China Dec factory activity shrinks for 10th month: Caixin PMI

China's factory activity contracted for the 10th straight month in December, and at a sharper pace than in November, a private survey showed, dampening hopes that the world's second-largest economy will enter 2016 on steadier footing. 

PHOTO: REUTERS

JAN 4, 201610:01 AM

[BEIJING] China's factory activity contracted for the 10th straight month in December, and at a sharper pace than in November, a private survey showed, dampening hopes that the world's second-largest economy will enter 2016 on steadier footing.

The Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) slipped to 48.2 in December, below market expectations for a slight pick-up to 49.0 and down from November's 48.6.

The reading was the lowest since September, remaining well below the 50-point level which demarcates contraction from expansion on a monthly basis.

The survey focuses more on small and medium-sized private firms. An official survey on Friday, which looks at larger state-owned companies, showed a fifth month of contraction though at a slightly more modest pace of 49.7.

Both surveys pointed to a continued albeit gradual loss of momentum, not a sharper deterioration or "hard landing" which has been feared by global investors. Plus, a stronger services sector is cushioning some of the downdraft from factories.

Still, economists expect more interest rate cuts, reductions in banks' reserve requirements and other stimulus in 2016 as the economy has been unusually slow to respond to a year-long flurry of support measures, suggesting it is facing deeper-rooted cyclical and structural challenges than in the past.

The government is expected to increase its budget deficit to about 3 per cent of gross domestic product in 2016 to help boost activity.

Weighed down by weak demand at home and abroad, factory overcapacity and cooling investment, China is expected to post its weakest economic growth in 25 years in 2015, with growth seen cooling to around 7 per cent from 7.3 per cent in 2014.

Some market watchers suspect real growth is actually much lower than official data suggest. "We are reviewing our 7.0 per cent forecast for fourth-quarter 2015 GDP growth for downward revision," ING said in a research note on Monday ahead of the PMI survey. "Absent vibrant external demand, we think it's a consensus view that China's GDP growth is poised to slow further to'about' 6.5 per cent in 2016." Beijing's progress on reforms may also be a key risk factor this year, after its surprise yuan devaluation in August and heavy handed stock market rescue in summer raised questions about its ability to enact market liberalisation steps that are a centrepiece of its economic agenda.

After picking up for the first time in seven months in November, the Caixin PMI output sub-index dropped to 48.7 in December, its lowest in three months, with anecdotal evidence suggesting firms had cut output due to weaker demand.

As companies cut costs and downsized, employment was also hit, falling to 47.3 in December, the 26th month in a row that employment has contracted.

New export orders contracted after two months of expansion, pointing to a weak start in 2016. Total new orders shrank for a sixth month, highlighting weak domestic demand as well.

Top leaders at the recent annual Central Economic Work Conference pledged to make monetary policy more flexible and expand the budget deficit in 2016 to support the economy as they seek to push "supply-side reform".

REUTERS

    
 

Ringgit and rupiah retreat as Saudi-Iran tensions boost US dollar

Malaysia's ringgit and Indonesia's rupiah weakened the most in three weeks as an escalation of tensions between Iran and Saudi Arabia bolstered demand for the dollar. 

PHOTO: BLOOMBERG

JAN 4, 201611:57 AM

[KUALA LUMPUR] Malaysia's ringgit and Indonesia's rupiah weakened the most in three weeks as an escalation of tensions between Iran and Saudi Arabia bolstered demand for the dollar.

The benchmark KLCI stock index retreated while a gauge of the greenback climbed as Saudi Arabia cut diplomatic ties with Iran after its embassy in Tehran was attacked to protest the Saudis' execution of a prominent Shiite cleric. The ringgit lost ground even as Malaysia's oil export revenues stood to gain from a rise in Brent crude to a three-week high.

"In terms of risk aversion, the main currency that gets supported is still the dollar," said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. "Oil took a back seat."

The ringgit dropped 0.7 per cent to 4.3238 a dollar as of 10:50 am in Kuala Lumpur, and earlier reached 4.3270, the weakest since Dec 18, according to prices from local banks compiled by Bloomberg. The currency lost about 19 per cent last year, the worst performance in Asia, as a slump in Brent crude hurt the outlook for Asia's only major net oil exporter.

