Economy Highlights

Euro - Euro region may shrink on unrest, FX concepts says

Some nations may leave the euro bloc as the sovereign-debt crisis results in political unrest and voter anger, FX Concepts LLC Chairman John Taylor said.“We’ll have a smaller euro, a more cohesive euro and a more rational euro because some of these countries should not be in there,” Taylor said at the Bloomberg European Debt Briefing conference hosted by Bloomberg Link in New York today. “The catalyst will be political rather than economic. Not political at the elite level but rather political at the street level. Maybe it will take a decade or two.” (Bloomberg)


US - Fed to pursue QE even as business lending gains

The Federal Reserve will probably push forward with USD600bn in securities purchases even as the biggest jump in business loans in more than two years adds to signs the U.S. economy is gaining strength. Commercial and industrial loans increased at an annual rate of 7.6% last month, the largest gain since October 2008, according to Fed data. Total bank credit has risen in three of the past six months as business loans cushioned against declines in real estate and consumer credit. (Bloomberg)

UK - Economy shrinks by shock 0.5%

Britain's economy shrank by a shock 0.5% in the fourth quarter of 2010, dashing expectations for growth, as freezing weather sparked the first contraction since 2009, data showed Tuesday. GDP fell 0.5% in the three months to December, after expansion of 0.7% in the third quarter, the Office for National Statistics (ONS) said in a statement giving its initial estimate. That was the first drop since the third quarter of 2009 and confounded expectations for modest growth of 0.4% in the fourth quarter, according to analysts polled by Dow Jones Newswire. (Business Times)


India - Central bank raises key interest rates

India’s central bank raised key interest rates yesterday by a quarter point each, as expected, in a bid to clamp down on resurgent inflation and warned that higher food prices could become entrenched if steps to boost output are not taken. The increase in key rates was the seventh since March, and while the 25 basis point rises were expected, a growing number of analysts had said in recent days that a 50 basis point increase was needed. The RBI raised its repo rate, at which it lends to banks, to 6.5% from 6.25%. It lifted the reverse repo rate, at which it borrows from banks, to 5.5% from 5.25%. (StarBiz)



US - Confidence increases more than forecast

Confidence among US consumers rose more than forecast in January, reaching an eight-month high, as the outlook for jobs brightened. The Conference Board’s sentiment index increased to 60.6 from 53.3 the prior month, figures from the New York-based private research group showed today. Another report showed home values dropped in November by the most in a year. Growing optimism, an improving labor market and tax relief may combine to help spur consumer spending, which accounts for about 70% of the economy. (Bloomberg)

Economy Highlights

US - 10-Year yields rise by most in 6 weeks on economic outlook

Treasuries fell, pushing up 10-year note yields the most in six weeks, as economic reports in the US and Europe bolstered speculation the global recovery is building momentum and damped government debt’s refuge appeal. Thirty-year bond yields rose to an eight-month high after European officials pledged to strengthen the safety net for debt-strapped countries and a record sale of US inflation- linked notes drew lower-than-average demand. The Treasury will sell USD99bn of notes next week as the Federal Reserve meets and President Barack Obama gives his State of the Union speech. (Bloomberg)


US - Economy speeds up on spending gain

The economy in US probably grew at a faster pace in the fourth quarter, driven by the biggest gain in consumer spending in four years; economists projected a report this week will show. GDP rose at a 3.5% annual pace, up from a 2.6% rate in the previous three months, according to the median estimate of 67 economists surveyed by Bloomberg News before a 28 Jan Commerce Department Report. Other data may show business investment remained a pillar of the economic rebound, while home prices decreased. (Star Biz)


China - Rural incomes surge in boost for consumption

China’s 10.3% economic growth last year drove the biggest increase in the nation’s rural incomes in a quarter century, bolstering efforts to spur consumption in the world’s most populous nation. In the countryside, per capita net income rose 10.9% to RMB 5,919 (USD898), a statistics bureau report showed. The gain was faster than for urban incomes for the first time since 1997. The report also showed acceleration in retail sales and industrial production at the end of last year. (Bloomberg)


Japan - Set to miss bond sale target, government says

Japanese Prime Minister Naoto Kan is projected to break his fiscal promise of capping bond sales as he struggles to secure revenue, boosting the case for higher taxes to contain the world’s largest public-debt burden. Japan’s new bond sales will expand to JPY 46.7trn (USD563bn) in the year starting April 2012, surpassing Kan’s target of JPY 44.3trn, according to calculations by the Cabinet Office. Breaking his year-old spending pledges may push up government borrowing costs of around 1.2%. (Bloomberg)

China Q4 GDP growth speeds up, Dec inflation eases

BEIJING: China's annual gross domestic product growth sped up in the fourth quarter to 9.8 percent from 9.6 percent in the third quarter, the National Bureau of Statistics (NBS) said on Thursday, Jan 20, defying expectations for a slowdown.

