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Daily press
31 de Outubro de 2013
Highlights
The Wall Street Journal
Export Prowess Lifts Spain From Recession
Euro Inflation Slows, as Rate-Cut Pressure Grows
BOJ Keeps Bullish Inflation Forecast
Fed Opts to Stay Course, for Now
Financial Times
Fed stays the course on bond buying
Less-dovish Fed weighs on stocks
BoJ holds steady on easing policy
IMF warns of financial shock risk to Africa
BNP Paribas third-quarter hit by weak fixed income trading
The Wall Street Journal
Export Prowess Lifts Spain From Recession
Economy Grew 0.1% in Third Quarter From Second
By Matt Moffett
BARCELONA—Spain's economy emerged from a withering two-year recession thanks to a small but hardy band of exporters.
These corporate conquistadors are so competitive they are selling caviar to Russia, shoes to China, costumes to Hollywood
and autos to Germany.
At a sprawling factory near Barcelona, Volkswagen Group subsidiary Seat SA cranks out Leon family hatchbacks bound for
Germany, which recently surpassed weakened Spain as the company's chief market. "It's a real accomplishment considering
that the German market is down, very mature and very demanding," said Executive Vice President Ramon Paredes.
Record exports are the main reason Spain on Wednesday was able to report 0.1% growth of its gross national product in the
three months through September after nine straight quarters of contraction. While that is hardly enough to make much of a
dent in the country's staggering unemployment rate anytime soon, the trend is going in the right direction.
Spain's growing international sales, with exports of goods up by nearly 7% this year, are all the more impressive because
even powerhouse Germany has seen recent weakness in sales abroad. The latest figure also beats the average growth during
the boom years, before the global financial crisis hit.
Signs of an export-led Spanish turnaround have propelled the Madrid stock market up some 30% since June and prompted
luminaries such as Bill Gates, Warren Buffett and Carlos Slim to invest in Spanish ventures.
Spain, the euro zone's fourth-largest economy, has had more success than any other major economy on the Continent in
carrying out the export-or-die prescription issued by the European Union, led by Germany, after Europe began to founder in
2008. The idea was that exports, backed by pro-business regulatory changes, would generate the foreign exchange needed
to pay down mountainous national debts, while creating factory jobs that could give a lift to falling domestic spending.
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Spain's exports of goods and services are up 21% since 2008. As a share of gross domestic product, they have risen to 34%
from 26.5%, allowing Spain to leapfrog Italy and France in that measure. Spain still lags behind Germany, which exports
52% of GDP.
Exports have surged in part because Spanish companies, like Seat, are desperate for an alternative to a gutted domestic
market, and because the government has liberalized an archaic labor law, lowering costs and increasing operating flexibility,
analysts say.
Out of necessity, Spanish companies have pushed hard into markets beyond the EU, which traditionally accounted for about
two-thirds of Spain's exports.
"Southern Europe fell dramatically and we had to go where there was growth," said Victor Martinez, chief commercial officer
at Celsa Group, a steelmaker that alone accounts for about 1% of Spanish merchandise exports.
Spain's steelmakers have been doing business in countries such as Algeria, Morocco, Brazil and Venezuela. For Spain as a
whole, exports to countries outside the EU grew to 37% of the total last year, from 30% in 2007.
That growth could be jeopardized, however, by the roughly 8% rise in the value of the euro against the dollar since July, as it
is making products sold outside the euro zone more costly.
The euro's rise is "worrisome because it goes in the opposite direction of Spain's entire export-led recovery strategy," said
Robert Tornabell, an economist at Spain's Esade Business School. He said he was already aware of a Spanish factory that
has told workers it will have to cut their wages, in part, to compensate for the stronger euro.
And while government officials are touting the power of Spain's export engine, skeptics say the benefits aren't perceptible to
most Spaniards. "The true Spanish miracle is just making it to the end of the month," Socialist opposition leader Alfredo
Pérez Rubalcaba said recently.
Unemployment, now 26%, will remain high for years because only around 4% of Spanish companies export, and fewer than
half of those do so regularly, according to Jaume Llopis, a management professor at Spain's IESE Business School.
Spain's export promotion agency, ICEX, notes that the number of exporting companies has risen by more than 10% each of
the past three years. But given the provincial outlook and limited financing options for many small and medium-size
businesses, Mr. Llopis said, "it will be 10 years before we get unemployment under 15%."
