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Japan's new Prime Minister Yukio Hatoyama, speaking at the opening ceremony of the United Nations Summit on Climate Change on September 22, 2009.
Japan's exports tumbled 36% in August from a year earlier - - with car shipments falling by half - - and imports also contracted sharply, the government said Thursday.
Declines in car and steel exports were especially pronounced, the Ministry of Finance said. Exports fell for the 11th straight month to ¥4.5 trillion ($49 billion).
From a month earlier, exports fell 0.7%, the second straight decrease.
Exports to the US dipped 34.4% from a year earlier, the least since November. Shipments to China, Japan’s biggest market, dropped 27.6% and sales to Europe slid 45.9%.
Ireland National Accounts
Davy chief economist Rossa White comments: Ireland Q2 National Accounts: Look out for strong export performance and signs of stabilisation in consumption - - "Today sees the belated release of second quarter National Accounts for Ireland. They may surprise some people, even if their relevance at this stage is debatable. We reckon that exports returned to growth thanks to the resilience of the dominant multinational sector (particularly pharma and medical devices). Meanwhile, consumer spending began to stabilise following collapse in Q1. We don't fully rule out a positive quarter-on-quarter print for GDP thanks to the output of foreign-owned companies, but we'd be surprised if the more relevant GNP grew.
The relative performance of exports is likely to be the highlight of today's data. The euro area, US and UK all saw exports decline quarter-on-quarter in Q2, albeit at a much slower rate than in Q1. Goods export data suggest there is a better than evens chance that total Irish exports grew in the quarter, albeit that service trade flows (on which no data are available until today) are typically unpredictable. We will closely examine the internationally-traded parts of the service sector for early signs of life thanks to global recovery.
Irish consumer spending collapsed in Q1. The 6.2% quarter-on-quarter drop was unprecedented. That was caused mainly by a spike in precautionary saving rather than sliding after-tax real income (employment and wages were down and taxes rose, but lower interest rates, higher social transfers and falling prices helped compensate). Spending began to stabilise in Q2 (based on retail sales numbers), possibly suggesting that the increase in saving had moderated. It will be important to distinguish in today's figures between changes in the value and volume of consumer spending. Heavy discounting was used by retailers and service providers to stem the fall in volume. Elsewhere, the output side of the accounts will be of interest: we'll see if any sectors grew as agriculture and industry did in Q1."
Monetary policy/Regulation
Goodbody chief economist Dermot O’Leary comments: Economic View; Emergency rate setting to remain for some time yet - - "Despite signs of improvement in both economies, policymakers in the US and the UK confirmed yesterday that they are still some way from being ready to remove some of the extraordinary stimulus that has been put in place. Last night’s FOMC statement recognised that economic activity had “picked up”, but it also believes that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period”. There was an announcement that the Fed will gradually slow the pace of purchases of debt securities, but the overall scale of the operation was left unchanged.
There is a somewhat similar story in the UK, where minutes from the September MPC meeting released yesterday, revealed that those three members that went against the consensus in August to vote for an increase in the size of the Bank’s asset purchase programme still see reasons for doing so, despite the obvious improvement in the economic environment over recent months. This threat has had a large role to play in the current weakness in sterling, and the threat is likely to remain until the November policy announcement, when the members of the MPC will have the benefit of the analysis contained in the next Inflation Report to assess the impact of previous actions. Both the Fed and the Bank of England face similar situations. The battle to avoid financial and economic catastrophe is probably won, but they believe it is still too early to declare that the war is over."
Goodbody analyst Eamonn Hughes comments: US Treasury Secretary Geithner sets out his stall on banking reform - - "Ahead of the G-20 session in Pittsburgh later today, Treasury Secretary Geithner set out his thoughts on Financial Regulatory Reform at a session of the House Financial Services Committee. The main text focused on creating new protections for consumers and investors, the creation of a more stable financial system and the safeguarding of taxpayers. However, we are most interested in his comments on bank capital. You will all be aware of our base case view that banks will have to hold core equity ratios of 8% within 5 years (10% Tier 1) and we anticipate that AIB will have to raise c€2bn and BOI c€1bn in the next few months to retain ratios at 4% at the bottom, so there will be more equity to come after that as well.
Geithner indicated that the US proposals “will tighten constraints by requiring all financials firms hold higher capital and liquidity buffers. It will establish a higher baseline for all firms, and then go beyond that baseline to impose still higher standards on the largest, most leveraged and most interconnected firms that pose the greatest risk to the system as a whole”. So in essence, the US authorities will hold the larger firms to “tougher safety and soundness standards than other firms, including tougher capital and liquidity requirements”. That’s what they’re planning in the US and surely AIB & BOI represent the largest, most interconnected and systemically important banks on this island. While this process will take place over years rather than months, we think this move to higher capital levels is inexorable. That is why we are comfortable with our medium term targets (8% core equity ratio) and view that the Irish banks are likely to come with equity in the coming 12 months, but that will just be phase 1."
