China offered to take concerted action to help financial stability of Europe, the countries of which are haunted by sovereign debt crisis since the beginning of 2010. European officials informed that Chinese vice premiere Wang Qishan gave assurances that China was ready to support European efforts for stabilisation, while speaking to the annual China-EU High Level Economic and Trade Dialogue on Tuesday, December 21, as per FT report.
Chinese spokesperson Jiang Yu is today quoted by BBC News as reiterating Chinese vice premiere’s pledge to support the EU to overcome debt crisis. China’s support majorly stems from bond purchases though it did not give specific details of its support. China has been buying bonds of most indebted countries of the Eurozone such as Greece, Ireland and Portugal. Many analysts are forecasting that Portugal may be the next Eurozone country to tap Eurozone stability fund. Spain’s debt costs are also on rise, prompting speculations over Spain’s ability to raise further bond funds.
China’s Prime Minister Wen Jiabao visited Greece in October. He promised to Greece that China would buy Greece bonds and increase their investments in Greece. Similarly, China’s President Hu Jintao toured Portugal in November. During his trip, he said China would take concrete measures to support Portugal that included bond purchases.
The reason for China’s enthusiasm to support EU’s financial stability is obvious. The EU is China’s largest trading partner. Two-way trade between China and the EU in first eleven months of this year stood at $434 billion and that is why Beijing is interested in regional stability. However, bond costs continued to rise during last three months even though China bought public debts of Greece and Portugal. Therefore, it is doubtful that China’s support to Eurozone would be transformed into the fiscal stability of Eurozone and the EU as a whole.
Article first published as Oil Prices Hit Post-Crisis Peak Levels on Technorati.
Oil prices are at its peak for the first time after the worst financial crisis since the great depression in1930s that erupted in September 2008 worldwide. Peak levels have been reached on both sides of the Atlantic Ocean i.e. in North America and Europe.
In Europe, Brent crude futures hit $91.58 per barrel while West Texas Intermediate in the US touched $89.35 per barrel, both being highest levels since the financial crisis of September 2008. However, these levels are well below the pre-crisis peak levels. Prior to the financial crisis, due to speculative bubble in House building sector, all commodities prices along with crude price were flying high in the sky. Brent Crude price was pushed up to $147.50 per barrel.
Factors of Crude Rally
There are several reasons that drove crude price to its peak level. Primary factors have been:
The relatively rising demand due to global recovery though not equalled with pre-crisis demand: This is a long-term factor assuming that a double dip does not occur. The US spent $1.7 trillion as part of “Quantitative Easing 1” that extended unemployment benefits, reduced tax rates for both corporates and consumers and increased liquidity in the market and absorbed toxic mortgage housing loans that became biggest impediment for post-crisis growth of the economy. In addition to this, the US government announced QE2 programme i.e. second stimulus programme in November to buy treasury bonds thereby releasing more printed dollars into the economy. Reports are coming that the Fed is thinking of increasing QE2 money, originally set at $600 billion. If that happens, prices of all commodities including crude oil will increase further.
Cold weather in Europe: This is a short-term factor, which will last up to the end of winter season. All European countries are shivering with cold weather spread across Europe continent. Cold weather increases the consumption of fuel, which in turn increases fuel prices as demand increases.
The leading economies of the Europe have slowed down in third quarter like the US. The economists and analysts have been in alert mode since it became known that the US growth was slowing down in second half. It is interesting to see these analysts are not worried that much for Europe’s slow growth in second half of 2010.
Europe’s largest economy, Germany is estimated to record a sharp decline in its growth to 0.7% in third quarter comparing with its second quarter growth of 2.3%, which is revised upwards from 2.2%, the previous figure. France GDP growth declined from 0.7% in second quarter to 0.4% in third quarter. Italy’s growth declined to 0.2% from 0.5% of second quarter.
The Eurozone countries grew by 0.4% on average which is a sharp decline from its second quarter average growth of 1%. Last month it was revealed that the UK grew by 0.8% in third quarter, less than 1.2% of second quarter. The US is expected to grow by 0.5% in third a slight increase from its second quarter figure of 0.4%. Japan grew in second quarter by 0.4%, which declined from 1.2% of its first quarter growth figure. Its third quarter figure is not yet released.
Reuters | Oct 15, 2010 | 6:46pm IST
U.S. Federal Reserve Chairman Ben Bernanke said on Friday that high unemployment and low inflation point to a need for a further easing of U.S. monetary policy, but he offered no details on the central bank’s next step. "There would appear — all else being equal — to be a case for further action," Bernanke said at a conference sponsored by the Boston Federal Reserve Bank.