Still, Spanish business is getting its swagger back. "The Spanish businessmen who have packed their bags and gone out to
sell abroad are winning the battle that was lost by the invincible Armada of Philip II," said Manuel Pimentel, a businessman
and former government minister, in a recent speech.
Alfonso Villar, founder of Playspace, a 2-year-old social online-gaming company, started exploring the international market
after gamers in Latin American, where he had done no marketing, discovered his product on their own. "We had been
focusing on Spain and we suddenly saw a lot of Latin Americans playing our games," Mr. Villar said.
Mr. Villar first tried to push into Paraguay, Uruguay and Peru, only to find they lacked bandwidth and big-enough markets.
He finally hit his stride after retaining a commercial representative in the biggest market, Brazil.
He adapted some features of the game to give it a Latin American flavor, changing player awards to the Brazilian drink
caipirinha rather than the Spanish bull. The upshot is that half his 25-employee company's sales now come from abroad.
Union leaders criticize the labor-law changes that helped uncork the exports, saying they hurt already depressed domestic
demand by undermining job holders. The regulatory changes are designed to facilitate hiring and firing, reduce wage
indexation, trim severance payments for discharged employees, and wrest some power from unions in collective bargaining.
Partly as a result, unit labor costs, which show how much output an economy receives relative to wages, had declined 10%
by mid-2013 from their peak in 2009, to about where they were in 2007, according to Spain's Economy Ministry.
"Firing workers and reducing their purchasing power doesn't sound like a way to build a sustainable recovery," said Jose
Mesa, an official of General Union of Workers.
Business executives say the changes were necessary because a property boom in the decade before Spain's recession had
pushed up wages and knocked the labor market out of kilter. Now, they say, Spain is becoming competitive again.
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Between the first quarter of 2008 and mid-2013, labor productivity increased by 13%, according to the economy ministry.
"Spain has taken advantage of the crisis to do its homework," says Javier Pujol, chief executive of Ficosa, a Barcelona-based,
auto-parts company with operations throughout Europe. "We have factories in France and Italy and the adjustment that was
made there isn't at all comparable."
The competitiveness is evident in the way multinationals are increasingly using Spain as a production platform to supply
other markets. In 2012, 25% of sales of Nestlé's Spanish unit came from exports, compared with 16% in 2007.
Meanwhile, some Spanish firms are tackling tough markets. Emboga SA, a provincial shoemaker of the Hispanitas brand, is
challenging China, the world's largest shoe exporter, on its own turf, by opening more than a dozen outlets selling its higherend product. Caviar Nacarii, which harvests caviar from a fish farm in the Pyrenees Mountains, has cracked the market in
Russia for one of that country's signature products.
Spain entered the global financial crisis with a core of companies that knew their way around the international market,
analysts say. Between 2000 and 2008, Spanish exports grew by an average of 5% annually—even as the property bubble
was inflating Spain's labor costs.
"It was a quiet success story," says Joan Ramon Rovira, an economist at the Chamber of Commerce of Barcelona, a big
export center. "When the crisis came, we had a critical mass of exporters in a wide variety of niches, who could redirect more
of their energies toward the external market."
Consider Sastreria Cornejo, a 93-year-old company that has provided theatrical costumes for the Spanish film industry and
for Hollywood films such as "Doctor Zhivago" and "Gladiator." When Spain's downturn all but pulled a curtain on the national
film business, the company decided to continue investing scarce capital to augment its million-piece wardrobe collection.So
far, the strategy has worked. Cornejo has increased its international workload, including the production of "Les Misérables"
starring Hugh Jackman and a coming Hollywood "Hercules" movie. Exports account for 75% of revenues, from just under
half of revenue before the recession.
"We decided had we had to be more competitive—not less—because the international business was all that could save us,"
said Maria Ortega Cornejo, an executive of the family-run company.
Euro Inflation Slows, as Rate-Cut Pressure Grows
By Brian Blackstone
FRANKFURT—Inflation is tumbling in key parts of the euro zone, including Germany and Spain this month, in a sign that
consumer-price growth across the region is falling further below the European Central Bank's target, adding pressure on the
central bank to keep inflation from falling dangerously low.
Annual inflation in Germany fell in October to 1.3% from 1.6% the previous month based on common European Union
definitions, Germany's statistics office said. In monthly terms, consumer prices fell 0.2% from September.
