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Thursday, January 30, 2014

Carbon Credit receipts are not chargeable to tax as “income”. For s. 80-IA(8) if there are multiple “market values” assessee has the right to choose

Shree Cement Ltd vs. ACIT (ITAT Jaipur)

(i) Carbon credit is in the nature of ‘an entitlement’ received to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits is a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to ‘world concern’. It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. My Home Power Ltd 151 TTJ 616 (Hyd), Velayudhaswamy Spinning Mills 40 141 (Chennai) & Ambika Cotton Mills Ltd (Chennai) followed. Also, in Vodafone International Holdings 341 ITR 1 the Supreme Court has held that treatment of any particular item in different manner in the 1961 Act and Direct Tax Code (“DTC”) serves as an important guide in determining the taxability of said item. Since DTC specifically provides for taxability of carbon credit as business receipt and Income Tax Act does not do so, it means that carbon credits are not taxable under the Act

Spanish recovery firms up a bit.

As expected, Spain's GDP growth strengthened to 0.3% on quarter in Q4 from 0.1% in Q3. Rising exports helped lift the economy, while there were also signs of a recovery in domestic demand. "These are positive elements which, to some extent, show we've left the recession behind, but we still have a great deal to do, "The path ahead is full of obstacles, which, above all, includes an unemployment rate of 26%."

Chinese HSBC PMI shows contraction.

Chinese manufacturing activity contracted for the first time in six months in January as HSBC PMI fell to 49.5 from 50.5 in December. The growth of output eased to a marginal pace and jobs were cut at the fastest rate since March 2009, HSBC says, while there were also "marked falls" in input costs and output charges. "A soft start to China's manufacturing sectors in 2014, partly due to weaker new export orders and slower domestic business activities."

U.S. growth expected to have slowed in Q4.

GDP data is due out this morning, with economists estimating that economic growth softened to 3.2% on year from 4.3% in Q3. Consumer spending is expected to have driven the expansion, with a spike in housing starts helping also. However, inventories are likely to have been a drag on the economy.

Global equities mixed after Fed confirms more tapering.

Asian and European shares have mostly fallen after the Fed said that, as expected, it would reduce its bond-buying by another $10B a month to $65B. What was notable was that the Fed made no mention of the turmoil in emerging markets in its statement. U.S. stock futures were up after Wall Street suffered notable losses yesterday, while the greenback has strengthened as well, with the dollar index +0.45%.

Wednesday, January 29, 2014

German consumer sentiment rises to six-year high.

The German Gfk consumer confidence index has climbed to the highest level since August 2007, rising to 8.2 heading into February from 7.7 previously and topping consensus of 7.6, The strengthening of the consumer outlook adds to continuing bullishness among German investors and businesses, providing hope that the country can help firm up the eurozone's fragile recovery.

Turkish "shock and awe" boosts world stocks.

The Turkish lira has jumped against the dollar following "shock and awe" rate hikes by the Central Bank of Turkey late yesterday (CBRT), which have also sent many global equities indexes higher along with some other emerging-market currencies. The CBRT increased its overnight lending rate to 12% from 7.75% and the overnight borrowing rate to 8% from 3.5% in an attempt to defend the lira, which has been hit by domestic scandal and the prospect of Fed tapering. The USD-TRY was -1.4% at the time of writing, but the ISE 100 was -1% after being in the green earlier.

Reserve Bank of India raise its key policy repo rate by quarter.

The Reserve Bank of India has unexpectedly increased its key policy repo rate by 25 bps to 8%, citing projections that CPI will remain high. Inflation was 9.9% in December. However, the RBI said that if inflation eases as expected, it doesn't believe it will need to tighten further. The focus on CPI indicates that the RBI could adopt a proposal to set an inflation target.

British economy grows at fastest pace since financial crisis.