Consumer prices rose 4.6 percent in December from a year earlier, slowing from a 28-month high of 5.1 percent in November.

Economists had forecast fourth-quarter growth of 9.2 percent and 4.4 percent inflation in December.

The CPI rose 0.5 percent in December from the previous month after a 1.1 percent month-on-month rise in November. This figure is not seasonally adjusted.

Giving a breakdown of CPI, the NBS said food prices rose 9.6 percent in the year to December, while non-food prices were up 2.1 percent from a year earlier.

The Producer Price Index rose 0.7 percent between December and November after a 1.4 percent rise in November.

GDP in 2010 totalled 39.798 trillion yuan ($6.045 trillion).

Urban per-capita disposable incomes were up 7.8 percent from a year earlier in real terms in 2010; real rural per-capita cash incomes were up 10.9 percent. - Reuters

Japan corp mood up, seen steady ahead-Reuters Tankan

TOKYO: Japanese manufacturing confidence improved in January for the first time in three months, a Reuters poll showed, in a sign the economy is likely to start picking up after a small contraction expected in the final quarter of 2010.

The yen's slight pullback from 15-year highs and expectations for recovery in the United States helped ease some concerns about business conditions, with the mood of manufacturers seen remaining firm over the next three months, the monthly Reuters Tankan showed on Thursday, Jan 20.

Service-sector firms became the least pessimistic since June 2008 and their sentiment is seen edging up further in April, according to the poll of 400 large firms, of which 230 responded, taken Jan. 4-17.

The monthly poll, which has a 95 percent correlation with the Bank of Japan's closely watched quarterly tankan survey, showed a turnaround in corporate mood from last month when manufacturers were increasingly wary about the outlook due to a strong yen and slowing exports.

The reading from the Reuters Tankan chimes with the view shared by the central bank and private-sector economists that the Japanese economy will resume a moderate recovery this year on the back of exports, particularly to emerging markets.

But companies also voiced concerns about rising commodity prices, sluggish demand at home, stubborn deflation and a strong yen, which squeeze their profits.

In the Reuters Tankan, the manufacturing sentiment index, derived by subtracting the percentage of pessimistic respondents from optimistic ones, rose four points from December to plus 11 -- half a recent peak of plus 22 hit in August -- and is seen remaining unchanged over the next three months.

The mood of non-manufacturers grew 10 points to minus 2, its highest reading since June 2008 and is seen climbing to minus 1, although this is still below zero, meaning pessimists have outnumbered optimists since 2008.

"In Japan we face a decline in demand in reaction to the expiry of government subsidies for low-emission auto purchases, but we are doing relatively well in emerging economies," a transport equipment producer said in the survey.

An electric machinery maker said: "We can expect growth in Asia, but the economic outlook in developed countries remains unclear. On top of this, a strong yen is taking root."

In the last BOJ tankan in December, manufacturers' business sentiment worsened for the first time in nearly two years and they expected the situation to deteriorate further over the next three months.

While the Reuters Tankan has a close correlation with the BOJ tankan, the two surveys target different types and numbers of sample firms.

The BOJ last year cut interest rates effectively to zero and set up a 5 trillion yen ($60 billion) pool of funds to buy assets ranging from government bonds to private debt, aiming to support a fragile economy and pull Japan out of deflation.

At its next rate review on Jan. 24-25, the central bank is expected to make minor tweaks to its growth forecasts but will stick to its view that the economy will resume a moderate recovery later this year, according to sources familiar with the BOJ's thinking. - Reuters

Japan - REITs seen doubling down as bond spreads narrow

Japan’s real estate investment trusts may double property purchases in the next fiscal year to JPY 1trn (USD12bn) by boosting bond sales amid the lowest borrowing costs in three years, Credit Suisse said. The extra yield investors demand to lend to Japanese real estate firms instead of the government has fallen to 26 basis points, or 0.26% point, on 17 Jan this year from 230 in April 2009. The comparable premium for US REITS has narrowed to 199 basis points from 1,079 in the same period, according to Bank of America Merrill Lynch Global Bond Indices. (Bloomberg)

Indonesia - Rating raised by Moody's to 13-year high

Moody’s Investors Service upgraded Indonesia’s foreign and local-currency bond rating to Ba1 from Ba2, the highest level since the 1997 Asian financial crisis, citing the nation’s “economic resilience” and improving public debt position. That’s still one step below investment grade and puts Indonesia on par with Greece, which was placed on review for a possible downgrade by Moody’s last month. Moody’s also commented that the rating’s outlook is “stable.” S&P lifted Indonesia’s sovereign credit rating to BB from BB- last year, two levels below investment grade, with a positive outlook. (Bloomberg)