Separately, Spain's statistics institute said annual price growth in the euro zone's fourth-largest economy fell to 0.1% in
October from 0.5% in September. Those figures were also based on common EU data definitions. By Spain's own
methodology, consumer prices were down 0.1% from a year ago.
Belgium also reported low inflation rates this month, with annual consumer price growth of 0.6%, the lowest since January
2010.
Taken together, Wednesday's reports suggest annual euro-zone inflation, due for release Thursday, will come in as low as
0.9%, economists said. That compares with 1.1% in September and is far below the ECB's target of just under 2% over the
medium term.
"The arguments are stacking up in favor of a policy response" from the ECB, said Ken Wattret, an economist at BNP Paribas.
"This is a one-mandate central bank, and they're not achieving their mandate" to keep inflation just under 2%, he said.
Still, Mr. Wattret expects the ECB to stand pat on interest rates when it meets next week, though he expects officials to warn
that the high value of the euro currency could bring inflation down further. That could pave the way for a rate cut in
December, when the bank unveils fresh inflation forecasts for 2014 and 2015, he said.
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There are pluses to low rates of inflation, particularly if it is driven by reduced costs for energy and other commodities. When
prices are subdued, households and businesses have more money at their disposal to spend and invest. "With low inflation,
you can buy more stuff," ECB President Mario Draghi said in June.
But inflation was 1.6% when Mr. Draghi made those comments four months ago. When inflation falls to 1% or lower, it
causes problems for spending, investment and government debt, said Howard Archer, economist at IHS Global Insight.
If households expect prices to stay low, or even fall, they may delay purchases on the assumption that they'll get a better deal
later on, he explained. Low inflation may mean weaker revenues for firms, draining profits. And if low price growth is
matched by a weak economy—which is the case in Southern Europe and Ireland—it makes it harder for governments to
service their debts.
Another concern: The closer inflation gets to zero, the greater the risk that prices could fall on a sustained basis with
crippling effects on economic activity and debts. In addition to the ECB, other key central banks such as the Federal Reserve
and Bank of Japan want inflation rates around 2%.
Japan has battled persistent price declines, known as deflation, for many years. "A Japanification of the euro area is a serious
risk," Morgan Stanley analyst Joachim Fels warned in a research note. The bloc can avoid this scenario with aggressive
monetary policy, bank recapitalization and less restrictive fiscal policies, he noted, "but I'm nervous."
"If inflation falls below 1% that's reason enough" for the ECB to cut rates, said Mr. Archer. But he also expects officials to
stand pat next week and keep the rate-cut option open in case of any renewed economic weakness of financial market
volatility early next year.
For now, weak price tends don't appear to be derailing the euro zone's recovery, which started in the second quarter after a
lengthy recession.
Germany's unemployment rate was steady at 6.9% in October, although the number of unemployed rose slightly. Low
unemployment should spur spending in Europe's largest economy, economists said, supporting growth in the region as a
whole.
—Nina Adam and David Roman contributed to this article.
BOJ Keeps Bullish Inflation Forecast
By Tatsuo Ito and Takashi Nakamichi
TOKYO—The Bank of Japan stuck to its bullish inflation outlook Thursday, suggesting the chance of monetary policy action
in the near term is slim, even as private-sector professionals continue to see the central bank's price projection as unrealistic.
In their latest semiannual outlook report on growth and prices, the BOJ's nine policy board members stuck to their median
forecast that core consumer prices will rise 1.9% in the Japanese fiscal year starting April 2015. That was unchanged from
July, when the central bank held an interim review of its prediction. It slightly upgraded its outlook for inflation the current
fiscal year ending in March and for growth for the subsequent fiscal year.
The price figure had attracted close attention because BOJ officials had said they would weigh additional easing measures if
they began to feel unsure about whether they could meet their pledge to generate 2% inflation by around the middle of
2015.
Coming seven months after the central bank launched its aggressive monetary easing program to hit the price target, the
outlook report underlines the BOJ's confidence in the policy program.
But a majority of private-sector economists say that after 15 years of deflation, there is a deeply embedded "deflationary
mind-set" among the Japanese, and that will cap Japan's inflation rate at 1% or so in fiscal 2015. They expect the BOJ will
further loosen its policy next year, probably after the government raises the 5% sales tax to 8% in April 2014.
The inflation figure excludes the potential impact on prices from sales-tax increases.