U.K. GDP increased 1.9% in 2013 in what was the quickest growth since 2007. However, GDP slowed a bit to +0.7% on quarter in Q4 from +0.8% in Q3 and the economy was still 1.3% below its pre-recession peak. "While the U.K. economy's performance in 2013 was well above expectations and encouraging, it needs to be borne in mind that the improvement has come from a low base," says economist Howard Archer, adding that the BOE places much emphasis on "headwinds that could still derail" the economy.

Great Depression remains the worst crisis

As per the Economist, that dubious distinction belongs to the Wall Street crash in 1929 and the consequent fallout that was the Great Depression. Not surprisingly, the worst incidents since that one are all related to the 2008 global financial crisis. The near bankruptcy of Greece, the housing collapse in Ireland and the banking crisis in Iceland are all products of the excesses and asset bubbles that had formed before 2007-08. Since then, there has not been much of a meaningful recovery seen in most of the developed countries of the US and Europe as output has stagnated and unemployment rules high. The only form of support has been loose monetary policies unleashed by central bankers. Rather than solving the problem, these have only raised the prospect of higher inflation in the future. 

Monday, January 27, 2014

Argentine peso on watch following end of currency controls.

Having slumped more than 20% over recent days, the Argentinian peso could fall further today after the government said on Friday that it would end a two-year-old ban on Argentines buying foreign currency. That will allow the country's citizens to purchase dollars, which they are obsessed with following crises such as the one in 2002. However, the Central Bank, the main source of foreign exchange, has reserves of less than $30B.

German business optimism continues to strengthen.

The Ifo institute's business climate index has increased to its highest level since July 2011, rising to 110.6 in January from 109.5 in December and topping consensus of 110. The current-situation reading rose to 112.4 from 111.6 and the expectations print climbed to 108.9 from 107.4,the survey suggests that the economy could grow by 0.5%, well above the 0.25% projected for Q4.

Asian, European shares slump.

Asian and European shares have tumbled as investors continue to worry about the Chinese economy following poor PMI data on Thursday and about the effect of Fed tapering. Emerging markets are front and center in the sell-off amid country specific trouble in Turkey, Argentina and Thailand in particular. Money has been flowing into havens such as gold and the yen, which was 102.65 to the dollar at the time of writing vs 104.71 on Thursday morning. As is the way, that has sent the Nikkei spiralling.

Japanese trade deficit almost doubles to hit record.

Japan's trade deficit nearly doubled to a new high of ¥11.5T ($113B) in 2013, pulled upwards by the weak yen and increasing energy imports because of a shutdown of the country's nuclear industry. Japan enjoyed surpluses for three decades, a trend that came to an end in 2011 after the Fukushima meltdown. "It's hard to anticipate when Japan can emerge from trade deficits at this point," says economist Takeshi Minami. High energy costs could discourage companies from having production centers in Japan "and undermine Abenomics."

Sunday, January 26, 2014

Current account balances are deteriorating as percentage of GDP.

One of the reasons that led to the steep fall in the Argentinian peso has been a large current account deficit. And as today's chart of the day shows, deteriorating current account balances seems to be a problem affecting many of the countries both in the developed and developing world. India's current account deficit is also not small by any standard. So far, imports have been rising mostly because of oil and gold, while exports have failed to catch up. The government so far has tried to correct the situation by putting curbs on gold imports. But from a longer term perspective, a much more constructive move will have to be employed. And this would largely mean making exports more competitive. 

If George Soros' prediction happens to be correct we may well see a repeat of 2008 financial crisis soon. However, the source country in question this time would not be US but China. Nonetheless, the reasons could well be the same - emergence of complex structured products and excessive leverage.

It is a known fact that credit boom in China is fuelled by shadow banks. In fact, as per Moody's estimate China's shadow banking debt market was roughly 55% of the nation's economic output at the end of 2013. The problem with shadow debt is that it is created by financial institutions outside the regulatory framework. In other words, it is non-bank debt. Similar to bank debt even shadow debt can be structured into a complex investment product. Since the risk in shadow debt repayment is high the return is also high. This attracts investors. However, higher risk means that probability of default is high. And if default happens it can shake investor's faith in such products resulting into basket selling. Very recently one such Chinese investment trust which issued structured products on shadow debt had to be wound up. This has sent ripples across the Chinese market. If a few other instances like these occur, China may witness a wave of defaults. And this can have cascading effects similar to the 2008 crisis. 

