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Greece Raises Concerns over Global Economy
May 23, 2012--Highlights
PBoC's RRR cut fails to boost sentiment.
Hong Kong and China stock markets extended losses when the intensifying European debt woes and falling foreign investment in China overshadowed the reserve requirement rate (RRR) cut announcement.
The People’s Bank of China cut the RRR by 50 bps, effective May 18. However, the market’s response towards the third cut in six months was muted as talks on a coalition government and the eventual failure in Greece overwhelmed the market.
India
Markets hit by European debt woes.
The Indian equity market trended lower last week as the worsening concerns over the Europe debt crisis negatively affected the Asia markets.
Investors’ risk appetite decreased and moved investments from emerging markets to the US dollar, which is perceived to be a safe harbor.
Brazil
Further policy easing likely.
The equity market sell-off intensified in the week ending May 17th to erase YTD gains. Brazilian output data reinforced the dual speed dynamic within the local economy. Retail sales rose in March, whilst the GDP proxy (IBC-Br) missed expectations, paving the way for further monetary easing in the near term.
Russia
EM equities' compelling valuation.
Concerns regarding the potential exit of Greece from the Eurozone have triggered a spike in risk aversion, causing significant outflows from risk assets into perceived safe havens.
Spanish 10-year yields have risen to 6.22%. News that the ECB has suspended lending to selected Greek banks has raised fears over capital flight from the country’s financial system.
IMF Working paper-The Volatility Trap: Precautionary Saving, Investment, and Aggregate Risk
May 23, 2012--Summary: We study the effects of permanent and temporary income shocks on precautionary saving and investment in a "store-or-sow" model of growth.
High volatility of permanent shocks results in high precautionary saving in the safe asset and low investment, or a "volatility trap." Namely, big savers invest relatively little. In contrast, low volatility of permanent shocks leads to low precautionary saving and high or low investment, depending on the volatility of temporary shocks. Empirical evidence shows a nonlinear relationship between investment and saving and that investment is a hump-shaped function of the volatility of permanent shocks, as predicted by the model.
ISDA Publishes Paper Examining Differences In Derivatives Reporting Between US GAAP And IFRS Accounting Standards
May 23, 2012--The International Swaps and Derivatives Association, Inc. (ISDA) today announced the publication of a paper, "Netting and Offsetting: Reporting Derivatives Under US GAAP and Under IFRS."
The paper examines how and why derivatives are treated differently under the International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (US GAAP) and their impact on the new Basel III Leverage Ratio.
It notes that the terms of netting, offsetting and set-off are often used to express the same notion but they are very different concepts. A better understanding of the terminology and the way in which derivatives are traded, managed and settled provides an understanding of why US GAAP accounting standard setters have consistently agreed that derivatives be reported on a ‘net’ basis instead of on a ‘gross’ basis on the face of the balance sheet and why this differs from reporting derivatives under IFRS. Historically, the Europe-based International Accounting Standards Board (IASB) has permitted significantly less balance sheet offsetting than the US-based Financial Accounting Standards Board (FASB).
view the Netting and Offsetting: Reporting derivatives under U.S. GAAP and under IFRS paper
Report: Open Borders and Integrated Supply Chains Break Down Global Trade Barriers
New report finds that traditional notions of trade are becoming outdated, with global value chains requiring new measurements, policies and cooperation
The Enabling Trade Index assesses 132 economies worldwide on their ability to enable trade
Asian economies show strong performance, while the US, China and India fall in the rankings
May 23, 2012--East Asian economies have recorded marked improvements in their ability to enable trade, while traditional frontrunners Singapore and Hong Kong retain a clear lead at the top of the global rankings, according to the Global Enabling Trade Report 2012, released today by the World Economic Forum.
The report, which is published every two years, also confirms strong showings for Europe’s major economies, with Finland and the United Kingdom both advancing six places to 6th and 11th, respectively, and Germany and France remaining stable at 13th and 20. Other large economies fare less well: the US continues its decline to 23rd, as does China (56th) and India (100th). Among emerging economies, Turkey (62nd) and Mexico (65th) remain stable while Chile (14th), Saudi Arabia (27th) and South Africa (63rd) climb in the ranking. ASEAN members Thailand (57th), Indonesia (58th) and the Philippines (72nd) also improve.
