Untitled

News Summary
Hello from Hong Kong.

Fed Res Bank of San Francisco President John Williams spoke
on Saturday, in University of California, acknowledging that
hiccup in some labour reports now reversed, and other signs
show U.S. economy on good track. Williams said, Assuming
that we continue to get good data on the economy, continue to
get signs that were moving closer to achieving our goals and
gaining confidence ingetting back to 2% inflation over the
next couple yearsif that continues to happen, theres a
strong case to be made in December to raise rates. Fed
officials economic projections, which were last released in
September and will be updated in December, suggest a
gradual pace of tightening. But he emphasized the Feds
decisions will be based on data and wont follow a
predetermined path (page 9).
European Central Bank executive board member Benot
Coeur spoke in University of California as well and said some
key assumptions about how the global economy works are
under fire and policy makers should rethink issues of growth,
exchange rates and capital flows (page 8).
Report in Sunday Telegraph, Moody's said Britain's "rich and
diversified" economy means country unlikely to suffer
immediate credit downgrade if it leaves the EU. Kathrin
Muehlbronner, senior vice president at Moodys and the
agencys lead UK analyst, said UKs diversified and rich
economy meant it could flourish outside the bloc. While
Moodys said the uncertainty would be negative for growth, it
said this could be short-lived if the UK were able to negotiate
new trade deals with major partners quickly (page 6).
Turnbull that work should be done to streamline the rules

(page 13).
Reserve Bank of India Governor Raghuram Rajan said IMF
does need to accommodate currencies of large economies with
strong positions in global trade and finance, and clearly China
has made a lot of progress on both counts. Rajan also said it is
"very unfair" to blame Beijing for the competitive devaluation
among emerging markets. China's pain is India's pain too,
says its central bank governor, contradicting the country's
finance minister who recently said India will not be affected
by China's slowdown (page 11-12).
French Insurance, Axa has brought in bankers at Barclays and
Fenchurch Advisory Partners to help sell units, including parts
of its wealth management operation in UK. It is said to have
grown tired of the regulatory environment in the UK.
Deutsche Bank will begin to issue redundancy notices in the
new year, according to a well-placed market source. This will
leave the axe hanging over traders, back-office staff and fixedincome specialists. Sunday Times said about 1,000 jobs will be
axed (page 7).
Keep an eye on RBA Governor Glenn Stevens speech on
Tuesday Nov 24. Have a great week ahead.
Meanwhile, come Wednesday, UK Chancellor George Osborne

will deliver the autumn statement and a spending review
both or which are rather important. David Smith in Sunday
Times noted Autumn statements are like mini budgets, which
the headline writers often do; we have a budget or a mini
budget every few months. Spending reviews are rare. There
was only one proper one during the last parliament, in 2010,
and Wednesdays is the big one for this parliament. It is big in
more ways than one. Osborne will set out how the government
will spend an eye-watering 4 trillion over the course of this
parliament. Kathryn Cooper said Osborne is going to direct
support for industry this week. The move will be seen as a
reversal of Osbornes pledge in 2011 to unleash a march of
the makers. Some of the countrys biggest manufacturers,
including Rolls Royce, have warned of dire consequences for
the economy if direct grants are slashed (page 4-5).
Malaysias PM Najib Razak kicked off the ASEAN Summit in
Kuala Lumpur but nothing concrete so far. President Barack
Obama pressed for human-rights protections and government
accountability in Malaysia, advocating for what he called basic
shared values while not singling out specific issues in this
country. A senior administration official said the Obama
administration is troubled by the Malaysian governments use
of the Sedition Act and other national-security laws to harass,
detain and arrest critics of the government (page 11).
Also in ASEAN Summit, Chinese President Li Keqiang has
assured PM Malcolm Turnbull that China's economy would
continue to grow at "about 7 per cent" and that there would be
an ongoing demand for Australia's resources, including coal.
Li has acknowledged concerns over import controls that
stymie $9 billion in Australian coal exports, agreeing with PM
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
World News
Ambrose Evans-Pritchard
Speculators test Saudi currency as oil crisis
deepens
Taken from the Telegraph Saturday, 21 November 2015
A de-peg of the Saudi riyal is our number one black-swan

event for oil in 2016, said Bank of America
Saudi Arabias currency regime is at risk of blowing up if oil
prices fall further and the US dollar spikes higher, Bank of
America has warned.
The Saudi strategy of flooding the world with oil in a bid to
drive out rivals may be hard to square with the countrys fixed
dollar-peg, which is increasingly under scrutiny by currency
traders as the US Federal Reserve prepares to raise interest
rates.
The crucial point is what happens to the Saudi riyal. Saudi
Arabias foreign exchange reserves still provide an ample
buffer, but they have been falling fast, said Francisco Blanch,
the banks energy strategist.
Should Brent crude oil prices drop to $30, we estimate the
foreign exchange reserve drain could accelerate to $18bn per
month. Saudi Arabia may face a critical choice: cut oil supply,
or de-peg, he said.
The 12-month riyal forward contracts watched by experts
for signs that traders are betting on a collapse of the peg has
spiked violently to 535 from just 13 points in June.
This is even higher than the peak after the 9/11 terrorist
attacks in New York, and is approaching extremes seen in
January 1999. Credit default swaps pricing bankruptcy risk
has jumped to 153, the highest since the global financial crisis.
Mr Blanch said a devaluation by China would leave the Saudis
badly exposed and might ultimately force their hand. A depeg of the Saudi riyal is our number one black-swan event for
oil in 2016, he said.
The 30-year old dollar peg is the weak link in Saudi strategy.
It matters more than dissent within OPEC as the cartel
prepares for a stormy meeting in Vienna on December 4. To
varying degrees, Algeria, Venezuela, Nigeria, Iraq, and Iran all
want production cuts to stabilize the market.
Russia has been able to cushion the effects of the oil price
crash by letting the rouble fall from 32 to 65 against the dollar
since mid-2014. This protects oil revenues of the Russian state
in local-currency terms.
Saudi Arabia is taking the blow head-on, and is facing an extra
tourniquet effect as Fed tightening pushes the global dollar
index to a 12-year high. The central banks holdings of foreign
securities fell $23bn in October. They are down $90bn since
February. Foreign reserves are still $647bn but not all is
usable.
The Saudi government has had to cancel a raft of
infrastructure projects and push through drastic spending
cuts to rein in a budget deficit near 20pc of GDP. It denies
reports that contractors are not being paid.
Bank of America warned that a break-down of the Saudi
dollar-peg would send the riyal tumbling, with major knockon effects. Oil could collapse to $25, it said in a client note.
The report said it is the lesser of evils for Riyadh to trim oil
output and nudge Brent crude prices back over $50 rather
than risk a currency crash. Most experts say devaluation
would devastate the political credibility of the Saudi dynasty,
already facing criticism at home as the war in Yemen drags on.
Russia abandoned its peg long before reserves ran out, partly
because the defence of the rouble imported vicious monetary
tightening. Kazakhstan ditched its dollar peg in August. But
the riyal may be a harder nut to crack.
Brown Brothers Harriman said the Saudi peg is the bedrock of
financial policy and will not be surrendered lightly. Any
attempt by speculators to mount an attack is likely to fail.

"They have the political will, and they have enough reserves to
keep going for another two years if they husband their
resources. They should not be underestimated," said Marc
Chandler, the bank's currency strategist.
Mr Chandler said speculators should bear in mind that the
Saudis revalued their currency upwards in the 1980s to catch
traders off guard, inflicting painful losses to teach a lesson.
The Saudis then devalued later once they had made the point.
Patrick Dennis from Oxford Economics said the dollar link
has been pivotal in the modern history of the country. We
think that the Saudi authorities are very unlikely to abandon
their peg. It has been intact for nearly 30 years and withstood
more difficult periods than now, he said.
The question is whether the Saudis deem the peg to be so
important that they would rather abandon their current OPEC
strategy, if push comes to shove. Frankly, it is a lot easier
politically to deliver a modest supply cut than to implement a
full-blown currency devaluation, said Mr Blanch.
(Full article click - Telegraph)
---
Glencore strikes
company
oil
deal
with
Libyan
Taken from the FT Saturday, 21 November 2015
Glencore, the commodity trader and miner, has secured a deal

