Archive for the ‘ECONOMIES’ Category

China’s advance into Central Asia ruffles Russian feathers .Commerce & expansion

Sunday, January 3rd, 2016

Kazakh traders wait for their goods purchased from China to be cleared on the Kazakh side of the Horgos free-trade zone near Horgos, Kazakhstan image

Kazakh traders wait for their goods purchased from China to be cleared on the Kazakh side of the Horgos free-trade zone near Horgos, Kazakhstan. Photo: Washington Post

Shymkent, Kazakhstan:  Slowly but surely, a four-lane highway is beginning to take shape on the sparsely populated Central Asian steppe. Soviet-era cars, trucks and aging long-distance buses weave past modern yellow bulldozers, cranes and towering construction drills, labouring under Chinese supervision to build a road that could one day stretch from eastern Asia to Western Europe.

This small stretch of blacktop, running past potato fields, bare dun-colored rolling hills and fields of grazing cattle, is a symbol of China’s march westward, an advance into Central Asia that is steadily wresting the region from Russia’s embrace.

A Chinese surveyor climbs to take measurements at the site of a bridge project near Shymkent, Kazakhstan.image

A Chinese surveyor climbs to take measurements at the site of a bridge project near Shymkent, Kazakhstan. Photo: Washington Post

Here the oil and gas pipelines, as well as the main roads and the railway lines, always pointed north to the heart of the old Soviet Union. Today, those links are beginning to point toward China.

“This used to be Russia’s back yard”, said Raffaello Pantucci, director of International Security Studies at the Royal United Services Institute in London, “but it is increasingly coming into China’s thrall”.

It is a shift that has shaken up the Russian leadership, which is watching China’s advance across the steppe with little apprehension. Moscow and Beijing may speak the language of partnership these days, but Central Asia has emerged a source of wariness and mistrust.

Kazakhstan President Nursultan Nazarbayev with then Australian prime minister Julia Gillard image

Kazakhstan President Nursultan Nazarbayev with then Australian prime minister Julia Gillard. Photo: Andrew Meares

For China, the region offers rich natural resources, but Beijing’s grander commercial plans — to export its industrial overcapacity and find new markets for its goods — will struggle to find wings in these poor and sparsely populated lands.

In September 2013, Chinese President Xi Jinping chose Kazakhstan’s sparkling, modern new capital, Astana, to announce what has since become a cornerstone of his new, assertive foreign policy, a Silk Road Economic Belt that would revive ancient trading routes to bring new prosperity to a long-neglected but strategically important region at the heart of the Eurasian continent.

Bound together by 2000 years of exchanges dating to the Western Han Dynasty, sharing a 1800 kilometre border, the two nations, Xi said, now faced a “golden opportunity” to develop their economies and deepen their friendship.

Tenge currency notes and coins in Almaty, Kazakhstan image

Tenge currency notes and coins in Almaty, Kazakhstan. Photo: Bloomberg

At the China-Kazakhstan border, at a place known as Horgos to the Chinese and Khorgos to the Kazakhs, a massive concrete immigration and customs building is being completed to mark that friendship, rising from the windswept valley floor like a mammoth Communist-style spaceship.

A short distance away, China is building an almost entirely new city, apartment block by apartment block, alongside a 520 hectare free-trade zone, where traders sit in new multi-storey shopping malls hawking such items as iPhones and fur coats.

This is reputed to have been a seventh-century stop for Silk Road merchants. Today, the People’s Daily newspaper calls it “the pearl” on the Silk Road Economic Belt.

Traffic is seen on a section of the road, which will link China and Europe, near Shymkent, Kazakhstan image

Traffic is seen on a section of the road, which will link China and Europe, near Shymkent, Kazakhstan. Photo: Washington Post

But this pearl is distinctly lopsided: On the Kazakh side of the zone, opposite all those gleaming malls, a single small building, in the shape of a nomad’s tent or yurt, sits on an expanse of wasteland where a trickle of people stop to buy biscuits, vodka and camel’s milk.

