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Markets News Monday: Obama welcomes China as "strong, prosperous and successful"; Chinese official says pressure for appreciation of the yuan “not fair”
By Finfacts Team
Nov 16, 2009 - 8:55:30 AM
US President Barack Obama gestures as he speaks at a "town hall" meeting with Chinese youth at the Shanghai Science and Technology Museum during his four-day state visit to China, Nov. 16, 2009. Photo:Xinhua/Chen Fei
China’s Ministry of Commerce said today that international pressure for appreciation of the yuan is “not fair,” as US President Barack Obama began a four-day visit calling for a more balanced relationship between the two countries.
Seeking a stronger Chinese currency “is not conducive to a global economic recovery and is not fair,” aministry spokesman said at a press briefing in Beijing today. “It’s necessary for us to provide a stable and predictable environment in terms of macro-economic and exchange rate policies.”
China has maintained a fixed peg against the US dollar since mid 2008 - - See article link in Box below.
President Barack Obama said in Shanghai Monday that the United States does not seek to contain China's rise and he welcomes China as a"strong, prosperous and successful member of the community of nations."
Obama made the remarks to Chinese students at the Shanghai Science and Technology Museum in China's economic hub Shanghai.
In the event aired live on Chinese and foreign television channels, Obama said the world is fundamentally interconnected and power in the 21st century is no longer a zero-sum game.
The meeting attracted about 600 students from several universities in Shanghai.
"The jobs we do, the prosperity we build, the environment we protect and the security we seek are all shared," he told the audience."One country's success does not come at the expense of another."
Calling the US-China relations "positive, constructive and comprehensive," Obama said the US-China relationship opens the door to partnership on key global issues such as economic recovery, development of clean energy, stopping the spread of nuclear weapons and the surge of climate change, and the promotion of peace and security in Asia and around the globe.
China and the US are not pre-destined as adversaries, says US President Obama at a town hall-style meeting in Shanghai on his first full day in China. He also touched on what he is likely to discuss at a summit with Chinese President, Hu Jintao:
After his opening speech, Obama answered questions raised by the audience and Internet users, which varied from Shanghai-Chicago exchanges and his first impression about China to cultural diversity and the latest developments in Afghanistan.
"We do not seek to impose any system of government on any other nation," Obama said but he added that such things as freedom of expression and worship, unfettered access to information and unrestricted political participation "should be available to all people, including ethnic and religious minorities, whether they are in the United States, China or any nation."
"I'm a big supporter of non-censorship," the US president said in answer to a question on Chinese censorship."I recognize that different countries have different traditions. I can tell you that in the United States, the fact that we have free Internet — or unrestricted Internet access is a source of strength, and I think should be encouraged."
ECB rates
Goodbody chief economist Dermot O’Leary comments: Economic View; Eurozone recession over, but rates probably on hold until H2 2010 - - "Like the US, the Eurozone economy emerged from recession in the third quarter of the year. Friday’s data confirmed that GDP increased by 0.4% in Q3, although the level of GDP was still down 4.1% relative to a year ago. Given the hawkish nature of the ECB, one might have thought this now brings rate hikes closer to reality. However, comments over the weekend suggest that there is no rush whatsoever in moving rates upwards from their record low setting. Currently, markets, and us, expect rates to go higher in the second half of 2010, and Governing Council member Ordonez pretty much endorsed that view in comments over the weekend.
Of course, the recovery paths of economies within the Eurozone will differ over the coming quarters, and there is already evidence of divergence, with Spain continuing to contract in Q3 (-0.3%), while economic growth France (+0.3%) and particularly Germany (+0.7%) has already arrived. Should growth and inflation pressures build quicker than expected, it would also have implications for recovery here in Ireland. In fact, as we dealt with in our recent Economic Commentary, given the high debt levels in Ireland, the economy disproportionately benefited from the sharp fall in interest rates over the past twelve months. That effect will work in reverse when the ECB raises interest rates. It will happen at some stage, but for the time being at least, the ECB looks like it is happy to wait until the second half of next year to move on rates."
The Eurozone economy emerged from recession in the third quarter, GDP data showed Friday. Charlie Morris from HSBC Global Asset Management considers the outlook for the European economies:
Davy chief economist Rossa White comments: "The euro area is out of recession. That was confirmed on Friday when Q3 GDP figures were released. We already knew that France and Germany had pulled out in Q2, but the uneven nature of economic performance in the common currency area meant that weakness in the other half kept the total euro area in recession that quarter. There was no mistake this time, as Austria, Belgium, Italy and the Netherlands emerged from recession. Total euro area GDP rose 0.4% quarter-on-quarter (qoq). Overnight, it was reported that Japan recorded strong growth of more than 1% qoq in Q3.
Germany showed the greatest strength: GDP increased 0.7%, following 0.4% in Q2. Its significant fiscal stimulus has definitely helped, but its lack of imbalances (it households did not really participate widely in the credit bubble, even if a few of its banks joined the party overseas) has insulated the domestic economy too. France too saw its second straight quarter of growth, expanding by 0.3% as it did in Q2.
