Asia update: Markets up after upbeat China factory data

PHOTO: BLOOMBERG

OCT 1, 201511:19 AM

[HONG KONG] A slight improvement in an official gauge of Chinese factory activity gave a boost to investor confidence Thursday, rallying Asian equities and emerging market currencies for a second straight day.

However, a dip in Japanese business confidence highlighted the struggle ahead for the country's leaders in kickstarting the economy in the face of a growth slowdown in China and an expected US interest rate rise.

The gains come after global stock markets suffered their worst quarter since 2011, with trillions wiped of valuations since China devalued its yuan currency in August, sparking fears about the worldwide impact of China's struggles.

"Global risk sentiment is swinging between optimism and pessimism on a near-daily basis as nervous market participants evaluate whether the volatility seen in late August is just a bad memory or will prove to be a harbinger of larger trouble down the track," Sharon Zollner, a senior economist in Auckland at ANZ Bank New Zealand, said in a client note.

"Markets will likely continue to zig-zag until we get a clear signal one way or another," she said, according to Bloomberg News.

China in the morning released data showing its Purchasing Managers' Index of manufacturing activity in September came in a little better than the previous month, though it was still near a three-year low.

While it showed the crucial sector was still in contraction, traders were cheered by the fact it had stabilised. A private reading on September factory activity last week came in at a six-and-a-half-year low, sending world stocks into paroxysms.

Dealers are growing increasingly concerned about China's woes following a string of weak data - from manufacturing and investment to retail sales and trade - despite five interest rate cuts since November.

August's devaluation also stoked worries about Beijing's ability to control the crisis.

Regional players were given a positive lead from New York, where the three main indices clawed back slightly from hefty recent losses.

The Dow rose 1.47 per cent, the S&P 500 gained 1.91 per cent and the Nasdaq jumped 2.28 per cent.

In Asian markets Tokyo rose 1.74 per cent by lunch, Sydney gained 1.53 per cent, Seoul was 0.77 per cent higher and Singapore added 0.33 per cent.

Hong Kong and Shanghai were closed for a public holiday.

The upbeat mood helped higher-yielding, or riskier, assets sending the dollar lower. In morning trade the greenback was down against the Australian dollar, South Korean won, Indian rupee and Malaysian ringgit. The Thai baht and Indonesia's rupiah also advanced.

However, emerging market units are still well down against the dollar owing to expectations the Federal Reserve will lift interest rates before 2016, leading dealers to withdraw cash back to the United States looking for better, safer returns.

The US will release key employment data on Friday, which will provide more clues about the Fed's plans for hiking borrowing costs ahead of a meeting at the end of the month.

Japanese investors brushed off news that the closely-watched Tankan survey of manufacturing sentiment eased in the July-September quarter.

The data is the latest evidence that Prime Minister Shinzo Abe's plan to boost the economy with big spending and monetary easing is faltering. It also will likely up pressure on the Bank of Japan to increase its stimulus programme.

Marcel Thieliant, economist at Capital Economics in Singapore, said the survey confirmed fears that the world's third-largest economy could slip into recession.

"While today's Tankan was not as bad as most had feared, it nonetheless corroborates other signs that Japan's economic recovery has ground to a halt," Mr Thieliant said in a commentary.

AFP

    
 

Asia-Pac corporate and investment banking to feel cost pinch in 2015: consultancy

By

Jamie Lee leejamie@sph.com.sg@JamieLeeBT

OCT 1, 201511:50 AM

GLOBAL corporate and investment banking revenue was flat last year compared to 2014 at 985 billion euros (S$1.57 trillion), reflecting cost pressures, overcapacity, and paltry economic growth, a report by consultancy Roland Berger said on Thursday.

Bucking the trend, the Asia-Pacific region registered a 3 per cent growth in revenue to 396 billion euros in 2014, but the consultancy warned that regional institutions will feel the same pinch as their global counterparts this year.

"Even though leading regional institutions have so far successfully developed with a low cost/income model, growing their revenues faster that their cost base, we expect to see a turning point in 2015; they will feel the double negative of lower revenues and still inflating cost base," said Philippe Chassat, head of financial services practice, South-east Asia, at Roland Berger, in a press statement.

