Tuesday, July 12, 2011

Financial Review 2011 Q2: Crisis Recurred

This article is an extension to our earlier article: Financial Review 2011 Q1: Rising Inflation Concerns. The following table shows the key events in business and financial news for the second quarter (Q2: April to June) of this year 2011:

Apr. 5:(1) People's Bank of China (PBoC) raised interest rates by 0.25%, the second time in this year, matching with our earlier expectation: More Interest Rate Hikes Against Inflation in 2011.
(2) Moody's downgraded Portugal debt credit rating to just three places above junk status as Portugal's funding costs had been approaching an unsustainable level.
(3) India banned food imports from Japan for 3 months over radiative contamination fears.
Apr. 7:(1) Portugal became the third Euro-zone country to seek help from bailout fund of European Union (EU) and International Monetary Fund (IMF) after Greece and Ireland.
(2) European Central Bank (ECB) restarted raising interest rates, the first time since the 2008 global financial tsunami and also the first time ever for it to kick off an interest rate upcycle earlier than the U.S. Federal Reserve.
Apr. 8:Shanghai Disneyland Resort, the first Disney Theme Park in the mainland China and the 6th in the world, began construction which will be completed in the next 5 years. You may also read: Shanghai Strategic Plan in the Next 10 Years.
Apr. 12:Japan officially raised the radiation leakage crisis of Fukushima Daiichi nuclear plant incident to level 7, the highest possible severity level, on par with 1986 Chernobyl disaster in the Ukraine.
Apr. 18:The long-term outlook for the U.S. sovereign-debt credit rating was downgraded from stable to negative by Standard & Poor's (S&P), the first time ever, for fear of the political gridlock between the Democrats and Republics in Congress would make it unable to reach bipartisan agreement for U.S.'s fiscal deficit reduction before the 2012 presidential election.
Apr. 20:China Hainan Island implemented a pilot duty-free shopping policy for Chinese domestic tourists. Read more at: International Tourism Shopping Island in Hainan..
Apr. 25:(1) Silver went down after it almost hit USD$50 per ounce as CME's rapid margin requirement hikes forced traders to liquidate their positions to meet cash calls.
(2) Shanghai Gold Exchange (SGE) raised margin requirements on silver by 3% to 15% from 12%, following CME's recent silver margin hikes in order to curb excessive speculations and improve risk controls.
Apr. 26:(1) Sony admitted a security breach that resulted in a serious leak of user confidential personal information and account privacy data in two cloud-based worldwide networks, its PlayStation Network for gaming and also its Qriocity entertainment service. This cyber attack became the largest-ever internet identity theft by hackers on record.
(2) Beijing municipal government announced the details of its "One-Flat One-Price Policy" which required property developers to clearly disclose each flat's price with floor area and all other related property charges. You may also read: Beijing Restricts Foreign Property Purchases.
Apr. 27:Ben Bernanke held a historic press conference after FOMC (Federal Open Market Committee) policy meeting, the first time in the U.S. Federal Reserve's 98-year history. In this live press conference, Ben Bernanke announced further quantitative easing (QE3) would be unlikely but he would keep Fed's balance sheet steady by orderly re-investing securities, both the maturing U.S. government bonds and agency Mortgage-Backed Securities (MBS) after June 2011. Ben Bernanke will hold such press conference regularly after FOMC meetings for 4 times per year.
Apr. 29:Hui Xian REIT, a spinoff from Cheung Kong Group, launched the first-ever RMB-denominated securities in Hong Kong. Learn more about: How to Invest in RMB Securities Outside China. You may also read our Stock Analysis of Hui Xian REIT, the First RMB IPO.
May 1:(1) U.S. raiders killed the al-Qaeda leader Osama bin Laden near Islamabad by unauthorized entry to Pakistan. Osama bin Laden claimed responsibility by the U.S. for the September 11th (911) suicide attacks on the Twin Towers of the World Trade Center in New York City and on the Pentagon just outside Washington D.C. in 2001.
(2) Hong Kong began to impose its first-ever statutory minimum wage policy at HKD$28 per hour.
