Craig Eisele on …..

March 6, 2012

Global Markets Show Concern Over China’s Lowered Growth

Filed under: Uncategorized — Mr. Craig @ 2:52 am

Worries over China’s economic growth weighed on markets Monday, but an indication that Greece was making headway in convincing private creditors to accept a crucial bond swap helped European stocks clamber off earlier lows.

Investors are increasingly fearful that China’s economy is coming off the boil. Over the past few years, a booming Chinese economy has helped shore up the global economy in the wake of a banking crisis, the deepest recession since World War II and rising concerns over the debt problems afflicting a number of countries that use the euro.

On Monday, China’s premier Wen Jiabao lowered the economy’s growth target to 7.5 percent from the 8 percent it has stood at for years as he outlined plans to boost domestic consumption and to maintain a “prudent” monetary policy.

Analysts said the forecast downgrade was in line with recent pronouncements and did not necessarily mean that China would not be growing by more than 8 percent anyway.

“Actual growth rates typically exceed official targets by a considerable margin, and this does not alter our forecast for 8.4 percent growth in 2012,” said Elsa Lignos, an analyst at RBC Capital Markets.

For much of the day, worries that Greece’s bond swap may not be going according to plan had kept sentiment in check.

However, some relief was provided when the Institute of International Finance, the group representing private creditors in talks with Greece, said a dozen banks, insurers and investment funds holding Greece’s bonds will participate in the swap. Greece needs a sizable majority of creditors accepting the bond swap or else it faces defaulting on its debts, which could trigger turmoil in financial markets.

The investors that have promised to participate in the plan include German insurer Allianz, French bank BNP Paribas, Germany’s Commerzbank and Deutsche Bank, as well as Greece’s Eurobank EFG and National Bank of Greece, the IIF said. The banking group did not say how much Greek debt these institutions hold.

Greece’s bondholders are being offered new bonds worth 53.5 percent in their face value, and which have a longer maturity and lower interest rate. The bond swap deal is one condition of Greece getting a second, euro130 billion ($173 billion) bailout from other eurozone countries and the International Monetary Fund.

Athens has passed into law so-called collective action clauses that would force holdouts to take the deal, but at least 66 percent of Greece’s bondholders have to agree to the deal in the first place.

The statement from the IIF prompted a modest improvement in market sentiment as did more upbeat U.S. economic data — the Institute for Supply Management said its index of non-manufacturing activity rose to 57.3, from January’s 56.8. The markets had been expecting a modest decline. Any reading above 50 indicates expansion.

In Europe, Germany’s DAX closed down 0.8 percent at 6,866.46 while the CAC-40 in France fell 0.4 percent to 3,487.54. The FTSE 100 index of leading British shares ended 0.6 percent lower at 5,874.82.

On Wall Street, the Dow Jones industrial average was down 0.5 percent at 12,915 while the broader Standard & Poor’s 500 index fell 0.6 percent to 1,361.

The rest of the week will see a high level of interest in the release of U.S. economic data culminating with Friday’s nonfarm payrolls figures, which often set the market tone for a week or two after their release.

Russian shares were among the only to rise in Europe on Monday, with the Micex edging up 0.3 percent, as investors took the election of Vladimir Putin as president as a sign of continuing stability. In the longer term, however, analysts say Putin will have to deliver on promises to modernize the economy, reduce corruption and address the grievances of a growing base of political opposition.

Wall Street was poised for a lower opening — Dow futures were 0.4 percent lower while the broader Standard & Poor’s 500 futures fell 0.5 percent.

As well as monitoring developments over Greece’s bond swap, investors will be keeping a close watch on a raft of U.S. economic data this week, culminating on Friday’s nonfarm payrolls figures.

A marked improvement in U.S. economic data, particularly related to jobs, have helped sentiment in the markets recover this year. The main U.S. stock indexes are trading at their highest levels since before the collapse of investment bank Lehman Brothers in 2008.

Earlier in Asia, Japan’s Nikkei 225 index fell 0.8 percent to 9,698.59 and South Korea’s Kospi dropped 0.9 percent to 2,016.06. Hong Kong’s Hang Seng lost 1.4 percent to 21,265.31. Mainland Chinese shares were mixed, with the Shanghai Composite Index closed down 0.6 percent to 2,445 and the smaller Shenzhen Composite Index marginally higher at 981.20.

Oil prices tracked equities lower — benchmark oil was down 60 cents to $106.10 per barrel in electronic trading on the New York Mercantile Exchange. Oil prices remain elevated though, partly because of tensions over Iran’s nuclear ambitions, and have become an increasing drag on stocks over the past couple of weeks.

Meanwhile World Markets showd Serious Concern: 

Chinese Premier Wen Jiabao sent tremors through global markets today as the world’s biggest economy set its least ambitious growth target for eight years.

Wen’s announcement to China’s People’s National Congress will see Beijing target annual growth of 7.5% in 2012, down from the 8% goal that has been in place since 2005. The scaling-back sent the FTSE 100 23.70 points lower to 5887.43, and hit prices of commodities such as copper and natural gas.

In reality, China’s growth target acts as an absolutely minimum floor for growth, with most analysts pencilling in an expansion of around 8% for its economy this year. But growth of 7.5% would represent the weakest growth in 20 years — potentially fuelling political discontent and posing a threat to the country’s autocratic leadership. Wen said “expanding consumer demand” is China’s first priority for 2012 as it attempts to wean itself off exports, heavy industry and huge infrastructure spending as the main drivers of growth. His declaration will be welcomed by deficit nations in the West frustrated by Beijing holding down the value of its currency to protect export markets.

But China also faces a year of political change as Wen and President Hu Jintao prepare to retire next year, raising doubts among some analysts over the extent of proposed reforms.

Macquarie Bank economist Paul Cavey said: “It seems very unlikely there will be huge progress on structural reforms given the political transition. The slower growth numbers just reflect the reality that growth is going to be slower because the rest of the world is going to be weaker.”

QE chances rise

A February wobble for the UK’s powerhouse services firms today raised the chances that the Bank of England’s rate-setters will print more cash to aid the recovery.

The sector — which accounts for around 75% of the economy — saw its slowest pace of growth since last November, according to the latest Chartered Institute of Purchasing & Supply/Markit activity index.

Firms are still confident, but are slashing prices and barely hiring.

“Pressure to discount and undercut the competition is acute,” Cips chief executive David Noble warned.


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