The rupiah retreated 0.8 per cent to 13,900 a dollar in Jakarta, according to prices from local banks. It sank 10.2 per cent in 2015 - a fifth year of losses and the longest stretch since 1998 - as exports contracted for a 14th straight month through November amid a slump in commodity prices. 

Indonesia, the world's biggest palm oil grower and thermal coal exporter, said it missed its target for economic growth in 2015 because of a global slowdown. The economy expanded 4.73 per cent from a year earlier, missing the 5.7 per cent target set in the state budget, according to the finance ministry.

"Even if Indonesia announced good growth today, the rupiah will have been down," said Leong Sook Mei, Southeast Asia head of global markets research at Bank of Tokyo-Mitsubishi UFJ in Singapore. "It has to do with risk-off with regards to the global tensions." Ten-year Malaysian government bonds rose, pushing the yield down two basis points to 4.18 per cent, according to prices from Bursa Malaysia. The yield on Indonesia's notes slipped one basis point to 8.75 per cent.

BLOOMBERG

    
 

Frustrated youth push for power in Taiwan elections

Young activists frustrated by Chinese interference and pessimistic about the future are standing for election in Taiwan this month, determined to shake up politics in a move set to alarm Beijing. 

PHOTO: AFP

JAN 4, 20161:36 PM

[TAIPEI] Young activists frustrated by Chinese interference and pessimistic about the future are standing for election in Taiwan this month, determined to shake up politics in a move set to alarm Beijing.

The vote comes after Beijing-wary campaigners in Hong Kong won seats in recent elections, a further challenge to Chinese influence as anger swells among a generation of disaffected youth.

In Taiwan, the dramatic occupation of parliament in 2014 by student-led protesters over a China trade pact reflected increasing resistance to Beijing as young Taiwanese seek to forge and protect their identity.

It was also borne out of more everyday frustrations - low salaries, fewer job opportunities and unaffordable housing as the economy stagnates.

Although young Taiwanese had staged protests in the past, none had been on the scale of the Sunflower Movement's occupation of parliament.

Now, in the first island-wide election since the protests, activists are determined to push for political power, saying standing for office is the best way to bring change.

"Social movements can't obtain real political influence because Taiwan's system is too closed and too conservative," said Tseng Po-yu, 24, a spokeswoman for the Sunflower Movement who is standing for the newly-formed Green Party-Social Democratic Party Alliance.

Ms Tseng would become the youngest ever member of parliament and said many of her policies revolve around improving life for young people.

"It's impossible for young people to save money with low salaries and rising consumer prices, let alone to afford the skyrocketing housing prices," said Tseng.

"I want to speak up for young people who are concerned about their future... We deserve better lives."

Similar frustrations in semi-autonomous Hong Kong led to the pro-democracy Umbrella Movement, which brought parts of the city to a standstill in late 2014.

The student-led rallies were sparked by Beijing imposing restrictions on leadership elections, but were also an expression of frustration in a city where salaries cannot keep up with soaring house prices.

Former Hong Kong protesters recently took seats in district elections, although pro-Beijing forces dominated the polls in a key test of public sentiment.

"Young people are an economic minority as both (Hong Kong and Taiwan) government policy focus is not on them - their dissatisfaction exploded in the movements," said William Niu, a political analyst at the Chinese Culture University in Taipei.

"It is the awakening of many young people in Taiwan and Hong Kong who are fearful of being marginalised in society," he added.

Taiwan is self-ruling after splitting with China in 1949 following a civil war but has never formally declared independence from Beijing, which regards it as a breakaway territory to be reunited by force if necessary.

The vote on January 16 is likely to see the ruling Beijing-friendly Kuomintang (KMT) lose the presidency and possibly their majority in parliament.

The main opposition Democratic Progressive Party (DPP) is expected to win the leadership, sweeping away eight years of KMT rule that saw a rapprochement with China.

Traditionally Beijing-sceptic, the DPP is treading a careful line over its China strategy, saying that it wants to "maintain the status quo".

Young activists are far more vocal about their antipathy towards Beijing.

Terrence Lin, 34, a former flight attendant who participated in both the Sunflower and Umbrella movements, will stand for lawmaker in the Taiwan elections.

"I joined the rallies because I dislike Chinese propaganda in Hong Kong. I think Chinese propaganda in Taiwan is more subtle but more dangerous," he said.

"If you really want to change things... run for office." The younger generation's newfound political ambitions will bother Beijing, according to analysts.

