BBC News - Will China's slowdown make us poorer?

There has never been an economic story like China's - consistent rises in national income for 30 years at an annual rate of 10%, hundreds of millions of Chinese people lifted out of poverty, and expansion that took it from almost nowhere to become the world's second biggest economy, contributing 15% of global GDP and 25% of global GDP growth.

So it is no exaggeration to say that the story of the world economy since 1978 has been China's story - determining everything from our low and falling interest rates (because its manufacturing prowess tamed inflation almost everywhere) through to an unprecedented boom in the price of energy and raw materials.

But until today there was a plausible argument that what happened on its financial markets was not of great significance for the rest of us, because those markets were still relatively closed to foreign investors and were subject to significant state meddling.

Big implications

Till today's great awakening - when a rout on the Shanghai stock market, where most shares fell their maximum daily limit of 10%, has infected confidence everywhere.

Shares tumbled the world over - roughly 5% on average in Europe, less at this instant in North America.

Investors are in effect shouting that the era of so-called Chinese exceptionalism - that China can grow faster for longer than any other economy in history - is over, having become so dependent in recent years on debt-fuelled investment (which was what my film, How China Fooled the World, warned about at the start of 2014).

And they are not just delivering that verdict in falling shares, but in oil prices that have tumbled to the slum levels of 2009 and commodities in general are back at levels not seen since 1999.

All of this has big implications for most of us in the coming weeks and years.

Now we may be tempted to celebrate the increase in our spending power, thanks to the tumbling prices of food and energy that China's waning appetite has caused.

Turning Japanese?

And those with big debts may be chipper that both the US Federal Reserve and Bank of England may delay interest rate rises by yet another few months, because of concerns that China is exporting lower growth and deflation to us.

But we should be under no illusion that if China is turning Japanese - if it is on the verge of years of very low growth or even stagnation - we will all pay a big price.

That is especially true in the UK, where the big flaw in our recovery is that we are too dependent on spending by domestic consumers and domestic businesses - such that we are borrowing money from the rest of the world to finance our living standards in record amounts - or to use the jargon, we have a record current-account deficit or negative balance on our income from trade and investment with the rest of the world.

If a Chinese deceleration leads to a permanent slowdown in global growth, our ability to close that deficit through sales to the rest of the world would be impaired - which would force us to spend much less at home. Or to put it another way, we would become considerably poorer.

Robert PestonEconomics editor

Reuters News - Alarm bells ring as China sinks, dollar tumbles

Alarm bells rang across world markets on Monday as a 9 percent dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors.

European stocks .FTEU3 opened more than 3 percent in the red after their Asian counterparts slumped to 3-year lows as a three month-long rout in Chinese equities threatened to get out of hand. [.SS]

Safe-haven government bonds [EUR/GVD] and the yen JPY= and the euro EUR= rallied as widespread fears of a China-led global economic slowdown kicked in.

"Markets are panicking. Things are starting look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable," said Takako Masai, head of research at Shinsei Bank in Tokyo.

With serious doubts now emerging about the likelihood of a U.S. interest rate rise this year, the dollar .DXY slid against other major currencies. It was last 121.05 yen having gone as low as 120.73 JPY= in Asia, a level last seen on July 9.

The Australian dollar AUD=D4 tanked to six-year lows and many emerging market currencies also plunged, whilst the frantic dash to safety pushed the euro EUR= to a 6-1/2-month high. [FRX/]

Commodity markets took a fresh battering. Brent and U.S. crude oil futures hit 6-1/2-year lows as concerns about a global supply glut added to worries over potentially weaker demand from China. [O/R][GOL/]

U.S. crude was down 3 percent at $39.20 a barrel CLc1 while Brent LCOc1 lost 2.4 percent to $44.40 a barrel.

Copper, seen as a barometer of global industrial demand, tumbled 2.5 percent, with three-month copper on the London Metal Exchange CMCU3 hitting a six-year low of $4,920 a tonne. Nickel CMNI3 slid 4.6 percent to its lowest since 2009 at $9,730 a tonne.

(Story refiles to remove garble in third paragraph)

(Additional reporting by Pete Sweeney in Beijing and Shinichi Saoshiro Hideyuki Sano in Tokyo; editing by John Stonestreet)

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An investor stands in front of an electronic board showing stock information at a brokerage house in Shanghai, China, August 24, 2015.