with Libyas state-owned oil company to help it find buyers for
crude from the war-torn north African country.
The agreement, which started in September and carries an
option to renew in December, covers 150,000 barrels a day, or
roughly half the amount currently being exported from the
Opec member.
The deal provides Libya with a consistent buyer for its crude
exports at a time when many traders and oil companies are
wary of lifting cargoes from its ports because of concerns over
security.
The National Oil Corporation, along with the central bank, is
one of the few institutions still functioning in Libya, where a
civil war has left the country divided between an
internationally recognised government in the east and an
Islamist militia in the west that controls the capital Tripoli.
The National Oil Corporation and Glencore declined to
comment.
Libya is producing a fraction of the 1.6m barrels a day it
pumped before the downfall of Muammer Gaddafi four years
ago. Much of its oil infrastructure has been closed by strikes,
blockades and fighting between armed militia.
According to the International Energy Agency, Libya was
pumping 415,000 b/d in early November. Exports are
reckoned to be running at about 300,000 b/d following the
closure of another port earlier this month.
Under the terms of the deal, Glencore has agreed to find
buyers for two grades of Libyan crude Sarin and Messla
loaded at Marsa el-Hariga, now the countrys biggest oil
terminal.
The oil had previously been used as feedstock for a refinery
that is currently closed.
Since the Ras Lanuf refinery closed we had 220,000 barrels
a day of production that had no outlet...so we had a surplus
that needed to find a home, said one person with knowledge
of the agreement.
We cant give assurance that this production will not be
interrupted, but it will give us flexibility and this way some of
the risk is absorbed, added the person. Sometimes it will be
more or sometimes less that Glencore will be able to take.
Reuters reported the deal on Friday after details first appeared
in industry publication Argus Media last month.
Since Glencore absorbed Xstrata in 2013 to become one of the
worlds biggest mining companies, few investors have paid
much attention to its energy business. But the oil desk, run
from a low-key office in Londons upmarket Mayfair, remains

one of the biggest independent oil traders.
Stewarded by British-born Alex Beard, the oil division traded
more than 3m b/d of crude and refined oil products. In the
first half of the year it doubled earnings before interest and tax
(ebit) to $479m.
In the summer, Mr Beard and a group of senior Glencore oil
executives flew to Tehran to hold talks with Iranian officials
about possible deals once sanctions are lifted.
(Full article click - FT)
---
Oil prices to stay lower for longer

Taken from the Sunday Telegraph 22 November 2015
Saudi Arabia's call on oil production looks right in the long

run, writes Tom Stevenson
Its an easy mistake to make. If the value of an asset halves in
six months, its not unreasonable to believe the bottom must
be near.
The temptation to try and time the turn can be irresistible,
and painful theres a reason its called catching a falling
knife.
When Saudi Arabia was preparing for the annual meeting of
the Organisation of the Petroleum Exporting Countries (Opec)
oil producers club a year ago, it might have thought it had the
upper hand.
The traditional swing producer surprised energy watchers by
refusing to balance the market. As the worlds biggest oil
exporter, it gambled that maintaining production would
quickly squeeze high-cost shale producers in North America
and allow it to maintain market share as the price of crude
bounced.
That bet has apparently misfired. The oil price had already
fallen from $115 a barrel in the summer of 2014 to around $60
a year ago. Today it has fallen to under $45 and the prospect
of $30 oil no longer seems ridiculous.
The Kingdom is dipping into admittedly very deep pockets as
oil revenues fall short of domestic spending. A budget deficit
of 20pc looks possible this year, according to the International
Monetary Fund.
Maintaining a balance in the global oil market is no easy
matter because the net surplus or shortfall is the difference
between two big numbers.
That means a modest uptick in supply or a slowdown in
demand can have a disproportionate impact on the price. It
tends to overshoot in both directions.
Goldman Sachs has warned that with oil inventories at record
levels, the market is unlikely to rebalance soon. The amount of
crude sitting in storage has risen for eight weeks on the trot
and, with Iran waiting in the wings, the supply glut is showing
no sign of easing.
Oil sector analysts are struggling to get their heads around a
new world in which supplies can be turned on and off much
more quickly than in the past.
Shale supplies are more flexible than traditional sources of oil,
so any uptick in the price might easily be snuffed out as the
switch is flicked on new capacity.
On the demand side of the ledger, the outlook is not much
better. Japan, one of the worlds leading oil importers, last
week fell into its fourth recession in five years.
China, the marginal buyer of most commodities, is undergoing
a transition to a less energy-intensive phase of consumptionled growth.
The Organisation for Economic Co-operation and
Development thinks the global economy could grow by as
little as 2.9pc this year.
Now even El Nio is being fingered a warm winter on the
back of the unpredictable weather pattern could crimp
demand for heating oil.
The third headwind for the oil price is the increasingly likely
divergence between monetary policy on either side of the
Atlantic.
With the European Central Bank likely to expand its
quantitative easing programme on the eve of this years Opec
meeting and the Federal Reserve almost certain to increase
interest rates two weeks later, further appreciation of the US
dollar looks probable.
With oil priced in the US currency, a rising dollar makes it
more expensive for buyers in other countries and the price of
crude tends to fall to compensate.
If Saudi Arabia holds its nerve at the upcoming meeting and
the oil price does fall even further, the pain of the worlds
already squeezed oil exporters will be matched by the gains for
its energy importers.
The biggest beneficiary should be the US. Although America is
a major oil producer these days, its economy is so vast that the
energy sector only accounts for 2.4pc of GDP. That compares
with more than 60pc in Saudi Arabia and Kuwait and more
than 20pc in Russia.
The benefit to the US of cheap petrol and lower input costs
massively outweighs the hit to jobs and corporate profits in
the energy sector.
The disinflationary impact of cheaper oil will keep the
trajectory of interest rates in both the US and UK lower than
would otherwise have been the case. It will ensure the
Goldilocks environment of flat prices and modestly rising
average incomes continues through 2016.
In the long run, the Saudi call will probably be right. Growing
demand from emerging markets should more than offset the
impact of clean energy and greater efficiency in the developed
world. The market will rebalance itself in time.
The question is how long Opec is prepared to stomach the
high cost of keeping the pumps wide open.
European News
Merkel faces down critics with defence of
her refugee policy
Taken from the FT Saturday, 21 November 2015
German chancellor Angela Merkel on Friday delivered a

passionate defence of her refugees welcome policy before an
assembly of her most important domestic critics the annual
conference of the Bavaria-based CSU party.
Pledging to fight for EU unity and the Schengen open-borders
zone despite the challenges of migration and terrorism, Ms
Merkel said: Isolation and doing nothing is no solution for
the 21st century.
However, she also took some account of her critics by pledging
to strengthen German border controls, reinforce the EUs
external frontiers and accelerate the return home of
unsuccessful asylum seekers.
Ms Merkels carefully-staged appearance was smoothed by
CSU chairman Horst Seehofer, who after weeks of political
assaults on the chancellor has eased the pressure since the
Paris terrorist outrage. The 850 delegates of the CSU the
sister party of Ms Merkels CDU received her speech with
warm applause.
But as she finished speaking, the tensions between the
chancellor and the CSU erupted again. Just after Ms Merkel
had promised to oppose upper limits for refugee numbers,
Mr Seehofer came on to the podium and, standing next to a
stony-faced chancellor, promised to fight for a quota for next
year.
Ms Merkel spoke after Bavarian officials said that 900,000
refugees had been registered so far this year, putting the
country on course to take in more than 1m for 2015, far ahead
of the governments 800,000 forecast.
The huge numbers are putting pressure on her ruling coalition
with the CSU and conservative CDU politicians calling for a
new package of restrictions in the face of resistance from their
social democrat partners. MPs said Ms Merkel has had to
postpone a special Cabinet meeting planned for this weekend
because of disputes over key changes, including tough limits
on some refugees rights to bring families to Germany.
The latest proposals follow measures implemented at the start
of November, notably cuts in cash handouts to asylum
seekers, an end to asylum rights for most Balkan migrants,
and accelerated return procedures for unsuccessful asylum
seekers.
Ms Merkel backed her pledges to fight for open borders with a
deep commitment to European unity and EU-wide cooperation. Germany is our homeland, she said. Europe is
our future.
Her tough defence of her position contrasted sharply with the
words of Swedens prime minister Stefan Lfven who
admitted earlier this week that his country had been naive
about Islamist extremism and about the need for border
controls. Perhaps it has been hard for us to accept that in our
midst there are people sympathising with the Isis killers, he
said.
Mr Lfvens words were particularly significant because
Sweden has ranked with Germany and Austria as one of the
EU countries most open to refugees. Elsewhere the attacks on
Ms Merkels policies have been much harsher.
Polish defence minister Antoni Macierewicz said the Paris
outrage showed how great a mistake it is to try to settle a
large Muslim immigrant community in Poland.
In France, former conservative justice minister Rachida Dati
accused Ms Merkel of an error of judgment over refugees
and called for better EU external border controls, saying if
there is no security there can be no freedom.
(Full article click - FT)
---
Kathryn Cooper
Osborne to slash support for industry
Taken from the Sunday Times 22 November 2015
Chancellor takes aim at grants for manufacturers and tax

