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Review and analysis (jul 9-13, 2012)

Review and analysis (jul 9-13, 2012) Source: www.ccfgroup.com
Date: 13-07-2012
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China
I. Economic data
1. China's economy expanded 7.6 percent year-on-year in the second quarter of 2012, slowing from 8.1 percent in the first quarter, the National Bureau of Statistics (NBS) said Friday. According to preliminary statistics, the country's GDP grew 7.8 percent year-on-year to reach 22.71 trillion yuan (3.6 trillion U.S. dollars) during the first half.

2. According to the central bank's data, the year-on-year growth of broad money supply, which is known as M2, was 13.6 percent in June, 0.4 percentage points higher than that in May, indicating slightly boosted market liquidity.

3. The People's Bank of China offered 10 billion yuan of seven-day reverse repurchase agreements in its Thursday open-market operation. It offered CNY50 billion of seven-day reverse repos at 3.30 percent during Tuesday's operation.

II. Other economic news
1. China's new yuan-denominated loans surged in June as the government moved to buoy the slowing economy. The June new yuan-denominated loans rose 285.9 billion yuan (about 45 billion U.S. dollars) year-on-year to 919.8 billion yuan, the People's Bank of China (PBOC), or the central bank, announced Thursday.

2. Inflation has eased sharply in China, giving policymakers more room to spur economic growth amidst a global slowdown. Consumer price rises cooled in June to 2.2 percent compared to the previous year, China's statistics bureau said. That is down from 3 percent in May and is well below the government target of 4 percent.

3. China's Producer Price Index (PPI), a main gauge of inflation at the wholesale level, fell 2.1 percent in June from a year earlier, the National Bureau of Statistics (NBS) announced on Monday.

4. Data from the Ministry of Commerce showed that FDI flowing into China in the first five months reached 47.11 billion U.S. dollars, down 1.91 percent year on year. In May, FDI rose 0.05 percent from a year earlier to 9.23 billion U.S. dollars, reversing a declining trend from the previous six months.

5. China slashed the benchmark retail price for gasoline by 420 yuan per tonne and the price for diesel by 400 yuan per tonne starting from Wednesday, the country's top economic planner announced Tuesday.

6. China's foreign-exchange reserves fell to $3.24 trillion at the end of June, the central bank said, a record quarter-to-quarter drop.

III. CCFGroup's view
China's GDP grew 7.8 percent year-on-year during the first half of 2012. China's economy expanded 7.6 percent year-on-year in the second quarter. The figure revealed the slowest growth pace since 2009 and was within market expectation of below 8 percent. At the same time, China's new yuan-denominated loans rose 285.9 billion yuan year-on-year to 919.8 billion yuan, higher than the market expectation. But the share of long- term loans was less than one third, indicating enterprises were unwilling to invest for longer term. In addition, the continued to offering reverse repurchase agreements this week and all together injected 60 billion yuan to the market. It is believed that the central bank may continue to introduce easing policy due to the slowing economy and low invest interest of enterprises.

Global market
1. US initial jobless claims plunged 26,000 to 350,000 in the week ending July 7, 2012 from an upwardly revised 376,000 level (was 374,000) the previous week. Encouragement that labour markets are starting to improve, however, was tempered by the fact that the data was at least in part impacted by difficulties seasonally adjusting for traditional July auto retooling shutdowns. 

2. Eurozone industrial production rose 0.6 percent in May compared with a 1.1 percent contraction in April, while down 2.8 percent year-on-year, official figures from the Eurostat data agency showed on Thursday.

3. Germany raised 4.153 billion euros of 10-year debt earlier Wednesday at an average yield of 1.31 percent--also a record-low borrowing cost for its government. German bunds are regarded as a primary safe haven in that region.

II. Other economic news
1. Federal Reserve officials are open to the possibility of a new round of asset purchases, though the US economy may need to get weaker before any further action is taken.

2. Goldman Sachs, Barclays, Macroeconomic Advisers, Deutsche Bank, J.P. Morgan and High Frequency Economics all downgraded their forecasts for U.S. economic growth Wednesday. Fitch Ratings affirmed its AAA credit rating on the United States and maintained a negative outlook, citing a diversified and wealthy economy that is undermined by the government's inability to agree on deficit reduction measures.

3. Moody's Investors Service on Friday downgraded Italy's government bond rating by two notches to Baa2 from A3, and warned it could cut it much further if the country were to lose access to debt markets. 
  
4. Brazil's central bank has cut its benchmark lending rate to a historic low as part of efforts to revive growth in Latin America's largest economy. The central bank reduced its Selic interest rate by 50 basis points to 8.5 per cent, undercutting the previous mark of 8.75 per cent reached during the 2009 financial crisis.

5. The Asian Development Bank (ADB) on Thursday lowered the growth forecast for India to 6.5 percent for the current fiscal, from the earlier 7 percent projection, on the back of subdued demand and high inflation.

6. South Korea's central bank unexpectedly cut its key interest rate Thursday, reducing it by 25 basis points to 3.00 per cent to cushion the impact of the eurozone debt crisis on the export-driven economy.

III. CCFGroup's view
Worries about the European market eased somewhat after the EU summit. Eurozone industrial production rose slightly with the growth rate of 0.6 percent in May, but still exceeding the market expectation. However, Moody’s downgraded Italy's government bond rating by two notches to Baa2 from A3, which renewed the market concerns. The US initial jobless claims plunged 26,000 in the week ending July 7, showing that the US employment situation has not improved yet. Fears that the world's most powerful emerging economies are flagging have gained ground after Brazil and South Korea cut interest rates to boost growth. Brazil cut its main interest rate to a record low of 8% on Thursday, while South Korea shaved 0.25% off its benchmark rate to 3%.
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