REUTERS/ALY SONG

LONDON | BY MARC JONES

BBC News - Greece crisis: PM Alexis Tsipras quits and calls early polls

Greece's Prime Minister Alexis Tsipras has announced he is resigning and has called an early election.

Mr Tsipras, who was only elected in January, said he had a moral duty to go to the polls now a third bailout had been secured with European creditors.

The election date is yet to be set but earlier reports suggested 20 September.

Mr Tsipras will lead his leftist Syriza party into the polls, but he has faced a rebellion by some members angry at the bailout's austerity measures.

He had to agree to painful state sector cuts, including far-reaching pension reforms, in exchange for the bailout - and keeping Greece in the eurozone.

Greece received the first €13bn ($14.5bn) tranche of the bailout on Thursday after it was approved by relevant European parliaments.

It allowed Greece to repay a €3.2bn debt to the European Central Bank and avoid a messy default.

The overall bailout package is worth about €86bn over three years.

Lost majority

Alexis Tsipras made the announcement in a televised state address on Thursday.

"The political mandate of the 25 January elections has exhausted its limits and now the Greek people have to have their say," he said.

"I want to be honest with you. We did not achieve the agreement we expected before the January elections."

Mr Tsipras said he would seek the Greek people's approval to continue his government's programme.

Analysis: Chris Buckler, BBC News, Athens

In January, Alexis Tsipras went to the polls in Greece as a man who would stand against austerity. What a difference seven months makes. Now he is calling elections to ask the Greek public to support the way he is trying to lead this country out of its financial crisis.

That means spending cuts, tax rises and, of course, that third bailout that's already been agreed. All of that is opposed by a sizeable number of hard-left MPs within his own party, Syriza.

Mr Tsipras will argue this election is about bringing certainty to Greece's future. In the short-term at least, though, it will create political uncertainty. And that's becoming a pretty familiar feeling here in Athens.

Mr Tsipras said Greeks would have to decide whether he had represented them courageously with the creditors.

He met President Prokopis Pavlopoulos later in the evening to submit his resignation, Reuters reported, telling him: "The present parliament cannot offer a government of majority or a national unity government."

Greece will be run by a caretaker government ahead of the polls.

Alexis Tsipras (left) meets President Prokopis Pavlopoulos to submit his resignation

If a government resigns within a year of election, the constitution requires the president to ask the second-largest party - in this case the conservative New Democracy - to try to form an administration.

If this fails, the next largest party must be given a chance.

Analysts say both parties can waive this and allow the president to approve the snap election.

However, New Democracy leader Vangelis Meimarakis said it was his "political obligation and responsibility to exhaust all the options", even though the numbers suggest he has little chance.

Capital controls

Reacting to the news, Martin Selmayr, European Commission President Jean-Claude Juncker's chief-of-staff, tweeted that "swift elections in Greece can be a way to broaden support" for the bailout deal.

Chair of the eurozone finance ministers, Jeroen Dijsselbloem, said he hoped the resignation would not affect the bailout conditions.

"It is crucial that Greece maintains its commitments to the eurozone," he said.

Some 43 of Syriza's 149 MPs had either opposed the bailout or abstained in last Friday's Greek parliamentary vote that approved the deal.

The rebellion meant Mr Tsipras had effectively lost his parliamentary majority.

Mr Tsipras had won power on a manifesto of opposing the stringent austerity conditions that he has now accepted.

He said he was forced to do so because a majority of Greeks wanted to stay in the eurozone, and this could not be achieved in any other way.

Greece remains under strict capital controls, with weekly limits on cash withdrawals for Greek citizens.

Bloomberg News - China Edges Closer to IMF Seal of Approval With Yuan Move

The yuan’s surprise devaluation roiled global markets and drew scorn from Donald Trump. Still, China’s new market-driven exchange rate bolstered its bid to join the world’s most elite currency club.

As the yuan’s fall broke a rally in the Standard & Poor’s 500 Index and prompted a commodities selloff, some U.S. politicians were quick to label China a currency manipulator and raise fears of a new foreign-exchange war. China indicated the Aug. 11 move gave market forces greater say as it tries to sway an International Monetary Fund review to include the yuan alongside the dollar and euro as a global reserve currency.