May 3:China Banking Regulatory Commission (CBRC) released "Implementation Guidance of New banking Regulatory Requirements". Read more: Analyzing China Banking Industry Regulatory Policies.
May 4:Mexico Central Bank increased its Gold reserves by almost 100 metric tons in February and March.
May 5:New York crude oil futures and Gold tumbled and fell below USD$100 per barrel and USD$1500 per ounce respectively as the silver market crash dragged down energy, precious metals and other commodities.
May 9:(1) Greece credit rating was downgraded deeper below junk status by Standard & Poor's (S&P) amidst fears of Greece government might have to restructure its debts.
(2) Apple, the iPhones, iPods and iPads maker headed by co-founder Steve Jobs, surpassed Google to become the most valuable brand in the world.
May 10:(1) U.S. and China signed a historic high-level comprehensive Economic Cooperation Framework, a milestone for promoting strong, sustainable, balanced economic growth and mutually beneficial economic partnership between the two countries, during the third round of Sino-US Strategic and Economic Dialogue (S&ED) held in Washington D.C. Read more: US-China Economic SuperPower Ready in Formation.
(2) China exports hit a record high of USD$155.7 billion in April as Beijing was limiting RMB appreciation to support exports industry. Read more about our 2011 China Global Trade Balance target. On the other hand, China banking deposits fell by RMB 467.8 billion in April as real deposit rate became more negative. You may read also: Real deposit rate exceeded -2%.
May 11:(1) Bank of England (BoE) lifted its medium-term inflation outlook owing to high energy prices.
(2) U.S. exports hit a record high of USD$172.7 billion in March on weaker dollar that made U.S. goods more competitive.
May 12:Japan decided to issue special-purpose government bonds to inject JPY 5 trillion for funding Tokyo Electric (Tepco) to compensate victims of the crisis caused by the Fukushima Dai-ichi nuclear plant.
May 14:Obama announced to ramp up crude oil production capability at Gulf of Mexico and off Alaska coast amid high gasoline prices.
May 16:(1) European Union (EU) and International Monetary Fund (IMF) approved to contribute EUR 52 billion and EUR 26 billion respectively within 3-year, thus made up a total of EUR 78 billion bailout fund for Portugal at an average annual lending rate of 5.1%.
(2) U.S. government debt hit its ceiling of USD$14.294 trillion.
May 17:The rise in U.K. core CPI inflation hit a record high of +3.7% YoY in April, according to the U.K. Office for National Statistics (ONS).
May 18:The Hong Kong Mercantile Exchange (HKMEx) started launching a USD-denominated 1kg Gold futures contract. Read also: Hong Kong vs Shanghai as Leading Chinese Financial Centre.
May 19:French Dominique Strauss-Kahn resigned as President of International Monetary Fund (IMF) following his arrest and suspicion of sexual assault.
May 21:(1) The outlook for Italy sovereign-debt credit rating was downgraded from stable to negative by Standard & Poor's (S&P) over concerns about Italy government's ability to reduce public debt.
(2) Iceland had to shut down its main airport as the active Grimsvotn Volcano erupted.
May 22:A powerful tornado hit Joplin, Missouri in the U.S.
May 24:Switzerland-based Glencore International Plc became the biggest-ever IPO on the London Stock Exchange. Read also our: Commodity Trader Glencore (805.hk) IPO Stock Analysis.
May 25:China Banking Regulatory Commission published 'CBRC 10 Rules' to improve banking and financial services to SMEs. Read more: CBRC 10 Rules.
May 30:(1) Germany announced to phase out all nuclear plants by 2022. This made Germany to be the first major industrialized country to give up nuclear energy in the wake of the Japan Fukushima nuclear crisis.
(2) Russia banned vegetable imports from Germany and Spain on enterohaemorrhagic E. coli (EHEC) bacteria outbreak that could cause the bloody haemolytic-uraemic syndrome (HUS).
June 2:(1) U.S. Securities and Exchange Commission (SEC) extended its investigation on US-listed Chinese companies engaged in reverse mergers (or reverse takeovers, RTOs) that allow them to list on U.S. stock exchanges without as much regulatory scrutiny as an IPO (initial public offering), to include investigation on some U.S. accounting firms over their audits of these US-listed Chinese companies. Such auditors were accused of improper professional conduct by outsourcing their accounting work back to inadequately trained Chinese local accounting firms.
