Euro slides on ECB stimulus expectations

      

The euro slid in Asia on Thursday ahead of a key meeting of the European Central Bank where policymakers are widely expected to step up their stimulus programme. 

PHOTO: BLOOMBERG

DEC 3, 20152:15 PM

[TOKYO] The euro slid in Asia on Thursday ahead of a key meeting of the European Central Bank where policymakers are widely expected to step up their stimulus programme.

At the ECB's last monetary policy meeting of the year, analysts said president Mario Draghi will likely announce a beefing up of the bank's bond purchase programme and a possible cut in key interest rates, already at historic lows.

Speculation that the bank will further loosen its grip on monetary policy continues to press on the euro and has revived he possibility of it hitting parity with the dollar for the first time since 2002.

On Thursday, the unit weakened to US$1.0592 and 130.63 yen, from US$1.0619 and 130.83 yen in New York.

In a bid to bring eurozone inflation back up to levels conducive to healthy economic growth, the ECB has already unleashed an unprecedented series of easing measures.

It has slashed borrowing costs, made vast amounts of cheap loans available to banks and most recently embarked on a programme to buy around 60 billion euros of sovereign bonds each month until at least September 2016.

But inflation is still stubbornly low, standing at just 0.1 per cent in November, far below the ECB's target of just under 2.0 per cent.

"With various speculations about what the ECB may do, it comes down to whether these measures are more or less than expected," said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust.

"With bullish dollar positions at a very high level, we need to be mindful of position unwinding. A sense that the ECB may be done for now may spark buying back of the euro," he told Bloomberg News.

The dollar has won support from the expected policy divergence between the Federal Reserve - which may raise interest rates later this month - the ECB and Japan's central bank.

The greenback got another lift on Wednesday as Fed chief Janet Yellen signalled that the US economy looks strong enough for a rate hike this month.

In Tokyo, the dollar was off its New York levels, slipping to 123.30 yen from with 123.81 yen.

It was broadly higher against other Asian currencies including the Philippine peso, Malaysian ringgit, Indonesian rupiah, South Korean won, and Indian rupee.

AFP

      

Silver lining for S'pore manufacturing?

Nov PMI still in contraction mode but improves 0.3 point to 49.2 - slightly above forecasts

By

Kelly Taykellytay@sph.com.sg@KellyTayBT

An employee works on a machined metal component at the Coway Engineering & Marketing Pte. manufacturing facility in Singapore.

PHOTO: BLOOMBERG

 Smaller contraction

DEC 3, 20155:50 AM

Singapore

ANOTHER month, another negative reading - but this time with a slight glimmer of hope for Singapore's manufacturing sector, if November's Purchasing Managers' Index (PMI) is to be believed.

Although the PMI stayed in contraction mode for the fifth month in November, it improved 0.3 point to 49.2 - marking a slightly higher reading than private-sector economists had forecast. Those polled by Bloomberg had been expecting the PMI to rise just 0.1 point to 49.0.

A reading above 50 denotes growth, while one under 50 points to a contraction in the manufacturing sector.

This prompted some tentative optimism from economists like DBS's Irvin Seah and Stanchart's Jeff Ng, who told The Business Times that November's PMI figure - while still contractionary - offers silver linings amid an otherwise-dreary manufacturing outlook.

Said Mr Seah: "There could be light beyond the PMI gloom - but the key phrase is 'could be' ... This is the second consecutive month of improvement, from the bottom registered in September. Though it may be premature to call this a trend, at least the numbers are heading higher. Moreover, the sub-indices are supporting that hypothesis too."

According to the Singapore Institute of Purchasing & Materials Management (SIPMM), which released the November reading on Wednesday, new orders were up 0.5 point to 49.2, production 0.5 point to 49.1, inventory 0.2 point to 49.8, and employment 0.5 point to 48.7. They continued to stay in contraction mode, however.

Mr Seah noted as well that while stocks of finished goods remained above 50 at 51.3, this eased by 0.3 point. "This suggests a minor destocking in process, which may prompt an upward adjustment in production in the subsequent one to two months," said Mr Seah.

Stanchart's Mr Ng agreed, highlighting the narrowing gap between new domestic and external orders, versus inventories. This, he said, should help production to rebound modestly over the next few months.

Added Mr Ng: "There are some signs that the worst may be over. Input prices are trending down, and orders and production are also improving from the lows in Q3 2015."

As for the electronics PMI, it remained below the 50-point mark in November as well, with a 0.4 point rise to 49.0. This was higher than the market's forecast of 48.8, and showed improvements in new orders (up 0.7 point to 48.9), new export orders (up 0.4 point to 48.2), and production (up 0.6 point to 49.5).

