credit crunch

Manufacturing in China Cools Further in June

June 30, 2013 by NewsMaker Leave a Comment

HONG KONG — Activity in China’s manufacturing sector continued to slow in June, two surveys showed Monday, underscoring concerns that the Chinese economy is likely to lose steam in the coming months.

The Chinese statistics bureau released an index that showed factory activity had barely expanded in June, a month that was overshadowed by a credit crunch in the banking system.

The official purchasing managers’ index came in at 50.1 points — just above the 50-point mark that separates expansion from contraction, and markedly below the May reading of 50.8.

A separate P.M.I. survey published by the British bank HSBC produced a reading of 48.3, likewise showing a marked decline from May, when it was 49.2. The June figure was the lowest in nine months, and represented a slight downward revision from a preliminary reading released on June 20.

Together, the surveys showed that a gradual slowdown that began to materialize earlier this year is continuing as the Chinese authorities — eager to wean the economy off excessive credit growth — refrain from adding stimulus.

Policy makers have made it clear in recent months that they are prepared to tolerate slower growth as they seek to shift the economy away from the headlong expansion of the past few decades and toward higher-quality and more sustainable growth.

A cash crunch in the commercial banking sector last month further underscored this, as Beijing took a tough stance on lending in a bid to foster more prudent banking activity.

The central bank last month allowed bank-to-bank lending rates to spike to record highs, sending a stern message to the banking industry that it needs to step up risk controls and improve cash management.

Although analysts said the move could be positive in the long term if it helps to instill more lending discipline, the crunch led to a big sell-off in the stock market as investors fretted about the impact that more restrictive lending could have on the already cooling economy.

Lending rates have retreated again over the past week, and continued to do so on Monday. The stock market, likewise, has calmed over the past few days, and the Shanghai composite index had edged up 0.1 percent by late morning on Monday.

Still, the manufacturing surveys reinforced concerns that activity remains fragile.

The recent cash crunch in the interbank market is likely to slow expansion of off-balance sheet lending, further exacerbating funding conditions for small and medium-size enterprises, Qu Hongbin, the chief China economist at HSBC, wrote in a commentary accompanying the release of the purchasing managers’ index.

“As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months,” he added.

Article source: http://www.nytimes.com/2013/07/02/business/global/manufacturing-in-china-cools-further-in-june.html?partner=rss&emc=rss

Markets Slump Over Fed Exit Plan and China Credit Squeeze

June 20, 2013 by NewsMaker Leave a Comment

Just a day after the Federal Reserve hinted that it could soon begin winding down its bond-purchasing program, investors were unnerved by reports that Chinese banks had become reluctant to lend to one another, causing interest rates in the interbank market to spike to punishingly high levels.

On Wall Street, the broad-based Standard Poor’s 500-stock index ended down 2.5 percent Thursday, the Dow Jones industrial average dropped 2.3 percent — more than 350 points — and the Nasdaq composite index shed 2.3 percent. On Wednesday, the S.P. 500 fell 1.4 percent.

The pain was also felt in the bond market, with yields on government bonds, which move in the opposite direction of the price, surging worldwide. The 10-year United States Treasury bond was yielding 2.380 percent, up 2.8 basis points. A basis point is one-hundredth of a percent. Expectations that interest rates will rise tend to depress the prices of existing securities.

A purchasing managers’ report added to fears that China, which has been an engine of growth in the world economy, might not be able to carry the load indefinitely. The report suggested Chinese manufacturing was contracting.

“There’s been a lot of focus on the market rates in China,” said Laurent Fransolet, a European rate strategist at Barclays in London. “Whether it’s a full-fledged credit crunch remains to be seen.”

Analysts at Nomura International noted that one rate, known as the seven-day repo rate, rose to as high as 25 percent on Thursday, compared with just 4 percent a month ago, as the Chinese central bank declined to smooth the market.

“But the main driver here has been the aftermath of the Fed,” Mr. Fransolet said about the global stock activity. “We’re still seeing the ripples of that.”

In Europe, the benchmark Euro Stoxx 50 index fell 3.1 percent, while the FTSE 100 in London ended down 3 percent.

In Asian trading, the Shanghai Stock Exchange composite index fell 2.8 percent. The Nikkei 225 stock average in Tokyo dropped 1.7 percent, the Hong Kong benchmark Hang Seng Index declined 2.9 percent and the SP/ASX 200 index in Sydney fell 2.1 percent.

Gold futures dropped 6.2 percent, to $1,288.40 an ounce. The euro fell 0.6 percent, to $1.3220, while the dollar rose 1.6 percent, to 97.98 yen.

