International news is flying this evening. With most eyes focused on Ireland and the Euro, let’s take a quick look at other news stories of merit.
China Approves Gold Fund of Funds
MarketWatch reports China Approves Gold Fund of Funds
China’s securities regulators have given the go ahead for a mutual fund to invest in foreign exchange-traded gold funds, potentially tapping interest among mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation.
Lion Fund Management Co. said they received approval from the China Securities Regulatory Commission on Monday to proceed with the fund, the first of its kind for mainland China, according to a statement posted on the Beijing-based fund provider’s website.
The fund has been granted permission to invest outside of China under the Qualified Domestic Institutional Investor (QDII), the fund managers said in the statement.
The fund will invest in gold-backed exchange-traded funds operated outside of China, though the fund provider’s statement didn’t specify which ETFs, or which markets, it was considering.
India Economy Overheats, Inflation Hits 8.5 Percent
It’s safe to add India to the list of countries growing too fast for their own good. China is the other major one.
Please consider India’s Economy Expands Faster-Than-Estimated 8.9%
India’s economy grew more than economists estimated last quarter, adding to evidence of a strengthening in domestic demand that’s stoked inflation by placing strains on the nation’s transport and power systems.
Gross domestic product rose 8.9 percent in the three months through September from a year earlier, matching the revised pace of growth in the previous quarter, the Central Statistical Organisation said in a statement in New Delhi today. That was above the 8.2 percent median estimate of 30 economists in a Bloomberg News survey.
Central bank Governor Duvvuri Subbarao on Nov. 2 raised the benchmark repurchase rate and the reverse repurchase rate by a quarter-point each to 6.25 percent and 5.25 percent, saying inflation continues to hold above the “comfort zone.”
The wholesale-price inflation rate was 8.58 percent in October, compared with the “ideal” level of 4 percent to 5 percent, according to Finance Minister Pranab Mukherjee. Consumer prices are rising at a pace near 10 percent, the fastest in the Group of 20 nations after Argentina.
I fail to see how 4-5% inflation is ideal. Regardless, 8.58% is certainly not ideal and India will have to step on the brakes hard sooner rather than later. India is clearly overheating.
China has its foot on the brakes right now and the market does not seem to be enjoying the recent ride at all. Meanwhile, please note Japan, South Korea factory output slumps as Asia shifts
Japanese companies cut production for the fifth month and by the biggest margin since February 2009, while South Korea’s industrial output fell for the third month in a row, disappointing markets which had bet on a rebound.
South Korea, among the first economies to regain cruising speed after the global recession, is also losing steam, though Seoul still bets on solid export growth next year.
“The inventory rebuilding cycle after the recession has come to an end, and what we’re left with is final domestic demand, which isn’t doing that well across the globe,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.
Economists had long expected Asia and the world economy would slow in the second half of this year and early in 2011 as the rebuilding of inventories that had been depleted during the recession was drawing to an end and the effects of stimulus packages were wearing off.
But the cool-down came sooner and turned out to be more pronounced than many economists had anticipated. The economies of the Philippines, Thailand and Singapore all contracted in the past quarter, while growth in South Korea, Taiwan and Indonesia slowed markedly.
That leaves China, which slowed only marginally to a 9.6 percent annual clip in the third quarter, and India, as the mainstays of growth in the region.
The “mainstays” of the region are overheating while everyone else has stalled or contracting. Good luck with that investment-wise.
Universal Dumping of Spain
Meanwhile, back in Euroland, Spanish Banks Face Funding Hurdle in 2011 Amid Bailout Threat.
Spain’s banks may struggle to refinance about 85 billion euros ($111 billion) in debt next year as costs surge on concern continental Europe’s fourth- biggest economy may need an Irish-style bailout.
“There’s a universal dumping of Spain going on,” said Andrea Williams, who helps manage about 623 million pounds ($968 million), including shares in Banco Santander SA, at Royal London Asset Management. “The fear is that Portugal, Spain and Italy are now in line after what happened in Ireland.”
The average yield investors demand to hold euro-denominated Spanish bank bonds, relative to government debt, rose 117 basis points to 361 basis points in November — the biggest monthly jump on record, according to data compiled by Bank of America Corp.
As the cost of insuring the country’s debt against default rose to its highest level, Spanish lenders now pay the biggest premium ever on their debt relative to other banks in Europe. Spreads on Spanish bank bonds in euros rose to a record 147 basis points more than the average for all lender debt denominated in the currency, up from a gap of 63 basis points on Oct. 31, according to Bank of America data.
“The big elephant in the room is not Portugal but, of course, it’s Spain,” Nouriel Roubini, the New York University professor who predicted the global financial crisis, said at a conference in Prague yesterday. “There is not enough official money to bail out Spain if trouble occurs.”
The country’s lenders have about 30 percent of their medium- and long-term debt maturing by December 2012, according to the Bank of Spain’s October financial stability report. The report says the fact that 50 percent of maturities fall after 2013 “softens” the refinancing needs of the lenders, even as it advises them to rely more on debt with longer maturities.
“Asking the Spanish banks how they are going to meet these refinancing needs is absolutely a fair question for them,” Claire Kane, a banking analyst at MF Global in London, said in a phone interview.
Lobster Smuggling Hits Australia
In the most bizarre story in this international roundup, Lobsters Caught in China Smuggling Crackdown
Australia’s lucrative rock lobster export industry has been hit by a Chinese crackdown on illegal smuggling into the mainland through Hong Kong, industry representatives said Tuesday.
Since Sunday, Australian exporters haven’t been able to get any of the live crustaceans into China, said Rodney Treloggen, chief executive of the Tasmanian Rock Lobster Fishermen’s Association.
“Our major market has disappeared overnight,” he said.
Mr. Treloggen said the Australian industry has “obviously done something to upset the Chinese” but what that is remains a mystery. “There’s no formal banning of the product.”
Lobster prices in Australia have fallen by half to less than A$25 a kilogram from A$50 since the trade row began, he said.
Risks to the Downside
- China is overheating.
- India is overheating.
- Philippines, Thailand and Singapore are all in contraction.
- Growth in South Korea, Taiwan and Indonesia has slowed markedly.
- Contagion threatens Spain.
- The property bubble in Australia is busting.
- Ireland cannot possibly pay back its debts.
- Greece needs an extension.
- US corporate bond sales have collapsed.
- There are significant tax cut and unemployment insurance issues in the US.
In case you did not figure it out, risks to the global economy are enormously skewed to the downside.
Mike “Mish” Shedlock
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