Wednesday, October 19, 2005

BOJ believes deflation will end by start of 2006

Kazumasa Iwata, deputy governor of the Bank of Japan, said the central bank believed that year on year changes in consumer prices would be zero or rise slightly by the year end for the first time in seven years. “ As a trend, year on year rises in CPI will move higher”. This is big news in Japan. Deflation has been a staple in its economy since the bursting of the asset bubble in the early 1990’s. Policy makers have struggled to find a solution to deflation and seem confident that the end of this cycle is near. After Mr Iwata’s testimony, the banks policy board released its minutes in which it was revealed that the entire 9 member board felt confident in this assessment. Currently the CB is committed to a so called quantitative easing (flooding the market with excess liguidity), but sees in the near future an end to this policy also. All in all good news for Japan.

Monday, October 17, 2005

China under "presure" once again

Chinese President Hu Jintao, was again under pressure from the West to let the Yuan strengthen. French Finance Minister Thierry Breton said on Saturday that "The renminbi is today undervalued". In spite of the continued pressure from the West at the G20 meetings this weekend it was oil that took the spotlight. The outcome was that more had to be done in the spectrum of investing in refining and investing in renewable energy. Clearly the high energy prices we are seeing are taking a toll on the global economy. I am looking for a slowdown in the U.S. (and therefore the world) economy in the next 6-9 months. In the near term U.S. rates will continue higher and therefore the dollar should do better (especially against Asian currency's).

Sunday, October 16, 2005

Refco suspends Chief executive

Refco, the securities and futures broker suspended its chief executive, Phillip Bennett, amid allegations that he used a hedge fund to hide $430m in debt. This has caused Refco to suspend its capital markets operations as well as hire outside advisors, including Goldman Sachs, to help to shore up confidence and stop customers from exiting the firm.
According to one Chicago futures broker, panic had set in after news emerged of the arrest of Mr. Bennett. “There is a general exodus of client money”. This is clearly not good news for Refco that generates nearly 60% of its income from its capital markets area.

Monday, October 03, 2005

ISM Higher then expected

The ISM Manufacturing Survey for September printed 59.4, higher than expected and the highest result for the year. The subcomponents were strong across the board, particularly New Orders and Production. The Prices Paid component shot up to 78.0 from 62.5 in August, probably on the back of higher energy prices. Before the hurricane, the economy had considerable momentum behind it and the Chicago PMI and ISM Manufacturing Index show that the economy is bouncing back from the hurricane. The 59.4 print for ISM Manufacturing is consistent with real GDP growth of just under 5.0% y/y. We are sticking with our 3.6% growth forecast for Q3 as consumption is likely to contribute less to the total because of higher energy prices. The first estimate of Q3 GDP will be released October 28. Brazil posted a trade surplus of USD4.3bn in September, up from USD3.67bn in August. Year date, the trade surplus has been USD32.7bn.