ECB worried about economic slowdown in China, minutes show

The European Central Bank acknowledged Thursday that its governing council is concerned about the economic slowdown in China, even if the impact appears to be fairly limited for now. 

PHOTO: AFP

AUG 13, 201510:30 PM

[FRANKFURT] The European Central Bank acknowledged Thursday that its governing council is concerned about the economic slowdown in China, even if the impact appears to be fairly limited for now.

"Financial developments in China could have a larger than expected adverse impact, given this country's prominent role in global trade," the governing council said, according to the minutes of its meeting on July 15 and 16 released on Thursday.

Nevertheless, the fallout from the Greek crisis and slowing growth in emerging economies such as China were still fairly limited so far, the council agreed.

"Uncertainties stemming from developments in the Greek programme negotiations and from the deteriorating economic and financial conditions in some (emerging economies), most notably China, did not appear to have had a discernible impact on euro area economic activity," the minutes stated.

"This pointed to a certain degree of robustness of the ongoing recovery, as supported by some country-specific developments." The ECB publishes the minutes of its governing council's monetary policy deliberations four weeks after each meeting.

Turning to Greece, which is negotiating a third bailout programme with its creditors, "recently improved prospects (for a deal) ... could be expected to contribute to a firming of confidence across the euro area," the ECB said.

"Nevertheless, setbacks in those negotiations could still negatively affect confidence and activity, and some caution was expressed regarding potential contagion risks in particularly adverse scenarios, which should not be underestimated," it cautioned.

The governing council believed that the accommodative monetary policy conditions in the euro area should be maintained and that the ECB would remain ready to deploy additional policy measures in the case of a financial shock or sudden change in the inflation outlook.

"Overall, the recovery in the euro area was expected to remain moderate and gradual, which was considered disappointing from both a longer-term and an international perspective," the minutes stated.

In March, the ECB embarked on a programme of so-called quantitative easing or QE, a massive 1.14-trillion-euro (S$1.8 trillion) sovereign bond purchase scheme aimed at bringing area-wide inflation back up to levels consistent with healthy economic growth.

Under the QE programme, the ECB aims to buy 60 billion euros of bonds per month until September 2016.

Since its launch in March, top ECB officials are convinced that the purchases are having the desired effect and inflation rates in countries such as Germany and France are gradually moving upwards.

AFP

    

Widodo seeks Indonesian reboot as currency pressure mounts    

The president, known as Jokowi, revamped his economic team in a cabinet reshuffle on Wednesday as China's currency devaluation spurred further declines in the rupiah. 

PHOTO: AFP

AUG 13, 20151:52 PM

[JARKATA] Indonesian President Joko Widodo is going for a reboot.

The president, known as Jokowi, revamped his economic team in a cabinet reshuffle on Wednesday as China's currency devaluation spurred further declines in the rupiah. On Friday, he will lay out a fresh plan to revive an economy growing at the slowest pace in over five years when he unveils the 2016 budget and makes his first state of the union address.

A former furniture manufacturer from humble origins, Jokowi took office last October buoyed by investor optimism he would bring effective governance and market-friendly reforms to Southeast Asia's largest nation. Those hopes have been largely undermined by protectionist policies, simmering political tensions and an infrastructure drive that has yet to begin.

After months of pressure from Jokowi's Indonesian Democratic Party of Struggle over the cabinet's performance, Jokowi made six changes, turning to former Bank Indonesia Governor Darmin Nasution for economy minister. Tom Lembong, a Singapore-based private equity investor and adviser to Jokowi, became trade minister. Finance Minister Bambang Brodjonegoro kept his job.

"Jokowi has managed to balance some of his party's interests with the things he wanted to do," said Jakarta-based Douglas E. Ramage, country head for Indonesia at business advisory Bower Group Asia. "The new minister of trade was a very astute choice to counter a rapidly growing perception of protectionism. Lembong understands, and is committed to, Indonesia's adherence to international trading law, as well as the importance of free and open trade."

REALISTIC BUDGET

Lembong replaces Rachmat Gobel, who oversaw a steep increase in import tariffs on a range of consumer goods in July and has limited beef imports from Australia. Gobel also signed a decree restricting the sale of beer in the nation, unnerving companies.

Investors will be looking for a realistic spending plan next year that can be achieved. Predictions for economic growth and revenue in the current budget have been overly optimistic, leading to unfulfilled expectations and perceptions of inexperience in the economic team, said Juniman, chief economist at PT Bank Internasional Indonesia.

"The markets will be watching this very, very closely," he said. "Up until now the government has always been very optimistic, ignoring the domestic and global economic conditions. Will we get more of this tomorrow, or a more realistic view?"

