Macro digest: German export machine is being tested - Be long GERMAN bunds

I have been constructive on Bunds for a long time (http://www.tradingfloor.com/posts/buy-bund-call-142-017-146448732) and after nice profit and more balanced view I am now ready to go for next upside.

Buy 144.00 February Call Bunds @ 0.21/0.22 (See attached)

 The German economy is heavily exposed to global growth which we see dramatically slowing down - the strong EURO will impact export 5-7 month from now which creates dramatic slow-down where we even could see the German economy going below 1% growth and come close to recession.

Our Economy-Physics models sees slow-down next three to six-month then small rebound before dramatic slow-down in tail-end of 2014 - overall the German GDP will be challenged. German industry- and its consumer is increasingly becoming uncompetitive through one of the worst energy policies in Europe. Right now German companies (Read: BMW and Daimler) is either already moving or about to move jobs to mainly the US due to steep rises in energy cost.

The new coalition furthermore wants to pursue less flexible labor market model to "reset" inequality. Nice top line effort wrong method.

Finally, the European economy is almost perfect symmetrical in its peaks and valleys:  (Source: Bloomberg LLP & Citigroup CESI Index)

 Nice week-end

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
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Macro Reality: Sell AUD on break of 0,9270 on close - on SIGNICANTLY lower expected China growth post 3rd plenum

Macro REALITY.

We may need to add a new blog on Tradingfloor.com called: Macro REALITY :-) - Where only facts can be presented - The FOMC statement yday was a farce for projection for growth and monetary policy. It should have been named: 'Hope for the future' or 'Hopeless lost in Washington' Tapering is a March thing – where the political narrative fits best (Post: Debt ceiling - and budget talks and hopefully for Obama, the implementation of Obamacare)

TODAYS CALL: l SELL AUD here @ .9280 w. stop above .9800 for .8500 in Q4-2014

(*) A close below 0.9275 - the 100 SMA will confirm we have reversed down in my model

Whatever you think is the outcome politically in China there is one major conclusion which is being ignored by market:

3rd Plenum ALWAYS historically have meant SIGNIFICANTLY lower growth.

The explanation is similar to a factory moving from doing VW Golfs to producing BMW 3-series. The factory needs to close down and then reopen and bring in new tools and machinery. That's China for you. The Chinese "new model" was born in 1978- It's now 34 years old and in need of a tune up. The REAL political change - again historically - does not happen until five years into the ten year cycle, i.e.: 2019 - where the top level of the Party can change the old guard out with their own people and take a full control of the top tier Polit bureau.

My take on politics remains the same: It's about consolidating the PARTY's power not reform. They are increasing security and control at all levels. Do not forget the simple math of China. The local governments have 80% of all expenditure & expenses, but only 40% of tax receipt. The gap was land sell - what now? Uniform sales tax? Yes.....but not reform in the western world meaning of the word.

Conclusion: 

The 3rd plenum will "cost" growth - and - China model needs to be recalibrated – both of which means lower growth probably 200-300 bps in total. From 7.5% official growth to 5.5% over next two-three year.

The biggest loser: Australia. The most direct link btw commodity expansion and now slowing global demand. RBA wants lower AUD according to their latest Minutes. I agree. The equilibrium price for AUD is probably around .9000 but a .8500/.8200 is needed to kick start an economy which over the last decade not only became a "one trick pony" but also a country of expensive unit labor cost and strong unions. It's time for Australia to undo its "The Lucky one" illusion. Luck only get you so far.

CHART AUD (Source: Bloomberg LLP)

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
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Census faked 2012 election job report

Normally I would not "share" a single link, but this one is important. Our faith in government data is already flawed and this is a confirmation of manipulation which seems to go unchecked and against any rule of governance. How can this even happen?

 

http://nypost.com/2013/11/18/census-faked-2012-election-jobs-report/

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
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Aisa thought...It's getting worse...

Dear All,

 

We are close to big bubbles and dis-continued pricing in the market (less and less REAL liquidity)….……and in 2014 there will be taken a lot of bad MACRO decisions in the name of:

 

Inequality

Deflation

Bubbles

Lack of growth

 

I am just back from Asia and I had my worst fears confirmed. The quick-and-dirty conclusions:

 

Conclusion:

 

·         USD vs. Fragile Five (Indonesia, India, S. Africa, Tyrkey, and Brazil) likely to be up 20% in 2014  è (EMG crisis coming back……for real this time)

·         India will be under IMF supervision post their election in May, which is turning extremely nasty.. (Check the opposition candidates program!) è  Domino effect? 2014 could the year where "elections matters" – (EU in May, India in May, etc..)

