The Fed Is Tightening, Whether or Not It Wants To

The Fed Is Tightening, Whether or Not It Wants To

The Federal Open Market Committee, the group of central bankers that sets U.S. monetary policy, will meet next week. The members will have to consider the possibility that in trying to clarify their “exit strategy” from quantitative easing and zero interest rates, they’ve tightened policy more than they intend.

Monetary conditions are certainly tightening. The accompanying graph depicts the market’s expectation of the federal funds rate, the baseline short-term interest rate the Fed targets, from now to 2016. It shows that expected rates have risen sharply over the last month. (Expected rates hadn’t moved much before that this year.)

The market had thought last month that, in April 2016, the Fed would have the rate at 0.75 percent. It now thinks it will be 1.15 percent at that time. Since the target rate is set in increments of 0.25, that implies a 60 percent chance of 1.25 percent and a 40 percent chance of 1 percent. Similar hikes have occurred across the board. Read more of this post

Infosys’s Painful Recovery May Take Three Years, 66-year-old Murthy Says

Infosys’s Painful Recovery May Take Three Years, Murthy Says

A sales recovery at Infosys Ltd. (INFO), India’s second-largest software exporter, will take at least 36 months and may be painful, Chairman and co-founder N.R. Narayana Murthy said.

The company will adopt flexible pricing and refocus on winning large outsourcing deals as it looks to boost growth and narrow the lead of bigger rival Tata Consultancy Services Ltd. (TCS), Murthy said yesterday at the annual shareholders meeting in Bangalore.

“There will be some pain along the way,” said Murthy, a billionaire who was voted to the company’s board as a director yesterday. “I request your understanding and patience.” Read more of this post

Water Management Biggest Risk to China Shale Gas, Bernstein Says

Water Management Biggest Risk to China Shale Gas, Bernstein Says

Water management is the biggest challenge to shale gas development in China amid concern that extraction of the fuel will contaminate drinking supplies, according to Sanford C. Bernstein & Co. China’s government will need to find ways of getting capital and technology into its shale-gas sector without compromising environmental standards, said Neil Beveridge, a Hong Kong-based analyst at the consultant. “Despite very little knowledge of fracture stimulation or shale drilling, there is already a perceived concern of potential risks to clean-water contamination,” Beveridge said in an e-mailed report today. “While water is abundant in Sichuan, clean water is less so.” China is the “biggest shale opportunity” outside of the U.S., according to Bernstein. The country has the world’s largest shale gas resources, estimated at 4,746 trillion cubic feet (134.4 trillion cubic meters), it said, citing data from the Ministry of Land and Resources and the U.S. Energy Information Administration. Within China, Sichuan has the largest potential and the Silurian Longmaxi shale is the most prolific, the consultant said. In hydraulic fracturing, or fracking, drillers shoot a mixture of water, sand and chemicals underground to free oil and natural gas trapped in shale-rock formations.

To contact the reporter on this story: Chou Hui Hong in Singapore at chong43@bloomberg.net

South Korea Tightens Capital Flow Checks to Catch Tax Dodgers

South Korea Tightens Capital Flow Checks to Catch Tax Dodgers

South Korea is strengthening supervision of foreign exchange transactions as President Park Geun Hye broadens her country’s part in a global crackdown against tax evasion.

The Financial Supervisory Service and Korea Customs Service will have enhanced rights to investigate cross-border transactions at companies, the Finance Ministry said in an e-mailed statement today. Failure to report details of funds wired, assets acquired or the annual balance in investments may be subject to fines, the statement said.

Policing tax evasion has crept up the political agenda worldwide as governments struggle to pay for social programs amid high unemployment and weak economic growth. U.K. Prime Minister David Cameron yesterday said tax havens under Britain’s legal supervision pledged to fall in line with international agreements on exchange of information, a key topic at a meeting of the Group of Eight nations that begins tomorrow. Read more of this post

Malaysians getting into debt to sustain lavish lifestyles; Civil servants and low-income earners were having bigger household and personal debts than those in the middle and high-income groups

Malaysians getting into debt to sustain lavish lifestyles

Civil servants and low-income earners were having bigger household and personal debts than those in the middle and high-income groups. -The Star/ANN
Sun, Jun 16, 2013
The Star/Asia News Network

PONTIAN – Malaysians are getting themselves deeper into debt, leading to many youths and university graduates becoming bankrupts even as they enter the job market.