The shift to the more flexible exchange rate should boost the nation’s case for the yuan to be included in the IMF’s so-called Special Drawing Rights, said Eswar Prasad, a trade policy professor at Cornell University who previously headed the IMF’s China division. The move is “consistent with other signals that China is making slow but steady progress toward market-oriented reforms, such as capital-account opening, exchange-rate flexibility and interest-rate liberalization,” he said.

Coming in the wake of a $4 trillion stock rout and days after a dismal report on Chinese exports, the reserve-currency argument was drowned out in the confusion over the devaluation that led to the biggest weekly loss in Asian currencies in four years. The move also creates potential headaches for U.S. President Barack Obama as he prepares to host Chinese President Xi Jinping at a summit in September.

Congress Objections

“China has done what the Treasury has repeatedly asked for,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington and author of “Markets Over Mao: The Rise of Private Business in China.” “If a few members of Congress object, that is a problem for the executive branch, not China. It should bolster their chances, it is what the fund asked for. I think the angst about the new system will be alleviated over the coming weeks.”

Trump, who is leading in opinion polls to become the Republican nominee for president, injected the issue into the 2016 campaign, saying Aug. 11 that “‘devalued’ means ‘sucks the blood out of the United States.’” Charles Schumer of New York - - the third-ranking Senate Democrat -- has threatened legislation to punish China with import tariffs.

The IMF and the U.S. Treasury have been pushing China to loosen the rigid exchange-rate mechanism that restricts the yuan’s moves. The Washington-based fund only conducts its SDR review every five years and that may have accelerated China’s efforts to get the yuan included in the group of currencies held as reserves by the world’s central banks that currently includes the U.S. dollar, euro, yen and British pound.

The People’s Bank of China said on Aug. 11 that price submissions for the yuan’s daily reference rate must now consider the prior day’s close, foreign-exchange demand and changes in major currency rates. The IMF, which rejected the yuan in 2010 on the grounds that it wasn’t “freely usable,” called China’s move a “welcome step,” while cautioning the change had no direct effect on the SDR review.

Breakneck Growth

China has been seeking reserve status as part of a campaign to play a larger role in the postwar global economic order designed and dominated by the U.S. Membership of the reserve-currency club would be a crowning achievement after three decades of breakneck growth that saw the Chinese economy take its place as the world’s second-largest after the U.S.

The devaluation may ensure there’s enough time for the emotions to ebb before the Xi-Obama summit, said Arthur Kroeber, Beijing-based managing director at GaveKal Dragonomics, an independent global economic research firm.

“There is no good time to do these things; moreover, it seems clear in retrospect the PBOC did not anticipate the very negative market reaction,” he said. “Waiting until after the summit would have been far too late to build credibility with the IMF.”

IMF Chances

Standard Chartered Plc in Hong Kong revised its forecast for the yuan’s SDR chances to 80 percent by the middle of next year from 60 percent by the end of this year, said Ding Shuang, the bank’s chief China economist.

“The timing chosen was actually fine,” said Ding, who spent a decade at the IMF in Washington as its senior economist on cross-country economic research. “You need to allow ample time to run the new mechanism before review, and leave enough time gap to facilitate its assessment.”

To qualify for the basket, the country must be a major exporter, and the currency must be “freely usable.” IMF staff said this month the yuan trails its counterparts on key benchmarks and “significant work” remains to show it qualifies as a reserve currency. The IMF on Wednesday delayed until September 2016 the date the yuan could be included in the basket, a move staff had proposed to minimize disruption if the yuan was added.

The yuan was little changed Thursday at 6.3953 per U.S. dollar as of 2:48 p.m. in Hong Kong.

Political Element

The IMF executive board, which represents the fund’s 188 member nations, must approve any change to the currency basket, a requirement that adds a political layer to the technical analysis done by staff. The U.S. has 17 percent of votes in the IMF’s executive board.

China’s system of maintaining trading bands to limit the yuan’s fluctuations means the yuan can’t be deemed as freely usable, said Fraser Howie, co-author of “Red Capitalism.” The onshore spot rate in Shanghai is currently limited to moves of 2 percent on either side of a daily fixing set by the PBOC.

“You cannot control your currency for 10 years and take a few actions over the space of a week, and say, ‘Look, we are now a freely usable currency,’” he said. “You need to go through some cycles, and get at least months, if not years of data to show China is allowing its currency to fluctuate through economic cycles.”

