Early Headlines: IMF Warns On Hikes Again, Third Wave Of Deflation, Growth In Vietnam, China Local Gov Debt A Concern, China Cuts Army And More

Written by John Lounsbury

Early Bird Headlines 03 September 2015

Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.

Global

• Asian stocks rise amid China holiday, get Wall Street perk (Associated Press) In the middle of the day Thursday Asia/Pacific stocks were mixed but more higher than lower higher, benefiting from a China market holiday and a late day rally in New York. Japan’s Nikkei 225 was up 1.4% to 18,350.85 and South Korea’s Kospi gained 0.1% to 1,916.93. Stock markets in Southeast Asia also rose while Australia’s S&P/ASX 200 shed 1.1% to 5,046.50. New Zealand’s benchmark also fell. Taiwan’s benchmark added 0.6% to 8,086.10.

• IMF warns against rate rises by leading economies (Financial Times) The IMF (International Monetary Fund) today urged the world’s leading central banks to refrain from raising interest rates when risks to growth were mounting. The message was directed toward the most powerful central bankers and finance ministers traveling to Ankara for a Group of 20 meeting this weekend. The IMF said that the performance of the majority of economies is falling short of expectations held at the beginning of the year.

• World faces third deflationary wave (Financial Times) The world economy is bearing the brunt of a third deflationary wave in less than a decade. The first was the US-led housing and financial crisis of 2008-9, the second wave was the eurozone crisis of 2011-12, and now a third, an emerging markets crisis.

• Welcome to Quantitative Tightening as $12 Trillion Reserves Fall (Bloomberg) Shrinking of reserves means much less money flowing into the financial system given authorities tended to recycle their cash piles into local currency or liquid assets such as bonds. In the past 12 months global reserves have diminished by about 5% which amounts to a quantitative tightening. A 5% decline may not seem like much but is a change of trend. For the past two decades global reserves have been growing, and at times rapidly (quantitative easing). For markets, Deutsche Bank says less reserve accumulation should mean higher bond yields and a rising dollar against rivals including the euro and yen. There are implications too for other central banks if the resulting rise in market borrowing costs hampers their ability to tighten monetary policy. It is expected that this new trend will mean that “[t]he path to ‘normalization’ will likely remain slow and fraught with difficulty”.

U.S.

• In Alaska, Obama becomes 1st president to enter the Arctic (Associated Press) Obama’s visit to Kotzebue, a town of some 3,000 people in the Alaska Arctic, was designed to snap the country to attention by illustrating the ways warmer temperatures have already threatened entire communities and ways of life in Alaska. He said, despite progress in reducing greenhouse gases, the planet is already warming and the U.S. isn’t doing enough to stop it.

UK

• Northern England needs £50bn to close gap with south, says report (Financial Times) Per capita infrastructure expense in the industrial north of England is far less than in London and an increase of £33 billion just in that area is needed to level the playing field. Also mentioned in the report by IPPR North, supported by professional services from KPMG: The North receives just 7% of government research funds despite providing 19% of GDP.

Vietnam

• Vietnam’s Top Priority For Economic Development (It’s Private) (Forbes) Hat tip to Rob Carter. Growth in the Vietnamese economy comes largely from private sector companies. The government is committed to privatization and thus far about 1,000 government owned companies remain of the 10,000 in the early 1990s. But the government still has partial ownership in 3,000 companies and further privatization will proceed at a slower “systematic” rate. An impediment for private investment is the ownership of land is 100% ny the government. Firms lease land for periods ranging from 30 to 90 years which adds a level of business risk. As the Chinese economy slows there will be more pressure on Hanoi to increase home-grown growth.

India

• Manufacturing PMI falls in August (The Hindu) Tthe manufacturing PMI (Purchasing Managers’ Index) fell to 52.3 points in August, down from a six-month high of 52.7 in July. This follows a poor showing in the Index of eight core industries for the month. But the index remained comfortably in the expansion zone above 50 and important components were strong: New orders index, new export orders index and the overall output index registered increases albeit at a slower pace than the previous month.

China

• China flexes muscles with World War II military extravaganza (CNN) In the midst of the display of military might, Chinese President Xi Jinping unexpectedly pledged to cut 300,000 troops from the 2.3-million strong military. That would be a 13% cut.

• China blame game spooks investors (Financial Times) China’s efforts to apportion blame for its stock market rout have unnerved many of the foreign investors Beijing has spent years trying to court and left analysts and investors increasingly wary of provoking Beijing’s anger. See also next article.

• China should welcome its short sellers (Financial Times) When the UK and U.S., banned short selling of shares in banks and brokers in 2008 it did not help – in fact, it did more harm than good for both buyers and sellers. Stocks fell as much as they would have done, but liquidity suffered, it became more expensive to trade and regulators further damaged their reputations.

• Moody’s raises red flag over China’s public finances (CNBC) There is concern about the continuing growth of China’s local government debt. Moody’s Investors Service notes that China’s regional and local government (RLG) debt pile grew by more than one-third between June 2013 and end-2014, citing official data. Moody’s underlying concern is that debt levels are rising against a backdrop of falling revenues, potentially making it more difficult for RLGs (regional and local governments) to fulfill their repayment obligations. Other China watchers are not concerned, however. They point out that total government debt (central, regional and local) is a manageable 61% of GDP.

• China central bank sets reserve requirements for all FX derivatives: document (The Business Times) China is making a move to reduce volatility in the yuan renminbi. China’s central bank will require reserves to be set aside for purchases of all currency derivatives starting in October, according to a document seen by Reuters, as Beijing moves to make it more expensive to bet on further depreciation of the yuan.

Australia

• Jitters as Australian economy grows by just 0.2% in June quarter (The Guardian) The quarterly growth figure is half the expected rate, dragged down by reduced mining and construction activity and export woes. Oz is trying to hang on to its astonishing 24+ years span without a recession.