Category Archives: Emerging markets

Japan`s Megabanks are up about 50% since the election

This week is a week for a special focus on the banks around the world. Today, I will take a closer look at the banks in Japan.

Japans interest rate peaked in the 70s and 80`s at about 9%, and it went down to 6% in 1991. Then it started to fall down with the stock market. As you may know, Japan has printed tons of money and a great recovery has never happened.

 

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Japan are in a very special situation. The Bank of Japan left the interest rate unchanged at -0,1% at its December 2016 meeting, as widely expected. In addition; policy makers also decided to maintain its 10-years government bond yield target around 0% and viewed a moderate recovery trend in the economy had continued while exports has picked up.

With regard to the amount of JGB`s to be purchased, the Bank will conduct buying at more or less the current pace. An annual pace of increase of about 80 trillion yen.

The biggest banks in Japan are up about 50% since the election.

On top of all this, Japan will continue with its craziness and monetize about $670 billion`s worth of bonds per year.Wow!

Japan`s economy has continued its moderate recovery trend, and overseas economics have continued to grow at moderate pace, although emerging economies remain sluggish in part. In this situation exports have picked up.

Prime Minister Shinzo Abe said the sales for American cars are poor, pushing back after President Donald Trump described the trade imbalance on vehicles as «unfair». Japan exported 1,6 million cars in 2015. Sales of American cars in Japan are almost non-existent, while only 19 000 cars were sold in Japan in 2015, trade minister Hiroshige Seko said.

The reason for the bad sale is competition and not tariff.

Despite all the noise from the U.S and Trump`s fiscal and trade policies, and a number of unclear factors like Brexit, trade deals and the global economic situation, Japan will see its economy grow in 2017 on the back of the weak yen and government steps to stimulate sluggish consumption, economists have said.

They predict that 2017 will be a positive year for Japan, and the government looks to craft more measures to help boost consumption.

A weaker yen against the dollar will also help boost Japanese exporters and their revenue.

Shinzo Abe will meet Donald Trump in Washington 10 February this year.

 

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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China goes down and Africa up

Chinas GDP is still high, but its falling and it can go below 4%. The Chinese economy grew an annual 6,8 percent in the fourth quarter of 2015 which is the weakest since first quarter of 2009. For the full year of 2015, GDP expanded by 6,9 percent which is the weakest growth in 25 years.

China`s GDP annual growth rate came in at 3,80 percent in the fourth quarter of 1990, and peaked at an all-time high of 15,40 percent in the first quarter of 1993. GDP annual growth rate in China averaged 9,88 percent from 1989 until 2015.

 

China

 

Consumer prices in China rose 2,3 percent YoY in February of 2016 which is up from 1,8 percent in January. This is the highest inflation rate since July 2014. Inflation rate in China reached a record low of -2,20 percent in April of 1999, and an all-time high of 28,40 percent in February of 1989. Inflation rate in China averaged 5,51 percent from 1986 until 2016.

The most important components of the CPI basket in China, are Food with a 31,8 percent of total weight and Residence at 17,2 percent. Consumer prices rose 2,3 percent in February this year and that is the highest inflation rate since July 2014, as politically sensitive food prices surged 7,3 percent over the Lunar New Year holiday and cold weather.

Africa is another growth story. A quick look at the chart tell us a new fx bull market is imminent. Rand looks great vs pound.

 

Kenya

 

South Sudan is the youngest nation in the world and they are officially recognised as a country in July 2011. Despite taking about 75 percent of old Sudan`s oil reserves, it is one of the poorest regions in Africa and government revenues are still dependent of foreign aid.

They had massive growth in 2014. South Sudan expanded 15,90 percent in 2014 which is an all-time high, but it`s a young nation and keep in mind that they reached a record low of -46,10 percent in 2012.

Kenya has been experiencing steady growth for some years now. The World Bank predicted a growth rate of 6,6 percent in 2016 and 7 percent next year. How are they doing it? The growth comes from massive investments in infrastructure and jobs, and they are taking steps to improve the business climate, and a boost in exports.

This can be risky.

The threat of terrorist attacks from Al-Shabaab cause security concerns. Kenyas tourism industry is one of the countrys key sectors and Al-Shabaab has a negative impact on that industry. Their manufacturing sector has also been stagnant for some years. In addition, there is a lack of competition and minimal production.

