Tuesday, April 10, 2012

Financial Review: Crisis Relief in 2012 Q1

It is time to publish our first financial review in 2012. In the first quarter (Q1: January to March) of 2012, it appeared that there was a relief in European debt crisis after Greece default officially became true. However, is it really the case that this debt crisis has already gone? You may get some more insights about it if you continue to read our financial review below.

Here are the main financial and business news in 2012 Q1, which extends what were reported in our previous Financial Review for 2011 Q4:

Jan 13:(1) S&P's (Standard & Poor's) cut France and Austria sovereign-debt credit ratings to AA+ from the top triple-A, and also downgraded Portugal and Cyprus sovereign-debt credit ratings to junk status.
(2) China MoF (Ministry of Finance) increased the range and the number of SOEs (State-owned Enterprises) needed to pay dividends to the central government.
Jan 16:(1) S&P's cut EFSF (European Financial Stability Facility) credit rating to AA+ from the top triple-A, because EFSF could no longer be fully supported by guarantees from guarantor members after two of them, France and Austria, had just lost their triple-A ratings.
(2) HKMA (Hong Kong Monetary Authority) and the U.K. HM Treasury announced to facilitate a joint Hong Kong-London Private Sector Forum to promote offshore RMB (Renminbi) businesses across both financial centres. HKMA would also extend its RMB trading hours to enable London to settle RMB transactions for European markets, and thus helping London to become an offshore RMB centre in Europe. Read also: Newest RMB Business Development in HK.
Jan 18:Eastman Kodak, a pioneer in the fading camera film market, went bankrupt.
Jan 23:Crude oil prices surged after EU (European Union) Summit approved to ban oil imports from Iran and to freeze assets of the Iranian Central Bank (ICB) in Europe. These new sanction and embargo attempted to stop Tehran to maintain its nuclear development program.
Jan 24:Japan reported an annual fiscal deficit in 2011, the first time in 31 years since 1980.
Jan 25:U.S. Federal Reserve decided to hold its "exceptionally-low" interest rate freezing period to late 2014 (was mid-2013). The Federal Reserve also historically set an inflation target at +2% level on average per year.
Jan 27:China NDRC (National Development and Reform Commission) announced to build Shanghai as a global centre of transaction, innovation, pricing, trading and clearing of RMB-denominated financial or investment products by 2015. For the full plan to facilitate Shanghai with bigger international influence, please read: Shanghai in the Next 10 Years.
Jan 29:France President Nicolas Sarkozy proposed to raise VAT (Value Added Tax) from 19.6% to 21.2%.
Jan 30:(1) With Czech Republic opted out on the new EU fiscal treaty after the U.K., still 25 out of 27 EU countries agreed to sign the new treaty and committed to add constitutional rules into their own national laws for achieving balanced budgets.
(2) WTO (World Trade Organization) ruled out an appeal by China over its restrictions on certain raw materials exports, in favor of the U.S., EU (European Union) and Mexico..
Feb 6:Citigroup became the first western bank allowed to issue credit cards in the mainland China.
Feb 9:BoE (Bank of England) launched its QE3 (quantitative easing) worth GBP 50 billion to buy U.K. government bonds, making the total QE size hit GBP 325 billion.
Feb 13:(1) Moody's Investors Service (MIS) cut sovereign-debt credit ratings of Portugal, Italy and Spain.
(2) China Future Exchange resumed Chinese government bond future trading (as a pilot-run program) which was suspended since the "327 violation event" in 1995.
Feb 14:(1) BOJ (Bank of Japan) further expanded its total QE size to JPY 65 trillion (increased asset purchasing size to JPY 30 trillion and kept credit lending size at JPY 35 trillion) from JPY 55 trillion to combat deflation, and also set an average inflation target at +1% level "for the time being".
(2) First offshore RMB Gold ETF launched in Hong Kong. Read more: Offshore RMB Gold ETF.
Feb 18:China central bank, the People's Bank of China (PBoC), cut RRR (Reserve Requirement Ratio) by 0.5%, the first time in 2012. For more background about RRR (Reserve Requirement Ratio), please read: Why PBoC Favors RRR.
Feb 19:Iran announced to ban crude oil exports to France and the U.K.
Feb 20:Japan trade deficit hit record high of JPY 1.475 trillion in January.
Feb 21:HKEx (Hong Kong Exchanges) launched VHSIF (HSI Volatility Index Futures), the first similar future contracts in Asia. For other recent HKEx development, please read: Financial Center Development in HK.
Feb 22:U.S. President Barack Obama proposed corporate tax rate cut from 35% to 28%.
Feb 23:Greece parliament approved a new round of harsh austerity measures that intended to restore foreign creditor confidence and to encourage private-sector participation in its debt swap program.
Feb 27:S&P's confirmed to cut Greece sovereign-debt credit rating to Selective Default (SD), due to the implementation of CACs (Collective Action Clauses) on its private-sector debt swap.