In Asia-Pacific, corporate banking revenue rose on the back of stronger gains from transaction banking and lending. But investment banking revenue contracted by 10 per cent from a year ago. Revenue from fixed income, commodity and currency dropped 6 per cent, while equity sales slipped by one per cent.

    
 

Taiwan says hard to achieve 1% GDP growth in 2015 as economy shrank in Q3

OCT 1, 201511:15 AM

[TAIPEI] Taiwan's chief statistics agency said on Thursday it would be difficult for the island's economy to achieve 1 percent growth in 2015, as third-quarter GDP shrank, Taiwan's Central News Agency reported.

Directorate General of Budget, Accounting and Statistics'Minister Su-mei Shih made the comment at the legislative council.

In August, the official agency revised down the 2015 gross domestic product estimate to 1.56 per cent from 3.28 per cent, the lowest in six years.

REUTERS

    
 

Pacific trade partners make progress on autos hurdle

The twelve Trans-Pacific Partnership (TPP) Ministers hold a press conference to discuss progress in the negotiations in Lahaina, Maui, Hawaii on July 31, 2015. 

PHOTO: REUTERS

OCT 1, 201510:11 AM

[ATLANTA] Negotiators trying to clinch a Pacific Rim free trade deal made progress toward resolving a key issue on Wednesday when Canada and Mexico signaled a willingness to open the North American auto market to more parts made in Asia, people briefed on the closed-door talks said.

The Trans Pacific Partnership, or TPP, which seeks to cut trade barriers and set common standards among a dozen nations reaching from Japan to Chile, has become snared over a small set of issues, including trade in autos and auto parts, since July.

The auto issue is crucial for Japan, whose automakers, led by Toyota Motor Corp, depend on sales to the US market and want flexibility in how and where they source auto parts.

The stakes are also high for Mexico, which has seen a boom in auto-related investment because of its proximity to the United States, relatively low labor costs and participation in the North America Free Trade Agreement.

Over the past two years, eight automakers, including Honda Motor, Mazda and Nissan, have opened or announced new auto plants or expansions of existing facilities in Mexico.

A previous round of TPP negotiations failed in July after Mexican officials objected to a proposal by Japan and the United States on autos concerning the "rules of origin" that determine whether a vehicle can be exported without tariffs.

Officials from Mexico and Canada were aiming for a 45-per cent threshold for local content on vehicles, two people briefed on the talks said.

If part of a final trade deal, that would mean the majority of the vehicle could be sourced from outside the 12 countries participating in the TPP and still be sold in the United States - the bloc's largest market - without tariffs.

Japanese trade negotiators separately pushed for a 32.5 per cent local origin threshold for auto parts separate from the rule covering vehicles, the people briefed on the talks said.

It was not clear whether those two proposals were being taken up together or how any trade deal would calculate local content. Rules for such calculations under the NAFTA accord are complex.

NAFTA sets a 60-per cent local origin threshold for auto parts and a 62.5 per cent threshold for finished vehicles for tariff purposes. Those rules have been credited with driving the auto industry's investment-driven boom in Mexico since 1990 and Mexican officials had earlier wanted a similar standard in the TPP.

A more liberal set of rules, like those under consideration by trade negotiators in Atlanta, could allow automakers more flexibility in buying cheap and low-margin parts like interior plastics from producers in Asia who could undercut suppliers in Mexico on price, Mexican industry officials have said.

It would also invite criticism from US union groups and Democrats in the US Congress who have urged that the TPP hold to the standards for auto tariffs contained in NAFTA.

A TPP deal would also mean the United States scraps the tariff of 2.5 per cent on Japanese car imports and the punitive 25 per cent tariff on trucks.

Auto parts makers in Canada and Mexico, for their part, had pushed for a minimum threshold of at least 50 per cent of local content in any TPP agreement.

A Pacific trade deal would be a legacy-defining achievement for US President Barack Obama, who has said the deal would open key markets to a range of US exports.

US officials have also promoted the trade deal as a counterweight to China's rising influence in the region.

REUTERS

    
 

Silver-coin shortage shows bright side of precious metal collapse

OCT 1, 20157:29 AM

[NEW YORK] The global silver-coin market is in the grips of an unprecedented supply squeeze, forcing some mints to ration sales and step up overtime while sending US buyers racing abroad to fulfill a sudden surge in demand.