He said a prolonged period of high unemployment could pose a risk to the recovery’s sustainability and said the low level of inflation meant the risk of a dangerous downward slide in prices was greater than desirable. However, he said policymakers were still weighing how aggressive they should be. The U.S. dollar fell against the euro and yen on Bernanke’s remarks, and stock index futures turned positive. Prices for U.S. government debt rose, but only briefly.
Since the U.S. recovery began showing signs of fading over the summer, the Fed has steadily built up expectations that it would renew its large-scale asset buying to support growth. Most economists expect around $500 billion in easing before the end of the year, a Reuters poll showed.
Bernanke said that while the central bank, which pushed overnight interest rates to zero in December 2008, has the tools to ease financial conditions further, it still needed to proceed cautiously. "Nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used," he said.
The central bank’s previous program of bond buying succeeded in lowering borrowing costs, but adding to the Fed’s already enlarged balance sheet has risks and it is hard to calibrate the scope of any further purchases, the Fed chief said. The U.S. dollar has hit its lowest level of the year against a broad basket of currencies on expectations of further Fed easing, drawing the ire of
Reuters | Oct 14, 2010 | 8:18pm IST
The world economy is set to rely even more heavily on booming emerging markets like China and India next year, as recovery in rich nations from the worst financial crisis in generations, plods on, Reuters polls showed. The consensus from more than 500 economists polled across the Group of Seven industrialised nations and Asia found them less optimistic about recovery in the U.S., but forecasting robust growth in China and India next year.
Global GDP is expected to grow by a robust 4.6 percent this year from a consensus of 4.2 percent just three months ago, driven by emerging markets, but will then slow to 4.0 percent in 2011, according to the poll. A series of policy tightening moves and interest rate hikes in those fast-growing economies stands in stark contrast to unanimous expectations that the Federal Reserve is about to embark on a new round of asset purchases.
The Reuters consensus is now for a new round of quantitative easing (QE), starting in November and worth $500 billion, an attempt to reinvigorate a recovery that has quickly wilted leaving U.S. unemployment close to 10 percent. Expectations have also risen that the Bank of England will start a new round of asset purchases very soon, with analysts polled now split evenly over whether it will vastly expand its balance sheet.
Reuters | Sep 28, 2010 | 7:11pm IST
The slowdown in the global economic recovery is likely to persist into early 2011 and growth is set to fall short of IMF forecasts for the second half of this year, a senior IMF official said in a speech published on Tuesday.
"The global expansion likely will fall somewhat short of the 3.7 percent annual rate that we had anticipated previously for the second half of this year," IMF First Deputy Managing Director John Lipsky told the Depository Trust and Clearance Corporation Executive Forum on Monday.
Global growth reached an annual rate of 4.7 percent in the first half of the year, he said.
Article first published as Deflation Fears Linger for the US, Fed Data Shows on Technorati.
Market analysts are predicting that the US may have to face deflation for the coming one or two years. Consumer confidence has fallen to its 13-month low for August month.
Even though the consumer prices rose by 0.3 percent and food prices and energy costs have gone up consumer confidence dropped as they are generally ignored due to their volatility. Speculations are floating that the US Federal Bank may resort to large-scale debt purchases. Some analysts reject for such case saying the data was not so weak.
Reuters index of consumer sentiment dropped from 68.9 in August to 66.6 in September’s preliminary reading, Reuters said in a report (Go to consumer sentiment graph here). Despite encouraging results posted by Oracle Corp and RIM, the Fed data prevented the stock prices from raising that ended nearly flat.
Fed data showed that the household wealth came down by $1.5 trillion to 53.5 trillion due to high unemployment of 9.6 percent. The household wealth had reached its peak $64.2 trillion at the end of 2007 when the US economy began crumbling into recession.
Reuters | Sep 14, 2010 | 4:36pm IST
The yen hit a 15-year high versus the dollar on Tuesday after Japan’s Prime Minister Naoto Kan won a ruling party leadership vote, while concerns about a shaky recovery knocked global stocks off a 4-month peak. The euro fell against the dollar while euro zone bond prices gained as a sharp fall in German investor morale suggested the recovery in Europe’s largest economy is poised to lose momentum. In Japan, Kan’s victory over party heavyweight Ichiro Ozawa, who had made more strident calls to curb the yen’s rise, raised speculation that Japanese authorities would not intervene imminently. The yen firmed to 83.07 per dollar, its strongest since mid-1995.