The board members see the core CPI rising 0.7% in the continuing fiscal year, higher than its previous forecast for a 0.6%
increase. For the next fiscal year, the central bank expects the index to gain 1.3%.
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The board members expect the economy will grow 2.7%, adjusted for price changes, in the current fiscal year, slightly down
from the previous forecast of a 2.8% increase. But it raised its growth projection for the subsequent year to a 1.5% rise from
a 1.3% increase, and kept unchanged its forecast for fiscal 2015 for a 1.5% gain.
Earlier in the day, the policy board decided unanimously maintain its policy of increasing the monetary base at an annual
pace of ¥60 trillion-¥70 trillion--its new policy target--to double the amount of the money the central bank supplies for the
economy by March 2015.
The BOJ issues the outlook report each April and October, with interim reviews in January and July.
Fed Opts to Stay Course, for Now
By Victoria McGrane and Jon Hilsenrath
Federal Reserve officials emerged from a two-day policy meeting with their signature easy-money program intact and no
clear signal about whether they would begin pulling it back at their December meeting or continue it into 2014 during a
leadership transition at the central bank.
In the six weeks since the Fed last met, Washington has been rocked by fiscal brinkmanship that led to a government
shutdown that delayed crucial economic data and raised worries that the Treasury Department could miss some bond
payments.
Fed officials stuck to their assessment of the slow-growing economy following that political storm and decided to keep their
$85 billion-a-month bond-buying program in place for now. The decision left investors uncertain about when officials will
begin paring the purchases that have been an important driver of asset prices and interest rates.
Officials spoke earlier this year about starting to pull back the program before year-end if the economy improved as expected.
They held off at their September meeting because of lackluster growth and the cloudy political outlook and remain in a
holding pattern. Their last chance to pull the program back before year-end is a Dec. 17-18 policy meeting. The latest policy
statement implicitly left open that possibility. But that comes with the strong caveat that the decision depends on whether the
frequently disappointing economy lives up to the central bank's expectations.
"The housing sector has slowed somewhat in recent months," the Fed said in its statement. All in all, however, officials stuck
to their view that the economy is expanding "at a moderate pace" and exhibits growing underlying strength.
The Federal Reserve held steady on its $85 billion-a-month bond-buying program and gave few new signals on when officials
expect to pull back on the program. Jon Hilsenrath has the Fed statement and analysis of the decision. Photo: Getty Images.
Washington's budget battles shut the government for 16 days, and lawmakers and the White House argued about raising the
government's self-imposed borrowing limit.
Many economists believe the shutdown shaved just a few tenths of a percentage point off economic growth for the quarter,
but it also appears to have shaken household and business confidence.
In a new Wall Street Journal/NBC News poll, just 24% of Americans said they think the economy will improve over the next
year, slightly higher than in the middle of this month's partial government shutdown but otherwise the lowest level of
optimism since late 2011, after Congress and the White House last tussled over the debt ceiling.
Katie Wielichowski, 33 years old, said the government shutdown made her gloomy about the economy's prospects. For three
weeks, the Milwaukee resident and her boyfriend, a federal employee, didn't go out to dinner or splurge on other items
because they weren't sure when he would get paid, said Ms. Wielichowski, who works for a financial-services company. The
uncertainty has left her undecided about whether to purchase a new car, she said. "Should I wait? Should I not wait? I just
feel like it's in such a state of flux."
Some corporate executives have raised concerns in conference calls with investors in recent weeks about newfound fiscal
uncertainty and its impact on the economy. "Fiscal policy uncertainty poses a risk, as negotiations on the debt ceiling and
funding government operations have now been pushed out to the first quarter of 2014," Alan Mulally, chief executive of Ford
Motor Co., said in a call last week, according to a transcript.
"Clearly the economy has been choppy this year. Think about sequestration; think about what happened with the debt ceiling
debacle. It's all been difficult for the consumer," Nigel Travis, chief executive of Dunkin' Brands Inc., the coffee chain, said in
a call.
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The success or failure of congressional budget negotiations, under way Wednesday, could influence the Fed's decision on
when to reduce, or "taper," bond purchases. Lawmakers have a Dec. 13 deadline to produce a compromise budget plan that
will drive government spending next year.
That is just a few days before the Fed's December meeting. A deal could provide the Fed more clarity on the fiscal front. On
the other hand, if talks stalemate, it could inject more uncertainty in the Fed's outlook. The White House and Congress need
a spending agreement before the government's current funding expires Jan. 15 or another shutdown could ensue.