breaks for entrepreneurs in spending squeeze
GEORGE OSBORNE is set to cut direct support for industry in
a challenging autumn statement and spending review this
week.
Funding for science and technology will be in the line of fire as
the chancellor unveils the tightest fiscal squeeze of any
advanced economy over the next four years, amounting to
about 3.5% of GDP.
The move will be seen as a reversal of Osbornes pledge in
2011 to unleash a march of the makers. Some of the
countrys biggest manufacturers, including Rolls-Royce, have
warned of dire consequences for the economy if direct grants
are slashed.
Whitehall is believed to have agreed cuts of more than 20bn
across unprotected ministries, including the business
department, as the chancellor struggles to meet his pledge to
deliver a surplus by the end of this parliament. The civil
service is braced for a further 50,000 job losses.
Osborne could also hit entrepreneurs, one-man companies
and motorists to make his sums add up. Business owners fear
that entrepreneurs relief, which offers a lower rate of capital
gains tax on profits of up to 10m, could be halved.
Industry insiders confirmed last week that part of the budget
for science and technology 4.6bn and 600m a year
respectively will be switched from grants to a range of
funding options including loans. This will allow Osborne to
claim that the overall funding pot has increased, even though
direct government support has been cut.
The job of balancing the books has been made harder by
worse-than-expected public finances this year. The House of
Lords has blown a hole in the budget by voting down
Osbornes 4.4bn reduction in tax credits.
Fuel duty could also be a target. Duty on diesel and petrol has
been frozen since 2011 and the chancellor may decide that,
with oil prices down by more than half over the past year, the
country could shoulder a 1p or 2p rise in the duty.
About 400,000 contractors could lose out by about 400 a
year from measures to clamp down on tax avoidance. The
Treasury is expected to announce that those who work on
short-term contracts, such as nurses, will no longer be able to
claim tax relief on travel to a temporary place of work.
The City is gearing up for a fresh wave of privatisations as
(Full article click - Times)
---
David Smith
Economic Outlook: Osborne struggles on
the deficit and other targets
THOUGH it is easy to dismiss such things as pieces of political

theatre, the announcements to be delivered by George
Osborne on Wednesday an autumn statement and a
spending review are rather important.
Autumn statements, it is true, come round once a year. If you
think of them as mini budgets, which the headline writers
often do, we have a budget or a mini budget every few months.
Spending reviews are rarer. There was only one proper one
during the last parliament, in 2010, and Wednesdays is the
big one for this parliament. It is big in more ways than one. As
Osborne observed a couple of weeks ago, it will set out how
the government will spend an eye-watering 4 trillion
4,000bn over the course of this parliament.
What should we be looking for from the chancellor this week?
I would say he has four targets. He has to detoxify the tax
credit changes he announced in the summer, which were
subsequently voted down by the House of Lords. He has to

demonstrate that his deficit reduction strategy is on course,
having been blown off course in the last parliament. That
target will be achieved only if the spending review contains a
third one, credible plans for cutting public spending.
Finally, there is a fourth target. Having talked up his
commitment to infrastructure spending, and tempted Lord
Adonis away from Labour to chair his new national
infrastructure commission, Osborne has to match words with
deeds.
Let me take these in turn. On tax credits, the chancellor will
soften the blow of the cuts while sticking with his 12bn of
welfare reductions, which are necessary to remain within his
self-imposed cap. I suspect he knows he will take a political hit
on this, in that no amount of tinkering or phasing will change
the fact that there will be losers from the changes. Wednesday
will be about limiting the damage.
Interestingly, a report from the Institute for Fiscal Studies
(IFS) last week found that the tax credit changes, in
combination with the new national living wage, will have one
desired effect, apart from reducing the welfare bill: it will be to
on average, strengthen incentives to move into work and to
work more if in work. The trouble with averages, however, is
that they can conceal problems. For some, such as single
parents, the changes will reduce incentives to work.
Whether tax credits grab the headlines this week, or the
chancellor comes up with an alternative headline-grabber,
which is likely, the budget deficit will be an ever-present
factor, as it has been throughout his chancellorship.
Indeed, irritated by the fact that some people are starting to
argue that it is job done on the deficit including some who
say there was never a job to do even when it was more than
150bn the chancellor and his officials have taken to talking
it up.
Osborne spoke recently of this years deficit, predicted by the
Office for Budget Responsibility (OBR) at just under 70bn
figures on Friday pointed to an overshoot of that adding to
the mountain of debt. Treasury officials are happy to say
Britains deficit is bigger than Greeces as a percentage of
gross domestic product (GDP).
What this means is that the aim of achieving a budget surplus
and maintaining it in normal times remains set in stone.
Osborne has listened to the arguments of economists who say
you should take advantage of ultra-low interest rates and
deliberately borrow more, and rejected them.
That means hitting his third target, further sustainable cuts in
public spending. The IFS, again, has done the sums on this. In
the July budget the chancellor set out plans to cut
departmental spending by 11.3bn, or 3.2%, in real terms
between 2015-16 and 2019-20. That sounds relatively
painless.
Drill down into the numbers, however, and capital investment
infrastructure spending is planned to increase by 4.9bn,
or 11.5%. That increases the cuts to day-to-day spending, socalled resource spending, to 16.2bn, or 5.1%.
Drill down further and take out of that the planned 7.6bn
rise in spending on the health service, defence and overseas
aid and a freeze on schools spending, and the reductions on
everything else increase to 23.7bn, or nearly 19%.
By the end of the parliament, spending by these unprotected
departments will have been cut by 39% in real terms
compared with 2010.
Can it be done? The problem with the 2010 spending review
was that it contained cuts but not much reform. This weeks
effort is intended to include both. It aims to show that
government can be smaller, in terms of what it spends, if it is
smarter. The template is the recent announcements on
prisons, in which old Victorian jails will be sold off, some of
them to provide apartments for hipsters, and replaced with
modern institutions. As well as saving money, the intention is

to provide better rehabilitation, thus saving money by
reducing reoffending. Expect more such policies but also
expect plenty of warnings about the impact of cuts.
What about infrastructure? For the reasons set out above,
Osborne is not going to tear up his deficit reduction plans and
engage in a borrowing splurge to pay for a big increase in
public investment. He says the government will spend 100bn
on infrastructure during this parliament (small in relation to
4 trillion of overall spending). Broader OBR figures are for
public sector net investment of 144bn in the next five years.
This will be supplemented by private infrastructure
investment, including from abroad. Last week Osborne
tweeted approvingly a survey from the international law firm
Nabarro, which showed Britain to be the top destination in the
world for foreign infrastructure investment. Some will
applaud that, while some will worry that too much of our
infrastructure will be foreign-owned, and not just in the
nuclear industry. Whether, even with that foreign input,
Britain is spending enough on upgrading infrastructure will be
questioned by many.
So, four targets: sort out the tax credit mess, convince on
deficit reduction, unveil achievable spending cuts and raise
infrastructure spending. It wont be easy.
PS: Last weeks column on the single market produced a large
mailbag, which was encouraging. The last thing we want when
it comes to the referendum on EU membership is apathy, and
something like the turnout at last years European parliament
elections (just over 35%). Let us hope voters are as ready to
get engaged as Sunday Times readers are.
Regarding trade, to repeat, it is highly likely that Britain
would be able to negotiate a trade deal with the rest of Europe
if it were outside the EU. But it is highly unlikely, particularly
in the context of the bonfire of red tape and regulations
promised by out campaigners, that this would involve being
in the single market. For some businesses that will not matter.
For others it will matter a great deal.
Having whetted your appetite, I can promise further pieces on
different aspects of EU membership in the coming months,
before an overall assessment in time for the referendum vote.
One small snippet to keep you going. It is often said EU
membership has held back Britain. Let me update some
figures I looked up a while ago, for growth since the launch of
the euro at the start of 1999. Since then, Britains GDP has
risen 37% in real terms, Germanys by about 25%, France 24%
and Italy 5%. We dont know, of course, if we would have done
even better outside the EU.
---
Bank of England plans to simulate US

recession for stress test
British banks are expected to have to prove they can survive

an economic crash in the US in the next stress tests, following
this year's fictional China crash
Banks could face a fictional US recession next year as the Bank
of England plans its next set of stress tests, under which
regulators examine banks ability to withstand a hypothetical
economic calamity.
This year, the biggest banks in the UK have been subjected to
a simulated downturn in China and other emerging markets,
in a test that has been eerily echoed by the Black Monday
stock market crash in China and real-life worries over the
economys stability. The results of that test will be published
on December 1.
Last year, the banks had to show they could survive a UK
housing market crash. The Co-op Bank failed the test, and
Lloyds and RBS had to show regulators they had appropriate
plans in place to boost their capital buffers.
The plan for next years tests will be finalised in early 2016,
but the US is expected to be the subject of the process as it
represents the biggest risk to banks not tested so far.
I think going forward there will be a need to be a stress
probably of the US exposures, said David Belsham, an
external board member at the Bank of Englands Prudential
Regulation Authority, praising the tests which have been
carried out so far.
Mr Belsham, a former senior executive of Prudential, the
insurance giant, told Treasury Committee MPs that he had
initially been fairly sceptical of the tests, coming from a
firm where you see dozens of different scenarios, going to
focus on just one seemed slightly odd.
But he now believes they are indeed rigorous evaluations of
banks financial strength, particularly as it evaluates banks
vulnerability to different hypothetical recessions each year.
Mr Belsham said: For a lot of the UK-based firms, the stress
that was applied to them [last year] was very close to the
biting-stress and the follow-up stress that is being done this
year. Capturing risks arising in the far East and in Europe
helps to pick up the biting scenario for other firms.
A US-focused test would be toughest on HSBC and Barclays,
which have substantial operations in the country.
---
UK credit rating may survive Brexit, says