The Silk Road slogan may be new, but many of its goals are not. Beijing has long been working to secure a share of the region’s rich natural resources to fuel China’s industrial economy; it is building a network of security cooperation in Central Asia as a bulwark against Islamic extremism that could leak into China’s restive western province of Xinjiang, and it wants to create alternative trading routes to Europe that bypass Asia’s narrow, congested shipping lanes.

Under the Silk Road plan, China also is promising to spend hundreds of millions of dollars to build new infrastructure here, and hopes to reap benefits of its own: to create new markets for Chinese goods, especially for heavy industries such as steel and cement that have suffered as the Chinese economy has slowed.

New_silk_road map image

But the scene at Horgos underlines the fact that the economies of China’s Central Asian neighbours are simply too small to provide much of a stimulus to China’s giant, slowing economy.

China’s ambitious Central Asian plans did not go down well, at least initially, in Moscow.

“When China announced its Silk Road plan in Kazakhstan, it was met with a lot of skepticism and even fear by the Russian leadership,” said Alexander Gabuyev, head of the Russia in the Asia Pacific Program at the Carnegie Moscow Centre. “The feeling was, ‘It’s a project to steal Central Asia from us, they want to exploit our economic difficulties to be really present in the region’. ”

Russia had long blocked China’s attempts to create an infrastructure development bank under the auspices of the Shanghai Cooperation Organisation, a regional body, fearing it would become a tool for Chinese economic expansion. Beijing responded by side-stepping Moscow, establishing an Asian Infrastructure Investment Bank in June with a $US100 billion ($137 billion) capital base.

China has overtaken Russia to become Central Asia’s biggest trade partner and lender. Pipelines transport increasing amounts of Kazakh oil to China and vast quantities of Turkmen gas east through Horgos. That has served to undermine Russia’s negotiating position when it has tried to sell its own gas to China.

At the same time, however, President Xi has worked overtime to calm Russian fears, reassuring his counterpart Vladimir Putin that Beijing has no plans to counter his country’s political and security dominance in Central Asia.

In 2014, Russia attempted to draw the region more closely into its embrace by establishing a Eurasian Economic Union, with Kazakhstan a founding member. But even as Moscow moved to protect its turf, the realisation was dawning that Russia lacked the financial resources to provide Central Asia the economic support it needed.

After the breakdown of relations with the West over Ukraine in 2014, and the imposition of sanctions, the dogmatic view that Russia had to be the top economic dog in Central Asia was questioned, and then finally, grudgingly abandoned.

It was impossible, Gabuyev said, so Russia’s leaders decided to divide the labour: Russia would provide security, while China would bring its financial muscle.

In May, Xi and Putin signed a treaty designed to balance the two nations’ interests in Central Asia, and integrate the Eurasian Economic Union and the Silk Road.

China’s expanding influence has provoked mixed feelings in many Asian states, has used “velvet gloves” in its dealings with Central Asia, said Nargis Kassenova, an international relations expert at KIMEP University in Almaty.

About a quarter of Kazakhstan’s citizens are ethnic Russians, while Russian media dominate the airwaves. The Chinese language, by contrast, is nowhere to be seen or heard. Even India has more cultural resonance through Bollywood films, says political scientist Dossym Satpayev in Almaty.

What Beijing can offer is infrastructure loans and investment. It has been careful to frame its plans as more than just a “road” — where Kazakhstan’s natural resources are extracted, and Chinese goods waved through on their way to Europe – but as a “belt” of economic prosperity.

Nevertheless, a survey conducted by independent analyst Elena Sadovskaya found that Kazakh attitudes toward Chinese migrant workers reflect fears that China would one day dominate the country, swamp it with immigrants and cheap goods, grab land or simply suck out its natural resources while giving little in return. “In 2030, we’ll all wake up and find ourselves speaking Chinese,” is one common saying here.