The next big test for the Fed, however, will come in mid-November when Fed Vice Chairwoman Janet Yellen appears before
the Senate Banking Committee for her confirmation hearing to be the next Fed chief. Republicans are expected to press Ms.
Yellen about the bond-buying program, and she could provide clues about whether she'll look to manage the program any
differently than Chairman Ben Bernanke. The panel is looking at Nov. 14 as a likely hearing date.
Investors appeared disappointed the Fed didn't show a stronger commitment to sticking with the program longer. The Dow
Jones Industrial Average finished down 61.59 points, or 0.39%, to 15618.76. Yields on 10-year Treasury notes rose 0.019
percentage point to 2.526%.
The Fed retained language from its September statement that indicates officials are prepared to pull back from bond buying
if the economy picks up. Officials said they see evidence of "underlying strength in the broader economy" but chose to "await
more evidence that progress will be sustained" before adjusting the bond-buying program.
The Fed dropped an earlier reference to "tighter financial conditions" potentially hurting economic growth, suggesting officials
were relieved that long-term interest rates, including those on Treasurys and mortgages, have come down since the
September meeting. Still, those rates remain higher than they were in May before Fed officials started talking about reducing
their bond buying.
Economic data between now and the Fed's December meeting will influence the Fed's decision. But the data could be
unclear because the shutdown affected the federal agencies that collect the figures.
"[T]here is a big difference between keeping an open mind and actually tapering in December—to act the Fed will need the
support of the data, and it is still unclear that upcoming releases will be strong enough to induce it to scale back" bond
purchases at the December meeting, said analysts at Cornerstone Macro. They predicted the first cut in the first quarter of
2014, but warned that "the probability of a December taper seems higher than many investors appreciate."
The Fed also voted to keep short-term interest rates near zero, where they've been since late 2008. Officials didn't make any
changes to so-called forward guidance, which are the statements made about the likely path of interest-rate policy.
Financial Times
Fed stays the course on bond buying
By Robin Harding in Washington and Michael Mackenzie in New York
The US Federal Reserve said the world’s largest economy is still expanding at a moderate pace in a statement that suggests
a slowing of asset purchases in December or January is still under consideration.
The rate-setting Federal Open Market Committee made no changes to policy at its October meeting, keeping its asset
purchases steady at $85bn a month, but the statement implied it did not see a lot of damage from a three-week government
shutdown earlier this month.
US equities declined from record territory, bond yields inched higher while the dollar attracted buyers in the wake of the
FOMC policy statement.
The S&P 500 was down 0.8 per cent at 1,758.12, after closing at a record high of 1,771.95 on Tuesday. The yield on 10year Treasury notes rose 3 basis points to 2.53 per cent, while the dollar index rose 0.3 per cent as the euro dropped 0.2 per
cent to $1.3710.
Bret Barker, portfolio manager at TCW said the negative reaction in equities and Treasury bonds reflected markets “hitting
the pause button” after a big rally in prices in recent weeks.
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“Markets are a little overdone. Expectations were too dovish heading into the meeting and we have seen a big rally of 50
basis points since September in 10-year Treasury yields.”
‘The odds are pretty low on a December taper,” added Mr Barker.
Although markets have assumed the Fed will not “taper” its asset purchases until March, the statement implied it could still
slow its asset purchases earlier than that – perhaps as early as its December meeting – if the economic data justified it.
The Fed surprised markets in September by choosing to keep purchases on hold. That prompted a big fall in market interest
rates, which had risen after Fed communications in June and July suggested it was close to a taper, and a global rally in risky
assets.
Combined with the effects of the shutdown – which has scrambled the economic data for October – markets have assumed
the September decision meant the Fed was automatically on hold for some months. But October’s statement suggests that is
not necessarily correct.
In the most notable change in the statement, the Fed eliminated a sentence from September saying that tighter financial
conditions – Fed code for higher market interest rates – could lead to slower improvement in the economy. Scrapping the
sentence suggests it is now comfortable with market interest rates.
It also kept September’s language that the economy is expanding at a “moderate” pace, choosing not to downgrade it to
“modest”, although it noted that the housing sector has slowed somewhat in recent months.
However, the Fed pointedly said that its judgment was based on “available data”, indicating that it could yet change as more
detailed information for October becomes available.
The FOMC voted for the decision by a majority of 9-1. Esther George, the president of the Kansas City Fed, dissented
because she was concerned about the risk of future economic and financial imbalances.
