2015.02.09 News


We begin with China where the trade report this weekend was dismal. Exports dropped 3.3% vs. economists’ consensus of a 6.3% increase from last year. That is a 10% miss, demonstrating that the global community of professional China watchers do not have a clue about the nation’s trade dynamics. This is quite unsettling given the importance of China to global growth.

A great deal of this weakness in exports was due to softer demand from the Eurozone and especially from Asia.

Reuters: – … the data showed that while exports to the United States rose by 4.8 percent year-on-year to $35 billion, exports to the European Union slid 4.6 percent to $33 billion in the same period.

Exports to Hong Kong, South Korea and Japan were also down, with exports to Japan slumping over 20 percent.

But the real shocker came from the nation’s import figures. Imports dropped by 20% from last year as the nation bought less (or paid less for) coal, oil and other commodities. Economists missed this measure by a whopping 17%!

As a result of the huge decrease in imports, China’s monthly trade surplus spiked to a record of $60bn.

China’s industrial demand has clearly suffered a decline in recent months – which explains the reason the PBoC chose to cut reserve requirements for banks (RRR). However it is far from certain that this action will end up having the desired effect.

Fitch: – … uncertainty remains as to whether the recent easing measures by the PBOC (including the earlier rate cuts in November 2014) will actually result in increasing credit to targeted sectors, such as small and micro enterprises. If banks utilise the monetary loosening to continue expanding credit in sectors which are already highly leveraged, it would exacerbate vulnerabilities in the system and be credit negative.

The new Greek government is pushing the country deeper into crisis. Prime Minister Alexis Tsipras talks about obtaining a bridge loan to service debt. He is also talking about raising the minimum wage, rehiring government workers who lost their jobs, and paying pension bonuses. At the same time tax revenue is dwindling as more people refuse to pay taxes. Unless he’s got some secret deal with Russia, all of this is a fantasy – nobody is going to lend Greece money at this point. But let’s keep the fantasy alive and give people false hope – why not?

Even if the sovereign debt situation is stabilized, Greece will continue to struggle to maintain economic growth (in spite of the recent improvements). For example, unlike most other euro area nations Greece has been unable to rebuild its export sector.

And bad debt represents a huge percentage of total loans on banks’ balance sheets (“NPLs” = non-performing loans). Greece should be focusing on the financial and export sectors instead of re-inflating the public sector.

Here is another look at the situation in Ukraine. The nation’s growth is now deep in negative territory. The GDP, the industrial production, and retail trade are all experiencing a double-digit contraction.

While many in Canada continue ignore the situation with the nation’s housing sector, I’d like to point out once again that the risks to the downside are quite high. House prices that cover 11 major Canadian metropolitan areas, have been rising steadily, with only a relatively minor adjustment in 2008.

At the same time Canadian banks are quickly accumulating mortgages and other consumer debt (this is in addition to the banks’ massive exposure to the energy industry). Add to that the fact that as percent of the workforce, Canada’s construction payrolls are double that of the US and you are looking at some serious risks to the economy.

US total loan growth just exceeded 8% per year. Except in the residential mortgage space, credit is expanding quickly – autos, credit cards, corporate loans, commercial real estate, etc. And this is just credit from banks – there is also plenty of liquidity from outside the banking sector.


– Angela Merkel, who meets Barack Obama today in a bid to secure a diplomatic solution to the escalating Ukraine crisis. France, Germany, Ukraine and Russia failed to come to an agreement during talks at the weekend.
– HSBC’s Swiss secrets leaked Leaked secret bank account files have revealed how HSBC’s Swiss private bank helped customers avoid taxes and conceal billions of dollars of assets, in some cases colluding to conceal undeclared “black” accounts from domestic tax authorities. Some clients have been linked to arms trafficking and blood diamonds, while others are closely connected to Syrian leader Bashar al-Assad and Tunisia’s Ben Ali. The account holders also include former and current politicians from across the globe. (ICIJ, The Guardian)
– No Greek bailout extension Alexis Tsipras insisted that he will not seek an extension to the current bailout even though he failed to win support for a restructuring of Greece’s EUR315bn foreign debt. (FT)


– ECONOMY Australia must be ready for the renminbi: RBA governor
– ECONOMY Japan consumer confidence index rises in January
– ECONOMY German exports race ahead of forecasts
– MARKETS Japan current account surplus dips in December
– MARKETS European stock markets rattled by Grexit fear
– MARKETS Greek bonds and stocks drop as Grexit fears rise





– CHECK UP ON SMALL BUSINESSES. “The National Federation of Independent Business will release its January survey Tuesday. The small-business optimism index reached a cycle high of 100.4 in December, and economists expect a further uptick in January. Rising optimism about sales and the economy overall is leading more small-business owners to plan on adding workers.”

– Job Losses Start To Hit the Surprisingly Resilient U.S. Oil Industry


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