(An earlier version of this story was corrected to show the IMF delayed date of yuan’s possible inclusion in reserve currency basket.)

by Ting Shi

BBC News - Rates to rise soon, says Bank of England policymaker

Prof Miles expects the "new normal" for interest rates to be between 2.5 and 3%.

Interest rates will rise "pretty soon", Bank of England policymaker Prof David Miles has predicted - as he prepares to leave his role on the committee that takes the decision each month.

Prof Miles told BBC Newsnight that the time to raise the bank rate from its current historic low was "coming".

"I don't think it's anything to worry about, it's a sign of health," he said.

Mr Miles voted to keep rates on hold this month - his last vote on the Bank's Monetary Policy Committee.

He has been on the nine-strong MPC, which votes monthly on interest rates, since June 2009.

He said he was now more optimistic about the UK economy than at any time since he had joined the Bank.

"Within the UK economy consumer confidence is strong, corporate confidence is pretty strong and the financial system is operating near normal now," he added.

But he said he expected the "new normal" for interest rates to be between 2.5% and 3%, and "materially lower" than historically.

His comments come just days after fellow MPC member Prof Kristin Forbes warned that waiting too long to raise interest rates risked undermining the UK's recovery.

"Linger too long in the sun and your skin may take on a slightly pink glow", Prof Forbes warned earlier this week

Earlier this month, MPC members voted 8-1 to keep rates on hold - the first time for months the decision has not been unanimous - and this, together with the comments from Prof Miles and Prof Forbes, suggests that the balance is shifting.

Bank of England governor Mark Carney has said that when rates start to rise, they will do so only gradually.

At a news conference last month he said the timing for a Bank rate increase was "drawing closer", but cannot "be predicted in advance". The decision would be determined by looking at economic data, he added, including wage growth, productivity and import figures.

Several economists interpreted Mr Carney's comments, and information in the Bank's recent Inflation Report, as a signal that any rate rise was likely to be put back from the end of this year until early 2016.

Bloomberg News - Hedge Funds Resume Flight From Oil as Prices Sink to 6-Year Lows

After showing some short-lived optimism, hedge funds resumed their retreat from the U.S. oil market, cutting bullish positions for the seventh time in eight weeks as prices dropped to the lowest since 2009.

Money managers’ net-long position in West Texas Intermediate crude declined 11 percent in the week ended Aug. 11, U.S. Commodity Futures Trading Commission data show. Short positions climbed to the highest level since March, a signal speculators see prices continuing to fall. Funds curbed bullish bets on Brent in London to the lowest level since December, data from ICE Futures Europe showed.

Futures markets this summer have plunged the most since trading began in 1984 as the U.S. enters a period in which refinery demand usually drops. A global surplus will last through 2016, the International Energy Agency said Aug. 12. The Organization of Petroleum Exporting Countries reported the day before that its output climbed last month to the highest level in more than three years.

“The consensus view is that we’ve got further to fall,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone Aug. 14. “The market is in what looks like a persistent supply-demand surplus and that will put downward pressure on prices, possibly through the end of 2016.”

West Texas Intermediate crude declined $2.66 to $43.08 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures lost 1.5 percent to close at $41.87 a barrel on Monday, the lowest settlement since March 2009.

Refinery Shutdowns

WTI, down 30 percent since the start of June, should come under renewed pressure when U.S. refineries perform maintenance next month, said Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami.

Refiners cut operating rates during September in nine of the past 10 years and gasoline demand sank each year, U.S. Energy Information Administration data show.

“The summer driving season is pretty much gone and we’re now looking ahead to a lull in demand,” Corcelli said by phone Aug. 14. “Prices probably won’t continue to crash but they should grind lower.”

Speculators increased bullish bets on U.S. oil in the week ended Aug. 4, a move that came too early in a market that continues to slide.

Iraq’s production rose to an all-time high of 4.18 million barrels a day in July, which helped OPEC maintain output. Iran may add to the surplus after reaching a nuclear agreement last month.

U.S. Rigs

The number of active oil rigs in the U.S. increased for the sixth time in seven weeks, Baker Hughes Inc. data showed Aug. 14. The return may slow a decline in production as the nation’s crude stockpiles are almost 100 million barrels above the five-year average.

A stronger dollar is also weighing on futures, after China devalued the yuan. A weaker Chinese currency may hurt demand in the world’s second-largest crude consumer by making dollar-denominated imports more expensive.