“We still think it would take a very significant set of positive surprises in the economic data over the next six weeks for the
Fed to give serious consideration to a cutback in asset purchases before next year,” said Lou Crandall, economist at
Wrightson Icap.
Data earlier in the day showed that the US private sector added 130,000 jobs during October in a sign that the government
shutdown had modest effects on the rest of the economy.
ADP, the payroll processor, said that private jobs growth had fallen well below the recent average as the government
shutdown for almost three weeks earlier in the month but the figures did not show a catastrophic slump in employment.
The ADP report suggests that the shutdown did have a marked knock-on effect on private employment, further slowing an
already weakening trend, but it appears that employers held on to existing staff even if they slowed their hiring plans.
The question for the US Federal Reserve will be whether the weakness in October is a one-off or whether the drag on jobs
growth continues in the months ahead. In that case, it would be unlikely to slow its asset purchases from $85bn a month in
December.
“The government shutdown and debt limit brinksmanship hurt the already softening job market in October,” said Mark
Zandi, the chief economist of Moody’s Analytics, which compiles the ADP report. “Average monthly growth has fallen below
150,000. Any further weakening would signal rising unemployment.”
Less-dovish Fed weighs on stocks
By Jamie Chisholm, Global Markets Commentator.
Thursday 08:00 GMT. Equity benchmarks are retreating and the dollar is strengthening after the Federal Reserve challenged
perceptions it was very unlikely to taper stimulus in the few months.
The FTSE All-World index, which on Wednesday hit a near six-year intraday of 264.2, is down 0.4 per cent to 262.2. The
dollar index, which last week touched an eight-month low of 79.0, is up 0.1 per cent to 79.84.
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The US central bank’s $85bn-a-month of asset purchases is seen by many market participants as an important support for
stocks and bonds globally, so chances that quantitative easing programme will be curtailed tends to have a negative impact
on investor sentiment.
“We see a continued bias to scale back QE and view tapering in December as a 50-50 proposition, depending on data,”
wrote analysts at HSBC in a note to clients.
The supposedly less dovish than expected statement from the Fed is thus providing the excuse for risk asset and bond bulls
to pare back bets after enjoying a good run.
US 10-year Treasury yields, which hit a three-month trough of 2.47 per cent just before the Fed announcement on
Wednesday, is steady at 2.53 per cent. Equivalent duration Bunds are playing catch up, with yields adding 2 basis points to
1.71 per cent.
Wall Street can expect to see weakness on the final day of the month. S&P 500 futures suggest the New York benchmark will
fall another 5 points to 1,759, after retreating from a new intraday record of 1,775 in the previous session.
This dip is feeding into Asia and Europe as investors also struggle to absorb one of the busiest days of the year for global
corporate results. The Stoxx 600 is opening with a 0.2 per cent decline after the Asia-Pacific region shed 0.7 per cent.
Indeed, poorly-received numbers from the likes of Toshiba and Honda Motor provided extra downward pressure to Tokyo,
where the Nikkei 225 fell 1.2 per cent.
Japanese stocks were also hampered by the yen recovering some of the previous days losses versus the dollar to trade 0.2
per cent firmer at Y98.31, despite the Bank of Japan reiterating its commitment to keep easing monetary policy.
However, the prospect of more BoJ buying pushed benchmark 10-year Japanese government bond yields below 0.59 per
cent for the first time since early May, even though data showed manufacturing sentiment in Japan hit a three-year high this
month.
The meek pace of global growth was illustrated by softer than forecast GDP figures from Taiwan. The Taiex equity index fell
0.2 per cent after faltering exports caused the economy to expand at an annual pace of 1.58 per cent in the third quarter,
compared with a government forecast of 2.47 per cent.
Mainland China was weak, the Shanghai Composite losing 0.9 per cent, while Honk Kong’s Hang Seng also mirrored the
generally sour global mood, falling 0.5 per cent.
It’s likely such wariness over aggregate demand will not be helping industrial resources. Copper is off 0.8 per cent to $3.30 a
pound and Brent crude is slipping 29 cents to $109.57 a barrel.
A slightly stronger buck also may be putting pressure on dollar-denominated commodities, including gold, which is losing $7
to $1,335 an ounce.