Markets had already been jittery after hearing about the Federal Reserve’s plans to end the special operations it has been using to add liquidity to shore up the financial system. On Wednesday, Ben S. Bernanke, the Federal Reserve chairman, said the Fed hoped to begin reducing the size of its monthly bond purchases by the end of 2013 and end the program as soon as the American jobless rate fell to 7 percent.

Mr. Fransolet said investors had become accustomed to the so-called quantitative easing policies used by central banks to provide liquidity and support asset prices. In recent years, he said, markets faltered when the authorities talked about ending those policies and the central bankers had then backtracked.

But this time, he said, investors have grasped that the Fed is much more confident.

“That’s something the markets need to take on board,” Mr. Fransolet said. “That’s a big change from the last few years.”

The sell-off Thursday came in the face of economic news that showed an improving trend, if not actual growth, in the European economy. Markit Economics said its purchasing managers’ composite output index for the euro zone rose to 48.9 in June from 47.7 in May, bringing the index to its highest level in 15 months. While an index level below 50 suggests economic contraction, the fact that the index has been ticking upward for three straight months indicated Europe may be on the way out of recession.

Chris Williamson, Markit’s chief economist, said the data signaled “stabilization in the third quarter and growth appearing in the fourth.”

London stocks fell as the Bank of England said British banks needed to raise their capital by another 13.4 billion pounds, or $20.7 billion, this year to improve their finances. The Bank of England made the announcement on the same day that euro zone finance ministers convened in Luxembourg, where banking issues were to be at the top of the agenda.

Article source: http://www.nytimes.com/2013/06/21/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: credit crunch, nomura international, stock activity

Markets Fall on China’s Credit Crunch and Fed’s Exit Plan

June 20, 2013 by NewsMaker Leave a Comment

PARIS — Global markets stumbled on Thursday over concern about a credit crunch in China and uncertainty about the United States central bank’s plans for withdrawing the monetary stimulus upon which the American economy has become dependent.

On Wall Street, the Standard Poor’s 500-stock index lost 1.2 percent in early trading on Thursday, the Dow Jones industrial average dropped 1.1 percent and the Nasdaq composite index shed 1.3 percent. On Wednesday, the S.P. 500 fell 1.4 percent.

“But the main driver here has been the aftermath of the Fed,” Mr. Fransolet said about the global stock activity. “We’re still seeing the ripples of that.”

In European afternoon trading, the benchmark Euro Stoxx 50 index fell 2.6 percent, while the FTSE 100 in London was down 2.4 percent.

Gold futures dropped 6 percent, to $1,291.10 an ounce. The euro fell 0.7 percent, to $1.3201, while the dollar rose 1.3 percent, to 97.73 yen.

But this time, he said, investors have grasped that the Fed is much more confident.

“That’s something the markets need to take on board,” Mr. Fransolet said. “That’s a big change from the last few years.”

Chris Williamson, Markit’s chief economist, said the data signaled “stabilization in the third quarter and growth appearing in the fourth.”

Ben May, an economist with Capital Economics in London, said the purchasing managers data suggested the euro zone economy would shrink by about 0.2 percent in the second quarter, the same as in the first three months of the year. “In all, then, there are some further encouraging signs that the euro zone economy is starting to contract a bit less sharply,” Mr. May wrote in a research note, though he warned that the economy “remains in a fragile condition.”

Purchasing data from Germany were better, indicating the economy there was regaining momentum, with the composite index rising to 50.9 in June, from 50.2 in May.

Carsten Brzeski, an economist at ING Bank in Brussels, said the data added to recent evidence suggesting Germany had picked up steam in the second quarter, though he said there were still concerns about the health of the manufacturing sector.

London stocks fell as the Bank of England said British banks needed to raise their capital by another 13.4 billion pounds, or $20.7 billion, this year to improve their finances. The Bank of England made the announcement on the same day that euro zone finance ministers were convening in Luxembourg, where banking issues were to be at the top of the agenda.

Article source: http://www.nytimes.com/2013/06/21/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: credit crunch, dow jones industrial, stock activity

Euro Crisis Still Poses Threat, Germany’s Central Bank Asserts

November 14, 2012 by NewsMaker Leave a Comment

“The risks to the German financial system are no lower in 2012 than they were in 2011,” the Bundesbank said in its annual report on financial stability in the largest European Union country.

The report came a day before highly anticipated official data on euro zone growth, which could confirm that the region is in recession. The report also provided another example of how the Bundesbank and the E.C.B. have diverged in their views of the state of the crisis and how best to fight it.