China - December property prices rise for 19th month

China’s real estate prices rose for a 19th month in December, raising concerns that the government will expand curbs to limit the risk of asset bubbles in the world’s fastest-growing major economy. Prices in 70 cities rose 6.4% in December y-o-y, the smallest increase in 13 months. Prices gained 0.3% m-o-m. Investment in real-estate development rose 12% to RMB557bn y-o-y while full-year investment climbed 33% to RMB4.83trn. Property sales increased 22% to RMB1.02trn, with 218 million m2 of real estate sold, a 12% gain y-o-y. (Bloomberg)

Singapore - Export growth slows as best year since 2003 ends

Singapore’s exports rose at a slower pace in December, ending a year in which shipments jumped the most since 2003 as the global economic recovery boosted demand for the island’s goods. Non-oil domestic exports climbed 9.4% y-o-y, after a revised 9.9% gain in November. Shipments rose about 23% in 2010, the most in seven years. Electronics shipments fell 1.1% in December y-o-y to SGD5.2bn after a 10.8% gain the previous month, the first decline in more than a year. Non-electronics shipments, which include petrochemicals and pharmaceuticals, gained 16.2%. Pharmaceutical shipments dropped 2.8% after falling 34.2% in November. (Bloomberg)

Australia - December annual inflation gauge increases 3.8%

A gauge of Australia’s inflation remained above the central bank’s target range for a fourth straight month, led by higher costs for fruit, vegetables and fuel. Consumer prices increased 3.8% last month y-o-y, after advancing 3.9% in November, according to an index compiled by TD Securities Ltd and the Melbourne Institute. Prices increased 0.2% m-o-m. The survey was taken before floods devastated parts of northeastern Australia, which may force the Reserve Bank of Australia to accept higher inflation in the short term as food and commodity costs rise and growth slows in the disaster zone. (Bloomberg)

Malaysia - Bank Negara expects 7% GDP growth in 2010

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz expects the Malaysian economy to grow in the region of 7% for 2010. She said while the external sector may be affected by the slower global growth, the growth momentum of domestic demand is projected to be sustained this year. She expects overall growth to remain strong this year, albeit at a more moderate pace. Zeti also called for greater vigilance on the part of the policymakers in the region. (Financial Daily)

EU - ECB keeps rate at 1% as crisis tests monetary policy

The European Central Bank kept interest rates at a record low as the sovereign debt crisis widens economic divergences within the euro area, straining the bank's one-size-fits all monetary policy. The ECB's Governing Council set the benchmark rate at 1% for the 21st month, as predicted by all 53 economists in a Bloomberg News survey. (Bloomberg)

China - Inflation may ease pressure on yuan at Hu-Obama summit

Rising inflation in China that is causing headaches for President Hu Jintao at home may help relieve tensions with the US over the yuan as he prepares to meet President Barack Obama in Washington next week. Prices are climbing faster in China than in the US, making Chinese goods less competitive, Treasury Secretary Timothy F. Geithner said. Chinese officials may also seek to speed up gains in the currency, also known as the renminbi, to fight inflation, lowering the cost of imported US goods such as Boeing Co. aircraft and Microsoft Corp. software. (Bloomberg)

India - To Import onions from Pakistan as inflation set to climb

India will import 1,000 tonnes of onions and kept a ban on export of edible oils and lentils to cool prices, ahead of a report that may show inflation accelerated last month. The benchmark wholesale-price index probably gained 8.4% in December 2010, the median forecast of 30 economists in a Bloomberg News survey showed. The gauge rose 7.48% the previous month. (Bloomberg)

Taiwan - Inflation unexpectedly slowed in December

Taiwan’s consumer price growth unexpectedly slowed in December for the first time in four months as the gain in food prices moderated. The consumer price index increased 1.25% from a year earlier, compared with a revised 1.52% climb in November, the statistics bureau said. The median estimate in a Bloomberg News survey of 12 economists was for a 1.75% gain. (Bloomberg)

India & Australia - Manufacturing growth slows

India’s manufacturing growth slowed to a three-month low in December. The purchasing managers’ index fell to 56.7 from 58.4 in November. Any data above 50 indicates expansion. The reading has exceeded 50 since April 2009, showing that consumption is holding up amid the monetary policy tightening. Merchandise exports rose 26.5% to USD18.9bn in November y-o-y while imports gained 11.2% to USD27.89bn. Meanwhile, Australian manufacturing contracted in December for a fourth month to 46.3 from 47.6 as higher borrowing costs curbed consumer spending. (Bloomberg)

Singapore - Economy rebounds after manufacturing surge

Singapore’s GDP rose an annualized 6.9% in the three months through 31 Dec. Manufacturing rose 28.2% y-o-y after gaining a revised 13.8% in the previous quarter. Services grew 8.8% y-o-y, after climbing a revised 10% in the third quarter. Construction shrank 1.2%, compared with a 7.1% increase last quarter. (Bloomberg)