BoJ holds steady on easing policy
By Ben McLannahan in Tokyo
The Bank of Japan has reiterated its pledge to keep buying about Y7tn ($71bn) of bonds a month until the end of 2014,
underscoring its status as the central bank most committed to monetary easing.
On Wednesday an upbeat statement from the US Federal Reserve implied that it could begin slowing purchases of assets in
December or January, should economic data prove good enough.
By contrast, the BoJ’s board on Thursday said it would keep pumping up the monetary base at an annual pace of about
Y60tn-Y70tn. The central bank’s assets now stand at Y212tn ($2.2tn), up more than a third since the beginning of the year,
compared with the Fed’s which stand at $3.8tn.
The BoJ’s short statement, published just after lunch, will be supplemented by a deeper analysis of growth and inflation
outlooks later on Thursday.
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The announcement underscores a divergence in policy that has already sent the yen down about 12 per cent against the US
dollar this year, easily the biggest fall among the G10 currencies. Although Japan’s growth is stronger than the US at the
moment, BoJ governor Haruhiko Kuroda – in tandem with Prime Minister Shinzo Abe – is determined to keep policy as loose
as possible to allow Japan to banish the deflation that has sapped spirits and stifled investment for most of the past 15 years.
In September, core consumer prices rose 0.7 per cent from a year earlier, slipping slightly from a 0.8 per cent rise in August
and largely due to the weaker yen pushing up import bills for fuel. An imminent rise in the consumption tax, effective next
April, is also expected to drag on demand.
“The BoJ will have to keep its foot on the gas pedal to achieve its inflation target [of 2 per cent],” said Kazuhiko Ogata, chief
economist at Crédit Agricole in Tokyo.
Thursday’s policy meeting was the seventh under Mr Kuroda, who assumed command in April promising a “new phase” of
easing to challenge entrenched expectations of deflation. The policy, dubbed “qualitative and quantitative easing” or QQE,
revolves around radically increased purchases of government bonds to push asset prices higher, keep borrowing costs low
and to lure bond-heavy investors into riskier stocks and loans.
The BoJ has met with some success. Japan’s benchmark 10-year interest rate has steadily sunk since June to less than 0.6
per cent, easily the lowest in the world, while there are signs of an increase in companies’ appetite to borrow. Year-on-year
growth in the outstanding stock of loans has been above 2 per cent since April, the highest level since the post-Lehman
period.
Expectations of inflation, too, are beginning to climb. Yet the most obvious beneficiaries have been stock and property
markets, which have recorded outsized gains since Mr Abe became prime minister last December.
In the 15 minutes after the announcement the yen gained slightly against the US dollar, while the Nikkei 225 stock average
dropped about 0.3 per cent.
IMF warns of financial shock risk to Africa
By Javier Blas, Africa Editor
The International Monetary Fund has for the first time warned that Sub-Saharan African countries are becoming
“increasingly vulnerable to global financial shocks” as they intensify their reliance on foreign investors.
The warning in its twice yearly review of the region comes as African frontier markets like Nigeria, Ghana and Kenya fret
about the side-effects of tighter monetary policy in the US.
African countries have benefited over the past three years from investors’ hunger for yield due to ultra-loose monetary
policies in the US, Japan and Europe. Governments from the region have raised a record $8bn in global sovereign bonds –
including from several debuts – this year, up from just $1bn a decade ago. And foreign investors have become for the first
time active players in some domestic bond and equity markets there.
Abebe Aemro Selassie, deputy head of the Africa department at the IMF, said that managing capital flows had become “a
bigger issue than [it] has ever been” for Sub-Saharan. He warned that African countries should not expect their love-story
with international investors for cheap and abundant funding to last for ever.
“The example I like to use for capital flows is that they resemble the bee: they produce honey, but they also have a sting,” he
said in an interview.
In the past African countries relied heavily on aid from donor countries to finance their needs. Since 2010, however, easy
global financial conditions combined with sustained high growth led to a significant increase in private capital inflows.
During the 2010-12 period, net private flows to sub-Saharan African countries doubled compared with the 2000–07 period.
Flows to several key regional heavyweights, including Ghana, Kenya, Mozambique, Nigeria, Senegal, Uganda, and Zambia,
registered a fivefold increase in the same period.
The IMF said African countries should anticipate “continuing volatility and increasing funding costs” as advanced economy
central banks gradually move away from their unprecedented accommodative policies. “Given the trend toward deeper
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integration with global financial markets, sub-Saharan African frontier markets are likely to become increasingly vulnerable to
global financial shocks,” it said.
