Why China's slowdown is a nightmare for commodities, in one chart

• Elena Holodny
 

• Sep. 2, 2015,

China is slowing down.

The country has been front and center over the last few weeks, with its volatile stock market and its newly devalued currency.

But, importantly, this decline isn't an isolated event.

Since China is such a big player in the global economy, and a major trading partner of many countries, its slowdown will inevitably hit other countries. And HSBC economists point out that commodities are a particularly vulnerable sector in this stagnating climate.

"Given China's role as the world's biggest commodity consumer, any slowdown adversely affects prices significantly. Copper prices are down more than 20% from recent highs, and oil is down roughly 40%," writes HSBC economist James Pomeroy.

Take a look below just how thirsty China is for commodities:

Read more: http://uk.businessinsider.com/chart-chinas-slowdown-is-a-nightmare-for-commodities-2015-9#ixzz3kgyd2eok

IMF WARNS: China's slowdown is much worse for the world than we had thought

• AFP

• 16h

REUTERS/StringerParamilitary policemen demonstrate self-defence skills to students at a school in Nanjing, Jiangsu province.

Washington (AFP) - China's economic slowdown is having a broader impact on the global economy than originally expected, especially on emerging markets, the International Monetary Fund said late on Wednesday.

In a report for Group of 20 (G20) finance chiefs meeting this week in Ankara, the IMF said the turmoil in China and other factors like capital flow reversals were increasing the risks to economic growth around the world.

It warned that advanced and emerging economies need to continue to support demand with reforms and investment to ensure that the turbulence in markets and China's troubles do not stall economic activity in the rest of the world.

"China's transition to a lower growth, while broadly in line with forecasts, appears to have larger-than-previously-envisaged cross-border repercussions, reflected in weakening commodity prices and stock prices," the Fund said.

Especially, "near-term downside risks for emerging economies have increased" from China-related fallout, sinking commodity prices, the strong US dollar, and sharp reversals in financial markets, it said.

The report, which will be used for discussion at the meeting on Friday and Saturday of the finance ministers and central bankers from the G20 leading economies, did not revise the IMF's previous estimate for global growth this year of 3.3%.

But earlier this week IMF Managing Director Christine Lagarde said in Indonesia that global growth would be "likely weaker" than forecast.

"Now the situation is changing yet again, and we are all feeling the impact of China's rebalancing and moving to a revised business model," she said.

The report expressed continued confidence that growth is picking up "modestly" in advanced economies in the second half of 2015 and in 2016, helped by the impact of cheaper oil.

But the oil price plunge, along with other commodities, is hurting emerging market economies, and they are also being buffeted by the impact on their currencies of China's renminbi devaluation and the strong dollar.

The dollar's strength, the Fund warned, could take a toll on companies with dollar liabilities.

The Fund highlighted an increase in risks to overall global growth: that China would not confront its slowdown with growth-supporting policies; that commodity prices would slide further; that the US dollar would continue to rise; and that companies would suffer from higher debts.

"Simultaneous materialization of some of these risks would imply a much weaker outlook," the Fund said. 

It recommended that advanced countries stick to very loose monetary policies and maintain "growth-friendly" fiscal policies.

It also stressed structural reforms that would free up various markets and encourage investment and consumption. 

In emerging economies, choices are tougher, and leaders "need to strike an appropriate balance between fostering growth and managing vulnerabilities." 

Market volatility alone not reason to voice concern on yuan: IMF

SEP 3, 201511:46 PM

[WASHINGTON] The International Monetary Fund does not see China's recent market volatility by itself as a reason to voice concern about including the yuan in its benchmark currency basket, an IMF spokesman said on Thursday.

IMF deputy spokesman William Murray said the fund was on track to complete a review of its Special Drawing Rights basket by the end of the year. Beijing has pushed hard for the yuan to be included.

"Some of the recent volatility that we have seen in markets has been...some market reaction to the move to adopt a more flexible exchange rate in China," he said. "But that in itself is no reason for us to be voicing concern about China and the SDR basket."

REUTERS

France says wing part found on Reunion island definitely from MH370

SEP 3, 201511:44 PM

[PARIS] The piece of wing found on the shore of Reunion Island in the Indian Ocean has been formally identified as part of the wreckage of Malaysian Airlines flight MH370, the Paris prosecutor said on Thursday.

The part, known as a flaperon, was found on the shore of the French-governed island on July 29 and Malaysian authorities have said paint colour and maintenance-record matches proved it came from the missing Boeing 777 aircraft.

The French prosecutor, who had until Thursday's statement been more cautious on its provenance, said a technician from Airbus Defense and Space (ADS-SAU) in Spain, which had made the part for Boeing, had formally identified one of three numbers found on the flaperon as being the serial number of the MH370 Boeing 777.

"It is therefore possible to confirm with certainty that the flaperon found on Reunion island on July 29, 2015 corresponds to the one from flight MH370," the prosecutor said in a statement.

The plane disappeared in March last year en route from Kuala Lumpur to Beijing with 239 passengers and crew on board, most of them Chinese.

