China cuts banks' reserve requirement ratio

China's central bank took further measures to cushion its economic slowdown amid the cheaper shares and the weakening currency by reducing the amount of cash the nation’s lenders must lock away.

The required reserve ratio will drop by 0.5 percentage points effective March 1, the People’s Bank of China said on its website Monday. That will take the level to 17 percent for the biggest banks, still one of the highest such ratios in the world. The move marks a return to more traditional easing after the central bank indicated in recent weeks it would spur growth by guiding interbank markets lower and injecting liquidity through open-market operations.

Governor Zhou Xiaochuan highlighted scope for further action ahead of a Group of 20 meeting in Shanghai last week, saying China had “multiple policy instruments” to address growth risks. Finance Minister Lou Jiwei said at the event that China will expand its fiscal deficit to support structural reforms to the economy, which slowed to a 6.9 percent growth pace last year, the weakest since 1990.

The central bank said it lowered the reserve ratio to guide stable and appropriate growth in credit and create appropriate monetary and financial conditions for supply-side structural reform, according to a statement on its website.

New Approach

China’s central bank has preferred a newer monetary approach in recent months.

“The PBOC had signaled that it was moving away from blunt instruments like the RRR, and toward more subtle tools to manage liquidity and interbank rates,” Bloomberg Intelligence analysts Tom Orlik and Fielding Chen wrote in a note. “That adds to the surprise factor in the return of the RRR.”

People’s Congress

The RRR cut adds to the supply of money in the economy, rather than cutting borrowing costs directly as an interest-rate reduction would. As such, it may not lead to capital outflows in the same way a rate cut could.

The timing suggests the move is an effort to stabilize the stock market before officials gather for the annual session of the nation’s legislature on March 5, according to Li Liuyang, Shanghai-based chief financial market analyst at Bank of Tokyo-Mitsubishi UFJ.

The National People’s Congress is scheduled to meet over the course of nearly two weeks to discuss policies for 2016 and China’s next five-year plan. Premier Li Keqiang will start the proceedings by outlining his work report, which looks back at the past year and outlines plans on everything from economic growth to health and education policies.

Fiscal Firepower

Fiscal policy support will likely be reflected in increased investment and social spending, tax cuts and reforms, and increased quasi-fiscal spending on infrastructure, strategic industries, and social welfare, UBS Group AG economists led by Wang Tao wrote in a recent note. Infrastructure projects such as railways, subways, pipelines, water projects, environmental and new-energy projects will continue to be boosted, they wrote.

That’s where central government fiscal support comes in, to help provincial authorities relocate laid-off workers. That in turn may mean more debt. Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong, said the central bank needs to walk a fine line.

“Today’smove shows that, while they shy away from cutting benchmark interest rates,they are willing to use the relatively high-profile instrument of a RRR cut,”Kuijs said. “It remains to be seen what the effect on the FX market is.However, this move suggests that, in the end, supporting growth takes priority over other considerations.”

Euro area annual inflation down to -0.2%

Euro area annual inflation returned to negative territory in February 2016, according to a flash estimate from Eurostat, published today.

Consumer prices decreased by 0.2% after rising 0.3% in January against the analysts’s expectations of  zero change.

Prices in the services sector are slowing the upward trend by 1% compared to 1.2% in January, Food, alcohol and tobacco products reported an increase of 0.7% compared to 1% the previous month, while non-energy industrial goods were up by 0.3% compared to 0.7% in January. Energy accelerated depreciation from 5.4% to 8%.

Today's report reinforces expectations that the European Central Bank will take aggressively increasing incentives at its next meeting, scheduled for March 10.

Global GDP is expected to increase by 2030

Global GDP will continue to grow until 2030. However, the gap between richest and poorest economies will deepen. This is the estimate of the World Economic Forum. 

These graphics show the change in global GDP distribution between 1970 and 2030 looking at the United States, China and India.

 

The comparison between 1970 and 2016 shows that global growth has almost doubled, with average world GDP, per capita, growing from around $5,000 to over $10,000. The projected growth for 2030 sees world per capita GDP growing to around $14,000.

The United States continues to grow, consistently well above the global average, maintaining its status as one of the world’s largest economies.

What the visualization also shows is the rapid development of China’s economy, starting behind India in the 1970s, overtaking in the mid 1980s and thereafter consistently growing into a more dominant global economy.

The data predicts China will continue growing, but by 2030 it will still be below the world average. India’s growth has been much slower than China’s, meanwhile, but is predicted to increase over the next 14 years.

This visualization highlights the overall growth of global economies, with the poorer ones continuing to lag behind. Africa, for example, sees steady but considerably slower growth than the rest of the world, with much lower levels of per capita GDP across the continent.

In 2015 in Africa, the average GDP per person was $20,000 less than the global average, at around $4,000. The ERS International Macroeconomic Data Set shows that the average GDP per person in the United States for 2015 was more than $50,000.

