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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (21101)	1/12/2005 8:51:50 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

China likely to raise interest rates, keep yuan stable in 2005 -Morgan Stanley Wednesday, January 12, 2005 4:42:40 AM afxpress.com HONG KONG (AFX) - China is likely to raise interest rates gradually this year while keeping its currency stable, as this approach carries the lowest risk to the country's economy, Morgan Stanley said. Andy Xie, managing director and an economist for Asia-Pacific at Morgan Stanley, said this is one of four policy scenarios that he foresees in China this year. A gradual increase in interest rates will enable China to deflate its property bubble, slow fixed investment and diminish speculative pressure on the yuan, he said. "When China's economy has landed, demand for yuan will reflect reality and China could float the exchange rate without fearing that speculation would distort the value. It is in China's best interests to pursue this course, in my view," he said Under this scenario which he estimates has a 50 pct chance of happening, China's economy will likely experience an orderly slowdown, with a cool down in prices of natural resources and eased inflationary pressures. "When China cools its economy by raising interest rates, it would decrease speculation in the renminbi and help stabilize the US dollar. A stable dollar and lower commodity prices would give the Fed more time to raise interest rates. It could create the best policy combination between China and the US to achieve a global soft landing," Xie said. In a second scenario which he estimates has a 25 pct probability, China may opt to keep the status quo, just like what it did in 2004 Under this setting, China's economy will unfold depending on the extent to which excess capacity affects profitability of companies and how fast the US Federal Reserve raises interest rates. "If US inflation surprises on the upside, the Fed would raise interest rates faster than expected. The higher and faster rising US interest rate would cause hot money to leave China, which would bring down property prices and slow fixed investment," he said Xie said another scenario, which he gave only a 10 pct chance, is for China to bow to international political or internal inflationary pressure and revalue the yuan by 15-25 pct "Such an approach is likely to lead to a hard landing as the massive amount of hot money flows out to realize profits. Commodity prices would fall sharply as a result and the dollar would strengthen," he said China will immediately suffer deflation as falling commodity prices and excess capacity cause prices to decline. Xie said China could also allow the yuan to appreciate slowly as an alternative policy direction. Under this scenario, appreciating the currency gradually would attract foreign speculators and suck in more hot money that would enable the property industry to unload its excess inventory "If this scenario does unfold, I believe it would cause another wave of global speculation. Massive speculation would push the dollar down and commodity prices up," he said China's actions will essentially extend the Fed liquidity bubble by creating more demand for liquidity under the same Fed Funds rate. Foreign demand for Chinese properties will likely rise, he noted However, this situation would cause property construction to increase even more with another wave of hot money. Six months later, China would face more investment excess and a hard landing might be inevitable "Since this scenario only helps the property industry to unload its inventory and no one else, I think it is unlikely to materialize. However, the property industry has become the most powerful lobbying group in China, so I would not dismiss this scenario completely. I assign a 15 pct probability," he said

To: RealMuLan who wrote (21101)	1/12/2005 9:07:42 AM
From: mishedlo	Respond to of 116555

Dollar falls sharply on record U.S. trade deficit By Nick Godt NEW YORK (CBS.MW) -- The dollar fell sharply against the euro and the yen in morning trade Wednesday, after news that the U.S. trade deficit unexpectedly widened to a new record high in November. The Commerce Department said the trade deficit reached an all-time high of $60.3 billion, while economists polled by CBS MarketWatch expected the deficit to narrow to $53.3 billion. Against the euro, the dollar was down 0.8 percent at $1.3218, and was worth 102.48 yen, also a 0.8 percent drop.

To: RealMuLan who wrote (21101)	1/12/2005 9:13:02 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

U.S. Nov. trade gap grows to record $60.3 billion Wednesday, January 12, 2005 1:48:36 PM afxpress.com WASHINGTON (AFX) - U.S. exports sank 2.3 percent in November, driving the U.S. trade deficit to all-time high of $60.3 billion, the Commerce Department estimated Wednesday While exports fell to a five-month low of $95.6 billion, imports rose 1.3 percent to a record $155.8 billion as the bill for imported oil rose by 17.7 percent, or more than $2 billion, to a record $14.2 billion. The figures are adjusted for seasonal factors, but not price changes The trade gap increased 7.7 percent from October's revised $56 billion and 50.8 percent from November 2003's $40 billion Wall Street economists were expecting the trade deficit on goods and services to shrink to about $53.3 billion, according to a survey conducted by CBS MarketWatch In the first 11-months of 2004, the trade gap totaled $561.3 billion, beating the annual record of $496.5 billion set last year with another month to go. Year-to-date, imports have risen 16 percent, while exports are up 12 percent The trade gap has widened despite a weakening dollar, which theoretically should make U.S. goods and services more competitive both at home and abroad. Wednesday's report is likely to put more pressure on the dollar, and it will likely renew pressure on Washington to do something about energy independence and the trade imbalance with China The declining dollar cannot overcome weak demand in Europe. In addition, the dollar's value has barely budged against major Asian currencies, particularly the Chinese yuan, which is pegged firmly to the dollar.. Some of the worsening trade balance comes from the imported oil bill, but the largest source is China, whose exports to the U.S. are up by nearly $40 billion year-to-date In November, the gains in imports were led by the $1.4 billion rise in industrial materials, including a $2.1 billion increase in crude oil imports. The quantity of oil imported rose to 10.9 million barrels a day from 10.2 million while the average price fell to $41.15 from a record $41.79 in October Imported consumer goods and foods and feeds also showed modest increases. Imports of autos and capital goods fell The decline in November exports was led by a $1.4 billion drop in capital goods, including $325 million in aircraft and aircraft engines. Exports of industrial materials fell by $800 million, mainly energy goods. Exports of autos, consumer goods and foods and feeds also declined Imports from China dipped in November from $19.7 billion to $19.6 billion. Exports to China were flat at $3 billion. The country-specific trade data is not seasonally adjusted, so the decline could have more to do with the timing of imports for the Christmas season