As well as ranking nations’ trade openness, the report finds that traditional notions of trade are increasingly outdated as global value chains require new measurements, policies and cooperation. The report also finds that security, quality and trade can be mutually reinforcing through supply chain integrity efforts, but a knowledge gap in identifying buyers remains an important barrier.
view the WEF The Global Enabling Trade Report 2012
Dow Jones Indexes to Launch the Dow Jones Parala Macro Allocation Indexes
New Series to Employ Parala Capital's Proprietary Methodology, Utilizing Economic Factors as Inputs for Passive Asset Allocation Strategy
May 23, 2012-- Dow Jones Indexes and Parala Capital LLP today announced the launch of the Dow Jones Parala Macro Allocation Indexes, a new family of stock indexes based on Parala Capital's proprietary macro-allocation methodology.
Formed in 2007, Parala Capital focuses solely on developing investable strategies using rigorous quantitative methodologies based on proprietary and academic research. The London-based firm's proprietary macro-allocation methodology seeks to identify the future performance of a universe of assets by utilizing economic factors as inputs for a passive asset allocation strategy.
OECD launches updated version of Your Better Life Index
May 22, 2012--The OECD today released a new version of its pioneering Your Better Life Index-- an online, interactive index that allows people to measure and compare their lives in a way that goes beyond traditional GDP numbers.
Launched last year, Your Better Life Index (watch video in English) enables people to compare well-being based on 11 topics - housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety and work-life balance. The updated version, launched today as part of the 2012 OECD’s annual Forum and Ministerial Meeting, integrates data on gender and inequality and strengthens existing topics. Visitors to Your Better Life Index will now be able to compare their well-being priorities to those of other users by country, age and gender, and share their results. The updated Index also includes two new countries, Russia and Brazil. The Index is available in French and is embeddable for web sites and blogs.
Yen Falls Most in a Month as Fitch Downgrades Japan; Pound Drops
May 22, 2012--The yen weakened the most in a month against the dollar after Fitch Ratings cut Japan's credit ranking, saying the nation isn't acting quickly enough to tackle its public debt burden.
Japan's currency fell versus all its 16 major peers as the central bank started a two-day meeting amid speculation it will boost stimulus measures to spur flagging growth.
IMF Working paper-The Future of Oil: Geology versus Technology
May 21, 2012--Summary: We discuss and reconcile two diametrically opposed views concerning the future of world oil production and prices. The geological view expects that physical constraints will dominate the future evolution of oil output and prices.
It is supported by the fact that world oil production has plateaued since 2005 despite historically high prices, and that spare capacity has been near historic lows. The technological view of oil expects that higher oil prices must eventually have a decisive effect on oil output, by encouraging technological solutions. It is supported by the fact that high prices have, since 2003, led to upward revisions in production forecasts based on a purely geological view. We present a nonlinear econometric model of the world oil market that encompasses both views. The model performs far better than existing empirical models in forecasting oil prices and oil output out of sample. Its point forecast is for a near doubling of the real price of oil over the coming decade. The error bands are wide, and reflect sharply differing judgments on ultimately recoverable reserves, and on future price elasticities of oil demand and supply.
view the IMF Working paper-The Future of Oil: Geology versus Technology
Barclays to sell $6.1 billion BlackRock stake
May 21, 2012--British bank Barclays is selling its near-20 percent stake in U.S. asset manager BlackRock, worth $6.1 billion, as tougher global regulations have cut the attraction of such holdings.
Barclays has held the stake for almost three years, a legacy of BlackRock's $15 billion purchase of Barclays Global Investors, but Basel III regulations mean banks have to hold more capital against minority stakes in asset managers and other firms, making it less profitable.
Cash pulled from financial funds
May 21, 2012--May 21, 2012--Equity investors redeemed more cash from mutual and exchange traded funds that invest in banks last week than at any point since the height of the financial crisis, according to data from EPFR Global.
Just under $1bn was withdrawn from financial funds globally, the largest outflow since the fourth quarter of 2008 in the wake of the collapse of Lehman Brothers, as investors weighed the possibility of a Greek exit from the eurozone and a $2bn trading loss at JPMorgan.