"I think Beijing is keeping a close eye and is concerned about the changes in politics," said Chang Wu-yuch, a China expert at Tamkang University in Taipei.

Beijing "is enhancing its youth policy," focusing on the job and business opportunities China can offer, says Chang.

But with young people growing more wary of Beijing's influence, China's overtures may fall on deaf ears.

"I want a diverse parliament so different voices can be heard," said Wang Po-chieh, a 21-year-old college student and first-time voter in Taipei.

Office assistant Cheng Li-Chun, 25, said it was time for a new direction.

"If we don't support small parties this time, things will never change," she said.

AFP

    
 

Strong 6.8 quake hits near India-Myanmar border: USGS

An intensity shake map released by the US Geological Survey (USGS) on 03 January 2016 shows the location where a preliminary 6.8 magnitude earthquake struck 33km WNW of Imphal, India. 

PHOTO: EPA

JAN 4, 20168:26 AM

[NEW DELHI] A strong 6.8 magnitude earthquake struck northeast India near the country's borders with Myanmar and Bangladesh early Monday, the US Geological Survey said.

The tremor hit at 4.5am (2305 GMT Sunday) 33km west-northwest of the city of Imphal, capital of Manipur state, USGS said.

In its initial assessment, USGS said "some casualties and damage are possible and the impact should be relatively localised".

India's seven northeastern states, joined to the rest of the country by a narrow sliver of land, are located in an area of frequent seismic activity. The border region is remote and sparsely populated on the Myanmar side.

AFP

    
 

Singapore shares open higher on first trading day of 2016

By

Andrea Sohsandrea@sph.com.sg@AndreaSohBT

PHOTO: ST FILE

JAN 4, 20169:17 AM

SINGAPORE shares opened flat on Monday, with the Straits Times Index inching up 0.64 points or 0.02 per cent to 2883.37.

The exchange's biggest movers in early trading included Terratech, Noble, Jumbo, Ezra, Ezion and Yoma Strategic.

Some 75.4 million shares worth S$29.5 million changed hands as at 9.07am, with gainers outnumbering losers 85 to 53.

      

Asia: Stocks, currencies sink but oil surges on Mideast woes

PHOTO: EPA

JAN 4, 201611:02 AM

[HONG KONG] Asian stock markets tumbled while safe haven assets and oil prices jumped Monday in the first full day's trade of 2016 as a flare-up in tensions between Iran and Saudi Arabia raised concerns about the volatile Middle East.

Saudi Arabia severed diplomatic ties with its old foe Iran Sunday after protesters ransacked its embassy in Tehran in response to the execution of a Shiite cleric.

Riyadh gave Iranian diplomats two days to leave the kingdom, while the supreme leader in Tehran said Saudi Arabia would face "quick consequences" for the execution.

Relations between Sunni-ruled Saudi Arabia and Shiite-ruled Iran have been strained for decades, with Riyadh frequently accusing Tehran of interfering in Arab affairs.

The two countries have also been divided over the nearly five-year war in Syria, where Iran is backing the regime, and the conflict in Yemen where a Saudi-led coalition is battling Shiite rebels.

The developments are the latest to inflame the powder keg region and add to a list of negative news that hurt world markets over the past year, including China's economic malaise, plunging oil prices and anaemic global growth.

"It's going to be a testy start to the week," said Angus Nicholson, a Melbourne-based market strategist at IG Ltd.

"The execution raises uncertainty about the oil price with concerns and tensions in the Middle East and that will be a real driving force." With Saudi Arabia and Iran two of the biggest producers of oil, the price of the commodity rallied in early trade Monday, having suffered a severe slump in 2015 on the back of weak demand and a global glut.

US benchmark West Texas Intermediate climbed 1.7 per cent and Brent surged 1.9 per cent.

Investors fled to safe investments such as the dollar and yen, sending stocks and emerging market currencies tumbling.

Tokyo's Nikkei index lost 2.6 per cent by lunch and Hong Kong was off more than two per cent while Seoul shed 1.5 per cent.

Shanghai tumbled more than three per cent after a closely watched gauge showed factory activity in China continued to shrink in December, despite a marginal improvement.

On forex markets the dollar surged one per cent against its Australian counterpart, while it was up 0.9 per cent against the South Korean won and 0.7 per cent against the Malaysian ringgit.

It also saw sharp gains against the Taiwan and New Zealand dollars as well as Indonesia's rupiah and the Thai baht.