Feb 28:(1) ECB (European Central Bank) temporarily halted accepting Greece bonds (including Greece sovereign bonds and underlying assets underwritten by Greece government) as collateral in its lending operations after S&P's cut Greece credit rating to selective default, although European bankers could still use Greece bonds for funding from their national central banks through the ELA (Emergency Liquidity Assistance) program. UPDATE: ECB quickly restarted accepting Greece bonds as collateral on Mar 8, 2012 after receiving EFSF bonds worth EUR 35 billion from Greece government as a guarantee payment.
(2) Germany Highest Federal Constitutional Court ruled to limit the power of a special parliamentary committee formed to expedite decisions for urgent use of the Eurozone rescue fund, by allowing the committee to decide on government bond purchases on the secondary market only.
(3) U.S. President Barack Obama approved to set up a new Interagency Trade Enforcement Centre (ITEC) for more aggressive trade protection against China.
Feb 29:ECB (European Central Bank) finished conducting its second round of 3-year LTRO (Long Term Refinancing Operation). After that, ECB's balance sheet soared past EUR 3 trillion and thus surpassed U.S. Federal Reserve's balance sheet, the first time ever in history.
Mar 2:China further expanded and liberated RMB cross-border trade settlement program (reference: RMB Business Across the World) to cover all enterprises with export or import business.
Mar 5:China cut its GDP growth forecast to +7.5% YoY this year, the first time giving up +8% minimum since 2004. China also raised its CPI forecast to around +4% YoY this year. For our own forecasts, please read: our 2012 GDP Target and also our 2012 CPI Target.
Mar 8:Only 83.5% private-sector bondholders voluntarily agreed to support the Greece debt-swap deal, less than the 90% minimum legal requirement that could avoid CACs (Collective Action Clauses) to force the rest of private-sector bondholders to participate. Greece thus implemented to enact CACs accordingly to increase the total participation rate to 95.7%. This formally made Greece the first developed country to default in 60 years, although we have to say that the default was doom no matter it was voluntary or not (reference: Most Important 2011 Economic News).
Mar 9:(1) ISDA (International Swaps and Derivatives Association) ruled and declared that Greece CDS (Credit Default Swaps) constituted a "restructuring credit event" after Greece implemented CACs, and thus investors who bought Greece CDS would get paid.
(2) U.S. non-farm payroll data in February indicated that the number of newly created jobs exceeded 200K for 3 consecutive months. U.S. unemployment rate in February also stayed at 8.3% for 2 consecutive months. These data suggested the U.S. economy had likely been recovering stably from recent recession.
Mar 12:China economy weaken and recorded a trade deficit of USD$31.5 billion in February, the biggest monthly trade deficit in 22 years. For our own forecast, please read: 2012 Trade Balance Target.
Mar 13:(1) BoJ (Bank of Japan) increased the size of Yen loan program from JPY 2 trillion to JPY 5.5 trillion, and also made use of its current USD foreign exchange reserves to introduce a new USD load program worth JPY 1 trillion (Remark: Please note that these loans are separated from the total QE size of JPY 65 trillion announced on February 14, 2012).
(2) U.S. Federal Reserve announced its stress test results which indicated that 4 (including Citigroup, Metlife, Ally Financial and SunTrust Bank) out of 19 major U.S. banks failed the test.
(3) Fitch upgraded Greece sovereign-debt IDR (Issuer Default Rating) to B- from RD (Restricted Default) after the completion of PSI (private sector involvement) DDE (distressed debt exchange).
Mar 14:(1) EU (European Union) finally gave a formal approval on the second batch of Greece bailout fund.
(2) A resignation letter from Goldman Sachs top executive of equity derivatives disclosed the greedy nature of the company against the interests of their clients.
Mar 28:China State Council approved to establish a pilot financial reform zone in Wenzhou, in order to implement 12 major tasks to regulate private underground financing activities in the city (reference: Inside the Private Shark Loans to SMEs) and to open-up direct offshore investment channels for the residents there.
Mar 30:Euro-zone finance ministers committed to gradually raise its bailout lending limit to EUR 700 billion, including EUR 500 billion from ESM (European Stability Mechanism) by June 2014 and EUR 200 billion loans already committed to Greece, Portugal and Ireland carried over from EFSF (European Financial Stability Facility). EU (European Union) thus claimed they had made up a Eurozone firewall capacity totaled EUR 800 billion after adding the current EUR 100 billion bilateral loans already paid to Greece, Portugal and Ireland.

In conclusion, we hope but do not believe that the European debt crisis has already gone in 2012 Q1. People thought there was a relief in the crisis, probably just because of the way the mass media reported the related news. We do have a little bit worry as fewer and fewer mass media nowadays are reporting the full real picture of the financial crisis that should still be ahead of us.

More Financial Reviews:
Table of All our Financial Reviews since 2010


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