Fitch affirms Germany's AAA rating.

Fitch has reiterated Germany's rating at AAA and the country's stable outlook, citing its falling debt-GDP ratio and the growing economy. "Germany has a high-value added economy with a competitive manufacturing sector and effective political, civil and social institutions," Fitch says.

Argentina's problems go from bad to worse.

Argentina's peso suffered its worst fall since the country's crisis 12 years ago yesterday, plummeting 11% to an official rate of around 7.9 to the dollar. The black-market rate is about 13. The collapse in the currency came after the central bank appeared to have stopped defending the currency amid a deepening of Argentina's current economic woes, which includes inflation of 25% or more.

Equities hurt by data from China - except in China.

Global stocks were mostly lower amid tepid earnings results and continuing concerns about China following weak manufacturing PMI data yesterday. Investors are apparently even wondering whether losses this week signal the start of a rout. The one place where the PMI data didn't seem to have an effect today was China. Stocks were partly boosted by money market rates falling again following a $42B+ injection of cash last week from the central bank ahead of the Lunar New Year.

Thursday, January 23, 2014

Spain's fragile recovery continues.

Spain's economy grew for the second quarter in a row in Q4, the Bank of Spain says, expanding by 0.3% on quarter. However, the recovery remains fragile, with 2013 GDP falling 1.2%. In addition, unemployment edged up to 26.03% last quarter from 25.98% previously and was above consensus of 26%. Still, the number of people out of work dropped by 8,400. The IBEX 35 was +0.5% at the time of writing.

Eurozone business activity marches to high of over 2 1/2 years.

Eurozone composite output PMI has climbed to a 31-month high of 53.2 in January from 52.1 in December and surpassed forecasts of 52.4, with the manufacturing and services sectors improving nicely. However, "the upturn remains fragile, "Companies cut employment again, and selling prices continued to fall amid still-weak demand. Deflationary forces are clearly a concern in many countries." The euro was +0.65% at $1.3635 at the time of writing.

Wednesday, January 22, 2014

Morgan Stanley looks to raise $2B for Puerto Rico - NYT.

Morgan Stanley (MS) has contacted large investors to see how interested they would be in providing $2B in financing to Puerto Rico in return for yields as high as 10%, the NYT reports. The Commonwealth hasn't actually hired Morgan Stanley, which is acting on its own to put together a proposal that the bank can take to the government. Puerto Rico is struggling with high unemployment and massive debt, and is facing a downgrade into junk territory from Moody's.

U.K. unemployment falls towards BOE threshold.

U.K. unemployment has dropped ever closer to the Bank of England's 7% threshold for raising interest rates, falling to 7.1% in the three months to November from 7.4% previously. However, the BOE is pulling a Fed: the U.K. central bank said it sees no immediate need to raise interest rates if the threshold is reached. The pound spiked after the jobless rate was released and was +0.35% at $1.6534 at the time of writing.

Bank of Japan keeps ultra-loose policy unchanged.

As expected, the Bank of Japan has left its key interest rate at 0.1%, and maintained its program of expanding the monetary base by ¥60-70T a year. The BOJ expects the economy to continue recovering moderately, although it will be affected by an upcoming rise in sales tax. However, while "inflation expectations appear to be rising on the whole," the BOJ said, CPI is "likely to be around 1.25% for some time." The bank's target is 2%. The USD-JPY was flat at ¥104.30 at the time of writing.