The net-long position in WTI slipped by 12,472 contracts to 99,748 futures and options. Shorts increased 9.7 percent, the seventh gain in eight weeks, while longs advanced 0.8 percent.

Bullish bets on Brent, the benchmark for more than half the world’s oil, decreased by 21,295 contracts to 125,889, a fourth week of decline to the lowest level this year, ICE data show.

In other markets for the week, net bullish bets on Nymex gasoline dropped 7.4 percent to 13,553. Futures rose 0.5 percent to $1.6937 a gallon. Net bearish wagers on U.S. ultra-low-sulfur diesel increased 12 percent to 30,548 contracts, the most since April. Diesel futures rose 1 percent to $1.5629 a gallon.

Bullish bets on crude have tumbled by more than half since May to near a five-year low, CFTC data show. Short positions are nearing the highs from March.

“We could see them jump back in on the long side soon,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Aug. 14. “There’s always an effort to guess the bottom of any move.

Reuters News - Japan economy shrinks in second quarter in setback for 'Abenomics'

Workers stand at a construction site in central Tokyo June 8, 2015.

REUTERS/THOMAS PETER

Japan's economy shrank at an annualized pace of 1.6 percent in April-June as exports slumped and consumers cut back spending, adding pressure on Prime Minister Shinzo Abe to step up his policy drive to lift the economy out of decades of deflation.

China's economic slowdown and its impact on its Asian neighbors has also heightened the chance that any rebound in growth in July-September will be modest, analysts say.

The gloomy data adds to signs that Japan's economy is at a standstill and heightens pressure on policymakers to offer additional monetary or fiscal stimulus later this year.

The contraction in gross domestic product (GDP) compared with a median market forecast of a 1.9 percent fall and followed a revised expansion of 4.5 percent in the first quarter, Cabinet Office data showed on Monday.

"If weak private consumption persists, that would be a further blow to Abe's administration, which is facing falling support rates ahead of next year's Upper House election," said Hiromichi Shirakawa, chief Japan economist at Credit Suisse.

"This could raise chances of additional fiscal stimulus."

Private consumption, which makes up roughly 60 percent of economic activity, fell 0.8 percent from the previous quarter, double the pace expected by analysts.

It was the first decline since April-June 2014, when a sales tax hike hit consumption, as households spent less on air conditioners, clothing and personal computers.

Overseas demand shaved 0.3 percentage point off growth as exports to Asia and the United States slumped.

ONUS ON GOVT, NOT BOJ

The data looks likely to force the BOJ to cut its forecast of a 1.5 percent economic expansion for the current fiscal year when it reviews its long-term projections in October.

But the weak consumption underscores a dilemma the central bank faces that may discourage it to expand stimulus.

Economics Minister Akira Amari acknowledged that consumption may have been hit by rising food prices, as the BOJ's easing weakened the yen and pushed up import costs.

Aides close to Abe have signaled that additional monetary easing is unwelcome as further yen falls will push up food costs further and hurt consumption.

That puts the onus of the government to underpin growth despite diminishing returns. Japan's economy grew just 2 percent since Abe took office in December 2012, even as he deployed fiscal stimulus roughly equal to 3 percent of GDP.

"The effect of Abenomics hasn't expired, but the policy steps haven't boosted wages enough to meet rising living costs," said Yuichiro Nagai, an economist at Barclays Capital Japan.

"There's not much the BOJ can do, so there's a higher chance the government may offer fiscal support if consumption fails to rebound in July-September," he said.

Economics minister Amari told reporters the government didn't have any plans as yet to craft a fresh stimulus package, and will instead keep pressuring companies to direct their record profits at raising wages and capital expenditure.

But weak Asian demand casts doubt on whether manufacturers can continue to reap huge profits overseas.

Kobe Steel Ltd (5406.T), Japan's No.3 steelmaker, last month cut its annual sales forecast for the year to March 2016, blaming weak sales of hydraulic excavators in China.

"We don't expect to see a recovery in infrastructure investments and capital spending in China within a year or a year and a half," Kobe Steel executive vice president Naoto Umehara told reporters at the earnings announcement.

TOKYO | BY LEIKA KIHARA AND TETSUSHI KAJIMOTO

(Additional reporting by Stanley White, Kaori Kaneko and Yuka Obayashi; Editing by Kim Coghill and Eric Meijer)