LSE in merger talks with Deutsche Boerse

The first sure sign for forthcoming merger between London Stock Exchange Group Plc and Deutsche Boerse AG is that there is reached agreement on key posts after completion of the deal. According to an official release of the two exchange operators, the CEO of Deutsche Boerse Carsten Kengeter will remain the same position in the new dominant European exchange operator, while CEO of LSE Xavier Rolet will retire

Just three days after British Prime Minister David Cameron set a date for a referendum on leaving the European Union, the London and Frankfurt-based market operators confirmed the discussions to create a business worth more than 20 billion pounds ($28 billion). Shares in both companies soared.

Acombination of LSE and Deutsche Boerse reflects the inexorable consolidation that has created a handful of titans overseeing much of the plumbing for global trading. The Anglo-German tie-up would have leading positions in equities,derivatives, indexes and clearing, leaving it in competition with just a handful of market operators in the U.S. and Asia.

“It’s very, very important in the context of the connectivity between the Americas, China as we’ve heard, and Europe, and of course London” that one of these global companies is based in the U.K., LSE Chief Executive Officer Xavier Rolet said .

Should regulators approve the all-share merger, LSE Group equity holders would own 45.6 percent of the enlarged group, while Deutsche Boerse stockholders would get 54.4 percent.

The chief executive officers of both companies are keen dealmakers. LSE’s Rolet has bought an index provider and expanded into clearing, while Deutsche Boerse boss Carsten Kengeter spent $1.5 billion in his first days in charge of Europe’s largest derivatives exchange.

An LSE-Deutsche Boerse deal would also create a stronger rival to CME Group Inc., the world’s largest derivatives market. That company was formed by the Chicago Mercantile Exchange’s 2007 acquisition of the Chicago Board of Trade. Then a year later, CME bought the New York Mercantile Exchange.

Discussions between companies don’t necessarily mean a deal will take place. The talks are ongoing, according to today’s statement. Should the firms agree to merge, their key businesses will continue to operate under their existing brand names. The board would have an equal number of directors from both companies.

LSE’s shares jumped 14 percent to 2,630 pence inLondon, their biggest rally since 2008. Deutsche Boerse climbed 3.2 percent to78.80 euros. The shares jumped after Reuters reported shortly after 1 p.m.London time that the companies are in the early stages of exploring a possible merger.

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US and Europe stocks finished profoundly lower on Tuesday

Wall Street closed in negative territory on Tuesday, failing to prolong the rally from Monday as the sentiment was influenced by the global negative mood, the bad US data and the swinging oil prices.

Yesterday the US stocks recorded the biggest loss for a week amid the negative data on consumer confidence and depreciation of oil caused by the refusal of Saudi Arabia to cut production. Ultimately energy companies recorded a fall, dragging and banking sectors. S&P 500 closed with a decline of 1.25%  at 1,921.28 points, supported only by utility companies. Dow Jones wrote off 1.1% to end at 16,431.85 points, while Nasdaq Composite finished with a drop of 1.47% at 4,503.58 points.

A piece of major news is the slump of CB’s consumer confidence, which hinted deterioration in optimism at a level of 92.2 points in February and missed the forecast of 97.2 points.  Sales of existing homes rose by 0.4% to 5.47 million units in January, which is a stronger result having in mind the expected 2.5% drop to 5.32 million units.

Earlier in the day European stocks fell from a three-week peak, erasing most of Monday's gains. Stoxx Europe 600 fell 1.2%, while DAX 30 wrote off 1.6%. CAC 40 wiped 1.4 % FTSE 100 closed 1.3% lower.

Tuesday economic calendar in Europe offered only German data, starting with the fourth-quarter report on GDP. The German economy grew as expected and expanded 0.3% , same as the quarter before, while it increased 2.1% on a yearly and non-seasonally adjusted basis.

Meanwhile the IFO index increased to 112.9 points in February from the 112.5 in January, while the expectations reached 99.8 points, a worse figure compared to the 102.4 points a month ago.

Asian markets ended the trade in red

Asia stocks lost momentum today and closed the trade in red.

Japan's benchmark Nikkei 225 initially rose by 1%  in early trade, but finished with 0.37% down, at 16,052.05. The broader Topix also erased gains and decreased by 0.68% to 1,291.17. South Korea's Kospi reported a decline of 0.11%  to 1,914.22, while the S&P/ASX 200 erased 0.43% and closed at 4,979.58 weighed by losses in the financial and the energy sectors, down respectively with 0.7% and 0.47%.

Chinese markets also lost the momentum from Monday. Shanghai Composite Index fell 0.79%, closing down 22.33 points to 2,903.95, while Shenzhen Composite lost 0.58% of its value, closing at 1,877.18.

Shares of energy companies were trading mixed. Australian Santos and Woodside Petroleum reported a decline in the price of respectively 1.18% and 0.11%. Japan’s Fuji Oil decline was 1.54%, while Inpex added 0.9 %.

Chinese energy companies ended trading mainly with a slump, the decline in the share price of China Oilfield is 1.2%.

The Australian giant BHP Billiton reported a net loss of 5.67 billion dollars for the first half of financial 2016 and reduced the interim dividends by 75% - from 62 to 16 cents per share, below the  expectations of 31 cents. However, shares of BHP Billiton ended the day with an increase of 2.62%.