Deputy Finance Minister Datuk Ahmad Maslan said civil servants and low-income earners were having bigger household and personal debts than those in the middle and high-income groups.

He said most of those trapped in the debt syndrome were earning below RM3,000 (S$1,205) a month.

“One of the reasons they are borrowing money is to sustain an extravagant lifestyle, including buying things using credit cards. Read more of this post

Thailand’s boom: To the northeast, the spoils

Thailand’s boom: To the northeast, the spoils

Sat, Jun 15 2013

By Paul Carsten and Pairat Temphairojana

UDON THANI, Thailand (Reuters) – Steel girders jut from the low skyline of the Thai city of Udon Thani near the Laos border as workers lay cement for a new shopping mall, one of many illustrating a boom in the Thai economy beyond the bright lights of Bangkok.

The malls, factories and construction sites in Thailand’s northeast are emerging alongside its farms as a potent economic fuel in one of Asia’s top emerging markets. Growth in Thailand, Southeast Asia’s second-biggest economy, has begun to slow, but the economy of the northeast is in the grip of a boom.

The economic renaissance of “Isaan”, Thailand’s poorest and most populous region, has coincided with expansionary policies – from wage increases to farm subsidies – that are enriching an area at the heart of a “red shirt” protest movement that backed Prime Minister Yingluck Shinawatra in a 2011 election. Read more of this post

Bond Sales Slow Amid Climbing Credit Risk in Europe on Stimulus

Bond Sales Slow Amid Climbing Credit Risk in Europe on Stimulus

Sales of corporate bonds in Europe fell to the lowest in two months this week as the cost of insuring the debt against losses rose with investors anticipating a withdrawal of central banks’ stimulus measures.

Coca-Cola HBC AG (CCH), the world’s second-biggest bottler of the soft drink, and Rolls-Royce Holdings Plc (RR/), Europe’s largest maker of aircraft engines, led companies selling 6.3 billion euros ($8.4 billion) of bonds, down from 12.3 billion euros last week and the least since the week ending April 6, according to data compiled by Bloomberg. The Markit iTraxx Europe Index of credit-default swaps protecting against losses on 125 investment-grade borrowers was up four basis points on the week to 108.

Credit investors are concerned the U.S. Federal Reserve will trim its bond-buying program if it sees sustained employment growth, restricting support that has kept borrowing costs near record lows. Bank of Japan policy makers decided not to take additional steps to spur growth or extend the maturity of bank loan facilities earlier this week. Read more of this post

The Plight Of Europe’s Banking Sector, Its €650 Billion State Guarantee, And The “Urgent Need” To Recapitalize

The Plight Of Europe’s Banking Sector, Its €650 Billion State Guarantee, And The “Urgent Need” To Recapitalize

Tyler Durden on 06/15/2013 12:37 -0400

A month ago we quantified that just the overt European bank undercapitalization (excluding spillover effects from counterparty liability and derivative exposure) resulting from non-performing loans, is a staggering €500 billion. These NPLs “reduce the capacity of banks to lend, hindering the monetary policy transmission mechanism. Bad debts consume capital and make banks more risk averse, especially with respect to lending to higher risk borrowers such as SMEs. With Italy (NPLs 13.4%) now following the same dismal trajectory of Spain’s bad debts, the situation is rapidly escalating (at an average of around 2.5% increase per year).” The implied conclusion is that Europe has kicked the can far longer than it should, and as a result its banks have become zombie shell with unprecedented accrued losses, supported explicitly by their various governments, and thus, by the ECB, which is now in the business of preventing sovereign failure (despite its repeated promises otherwise).

And since the topic of quantifying how big the sovereign assistance to assorted banks – both in Europe and the US (which Bloomberg calculated at $83 billion per year) – has become a daily talking point, we are happy to read that Harald Benink and Harry Huizinga have reached the same conclusion as us in their VOX analysis, and further have shown that in Europe the implicit banking sector guarantee by the state is a whopping €650 billion. Read more of this post