SIPMM compiles the monthly index from a survey of more than 150 manufacturing firms' purchasing managers. Despite the more hopeful tone struck by other private-sector economists, CIMB Private Banking's Song Seng Wun still warned that the latest reading is "no fun at all".

"The fourth quarter is typically the busiest part of the year due to year-end festive demand. But it doesn't look like this is happening, going by regional October/November PMI readings and actual October manufacturing performances. This doesn't augur well for factory activities in Q1 2016," said Mr Song.

Indeed, even the optimistic economists were quick to curb their enthusiasm, and emphasised the still-dicey outlook for the manufacturing sector.

Stressing that downside risks still persist, Mr Ng cited China's dismal manufacturing performance of late, and said that this will inevitably weigh on external demand for Singapore.

DBS's Mr Seah also cautioned that November's improvement could simply be due to manufacturers front-loading production in 2015, ahead of the Chinese New Year lull period in early February. "Fingers crossed that this truly marks a trend and that the worst is behind us," said Mr Seah
.

Indonesia's richest get US$9b hit on commodity, currency doldrums: Forbes

      

DEC 3, 20151:39 PM

[JAKARTA] Indonesia's richest tycoons have seen their wealth drop by US$9 billion this year due to a continued fall in commodity prices and weaker currency, according to a Forbes list released on Thursday.

The collective wealth of Indonesia's top 50 richest fell 9 per cent to US$92 billion from a year earlier, the business magazine said. Six tycoons lost their billionaire status, including Edwin Soeryadjaya and Sukanto Tanoto.

Soeryadjaya owns a stake in PT Saratoga Investama Sedaya Tbk , which has interests in commodities such as coal and oil and whose stock has dropped 26 per cent so far this year. Tanoto owns Asian Agri, one of Indonesia's biggest palm oil producers.

Southeast Asia's biggest economy grew slightly faster in the third quarter thanks to higher government spending, but not enough to show a real turnaround has started. The rupiah has slid around 10 per cent this year, making it Asia's second-worst performing emerging market currency. "It was a challenging year for the Indonesian economy, and the declines across the board of the wealthiest in the country reflected that reality," Forbes said in a statement.

Despite the decline in overall wealth, Indonesia's tobacco tycoons remained at the top of the rich list. Budi and Michael Hartono, who control cigarette maker Djarum Group, were the wealthiest with a net worth of US$15.4 billion, while Susilo Wonowidjojo of PT Gudang Garam Tbk was on no. 2 with US$5.5 billion.

Third on the list was Anthoni Salim of the Salim Group, which has assets including instant noodle maker PT Indofood Sukses Makmur Tbk.

REUTERS

      

ADB revises forecast for China's 2015 economic growth higher

The Asian Development Bank has raised its 2015 economic growth forecast for China slightly, supporting expectations the world's second largest economy will avert a hard landing this year. 

PHOTO: BLOOMBERG

DEC 3, 20151:35 PM

[MANILA] The Asian Development Bank has raised its 2015 economic growth forecast for China slightly, supporting expectations the world's second largest economy will avert a hard landing this year.

China's economy is now expected to clock growth of 6.9 per cent in 2015, up from a previously expected 6.8 per cent, the ADB said in its outlook update released on Thursday. The agency maintained its 2016 forecast for growth at 6.7 per cent.

"Despite an ongoing housing overhang and excess industrial capacity, China's economy has remained resilient, supported primarily by private consumption and services," ADB said in a statement, adding fiscal and monetary stimulus measures should continue to provide support.

The Manila-based lender maintained its growth projections for developing Asia at 5.8 per cent in 2015 and 6.0 per cent in 2016, a testament to the region's resilience to continued weakness in advanced economies.

"The region's growth is supported by vibrant private consumption in China and expanded industrial production in India and other countries," said ADB chief economist Shang-Jin Wei.

The region, which groups 45 countries in Asia-Pacific, grew 6.2 per cent in 2014.

The ADB kept its growth forecast for India unchanged at 7.4 per cent for this year and 7.8 per cent for next year.

It lowered its growth outlook for Central Asia to 3.2 per cent from 3.3 per cent for 2015 and 3.7 per cent from 4.2 per cent for 2016, but maintained estimates for East Asia and South Asia.

Southeast Asia is still seen growing 4.4 per cent this year and 4.9 per cent next year even as the ADB downgraded its growth forecast for Indonesia, due to slow government spending and weak exports.

Inflation in developing Asia in 2016 is now forecast to be slightly lower at 2.7 per cent, compared with the 3.0 per cent seen in September.

