Exploring and keeping readers up to date with the growing economic and political ties between China and South America. Including all the good stuff: Commodities, Energy, International Finance, South-South Cooperation, Microfinance and more
Chile's central bank lowered interest rates to record lows today. This is the country's latest effort to stimulate a slowing economy which is heavily dependent on global prices and demand for its commodity exports.
Not good news for a country like Chile. Copper demand (its primary commodity export) looks set to slow in the upcoming months as demand from China wanes, which until recently had been stockpiling resources. This seems to be over and now one of Chile's primary buyers is sitting on mountains of unused copper. Once again, not good for Chile, Peru or any other countries that sell their metals to China.
Bloomberg reports:
The currency slipped 1.1 percent to 552.65 per U.S. dollar at 9:15 a.m. New York time, from 546.85 yesterday.
The central bank said in May and June that traders were overestimating the future path of interest rates. Now it will offer banks six-month loans that match the new overnight rate of 0.5 percent and cut sales of its own debt to push yields lower.
"It is necessary to increase monetary stimulus," the bank said in yesterday's statement. "The policy rate will be held at this minimum level for a prolonged period of time."
Now where is China going to put $2 trillion USD? Well according to this Bloomberg article (see excerpt and a link to the complete article below), China still plans to purchase US treasuries. However, if China's recent foreign policy and international investments tell the world anything, it is that the total dominance of the US dollar as the world's currency is slowly coming to an end. This won't happen over night, and the US dollar will probably remain a big player for some time, but eventually China wants to find new places to park its money.
Here's a small except. See link below for the complete article from Bloomberg.
China's foreign-exchange reserves probably topped $2 trillion for the first time, drawing attention to the difficulty the government faces in finding places to invest the world's largest holdings.
The reserves climbed $67.8 billion to $2.022 trillion as of June 30 from three months earlier, according to the median estimate of six economists surveyed by Bloomberg News. That would compare with a $7.7 billion gain in the previous quarter. The central bank may release the number today or next week, based on the timing of previous announcements.
Central bank Governor Zhou Xiaochuan ruled out any sudden change in the management of the reserves last month after proposing that governments investigate setting up a supranational currency. Premier Wen Jiabao is concerned that China's $763.5 billion of Treasury holdings may fall in value as the U.S. sells record amounts of debt to fund stimulus spending.
"There's no obvious alternative for China to U.S. Treasury bills," said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. "The alternatives are limited for that much money."
China's reserves more than doubled in two and a half years as the trade surplus pumped cash into the economy, fueling claims that the nation's currency is kept artificially low to help exporters. The International Monetary Fund may describe the yuan as "substantially undervalued" in a pending report, according to a person who has seen the draft.
Peru's macro economic picture is not as hot as one might think from watching Bloomberg anchors on live TV talk up how the country's stock index is one of this year top performing, year to date. Ironically the following excerpt is also from Bloomberg (http://www.bloomberg.com/apps/news?pid=20601086&sid=a0pA8xgoGZi8)
Peru's central bank will probably cut its benchmark lending rate for a sixth month today after consumer prices fell for a second month and the economy shrank for the first time in almost eight years.
The seven-member board, led by bank President Julio Velarde, will lower its reference rate by a half-point to 2.5 percent from 3 percent, according to 11 of 20 economists surveyed by Bloomberg. Nine analysts expect a one-point cut.
The global financial crisis has blunted demand for Peru's exports and sapped domestic spending, reining in economic growth and consumer prices. The economic slump, deflation and local currency gains will push the bank to extend its longest rate cutting cycle on record, said Neil Shearing, an emerging markets economist at Capital Economics Ltd.
"There's been very aggressive action across the region to combat this slump," Shearing said in a telephone interview from London. "Cuts will continue, but will probably slow to see the effects of earlier rate-cutting."
On the road today updating from my handheld again and feeling incredibly cool and sophisticated, all while reinforcing the popular belief that we are indeed way too dependent on technology these days.
Here are two short excerpts from different Bloomberg articles which shed some light on the true health and capacity of the Chinese economy. What should you take away if you decide to click through to Bloomberg and read the entire articles? Basically that China is a economic powerhouse and still has room to grow. Likewise, it is not a cure all to the woes of the global economy.
This is important to realize because the government in China will do all it can to produce good economic news, sometimes misleading the international investment community. But hey! Most countries do too. ChinaSouthAmerica, as it always does encourages readers to form own opinions and always try to read in between the lines.