Asset turnover ratio of India Inc

Asset utilization ratio i.e., total sales divided by total assets is one of the key metric to measure the efficacy of assets for any company. However, it seems Indian companies are losing the game. As per an article in Business Standard, the asset utilization ratio for BSE 200 companies (excluding financial sector) in FY13 stood at 1.52x. This was the lowest in last 8 years. This reflects the slowdown in the economy. The decline in the ratio is not just because of lower sales realizations. Slowdown in demand and hence low capacity utilization is a key culprit behind a poor show by these companies. The key industries such as cement, steel, capital goods and power etc are facing pressure at the operating margin level. Some of the companies are forced to cut prices to generate enough sales that can recover their fixed costs.

Does this mean that investors should turn away from such stocks? We don't think so. In fact, this could be a good time to invest in some of the cyclical stocks. The adverse times have made it clear which companies are strong enough to survive the challenging times. As economic cycle takes a turn for the better, these companies are likely to witness benefits of high operating leverage and economies of scale. Now that most of the companies have already completed their capital spending programmes, significant upside is likely at the earnings and cash flow level once economy recovers.

Tuesday, January 21, 2014

PBOC moves to avert credit crunch.

Having surged 153 bps yesterday, China's seven-day repurchase rate fell 88 bps to 5.44% today after the People's Bank of China injected over 255B yuan ($42B) into the financial system and expanded a loan facility in order to meet demand for cash ahead of the Lunar New Year. The PBOC's action helped Asian and European shares rise.

Fed could cut bond-buying even further - WSJ.

The Fed could reduce its monthly bond purchases to $65B from $75B at a FOMC meeting next week, the WSJ's reports. The move would come after the Fed cut $10B from the program in December and despite a weak jobs report last month, with policy makers still bullish about the U.S.'s economic prospects. The report has helped the yen weaken against the dollar, which has in turn contributed to a rise in Japanese stocks.

Monday, January 20, 2014

Total Chinese government spending since 2009.

It has been alleged many a time that data released by China is not always reliable. Take government spending for instance. As today's data shows, this has steadily increased every year since 2009. Government spending by itself has no meaning unless there is more clarity on which areas this money is being spent. In this regard, as per an article in CNN Money, significant chunk of government spending in China has been going towards education, employment and social security, agriculture, water and general public service. One may conclude that given the slowdown in the Chinese economy in recent times, an increase in wasteful government spending may not necessarily be good. But if the government is spending towards the areas mentioned above, then we believe it will reap benefits for the economy in the longer run. Indeed, the country does fare much better compared to India whose total expenditure largely consists of unproductive items such as subsidies and interest payments. 

S. 32: Road constructed on Build-Operate-Transfer (“BOT”) terms is eligible for depreciation even though assessee is not the legal owner of the road

DCIT vs. Swarna Tollway Pvt. Ltd (ITAT Hyderabad)

The assessee, a SPV, was awarded a contract by the NHAI for widening, rehabilitation and maintenance of an existing two lane highway into a four lane one on the Tada-Nellore section of NH-5 on BOT basis. The entire cost of construction of Rs. 714 crore was borne by the assessee. The construction was completed during the FY 2004-05 after which the highway was opened to traffic for use and the assessee started claiming depreciation from AY 2005-06 onwards. The AO rejected the claim on the ground that the assessee had no ownership, leasehold or tenancy rights for the asset in question, i.e., the roads. On appeal, the CIT(A) reversed the AO. On appeal by the department to the Tribunal HELD dismissing the appeal:
Though the NHAI remains legal owner of the site with full powers to hold, dispose of and deal with the site consistent with the provisions of the agreement, the assessee had been granted not merely possession but also right to enjoyment of the site and NHAI was obliged to defend this right and the assessee has the power to exclude others. The very concept of depreciation suggests that the tax benefit on account of depreciation belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment cost by wear and tear and would need to replace the same by having lost its value fully over a period of time. The term “owned” as occurring in s. 32 (1) of the Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings, though a formal deed of title may not have been executed and registered (Mysore Minerals 239 ITR 775 (SC), Noida Toll Bridge 213 Taxman 333 etc referred)

Thursday, January 16, 2014

Eurozone inflation edges down slightly.

