BBC News - ZEW: Global woes rattle German investors

Germany has a robust labour market but there are fears over exports

Investor sentiment in Germany has shown an unexpected fall after rising steadily for the past five months, a closely watched survey has indicated.

The ZEW indicator of economic sentiment showed confidence among German investors fell to 53.3 points this month, from 54.8 in March.

However, analysts said there was no cause for concern.

ZEW president Clemens Fuest said Germany was in "good shape", but the weak global economy could hit exports.

The index was based on the responses of 238 investment analysts between 7 and 20 April.

Economists at the Mannheim-based institute said the investors surveyed expected a "very good situation" to continue for at least the next half-year, adding that German private consumption would strengthen further, but were concerned aboutGreece's debt crisis as a factor in investors' weaker expectations.

The German government plans to raise its growth forecast for the economy, Europe's biggest, to 1.8% this year, up from its current estimate of 1.5%.

Berenberg Bank economist Holger Schmieding said: "Strong tailwinds from a robust labour market, low oil prices and a competitively priced exchange rate, as well as the reform successes in countries such as Spain, are propelling the German economy forward."

Bloomberg News - The Mystery of China’s Gold Stash May Soon Be Solved

Photographer: Chris Ratcliffe/Bloomberg

China’s push to challenge U.S. dominance in global trade and finance may involve gold -- a lot of gold.

While the metal is no longer used to back paper money, it remains a big chunk of central bank reserves in the U.S. and Europe. China became the world’s second-largest economy in 2010 and has stepped up efforts to make the yuan a viable competitor to the dollar. That’s led to speculation the government has stockpiled gold as part of a plan to diversify $3.7 trillion in foreign-exchange reserves.

The People’s Bank of China may have tripled holdings of bullion since it last updated them in April 2009, to 3,510 metric tons, says Bloomberg Intelligence, based on trade data, domestic output and China Gold Association figures. A stockpile that big would be second only to the 8,133.5 tons in the U.S.

“If you want to set yourself up as a reserve currency, you may want to have assets on your balance sheet other than other fiat currencies,” Bart Melek, head of commodity strategy at TD Securities, said by phone from Toronto. Gold is “certainly viewed as a viable store of value for an up-and-coming global power,” he said.

China may be preparing to update its disclosed holdings because policy makers arepressing to add the yuan to the International Monetary Fund’s currency basket, known as the Special Drawing Right, which includes the dollar, euro, yen and British pound. The tally may come before the IMF’s meetings on the SDR next month or in October, Nomura Holdings Inc. said in an April 8 report.

Monetary Role

Gold played a central role in the international monetary system until the collapse of the Bretton Woods framework of fixed exchange rates in 1973, according to the IMF. While the role of bullion has diminished since then, the fund still holds 2,814 tons and most central banks have some on their balance sheets. Russia more than tripled its holdings since 2005.

China is the world’s largest gold producer and ranked behind only India among top consumers last year, but the amount of metal its central bank last reported holding in 2009 accounts for just 1 percent of foreign-exchange reserves, which have surged more than fivefold in a decade and are the biggest in the world. Most of that is in dollars.

The IMF estimates the dollar makes up 63 percent of world central bank holdings, while the No. 2 currency, the euro, accounts for 22 percent. Data from the Society for Worldwide Interbank Financial Telecommunication show the U.S. currency was used for 43 percent of global payments in February.

Approved Programs

While China is promoting the yuan internationally, Swift data show the currency was used for only 1.8 percent of international payments in February. Private investors -- both Chinese and non-Chinese -- can move their money in and out of the country only through approved programs and in limited amounts, and changes in the currency’s value are only permitted in limited ranges.

Adding gold and other assets would ease China’s reliance on the dollar, said Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd.

It may bolster the view China has “a currency that’s well backed by a range of different assets,” said Steven Dooley, a Melbourne-based currency strategist at Western Union Business Solutions for Asia-Pacific. “The most-liquid currencies tend to have a wide range of foreign-exchange reserves.”

Market Mystery

With China disclosing so little about its hoard, finding out how much the central bank has in its vaults is of increasing interest to traders. Confirmation of bigger holdings would signal the importance of the metal as a reserve asset and boost market sentiment, TD Securities’ Melek said. At a time when prices are languishing, the buying could give support, said Suki Cooper, director of commodities at Barclays Plc in New York.

Bullion climbed from $882.05 an ounce at the end of 2008 to a record $1,921.17 in 2011 as investors sought safety from currency depreciation and the threat of inflation. Prices plunged 28 percent in 2013 as rallying stocks and a rebounding economy eroded the appeal of the metal, which traded at $1,196.14 on Tuesday.