·         Asia realize that lower "quality growth is needed" - meaning 200pp overall lower growth in exchange for less "rentier FDI models) è Asia contribution to global growth will be 100-150 bps lower… reducing global growth by 50-75 bps…

·         Housing in major bubble - I did not meet A SINGLE person who did not want to increase housing investment if it fell 10%  (it's up 100% and they want to buy a 90% price rise?)  è The day Fed does tapering housing market is at risk for 40%-50% correction

·         DM Asia remains only segment still expanding US dollar net funding (continues to increase capital dependency on FED!)  =è US dollar dependence increasing not falling

·         China's plenum real objective is overlooked: Policy uniformity - which never comes with real reforms and progress  è China will not change fundamentally, but consolidate its Communist model.

 

The good news?

 

Volatility is certain to return.

 

Tapering is not the real risk…. Look to India, Indonesia and Brazil as the canaries in the coal mine……Current account numbers cant not easily be managed and the conclusion is in: Lower growth and weaker currency only way to reduce short-term pressure.

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

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The new economic black: Secular stagnation // Must read

Dear All,

 

(Hat-tip Jesper)

 

This is becoming the new "craze" – explaining nothing, but claiming someone else is at fault..

 

Do like the fact/conclusion that :  1870s-1970s Gold standard limited policy action through simplification…, now its argued inflation targeting is doing same thing…from 1970s to ??? 2070???

 

What do however upset me is that the HARVARD crowd is now blaming everyone else for the misery. Summers is the worst thing that ever happened to US politics and economics – he is clearly smart guy, but applying himself wrongly – the interventionist policy continued under another Harvard alumni – Obama – clearly have failed. Now the blame game has started, the timing perfect – this week dis-approval of Summers Master Obama turns negative for the first time. Obama have always ridden high on personal approval now his is disapproved of. Historically when a President rating turns negative his term is over………( http://www.huffingtonpost.com/2013/11/15/obama-approval-rating-201_n_4284396.html)

 

The solution is not MORE of anything, but significant less of him and other macro "none-thinkers" –

 

The solution:

 

·         Reestablish the price discovery of money (by stopping QE),

·         Focus on SME's through accepting the supply side of the economy is the ONLY solution to the situation created

·         Put the individual back in in charge of their own life (This generation is the biggest "entitlement generation ever). We have spent the years since we won the Cold War repeating the mistakes of Sovietunion – more and more planned economies, less connection btw voters and most importantly we have ZERO accountability of the policy makers – as seen by Summers "newest" contribution.

 

Sad Monday….

 

Steen

 

http://www.economist.com/blogs/freeexchange/2013/11/secular-stagnation-0?fsrc=rss

Secular stagnation
The solution that cannot be named
Nov 18th 2013, 7:18 by R.A. | LONDON

EARLIER this month the IMF held a research conference in honour of Stanley Fischer. It featured a murderer's row of macroeconomic stars as speakers including, to round out the event, one Larry Summers. The video of Mr Summers' talk is now publicly available and is being heralded, with some justification, as an important and incisive piece of analysis. It also perfectly and maddeningly encapsulates the problem at the heart of the rich world's economic debate—and its economy, for that matter.

Mr Summers argument is short and sweet. The rich world risks following the path blazed by Japan in the 1990s. That is not a place we should want to go, Mr Summers reminds us. He recounts an exercise conducted in the early days of the Clinton administration, when the president's economic advisers assembled a series of long-run economic forecasts. "Japan's real GDP today is about half what we believed it would be at the time," Mr Summers somberly intones.

To diagnose the malady leading the rich world down this road, he highlights two observations. First, he points out, the expansion prior to the crisis was a strange one. Borrowing and asset prices soared, he notes, but by most key measures—capacity utilisation, unemployment, and inflation—the economy was not bumping up against its potential. "Even a great bubble wasn't enough to produce any excess in aggregate demand," Mr Summers says.

And second, more than four years after the end of the downturn real output isn't anywhere close to regaining its pre-crisis trend. On the contrary, it has fallen farther behind that trend. There has been no recovery in the share of population working. And there is little sign that central banks will be willing or able to raise short-term interest rates meaningfully above zero any time in the next few years.

The way to explain these dyamics, he suggests, is to imagine that the real, natural rate of interest is negative. And so at prevailing rates of inflation there is no way to get short-run nominal interest rates low enough to generate the sort of strong recovery that used to be common after deep recessions. What's more, he says, this state of affairs may persist for quite a long time. And that means that the crisis is not over. Monetary policy is only going to get tighter. Fiscal policy will probably get tighter and almost certainly won't be appreciably looser. Mr Summers closes by saying:

We may well need, in the years ahead, to think about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity, holding our economies back, below their potential.

I think it's important and welcome for someone of Mr Summers' stature to point out how serious a problem the zero lower bound is and to note that it is not going away any time soon. But this discussion sorely needs a dose of real talk, and soon. Or nominal talk, I should say.

Just why the real natural rate of interest is so low is an interesting question. Maybe it's down to a global savings glut, spurred by emerging-market reserve accumulation and exchange-rate management. Maybe it is a transitory symptom of widespread deleveraging. Maybe its roots are more structural in nature: a product of demographic or technological trends. I have my own suspicions, but the important thing to point out is that for the purpose of this discussion and this crisis it doesn't matter. 