As expected, eurozone CPI increased 0.8% on year in December, slightly slower than the 0.9% increase in November. Inflation remains well below the ECB's target of just under 2% amid concerns that Europe faces the threat of deflation. It's worth noting that CPI fell in Greece, Cyprus, Bulgaria and Latvia. U.S. CPI for December is due out this morning as well, with analysts estimating that inflation rose 0.3% on month after being flat in November.

Wednesday, January 15, 2014

Chinese lending falls.

Chinese aggregate financing fell to 1.23T yuan ($204B) in December from 1.63T yuan a year earlier, but came in above consensus of 1.14T yuan. Still, that and other data, such as a slowing M2 money supply, reflect the efforts by the People's Bank of China to rein in ballooning credit even at the expense of economic growth. However, the central bank has reportedly become frustrated at the lack of desire of the China Banking Regulatory Commission to strengthen the regulation of banks' relationships with shadow lenders.

German real GDP slows in 2013.

Germany's price-adjusted GDP growth eased to 0.4% in 2013 from 0.7% in 2012 and missed consensus of 0.5%. "The German economy suffered from the continuing recession in some European countries and from restrained growth of the global economy," the Federal Statistical Office said. "Strong domestic demand could offset those factors only to a limited extent." The trade balance hurt growth by 0.3 percentage point, which might assuage criticism that Germany relies too much on exports.

World Bank bullish about global prospects.

The World Bank expects global economic growth to accelerate to 3.2% in 2014 from 2.4% in 2013, led by advanced economies that seem "to be finally turning the corner" following the financial crisis. In its Global Economic Prospects report, the bank also forecast that the U.S. will expand 2.8% this year vs 1.8% last year. The outlook, along with strong U.S. retails yesterday, have helped boost global stocks today.

Tuesday, January 14, 2014

Industrial production in India contracts sharply

India's index of industrial production for November 2013 left a lot to be desired as it contracted sharply by 2.1%. This was considered to be the lowest in 6 months and highlights that the Indian economy is not out of the woods yet. The reason for the contraction was attributed to the poor performance of the manufacturing sector and lower output of consumer goods, particularly white goods. This coupled with the fact that retail inflation has also slightly reduced has raised hopes of the RBI going in for a rate cut. Whether the central bank will be in a mood to relent remains to be seen. Meanwhile, India's peer China showed why it is the manufacturing powerhouse in the world as industrial production in the country grew faster than the rest of the pack.

Eurozone industrial output rebounds.

Eurozone industrial production swung to growth of 1.8% on month in November from a drop of 0.8% in October and comfortably topped consensus of +1.4%. On year, output jumped to 3% from 0.5% and was more than double expectations. The improvement was widespread, with Germany and France enjoying good growth and Ireland surging.

Japan's current account deficit surges.

Japan's current account deficit widened to a record ¥592.8B ($5.7B) in November from ¥127.9B in October and surpassed consensus of ¥380.4B. The increase comes amid a rise in the value of imports, particularly because of the weak yen, and higher demand for foreign energy because of the shutdown of nuclear plants. The long-term risk is that the deficit could become permanent, which could weaken confidence in Japan's massive debt.

Monday, January 13, 2014

Regulators ease Basel leverage ratio requirements.

The Basel Committee for Banking Supervision has eased the way banks will have to report leverage ratios, or the amount of capital they hold against their loans and other assets. The regulations will not force banks to count 100% of their off-balance-sheet assets, such as much of their exposure to derivatives, and guarantees and letters of credit. The news helped boost bank stocks in Europe, with the Stoxx Europe 600 Banks index +1.4% at the time of writing.