Even as countries like Spain suffer a severe credit crunch, money has poured into Germany because it is perceived as a haven from euro zone turmoil. That has pushed down borrowing costs for German businesses and consumers, producing some worrying consequences, including a sharp rise in real estate prices in urban areas, the Bundesbank warned.

Andreas Dombret, a member of the Bundesbank’s executive board, said it was too early to talk of a real estate bubble. But at a news conference, he added: “The experiences of other countries show that precisely such an environment of low interest rates and high liquidity can encourage exaggerations on the real estate markets.”

Real estate bubbles were a key cause of the financial crises in Spain and Ireland, not to mention the United States.

The downbeat Bundesbank report came a week after Mario Draghi, president of the European Central Bank, argued that there were signs, albeit tentative ones, that tensions in the euro zone had eased.

Countries have begun to get their debts under control while their labor costs have fallen, making them more able to compete on world markets, Mr. Draghi said.

These and other improvements will lead to what he described at a news conference last week as a “slow, gradual but also solid” recovery.

The Bundesbank acknowledged those improvements, but warned that there could be a hangover from the measures the E.C.B. has taken to combat the crisis, which include a record-low benchmark interest rate of 0.75 percent.

“The side effects of short-term stabilization measures could leave a difficult legacy for financial stability in the medium to long term,” the bank said.

On Thursday, the E.U. statistics agency is scheduled to release official figures on third-quarter gross domestic product for the euro zone. The data is likely to show that the euro zone suffered a fourth quarter in a row of little or no growth.

Figures released Wednesday reinforced expectations that output might have declined again. Industrial production in the euro zone fell 2.5 percent in September from August, Eurostat, the E.U. statistics office, said. That was worse than expected and the weakest monthly performance since January 2009, according to Reuters.

German factories, which until recently had managed to avoid the worst of the crisis, were largely responsible for the decline.

In addition, Greece sank deeper into depression in the third quarter, as output fell 7.2 percent compared with a year earlier. In Portugal, gross domestic product fell 3.4 percent from a year earlier, the seventh quarterly decline in a row. Unemployment in Portugal rose to 15.8 percent from 15 percent in the second quarter.

The Bundesbank no longer sets monetary policy but remains a strong influence in the euro zone. It is the largest member of the so-called Eurosystem, the network of 17 national central banks overseen by the E.C.B. The Bundesbank handles some important tasks for the euro zone as a whole, like administering a system used to transfer large sums of money.

The Bundesbank, with its emphasis on preserving price stability, also served as the template when European leaders were designing the E.C.B. But as the E.C.B. has effectively become lender of last resort for governments, the Bundesbank has complained that it has exceeded its mandate.

Article source: http://www.nytimes.com/2012/11/15/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: credit crunch, liquidity, mario draghi

Demand for E.C.B. Loans Surpasses Expectations

December 21, 2011 by NewsMaker Leave a Comment

European stocks and the euro gained, while bond yields fell for euro-zone governments like Spain and Italy that had been under pressure of late.

In its role as lender of last resort to banks, the E.C.B. allocated 489.2 billion euros, or $644 billion, to 523 institutions. That was well above the roughly €300 billion expected by analysts polled by Reuters and Bloomberg News.

It was the first time that the E.C.B. has extended such loans for maturities of longer than about a year. Banks will pay the benchmark interest rate, currently 1 percent.

The E.C.B., as part of its effort to prevent a credit crunch, also broadened the collateral it will accept in return for loans. The central bank is even accepting outstanding loans as security, a measure designed to help smaller community banks that may lack conventional forms of collateral like bonds.

Mario Draghi, the E.C.B. president, said earlier this week that helping the smaller banks was crucial because they provide most of the credit to small businesses.

The three-year loans are also designed to compensate for a dearth of longer-term market funding, at a time when banks are facing the need to roll over an extraordinarily high amount of their own debt. Banks in the euro zone must raise more than 200 billion euros in the first three months of 2012, according to data compiled by Dealogic and cited by the E.C.B.

Banks often borrow money for relatively short periods and loan it for longer periods, profiting from the difference in short-term and long-term interest rates. But this so-called maturity transformation means that banks must continually roll over their debts. An otherwise healthy bank can fail if it is not able to raise fresh cash.

The cheap loans issued by the E.C.B. may also indirectly help governments like Spain and Italy that have faced higher borrowing costs. Spain paid sharply lower interest on debt it auctioned on Tuesday, as banks appeared to use cheap E.C.B. money to buy the bonds, profiting from the difference in interest rates.