Moody's
Moody's says Britain's "rich and diversified" economy means

country unlikely to suffer immediate credit downgrade if it
leaves the EU
Ratings agency Moodys has said that the UK may be able to
avoid a credit downgrade if it leaves the European Union.
In an interview with The Sunday Telegraph, the agencys lead
UK analyst said that it was possible that a Brexit may lead to
no impact on the Aa1 rating.
Kathrin Muehlbronner, senior vice president at Moodys and
the agencys lead UK analyst, said that the UKs diversified
and rich economy meant it could flourish outside the bloc.
Her comments set Moodys against rival Standard & Poors,
which warned this summer that it would strip the UK of its
gold-plated AAA rating even if it simply looked like Britain
was on course to leave the EU.
While Moodys said the uncertainty would be negative for
growth, it said this could be short-lived if the UK were able to
negotiate new trade deals with major partners quickly.
Uncertainty alone may not change the rating, said Ms
Muehlbronner. What we care about is economic strength,
and it is our view that the economic impact of a Brexit would
be negative.
The question is: how big would the damage be? Would we just
be looking at a short-term moderation of growth where the
UK puts in place other policies that mitigate the other
downsides?
In that case, it might well be that there is no impact on the
rating. For example, in a scenario where growth falls that
doesnt change some of the fundamentals of the UK we see it
as a very strong, large, diversified and rich economy, with
strong institutions.
S&P said in June there was now a one in three chance of a
downgrade of one or more notches in the event of Brexit.
However, Moritz Kraemer, chief rating officer at S&P, said the
UK could be upgraded back if the economy maintained its
influence. Switzerland is an AAA and theyve never been part
of the EU, and Norway is, too. Theres no pre-condition of
being a part of the EU.
"We think EU membership is important because we believe
that it anchors investor expectations and it gives British banks
and companies unfettered access to the largest economic area
in the world - so that's what really matters - they can be a

member of the club or not," he said.
"There are lots of AAAs outside the EU. Switzerland is a AAA
and they've never been part of the EU and Norway is too.
"There's no pre-condition of being a part of the EU. In fact,
within the EU, a lot of the former AAAs are no more."
The UK now exports more goods to countries outside the EU
than to countries within the bloc, according to official data.
Moodys was the first rating agency to strip the UK of its top
rating in 2013, warning that the government's debt reduction
programme faced significant "challenges" ahead. Its current
outlook on the UK rating is "stable".
Ms Muehlbronner said the UK would have to get its debt share
down before Moody's would consider reinstating the top
rating.
"It's not as mechanical as: get debt down by 10 percentage
points and get an upgrade, but clearly in order to get back to a
higher rating, the UK would need to improve on that," she
said.
She also said Moody's was monitoring UK household debt
ratios closely.
---
Predators plot 1bn takeover bids for

troubled Argos owner
PRIVATE EQUITY firms are considering 1bn takeover bids

for the owner of Argos and Homebase.
Several retail industry figures have been asked to advise on
approaches for Home Retail Group (HRG). Buyout houses are
understood to be circling following a slump in the companys
share price and an unusual pre-Christmas profit warning,
which it blamed on uncertainty surrounding Black Friday
promotions.
HRGs share price has halved since the start of the year and
closed at 103.4p last week, valuing the business at 849m. It
has 193m of cash on its balance sheet and a customer loan
book of 550m, according to interim results released last
month. Investment banking sources suggested this buffer
would make the company appealing to bidders.
However, they cautioned that buying HRG could still be akin
to catching a falling knife. Argos and Homebase are saddled
with big property estates and have been hit hard by the shift to
online shopping.
John Walden, chief executive, is trying to digitise Argoss
stores, replacing catalogues with iPads, and get rid of excess
space at Homebase. Like-for-like sales at Argos fell by 3.4% in
the six months to August, with customers buying fewer TVs
and tablets in particular. Its operating profit almost halved
due to discounting and investment in same-day deliveries.
Sales at Homebase rose 5.6% and its operating profit
increased by almost a quarter thanks to cost savings from
store closures.
Tony Shiret, an analyst at Haitong Research, warned last
month that government cuts to tax credits would squeeze
HRGs low-income customers, while its thin margins would be
further threatened by the introduction of the living wage. The
unwinding of the Argos story leaves us needing to be
persuaded that it is not staring into an abyss, he wrote,
asking
whether
HRG
may
become
the
next
Comet/MFI/Woolworths/Phones 4u.
Apollo Global Management, an aggressive American private
equity firm, has shown an interest in taking over distressed
retailers in the past, including HMV. It is understood to have
approached an industry figure about HRG last autumn, when
the share price was almost twice as high, but a source close to
Apollo said this weekend it was not currently interested.
Although potential bidders are expected to wait for news of
Christmas trading, HRGs board and advisers are said to be on

alert for an opportunistic offer.
Walden succeeded Terry Duddy as chief executive in March
last year, having joined in 2012 to run Argos. His plan to
overhaul Argos bore early fruit, with sales starting to recover
and transactions on mobile devices growing, but the City has
become more sceptical this year as sales have slipped into
reverse.
Shiret at Haitong Research said Argos at the very least . . .
has to demonstrate a more proactive strategy in terms of
defending itself, rather than just ploughing ahead with the
modernisation plan without sufficient acknowledgement of
the downside.
---
Axa to sell off wealth manager

FRENCH insurance giant Axa has drafted in City advisers to

help plot an exit from several of its British businesses.
The 42bn behemoth has brought in bankers at Barclays and
Fenchurch Advisory Partners to help sell units, including
parts of its wealth management operation, City sources said. It
is said to have grown tired of the regulatory environment in
the UK.
Offshore bond provider Axa Isle of Man and parts of its Sun
Life business have also been touted for sale.
The review of Axas British assets comes more than five years
after it sold most of its UK life insurance business, Axa Sun
Life, to Clive Cowderys Resolution, the insurance investment
vehicle that later went on to become Friends Life, which is
now part of FTSE 100 insurer Aviva.
Axa also has a long-established general insurance business in
Britain, underwriting personal and commercial insurance.
Axa, Barclays and Fenchurch declined to comment on the sale
plans.
The news is likely to alert private equity firms, which are on
the lookout for more deals from large corporations.
Axa has accelerated its plans after becoming frustrated with
the profitability of its UK operation.
City bankers expect a frenzy of merger activity in the
insurance sector next year, as new regulation forces
companies to hold more cash.
Low interest rates are expected to encourage insurers to seek
out deals with rivals in order to bulk up.
---
Oil crash sinks North Sea explorers

TWO oil producers are close to going bust and the future of a
third is in doubt as the low price of crude starts to wreak
havoc in the North Sea.
PA Resources, an explorer focused on the North Sea and
Africa, announced last Tuesday that it would liquidate its
assets and delist its shares after a fruitless search for funding.
Iona Energy, based in Aberdeen and listed in Toronto, said the
next day that it was likely to start insolvency procedures
because it had been unable to find a white-knight investor.
The latters collapse has increased the pressure on Atlantic
Petroleum, which is listed in Copenhagen and has rights to 19
North Sea fields. The companies are partners on a North Sea
reservoir that Atlantic hoped to develop.
Ben Arabo, chief executive of Atlantic, admitted that Ionas
demise creates uncertainty for his loss-making company,
which he said is not funded for 2016. It has hired Pareto
Securities, a Nordic investment bank, to find a saviour.
The failures will alarm Whitehall. The trade body Oil & Gas
UK estimates that 65,000 jobs 15% of the industrys
workforce have been lost since the start of 2014 as
companies have slashed spending and cancelled projects
because of the oil price dive. Crude closed on Friday at less

than $43 a barrel, down from its high of $115 last year.
So far there have been relatively few bankruptcies because
companies were insulated by hedging deals, which guaranteed
they could sell crude for more than the prevailing market
price. Most of those deals have now expired, however.
Most vulnerable are the exploration-led companies, such as
Atlantic and Iona, which depend on bank and investor cash to
stay alive. Last week Atlantic postponed its financial results to
assess the impact of Ionas collapse.
---
Deutsche to jettison 1,000 jobs in the City