European shares were steady while U.S. equity futures pointed to a slightly lower opening on Wall Street on nervousness that U.S. retail sales data at 1230 GMT could give another bleak picture of the U.S. economy. These concerns helped push the MSCI world equity index down 0.1 percent to 297.93. Earlier, the index had hit a four-month peak of 298.50 as stocks benefited from a wave of more optimistic sentiment generated by solid Chinese data and relief at new Basel III banking rules. "Trading in global equity markets is dominated by short-term views. Equity strength is fraught with dangers as investors are very fearful about what is around the corner," said Maurice Pomery, managing director at consultants Strategic Alpha. Investors’ search for safe-haven assets also set gold on track for its biggest one-day rise this month, while the dollar fell below parity versus the Swiss franc for the first time since December last year.
Article first published as Indiaâ€™s Q1 GDP Growth Results are Impressive, But Inflation is Still a Concern on Blogcritics.
It is widely believed that the Asian emerging economies are leading the world economy to recover from its worst crisis of 2007, since the ‘Great Depression’ of 1930s. After observing the GDP growth figure of 8.8% in the first quarter of FY 2010-11 (begins from April 2010 and ends in March 2011), it is understood that the expectations on India are not misplaced. The Planning Commission has released the data for Q1 last Tuesday. India’s GDP has grown by 8.8% from 8.6% of its previous quarter i.e. 4th quarter of previous financial year 2009-2010 despite partial withdrawal of stimulus measures. It is the highest growth rate since last quarter of 2006-07. The GDP growth of Asia’s 3rd largest economy after China and Japan is particularly notable because of the slow pace at which the GDPs of the developed economies like the US, Japan and the EU have grown in the same period.
As per the data released the robust GDP growth is driven by equally robust manufacturing sector growth that grew by 12.4 percent against 3.8 percent in the same period of last fiscal year. Agriculture and allied activities also fared well which expanded by 2.8% against 1.9% in Q1 of FY10. India’s Prime Minister Dr. Manmohan Singh has been advocating that agriculture sector has to grow by at least 4% for India’s GDP to grow by double digit figure. The Finance Minister Pranab Mukherjee expressed confidence that Indian GDP growth would register the targeted figure of 8.5%. The Deputy Chairman of the Planning Commission Montek Singh Ahluwalia is even more optimistic of GDP growth rate for the present fiscal surpassing the targeted figure of 8.5%.
Reuters | Aug 29, 2010 | 9:04am IST
The European Union thinks China has made only limited progress in allowing its yuan currency to move more rapidly, and swifter action would help safeguard a fragile economic recovery, according to a draft G20 document obtained by Reuters on Saturday. The document outlines EU positions ahead of a Group of 20 deputy finance leaders meeting in Kwangju, South Korea, Sept. 4-5. South Korea will host a G20 leaders’ summit in November. The 13-page document addresses issues including the economic outlook, governance of the International Monetary Fund, financial regulatory reform, and climate change. The draft was undated, and it was not clear whether EU officials had approved it.
The EU sounded somewhat upbeat on Europe’s economic prospects, but raised concerns about growing risks in the United States and Japan, the document shows. The draft also reflects some frustration with China’s slow progress in allowing its currency to appreciate. China announced in June that it would loosen its grip on the tightly managed yuan, which the United States and Europe say Beijing keeps artificially low to support exports. "A vigorous implementation of this policy is now necessary," the draft statement said. "Unfortunately, so far, only limited progress has been made." It said a stronger yuan would be in Beijing’s best interest because it would help prevent the Chinese economy from overheating and creating asset price bubbles.
Reuters | Aug 28, 2010 | 4:09am IST
U.S. Federal Reserve Chairman Ben Bernanke said on Friday the economic recovery has weakened more than expected and the Fed stands ready to act if needed to spur slowing growth. Bernanke downplayed concerns that the economy might slip back into recession, predicting a modest expansion in the second half of this year, with the pace picking up in 2011. Otherwise, he said the Fed has sufficient ammunition left and could support growth by purchasing more government debt or by promising to keep rates exceptionally low for a longer period than currently priced in by financial markets. Bernanke’s comments, in an address to an annual conference of global central bankers hosted by the Fed in Jackson Hole, Wyoming, came as the government reported the economic growth rate in the second quarter was weaker than it had originally estimated. Bernanke made clear that the U.S. central bank has not decided what would prompt additional easing. "The overall tone was one of watch and wait," Goldman Sachs economist Jan Hatzius wrote in a note to clients, "despite ongoing signs that U.S. economic activity has not only dropped below its potential growth rate but has a significant probability of weakening further."