STALLED PROJECTS

Jokowi said the reshuffle was needed to speed up the realization of stalled infrastructure projects and make the country more attractive to foreign investors.

"It's impossible that our economy will grow only through budget spending, state-owned enterprise spending or private consumption," Jokowi said in an interview with Metro TV broadcast late Wednesday. "We need capital inflows." Jokowi has often appealed to foreign businesses to invest in Indonesia, but has made little progress in fixing concerns over corruption, red tape and an uncertain legal environment. Foreign direct investment was US$7.4 billion in the three months through June, little changed from a year earlier in dollar terms. Foreign funds have only bought a net US$149.7 million of Indonesian stocks this year.

EFFICIENT SPENDING

Government spending, expected to be the main driver of growth given a persistent slump in commodity exports, has been hampered by changes in ministries and bureaucratic inefficiencies. Indonesia has spent 48 per cent of this year's state budget, Finance Minister Brodjonegoro said on Thursday.

"The biggest expectation for Jokowi is that he will be able to spend and spend efficiently," said Vaninder Singh, an economist at Royal Bank of Scotland Group Plc in Singapore. "If he can't even spend, we won't even get to see the efficient part." Ensuring coordination for that will fall to Nasution, a former tax chief with a doctorate in economics from Paris- Sorbonne University in France. He led the central bank between 2010 and 2013, cutting interest rates to a record low to support growth.

Jokowi made Luhut Panjaitan, his chief of staff and a former commando, the coordinating minister for political, legal and security affairs. Another new cabinet member previously in government was Rizal Ramli, a former finance minister, who became the coordinating minister for maritime affairs, a portfolio that covers energy and mining as well as fisheries.

"There is enough in the new cabinet for investors to at least give him the benefit of the doubt," said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. "The retention of the finance minister should keep expenditure disbursement as on track as possible."

BLOOMBERG

      

Malaysia sees no need for capital control measures: central bank

Malaysia sees no need to re-peg the ringgit to any other currency or impose capital controls in spite of its fall to 17-year lows, central bank governor Zeti Akhtar Aziz said on Thursday. 

PHOTO: BHM

AUG 13, 20151:57 PM

[KUALA LUMPUR] Malaysia sees no need to re-peg the ringgit to any other currency or impose capital controls in spite of its fall to 17-year lows, central bank governor Zeti Akhtar Aziz said on Thursday.

"I want to emphasise that we do not want to peg the currency," Ms Zeti told reporters. "We've moved on from capital controls." The ringgit has fallen more than 12 per cent this year, making it the worst performing emerging Asian currency.

On Thursday, after Malaysia announced stronger-than-expected second quarter growth and Ms Zeti's comment that there will be no capital controls, the ringgit briefly strengthened, reaching 3.9945 to the dollar from 4.000. But later, it slipped to 4.008.

The currency began to weaken in September 2014, when global prices of commodities fell. Between September and July, the country's foreign-exchange reserves have fallen more than US$35 billion, to less than US$100 billion.

"The ringgit is receiving additional pressure from declining commodity prices and domestic factors," Ms Zeti said.

However, the central bank maintained that the "impact of ringgit depreciation is manageable" and that the "economy will remain resilient in the face of a challenging environment".

Markets have been concerned that Bank Negara Malaysia (BNM) might consider imposing capital controls following the rapid depletion of reserves and the ringgit breaching 4.00 against the dollar.

In 1998, during the Asian financial crisis, then-Prime Minister Mahathir Mohamad imposed capital controls and pegged the plunging ringgit at 3.80 to the dollar. The controls were lifted in 2005.

Asked whether Malaysia might again impose controls, Ms Zeti said that the country has "a more developed financial system and markets that are larger and able to absorb volatility".

On July 30, BNM denied rumours that Ms Zeti had stepped down as governor. On Thursday, she said will complete her full term, which ends in May 2016. Ms Zeti became governor in 2000.

REUTERS

    

US dollar steady as slower yuan drop calms nerves

AUG 13, 20152:43 PM

[SINGAPORE] The US dollar held above a one-month low against a basket of currencies on Thursday as the yuan's fall slowed, easing worries that China was trying to sharply devalue its currency to gain competitive advantage.

The yuan weakened slightly but the pace of its decline dipped as China's central bank said there was no basis for further depreciation in the yuan, given China's strong economic fundamentals.

Banking sources said the People's Bank of China had stepped up its intervention in yuan trading bid to stabilise exchange rates. "There is a degree of calm returning to the market," said Mitul Kotecha, head of Asia-Pacific FX strategy for Barclays in Singapore. "The market certainly perceives that the Chinese authorities don't want the CNY (yuan) to weaken too dramatically." The dollar edged up about 0.2 per cent against a basket of major currencies to 96.430, inching away from a one-month low of 95.926 set on Wednesday.