To: RealMuLan who wrote (21101)	1/12/2005 9:35:00 AM
From: mishedlo	Respond to of 116555

Mortgage applications activity down in 1st week of 2005 Wednesday, January 12, 2005 1:10:29 PM afxpress.com WASHINGTON (AFX) -- Applications for mortgages slipped 3.0 percent on an adjusted basis for the week ended Jan. 7, the Mortgage Bankers Association's latest survey showed. Mortgage volumes for home purchases decreased by 5.8 percent, while refinancings increased by 1.1 percent. Refinancings accounted for 49.0 percent of mortgage applications, up from 48.0 percent in the last week of 2004, while adjustable-rate mortgages rose to 32.7 percent from 32.6 percent. Average contract interest rates for 30- and 15-year fixed-rate mortgages rose on a week-to-week basis, to 5.70 and 5.17 percent from 5.67 and 5.12 percent, respectively. One-year ARMs saw their interest rate ease to 4.16 percent from 4.17 percent, the MBA said

To: RealMuLan who wrote (21101)	1/12/2005 9:53:20 AM
From: mishedlo	Respond to of 116555

UK on course for record annual trade deficit despite Nov improvement Wednesday, January 12, 2005 11:35:44 AM afxpress.com LONDON (AFX) - The UK is on course to post its widest ever trade deficit in 2004 even though there was a slight improvement in November, official figures showed The office of National Statistics said the trade in goods deficit narrowed to 4.6 bln stg in November from a downwardly revised 5.0 bln in October, beating expectations for a 5.1 bln shortfall The improvement occurred despite record monthly imports, which hit 21.5 bln stg in November from 21.3 bln in October, largely because of higher imports of oil and natural gas However, imports increased by less than exports, which rose to 16.9 bln from 16.2 bln, primarily as a result of higher exports of petroleum products, chemicals and capital goods "The detail showed encouraging signs of an export recovery with the three month annual rate of export volume growth rising to 5.0 pct, the highest since May 2001, and exports up 2.3 pct in the last three months alone," said Paul Dales, UK economist at Capital Economics On a geographical level, the statistics office said the deficit with the EU narrowed to 1.9 bln stg in November from 2.1 bln the previous month, while the non-EU shortfall improved to 2.7 bln from 2.9 bln and expectations of a modest uptick to 3.0 bln Capital Economics' Dales noted that three-month export volumes to non-EU countries rose by a "very robust" 6.0 pct, while export volumes during the period to the EU fell 0.3 pct. "Given that the UK sends over 50 pct of its exports to the EU, any further recovery in exports will surely be limited by the ongoing weakness of domestic demand on the continent," he added Despite the modest improvement in November, a spokesman for the statistics office said the UK is likely to post a record deficit this year The cumulative deficit for the first 11 months of the year is estimated to be 53.2 bln, compared with the full-year record of 47.4 bln in 2003 Elsewhere, there were surpluses in services and oil The oil surplus in November stood at 134 mln stg against 193 mln the previous month, while the services surplus was unchanged at 1.5 bln That means the overall trade in goods and services deficit in November stood at 3.1 bln against 3.6 bln recorded the previous month Here again, the spokesman said last year's overall goods and services deficit is likely to be exceeded The cumulative deficit for the year to November stood at 36.3 bln stg, which is already 4.5 bln worse than the record annual 31.8 bln shortfall recorded for the whole of 2003 In the three months to November, the deficit in trade in goods and services totalled 9.7 bln stg against 10.6 bln in the previous three months. The trade in goods deficit in the three months to November meanwhile narrowed by 1 bln to 14.1 bln. The statistics office said the latest estimate suggests that the UK trade in goods deficit and the trade in goods and services deficit are both widening, despite the November improvement Ross Walker, economist at the Royal Bank of Scotland, said the underlying trends are still unfavourable and trade will act as a drag on GDP in the fourth quarter unless December's data are a repeat of November's

To: RealMuLan who wrote (21101)	1/12/2005 10:09:09 AM
From: mishedlo	Respond to of 116555

Boston Fed´s Minehan sees 2005 GDP growth near 4% rate Wednesday, January 12, 2005 1:51:02 PM afxpress.com Boston Fed's Minehan sees 2005 GDP growth near 4% rate WASHINGTON (AFX) -- The U.S. economy is in "reasonably good shape" in 2005, with gross domestic product expected to expand near a 4 percent rate, said Cathy Minehan, the president of the Federal Reserve Bank of Boston. The relatively strong growth rate should be accompanied by continued hiring and low inflation, she said in a speech to the Connecticut Business and Industry Association in Hartford. This upbeat forecast implies "less need" for Fed monetary policy to remain accommodative, she said, "but with risks on both sides of the forecast, a lot depends on how economic growth unfolds."