REUTER
S

McDonald's raises US$6b from bond sale to back shareholders

McDonald's Corp sold a company record amount of debt today, three weeks after abandoning a plan to create a real estate investment trust favored by some shareholders as a way to unlock value from its massive property holdings. 

PHOTO: AFP

DEC 3, 20157:42 AM

[NEW YORK] McDonald's Corp sold a company record amount of debt today, three weeks after abandoning a plan to create a real estate investment trust favored by some shareholders as a way to unlock value from its massive property holdings.

The world's biggest restaurant chain sold US$6 billion of bonds in five parts, according to Bloomberg data. This follows what was a record US$4.3 billion issuance by the company in May.

"There is a lot of demand for global names with strong cash flow, and the McDonald's deal fits the description, so there's been a lot of enthusiasm," Jack Flaherty, a money manager in New York at GAM Holdings AG, which oversees US$127 billion, said in a telephone interview.

"The market feels much more positive about the company's performance than they had been feeling, and yields are still attractive at these levels."

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'FAVOURABLE CONDITIONS'

McDonald's backed out of the REIT proposal after "serious consideration," McDonald's Chief Executive Officer Steve Easterbrook said Nov 10, instead deciding to focus on a plan that includes returning US$10 billion to shareholders by the end of 2016, much of it backed by debt.

Two major rating companies trimmed McDonald's rating after the announcement.

"We're taking advantage of favorable conditions and rates," McDonald's spokeswoman Heidi Barker wrote in an e-mail, without commenting on the size of the offering.

"These issuances are aligned with what our senior leaders discussed at our November investor meeting."

The longest-dated portion of the deal was US$1.75 billion in 4.875 per cent 30-year bonds that yield 1.95 percentage points more than comparable government securities, according to Bloomberg data. That's lower than the 2.3 percentage points at which the debt was initially marketed at, according to a person familiar with the deal who wasn't authorized to speak publicly.

McDonald's "is resorting to the customary 'balance sheet optimization' to boost earnings per share, the dividend rate, and the return of cash to shareholders," Carol Levenson, an analyst at Gimme Credit LLC, wrote in a note to clients. The firm has an "underperform" rating on the company's debt. "Fundamentals are uneven at best," she wrote.

'Aggressive' Policy Both Moody's Investors Service and Standard & Poor's dropped McDonald's credit rating one level to three steps above junk after the REIT announcement, criticizing the decision to return cash to shareholders with additional debt.

"Moody's views this increase as McDonald's maintaining an aggressive financial policy that will result in a material deterioration in credit metrics and limit its financial flexibility," according to a company statement.

Fitch Ratings revised McDonald's rating to negative from stable, citing the company's "aggressive financial strategy."

McDonald's sold on May 18 US$2 billion in a three-part sale that was its largest dollar-denominated issue since 2008, and 2 billion euros (S$3 billion) of securities in its biggest offering in the single currency. The borrowings came two weeks after McDonald's implemented the turnaround plan, an announcement that also drew ratings cuts from S&P and Moody's.

The company's shares fell 0.64 per cent to US$113.72 at 5.06pm in New York. The shares jumped 21 per cent this year, versus a 1 per cent gain by the S&P 500.

BLOOMBERG

    
 

Indonesia changes rules on luxury tax for property

DEC 2, 20154:16 PM

[JAKARTA] Indonesia has changed the way it applies luxury tax to certain apartments and houses, by basing it on value instead of size, in a move that may clear up uncertainty plaguing the property sector.

A house with a sale price of 20 billion rupiah (S$2.04 million) or above is now subject to 20 per cent luxury tax, according to a new ministerial decree.

Previously, the finance ministry put luxury tax of the same rate on houses of 350 square metres (3,770 sq ft) or larger.

The luxury tax also applies to apartments priced at 10 billion rupiah or more, as opposed to the earlier threshold of 150 square metres minimum size. "We have suggested to keep calculating the luxury tax by land size and building size because it is fairer. If the tax is calculated according to price, in 10 years the price wouldn't be applicable anymore," Theresia Rustandi, vice chairwoman of Real Estate Indonesia, a business association, told Reuters on Wednesday. "But for us property developers, what is important is certainty. At least the regulation is out and it makes it clearer for the market to move," she added.

The plan to change the threshold for luxury tax on properties had been discussed for months before finally being introduced last week. The real estate assocation had lobbied the finance ministry several times, asking it not to change the rules.

Finance Minister Bambang Brodjonegoro had repeatedly said the old rule was not fair because it left small but expensive apartments in the middle of Jakarta untaxed.

The government of Southeast Asia's largest economy is facing difficulties in meeting its 2015 revenue target, which many said was unrealistically high from the start.

REUTERS