Yuan watch: The People’s Bank of China, China’s central bank, pushed the yuan’s daily mid-point to the highest level since its revaluation five years ago in July 2005. The central bank this morning set the mid point at 6.7980 to the US dollar. That was a sharp increase from Monday’s midpoint of 6.8089. The central bank issues the mid-point data through the Chinese interbank market, the China Foreign Exchange Trade System. The yuan may rise or fall 0.5% from its mid-point each day. The move this morning will get all the analysts yapping about revaluations, etc, but the morning announcement will now be the most watched figure on global markets and will underline China’s pre-eminence.
The China dance: welcome to the new reality of global finance and markets: China. It’s move to relax the peg holding the yuan to the US dollar (which sort of didn’t move yesterday, but did), sparked a rally across the world, and even in early trading in the US, which still thinks it runs the world. Wall Street, however, had other thoughts and the market lost 100 points and more of gains on the Dow to close slightly in the red. Currencies rose, then eased a bit, gold hit a new high, not because of China, but because the Saudis were revealed as owning a lot more gold than previously believed.
China’s dance involves close coupling: looking at economic growth rates, China and the rest of Asia, which includes us and the near World Cup winners New Zealand, have uncoupled from slow-growth Europe and sluggish America. But in terms of markets, shares, financial and commodities, not to mention currencies, China is now the driver as the sort of non-move to unpeg the yuan showed yesterday and overnight. It’s something Americans and Europeans still haven’t grasped. By the way, China has a huge trade surplus with the US, which is the cause of the friction, but it also has trade deficits with the other 19 members of the Group of 20 countries who will be fronting up to the meeting in Toronto this weekend. China has neutralised the Americans, very skillfully, and confirmed to the others that it is now the major influence on the world economy, that’s until a European bank or country gets into trouble.
Double-dip watch: but keep an especially sharp eye also on the US where the economy seems to be continuing to lurch towards a slowdown in coming months. For the past couple of weeks I’ve been pointing to one indicator in particular, the Economic Cycle Research Institute’s weekly leading index. It started sagging in an ominous fashion two weeks ago. The index, which is issued every Friday, hit a 45-week low last week. ECRI’s leading indicators index predicted the latest recession (it peaked about the middle of 2007; the recession officially began in December of that year). It also foreshadowed the 2009 recovery. Now it is telegraphing a marked slowdown with the growth in the ECRI weekly leading index falling deeper into negative territory. The growth rate for the week of June 11 weakened to -5.7%, down from -3.7% in the previous week, which had been the first negative reading in almost a year. Some commentators reckon that if it falls to minus 10%, then a recession is almost certain in the next six months.
Another sound Macquarie failure: EDT Retail Trust is the new manager of the former Macquarie DDR Trust, or rather, the saviour for a business that would have collapsed, courtesy of the now standard Macquarie Group approach to fee clipping and extracting value for itself. EDT has been forced to take up 80% of a recent rights issue to help recapitalise the trust and now owns 47.8%, at a cost of $125 million. Macquarie DDR Trust was one of the first of Macquarie’s group of investment trusts to be established a decade ago and it’s the last to leave the Macquarie embrace (probably because its prospects were so rotten). At its peak the trust managed 35 American retail centres through a joint venture with the US DDR group and had a market value of more than $760 million. Its securities peaked at $1.38 at the start of 2007, but yesterday ended at just 5c. Macquarie never stays around to pick up the pieces, does it?
Macquarie’s failure 2: from tomorrow the trust will be known as EDT Retail with the number of units on issue rising from 943 million to a massive 4.7 billion after the capital raising (that’s enough to wallpaper Macquarie’s head office, had it still been in charge). The trust raised $208 million from EDT and about $135 million from the 10-for-3 entitlement issue, which closed with a 53% shortfall. Macquarie didn’t stick around to help clean up after its handiwork. In fact without EDT appearing, Macquarie would have been stuck with the DDR Trust, which would have collapsed and gone into either administration or receivership. American retail property is still a disaster.
Iron ore watch 1: German competition regulators have pushed out their deadline for reviewing the $116 billion iron ore joint venture between miners BHP Billiton and Rio Tinto by two months to October 31. That follows the news that the ACCC in Australia had set July 22 as the deadline for its review of the joint venture proposal. The European Commission, the main EU competition watchdog, is investigating whether the joint venture, criticised by steelmakers and some countries, such as China, will curb competition. There is no set deadline for its examination. Competition authorities in China and Japan are also investigating. Imagine the dummy spit if the ACCC says no. Both companies will take their bats and go home.
Kiwis watch: suddenly New Zealand is no longer home for Kiwis. The number of Kiwis leaving the country in the year to May jumped 21%, with the number headed for Australia rising 20%. Arrivals fell 13% last month from May 2009, and permanent departures were up 24%. Total arrivals were up in the 12 months to May, rising 3%, all due to an 11% rise in the number of Australian tourists; without them, the number of arrivals would have fallen 7%.
Thailand’s exports rise: Thailand’s exports jumped 42.1% to a 22-month high in May, ignoring any impact from the political uncertainty and unrest in Bangkok. Exports hit $US16.55 billion, with imports valued at $US14.34 billion. That left a trade surplus of $US2.2 billion. Exports in the first five months of this year were $US75.02 billion, up 34.5%, while imports jumped 55% to $US71 billion.
BP watch: BP’s Gulf of Mexico oil spill bill has jumped to $US2 billion, according to the latest update from the company.”The cost of the response to date amounts to approximately $US2 billion, including the cost of the spill response, containment, relief well drilling, grants to the Gulf states, claims paid, and federal costs,” BP said. BP referred to the creation of a $US20 billion fund “to satisfy certain obligations” arising from the spill, which was hammered out with US President Barack Obama on June 16. “It is too early to quantify other potential costs and liabilities associated with the incident,” the company added. The shares fell 4.6% in New York to $US30.31, down 47%. The oil has now been flowing now for 63 days.
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