While Bernanke focused on near-term issues in the U.S. economy, the head of the European Central Bank, Jean-Claude Trichet, also speaking at the Jackson Hole conference, addressed long-term global challenges. He urged governments and central banks to ensure that the transition from very high debt levels incurred in response to the global financial crisis and its economic fallout takes place in an orderly fashion and without compromising economic growth. "The primary macroeconomic challenge for the next 10 years is to ensure that they do not turn into another ‘lost decade,’" Trichet told the conference. In Japan, which has experienced decades-long stagnant growth, the Bank of Japan is examining holding an emergency meeting early next week to ease monetary policy as the strong yen threatens the country’s fragile economic recovery, a source familiar with the matter said. An emergency meeting may be held as early as Tuesday.
Growth in Japan’s economy slowed to a crawl in the second quarter and analysts see more weakness ahead. The government is considering new stimulus measures including boosting graduate employment and the corporate sector, Kyodo News Agency said late on Monday, after data that testified to slowing growth in Japan’s main export destinations such as the United States and China and a stimulus-driven domestic recovery that has petered out. Against a backdrop of concerted efforts to talk down the yen after it surged to a 15-year high against the dollar last week, quarterly gross domestic product grew just 0.1 percent. That was well below the median market forecast of 2.3 percent and the United States’ 2.4 percent annualised growth in the same quarter. It followed revised 4.4 percent annualised growth in the first quarter, when both exports and a stimulus-driven recovery in consumption contributed to overall growth.
In the April-June quarter the stimulus effects have worn off, leaving exports as the sole engine of growth and with its contribution to growth halved to 0.3 percent. Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa are expected to meet later this week o discuss possible policy responses. Citing government sources, Kyodo said the growth-boosting government measures are expected to include stimulating personal consumption of eco-friendly products, helping new graduates find jobs and revitalizing small and midsize companies, Kyodo quoted the sources as saying.
Bloomberg News | Aug 9, 2010 | 10:03 AM GMT+0530
Goldman Sachs Group Inc. cut its growth forecasts for the world’s two largest economies on signs that stimulus boosts will wane. Japan will grow 1.4 percent in 2011, compared with an earlier forecast of a 1.7 percent expansion, Tokyo-based senior economist Chiwoong Lee said in a report dated Aug. 7. Goldman last week lowered its projection of U.S. growth for the same year to 1.9 percent from 2.5 percent. A report today showed Japan’s current-account surplus narrowed for a second month as export gains cooled, adding to concerns that the recovery is losing steam. Government incentives that have bolstered spending at home are wearing off, with economists forecasting second quarter gross domestic product grew at half the pace of the previous period.
“We expect signs that growth is slowing to gradually emerge in line with the disappearance of the government stimulus boost both in Japan and abroad,” Lee wrote in a separate report dated today. “The U.S. economic recovery has lost a considerable amount of its momentum.” Japan will experience a “significant falloff” in consumer spending, which has so far been propped up by government measures, according to Lee. He noted that there is “little chance” Prime Minister Naoto Kan will extend a program scheduled to expire in December that encourages household to buy energy-efficient electronics. Continue reading
Bloomberg | Jul 31, 2010 | 2:29 AM GMT+0530
Nomura Holdings Inc., one of the 18 primary dealers that trade with the Federal Reserve, said policy makers will “ease” at their Aug. 10 meeting, though what form it takes is debatable. Central bankers may change the language of their policy statement to signal that the Fed’s balance sheet will remain expanded and change policy on the mortgage program to start reinvesting paydowns, the firm said in a note to clients today. There is also a chance of other actions, such as a cut in the rate on excess reserves, Nomura’s global economics team said. Nomura changed its viewpoint because of a softening of the comments from policy makers such as Philadelphia Fed President Charles Plosser and St. Louis Fed President James Bullard. The firm also cited the Fed’s downward revision for growth and the slack in the economy that threatens to push inflation to an unacceptably low level for Fed Chairman Ben S. Bernanke.
“Easing is going to be very seriously considered given several months of disappointing data and the very dovish tone of public commentary across the spectrum,” said Zach Pandl, an economist at Nomura Securities International in New York. “If the Fed is averse to buying more assets, then cutting the rates of interest on reserves could be the next option.” Bullard said yesterday that the central bank should resume purchases of Treasury securities if the economy slows and prices fall rather than maintain a pledge to keep rates near zero.