In July, scores of people were injured when a mass brawl broke out between Chinese and local workers at a copper mine near the northern Kazakh city of Aktogay.

Kazakhstan’s Foreign Minister Erlan Idrissov plays down concerns. China may outnumber the 17 million Kazakh population by 80 to one, but its progress and development is good news, he says.

“Our philosophy is simple: We should get on board that train,” he said in an interview in Astana. “We want to benefit from the growth of China and we don’t see any risks to us in that growth.”

China’s state-owned investment giant CITIC runs an oil field and an asphalt factory in Kazakhstan, and says it has established a $US110 billion fund to invest in Silk Road projects, much of the money aimed at Kazakhstan and Central Asia.

But private Chinese companies and ordinary Chinese traders say they have yet to reap the rewards, as the small Kazakh economy is shrinking under the weight of falling commodity prices and Russia’s economic decline.

Meanwhile Russia is playing interference, they say, imposing new import restrictions under the Eurasian Economic Union in an apparent attempt to keep Chinese goods from flooding the region.

In Almaty, the Yema Group has been importing Chinese bulldozers, diggers and other heavy equipment for more than a decade. Business, once booming, has collapsed in the past two years, as many Chinese vehicles fail to meet tough Russian certification standards that now apply throughout the economic union.

Shi Hairu, a 52-year-old trader from Shanghai, who sells Chinese gloves in a small shop in a market in Almaty, arrived two years ago when the economy at home started to slow. But sales have been halved this year – a sharp depreciation in the Kazakh currency, the tenge, has drastically reduced locals’ purchasing power, while customs clearance has become slower and costlier.

In the Horgos free-trade zone, Chinese traders also say business is poor. Many were lured here by tax breaks and cut price deals to rent shops, and by enthusiastic cheer-leading by state media about the opportunities on offer.

“After we came here, we realised it was all lies,” said one owner of a shop that sells women’s underwear who declined to be named for fear of trouble with the authorities.”We basically got deceived into coming here.”

The Kazakh government is building a “dry port” at Khorgos — with warehouses, an industrial park and rows of cranes to transfer containers across different railroad gauges — in what it hopes will become a major distribution and trans-shipment hub for goods bound between China and Western Europe, a “mini-Dubai” in the making. But the nearby free-trade zone still boasts just the one small supermarket, guarded by four lonely concrete camels, plastic flowers in their saddlebags. The nearest Kazakh city, Almaty, is a five-hour drive away along a bone-jarring road.

Yang Shu, director of the Institute of Central Asian Studies at Lanzhou University, calls Horgos “a mistake,” because so few people are in its vicinity. Trade between the two nations declined 40 percent in the first six months of this year, to $US5.4 billion, just a quarter of 1 percent of China’s global trade.

Nevertheless, experts agree that China’s Silk Road plan has immeasurably more clout than the American New Silk Road plan advanced by then-Secretary of State Hillary Rodham Clinton in 2011 that was meant to bind Afghanistan to Central Asia but barely got off the ground, or Russia’s own pivot to Asia, mired in economic woes and bureaucratic inertia.

For now, Pantucci, at the Royal United Services Institute, said China and Russia have established some sort of “modus vivendi” here. “I used to believe Central Asia would become a bone of contention between the two countries, but the priority in Moscow and Beijing remains the broader strategic relationship,” he said. “Wrinkles like disagreements in Central Asia will get swept underfoot.”

But Tom Miller, at a consulting firm called Gavekal Dragonomics, argues that as Beijing’s investment and financial ties with Central Asia deepen, “its political influence will inevitably strengthen”, too. Harking back to the Great Game, the 19th-century contest between the British and Russian empires influence in Central Asia, he says there is only one winner this time around.

Beijing’s strategists studiously avoid any talk of playing a new Great Game in the heart of Asia – “but they look set to win it nonetheless,” Miller said.