Struggling German bank to cut 15,000 globally as it aims to

save 2.6bn
DEUTSCHE BANK is preparing to shed 1,000 City jobs as it
hacks back the size of its investment bank.
Germanys biggest lender will begin to issue redundancy
notices in the new year, according to a well-placed market
source. This will leave the axe hanging over traders, backoffice staff and fixed-income specialists.
The London cuts are part of an overhaul announced by new
boss John Cryan last month. The embattled bank is preparing
to axe 15,000 jobs worldwide and sell off businesses
employing a further 20,000. The cuts represent almost 15% of
Deutsches workforce.
By 2018, we expect to see the benefits of our hard work and
potentially be in the midst of a powerful turnaround, said
Cryan.
Europes biggest banks including Standard Chartered,
Royal Bank of Scotland, HSBC, Barclays and Credit Suisse
have all announced plans to shed jobs as they struggle with
sluggish economic growth and costly regulation.
Tough new rules forcing bosses such as Cryan to hold much
larger capital reserves against their investment banking
activities have rendered it near impossible to make them
profitable.
Cutting jobs is seen as the fastest way of improving profits.
Barclays has laid off about 2,000 staff in the past two years.
Cryan warned investors last month that Deutsche would not
pay a dividend for two years. The goal is to achieve savings of
3.8bn (2.6bn). German-based staff will be hardest hit, with
4,000 of the 15,000 being axed in the banks home country.
Cryan has promised to cut jobs sensitively. This is never an
easy task and we will not do so lightly, he said.
Bonuses are also in the line of fire the chief executive is
considering cutting down a number of packages to zero in the
coming months following disappointing results.
Deutsche reported a 4.4bn loss in the third quarter of this
year, caused by the sale of Postbank, its retail banking
division; a 600m writedown on its stake in Chinas Hua Xia
Bank; and litigation costs.
Deutsche was hit with a 1.7bn fine in April for its role in the
rigging of benchmark interest rates. The fine was the largest
among all the banks that were penalised.
The scale of the fine led to a damning report from the German
financial regulator and triggered a boardroom clearout. The
bank is still under investigation over alleged Russian money
laundering.
Along with the job cuts, Deutsche is preparing to shut
operations in 10 countries Argentina, Chile, Denmark,
Finland, Norway, Malta, Mexico, New Zealand, Peru and
Uruguay. It is also planning to close branches in Germany.
Earlier this year, Deutsche axed hundreds of jobs from its
London trading floor as part of an overhaul of its investment
bank. The bank declined to comment.
---
Frances CMA CGM in Exclusive Talks to

Buy Neptune Orient Lines
ECB's
Coeur
Says
Assumptions About Economy
Combination, if successful, would be one of the biggest tie-ups

between container-shipping lines in recent years
Frances CMA CGM SA has entered exclusive talks with
Neptune Orient Lines Ltd. to buy the Singaporean shipping
company, which, if successful, would be one of the biggest tieups between container-shipping lines in recent years.
Neptune Orient Lines, or NOL, said Saturday that the
company and its largest shareholder, Temasek Holdings Pte.
Ltd., have entered into exclusive talks with the French
container firm until Dec.7.
CMA CGM is the worlds third-biggest container shipper by
capacity.
An acquisition of the $1.9 billion shipping company, which
handles about 3% of global container volumes, would be the
latest move among the worlds biggest container-shipping
firms to cope with a downturn.
Earlier this month, NOL had disclosed it was in separate talks
with both A.P. Mller-Mrsk A/S, the worlds largest
container line by volume, and CMA CGM. The Journal
reported earlier this week that CMA was emerging as the
favorite to buy NOL.
In its statement, NOL said the exclusivity period will allow
CMA CGM to conduct its due diligence and negotiate
definitive terms of a potential agreement. The company,
however, said there is no assurance that the talks would lead
to an definitive offer.
Flagging global trade and overcapacity have hammered even
the biggest shipping lines, forcing many into strategic
alliances and rounds of cost-cutting. Many blame the
industrys fragmented nature for its current struggles. With
few companies controlling more than 5% of the market,
reducing the glut of ships is taking longer than many industry
observers had anticipated.
Even so, consolidation has been rare. Several potential
takeover targets, such as NOL, are controlled by deeppocketed sovereign-wealth funds, which can afford to ride out
the industrys boom-and-bust cycle. Others are private or
family-controlled outfits, which often take similar long-term
views.
NOLs Asia-to-Americas routes would fill a weak spot for CMA
CGM, whose executives have said they are looking to expand
into new territories.
NOL, which is 65% owned by city-state sovereign-wealth fund
Temasek has been looking for a buyer for months. The
company reported a $96 million loss in the third quarter and
sold its profitable logistics business, APL Logistics Ltd., for
$1.2 billion to Kintetsu World Express Inc. in May.
CMA CGM faces pressure to expand as two state-owned
Chinese shipping giants, China Ocean Shipping Co. and China
Shipping Group Co., enter advanced talks to merge. A
combination would create the fourth-biggest global shipping
linejust behind CMA CGMand would likely reduce the
French companys market share in Asia, analysts say.
(Full article click - WSJ)
---
Some key assumptions about how the global economy works

are under fire and policy makers should rethink issues of
growth, exchange rates and capital flows, European Central
Bank executive board member Benot Coeur said Saturday.
"The way in which we address these open issues will condition
the resilience of the global economic system, i.e. its capacity to
return to equilibrium without policy intervention," Mr. Coeur
said in remarks prepared for delivery at a conference hosted
by the University of California, Berkeley's Clausen Center for
International Business and Policy. "This is of key importance
for central bankers. If we ignore these issues, there is a risk
that monetary policies may become ineffective, overburdened
and/or collectively trapped in suboptimal equilibria."
Saturday's lecture focused on what Mr. Coeur described as
"key assumptions" in recent decades: that reallocation of
demand across economies in response to shocks would sustain
an appropriate pace of global growth; that freely floating
exchange rates would support such shifts in demand and
generally act as shock absorbers in the global economy; and
that cross-border capital flows bring the benefit of risksharing and make international adjustments smoother, in
addition to supporting an efficient international allocation of
capital. He said, "recent theoretical and empirical research has
started challenging these three assumptions."
Mr. Coeur offered some remarks on the eurozone economy
but didn't specifically comment on the near-term outlook for
monetary policy, though he did say the central bank launched
its bond-buying program earlier this year.
"That trust was being challenged, and it is very important for
us to maintain trust in our ability to steer inflation towards
2%," Mr. Coeur said in response to a question from the
audience.
ECB President Mario Draghi on Friday signaled that the ECB
may offer additional stimulus measures at its Dec. 3 meeting.
"If we conclude that the balance of risks to our medium-term
price stability objective is skewed to the downside, we will act
by using all the instruments available within our mandate,"
Mr. Draghi said.
Mr. Coeur said last month the ECB was open to using its
tools to offer more stimulus if necessary to bolster inflation.
In his lecture on Saturday, he said the eurozone has built up
an increasing current account surplus, driven by a lasting
incapacity to revive domestic demand. On the role of fiscal
policy, he said that for countries "that have sufficient fiscal
space, it is indeed hard to see how fiscal expansions at the zero
lower bound would not be a positive sum for the global
economy. I would however qualify the policy advice for
economies where the fiscal space is squeezed by high and
growing public debt, as is the case across most of the euro area
today."
He also said that in the eurozone, "private investment is not
playing the accelerating role that one would expect at this
stage of the business cycle, despite domestic demand
gradually strengthening. One reason for that is the depressed
expectations of future potential growth, which lead firms to
expect permanently lower incomes and profits."
Taken from the WSJ Sunday, 22 November 2015
Reconsider
News Americas
Irwin Stelzer
American Account: Retailers may have to
shut up shop if they do not adapt
RETAILERS are having difficulty flogging clothing these days.

One analyst attributes the groaning shelves and racks to two
successive years of warm weather. So retailers worries will
soon be over: the worlds leaders are about to assemble in
Paris to end the trend to global warming, a bigger threat than
terror, says Barack Obama. He has as much chance of being
believed in the stricken French capital as do retailers who
blame their woes on the weather.
The nervousness in the retail sector began when, on the same
day, both Macys and Nordstrom reported less-than-stellar
results. Mighty Macys, with more than 850 stores including
the Bloomingdales brand, and one of the best-regarded
bosses in the business, Terry Lundgren, announced a 5.2% fall
in sales for the quarter ending in October compared with the
same period last year, that net income had been cut by nearly
half, and that bloated inventories were prompting price cuts.
The shares plunged 40%, though they have since recovered a
bit. The strong dollar that confronted overseas shoppers in
Macys flagship store on Herald Square in New York didnt
make life any cheerier for Lundgren. The next day,
Nordstrom, a high-end department store chain, reported a
third-quarter slowdown in sales of all categories of goods, in
all regions and on online, in both its swanky and discount
stores, with no improvement in sight.
The chains executives could offer no explanation except that
fewer people were buying clothes. Merchandise has been
marked down, as have the shares, which dropped more than
20% in response to a fall of about 40% in profits and a
reduction in Nordstroms forecast for full-year growth.
Dillards, which has 330 mid-range department stores, fared
no better. It reported a 17% decline in third-quarter profit.
Wal-Mart did manage a bit of sales growth, thanks to its new,
small-format stores. But operating income fell 8.8% in the
quarter and the company has warned that profits next year
will fall as a result of a perfect storm of price cuts; higher
wages and benefit costs; spending on store upgrades; the
strong dollar, which reduces the value of overseas earnings;
and investments in its online business so it can compete with
Amazon.
A clue to what is going on in the retail sector is provided by
the reports of two very different retailers. TJX, which operates
the discount fashion and homeware chain TJ Maxx, reported
third-quarter sales and earnings increases that exceeded
analysts expectations. Its annual sales are about the same as
Macys, but its market cap is more than three times bigger.
And the DIY chain Home Depot chimed in with a report that
sales in stores open more than a year rose a healthy 7.3%, and
that profit for the year would increase in line with the upper
end of its forecasts. Some 20% of Home Depots sales are now
online.
The performance of TJ Maxx branded as TK Maxx in
Britain suggests that consumers are watching their dollars
and shopping where prices are most favourable to them.
Home Depots upbeat results, paralleled by those of rival
Lowes (third-quarter profits up 26%), show that Americans
are prepared to unzip wallets and purses to spiff up their
homes, buy newer appliances and spend on what Chris
Horvers, retail analyst at JP Morgan Chase, calls their
environment. And the ability of Amazon to turn a profit at
long last suggests that the clicks are eroding the bricks at an
accelerating rate.
My guess is that we are seeing enduring structural change in