China may not have expanded holdings by much. The dollar has strengthened since the middle of last year on expectations the Federal Reserve will boost interest rates, making the U.S. currency more attractive than bullion, which generally offers returns only through price gains.

In a rare comment on gold, Yi Gang, the central bank’s deputy governor, said in March 2013 that the country could only invest as much as 2 percent of its foreign-exchange holdings in gold because the market was too small. The press office of the People’s Bank of China in Beijing didn’t respond to a fax seeking comment sent on April 14.

More Scope

“I wouldn’t expect a huge jump in gold holdings,” said Andy Ji, a currency strategist and China economist at Commonwealth Bank of Australia in Singapore.

Ashish Bhatia, the World Gold Council’s director, central banks and public policy, in New York, said there’s a lot of room for China to expand. It’s ideal for central banks to have 4 percent to 10 percent of assets in gold, he said. The PBOC may already hold at least 3,000 tons, said Warren Hogan, chief economist at Australia & New Zealand Banking Group Ltd. in Sydney.

“Gold has always been, through the history of China, a way to project power,” Kenneth Hoffman, a metals and mining analyst at Bloomberg Intelligence, said in an interview on April 9. “They are thinking about how to make the yuan more international, and so this is a possible reason why they are buying so much gold.”

Reuters News - China makes big cut in bank reserve requirement to fight slowdown

(Reuters) - China's central bank on Sunday cut the amount of cash that banks must hold as reserves, the second industry-wide cut in two months, adding more liquidity to the world's second-biggest economy to help spur bank lending and combat slowing growth.

The People's Bank of China (PBOC) lowered the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 percent, effective from April 20, the central bank said in a statement on its website www.pbc.gov.cn.

"Though the growth in the first quarter met the official target of around 7 percent for 2015, the slowdown in several areas, including industrial output and retail sales, has caused concern," said a report published by the official Xinhua news service covering the announcement.

The latest cut, the deepest single reduction since the depth of the global crisis in 2008, shows how the central bank is stepping up efforts to ward off a sharp slowdown in theeconomy.

"The size of the cut is more than expected," said Shenwan Hongyuan Securities analyst Chen Kang.

"It's going to release around a trillion yuan (in liquidity) at least."

Weighed down by a property downturn, factory overcapacity and local debt, growth is expected to slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014, even with expected additional stimulus measures.

However, the last RRR cut was seen as more defensive by some economists, as it served primarily to offset increasing capital outflows that were exerting a drain on the money supply, making it difficult to guide real lending rates down.

Indeed, Chinese bankers have proven resistant to extending more credit, saying they are also under orders to maintain profitability and reduce the amount of bad loans on their books, but their intransigence appears to have frustrated Beijing.

RELATED COVERAGE

• › FACT BOX: Chinese RRR and interest rate changes

Premier Li Keqiang publicly exhorted banks to lend more to the real economy during a visit to major banks on Friday.

AGGRESSIVE SIGNAL

On the corporate side, executives say they are wary of embarking on fresh investments, given weak demand and weakening producer pricing power.

As a result think-tanks and advisers to the government are polarizing into those calling for more stimulus to arrest the slowdown and a rival camp emphasizing structural reforms as the route to sustainable growth.

"The amplitude of the reduction reflects a more aggressive policy signal," said Xie Yaxuan, macroeconomics research director at China Merchants Securities.

"The reduction should help make up for the negative growth of foreign exchange in the first quarter, which created a hole in the monetary base," he said.

The central bank also announced targeted RRR cuts; an additional 100 bps cut for rural credit cooperatives and village banks, as well as a 200 basis point cut for the ChinaAgricultural Development Bank, one of China's major policy lenders.

The PBOC last cut the RRR for all commercial banks by 50 basis points on Feb. 4, the first industry-wide cut since May 2012.

The central bank has also cut interest rates twice since November in a bid to lower borrowing costs and spur demand, but while short-term money rates have come down in recent weeks, long-term lending to the real economy has not shown much sign of reaction.

"Real interest rates are extremely high, and they are also quite high relative to returns," said Arthur Kroeber, head of research at Gavekal Dragonomics.

"RRR has been at twenty percent for a long time, and that has created room for it to go down further."

(This story corrects the spelling of Gavekal Dragonomics in the penultimate paragraph)

(Reporting by Gui Qing Koh, Kevin Yao, Li Zheng and David Stanway; Writing by Pete Sweeney; Editing by Will Waterman)

BBC News - Greece would struggle to find creditors outside Europe, says Schaeuble

Greece would struggle to find creditors outside the EU and IMF, German finance minister Wolfgang Schaeuble has said.

He said it would be welcome to try to find investment from Beijing or Moscow, but may have difficulties.

His warning came after fears of a Greek debt default saw its borrowing costs jump 3.5 percentage points to 27%.

