“China’s factories continued their dramatic slowdown in March, with manufacturing activity falling to an eight-month low amid a slump in the world’s second largest economy.” Many seem to be expecting at least some stimulus from the Chinese government, for example: “some analysts expect the People’s Bank of China to cut banks’ reserve requirements, freeing up funds that can be used for lending.” Or, perhaps “the government is considering a repeat of last summer, when it used a combination of faster infrastructure investment and a gentle loosening of monetary policy to reverse slowing growth.” Furthermore, “a cheaper currency — or at least slower appreciation — could offer some relief for low-end Chinese exporters who have been struggling with cheaper competition from Vietnam and Indonesia.” Meanwhile, you may want to consider this next time you read an article on China’s slowdown from Bloomberg News: “[Bloomberg’s] business model is different from that of other media companies. The content of its news is not its main selling point. Its financial data and analytics are…And China as a market is different from Wall Street because essentially one customer, the government, controls access…Bloomberg’s model creates powerful incentives to sacrifice the news to business interests.”
Eurozone: Detaching From Emerging Markets, Creating Their Own Emerging Markets
“Yield-hungry investors are flocking back to Greece and Portuguese markets, shunned by international buyers for four years, as the outlook for the bailed-out countries improves and alternatives look more expensive or increasingly risky…While the small size of the Greek and Portuguese markets discourage some investors, it also means that a relatively modest inflow of money into those countries has a large price impact…’It’s not so much an interest-rate driven rally but much more a structural shift and a perception that the euro crisis is behind us.’” Maybe it’s both? “Eurozone governments are taking advantage of unexpectedly low borrowing costs to push ahead with debt issuance…debt agencies have raised 29 percent of their estimated 2014 funding goals…more than in any year since 2010…Governments are also issuing more longer term debt…’Europe has become completely detached from emerging markets — they are almost havens.’” Speaking of which, “Emerging Europe” is becoming the new hunting ground for bad loan investors as Central and Eastern European banks clean up their balance sheets, “creating new opportunities for bad loan investors that are seeing returns dwindle in recovering Eurozone economies.” “Non-performing loans (NPL) in Romania officially make up about 22 percent of total loans…In Hungary, bad loans are running at 18 percent of all household debt, while in Latvia they are at almost 10 percent…buyers [are] typically hedge funds or private equity firms seeking an annual rate of return of 15 to 25 percent. That implies getting the loans at a substantial discount, since loans normally return less than 10 percent.” Quote of the year: “The perennial problem is that views of the buyer and the seller about the price are always very different.” Meanwhile, the ECB will be just fine without your forward guidance, thank you very much. Also, the Financial Times has been hating on the imperfect banking union recently; here’s why: the process for bailing out a troubled bank involves “multiple panels and more than 100 decision makers,” the €55bn resolution fund is way too small and will take 8 years to build, and the use of “bail-in” (creditors are first to bear the cost of a bailout).
Says one banker “who moved with his wife and children to Arizona for a better work-life balance: ‘I have made a comfortable life for myself here…There is hardly a day when I have to be in the office later than 11pm.’”
Global: Too Cheap To Replace
Here’s an interesting take on the divergence between UK and US “Wages as a Share of National Income” since the recession began. “Because low real wages mean that British workers are cheap, firms feel less pressure to economise on them. They do more hiring (or less sacking) and less automation…because low real wages encourage less substitution of capital for labour, a higher share of income flows to labour, to workers with a high propensity to spend.”