Kenya is still highly dependent on agriculture and the sector made a significant 26 percent of the countrys GDP annually, and another 25 percent indirectly. The sector accounts for 65 percent of Kenyas total export.

Manufacturing is also important for Kenya`s growth. Investment opportunities include manufacturing of fertilizer, agro-processing, machine tools and machinery, garments, and engineering products for both domestic and export markets.

 

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Sell your shares in Zimbabwe before April 1

Chinas GDP growth were 14% a few years ago, but now the worlds second-largest economy is lowering the growth target to about 6,5% – 7% in 2016. 7% is still very good, but the economy is slowing down faster than expected.

The economic growth is slowing while China`s Central government budget deficit as a percentage of GDP is growing. The target is 3% in 2016, and China will continue to be a global economic engine. But what is the next China?

It can be Africa which is a hot commodity, but some investors are in doubt. They think it is unstable and unsafe. Some claims it is so much violence in Kenya, but the infrastructure in Kenya makes it a worthy long-term investment.

Africa

Africa is a growing economy with a huge and young population. It has so far been a daunting place to start and run a company there. Very often, it is expensive to start a new business in Africa.

Bank loans come with double-digit interest rates. The electricity grid is sub-par and diesel generators cost a fortune, but many thing are getting better according to the World Bank.

There is a lot of reform happening in Africa right now.

The World Bank publishes a parallel ranking of the countries that have pushed through the most business-friendly reforms. Five African countries are on the top-10 list, which is Kenya, Mauritania, Senegal, Benin and Uganda.

Botswana is the least corrupt country in Africa which is an important factor for entrepreneurs and their investors. This is a country that rely heavily on revenues from the diamond trade to fuel its growth.

Rwanda is an economic success story. Many years of reforms have made it much more easy to open and run a business, and it is far easier to get credit there. Only one country is better and that is Mauritius.

It has commercial links to India, China and the east coast of Africa. Mauritius is often on top of the ranking list for competitiveness and ease of doing business due to its liberal approach to regulation and taxation. What about Zimbabwe?

Zimbabwe

Zimbabwe had rough days, particularly between 2005 and 2008, were hyperinflation decimated the economy. The Central Bank issued currency with expiration dates of six months, effectively longer than the actual life of the currency.

The American dollar replaced the Zimbabwean dollar as the country`s main currency, and now Zimbabwe has started to retiring it’s almost worthless local currency in favor of the U.S dollar.

35 quadrillion Zimbabwean dollars are equal to US $1.

Monthly inflation rate hit 3,5 million percent eight years ago, and prices doubled every 25 hours. Zimbabwe has the second-worst hyperinflation in history, behind post-war Hungary.

It all started in 2000, when Mugabe changed his economic policy and implemented land reform. Mugabe granted farmland owned by white citizens to indigenous black Zimbabweans. They turned from an agriculture exporter to an importer, which resulted  in 94 percent unemployment rate and hyperinflation.

Zimbabwe is known for its mineral resources. It has the world`s second largest deposit of chrome and platinum after South Africa, and President Robert Mugabe wants to take over all diamond operations.

Zimbabwes leader since 1987, Robert Mugabe eager to nationalize Zimbabwes diamond industry, and news from Zimbabwe leaves little to be desired about the small former British colony.

He says the country`s wealth had been looted by the existing miners.

“The state will now own all the diamonds in the country. Companies that have been mining diamonds have robbed us of our wealth. That is why we have now said the state must have a monopoly,” said Mugabe in an interview with the state broadcaster earlier this month.

Foreign investor also need to hurry up and sell their shares to blacks or close before April 1st.

Companies owned by foreigners face closure unless they sell or give up 51% of their shares to black Zimbabweans by April 1, said indigenization Minister Patrick Zhuwao.

“Comply by that date or close shop, comply by that date or face the full wrath of the law,” Bloomberg quotes Zhuwao, who is also President Robert Mugabe`s nephew.

IMF asked the Mugabe administration to clarify Zimbabwe`s policy on black empowerment. Zimbabwe has agreed to major reforms including compensation for evicted white farmers.

President Mugabe is known for evicting white farmers. In 2010, the Guardian reported that Mugabe used land reforms to reward his allies rather than ordinary black Zimbabweans. The newspaper`s sources reported Mugabe and his supporters owned about 40% of the land seized from white farmers.