No data are yet available for Ireland, as is the case for other small euro area members Finland, Luxembourg, Malta and Slovenia. We do not think that Ireland emerged from recession in the quarter just past. Exports, which held up pretty well in H2, seem to have been somewhat weaker in the third quarter based on available data from goods trade and industrial production. However, consumer spending probably stabilised. 'Core' retail sales volume expanded qoq in Q3, for the first time since 2007. The services PMI survey was not far short of the 50 break-even mark either. The Irish economy will probably bottom in Q4 and return to growth — i.e. pull out of recession — in Q1 2010."
US/Chinese relations are changing “where China is regarded as a strategic competitor to one that’s a proactive partner,” Andrew Leung, chairman of Andrew Leung International Consultants, told CNBC Monday. President Obama’s visit to China is important, he said adding that, “we are likely to see more cooperation on the technology front, especially on climate change.”
Asia
The MSCI Asia Pacific Index climbed 0.5% Monday to a three- week high after the weekend Asia-Pacific Economic Cooperation leadership summit, said in statement issued in Singapore, that it would keep up spending until there was “durable” growth.
Japan's economy grew strongly in the third quarter as a government stimulus program helped boost consumer spending.
GDP (gross domestic product) grew 1.2% in the quarter, equivalent to a an annualised rise of 4.8%, compared with a consensus expectation of 2.9%. Growth in the second quarter was 2.7%, which had been preceded by a stunning 12.2% contraction in the first quarter of 2009.
The Nikkei rose 0.21%; the Shanghai Composite gained 2.74%; India's BSE Sensex 3o added 1.16% and Australia's S&P/ASX 200 climbed 1.04%
Goodbody's Anna Lalor comments: Irish Financials; Deposit pressure levelled off in September and deleveraging continues - - "The Central Bank released its updated monthly statistics for September on Friday, which contained details on the volume and rates on a variety of personal and business loans and deposits. Total deposits (including overnight) rose 1.2% yoy in September (vs -1.2% in August), with Sep-08 being the first month last year with a yoy decline. Overnight deposits continued to fall in the month (-2.4%), but this fall and the -2.2% decline in August are a significant easing in the pace of decline, with both being the lowest mom declines since Mar-08. Outstanding non-overnight deposits rose 4% yoy, compared to a 0.5% fall in August.
Corporate deposits (overnight and longer) fell 5.2% yoy, but this represents an improvement on the 9.4% fall in August and the peak rate of decline of 16.6% in June (yoy comparative helped by a 6.1% decline in Sep-08). Consumer deposits continued their acceleration in growth with a 4.8% rise yoy, compared to a 3.5% rise in August. The cost of deposits, although still at all time highs vs ECB base rates and Euribor, appear to have stabilised over the last three months (with retail better in September and corporate a bit worse).
The increase in personal savings is being accompanied by a further fall in the stock of outstanding personal loans, as the consumer continues to deleverage. The backbook of consumer loans fell 18.7% yoy in September compared to a 13.7% decline in August. A 12.2% drop in personal overdrafts (-10.1% in August) meant that overall unsecured consumer borrowing was 18.1% lower yoy in September (-13.4% in August). The business/corporate lending backbook was 7.2% lower yoy, marginally better than the 8.1% fall in August, while including the 4.1% fall in business overdrafts in the month (the first decline since Aug-08) business loans (ex new business) were 7.1% down yoy (-7.8% in August).
The Central Bank release also included the aggregate ECB borrowing by banks regulated in Ireland at the end of October. The amount outstanding declined €4.2bn mom to €87.4bn, which is €43bn lower than the peak at the end of June and the lowest levels since October 2008. This figure includes foreign banks and IFSC banks and we will need to wait until the end of this month to get a more detailed breakdown for the retail and mortgage banks."
Goodbody analyst Marina Houghton comments: Irish Financials; IPD UK monthly index sees rising capital value growth, but rental levels still under strain from increasing voids - -"The Investment Property Databank (IPD) released the results for its UK monthly index of commercial property on Friday afternoon for the month of October, revealing an increase in capital values for the third consecutive month. The pace of the increase in capital values is ticking up, with capital values up 1.9% mom (versus mom increases of 1.1% in September and 0.2% in August). This marks the largest monthly increase since December 2005 and is presumably a result of the increasingly squeezed supply picture in the UK market, particularly in London, as investors are piling back into the market, with not enough supply of prime properties available to meet the increase in demand.
As a result, equivalent yields, which peaked at 9.27% in June this year, have continued to fall each month since then at an increasing pace. In October, equivalent yields moved back in by 28 bps mom, to come in at 8.78% (versus a 14.3 bps contraction mom in September to 9.06%). On a more negative note, rental levels continued to fall (for the sixteenth successive month), down 0.5% mom, however the pace of decline appears to have stabilised over the last four months at between 0.5 – 0.6% mom.
Of some concern for the outlook for rental levels is the record level of voids (as measured by vacant rental value as a percentage of the overall income in the IPD universe), which peaked at 12.6% in October. As such, these elevated and increasing vacancy levels will add further pressure to rental levels in the near-term and as such, we would expect rental declines to persist well into 2010. In addition, we note that in previous cycles rental levels have continued to decline for up to twelve months following a return to capital value growth (which we first saw in this cycle in August this year)."