Greek Finance Minister Yanis Varoufakis said his government refuses to consider leaving the EU: "Toying with Grexit... is profoundly anti-European."

He also promised to "compromise, compromise, compromise without being compromised" to satisfy current creditors.

Both men were speaking at talks in Washington.

On Wednesday, ratings agency S&P downgraded Greece's credit rating.

Yields also rose on longer-term Greek borrowing, with the 10-year bond yield - the amount investors demand for lending - rising one percentage point to 13%.

Mr Schaeuble said that the Greek government needs to find creditors.

"The Europeans have said, OK, we are ready to do it [lend money] until 2020... If you find someone else, whether it's in Beijing, in Moscow, in Washington DC, or in New York who will lend you money, ok, fine, we would be happy. But it's difficult to find someone who is lending you in this situation amounts [of] €200bn."

He added that Greece must focus on increasing its competitiveness and primary surplus.

Mr Schaeuble was speaking after the Greek government's borrowing costs surged on Thursday.

'Not recommended'

The Financial Times had earlier reported that Greece had made an "informal approach" to the International Monetary Fund to have its bailout repayments delayed, but had been rebuffed.

But the head of the International Monetary Fund (IMF), Christine Lagarde, said at the World Bank spring meeting in Washington: "We have never had an advanced economy asking for payment delays.

"Payment delays are analysed as additional financing granted to that country. Additional financing means additional contribution by the international community - some of which are in much direr situations than the country eventually seeking those delays.

"Payment delays had not been granted by the board of the IMF in the last 30 years and it was eventually granted to a couple of developing countries and that delay was not followed by very productive results.

"It's clearly not a course of action that would actually fit or be recommendable in the current situation."

Greece owes the IMF some €1bn (£720m, $1.06bn) in repayments next month.

Market concerns

Many in the markets think the Greek government will struggle to make those payments if it does not agree an economic reform package with European creditors soon.

Failure to agree a plan with creditors will mean that the country will default, a development that could force the government to put limits on money transfers and even lead the country to leave the euro.

EU spokesman Margaritis Schinas said on Thursday that the EU was "not satisfied with the level of progress made so far" in debt negotiations.

BBC economics editor Robert Peston said if Greece misses a debt payment, that does not necessarily mean it will leave the euro.

"The government could follow the example of Cyprus and impose restrictions on the export of capital from the country, to conserve as much cash as possible in a banking system too close to collapse for comfort," he said.

"And it could create its own IOUs, a sort of parallel domestic currency interchangeable with euros, to pay its employees and trade creditors."

Mr Schaeuble had warned that he did not expect an agreement between Athens and its creditors in the next week.

'Optimistic'

But Greek Prime Minister Alexis Tsipras on Thursday said he was "firmly optimistic" the Greek government could reach a deal with its creditors.

"Despite the cacophony and erratic leaks and statements in recent days from the other side, I remain firmly optimistic that there will be an agreement by the end of the month," Mr Tsipras said.

According to Mr Tsipras, several points of agreement had been found since talks first started, including on areas such as tax collection, corruption and initiatives to distribute the tax burden on those who have the ability to pay.

But he said the two sides still disagreed on four areas: labour issues, pension reform, an increase in value-added taxes and privatisations, which he referred to as "development of state property".

In a later tweet, he said he was "certain that Europe will choose the path to democracy".

BBC News - Global financial risks have risen, says IMF

The oil price fall has had a negative impact on a number of countries, the IMF says

The risks to global financial stability have risen, the International Monetary Fund (IMF) has said.

In a new report, the IMF says that countries that export oil and other commodities have been severely affected.

Some emerging economies have been hit by sharp moves in the global currency markets.

And the report says financial stability is still not "fully grounded" in the rich countries.

"Risks to the global financial system have risen since October and have rotated to parts of the financial system where they are harder to assess and harder to address," said Jose Vinals, financial counsellor at the IMF.

The IMF acknowledges that recent declines in the prices of oil and other commodities are on balance helpful for global economic prospects.

But they create a major challenge for countries and firms that export them.

It says the strains in debt repayment capacity are apparent for oil and gas businesses in Argentina, Brazil, South Africa and Nigeria.

Debt servicing is also a concern for governments reliant on oil revenues such as Nigeria and Venezuela. Many other major oil exporters have sufficient reserves to enable them to cope with lower prices for some time.

Other developing nations, those that import commodities, do however benefit from these lower prices

Movements in the currency markets have also hit some emerging countries. The rise in the value of the dollar increases the repayment burden for firms and governments that have borrowed in the US currency. Some have also faced significant outflows of capital.