Improving risk sentiment and a rise in US Treasury yields on Thursday as share prices firmed supported the greenback.

Against the safe-haven yen, the dollar rose 0.2 per cent to 124.43, although it remained below a two-month high of 125.28 yen set on Wednesday. "If risk-off type of trading recedes that should help support the dollar against the yen," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

The euro slipped 0.1 per cent to US$1.1147, having backed off from a one-month high of US$1.1215 set on Wednesday.

Some market players say the euro has been supported this week due to the unwinding of euro-funded carry trades.

Growing uncertainty over whether the US Federal Reserve will raise interest rates in September has also helped to support the euro versus the dollar.

Such doubts had increased after China's surprise devaluation on Tuesday stirred worries about the health of the Chinese economy and triggered falls in risky assets such as equities and commodities.

The Australian dollar, which is often used as liquid proxy for China plays, held steady at US$0.7382, having recovered from a six-year low of US$0.7217 set on Wednesday.

REUTERS

    

Global Chinese consumer leaves no winners in luxury stocks

Burberry Group and Hugo Boss plunged more than 7 per cent in two days after China devalued its currency, even though the companies have some of the smallest sales exposure to the yuan among luxury makers, according to Credit Suisse Group AG. 

PHOTO: EPA

AUG 13, 20152:34 PM

[MADRID] The rout in European luxury-goods makers is sparing nobody - regardless of how much they sell in China.

Burberry Group and Hugo Boss plunged more than 7 per cent in two days after China devalued its currency, even though the companies have some of the smallest sales exposure to the yuan among luxury makers, according to Credit Suisse Group AG. That's because when taking into account purchases by Chinese travelers abroad, most of the companies are just as reliant on the nation, Sanford C. Bernstein says.

"It's at these times that you understand the extent to which the market of luxury goods is exposed to China and how much it depends on the decisions of the Chinese government," said Mario Ortelli, an analyst at Bernstein in London.

Looking at individual companies' sales in the mainland isn't a reliable gauge to determine which shares are the most at risk. Chinese consumers now do more than half of their spending abroad, according to Bank of America Corp.

Burberry gets 11 per cent of its revenue in yuan, compared with 7 per cent for Hugo Boss, according to estimates by Credit Suisse. Swatch Group AG, which has lost 8.8 per cent in two days, has the biggest exposure, with 23 per cent.

LVMH Moet Hennessy Louis Vuitton and Salvatore Ferragamo sank more than 10 per cent in two days.

Exports to China The Stoxx Europe 600 Index tumbled 2.7 per cent on Wednesday, the most since October and compared with a gain in the Standard & Poor's 500 Index. That's partly because the region sells more to China than the US: The European Union had almost 165 billion euros (S$256 billion) worth of exports to the country last year, compared with US$124 billion for the US to China, according to the European Commission and the US Census Bureau.

For Berenberg Bank, benefits from Chinese travelers' spending on the back of a weak euro will probably offset the effect of the yuan's decline. The potential boost to the Chinese economy from export growth may also increase local demand from Chinese consumers, the Berenberg report said.

Rene Weber, an analyst at Bank Vontobel in Zurich, disagrees, saying burdensome import taxes in China will limit increases in local sales. But the biggest concern for luxury companies is the slowdown of the nation's economy, he said.

"You have a lot of sales in China, and if you see a strong decline in the economy, it becomes an issue for these companies," Mr Weber said. "With a deteriorating economy, people cut spending at home and abroad."

BLOOMBERG

    

Singtel chalks up 13% rise in Q1 profit, lifted by exceptional gains

By

Nisha Ramchandaninishar@sph.com.sg@Nisha_BT

Telco group Singapore Telecommunications (Singtel) on Thursday reported a 13 per cent jump year on year in first quarter net profit to S$941.6 million, boosted by exceptional gains. 

PHOTO: THOMAS WONG

AUG 13, 20158:21 AM

TELCO group Singapore Telecommunications (Singtel) on Thursday reported a 13 per cent jump year on year in first quarter net profit to S$941.6 million, boosted by exceptional gains.

The exceptional gains included divestment gains from venture investments as well as Airtel Africa's tower assets.

Stripping out exceptional items, underlying net profit was up 2 per cent.

Operating revenue edged up 2 per cent to S$4.21 billion, dragged down by the weaker Australian dollar. In constant currency terms, operating revenue would have risen 8 per cent, Singtel said.

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