The white farmers received no compensations after being evicted.

«If white settlers just took the land from us without paying for it, we can, in a similar way, just take it from them without paying for it,» said Mugabe.

 

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Outrageous Predictions 2016

It`s time for some predictions for 2016, and Saxo Bank is out with their own predictions and they are outrageous. “Outrageous Predictions” are “Outrageous Predictions”. Very bold. They are outrageous, expecting next year’s El Niño to be the strongest ever. Oil making a drastic return to $100 a barrel, and EURUSD to skyrocket back to 1,23 to name a few.

Steen Jakobsen, Chief Economist at Saxo Bank, commented: “We are nearing the end of the paradigm paralysis that has dominated the policy response to the global financial crisis. Quantitative easing and other forms of intervention have failed. China is transitioning, and geopolitical tensions are as complex as ever. The marginal cost of money is rising, and so is volatility and uncertainty. It is against this backdrop we have set this year’s predictions.”

 

Predictions 2016
Saxo Bank’s Outrageous Predictions 2016

  1. EURUSD direction? It’s 1.23…
    Europe is running a massive current account surplus and its weaker inflation should, in macroeconomic logic, mean a stronger currency, not a weaker one. The race to the bottom has gone full circle, meaning we are back to a weaker US dollar again as the direct outcome of US interest rates policy.
  2. Russia’s rouble rises 20% by end-2016
    By the end of 2016, a surge in oil demand and the Fed raising rates at an inappropriately slow pace causes the Russian rouble to rise some 20% versus the US dollar/euro basket in 2016.
  3. Silicon Valley’s unicorns brought back down to earth
    2016 will resemble 2000 in Silicon Valley with more startups delaying monetization and tangible business models in exchange for adding users and trying to achieve critical mass.
  4. Olympics to turbo-charge EM’s Brazil-led recovery
    Stabilisation, investment spending on the Olympics, and modest reforms will see sentiment rebound in Brazil, with EM exports helped by cheaper local currencies. The result: EM equities to have a great year – outperforming bonds and other equities.
  5. Democrats retain presidency, retake Congress in 2016 landslide
    The Republican Party goes from strength to dramatic weakness as the rifts from an internal struggle on its future direction play out. This leads to a landslide victory for the Democratic Party as they successfully execute a get-out-the-vote campaign with Millennials coming out in droves having been frustrated by the political stalemate and weak job prospects of the last eight years.
  6. OPEC turmoil triggers brief return to $100/b oil
    OPEC’s crude oil basket price drops to the lowest since 2009 and unease among weaker as well as wealthier members of the cartel over the supply-and-rule strategy continues to grow. The long-awaited sign of an accelerated slowdown in non-OPEC production finally begins to flicker. Suitably buoyed, OPEC catches the market on the hop with a downward adjustment in output. The price mounts a quick recovery with investors scrambling to re-enter the market to the long side – once again bringing $100/barrel prices onto the horizon.
  7. Silver breaks golden shackles to rally 33%
    2016 will see a renewed confidence in silver. The political drive towards reducing carbon dioxide emissions by supporting renewable energy will add to increased industrial demand for the metal, given its use in solar cells. As such, silver will rally by a third, leaving other metals behind.
  8. Aggressive Fed sees meltdown in global corporate bonds
    Late 2016 will see Fed chief Janet Yellen embark down a hawkish path with a series of aggressive rate hikes, triggering a huge selloff in all major bond markets as yields start to rise. As the portions of bank and broker balance sheets allotted to bond trading and market making have almost disappeared, one of the vital parts of a functioning market is simply not there. This realisation sinks in too late and the entire buy-side flee into a panic selling one-way street, as highly advanced risk models lurch into a symmetric red alert.
  9. El Niño sparks inflation surge
    Next year’s El Niño will be the strongest on record and will cause moisture deficits in many areas of southeast Asia and droughts in Australia. Lower yields across agricultural commodities will curb supply at a time when demand is still increasing on the back of global economic expansion. The outcome will be a 40% surge in the Bloomberg Agriculture Spot Index, adding some much-needed inflationary pressure.
  10. Inequality has last laugh on luxury
    Faced with rising inequality and unemployment of over 10%, Europe is considering the introduction of a basic universal income to ensure that all citizens can afford to meet their basic needs. In a more egalitarian society where other values are promoted, demand for luxury goods decreases sharply – the sector collapses.

