US jobs machine keep stock market humming

World stock markets were mostly higher Friday as investors welcomed strong US jobs data which all but sealed a Federal Reserve rate hike next week.

Wall Street and most European equity markets traded firm in response to the American economy generating 235,000 new jobs in February, well above what economists had forecast.

This was the missing piece of the puzzle Fed watchers were waiting for to make tighter credit a near-certainty when the US central bankers meet next week.

Lower-than-expected wage rises kept a few doubts alive, but mostly the jobs report hit the spot, analysts said.

Upbeat New York helped key European markets hold onto most of their early gains. London and Paris were up at the end of European trading, but Frankfurt slipped a smidgen into negative territory just before the closing bell.

Earlier, Japan’s Nikkei jumped 1.5 percent, with declines in the yen boosting exporters.

“Today’s US jobs report was more than adequate to justify a rate hike next week,” said Craig Erlam at Oanda.

‘Won’t bottle it’

“The only thing standing in the way of a rate hike now is the Fed itself,” he said, “but after its efforts over the last few weeks, surely even it won’t bottle it now.”

Higher interest rates are not in themselves reason for cheer in the stock market as borrowing costs rise, but analysts said rate rises are a much-needed token of Fed confidence in the US economy in times of uncertainty, including over President Donald Trump’s economic program.

“After all, monetary policy is set to be tightened further against the backdrop of strengthening US and global economies,” said Oliver Jones at Capital Economics.

Investors are “still unwilling to bet against higher prices despite strong odds of a rate increase in the US next week,” LCG analyst Jasper Lawler said of global stock markets.

Elsewhere, oil prices were back on a slippery slope, having earlier Friday recovered ground after sharp mid-week losses. US oil prices dropped 79 cents to $48.49 per barrel, its lowest level since late November.

Worries about a global supply glut, increased US production and questions about an OPEC-Russia led drive to cut output are keeping oil traders on edge.

Key figures around 2200 GMT

New York – Dow: UP 0.2 percent at 20,902.98 (close)
New York – S&P 500: UP 0.3 percent at 2,372.60 (close)
New York – Nasdaq: UP 0.4 percent at 5,861.73 (close)
London – FTSE 100: UP 0.4 percent at 7,343.08 (close)
Frankfurt – DAX 30: DOWN 0.1 percent at 11.963.18 (close)
Paris – CAC 40: UP 0.2 percent at 4,993.32 (close)
EURO STOXX 50: UP 0.3 percent at 3,420.54
Tokyo – Nikkei 225: UP 1.5 percent at 19,604.61 (close)
Hong Kong – Hang Seng: UP 0.3 percent at 23,568.67 (close)
Shanghai – Composite: DOWN 0.1 percent at 3,212.76 (close)
Euro/dollar: UP at $1.0672 from $1.0576 Thursday
Pound/dollar: UP at $1.2169 from $1.2162
Dollar/yen: DOWN at 114.78 yen from 114.98 yen
Oil – Brent North Sea: DOWN 82 cents at $51.37 per barrel
Oil – West Texas Intermediate: DOWN 79 cents at $48.49 per barrel

source: business.inquirer.net

China grapples with contradictions over currency

BEIJING, China — China is struggling to reconcile its push for economic reforms and a freely traded currency with curbing massive outflows of capital sparked by worries over its slowing economy — and a lack of communication is fueling fear.

The thorny problem represents the so-called “impossible trinity”, as China’s ruling Communist Party seeks to control the exchange rate and monetary policy, while at the same time moving to freer capital flows, analysts said.

Around $1.0 trillion left China last year, according to Bloomberg Intelligence. In December alone capital outflow from the country was nearly $160 billion, it said.

The cash hemorrhage reflects growing concern about the economy against a backdrop of volatility in the stock and currency markets, which has led both investors and savers to shed their yuan, also known as the renminbi (RMB).

“The recent flood of capital leaving China has been driven primarily by increased skepticism that the People’s Bank (the central bank) will hold to its pledge to keep the renminbi stable,” said Mark Williams, chief Asia economist at Capital Economics.

At the recent World Economic Forum in Davos, billionaire investor George Soros told Bloomberg TV that the world’s second largest economy, where growth has already slowed to a 25-year low, was heading for more trouble.

“A hard landing is practically unavoidable,” he said, pointing to deflation and excessive debt as a reason for China’s slowdown.

His remarks angered the Chinese media, which accused him of “declaring war” on the currency.

Soros — whose enormous trades are still blamed in some countries for contributing to the Asian financial crisis of 1997 — in the 1990s led speculators in bets against the Bank of England, which unsuccessfully sought to defend the pound’s exchange rate peg.

No policy to devalue
The yuan has retreated against the dollar by 1.3 percent since the start of January, having already slid more than 4.5 percent against the greenback in 2015.