Washington Post


Henry Sapiecha


Monday, January 14th, 2013


A new report predicts that China is set to make its “biggest every contribution to global growth in 2014” as the Middle Kingdom replaces the United States and Europe as the driving force behind the world economy.

According to HSBC’s Emerging Market Index for the final quarter of 2012, the Chinese economy will see significant growth improvement this year, rising to 8.6% from 7.8% in 2012, and far ahead of the 5.4% growth rate anticipated for emerging markets overall.

HSBC’s Chief Global Economist Steven King points out that although China’s growth rate has fallen well below the double digit levels which characterized its rapid ascent throughout the past decade, the country’s increased economic size mean that if anything its ongoing contribution to global growth has increased.

This view is vindicated by the increased exposure to China of export industries throughout the world, and in the Asia-Pacific especially, during the past five years.

A full 28% of Australia’s exports are destined for China, enabling the Middle Kingdom to set the price of Australian commodities for other overseas purchasers.

Other Asian nations such as Malaysia, Singapore and South Korea have also seen their exports to China rise sharply of late, as have more distant countries such as Chile, Kazakhstan, Saudi Arabia and Angola.

King claims that China’s swift ascendance has created two primary tiers in the global economy – that of the “old world” of North America and Europe which is still in the process of deleveraging, and a “structurally dynamic” world of new emerging markets dominated by China.

Sourced & published by Henry Sapiecha


Saturday, June 4th, 2011


From Russia with leverage

Spiraling oil prices and the serious accidents at a major Japanese nuclear power station caused by the March 11 quake and tsunami are helping strengthen the position of Russia in the international community.

The prediction by the Organization of Petroleum Exporting Countries (OPEC) that the oil price will soon go up to $120 a barrel is good news for Russia, which has based its national budget on the assumption that it would export crude oil at $75 per barrel. Any price above that level would be a windfall profit for one of the world’s major oil exporting nations.

Russian Finance Minister Alexei Kudrin has stated that high oil prices will enable the Russian economy to grow by more than 4 percent this year, allowing more than a one-third reduction in the amount of issued bonds.

One indicator of an economic boom prevailing in Russia is the way its currency, the ruble, has appreciated against the dollar — greater than the currencies of the three other “BRIC” countries, Brazil, India and China.

Many Russian government officials hope for a prolonged political instability in the Middle East, which is the cause of the recent oil price spiral. There has been a correlation between Moscow’s basic diplomatic stance and oil prices. In June 2008, for example, Russia launched a military invasion of Georgia at a time when crude hit a record $134 a barrel. Months later, the Kremlin shifted to a policy of reconciliation with the U.S. and Western Europe when the oil price plummeted to less than $50 amid the financial crisis triggered by the bankruptcy of Lehman Brothers.

Russia holds a strong card against its neighbors to the west, as Finland and the three Baltic nations of Estonia, Latvia and Lithuania rely on Russia for 100 percent of their natural gas needs. The European Union as a whole relies on Russia for 42 percent of what it pays for gas.

A Russian diplomatic source has confided that the Kremlin’s strategy is ultimately aimed at “decoupling” Western European countries on the strength of its abundant natural resources. In April last year, Russia resolved the long-standing territorial dispute with Norway by equally dividing the disputed continental shelf, and the two countries agreed to develop resources in the Arctic Sea jointly.

This is one example of Moscow’s attempt to create discord among NATO member countries and block any further expansion of NATO by promoting friendly bilateral ties with NATO signatories.

The EU member countries are countering these Russian initiatives by various means. One is to import liquefied natural gas (LNG) directly from countries like Qatar, Algeria and Nigeria using oceangoing tankers, a much less costly means than transporting Russian gas through long pipelines.

As of 2009, LNG sourced from the Middle East and Africa accounted for 14 percent of total European gas imports. An analyst said European imports of such LNG is believed to have increased further last year and that this trend could pose a threat to Russia.