Interest rate hike fears

There is also a warning that there could be more of that when the US Federal Reserve starts to raise interest rates, which is expected later this year. It might happen smoothly, but the report says there is a danger that it might spark more volatility.

The report also says that there's a danger of property price declines in some countries, especially in China, which could spill over to emerging countries more widely.

In the rich countries very low interest rates - welcomed by the IMF for their economic benefits - do nonetheless pose some financial issues. Some European life insurers could struggle and low rates are reflected in more financial risk taking as investors seek better returns.

Some elements of this picture of rising risks reflects the aftermath of the financial crisis. The low interest rates in the rich countries, for example are part of the response to the economic damage, but they do create new risks.

The rising dollar is, indirectly, the result of the more rapid post-crisis rebound in the US compared with continental Europe. Six-and-a-half years on from the most intense phase of the crisis, its long shadow remains.

Still, the IMF does see some more encouraging developments. In particular economic growth is expected to be slightly higher this year and next, which would tend to promote financial stability.

By Andrew WalkerBBC World Service Economics correspondent

Reuters News - Euro drops as ECB set to stick to QE despite recent pickup

A new 20 Euro banknote is presented at the Austrian national bank in Vienna February 24, 2015.

REUTERS/LEONHARD FOEGER

(Reuters) - The euro fell against the dollar on Wednesday before a policy meeting at which the European Central Bank is likely to reiterate its dovish policy bias despite a recent pick-up in economic activity.

Bets against the euro are at a high level but investors are still looking to sell into rebounds, with ECB President Mario Draghi likely to say the bank intends to fully deliver previously announced stimulus measures as risks to growth remain and inflation is subdued.

That would quash talk the ECB might scale down its asset purchase programme sooner rather than later, and send the euro lower, traders said. Draghi may also address Greece's debt problems at his press conference scheduled for 1230 GMT.

The euro was down 0.4 percent at $1.0610 EUR= and pared its gains against the yen to trade at 126.85 yen EURJPY=. The common currency struck a one-month low against the dollar of $1.05205 on Monday and a two-year trough against the yen of 126.08 on Tuesday.

"It will be unrealistic to expect any changes (to the ECB's asset purchase programme) so soon. If anything, the ECB will probably reiterate they stand to do more depending on the data," said Peter Kinsella, currency strategist at Commerzbank.

"All this means the euro will be a sell on rallies."

The euro bounced on Tuesday, helped mainly by a weak dollar which faltered after U.S. retail sales data failed to meet the market's lofty expectations.

The data hit the dollar index .DXY, which had appeared to be back on track to test a 12-year high of 100.390 set last month, climbing as high as 99.990 on Monday. On Wednesday it stood at 98.893, up about 0.25 percent on the day.

The relatively strong market reaction to the sales numbers suggested dollar bulls were becoming frustrated with a recent run of unimpressive data and paring their long-dollar bets, as investors push back expectations of when the Federal Reserve will start raising interest rates to later this year from June.

Downbeat data from China hit the Australian dollar. China's annual economic growth slowed to a six-year low of 7.0 percent in the first quarter, with other key indicators slumping to multi-year lows.

"Pressure for more easing by the People's Bank of China will continue until some relief is given but the Chinese economy is less and less able to act as an engine of global growth," analysts at Societe Generale said in a note. "We'll stick with bearish Aussie trades."

Bloomberg News - ECB Says Euro-Area Banks Tapping QE Program to Fund New Loans

The European Central Bank said its asset-buying program is spurring lending in the euro area as liquidity rises and market interest rates fall.

The central bank started buying private assets last year and expanded the program in March to include sovereign bonds and agency debt to revive inflation. In its bank-lending survey for the first quarter of 2015 published on Tuesday, the Frankfurt-based institution said the strategy is having an impact.

“Euro-area banks indicated that they have used the additional liquidity from their sales of marketable assets related to the asset-purchase program over the past six months in particular for granting loans,” the ECB said. “The asset-purchase program seems to be effective in supporting lending to the euro-area economy.”

ECB President Mario Draghi has said the plan to spend 60 billion euros ($63 billion) a month through at least September 2016 will boost consumer prices and spur credit supply as yields drop and investors are pushed to take more risk. The central bank’s 25-member Governing Council will hold a monetary-policy meeting in Frankfurt on Wednesday to assess its quantitative-easing strategy.

The survey showed that 28 percent of euro-area banks used the additional liquidity in particular to grant loans to companies, 17 percent said they used it for mortgages, and 18 percent for consumer credit and other lending to households. Most banks said they also intend to use the extra liquidity to increase loans in those categories over the next six months.

Almost half of banks in the survey said the asset-purchase program had a positive effect on their market-financing conditions. Even so, 18 percent said it will have a negative impact on their profitability over the next six months, largely because of a decline in net interest margins.