the retail sector. For now, people have enough stuff, and
want experiences, which means trouble for the clothing
sector and good news for restaurants, whether land-bound or
on the cruise ships whose lavish dining rooms reportedly
make it difficult to determine whether one is eating afloat or
in a Las Vegas desert resort.
Trendy restaurants featuring local produce (lower carbon
footprint), supposedly healthier foods, and what the trade
calls fast-casual restaurants are proliferating. So, too, are
television channels featuring celebrity chefs providing
instruction to viewers who are headed, not to their kitchens,
but to the nearest hot restaurant, where the latest frock is no
longer de rigueur. There are gyms to be joined, yoga mats to
be bought. With all of these experiences waiting, last years
jumper will just have to do. Of course, the antipathy to stuff
does not extend to iPhones and gadgets.
Then there are all those cars with their beefed-up
entertainment centres to supplement the driving experience.
They are available on seven-year, no-interest loans which,
nevertheless, require monthly payments that have to come out
of relatively static pay checks. And increasing healthcare costs
to be borne.
The common characteristic of these new consumer musthaves and must-dos is that they are not sold in department
stores. Nordstroms inability to explain its poor recent results
might quite possibly be because it does not care to confront its
own obsolescence as a sales outlet. And Macys Lundgren had
better move quickly to redeem his pledge that, Im certain we
will come up with some creative ideas that will surprise
people, before investors turn sour for good.
One such creative idea is to combine clicks and bricks. After
all, Wal-Mart has more than 4,000 bricks in locations
selected because they are convenient for customers, and is
starting to compete with Amazons free delivery by having
shoppers click on the merchandise they want and drive to one
of its stores to collect it on the same day. Macys and
Nordstrom are already operating cut-price outlets, and just
might decide that such merchandising is where their future
lies, taking on TJ Maxx and other discounters more directly
and with even lower prices than they offer. They may also
follow the example of Harrods, with its 10 eateries, and
increase the floorspace allocated to restaurants.
Well see a hint of whats to come this week. Thursday is
Thanksgiving Day. Many stores will open that evening, and
offer amazing sales on Black Friday and through the weekend.
Then comes Cyber-Monday, when online ordering provides a
diversion from work across the country. The comparisons will
be interesting.
---
Feds John Williams Says Good Data Would

Make Strong Case for December Rate Rise
San Francisco reserve bank president says hiccup in some

labor reports now reversed, and other signs show U.S.
economy on good track
There is a strong case for the Federal Reserve to begin raising
short-term interest rates in December if there are continued
encouraging indicators for the U.S. economy, Federal Reserve
Bank of San Francisco President John Williams said on
Saturday.
Assuming that we continue to get good data on the economy,
continue to get signs that were moving closer to achieving our
goals and gaining confidence ingetting back to 2% inflation
over the next couple yearsif that continues to happen,
theres a strong case to be made in December to raise rates,
Mr. Williams told reporters on the sidelines of a conference
hosted by the University of California, Berkeleys Clausen

Center for International Business and Policy.
The Fed has sent strong signals in recent weeks that it may
raise rates at its Dec. 15-16 policy meeting. Mr. Williams is a
closely watched policy maker who often signals the Feds
consensus position on monetary policy. Earlier this month, he
said the central banks next move will be to start raising rates,
but he didnt specify when that might happen.
Looking forward, Mr. Williams on Saturday said the Fed may
find itself lowering rates back to zero at some future point,
raising questions about whether it should prepare alternative
policy tools such as negative interest rates.
In the present, though, he said it was a close call at its policy
meeting in late October for the Fed to keep the benchmark
federal-funds rate pinned near zero. Since then, he said, the
hiccup we saw in the couple labor reports has reversed and
were seeing other signs the economys on a good track.
The U.S. Labor Department reported a rebound in hiring last
month, after weak readings in August and September.
Mr. Williams also said the inflation data have been consistent
with inflation, core measures of inflation having stabilized and
maybe even starting to firm up some. He described those
developments as encouraging signs.
The Fed, in its Oct. 28 policy statement, said it would consider
raising short-term rates that have been pinned near zero since
December 2008 at its next meeting, which is scheduled for
December.
Officials had wanted to see some further improvement in the
labor market and be reasonably confident that sluggish
U.S. inflation would move back to their 2% annual target
before raising rates, according to the statement
Fed officials, including Chairwoman Janet Yellen, have said
the likely pace of rate increases in coming months and years is
more important than the precise timing of the liftoff to higher
rates.
Mr. Williams on Saturday said Fed officials economic
projections, which were last released in September and will be
updated in December, suggest a gradual pace of tightening.
But he emphasized the Feds decisions will be based on data
and wont follow a predetermined path.
We definitely do not want to, either through our actions or
our words, indicate a preference for a very mechanical path of
interest rates, whether its every other meeting or however you
think about it, he said. Since the economic data can surprise
on the upside and the downside, maybe there will be some
opportunities for us to show that were data-dependent by
moving a little slower or a little bit more quickly depending
onhow the data over the next couple years develop.
Earlier Saturday, Mr. Williams told attendees at the Berkeley
conference that going forward, he thinks the Fed should
consider the possible merits of maintaining a large balance
sheet or lowering interest rates into negative territory in light
of a persistently low interest-rate environment.
Mr. Williams said that in a world where the natural rate of
interest is low, the Fed has less room to lower short-term
interest rates in response to economic downturns and youre
going to hit the zero-lower or effective-lower bound more
often, whatever that lower bound may be. As a result, the
central bank needs to consider possible alternative tools or
other solutions, he said.
You could think about keeping a permanently higher balance
sheet as a way to raise the natural interest rate, he said,
which is something we havent studied that much, but I think
needs a lot more thought. He added, We need to think more
about whether going to negative interest rates gives us more
room.
He also mentioned the idea of a higher inflation target, though
he noted concerns about central-bank credibility and the fact
that the Fed and other central banks have struggled to boost
inflation even to their current targets.
Those are just question marks I have around what we can do
with monetary policy, Mr. Williams said. The role of fiscal
and structural policies, he said, should be seriously considered
as well.
Mr. Williams and Thomas Laubach, director of the Feds
monetary affairs division, recently argued in a research paper
that the natural interest rate, the real short-term interest rate
consistent with the economys full potential, fell sharply and
shows no sign of recovering since the financial crisis.
The minutes of the Feds last policy meeting, released
Wednesday, revealed a related discussion among policy
makers in late October.
News Asia
In Malaysia, Obama Presses for Human
Rights and Government Accountability
Taken from the WSJ Saturday, 21 November 2015
Countries work best when everybody has a voice that can be