REUTERS

    
 

Prime office rents seen softening further

URA data shows that office rents in the Central Region has weakened by 2.6% in Q2, after rising 0.6% in Q1

By

Lynette Khoolynkhoo@sph.com.sg@LynetteKhooBT

Office rents in Singapore's Central Business District (CBD) likely peaked in the first quarter of this year, with further softening becoming more pronounced as more tenants opt for cheaper decentralised offices and financial institutions consolidate amid an uncertain economic outlook. 

ST PHOTO: LIM YAOHUI

SEP 3, 20155:50 AM

Singapore

OFFICE rents in Singapore's Central Business District (CBD) likely peaked in the first quarter of this year, with further softening becoming more pronounced as more tenants opt for cheaper decentralised offices and financial institutions consolidate amid an uncertain economic outlook.

Key projects seen weighing down office rents in the Raffles Place and Marina Bay area in the second quarter were Asia Square in Marina Bay as well as CapitaGreen in Raffles Place.

According to some consultants, there was an aggressive marketing strategy to fill up Asia Square amid a potential divestment of Tower 1 by BlackRock Inc. The sale is said to have drawn bids from Norway's sovereign wealth fund, CapitaLand and Keppel Land.

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"As Asia Square Tower 1 is going through divestment exercise, it is in the landlord's interest to fill up the building quickly," said Cushman & Wakefield research director Christine Li.

In Marina Bay, Grade A effective direct rents - which are based on per floor basis and account for rent holidays and other incentives - slipped to S$11.01 per square foot per month (psf pm) in Q2, down from S$13.22 psf pm in Q1, Cushman & Wakefield estimated. In Raffles Place, rents dipped to S$10.66 psf pm in Q2 from S$10.92 psf pm in Q1.

Data released by the Urban Redevelopment Authority (URA) showed that office rents in the Central Region weakened by 2.6 per cent in the second quarter, after rising 0.6 per cent in the first quarter.

Ms Li is projecting a decline of 2 per cent in overall CBD prime office rents for each quarter in the second half, with the Marina Bay area more susceptible to rental fluctuations since some 58 per cent of the tenants there are banking tenants - of which many are reviewing their space requirements - compared with about 49 per cent in Raffles Place.

Savills head of research Alan Cheong said that he is expecting another 3-5 per cent slide in prime office rents in the CBD in the second half compared with the first half.

According to Colliers International, cost-conscious companies that do not require a CBD front office are making plans to move out of the financial district to reduce their occupancy costs.

Germany's automotive firm Daimler Group, for instance, is moving from Centennial Tower in City Hall to about 55,000 sq ft at Westgate Tower in Jurong East with an estimated 30 per cent rental savings. Insurance company Great Eastern Life is also taking up close to 33,000 sq ft at Westgate Tower. Mechanical engineering services firm Beca has reportedly leased 26,000 sq ft at Westgate Tower, relocating from Anson Centre in Shenton Way.

Knight Frank head of consultancy and research Alice Tan noted that the current lack of demand from potential large-space tenants, adding that with the possible deterioration in market sentiment, "downside risks on Singapore's rental growth could become more pronounced going forward".

A report released by Knight Frank last week showed a 1.4 per cent drop in prime office rents in Raffles Place and Marina Bay based on 2,500 to 5,000 sq ft of net lettable area and flagged that Singapore's prime office market is at a stage of accelerating decline in the rental cycle.

"As global and domestic business conditions turned cautious, leasing activities in Singapore's office market are showing signs of weakening," Ms Tan added. "Typical large space occupiers, in particular financial institutions, are holding back their expansion plans or are going through a consolidation phase by relocating to alternative locations or consolidating their offices to fewer locations in the CBD."

Ms Li noted that a growing amount of shadow and secondary space is easing the supply crunch this year as some large bank tenants give up more space in Raffles Place and Marina Bay.

For tenants whose leases expire next year, they will be "spoilt for choice" as about four million sq ft of prime office space and 2.3 million sq ft of business park space (out of which 1.1 million sq ft comes from MapleTree Business City II) will be completed, Ms Li added.

    
 

Global economic losses from drought to top US$8b: report

SEP 3, 201511:16 PM

[LONDON] Global economic losses from drought are likely to reach more than US$8 billion in the next few months as the El Nino weather pattern intensifies, reinsurance broker Aon Benfield said on Thursday.

Total economic losses from drought in the United States are likely to reach at least US$3 billion, mainly due to agricultural damage in California, Aon Benfield said in its monthly catastrophe report.

"As we continue to see the prospect of El Nino becoming one of the strongest in decades, more and more impacts will be apparent around the world," Steve Bowen, associate director of Aon Benfield's catastrophe modelling team and meteorologist, said in a statement.

The current El Nino weather phenomenon is expected to peak between October and January and could turn into one of the strongest on record, experts from the World Meteorological Organisation said this week.

REUTERS

IMF says Fed 'can hold off' on interest rate rise

SEP 3, 201511:27 PM

[WASHINGTON] The International Monetary Fund said Thursday that the Federal Reserve has the room to hold off from raising interest rates for the moment amid a "pretty bumpy" global economic situation.