However, the greenback fell below 120 yen, with the Japanese unit considered a safe haven investment in times of turmoil and uncertainty.

"The Saudi situation is, geopolitically, not good news," Kengo Suzuki, chief currency strategist at Mizuho Securities in Tokyo, told Bloomberg News.

AFP

    
 

China: Shares slump 7%, trading halted for rest of day

China's benchmark CSI300 share index tumbled 7 per cent on the first session of 2016 on Monday, prompting the stock exchange to halt trading for the rest of the day. 

PHOTO: AFP

JAN 4, 20162:01 PM

[SHANGHAI] China's benchmark CSI300 share index tumbled 7 per cent on the first session of 2016 on Monday, prompting the stock exchange to halt trading for the rest of the day.

The "circuit breaker" suspension mechanism first came into effect on Monday.

Stocks slumped after weak factory activity surveyssoured hopes that the world's second-largest economy will enter the new year on better footing, and selling intensified throughout the day.

Investors also dumped stocks ahead of the imminent expiration of a share sales ban on listed companies' major shareholders, which had been imposed during the market crash last summer.

REUTERS

    
 

Greek central banker urges government on bailout reforms

JAN 3, 201610:04 AM

[ATHENS] Greece's central bank chief has urged the leftist-led government to implement bailout reforms agreed with the country's lenders, warning that backtracking would entail risks the economy could not withstand.

Prime Minister Alexis Tsipras' ruling coalition, which has a majority of just three seats in parliament, faces tough pension reforms that will test his resolve to carry out measures demanded by international creditors.

Reforming the country's ailing pension system is a prerequisite for the first review of Greece's 86 billion euro (S$131 billion) bailout agreed in July last year. "The successful completion of the programme's first review is certain to have a very positive impact on confidence. It is the key for the return of deposits to the banking system," Bank of Greece Governor Yannis Stournaras wrote in an article in Sunday's edition of Kathimerini newspaper. "A potential failure in completing the review would be destabilising, bringing to memory the experience of the first half of 2015. A repeat of that experience entails large risks, difficult for the economy to withstand this time."

Tortuous talks with the country's euro zone partners and the International Monetary Fund last year as Athens sought unsuccessfully to undo austerity measures led to a three-week shutdown of banks and the imposition of capital controls.

Mr Stournaras wrote that Greece's fiscal adjustment since 2010 when its debt crisis exploded is three-quarters of the way towards the ultimate goal of a primary budget surplus of 3.5 per cent of economic output by 2018.

A successful first review would open the way for talks to lighten Greece's debt burden, the gradual lifting of capital controls and the acceptance by the European Central Bank (ECB) of Greek government paper as collateral for bank financing.

The review's completion would also allow the ECB to include Greek government bonds in its quantitative easing programme, the central banker wrote. "The exit from the crisis and a return to normality is near. The government must fulfil the contract it negotiated with its lenders and take initiatives to improve a climate of trust," Mr Stournaras wrote.

Failure to complete the review, however, would undermine trust, intensify the recession and lead to more bad loans on bank balance sheets, he said.

In an interview with Sunday's Realnews newspaper, Mr Tsipras said the country's pension system was on the verge of collapse and that his government was working to fix it. "Our lenders must know that we will stick to the letter of the (bailout) deal, without this meaning that we will yield to irrational or unjust demands," he said.

Mr Tsipras said he was confident that more than his coalition's 153 deputies in the 300-seat parliament would support the pension reform legislation and that his government aimed to conclude the first bailout review before the end of February.

REUTERS

    
 

Saudi embassy attacked in Tehran: news agency

JAN 3, 20166:29 AM

[Tehran] Angry crowds protesting at Saudi Arabia's execution of a top Shiite cleric hurled petrol bombs and stormed the kingdom's embassy in Tehran on Saturday before being cleared out by police, ISNA news agency reported.

The incident came hours after the announcement of the death of 56-year-old cleric Nimr al-Nimr, who had been a key figure in anti-government protests in the kingdom's oil-rich east. The execution prompted strong condemnation from Shiite-majority Iran and Iraq.

Saudi Arabia executed 47 men convicted of terror-related offenses, including the dissident cleric who was critical of the kingdom's rulers.

The punishments were carried out in 10 provinces, Saudi Arabia's interior ministry said in a statement published on Saturday by the official Saudi Press Agency.

