U.K. credit-card borrowing dropped for the first time in more than a decade in April and mortgage lending grew by the least since February 2002. This latest data follows lots of other signals of a continuing slowdown. The real question now is: how far will it go?
"A report from the Royal Institution of Chartered Surveyors on May 17 said house prices fell in April, while activity in the market decreased 30 percent from a year earlier. Overall net lending in the month rose by 4.4 billion pounds in April, down from 5.04 billion pounds in March, the bankers' association said.
``People are becoming very cautious,'' said David Dooks, director of statistics at the association, whose members include HSBC Holdings Plc and Royal Bank of Scotland Group Plc. ``House prices aren't rising and people are tightening their belts.''
The annual rate of increase in U.K. retail sales in April dropped to the lowest in two years, a government report yesterday showed. Boots Group Plc, the Nottingham-based owner of the U.K.'s largest drugstore chain, yesterday said demand hasn't improved after slack consumer spending contributed to a drop in second-half profit".
Friday, May 20, 2005
Oh, Oh... News From The Bank of Japan
"The Bank of Japan on Friday said it would allow the current account balance to fall temporarily below its liquidity target, the first step towards normalising monetary policy since quantitative easing was introduced four years ago."
This news in today's FT might send shivers down a number of spines. The issue is essentially deflation. As the FT itself observes this seems signal the beginning of an end to Japan’s unorthodox quantitative easing policy even though deflation has yet to be beaten. Prices have been falling for seven years and - as I reported earlier in the weak - deflation has recently accelerated: indeed the even the BoJ itself does not expect a return to inflation until the year to April 2007.
"Quantitative easing which floods the market with excess liquidity was introduced in March 2001 to fight deflation in the absence of the BoJ’s ability to move interest rates below zero. Pessimists fear that rushing to mop up liquidity before deflation is beaten is dangerous. Liquidity targets should be maintained, or even expanded, until inflation is firmly entrenched, they argue."
Morgan Stanley's Takehiro Sato - writing before the announcement, advised aginst such a move, in part because:
"The Bank runs the risk of making a serious error similar to ZIRP (zero interest rate policy) abandonment in August 2000 if it mistakenly revises the current account target at a time of heightened uncertainty in global financial markets, including recent speculation about the possibility of massive losses at hedge funds from the GM shock. Policy action would leave the Bank open for criticism from almost anything that goes wrong later on".
A bit of technical background. As feared by Keynes, Japan has effectively created a liquidity 'black hole' in its attempts to over come the 'zero-bound' problem. This is why you get a reading like the 'five times over the liquidity required to maintain interest rates at zero' mentioned by the FT. Essentially the faster you pour money in, the slower it moves around. Quite a headache.
This news in today's FT might send shivers down a number of spines. The issue is essentially deflation. As the FT itself observes this seems signal the beginning of an end to Japan’s unorthodox quantitative easing policy even though deflation has yet to be beaten. Prices have been falling for seven years and - as I reported earlier in the weak - deflation has recently accelerated: indeed the even the BoJ itself does not expect a return to inflation until the year to April 2007.
"Quantitative easing which floods the market with excess liquidity was introduced in March 2001 to fight deflation in the absence of the BoJ’s ability to move interest rates below zero. Pessimists fear that rushing to mop up liquidity before deflation is beaten is dangerous. Liquidity targets should be maintained, or even expanded, until inflation is firmly entrenched, they argue."
Morgan Stanley's Takehiro Sato - writing before the announcement, advised aginst such a move, in part because:
"The Bank runs the risk of making a serious error similar to ZIRP (zero interest rate policy) abandonment in August 2000 if it mistakenly revises the current account target at a time of heightened uncertainty in global financial markets, including recent speculation about the possibility of massive losses at hedge funds from the GM shock. Policy action would leave the Bank open for criticism from almost anything that goes wrong later on".
A bit of technical background. As feared by Keynes, Japan has effectively created a liquidity 'black hole' in its attempts to over come the 'zero-bound' problem. This is why you get a reading like the 'five times over the liquidity required to maintain interest rates at zero' mentioned by the FT. Essentially the faster you pour money in, the slower it moves around. Quite a headache.
Changes At The World Bank
This is bound to do more than just raise some eyebrows:
The World Bank should focus on promoting economic growth rather than social policies as the route to reducing poverty, the bank's internal watchdog said.
And just two weeks before Paul Wolfowitz takes over as president.
"The hard-hitting report by the bank's Operations Evaluation Department, an independent unit that analyses the bank's lending, criticises the emphasis placed on education and health spending under James Wolfensohn's leadership.....The report calls on the bank to re-focus its efforts on infrastructure projects and urban and rural development. It said the record showed the private sector has not provided adequate financing for infrastructure projects."
Hard to say what I think without more information about what this will actually mean in practice.
The World Bank should focus on promoting economic growth rather than social policies as the route to reducing poverty, the bank's internal watchdog said.
And just two weeks before Paul Wolfowitz takes over as president.
"The hard-hitting report by the bank's Operations Evaluation Department, an independent unit that analyses the bank's lending, criticises the emphasis placed on education and health spending under James Wolfensohn's leadership.....The report calls on the bank to re-focus its efforts on infrastructure projects and urban and rural development. It said the record showed the private sector has not provided adequate financing for infrastructure projects."
Hard to say what I think without more information about what this will actually mean in practice.
Thursday, May 19, 2005
China Investment Overshoot Problem
This news *will* put the cat among the pidgeons: China’s urban fixed asset investment grew 25.7 per cent year on year through the first four months of 2005, overshooting the government’s 16 per cent target and increasing pressure on Beijing to further restrict over-investment in the property sector.
As the FT comments, this data following figures earlier in the week showing an unexpected 16 per cent year-on-year increase in industrial production in April offer evidence the government’s austerity programme has not succeeded in reining in lending and investment. Some response is to be expected from Beijing. Remember all that extra investment means increased capacity, and increased end-user oriented production.
Unless this slows, there will be an 'over-capacity' crisis in China, especially if protectionist measures continue to mount, and following that you could see capital exit from China: ie no dramatic rise in the value of the yuan. Troubling all round.
As the FT comments, this data following figures earlier in the week showing an unexpected 16 per cent year-on-year increase in industrial production in April offer evidence the government’s austerity programme has not succeeded in reining in lending and investment. Some response is to be expected from Beijing. Remember all that extra investment means increased capacity, and increased end-user oriented production.
Unless this slows, there will be an 'over-capacity' crisis in China, especially if protectionist measures continue to mount, and following that you could see capital exit from China: ie no dramatic rise in the value of the yuan. Troubling all round.
Subscribe to:
Posts (Atom)