China failed to complete a 28 billion yuan ($4.1 billion) government bond sale for the first time, as the central bank withdrew cash from the financial system to reduce inflation pressures.
The Ministry of Finance sold 27.5 billion yuan of one-year notes at a yield of 1.06 percent, compared with 0.89 percent at the last auction of similar-maturity debt in May, according to Chinabond, the nation's biggest debt-clearing house. Later, the People's Bank of China it said will resume the sale of one-year bills tomorrow after an eight-month suspension.
"The failure to sell all government bonds in an auction is quite rare," said Nie Shuguang, a fixed-income analyst at Industrial Bank Co. in Shanghai. "Investors are worried the central bank will fine-tune its monetary policy and drain capital from the financial market."
Chinese stocks may be headed for a "sizable correction" after a so-called momentum indicator for the Shanghai Composite Index advanced to the highest in at least five months.
The 14-day relative strength index, or RSI, for the Shanghai Composite climbed to 83 this week, above the 70 threshold that signals to technical analysts an asset or market is poised to fall. The indicator compares the magnitude of recent gains to losses. The last time the Shanghai gauge's RSI breached the 80 level, in February, the stock measure sank as much as 13 percent in following two weeks.
"The RSI shows that the market is in a pretty overbought situation," said Barole Shiu, a Hong Kong-based technical analyst at UOB-Kay Hian Ltd. "If history repeats itself, there's a very strong chance we'll see a sizable correction."
Doe Run Peru shut down its lead and zinc smelter on June 2 after the company ran out of money and credit, therefore rendering it unable to buy the raw materials being produced at near by mines.
According to this Bloomberg article, guess who's stands poised to benefit from this? You guessed it Asia's smelters, who despite the global slow down remain hungry for more.
Alex Emery in Lima down in Lima writes:
Glencore International AG, the world's biggest commodities trader, and Trafigura Beheer BV are benefiting as suppliers of Doe Run Peru's shut lead and zinc smelter seek international traders to sell their concentrates.
"We're looking for more clients abroad, particularly Asian smelters," to buy the extra production, Glencore's Peruvian manager Fernando Cafe said in a July 3 interview.
Cia. De Minas Buenaventura SA, Pan American Silver Corp. and about 30 other miners in the central Peruvian Andes have had to seek alternative buyers after the Renco Group Inc. unit smelter ran out of cash and halted all operations on June 2...
SAN FRANCISCO (MarketWatch) -- China National Petroleum Corp. has offered up to $14.5 billion for a majority stake in the Argentine unit of Spanish oil company Repsol YPF SA, according to media reports published on Tuesday.
The South China Morning Post, citing unnamed sources, reported that CNPC has offered between $13.2 billion and $14.5 billion for a 75% stake in the unit.
Dow Jones Newswires reported that Repsol said last week that it had received proposals from a number of companies for a stake in the unit.
China has been acquiring energy assets as its growing economy demands more resources to support its needs.
Sinopec has also secured a deal with Brazilian firm Petrobras (PEFGF) to supply it with 150,000 barrels of crude a day this year, and 200,000 barrels per day for nine years starting in 2010, according to the state-run China Daily.
Repsol is playing down speculation about unloading some of its 85% stake in Argentinian oil business YPF. But shareholders must hope a deal materializes, and soon. Apart from its exposure to Argentina's political and economic risks, YPF ties up capital that Repsol could use to develop large recent Brazilian oil discoveries.
Unfortunately, what makes it wise for Repsol to sell YPF may deter potential buyers. YPF's reserves are declining. Buenos Aires has to approve any share sale, while Repsol has committed to keep at least a 50.1% stake until 2012.
YPF also has to satisfy domestic oil demand -- where prices are capped -- before it can export, paying a punitive export tax. Chinese suitors, in particular, will likely bridle at such restrictions.
Click here, or the links above to view the complete articles from the WSJ
ChinaSouthAmerica has been over-run by embedded videos as of recent. The site will return to to the normal mix of my own personal analysis and coverage of news and developments relating to China, South America, South-South Cooperation, Commodity Markets and Micro-Finance.
I have been thinking about creating a new blog which I will dedicate to sarcastic, cynical, comedic based material of US-Pop Culture.
Content such as this video from the Colbert Report on Comedy Central shows a side of the United States people from abroad miss quite often, and that is, WE (USA) LOVE TO MAKE FUN OF OURSELVES.