While most of the convicted men were Saudi citizens, an Egyptian and a Chadian national were among those executed. Some of the men were shot by a firing squad and some were beheaded, a ministry spokesman said on Al-Arabiya TV. The men were convicted of crimes including bombings that targeted the traffic department and interior ministry in Riyadh, plots to attack military airports, and other strikes on security forces, the ministry said.

Some of the attacks happened between 2003 and 2006. Those executed were described as promoters of a "deviant" version of Islam, a phrase used by Saudi Arabia for al-Qaeda, Islamic State and other militant groups.

"This sends a message of resolve and firmness in Saudi Arabia's policy of confrontation with its two enemies, mainly al-Qaeda and Iran," Ibrahim Fraihat, senior foreign policy fellow at the Brookings Doha Center, said in an interview. "It will also increase tensions inside Saudi Arabia because it gives the Shiite community new grievances and symbols to rally around within the country."

The kingdom is cracking down on domestic terrorists, who have staged multiple attacks since Saudi Arabia joined the US coalition against Islamic State in 2014. Saudi security forces arrested 377 people for joining Islamic State, Al-Jazirah newspaper reported in December.

AFP, BLOOMBERG

      

Treasuries set for measured losses with Fed in rate-raising mode

Treasuries are forecast to decline during the first half of 2016, with yield increases moderated on speculation the Federal Reserve's monetary-policy normalization will prove more gradual than central bank officials foresee. 

PHOTO: AFP

JAN 2, 20161:23 PM

[NEW YORK] Treasuries are forecast to decline during the first half of 2016, with yield increases moderated on speculation the Federal Reserve's monetary-policy normalization will prove more gradual than central bank officials foresee.

The median estimate of strategists and economists surveyed by Bloomberg shows the 10-year Treasury note yield rising to 2.55 per cent in six months from its 2.27 per cent level on Thursday. The yield on the two-year note, the shorter-maturity security more closely tied to the outlook for Fed policy, will rise to 1.33 per cent by the end of June, which would be the highest since 2008, from 1.05 per cent, forecasters say.

"You have a Fed that will slowly raise rates, with the market still taking the under with really how fast the Fed can lift them," said Scott Buchta, the head of fixed-income strategy at Brean Capital in New York and a nearly three-decade bond- market veteran. Traders "still see a lot of different headwinds from the tax and regulatory side, wage growth that really hasn't been there yet and slack still in the labor force."

Plunging oil prices and a strong dollar have curtailed upward price pressures in the US, where signs of economic strength contrast with weakening growth in China and Europe. Tame inflation gives little impetus for Treasury yields to surge as Fed officials seek to normalize policy without crimping economic activity.

Forecasters have repeatedly called for higher yields in recent years, as the Fed was seen moving closer to tightening monetary policy, only to be proven wrong as yields fell or remained low. Forecasters lowered estimates in 2015 as global central banks added stimulus while China's slowing economy and plunging commodity prices stymied inflation, capping yields.

The derivatives market is pricing in slightly more than two Fed increases in 2016, compared with the four moves that Fed officials laid out in their latest quarterly forecasts. Interest-rate derivatives traders see the fed funds rate at about 0.94 per cent at the end of 2016, compared with the median outlook of central bank officials of 1.375 per cent.

US economic growth, which slowed to an annualized rate of 2.1 per cent in the third quarter of 2015, is forecast to be 2.5 per cent for all of 2015 and remain at the same pace in 2016, according to a Bloomberg survey of 81 economists. Amid tepid growth, inflation has been below the Fed's 2 per cent target for more than three years, with the central bank's preferred gauge rising 0.4 per cent in the 12 months ended in November.

The difference between yields on government debt and similar-maturity Treasury Inflation Protected Securities, known as the break-even rate, shows traders are pricing in a sub-2 per cent US inflation rate for the next 30 years.

"We are not clicking on all cylinders from the economic point of view yet," said Buchta, who spent two decades at Bear Stearns Cos until its 2008 purchase by JPMorgan Chase & Co.

History shows long-term Treasuries often fare well in a rising-rate environment. Every time the Fed has raised rates over the past four decades, betting that longer-term Treasuries would outperform short-term debt has proved to be a big winner, as higher rates stemmed inflation and kept economic growth from overheating, according to data compiled by Bloomberg.

BLOOMBERG