Article 7 of DTAA: Even in a composite contract, Dept cannot assess off-shore profits without showing how it is attributable to the permanent establishment

Samsung Heavy Industries Co. Ltd. vs. DIT (Uttarakhand High Court)

The assessee entered into a consortium contract with ONGC and L&T to carry the work of surveys, design, engineering, procurement, etc. It opened a project office in India for co-ordination and execution of the project. The assessee claimed that a portion of the work was carried out inside India and a portion was carried out outside India. It claimed that it had suffered a loss on the work done inside India and that income on the work done outside India was not assessable to tax in India. The AO held that 25% of the work done outside India had to be assessed in India. This was upheld in principle by the Tribunal (133 ITD 413 (Del)  on the ground that the contract was indivisible and that opening a project office in India was a condition precedent for the contract. It was held that the said project office constituted a “permanent establishment” under Article 5(1) of the India-Korea DTAA and that it covered the entire scope of work. As regards the percentage of income attributable to the PE, the Tribunal directed the AO to determine the extent of business activities carried on through the said project office. On appeal by the assessee to the High Court HELD reversing the Tribunal:

Being a resident of Korea, the assessee is governed by the Income-tax laws as prevalent in Korea. Therefore, it has a tax identity in Korea. In addition, the assessee has submitted to the jurisdiction of Indian taxing authorities by furnishing return of income and, thereby, acknowledged that it has also a tax identity in India. The question is, this identity is covered by which provision of the India-Korea DTAA. In terms of Article 7(1), the assessee will acquire its tax identity in India only when it carries on business in India through a permanent establishment situate in India. By submitting the return, the assessee has held out that it is carrying on business in India through a permanent establishment situated in India. In the circumstances, the contention of the assessee, whether the Project Office of the appellant opened at Mumbai can be, or cannot be said to be a permanent establishment within the meaning of the said DTAA is of no consequence. In terms of the DTAA, if an enterprise does not have a tax identity in India in the form of a permanent establishment, it has no obligation to either submit any tax return with, or pay any tax to India. The Indian Taxing Authority is not entitled to arbitrarily fix a part of the revenue to the permanent establishment of the assessee in India. The assessee held out that a part of the revenue was received by it for doing certain work in India. It did not contend that even those works were done by or through its Project Office at Mumbai. On the other hand, there is not even a finding that 25 per cent of the gross revenue of the assessee was attributable to the business carried out by the said Project Office. Neither the AO nor the Tribunal has made any effort to bring on record any evidence to justify the same. Tax liability cannot be fastened without establishing that the same is attributable to the tax identity or permanent establishment of the enterprise situate in India.


Employees’ PF/ ESI Contribution is not covered by s. 43B & is only allowable as a deduction u/s 36(1)(va) if paid by the “due date” prescribed therein

CIT vs. Gujarat State Road Transport Corp (Gujarat High Court)

In AY 2005-06 the assessee collected Rs.51 crore from its employees as their contribution to the provident fund but deposited an amount of Rs.21 crore with the provident fund trust within the time allowed under the Provident Fund Act. The shortfall was deposited with the PF trust before the due date for filing the ROI u/s 139(1). The AO held that the amount not deposited in time was assessable as “income” u/s 2(24)(x) & that a deduction u/s 36(1)(va) could not be allowed as the payment was not within the prescribed “due date”. He also held that s. 43B applied only to the employer’s contribution. On appeal by the assessee, the CIT(A) and ITAT upheld the assessee’s claim by relying on Alom Extrusions Ltd 319 ITR 306 (SC). On appeal by the department to the High Court HELD allowing the appeal:
S. 43B which permits a deduction for payments made upto the due date for filing the ROI applies only to the employer’s contribution to the provident fund etc. It does not apply to the employees’ contribution. The employees’ contribution received by the employer-assessee is deemed to be income in the assessee’s hands u/s 2(24)(x) and if the assessee has not credited the said sum to the employees’ account in the relevant fund or funds on or before the due date mentioned in Explanation to s. 36(1)(va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in s. 28 of the Act. The argument that two view are possible is not acceptable because only one view is possible on a correct interpretation of the provision (Alom Extrusions 319 ITR 306 (SC) distinguished, Aimil Ltd 321 ITR 508 (Del), Nipso Polyfabriks 350 ITR 327 (HP), Spectrum Consultants 34 20 (Kar), Udaipur Dugdh Utpadak Sahakari Sandh 35 616 (Raj) & Hemla Embroidery Mills (P&H) dissented
Note: The consequence is that if the payment of employees’ contribution is delayed, a deduction will never be allowed. The same view is taken in LKP Securities following ITC Ltd 112 ITD 57 (Kol)(SB). Contrast with Kichha Sugar 356 ITR 351 (Utt) where it was held that the “due date” in s. 36(1)(va) meant the “due date” for filing ROI u/s 139(1). See also Bharati Shipyard 132 ITD 53 (SB)(Mum) where it was held that s. 43B applies even to the employees’ contribution

Sunday, January 12, 2014

Spanish, French industrial production rise.