The E.C.B. stepped up its lending to banks after the collapse of Lehman Brothers in 2008, allowing them to borrow as much as they want at the benchmark interest rate. But until Wednesday the E.C.B. had not offered loans for more than about a year.

Mr. Draghi has been reluctant to step up E.C.B. intervention in sovereign debt markets, saying the bank is forbidden by treaty from financing governments. But he acknowledged Monday that banks may be using money borrowed from the E.C.B. to buy government bonds, which would be a form of indirect financing.

The E.C.B. cannot tell banks how to use the money, he told the European Parliament on Monday. “We don’t know how many government bonds they are going to buy,” Mr. Draghi said.

The sovereign debt crisis has raised doubts about the creditworthiness of euro area banks and constrained interbank lending, which is crucial to functioning of the financial system.

“People don’t trust each other and if they don’t trust each other they don’t lend to each other,” Mr. Draghi said.

Article source: http://www.nytimes.com/2011/12/22/business/global/demand-for-ecb-loans-surpasses-expectations.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: benchmark interest rate, cheap loans, credit crunch

Greek Premier, Papandereou, Praises European Debt Deal

October 28, 2011 by NewsMaker Leave a Comment

The accord, reached early Thursday morning in Brussels, includes an agreement by banks to accept a 50 percent loss on the face value of their Greek debt.

“The agreement allows us to make the necessary reforms without the burden of debt hanging around our necks,” Mr. Papandreou said, referring to Greece’s demanding — and unpopular — program of austerity measures and structural changes.

“Everyone needs to carry out his own personal revolution,” he said, calling on Greeks to support reforms.

But even as the agreement gave the country some much-needed breathing room, there were concerns about whether the reduction in Greek debt would help the nation’s rapidly shrinking economy, which has endured a credit crunch. For their part, Greek businesses were worried that the proposed nationalization of some banks might give the state too much control over the economy.

Some critics dismissed the accord, whose details were somewhat vague, as little more than window dressing.

“The most important problem is the bank capitalization,” said Yanis Varoufakis, an economist at the University of Athens, referring to a component of the plan that forces banks to raise new capital to protect themselves from possible sovereign debt defaults. “They didn’t specify how they were going to do it, or what they did say leaves a great amount of doubt.”

“It’s a complete fiasco,” he said of the new plan, “which is being once again paraded around as a great triumph.”

The new deal aims to bring down Greece’s debt to 120 percent of gross domestic product by 2020. Mr. Papandreou said Thursday that this would make the country’s debt “absolutely sustainable” and that there would be no more primary budget deficits. “From next year, we’ll be moving on to primary surpluses,” he said.

But many in Greece wondered how that could happen. The Greek economy contracted by 5.5 percent this year, and it is projected to shrink by 3 percent next year. Last month, the 2011 estimated budget deficit was increased to 9.5 percent of G.D.P., from 8.6 percent.

Greece’s once-protected public sector, which still employs one in five Greeks, has been hit by across-the-board wage cuts and planned layoffs, but with the credit crunch and the global economic slowdown, Greece’s private sector has been hit harder.

Unemployment is 16 percent and increasing. Since 2009, the Greek economy has lost all of the 320,000 jobs it created between 2000 and 2008, according to Savas Robolis, a labor market expert at the Greek General Confederation of Labor, the country’s main trade union.

“For a long time, banks have stopped giving loans to small businesses and they’re struggling,” Mr. Robolis said.

The banks’ agreement to accept a huge loss on their Greek debt “will force banks to sanitize their portfolios,” he said. “The liquidity, which has fallen, will be even worse if they’re not quick to recapitalize by March or April. If things don’t pick up, it will get ugly.”

Mr. Robolis, who has advised the government on pension reform, said that Greece’s pension funds, a portfolio worth about $34 billion, would also need an infusion of capital because of losses they were expected to incur in the write-down of Greek debt.

Even as Mr. Papandreou emphasized that the debt accord “creates new potential for growth and liquidity to return to the real economy,” the details of the recapitalization remained unclear.

In a news conference here, Finance Minister Evangelos Venizelos said that the new $184 billion rescue package pledged by foreign creditors as part of the new deal would cover Greece’s financing needs and allow it to recapitalize its banks.

Of that package, $42.5 billion has been earmarked as incentives for banks participating in private sector involvement in the write-down, and another $42.5 billion would provide banks with new capital.