"Our general view is that they have flexibility to hold off," said IMF spokesman William Murray, adding that the Fed "should proceed gradually" with its planned series of rate hikes.

Mr Murray, speaking to reporters, said the Fund expects the central banks in economies like the United States and Britain to begin raising rates eventually given the pickup in growth in their economies.

But he suggested there was still time to wait before taking the first step.

"The situation globally is pretty bumpy," he said, and the IMF view is that the Fed "should proceed gradually" with its plan to begin raising rates for the first time since 2006.

The Fed has held its benchmark federal funds rate at the zero level since 2008 to pull the economy back from the economic crisis.

Since last year it has been flagging a likely first rate hike sometime this year, with eyes now on the September 16-17 policy meeting for a possible move.

But Mr Murray pointed out that US inflation and wage pressures, two key barometers for a Fed decision, "remain muted".

That means the US central bank "can afford to hold interest rates low until there are more tangible signs of wage or price inflation than are currently evident."

When the Fed does move, Mr Murray stressed, its clear communication of policy intentions "is critical so that countries broadly around the world can adjust." The prospect of a slow series of rate rises in the United States has since two years ago stirred capital outflows from emerging economies and helped send their currencies tumbling.

AFP

    
 

Asia: Markets mostly higher as China marks holiday

PHOTO: AFP

SEP 3, 201511:18 AM

[HONG KONG] A sense of calm returned to Asian trading Thursday after weeks of China-fuelled volatility as a public holiday on the mainland allowed investors to focus on upbeat US data, helping push riskier assets higher.

A healthy run-up on Wall Street provided a perfect start for regional dealers ahead of the release of a crucial jobs report out of Washington on Friday.

However, the more upbeat mood came against a backdrop of a warning from the International Monetary Fund (IMF) that the recent turmoil from the China crisis was having a broader impact on the global economy.

Tokyo rose 1.4 per cent by lunch while Seoul added 0.46 per cent. There were also gains for Singapore and Taipei.

Shanghai and Hong Kong were closed to mark World War II Victory Day commemorations in China.

"A major source of market disruption is sidelined as markets in China are now closed for the week," Michael McCarthy, chief market strategist in Sydney at CMC Markets, told Bloomberg News. "Asia-Pacific investors are anticipating relief today." However, lingering concerns about Australia's economy kept Sydney in the red, with the ASX 200 down 0.80 per cent.

World indices have seen wild swings on growing fears about China's economy - the world's second biggest and a key driver of global expansion - as its leaders struggle to manage a slowdown in growth.

The latest ructions came on Tuesday when Beijing said the country's vast manufacturing sector had contracted in August.

International markets were shaken amid fresh questions over the government's ability to contain the crisis and transition the economy from one that is investment-driven to one reliant on consumer spending.

But buying sentiment was supported Thursday by advances on Wall Street, with the Dow up 1.82 per cent, the S&P 500 gaining 1.83 per cent and the Nasdaq 2.46 per cent higher.

US dealers were lifted by the Fed's Beige Book survey of the economy, which showed growth was modest to moderate while respondents were optimistic about the coming months.

Also Wednesday, a survey from payroll firm ADP showed the US private sector saw a 190,000 jump in new jobs in August. That came two days before the government's own figures, which are tipped to see a healthy rise.

Eyes are on the US central bank as its policymakers are scheduled to gather in two weeks for a meeting where they may decide to increase the key interest rates.

The buoyant mood also provided support for the dollar against the yen, which is considered a safer option in times of turmoil.

The greenback stood at 120.58 yen in early Tokyo trade, up slightly from 120.32 in New York Wednesday.

But while the US economy looks to be getting back on track, the IMF highlighted the fragility of the global economy as China struggles.

In a report for Group of 20 finance ministers meeting in Turkey this week the Fund said the upheaval in China, as well as factors like capital flow reversals, posed increased risk to economic growth around the world.

"China's transition to a lower growth, while broadly in line with forecasts, appears to have larger-than-previously-envisaged cross-border repercussions, reflected in weakening commodity prices and stock prices," it added.

However, it did not lower its outlook for world growth this year. Earlier this week IMF boss Christine Lagarde said global expansion would be "likely weaker" than forecast in 2015 owing to a bigger-than-expected slowdown across most economies.

AFP

    
 

Europe: Stocks shoot higher at opening bell

European stocks shot higher in opening trading on Thursday, benefitting from a Wall Street rally and volatile Chinese markets being closed for a long weekend. 

PHOTO: REUTERS

SEP 3, 20154:06 PM

[PARIS] European stocks shot higher in opening trading on Thursday, benefitting from a Wall Street rally and volatile Chinese markets being closed for a long weekend.

London's FTSE 100 index of leading shares jumped 1.17 to 6,154.12 points, while Paris's CAC 40 index climbed 1.03 per cent to 4,601.75 and in Frankfurt the DAX 30 advanced 1.13 per cent to 10,161.36.

AFP