Beijing keeps a grip on currency flows and the yuan can only move up or down against the dollar by two percent daily from a mid-rate set by the People’s Bank of China (PBoC), the central bank.

But after a surprise devaluation last August — a move intended to bring it closer to its market value according to Beijing — the yuan is being dragged down by the vast outflows of capital.

Chinese citizens are allowed to convert the equivalent of $50,000 from the domestic currency under an annual quota, though many seek ways to evade the barrier. A popular method is borrowing the quota of other people, such as family members.

When the PBoC in mid-December signaled a change in the way it manages the yuan’s value by measuring the unit against a basket of currencies instead of pegging it to the dollar, the move increased the level of anxiety.

Bank of America Merrill Lynch said the lack of “clear and transparent” rules for the basket led to confusion in the market. At the same time, the decision by the US Federal Reserve to raise interest rates has put downward pressure on the yuan.

Chinese officials deny plans to devalue the currency, amid fears Beijing is seeking a currency war to help boost its flagging exports.

“The fluctuations in the currency market are a result of market forces and the Chinese government has no intention and no policy to devalue its currency,” Vice President Li Yuanchao told Bloomberg.

But Beijing faces a dilemma, he said. On the one hand, China wants to expand use of the yuan internationally. At the same time, the government needs to ensure the unit remains stable.

Declining reserves

To keep its currency steady, China has been diving into its foreign exchange reserves — already the world’s largest — to buy massive amounts of yuan.

But it is a bitter pill to swallow. China’s foreign exchange reserves fell $108 billion in December — the biggest monthly decline on record — to $3.3 trillion.

“The PBoC has enough reserves to keep selling at December’s rate until mid-2018 but it would presumably throw in the towel before they were all exhausted,” said Williams of Capital Economics.

The central bank has also refrained from loosening monetary policy by cutting reserve requirements — the amount of funds that banks must put aside — on fears of exacerbating the yuan’s depreciation, analysts said.

Some say China will need to devalue the yuan, and have even called on Beijing to move rapidly towards a free float of the currency.

But others believe such a move would reflect poorly on China, which in November received approval from the International Monetary Fund for the yuan to be included in its basket of elite currencies.

“The potential disruption to financial stability outside China, and with the risk of an Asian currency war, would ultimately feedback negatively to China,” said Michala Marcussen, global head of economics at Societe Generale.

source: business.inquirer.net

Eurozone economy trapped in recession

Brussels — The dogged recession across the eurozone is deepening with the latest EU figures released Wednesday showing a full year-and-a-half of contraction as tens of millions languish in unemployment.

With governments trapped in austerity, banks refusing to lend and leaders resorting to urgent bids to unlock tax hidden in offshore bank vaults, the eurozone is now firmly entrenched as the global economy's "weakest link," according to Dutch-based ING analysts.

One week from another tense summit of EU leaders, official figures showed a 0.2 percent contraction between January and March, in the longest recession since the single currency bloc was established in 1999.

On a year-by-year comparison, data agency Eurostat said this translated into a 1.0 percent drop in output across the 17 states that share the euro—which are home to 340 million people.

While core economy Germany clambered out of negative territory with 0.1-percent growth after a 0.7-percent slide at the end of 2012, France sank into recession with a 0.2-percent reduction and both Italy and Spain posted 0.5-percent drops, the figures showed.

"We doubt that the region is about to embark on a sustained recovery any time soon," said Ben May of London-based Capital Economics, citing disappointing survey results in recent weeks.

The latest official European Commission forecast for 2013 published earlier this month tipped a 0.4-percent contraction, but the analyst said that was way off course with "something closer to a two-percent decline" likely.

His firm's pessimism was backed by Howard Archer of fellow London-based specialist analysts, IHS Global Insight.

"We expect the eurozone to suffer gross domestic product (GDP) contraction of 0.7 percent in 2013 with very gradual recovery only starting in the latter months of the year," said Archer.

"Today's GDP figures once again show that the eurozone remains the weakest link in the world economy," said the ING analyst, Peter Vanden Houte, though "a subdued recovery in the second half of the year is still possible."

But for that to happen, it would be "imperative that eurozone leaders maintain the momentum in the strengthening of the monetary union, with the banking union as a first important hurdle to be taken."

He tipped action by the European Central Bank to boost lending to small businesses.

No figures were given for growth in Ireland which, among the bailout economies, appeared to have turned the corner in the previous quarter with flat instead of negative growth.

However, Cyprus, at negative 1.3 percent, can expect a sharp deterioration later, given that the figure was for the period prior to bailout negotiations that saw banks in lockdown for a fortnight. — Agence France-Presse

source: gmanetwork.com