But half of the recapitalization fund, or $21.3 billion, would come from planned privatizations of Greek state assets — a program widely seen to have stalled — as well as from a new Greek-German solar energy project.

Article source: http://www.nytimes.com/2011/10/28/world/europe/greek-premier-papandereou-praises-european-debt-deal.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: austerity measures, credit crunch, window dressing

Obama Visits Michigan as Auto Jobs Come Back

October 14, 2011 by NewsMaker Leave a Comment

He has returned again and again, nine times since taking office, to argue that his decision to bail out two of the Big Three automakers helped workers here and across the industrial Midwest. He has offered up a rebuttal to criticism about the value of government intervention.

The president’s path to a second term is built around winning a wide swath of states, including many with close ties to the auto industry. They are home to some of his biggest political and substantive challenges, including a depressed economy, a disenchanted middle class and a disdain for government highlighted by the Tea Party movement.

A handful of states he carried in 2008 could slip away, but Democrats believe Mr. Obama cannot lose Michigan, fearing that other states will be even harder to hold. Shifting demographics and deep economic burdens have snapped the Democratic Party’s recent hold on the state and given Republicans confidence that Michigan is again one of the country’s most fiercely competitive battlegrounds.

Mitt Romney, who was born in Michigan and chose the birthplace of the American automobile to announce his presidential bid at the Henry Ford Museum four years ago, has denounced the rescue of the industry. He repeated his position at a Republican presidential debate this week, declaring: “Should they have used the funds to bail out General Motors and Chrysler? No, that was the wrong source for that funding.”

But more than two years after the White House offered a government lifeline to help the industry survive the recession and a credit crunch, the General Motors assembly plant here has roared to life, producing the only subcompact car made on American soil, the Chevrolet Sonic.

On Friday, Mr. Obama will tour a downsized version of the plant in Lake Orion, which President Ronald Reagan came to dedicate in 1984. Reagan won the White House with the help of middle-class Democrats in the suburbs of Detroit, including Oakland County, whose mix of independent voters and upper-income residents makes it a bellwether for Mr. Obama.

Monica Shepard, who has worked at General Motors for three decades as an electrician, remembers the day that Mr. Reagan visited. She conceded that Mr. Obama may not be as popular, but she said many people here were grateful, even if the restructuring created a two-tiered system under which nonunion workers are paid a fraction of previous wages.

“Every small businessman that I know, they’re all glad the president bailed out General Motors because without that, the whole area would be obliterated,” said Ms. Shepard, 54, as she left her afternoon shift the other day. “I voted for him to do a job and I would like to see him follow through.”

As the presidential race intensifies, Michigan will become more than a trove of 16 electoral votes. It will be a virtual laboratory for some of the most central themes of the campaign in a state that embodies the changing face of the nation’s economy.

If Republicans carry the state for the first time since 1988 in a presidential race — an outcome that advisers to Mr. Obama strongly dismiss — he will probably face a similar erosion of support across Ohio, Pennsylvania and other Rust Belt states. But even if Mr. Obama wins the state, where independent voters and some Republicans may be inclined to support him because of jobs created by the slow revival of the auto industry, the bailout argument could carry significant weight elsewhere.

“I don’t see how you win the White House without Michigan,” said Stan Greenberg, a Democrat, who has been conducting polls and studying Michigan politics since 1982. “I do not assume that Michigan will fall back into being a blue state. It will be on the edge.”

The president’s argument — and early signs of a potential revival of support — will be tested here in Oakland County, a Republican stronghold that Mr. Reagan carried by 22 points in 1980. It steadily gravitated toward the Democratic Party, with George W. Bush narrowly losing in 2000 and 2004. Mr. Obama won the county by 15 points four years ago, but the Republican candidate for governor, Rick Snyder, carried it last year by more than 20 points.

“The whole wave he rode in on isn’t here anymore,” said Dennis Pittman, the executive director of the Oakland County Republican Party, speaking about Mr. Obama. “He’s in trouble here.”

A majority of voters across Michigan have a negative assessment of Mr. Obama’s performance. Only 38 percent gave him a positive rating, while 61 percent rated him negatively, according to a statewide poll conducted Oct. 1 through Oct. 4 by Epic-MRA. Still, 46 percent of Michigan voters have a favorable opinion of Mr. Obama, the poll found, compared with 47 percent who have an unfavorable view.

Kitty Bennett contributed research.

Article source: http://feeds.nytimes.com/click.phdo?i=dec580d20af092e2d0634f144ed12b25

Filed Under: Economy News Tagged With: american soil, credit crunch, economic burdens