In another bid to curtail Moscow’s power, he adds, the EU in March adopted a new policy of banning the same business entity from engaging in both gas production and pipeline transport. This policy, due to come into effect after a two-year grace period, is aimed at liberalizing the market and lowering gas prices. Clearly the policy targets Gazprom, Russia’s semi-national monopoly of gas production and transport. The analyst says this policy is a big business headache for Moscow.

As if to mitigate unfavorable consequences that might arise in Europe, Russia has lost no time trying to gain what it can. It offered assistance to Japan immediately after the devastating quake and tsunami March 11. On March 12, the day when a hydrogen explosion occurred in the containment building of the No. 1 reactor Tokyo Electric Power Co.’s Fukushima No. 1 nuclear power plant, Prime Minister Vladimir Putin ordered his deputy, Igor Sechin, to work toward increasing LNG exports to Japan.

Putin’s ulterior motive is to raise Japan’s reliance on Russian natural resources by selling fossil fuel to Tepco, which will inevitably be in dire need to boost thermal-power generation. Sechin is quoted as saying that Russia will double its combined exports of crude oil and LNG to Japan this year from last year’s level.

Moscow’s determination to sell more energy sources to Japan is reflected in its stepped-up pace of constructing East Siberia-Pacific Ocean oil pipelines. Russia now plans to complete the pipelines by the end of next year, two years ahead of schedule. Moreover, the Russians are trying to use Japan as a steppingstone for boosting exports of natural resources to other Asian countries. Their exports are now heavily concentrated on China. Diversification of export destinations is indispensable for setting export prices at levels advantageous to Russia.

An expert in Russian affairs has warned, however, that Japan would enter dangerous territory if it started buying more than 10 percent of its energy needs from Russia.

Even though Russia has sent a 161-man rescue team to the quake-devastated region, the same expert warns of what he calls the traditional Russian tactic of fishing in troubled waters by first assisting those in need of help. Unfortunately, nobody in the Japanese political arena or bureaucracy is aware of this danger, he adds.

A Kremlin insider even suggested that Russia is thinking of building a nuclear power plant on Kunashiri, one of the four islands or island groups northwest of Hokkaido that are claimed by both Japan and Russia but held by the Russians since the end of World War II, and supplying Japan with electric power from there.

Russia speculated that the present Japanese government, which has been troubled by the nuclear power plant crisis in past weeks, could very well jump on a plan to obtain electricity from the Kunashiri plant while giving up its claim to the Northern Territories.

The day could come when Gazprom, if equipped with enough financial resources, buys up Tepco. Such a scenario may well prove to be more than fantasy because, unlike broadcasting stations and news agencies, utility companies are not protected by regulations against foreign ownership.

This is an abridged translation of an article from the April issue of Sentaku, a monthly magazine covering Japanese political, social and economic issues.
Sourced & published by Henry Sapiecha


Monday, April 25th, 2011

China to lead world economy

CHINA is about to overtake the United States as the world’s biggest economy, creating profound changes in the balance of global power.

In forecasts inserted quietly on its website in recent days, the International Monetary Fund has projected that, by 2016, China will overtake the US in real economic output – the first time in the modern era that any country has done so.

Economic historian Angus Maddison estimated that the Soviet Union at its peak produced only a third as many goods and services as the US; Japan’s economy at its peak was still less than half the size of the US economy.

China’s ascension has been startlingly different, in speed and size. If it grows at anything like the 10 per cent rate it has averaged since 1980, its economy will be far bigger than that of the US within a generation.

The China Inventory

Australian National University professor of strategic studies Hugh White said the looming end of US economic dominance marked a turning point for the world, and had serious implications for Australia.

”For us, it is the end of a very long cycle in which both our great allies, first Britain, then the United States, have been the strongest economy in the world and the greatest military power,” Professor White said.