respected, president tells young Southeast Asians
President Barack Obama pressed for human-rights
protections and government accountability in Malaysia,
advocating for what he called basic shared values while not
singling out specific issues in this country.
At a town hall event Friday before a meeting with Malaysias
embattled prime minister, Mr. Obama didnt directly refer to
alleged human-rights abuses in Malaysia or the scandal
enveloping a government investment fund that has drawn
attention around the globe. But Mr. Obama said he never
hesitates to broach tough subjects with fellow leaders.
The president later met privately with Malaysian Prime
Minister Najib Razak, and said their conversation about the
importance of civil society was constructive. The prime
minister said he would take into account some of Mr. Obamas
views and concerns.
Mr. Obama, while speaking at an event organized by the
Young Southeast Asian Leaders Initiative, said nations that
encourage accountability and personal freedom have
prospered over time. Countries work best when everybody
has a voice that can be respected and that the press is able to
report on what is happening in current affairs and people can
organize politically, peacefully to try to bring about change
and that theres transparency and accountability, he said.
Mr. Obama acknowledged that the U.S. sometimes does
business with countries just because we have shared security
interests or economic interests. For example, the president
said he meets with leaders such as Chinese President Xi
Jinping, even though he might not agree with his
counterparts approach to human rights. I want to assure you
that in all of those meetings, we always raise these issues, Mr.
Obama said.
A young man in the audience asked the president to discuss
political scandals in Malaysia and the countrys failed justice
system with Mr. Najib.
I admit that I was going to do it anyway, but now that I hear
it from you, Im definitely going to do it, Mr. Obama said.
The president, who arrived in Kuala Lumpur on Friday for two
regional summits, said he would tread somewhat cautiously in
this realm because people often dont want the U.S. meddling
in their internal affairs. He added the U.S. also should have
some humility, noting that there are problems in his own
country.
Mr. Obamas push for human rights and democratic values
played out against the backdrop of corruption allegations that
have spurred protests and left Mr. Najib under pressure.
A government investment fund that was supposed to attract
investment in Malaysia is under investigation in five countries
amid allegations that billions of dollars have gone missing and
that nearly $700 million tied to the fund ended up in the
prime ministers alleged private accounts. Malaysian
investigators havent said where exactly the funds came from
and what happened to the money after it reached the
accounts.
Mr. Najib, who set up the fund, 1Malaysia Development Bhd.,
or 1MDB, has denied any wrongdoing, and no one has been
charged by investigators. The fund also denies wrongdoing
and both Mr. Najib and 1MDB say they are cooperating with
investigations.
Some of the prime ministers critics have been detained and
two publications that reported on the scandal were
temporarily suspended by the government. The government
has said Malaysia is a free country and accords its people the
right to criticize officials.
A senior administration official said the Obama
administration is troubled by the Malaysian governments use
of the Sedition Act and other national-security laws to harass,
detain and arrest critics of the government.
Mr. Obama said that he and Mr. Najib talked about how we
can promote those values that will encourage continued
development and opportunity and prosperity. Mr. Najib said
that he explained the current situation in Malaysia.
Malaysia is committed to reforms, and we are committed to
ensuring at the same time there is peace and stability in
Malaysia, the prime minister said.
At the town hall event, Mr. Obama also decried the
consequences of racial and ethnic divisions, noting that the
U.S. has long struggled with these issues. I would guard
against that here in your home countries, he said. But the
truth is, here in Southeast Asia, as everybody here knows, that
same kind of tendency happens.
Mr. Obama encouraged the young leaders to respect peoples
differences, saying that marriage as a civil institution should
be available to everybody. People who have a different sexual
orientation are deserving of respect and dignity like everyone
else, he said. Government policy should treat everybody
equally under the law.
---
India's central bank chief says China not to

blame for Asian currency war, backs bigger
role for yuan
Taken from the SCMP Saturday, 21 November 2015
Rooting for a greater global role for the yuan, India's central
bank chief Raghuram Rajan yesterday rubbished claims that
Beijing started a currency war with its recent devaluation.
"I don't know what the ultimate requirements of the
International Monetary Fund (IMF) are and how much of
these China has met. But the IMF does need to accommodate
currencies of large economies with strong positions in global
trade and finance, and clearly China has made a lot of
progress on both counts," the Reserve Bank of India (RBI)
governor told the South China Morning Post.
Rajan also said it is "very unfair" to blame Beijing for the
competitive
devaluation
among
emerging
markets,
contrasting the shrill anti-Chinese voices common in a
country seen as China's regional rival.
"Multilateral bodies like the IMF and the World Bank are
increasingly paying more attention to emerging markets. This
has to continue and there needs to be changes in governance
in multilateral institutions," he said.
Citing unnamed sources, Reuters yesterday reported the yuan
may enter the IMF's Special Drawing Rights (SDR) basket of
reserve currencies at a lower weighting. The IMF is expected
to decide this month on whether to add the yuan to the elite
currency club that now includes US dollar, euro, pound
sterling and the yen.
Inclusion in the SDR would boost Beijing's efforts to
internationalise its currency and cement its status as a global
power.
As of September, the yuan was the fifth most traded currency
in terms of usage for global payments, with its share of
transactions standing at 2 per cent.
The 52-year old Rajan, who was chief economist at the IMF
between 2003 and 2007, said the RBI itself has started
maintaining yuan holdings as part of its "diversification
process".
The "rock star central banker", as he is often called, was one of
the few economists who had predicted the global financial
crisis.
His focus on keeping inflation in check has helped the rupee

recover from a record low and raised India's foreign-exchange
reserves to record levels since he took the job in 2013.
A critic of the easy-money policy that has come to dominate
since the global financial crisis as countries seek ways to
revive their economies, Rajan has in the past warned of the
consequences of the beggar-thy-neighbour strategies of
countries to keep their currencies cheap. Last month he hit
out at the IMF for "sitting on the sidelines and applauding"
the stimulus-led monetary policies of developed economies.
Beijing drew criticism for starting a currency arms race after a
shock devaluation of the yuan in August led to a sharp sell-off
in emerging-market currencies, including the rupee.
But Rajan said: "Currencies elsewhere were already
depreciating in a large way even before the Chinese move
because of the unconventional monetary policies adopted by
some countries.
"It is not reasonable to say the Chinese move precipitated the
trend. Second, given the small scale of the Chinese
devaluation, it can't be blamed for a currency war."
(Full article click - SCMP)
---
China's pain is India's pain too, says India's

'rockstar' central bank governor
Taken from the SCMP Saturday, 21 November 2015
Celebrated central bank governor says slowdown hurting

India as he points to growing interdependence between two
Asian giants
China's pain is India's pain too, says its central bank governor,
contradicting the country's finance minister who recently said
India will not be affected by China's slowdown.
"The Chinese slowdown is a concern for the whole world.
There is lower demand for some of our exports to China. But
indirectly too, many of the countries are not exporting to
China as much as they did and they are buying less from us,"
said Reserve Bank of India governor Raghuram Rajan in an
interview with the South China Morning Post on Friday.
"But India being a commodity importer, has been helped a bit
by cheaper commodities. So the impact hasn't been as bad as
it could have been. Still, on the whole, we have been adversely
affected by the Chinese slowdown because China's slowdown
has impacted global growth and India is very well integrated
into the global economy."
India's Finance Minister Arun Jaitley last month told a
gathering at Columbia University that India is "not impacted"
by the slowdown as "we are not a part of the Chinese supply
chain", adding that India could, in fact, become the
"additional shoulder" the global economy needs to stand on as
China slows.
Jaitley thus joined some of the other leading lights in India which fought a war with China in 1962 over an unresolved
border - who have suggested the chill in rival China may be an
opportunity for India, triggering fiery commentary in Chinese
state media.
A recent opinion piece headlined "China's economic pain can't
be India's gain" in state-run Global Times said: " 'China's pain
is India's gain' is a political slogan to buoy up the Indian
public" at a time when the Narendra Modi government is
facing several challenges.
"India should understand that without a proper environment
its ambition to be a world economic engine is merely a
dream," it said.
Pointing to "growing interdependence" between India and
China, the 52-year-old central banker, whose star power in
India rivals that of Bollywood heroes, said China occupies a
special place in India's economic drive.
"The prime minister has clearly laid out a path for improving
relations with neighbours. The focus is on the East, rather
than the traditional emphasis on the West. Whether it is
through the Asian Infrastructure Investment Bank or through

China's Silk Road initiative, we will have greater engagement
with China and Chinese projects. This will also feed well into
China's interests in expanding its engagement in the region."
While Modi's "Make in India" campaign to attract global
manufacturers is bringing in more foreign investment and has
pushed India up in global competitiveness rankings, much of
the credit for the rising confidence in India goes to Rajan, who
was one of the few economists who had predicted the 2008
financial crisis.
An electrical engineer from the Indian Institute of Technology
in Delhi, Rajan took an MBA degree from the hallowed Indian
Institute of Management Ahmedabad before going on to do
his PhD from the Massachusetts Institute of Technology. At
40, he was the youngest ever IMF chief economist.
After taking over as central bank governor in September 2013,
Rajan's unwavering focus on keeping inflation in check helped
the Indian rupee to recover from a record low and raise India's
foreign-exchange reserves to record levels. But his insistence
on keeping the interest rate high has put him at loggerheads
with the government, which wants to boost growth by cutting
rates.
But his conservative policy, and the relative stability it has
provided the rupee, has impressed foreign investors, with
brokerage CLSA last week calling him an "important piece in
the jigsaw puzzle of India's sustained and successful economic
rise" and even an India-sceptic like billionaire investor Jim
Rogers calling him "the least bad central banker in the world".
According to Bloomberg, global funds have increased their
holdings of rupee-denominated bonds by US$8.5 billion this
year, with India's 10-year sovereign notes yielding 541 basis
points more than similar-maturity US Treasuries.
That could be one reason why China has turned its gaze upon
Indian sovereign bonds. India's Economic Times newspaper
this month reported that the People's Bank of China bought
Indian government bonds for the first time, amid New Delhi's
moves to raise the permissible investment limit in gilts for
offshore investors.
Citing unnamed sources, the paper said the PBOC invested
about US$500 million in bonds, making it the biggest buyer
among other central banks like Malaysia, Indonesia and
Norway, which have also recently piled into Indian
government bonds.
Rajan said he hopes India will emulate China's growth rates
and the country would like to learn from things China got
right.
"We would like to learn from its manufacturing success, how it
built up its infrastructure, how it encouraged its village
enterprises and how it manages FDIs in such enormous
quantities. A lot of Indian businesspeople who travel to China
also keep coming back with stories of why it works better than
India," he said.
"But I also stress we cannot blindly follow the path that China
followed as it has already been on that path and has changed
some of the conditions. We have to determine which path we
follow so that there is room for both of us. Would it, for
example, make sense for India to specialise in industries that
China has already specialised in? In some cases there is room
for both, in some maybe not."
(Full article click - SCMP)
---
Bank Indonesias Warjiyo Seeks Stability