Experimental AIDS Vaccine
The Wall Street Journal reports that for the first time, an experimental vaccine has prevented infection with the AIDS virus, a watershed event in the deadly epidemic and a surprising result. Recent failures led many scientists to think such a vaccine might never be possible.
The vaccine cut the risk of becoming infected with HIV by more than 31% in the world's largest AIDS vaccine trial of more than 16,000 volunteers in Thailand, researchers announced Thursday in Bangkok.
Even though the benefit is modest, "it's the first evidence that we could have a safe and effective preventive vaccine," Col. Jerome Kim said in a telephone interview. He helped lead the study for the U.S. Army, which sponsored it with the National Institute of Allergy and Infectious Diseases.
The institute's director, Dr. Anthony Fauci, warned that this is "not the end of the road," but said he was surprised and very pleased by the outcome.
Insight on all the global economic issues being discussed at the G-20 meeting:
‘Age of Austerity’ awaits G-20
Bloomberg reports that global leaders may be saddled with the weakest recovery since World War II if they are to pay off the $9 trillion tab they ran up rescuing the world economy from the deepest financial slump in seven decades.
U.S. President Barack Obama and his counterparts from the Group of 20 nations meet in Pittsburgh today warning that the recovery is still too weak to start reversing lifelines to banks and the broader economy. Their next challenge will be to reduce the resulting debt before it sparks higher bond yields and erodes their governments’ creditworthiness.
“There’s no question that the most significant vulnerability as we emerge from recession is the soaring government debt,”said Harvard University Professor Kenneth Rogoff who is a co-author of a new history on financial crises.“It’s very likely that will trigger the next crisis as governments have been stretched so wide.”
Interview and discussion with President of MacroMavens Stephanie Pomboy. She talks about inflation and economy;
US markets
In New York Wednesday, a late afternoon selloff pulled stocks lower after the Fed's decision to keep its policy interest rate close to zero.
The Dow Jones declined 81.32 points, or 0.8%, to 9748.55.
The S&P 500 index dipped 1% and the Nasdaq slid 0.7%.
Asia
Japan's benchmark Nikkei 225 jumped 1.7% on Thursday after a three-day holiday break
The MSCI index of Asia Pacific stocks traded outside Japan was down 1%.
Gold is trading at $1,012.20 up $4.00 from Wednesday's spot price close in New York.
Goodbody's Eamonn Hughes comments on Irish Life & Permanant; Corporate activity, margins & funding – an insider’s perspective - - "The head of permanent tsb, IL&P’s bank, spoke yesterday at a parliamentary hearing in Dublin. Mr Guinane made a couple of observations that made the newswires.
Firstly, in relation to the mooted third banking force (after AIB & BOI), Mr Guinane indicated that there had been some “speculative conversation” with officials at the Department of Finance. To be honest, we were of the view that the parties were probably a bit more engaged than that, but still believe that the third force represents an opportunity for the government to address the woes at Irish Nationwide and a solution (though not a perfect one) for IL&P shareholders to extricate themselves from a bank that is too wholesale funding dependent, with a loan to deposit ratio of 309% last June. We still think its on the cards in 2010, but it’s obviously early days yet and will like cause equity issuance at IL&P to recap the bank on the way out.
Secondly, ptsb’s CEO indicated that the bank had “no immediate plans” to raise interest rates, which probably reflects the reaction a few weeks ago after ptsb raised its SVR rates to a barrage of media and political uproar. It appears that the bank has taken that on board for the moment, but a few months is a long time in politics and the CEO added that “it would be irresponsible” to rule out future increases. We would go further and say it’s a foregone conclusion that loan rates have to go up. There are many stresses on banking margins, mainly on the liability side of the balance sheet and the margin at IL& P looks relatively flat next year and maybe even into 2011 notwithstanding rising asset spreads, particularly as IL&P weans itself off ECB funding. However, margins in Ireland are very low by international comparisons. We estimate that by 2011, revenue to total assets ratios at the large two Irish banks will be 2.1/2.2%, but the average for banks in similar economies for the last 25 years is closer to 4.5%. So margins will be going up, particularly if banks have to hold more capital – which they will!
Finally, on funding, Mr Guinane indicated that sourcing non-European Central Bank funds is “incredibly challenging”. That’s probably not unexpected and explains why ECB funding was near 30% of its loan book at the end of June, though that figure has eased into Q3 (now sits just shy of €11bn). We note that Lloyds yesterday had a securitisation issued at 170-180bps above euribor, so even as the securitisation markets start to open (which is welcome) it is not cheap, so in reference to the mortgage rates above, another reason why they have to go up."