 

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. UA-63539824-1.

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Will the Fed raise rates on Thursday?

Do you belive the Fed will hike on Thursday?

If so, you are among economists and strategists that belive so, but traders are betting strongly against it, and that alone is enough to wait at least one month before liftoff, according to Morgan Stanley.

CME FedWatch tool says the probability is at just 21 percent, and Morgan Stanley said its readings on trading show a 30 percent probability that «overstated the chance» of a rate rise.

Lessons learned in 1994 that reverberated into 1999 and 2004 will prelude a rate hike until the futures market prices one in. In 1999 and 2004, the central bank waited for market expectations to exceed 50 percent before moving, learning a lesson from 1994 when it tightened.

CNBC said there is one good reason the Federal Reserve won`t vote to raise interest rates, and that`s History. So, what is all this about?

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Rates have been near zero since the recession, and the Fed have delayed its first-rate hike since 2006. But why is the interest rate so low? See it like this; The lower the rates, the more problems it is in the economy.

When the economy is strong and everything is okay, interest rates are hiked in order to curb inflation, but when we face tough times, the Fed will cut rates to encourage lending and inject money into the economy.

Investors can predict what the Fed (or other central banks) will do by looking at economic indicators such as;

Retail Sales: Consumer spending
The Consumer Price Index (CPI): Inflation, and
Non-farm Payrolls: Employment levels

If these indicators improve and the economy is doing well, rates will be raised, but if the improvement is small, it will be maintained. Drops in these indicators can mean a rate cut in order to encourage borrowing.

Other indicators to foreshadow changes in the economy is building permits, average weekly hours, new orders and the spread between 10-year Treasuries and the Federal Funds Rate, which is published every month by The Conference Board.

Raising rates will have an impact on the markets. Raising interest rates will cause the dollar to appreciate over the Euro, which means the pair EUR/USD will decline, which is good for the U.S dollar.

If Chairwoman Janet Yellen sends out a dowish signal on Thursday, it may help to boost stocks and undermine the dollar. Investors will pay less attention to gold and allocate more of their capital into equities.

A hawkish message, including a rate increase, may help unpin the dollar and undermine stocks and gold. So, the upside will be limited for gold in both scenarios, unless we see a massive selloff in equities and the dollar.

Changes in monetary policy will ultimately cause currency exchange rates to change, and paying close attention to the news and analyzing the actions of the Fed (in this case) is vital for forex traders.

The interest rates impact currencies because the greater the rate of return, the greater the interest accrued on currency invested and the higher the profit. So how can you profit on it? The strategy is very simple, but also very risky. You can simply borrow currencies with a lower interest rate in order to buy currencies that have a higher interest rate, and this strategy is known as carry trade.

The shift in interest rate represent a monetary policy-based response as a result of economic indicators that assess the health of the economy. Most importantly; they possess the power to move the market immediately. So, how healthy is the U.S economy?

Nonfarm Payrolls is up: 215K
May, June Revisions: 14K
Unemployment Rate: 5,3%
Avg. Hourly Wages: 0,2%
Labor Force Participation: 62,6%
Consumer Price Index: -0,1%

A key measure of inflation dropped 0,1% last month for the first time since January due to sliding gasoline costs, and this is something for the FOMC (Federal Open Market Committee) on its policy meeting Wednesday and Thursday this week.

Central bank leaders have said they want to be confident inflation is heading toward their 2 percent target. Low inflation is a sign of economic weakness, and raising rates too soon risks harming the economic expansion.

IMF (International Monetary Fund) and the World Bank have asked the Fed to delay its first-rate hike since 2006.

The world`s financial watchdog is the BIS (the Bank of International Settlement) and are considered the «bank of central banks». BIS has warned that a Fed rate hike could have a huge effect on the global economy and particularly in emerging markets.

According to a BIS report, much of the global financial system remains anchored to U.S borrowing rates, and a rate hike at home tends to have an impact on higher rates in other economies. The enormous amount of debt in the emerging markets has the potential to move the markets even with a small rate hike.

Everybody knows that sooner or later, a rate hike might be necessary. No matter the results in the financial markets will be. Some belive the Fed will hold off on raising rates until December.

I really look forward to Janet Yellen`s speech on Thursday at 2 p.m. Washington time.

 

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. UA-63539824-1.

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