”For the first time, the greatest economic power in the world will not be our close ally.

”One issue is whether we will have to accommodate an ambitious, growing China that behaves reasonably well, or face an aggressive China that operates without such constraints. Another is how the US responds to China’s growing military strength.”

Professor White said that while the US had confronted more-hostile enemies before – Nazi Germany and the Soviet Union – it had never had to contend with a rival that matched it in economic strength.

He said this would pose a ”very tough strategic choice” for Australia as to whether or not to back the US in a conflict.

China’s growth has been unprecedented. In 1980, when its economic reforms were just starting, the IMF estimates the US produced more than 10 times as many goods and services. Even 10 years ago, when China overtook Japan to become the world’s second-biggest economy, the US still produced three times as much.

But since then China’s share of global output has doubled, while that of the US has shrunk rapidly. From 25 per cent of global output in 1986, the US share has shrunk to less than 20 per cent and a projected 17.8 per cent by 2016.

China produced just 2.2 per cent of the world’s output in 1980, but this rose to 7 per cent by 2000, 14 per cent now, and is projected to top 18 per cent by 2016.

By 2016, the IMF estimates, China will be producing more in a fortnight than it did in a year when the reforms began. Over that period, its output would have risen to 30 times its starting level; US output would have risen to 2.7 times its 1980 level.

The US would still be the world’s biggest market. If China keeps its currency heavily undervalued, as it is now, the IMF projects that, in nominal terms, by 2016 the US economy will still be two-thirds larger than China’s.

But this gap would simply reflect currency values. Factor in relative prices, and China’s real output of goods and services would be the world’s biggest.

The IMF assumes that China will grow at 9.5 per cent a year over the coming decade, a tad slower than previously, while US

growth would accelerate from an average of 2.1 per cent over the noughties to 2.75 per cent in the new decade.

Australia is assumed to average growth of 3.25 per cent, and more or less maintain its place in the world economy, which has changed remarkably little over the past century.

On Professor Maddison’s estimates, Australia in 1913 produced 1.02 per cent of the world’s output. On the IMF’s figures, this edged up to 1.34 per cent in 1981, is 1.19 per cent now, and will shrink further to 1.11 per cent by 2016.

This reflects the rapid growth not only of China, but developing countries as a whole. In 1990 they produced just 31 per cent of the world’s output, but by 2010 this had risen to almost 48 per cent, and by 2013 most of the globe’s output would come from low- and middle-income countries.

India’s growth is projected to continue at more than 8 per cent a year. It is on track to overtake Japan next year to become the world’s third-biggest economy in real output.

The relative weight of Japan and the European Union is declining rapidly. On IMF projections, by 2016 Japan would account for just 5 per cent of global output, down from 10 per cent a generation earlier, while China and the US would have overtaken the EU’s output

Sourced & published by Henry Sapiecha


Monday, January 10th, 2011


As long as there are no other strong material fundamental circumstances prevailing in any single commodity the dollar/commodity correlation overrides all else. This is especially true for precious metals. We remain bullish of gold although the trade is an overcrowded trade we see further upside given the level of geopolitical and economic uncertainty in the immediate future. We are convinced that the driving force behind gold’s strength is not inflation nor the dollar devaluation but the acceptance that gold has become the world’s third most popular ‘currency’ and that it will move past the euro soon and into second place. The euro will become less attractive to traders, investors and asset managers while their need to hold gold will grow.

We see any short-term weakness in gold as a buying opportunity supported by increasing uncertainty related to the euro-zone and rising inflation in Asia, particularly China.


World equity markets need a reason to rally – they may be getting their wish!

The Australian economy will continue to benefit from Asian growth during 2011 while Europe and the US limp along while dealing with their own problems. I expect a two speed global economy in 2011 with Chinese and Indian growth around 10% and Europe and the US at 2%.