Spanish industrial output rose 2.6% on year in November, recovering from a fall of 0.8% in October. The figure represents the biggest increase in over two years and adds to the flow of positive data that has been coming out of Spain over the past few months. French industrial production grew 1.3% on month in November after dropping 0.5% in October and easily topped consensus of 0.4%. However, the figures are for two months ago and PMI data for December didn't make for pretty reading.

U.S. employment growth seen slowing slightly.

U.S. employment data for December is due out this morning, with economists estimating that the number of nonfarm payrolls increased by 196,000, slightly short of the rise of 203,000 in November. The jobless rate is expected to have held steady at 7%. As ever, the data will be analyzed to death to see what it means for Fed policy.

China overtaking U.S. as world's largest trader.

China appears to have become the world's largest trading country last year after the value of its imports and exports increased 7.6% to $4.16T. The U.S., which has held the crown until now, hasn't released its 2013 figures yet, but its trade in January-November totaled $3.5T. In December, China's export growth slowed to 4.3% from 12.7% and missed consensus, although imports accelerated to +8.3% and topped expectations.

Thursday, January 9, 2014

Chinese CPI drops more than expected.

China's inflation fell to 2.5% on year in December from 3% in November and came in below forecasts of 2.7%. PPI dropped for the 22nd month in a row - the longest streak since the 1990s - with a decline of 1.4%.As per economist "Inflation pressures remain modest, which will allow policy makers to continue focusing on policies to support growth while implementing structural reform measures in 2014."

Wednesday, January 8, 2014

German trade surplus grows as exports rise and imports fall.

Germany's trade surplus rose to a seasonally adjusted €17.8B in November from €16.7B in October but missed consensus. Exports grew for the fourth month in a row, increasing 0.3% on month, while imports fell an unexpectedly sharp 1.1%. "Even if November is a bit weaker than the strong October - especially on the imports side - the data shows that the fourth quarter is picking up because of a German and global recovery."

Tuesday, January 7, 2014

German unemployment stable.

Germany's adjusted jobless rate held steady at 6.9% in December, as forecast, although the number of unemployed fell for the first time since July, decreasing by 15,000 to 2.965M. "A robust jobs report...provides further support for a strong finish to 2013 from consumer spending," says economist Christian Schulz. That "raises the chances of stronger wage growth in 2014 and thus higher consumption."

Eurozone inflation edges down.

Eurozone inflation declined to 0.8% in December from 0.9% in November and came in below consensus that was also 0.9%. The CPI figure remains well below the ECB's target of just under 2%, a trend that has sparked discussion about the threat of deflation in the eurozone. However, ECB President Mario Draghi is unworried, saying last week that there's no urgent need for another cut in interest rates.

Ireland storms back into international debt markets.

Ireland's first bond auction since exiting its EU bailout appeared set to be a blockbuster at the time of writing, with the government reportedly receiving indications of interest worth €9B for a planned sale of €3B in 10-year debt. The demand caused the yield on existing 10-year paper to drop 9 bps to a multi-year low of 3.26% compared with a peak of 15% in 2011.

Monday, January 6, 2014

Eurozone business activity continues to grow.

Eurozone composite PMI rose to 52.1 in December from 51.7 in November even as the services print slipped to 51 from 51.2. "December saw the second-largest increase in business activity since June 2011 and rounded off the best quarter for two-and-a-half years," says Markit. Spanish composite PMI hit a 6 1/2 year high and Ireland enjoyed strong growth, although France suffered recession-type contraction. The euro was +0.2% at $1.3617 at the time of writing.