African policy makers painted a more sanguine view, however. Lamido Sanusi, governor of the central bank of Nigeria, said
in an interview the impact of tighter monetary policy in the US will be felt more acutely in larger emerging economies like
India or South Africa than in frontier markets such as Nigeria or Ghana.
“Tapering is not going to happen as quickly [as the market fear]”, Mr Sanusi added, saying that the US economy still showed
signs of weakness.
In spite of the warning about the potential reversal of capital flows, the IMF painted a relatively rosy view about the outlook for
the region. “sub-Saharan Africa is projected to grow vigorously in the medium term, as it has for much of the past decade,”
the Washington-based body said.
The IMF forecast that economic growth will accelerate to 6 per cent in 2014, the highest since the onset of the global
financial crisis in 2008-09 and up from 5 per cent in 2013. “The main factor behind the continuing underlying growth in
most of the region is, as in previous years, strong domestic demand, especially associated with investment in infrastructure
and export capacity in many countries.”
However, such investment could be a double-edged sword for some African economies that are experiencing deteriorating
deficits as they spend on machinery to build the infrastructure. The IMF warned that fiscal and current accounts deficits
were likely to deteriorate in the next year.
But it added that inflation in the region is expected to remain moderate in 2013-14, reflecting benign prospects for food
prices.
BNP Paribas third-quarter hit by weak fixed income trading
By Michael Stothard in Paris
A weak few months for fixed income trading hit investment banking revenues at BNP Paribas in the third quarter, while the
wider group saw a slight fall in revenues amid a still tepid economic recovery in core European markets.
Revenues from fixed income fell by nearly a third compared with last year due to an unusually bad slowdown over the
summer months on the back of fears that the US Federal Reserve would reduce its bond-buying programme.
The largest bank in France by market capitalisation is the latest bank to be hit, with Credit Suisse, JPMorgan, Citigroup and
Deutsche Bank all seeing slower profits from fixed income trading in recent weeks.
The slowdown comes amid increased regulation in the wake of the financial crisis. Combined with subdued markets and a
move towards central clearing, this has prompted many banks to rethink entirely how they run their debt trading.
UBS slashed its fixed income arm last year, and last week Credit Suisse unveiled an overhaul of its own, focused on a
restructuring of its rates business, which is the lowest-returning part of its investment bank.
BNP Paribas was able to partly make up for declines in fixed income division with gains in equity trading and advisory, but
still pre-tax income in the investment bank was down 24 per cent on the same quarter last year to €552m.
The group’s retail banking division – which makes up around 60 per cent of sales compared to around 20 per cent for
corporate and investment banking – also saw a fall in revenues, although its effect was partially offset by cost cutting.
BNP has pledged to save €2bn a year by 2015 through a cost-cutting drive. It has also been investing in growing its
presence in Germany, the US and Asia, to add to its core markets in Italy, France and Belgium.
BNP reported that its total group net income was up 2.4 per cent to €1.36bn in the quarter, which was slightly ahead of
analysts forecasts, even as revenue fell 4.2 per cent to €9.3bn.
Results were helped by a fall in provisions for non-performing loans amid signs that the euro region’s economy emerges from
a record-long recession.
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Jean-Laurent Bonnafé, the chief executive, said that profits rose “thanks to the good resilience of its revenues, the ongoing
containment of its costs and the decline of its cost of risk”.
The group reported a further strengthening of its balance sheet, already one of the healthiest in Europe. Its core Tier one
capital ratio - a measure of balance sheet strength - under tougher Basel III rules rose to 10.8 per cent while its Basel III
leverage ratio rose to 3.8 per cent.
The strong balance sheet has led to questions about how the bank will eventually use extra cash, which will probably include
increasing payouts to shareholder but could also include smaller acquisitions.
The group may soon have the opportunity to buy out the minority stakes that Belgium and Luxembourg have in Fortis, giving
them full ownership of a profitable group.
BNP Paribas said earlier this month that it was going to take over a €12.5bn equity derivatives portfolio from Crédit Agricole’s
investment bank to manage the rundown of the positions during the next few years.
Disclaimer
© 2013 BPI. O BPI não é responsável pela informação financeira divulgada, designadamente, cotações, índices, notícias, estudos ou
outra informação financeira obtida através de terceiras entidades ou pela má percepção, interpretação ou utilização dessa informação.
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