subscription model) (11/27)
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U.K. confirms robust 1% third-quarter growth
U.K. third-quarter growth was confirmed at 1%, the country's best performance since 2007, according to the Office for National Statistics, which noted that the result was boosted by the London Olympics and other one-time factors. The near term, however, isn't so rosy, "with the eurozone debt crisis continuing to hit demand in the U.K.'s main export market, and with global business confidence at a post-crisis low," said Chris Williamson, chief economist at Markit in London. Bloomberg Businessweek (11/27)
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INTERNATIONAL MARKETS OVERVIEW
A new debt deal for Greece sparked an upturn in European markets Tuesday, but U.S. shares declined amid conflicting reports of progress in budget negotiations. The Stoxx Europe 600 rose 0.32% to 272.86, and the S&P 500 lost 0.52% to close at 1,398.94. Here is a continuously updated list of global stock indexes. The Wall Street Journal (tiered subscription model) (11/28), MarketWatch (11/27), CNNMoney (11/27)
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New eurozone optimism buoys Asian shares
Good news emerging from the eurozone on further aid for Greece helped boost stocks across most of Asia. The Nikkei rose 0.37% to 9,423.30, the Kospi was up 0.87% to 1,925.20 and the ASX added 0.74% to 4,456.80 while the Hang Seng edged down 0.08% to 21,844.03. In mainland China, however, the Shanghai Composite fell 1.30% to a three-year low of 1,991.17 as investor doubts mounted over the long-term growth outlook. Bloomberg Businessweek (11/27)
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Economic Trends & Outlook
Profits surge 20.5% in October for China's big industrial companies
Reuters
Sharply improving on September's performance, major Chinese industrial companies recorded 20.5% year-on-year profit growth for October. Over the first 10 months of the year, profits were up 0.5% from a year before. Caijing Magazine online (11/27)
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Moody's pegs India outlook as stable; Icra lowers GDP forecast
Warning about high deficits and stubborn inflation, Moody's nonetheless affirmed India's outlook as stable, citing firm growth and a strong savings and investment climate. Meanwhile, rating agency Icra lowered its 2012 estimate of Indian growth to 5.4% from 5.7%, noting "the absence of a pick-up in private investments." The Hindu (India) (11/27), The Economic Times (India)/Press Trust of India (11/27)
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OECD projects 3.1% S. Korean growth next year, improvement in 2014
The Organization for Economic Cooperation and Development sees 3.1% growth for South Korea in 2013 and a brighter 2014 with projected growth of 4.4%. However, near-term risks were noted, including "financial turbulence in the world economy, which in the past has negatively affected Korea both through trade and financial channels, although Korea is now better prepared for the latter." The Korea Herald (Seoul) (11/27)
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Poor global economy seen restraining Philippine growth
A sluggish global economy is likely to keep Philippine growth around 6% over the next two to three years, well below the 7% to 8% predicted by the government, economists said. Meanwhile, the National Statistics Office reported that Philippine imports in September reversed two months of decline, rising 3.6%. Business World (Philippines) (11/27), Business World (Philippines) (11/27)
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Capital Markets & Financial Products
Investors searching for safe havens might turn to South Korea's won
Reuters
With demand for strong currencies exceeding supply and an emerging economic focus on Asia, South Korea's won might soon emerge as a safe haven, a director at the Korea Center for International Finance predicts. "If the won becomes recognized as one of the safe-haven currencies, it would produce positive effects such as reducing fluctuations in the won-dollar foreign exchange rate and foreign capital flows to and from the local market. On the other hand, it could impose a burden on Korean exporters' competitiveness," the director said. MK.co.kr (South Korea) (11/27)
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China film companies plan IPOs for Shanghai exchange
Two major initial public offerings are in store from state-owned Chinese film conglomerates. China Film Co. and Shanghai Film Group Co. plan listings on the Shanghai Stock Exchange as they seek funds to acquire more theaters and expand production and distribution. China Daily (Beijing) (11/27)
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Regulatory Update
Muddy Waters sees echo of Enron in Singapore's Olam
Singapore-based commodity trader Olam International is likened to Enron, the spectacularly failed U.S. energy trader, in a report by research firm Muddy Waters. The report projects Olam will fail, with Muddy Waters founder Carson Block saying, "The problem is it's been burning cash the entire time it's been public, almost." For its part, Olam said there is "no substance" to the allegations. Bloomberg (11/27), The Business Times (Singapore) (11/27)
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China's CIC chief rips U.S. for over-regulation
Jin/Reuters
The head of sovereign wealth fund China Investment Corp. is accusing U.S. regulators of posing the gravest threat to global growth, with "over-regulation and inappropriate intervention." "There is a discrepancy: On the one hand, people cling to Western economic theories of free markets. On the other hand, the governments and the regulators in the West are tightening their control of capital flows," said Jin Liqun. AsianInvestor.net (11/27)
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6 Chinese banks to test capital strength under Basel III
Six Chinese banks have been selected to test their capital strength under Basel III by establishing their own models. Meanwhile, China's banking regulator will apply its own standard, the state-run China Securities Journal reported Tuesday. MarketWatch (11/27)
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South Korea acts on currency forwards as won advances
Citing recent gains by South Korea's won, the government said it is reducing the ceiling for foreign exchange forward positions by 25%. "We expect capital flows to expand in the future, given the country's relatively strong economic fundamentals and abundant global liquidity. We need to act pre-emptively on this possibility," the Finance Ministry said. Yonhap News Agency (South Korea) (subscription required) (11/27), Financial Times (tiered subscription model) (11/27)
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Taiwan to clear way for intraday trading
Plans to allow intraday trading of Taiwan stocks are in store as part of the Financial Supervisory Commission's stated "program for vitalizing the stock market." Allowing the purchase of stocks first before selling will save investors the fees they would pay for borrowing shares, noted Taiwan Stock Exchange Chairman Chi Shive. China Economic News Service (Taiwan) (11/27)
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Australian opposition seeks register of foreign debt holders
Calls are afoot in Australia for a detailed accounting of foreign holders of the country's debt. "With our nation's assets in high demand, it is about greater transparency, notwithstanding that bondholders are using a number of different vehicles to hide that transparency," said opposition shadow Treasurer Joe Hockey. The Wall Street Journal (tiered subscription model) (11/27)
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