Fall in Chinese services PMI indicates slowdown is broad-based.

Chinese HSBC services PMI dropped to the lowest level since August 2011, falling to 50.9 in December from 52.5 in November. The decline mirrors a drop in the official print and in manufacturing PMI, suggesting that the slowdown in the economy is broad-based. The latest reading was one factor that helped drag down Asian markets today amid fears that China's deceleration will continue in Q1.

Sunday, January 5, 2014

Manufacturing PMI's shrinks in Dec13.

Purchasing Managers Index (PMI) measures the state of economic activity. It is based on a survey of private sector firms. Any value above 50 indicates expansion in economic activity while a reading below 50 indicates contraction. As can be seen from today's chart, the PMI index for the month of December fell to 50.7. This was mainly due to sluggishness in domestic orders. While the reading was above the benchmark figure of 50 it fell when compared to the last month. This indicates that the recovery is still lagging and achieving higher growth in future could be a challenge. However, the good news is that new export orders have picked up and inflation is showing signs of moderation. This may prompt RBI to lower rates in order to revive the economy. However, slowdown in new orders, as indicated in the survey, is not a good a sign. It shows industrial capex is still lagging. Order back log has also increased which means there is inventory buildup. Unless RBI lowers the interest rates, new orders will continue at snail pace as demand will remain weak. This will delay the capex cycle and hurt economic growth.    


China's services sector growth eases.

China's official services PMI fell to 54.6 in December from 56 in September, mirroring a decline in manufacturing PMI and providing further evidence that the country's economy is losing steam again. The sub-index for business expectations dropped to 58.7 from 61.3, while new orders remained at 51. Shares in China and Hong Kong have fallen sharply following the release of the data.

Thursday, January 2, 2014

Eurozone manufacturing sector continues to recover smartly.

Eurozone manufacturing PMI increased to a 31-month high of 52.7 in December from 51.6 in November. Rising output and fuller order books encouraged manufacturers to hold off from further job cuts, while new export orders again rose at a solid pace. Germany, Italy and Spain are seeing the strongest output growth since early 2011, although France "remains a concern" and is looking uncompetitive.

China's factory activity slows.

Two surveys have indicated that China's manufacturing sector slowed in December, with the official PMI falling to 51 from 51.4 in November and the HSBC print slipping to 50.5 from 50.8. New export orders disappointed in both readings, while employment contracted further in the official index. "Domestic and overseas demand was weaker than expected," says economist Li Heng. "The economy is under some downward pressures but the slowdown remains modest." Notwithstanding, the data has put a bit of a damper on the mood in the markets.

Wednesday, January 1, 2014

Latvia set to join euro.

Latvia is poised to become the 18th member of the Eurozone , following the path of other former Soviet satellite states, Estonia and Slovakia. Given Latvia's strong recovery from its own debt crisis, and the terrible state of the economies of Greece, Portugal, Spain, Portugal and Cyprus, one might be tempted to ask, what on earth are they thinking?

Chinese municipal debt near $3T.

Chinese local-government liabilities stood at 17.9T yuan ($2.95T) at the end of June, a major new report shows, with the number up from 10.7T yuan the last time a full audit took place in 2010. The report comes as China's short-term money market rates calm down after spiking earlier this month due to the central bank refraining from injecting liquidity into the system as part of its efforts to rein in soaring debt.

Nikkei enjoys best annual performance in 41 years.

Japan's Nikkei 225 has closed the day and the year at a fresh six-year high of 16291, representing a rise of 0.7% for the session and 57% for the year. That makes 2013 the index's best annual performance since it jumped 92% in 1972. Japanese stocks have been benefiting from the central bank's massive money printing, which has helped weaken the yen and boost exporters. The USD-JPY was +0.1% at ¥105.30 at the time of writing after the yen earlier hit a five year low of ¥105.41.