Ahead of Anticipated Fed Rate Increase
Taken from the WSJ Saturday, 21 November 2015
Indonesia Must Safeguard Stability as Fed Prepares To Raise

Rates, Central Bank Official Says
Indonesia must safeguard the stability of its economy and
financial system as it anticipates the U.S. Federal Reserve is
set to begin raising its benchmark short-term interest rate, a
central-bank policy maker said.
The sound economic performance of Indonesia is a positive
outcome of close coordination among Bank Indonesia, the
government and related agencies in the key areas of monetary,
fiscal and structural reforms, said Perry Warjiyo, a deputy
governor at Bank Indonesia, in a paper he presented Friday at
a policy conference hosted by the Federal Reserve Bank of San
Francisco. The macroeconomic and financial system stability
needs to be continuously safeguarded, especially in the short
term in anticipation of the Fed-fund rate increase.
The Fed has signaled it may raise short-term rates in midDecember after holding them near zero for seven years.
Indonesias central bank Tuesday held interest rates steady
despite pressure to cut them to support economic growth. We
still have to stay vigilant on the [risk] of pressures on
currencies in the global market, Bank Indonesia Gov. Agus
Martowardojo said.
Mr. Warjiyo said Friday in his paper that Indonesia has been
weathering relatively well in withstanding the spillover
effects from the normalization process of the Fed[s] monetary
policy and other external shocks using an effective mix of
monetary and other policies.
---
BOJ
should
continue
to
offer
'accommodative monetary environment':
Shirai
Taken from the Nikkei Sunday, 22 November 2015
Japan's central bank should continue to use monetary policy

to encourage "healthy risk-taking practices" as it continues its
long battle to boost inflation, Bank of Japan policy board
member Sayuri Shirai said.
"Households and financial institutions increasingly express
interest in riskier assets and diversification of risks," Ms.
Shirai said in remarks prepared for delivery Friday at a
conference hosted by the Federal Reserve Bank of San
Francisco. "Banks are more eager to extend credits with
innovative financial services. The number of initial public
offerings has increased and firms are more active in business
investment, mergers and acquisitions, and organizational
rationalization both domestically and globally.
"It is important that the BOJ continue to support these
positive developments by maintaining an accommodative
monetary environment."
Japan's economy again slipped into recession this year, and
government officials plan a fiscal stimulus package by the end
of the year, though BOJ Gov. Haruhiko Kuroda said Thursday
that inventories were largely responsible for depressing
output last quarter.
Ms. Shirai, in her prepared remarks, said long-term inflation
expectations remain far below the BOJ's 2% inflation target.
"This suggests a need to generate a further increase in
inflation expectations in Japan with a view to achieving a
steady inflation rate of around 2%," she said.
To meet that goal, "it is clear that wages must further
increase," she said. "To do so, firms must review their
business strategies fostered during the persistently stagnant
wage environment, and improve labor productivity."
She said many Japanese households perceive inflation as
higher than it is, which "could be one reason why many firms
still generally maintain cautious price-setting behavior." In

the future, she added, "favorable corporate profits and an
increase in wage growth, if sustained, may improve
households' tolerance to price rises, thereby helping to correct
households' upward bias. Once that happens, firms may be
gradually more willing to change their cautious price-setting
behavior."
Ms. Shirai also said the Asia-Pacific region "has been subject
to various domestic and external shocks ranging from
commodity price drops, a reversal of capital inflows centered
on securities investment, a depreciation of currencies, a
decline in trade with China, and unstable global financial
markets." Different countries in the region have experienced
different effects, and "while it is likely that these shocks will
eventually fade away, until then the region's monetary policy
conduct will remain divergent," she said.
(Full article click - Nikkei)
---
China
acknowledges
concerns
Australia
coal
Taken from the Australian Sunday, 22 November 2015
Chinese premier Li Keqiang has acknowledged concerns over

import controls that stymie $9 billion in Australian coal
exports, agreeing with Malcolm Turnbull that work should be
done to streamline the rules.
Mr Li pointedly praised Australian coal in his first formal
bilateral meeting with the Prime Minister late yesterday,
responding to fears about the curbs at a time when the two
nations are finalising a free trade deal.
Mr Li also reiterated that the Chinese economy was expected
to grow by about 7 per cent, in line with previous forecasts and
giving Australia a long-term source of demand for its natural
resources.
While there was no shift in policy, the bilateral meeting agreed
that officials from both countries should find ways to
streamline the process that is causing huge concern among
Australian coal exporters.
Mr Turnbull is in Kuala Lumpur for the East Asia Summit of
more than 18 leaders from around the region, but he spent
some of Saturday afternoon in a private meeting with Mr Li,
the Chinese leader with greatest responsibility for economic
policy.
Amid talk of freer trade between the two countries, China
imposed tougher standards last year to reduce the percentage
of ash and sulphur in its imported coal, thereby helping
domestic producers who struggle to compete against
Australian suppliers.
The Prime Minister raised the matter in his meeting with Mr
Li, leading the Chinese premier to praise the quality of
Australian coal.
Australian coal exports to China were worth about $9bn last
year, according to an Austrade report in February, but the
quality checks have introduced new uncertainties into the
trade.
Local authorities at the port of Taizhou said a 40,000-tonne
Australian coal shipment was turned away on environmental
grounds in July after sitting at the port for more than three
months, Reuters reported earlier this year.
Weaker demand has also undercut the trade, with Chinas coal
imports down 37.5 per cent by volume in the six months to the
end of June compared to the same period last year.
The Australian was told Mr Li described the relationship
between China and Australia as being in great shape and
spoke with Mr Turnbull about the prospect of the China
Australia free trade agreement coming into force by the end of
this year.
The Chinese premier also told Mr Turnbull of an expectation
that China would grow at about 7 per cent.
The figure is in line with the World Bank forecast of 7.1 per
cent growth for China this year, but the remarks offer comfort
to Australian exporters given the increasing reliance on
Chinese demand.
Premier Li Keqiang also spoke to Mr Turnbull about the
search for missing Malaysia Airlines Flight MH370, which
went missing in March last year with 239 passengers on
board, many of them Chinese.
While Australia and China have already been searching
together for the missing aircraft, assuming it is in the Indian
ocean, this is likely to be escalated with more funding.
Mr Li announced that China would spend $20 million on the
hunt for the missing aircraft.
(Full article click - Australian)

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News Summary

Hello from Hong Kong.

Turnbull that work should be done to streamline the rules

Meanwhile, come Wednesday, UK Chancellor George Osborne

A de-peg of the Saudi riyal is our number one black-swan

attempt by speculators to mount an attack is likely to fail.

Taken from the FT Saturday, 21 November 2015

Glencore, the commodity trader and miner, has secured a deal

from a low-key office in Londons upmarket Mayfair, remains

Oil prices to stay lower for longer

Saudi Arabia's call on oil production looks right in the long

German chancellor Angela Merkel on Friday delivered a

Chancellor takes aim at grants for manufacturers and tax

THOUGH it is easy to dismiss such things as pieces of political

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Bank of England plans to simulate US

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UK credit rating may survive Brexit, says

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Predators plot 1bn takeover bids for

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Deutsche to jettison 1,000 jobs in the City

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Frances CMA CGM in Exclusive Talks to

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Some key assumptions about how the global economy works

Taken from the WSJ Sunday, 22 November 2015

Taken from the WSJ Sunday, 22 November 2015

RETAILERS are having difficulty flogging clothing these days.

My guess is that we are seeing enduring structural change in

Feds John Williams Says Good Data Would

San Francisco reserve bank president says hiccup in some

hosted by the University of California, Berkeleys Clausen

Countries work best when everybody has a voice that can be

India's central bank chief says China not to

His focus on keeping inflation in check has helped the rupee

China's pain is India's pain too, says India's

Celebrated central bank governor says slowdown hurting

through the Asian Infrastructure Investment Bank or through

Bank Indonesias Warjiyo Seeks Stability

Indonesia Must Safeguard Stability as Fed Prepares To Raise

Japan's central bank should continue to use monetary policy

still generally maintain cautious price-setting behavior." In

Taken from the Australian Sunday, 22 November 2015

Chinese premier Li Keqiang has acknowledged concerns over

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