(2) China Ministry of Finance (MOF) denied media report on an unidentified plan to clean up debts of Chinese local governments. Learn more about Why PBoC NOT Raising Interest Rates Promptly.
June 6:U.S. Interactive Brokers banned margin trading for about 160 Chinese stocks over fraud accounting concerns amid many China concept stocks experienced a sharp crash in the U.S.
June 8:Organization of Petroleum Exporting Countries (OPEC) meeting broke down and rejected to increase oil production as proposed by Saudi Arabia and backed by the U.S.
June 13:Standard & Poor's (S&P) downgraded Greece to CCC, the worst sovereign credit rating on our planet. S&P also mentioned that any Greece debt rollover by voluntary debt restructuring would still constitute an event of default and would trigger a further downgrade of Greece rating. If so, Greece government bonds should no longer be suitable to be held as collateral by the ECB.
June 20:Euro receded as Euro-zone finance ministers put pressure on Greece by deferring a decision on paying its 5th installment of bailout fund (EUR 12 billion) from the current EUR 110 billion rescue package for Greece. They decided to put this batch of bailout fund on hold unless Greece parliament could pass austerity measures within this month.
June 21:Greece parliament passed confidence vote, a prerequisite to allow prime minister George Papandreou to continue with his unpopular austerity measures subject to approval by the parliament later this month.
June 22:China 7-day repo (repurchase) rate hit 9.5%, the highest since the 2007 stock market crash. Learn more about Why PBoC Prefers Reserve Requirement Ratio (RRR) Hikes.
June 23:(1) Oil prices tumbled as the International Energy Agency (IEA) suddenly intervened the oil market by releasing 60 million barrels of oil in a 30-day period from strategic petroleum emergency reserves, the 3rd time in its history, as a counterbalance to OPEC for supply disruptions of higher quality crude oil caused by Libya war and weak U.S. economic outlook.
(2) Chinese Premier Wen Jiabao stated to re-adjust official inflation target to +5% from +4%. You may also read our Updated 2011 China CPI target.
June 27:Hong Kong Treasury Markets Association (HKTMA) launched a daily spot USD/CNH (CNY in HK) fixing for offshore renminbi market.
June 28:A FIT (Free Independent Travelers) program was launched to allow a daily maximum of 500 individual mainland Chinese tourists to visit Taiwan, benefiting tourism industry and the overall economy of the island. Read more: Free Independent Travelers Not Just Boost Taiwan Economy.
June 29:(1) Greece parliament passed the first of the two bills to enact a EUR 28 billion worth of 5-year austerity plan that includes wage cuts and tax hikes, as well as a EUR 50 billion worth of state assets privatization program.
(2) Shanghai municipal authorities denied media report on a debt default of one of its local government financing vehicles (LGFVs).
June 30:Greece parliament passed the second of the two bills to authorize an implementation law for the first bill, enable individual budget measures and also create a state assets privatization agency. This cleared the last obstacle for Greece government to obtain approval for the 5th installment of bailout fund (EUR 12 billion) from EU and IMF early next month.

In short, signs of financial crisis recurred all over the world in 2011 Q2. While Europe has faced sovereign-debt crisis and interest rate upcycle, the U.S. has also struggled with debt problems and weak economic growth. Emerging markets is generally suffering from serious inflation, and China in particular, has LGFVs debt issue that remains unresolved.

Is it a new turning point for next round of distressed financial crisis? We should have better answer in our next Financial Review for 2011 Q3, you are suggested to bookmark our website to visit us again by then.

UPDATE - Next article: Financial Review 2011 Q3: Spreading Crisis

Related article(s):
Financial Review 2010: where had all the Hot Money gone
An Important 2010 Internal Review for you


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