News That Matters Euro Morning

HEADLINES

  • German court case could force euro exit, warns key judge
  • IMF Pushes for More Debt Relief for Greece
  • ECB says bond-buying programme is unlimited
  • ECB's Asmussen: See Low Inflation; MonPol Tools Have Changed
  • U.K. Economic Recovery Taking Hold
  • Japan PM Abe unveils plan for tax cuts to boost capex
  • Japan Q1 GDP Revised Up, Confirming Economy on Recovery Trend
  • Japan May Bank Lending Growth Remains at +2.1% Y/Y
  • China Export Growth Plummets Amid Fake-Shipment Crackdown
  • China New Yuan Loans in May CNY 667.4 Billion; CNY821.3 Billion Expected
  • China's May Retail Sales Growth Misses Gov't Target
  • China May CPI up 2.1% on year
  • China May PPI - down 2.9% on year
  • France industrial production rises 2.2% in April
  • Rival Koreas agree Seoul meeting after marathon talks
  • Abe Gets Yellow Card for Growth Strategy, Ex-BOJ Director Says
  • Britain to launch public sale of Lloyds shares; RBS later - paper
  • Google to buy Waze for $1.1 billion: report

COMMENTARY

Hearing Pits German Monetary Heavyweights Against Each Other
One of the bitterest fights in monetary policy lands in court this week as Germany’s highest legal authority hears evidence over whether the European Central Bank’s pledge to save the euro last year undermined the constitution. The hearing comes as crisis-weary Germans prepare to vote in a September general election that for the first time includes a euro skeptic party. But also of note are the star witnesses, two longstanding friends who have risen through the ranks to become arguably Germany’s most powerful unelected officials. Both have been instrumental in framing the response to the euro zone crisis but are now fighting from opposing corners.The court’s judgment will not come until later in the year and it is far from clear how it could influence the independent central bank, but inside the ECB the prospect of losing out in Germany’s court of public opinion is not taken lightly. As the euro zone’s biggest economy, Germany, via the Bundesbank, is the ECB’s biggest shareholder. From the outset Jens Weidmann, the Bundesbank president who sits on the ECB’s governing council, opposed the ECB’s Outright Monetary Transactions policy – under which the ECB would buy the bonds of countries subject to speculation that they might leave the euro zone. But, outside Germany, he failed to win the argument that such bond buying would be tantamount to funding governments by printing money, risking hyperinflation. http://www.cnbc.com/id/100801592

UK manufacturers increasingly turning away from credit - survey
British manufacturers are increasingly turning away from external funding to grow their businesses, a survey found, despite tentative signs that the cost of credit is easing. Nearly 52 percent of companies polled by manufacturers’ organisation EEF for its quarterly Credit Conditions Survey said they had no need to borrow to support their business, a record high. Industry turning its back on sources of credit would be bad news for the government and the Bank of England, which are trying to get lending going with measures such as the Funding for Lending scheme (FLS) that makes it cheaper for banks to lend to small businesses.Some improvement of such lending may be starting to emerge in the second quarter, said EEF economist Andrew Johnson. The survey, published on Sunday, found the balance of companies who said the cost of credit was rising rather than falling sank to 2 percent, the lowest since the survey began in 2007, although the improvement was largely concentrated among big businesses. “The counterpoint to this cautious optimism, however, is that there is continued growth in the number of companies that appear to no longer see external finance as an important funding source to support their business,” said Johnson. http://www.reuters.com/article/2013/06/08/britain-eef-credit-idUSL5N0EJ1IB20130608

China Signals Move on Deposit Insurance
China’s central bank said the time was right to move ahead with a long-awaited bank-deposit insurance system, a key component of greater financial liberalization and a needed step toward easing China’s barriers against foreign capital. The People’s Bank of China, in its financial stability report for 2013, also warned that “shadow banking”—which covers a range of unconventional lending in the Chinese economy—was creating increased risks for the financial system. “Currently the timing is basically right to roll out a deposit-insurance system,” the central bank said in a statement on its website Friday, in its most specific public assessment of the plan’s status. “The central bank, along with other government departments, is studying how to improve the plan and will set up a system as soon as possible,” the statement said.China’s state-dominated banking system has no formal deposit-insurance scheme. Instead, Beijing is widely seen as likely to step in to help any bank that faces a financial crisis—protecting both depositors and failing banks. The central bank touched on this in its report, noting there is an “invisible” guarantee system that it suggested creates the possibility of moral hazard among the banks. A bank-deposit insurance scheme is crucial to plans to make the yuan currency convertible on the capital account, which covers investments. China controls fund movements on the capital account, partly so that it has more control over domestic interest rates. But China is facing pressure to open up its financial system further as part of a wide-ranging overhaul of the economy aimed at creating more sustainable growth over the longer term. http://online.wsj.com/article/SB10001424127887324069104578531100407148648.html?mod=wsj_share_tweet

Fed Hurdle of 4 Straight 200,000 Payrolls Sets Bernanke View
The Federal Reserve says it will keep buying bonds until the labor market has “improved substantially,” without defining the phrase. Officials may have adopted a threshold nevertheless, say two former Fed economists. Chairman Ben S. Bernanke needs to see four months of job growth averaging at least 200,000 to justify reducing the pace of asset purchases, according to Vincent Reinhart, a former director of the Fed’s Division of Monetary Affairs. Roberto Perli, a former researcher in the division, said the central bank would need to see that pace “through the summer.” “They would see that as confirmation that the economy is on a self-sustaining trajectory and they would thus be confident that they could reduce the pace” of quantitative easing, said Perli, a partner at Cornerstone Macro LP in Washington.The figure helps provide clarity as investors seek to determine when the Fed will start to pare back the $85 billion in monthly bond purchases that kept borrowing costs low and fueled a stock-market rally. Yields on 10-year Treasury notes are near a one-year high on speculation tapering is imminent. The May payrolls increase fell short of 200,000. The Labor Department said today that payrolls rose 175,000 last month, while April’s gain was revised lower to 149,000. The jobless rate rose to 7.6 percent from 7.5 percent as more people entered the workforce. Bill Gross, manager of the world’s biggest bond fund, said the Fed probably won’t reduce its asset purchases after the rise in joblessness last month from a four-year low. http://www.bloomberg.com/news/2013-06-07/fed-hurdle-of-4-straight-200-000-payrolls-defines-bernanke-view.html

After Dismal Exports, Barclays Cuts China Growth Target
Momentum has shifted for the world’s No. 2 economy and not to the upside. The word of choice used in headlines on China these days, is either “slow”, “slower”, or “slowing.” Barclays Capital cut China’s 2013 and 2014 growth targets after dismal export data was released for the month of May this weekend. The investment bank lowered its 2013 GDP growth forecast to 7.4% from 7.9%, given the new leaders’ level of tolerance for slower growth and weaker than expected exports. May export growth rose 1% when market consensus was over 7%.Even with the slowdown, Chinese government leaders have refused to provide any stimulus to the economy. In a world market fueled by stimulus, China has sat on its collective hands. China has been consistently behind market consensus on nearly every economic indicator this year. Premier Li Keqiang’s bottom line for growth is probably closer to where his predecessor Wen Jiabao put it, at 7% from what the market was hoping for under Li, around 7.5%.  Li’s recent speeches highlight the challenges for China to reach even the 7% target on average this decade due to weak exports and a transitioning economy into one dependent more on consumers. http://www.forbes.com/sites/kenrapoza/2013/06/09/after-dismal-exports-barclays-cuts-china-growth-target/

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