A major structural change is under way in the global economy with emerging economies again set to outperform developed countries. The major risk to the global economy is still Europe, I expect more of the feared risks of sovereign debt to realise during 2011, possibly a major national default or a bank collapse.

Chinese Vice Premier Li Kuqiang has been touring in Europe and particularly Spain promising to purchase Spanish debt, a sign of the continuing expansion of Chinese influence around the globe.

Australia’s future will be reliant on our continued relationship with China, or Asia as a whole. We are well placed in the region and as long as we can maintain strong economic and business relationships with China we will continue to grow. China is at-tempting to engineer a soft landing after inflation has spiked above 5% and heading toward 7%. The inflation spike is directly related to their stimulus spending of 2009/2010 and should be seen as a window of what is to come in the US.

Chinese regulators will keep raising interest rates and imposing controls on property investment and speculation, such as the rumoured property tax. Inflation is now China’s number 1 concern but I cannot see Chinese regulators moving so aggressively as to cause a hard landing or a crash. Chinese politicians are about to handover leadership to a new generation and I don’t see the economy being compromised at this key political turning point.
Last year, India, quietly rose to become Australia’s fourth biggest economic market. India is expected to grow at close to 10% in 2011.

The two-speed global economy will create problems for governments and central banks. The US Federal Reserve is expected to keep rates low for ‘an extended period’, at close to zero, and press ahead with their QEII policy of buying assets in the hope of stimulating the economy.

The US government must start to reign in its massive debt eventually but I think those decisions will not need to be made until into 2012. The QEII program will extend at least until June 2011 and will support positive sentiment over the same period. Fed Chairman Ben Bernanke said he was prepared to consider QEIII if it was needed. They have painted themselves into a corner, now that they have come so far with the stimulative measures they cannot turn back. They will press ahead in the hope that at some stage soon the economy will show signs of stronger recovery, and that may be happening now. We sense growing optimism in the US recovery as each new release of data highlights an economy attempting to recover. The ADP numbers released last week changed a lot of minds about the strength of the US economy and set the stage for the Unemployment Report.

We sense growing optimism in the US recovery as each new release of data highlights an economy attempting to re-cover. The ADP numbers released last week changed a lot of minds about the strength of the US economy and set the stage for the Unemployment Report on Friday night. The ADP report showed that business (mainly small business) added 297,000 jobs in December. That number forced published unemployment ‘ guesstimates’ to be revised downwards. The market was expecting a fall in unemployment to 9.7% from 9.8% leading into the report.

We should note that the correlation between the ADP jobs report and the official employment report is not perfect, so ‘as goes the ADP number, so goes the non-farm’, just not perfectly. The ADP number is much more volatile on a month-to-month basis.

As it turned out U.S. payrolls missed the forecast adding credibility to Federal Reserve Chairman Ben Bernanke comment that it could take ‘four or five more years’ for the labour market to completely mend. Payrolls increased 103,000, less than the median projection of 150,000. The jobless rate fell to 9.4% reflecting the shrinking workforce as Americans stop looking for work.

I still hold the very strong view that there can be no complete recovery in the U.S.A. without jobs; that is not to say that the current level of optimism in the U.S. is misplaced but without jobs the recovery picture will always be incomplete, a bit like a jigsaw with a missing piece.

The European Central Bank is not likely to raise rates from the current 1.00% in the near term and is most likely to come under severe pressure to continue to pump liquidity into the system to support Ireland, Spain, Greece and Portugal. The debt crisis in Europe will spread to Portugal, Spain, Italy and Belgium this year and as a result I expect a banking crisis. The key question in Europe is whether Germany will continue to be the main source of monies to pay for the bailouts. While the German economy is growing strongly and selling its manufactured goods to the Chinese they can afford to underwrite the bailouts but there are a lot of headwinds as Germany attempts to force EU members to get their houses in order.

Sourced & published by Henry Sapiecha


Saturday, November 20th, 2010
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Sourced & published by Henry Sapiecha