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.