The US Mint began setting weekly sales quotas for its flagship American Eagle silver coins in July because it can't meet demand, and the Canadian mint followed suit after record monthly sales in July.

In Australia, the Perth Mint sold a record of more than 2.5 million ounces of silver this month, nearly four times more than in August, and has begun rationing supply of a new line of coins this month, a mint official said.

"Silver demand is absolutely through the roof," said Neil Vance, wholesale manager at the Perth Mint. "There seems to be a bit of frenzy as people think there is a shortage of silver. But in fact it is a (crunch in) manufacturing capacity."

While demand has risen in response to the slump in spot prices to US$14.33 an ounce in late July and its subsequent drop to fresh six-year lows below US$14 an ounce in August, mint officials also said they were caught out by the sudden interest in coins.

In July, the US mint halted sales for almost three weeks after running out of "blanks", which are used to make coins.

Some investors like to own physical metal to protect from volatility in other assets, particularly currencies and stocks, and to hedge against geopolitical and economic upheaval. The CBOE Volatility index, or VIX, of US stocks - popularly known as the "fear index" - briefly jumped to its highest since January 2009 earlier this year.

At the US Mint in West Point, New York, where the American Eagle is made, the plant is operating three shifts and paying staff overtime, a spokesman said.

The Austrian Mint, which has begun allocating sales of its Philharmonic silver coins, has increased production of silver blanks after higher-than-expected demand in July and August, a spokeswoman said.

In his 35 years of dealing precious metals, Roy Friedman, vice-president of sales and trading at Manfra, Tordella & Brookes, one of the biggest US wholesale coin dealers, said he could not recall seeing a squeeze in supplies of North American silver coins spilling over to coins made in Austria and the UK to the degree seen this year.

MOM AND POP

Dealers and mints trace the supply squeeze to a burst of buying by mom-and-pop investors in the United States, who scrambled to scoop up coins they considered to be at bargain levels after spot silver prices in early July sank to six-year lows.

The spread between silver and gold, a closely watched gauge for the precious metals markets, has risen to its highest in the third quarter since a brief silver frenzy following the financial crisis.

Silver coins typically outsell gold anyway because they cost less, but the wide spread meant the silver price is 76 times cheaper than gold, making it even more appealing than usual to investors.

The US Mint sold 14.26 million ounces of American Eagle silver coins in the third quarter, the highest on records going back to 1986. The Canadian mint has been limiting sales of its silver Maple Leaf coins since July after record monthly sales that month, an official told Reuters. Sales were at all-time highs in August and September.

With North American mints overwhelmed by orders, investors and collectors were forced to look overseas for increasingly scarce supplies, triggering a domino effect in Europe and Asia. "We can only get a fraction of what we could sell," said Terry Hanlon, president of Dillon Gage, one of the world's biggest precious metals dealers, based in Addison, Texas.

Mr Hanlon said he has seen premiums for coins, which are paid on top of the spot price for physical delivery, surge to about US$4 to US$5 per coin in wholesale deals, compared with US$2.30 in June.

While such buying binges are not uncommon in the coin world, and the US has allocated sales of silver coins several times since prices of silver plummeted in 2013, this episode has lasted far longer, and its effect more pronounced, than in the past, dealers say.

The silver spree is also notably more intense than in gold coins. US Mint sales of gold coins had their best quarterly performance since the second quarter of 2010, but mints aren't yet straining to keep up.

PLUNGING SILVER

Still, the rush of coin buying has failed to offset a years-long silver rout by institutional and retail investors betting on further gains in the dollar, US equities and an improving US economy.

Prices have fallen 7 per cent this year, are on track for their third yearly loss and down by 70 per cent from all-time highs of $50 hit in April 2011.

Holdings in the silver-backed exchange traded funds, , which were popular with investors during the financial crisis that followed the collapse of Lehman Brothers, sank to below 518 million ounces this week, their lowest in almost three years.

For now, however, coin dealers are riding the wave. Bullion dealers around the globe who typically offer next-day delivery are now taking silver coin orders several weeks out.

"I don't expect things to get better until next year," said Gregor Gregersen, founder and director of retailer Silver Bullion based in Singapore.

REUTERS