The zero lower bound is a nominal problem. However low the real interest rate, an economy can keep nominal rates safely in positive territory by running a sufficiently high rate of inflation. Back in August, another eminent economist, Robert Hall of Stanford University, contributed a paper on the zero lower bound to the Kansas City Fed's Jackon Hole conference, in which he estimated that the market-clearing real rate of interest is -4%. Now again, just why the real, natural rate of interest is currently -4% is an interesting question, but it's irrelevant to the challenge of closing the output gap. All that matters there is that expected inflation is between 1% and 2% instead of near 4%. That's the problem; that's what's keeping tens of millions of people out of work and hundreds of millions languishing in a perpetually weak economy: a couple of percentage points of inflation.

And central banks are entirely to blame for that.

Mr Summers notes that excess or even adequate aggregate demand was never a problem in the pre-crisis expansion. That was by design. In 2004 core inflation in America finally ticked above 2% after two years of near-deflation worries. The Federal Reserve wasted no time at all jacking up the federal funds rate. As the 2000s progressed core inflation stayed well behaved despite soaring commodity prices, but the Fed kept on hiking; it didn't reverse course until the financial crisis had begun. For that matter, the deflation scare of the early 2000s might not have been a problem in the first place if Alan Greenspan had not ignored the signals being sent by his beloved price index for personal consumption expenditures. Core PCE was well in hand in the late 1990s, but Mr Greenspan raised rates anyway. Here is your age of bubbles and secular stagnation:

The rich world's biggest macroeconomic problem at the moment is a nominal problem and it is within central banks' power to fix it.

Now some will argue that because of the zero lower bound central banks lack sufficient policy traction to raise inflation. I don't believe that. Over the course of the recovery the Fed, for example, has become alarmed by falling inflation expectations on several occasions, and when it subsequently took action inflation expectations rose. That they have never risen much above 2% at any point in the recovery can probably be attributed to pretty clear signals from the Fed that higher inflation would not be welcome. Signals like: adopting an official 2% inflation target, and setting short-run inflation expectations of 2.5% as an upper bound on what is consistent with the Fed keeping its policy rate near zero. At no point has the Fed done what its own chair reckoned Japan needed to do, at a minimum, to escape its own doldrums: set an inflation target of 3% or 4%.

There are many aspects of macroeconomics that are extraordinarily tricky, but this is not one of them. Central banks' current inflation goals are inconsistent with a real recovery or a sustained exit from the zero lower bound. They should raise them and try to increase expectations of inflation.

Why isn't this option on the table? Maybe it is; there are signs (like this paper by Fed economists, presented at the IMF conference) that some central banks are at least considering ways to court temporarily higher inflation. But even the most radical policy shifts being entertained are probably too timid to prevent a zero-lower-bound relapse during the next contraction. And there is no sign of imminent adoption of even those too-timid radical options. And even when famous straight-shooters like Mr Summers are given a platform from which to shoot straight they all too often decline to argue for more inflation. Perhaps because that's not the sort of thing this generation of economists does.

This is a generation, after all, that came of age during the 1970s. It is a generation, I would wager, that considers the whipping of inflation to be the most important and laudable shift in macroeconomic policy of their professional lives: a significant intellectual and practical achievement. Whatever else is happening in an economy, low and stable inflation cannot be questioned as an end or put at risk.

I keep coming back to this paper by Barry Eichengreen and Peter Temin, on the mentality of the gold standard:

The mentalité of the gold standard had developed during the long boom of the late 19th and early 20th centuries. It survived the shock of World War I and promised a safe haven for ships of state buffeted by stormy social, political and economic seas. Its anchor, however, proved a millstone around their necks...

Its rhetoric dominated discussion of public policy in the years before the Great Depression, and it sustained central bankers and political leaders as they imposed ever greater costs on ordinary people. The mentalité of the gold standard proved resistant to change even under the most pressing of economic circumstances...Basil Blackett observed in 1932, "...the gold standard has become a religion for some of the Boards of Central Banks...believed in with an emotional fervour which makes them incapable of an unprejudiced and objective examination of possible alternatives."

Countries only began the struggle to restore prosperity under new leadership, that of individuals who had not been party to the rhetoric of the gold standard in previous lives.

The belief in the critical importance of low and stable inflation is more flexible than the gold standard was, and it is born of a better understanding of the workings of the macroeconomy. But it is a binding constraint on recovery and prosperity all the same. And the unwillingness to question its continued utility in the face of evidence that it is doing real harm looks all too similar to the intellectual fetters that led central bankers to persist in foolish policy in the early 1930s.

Best regards

Jesper Christiansen

Danica Pension
Investments
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jechr@danicapension.dk

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Macro Digest: ECB's non-surprise and we have all gone bonkers..

ECB cuts REFI - big surprise says market but as per always its ignoring even most basic understanding of monetary policy and politics. Even Bundesbank would have voted for rate cut as monetarist have one thing in common w. Keynesians: Fear of Deflation. For both camps cutting interest is THE remedy.

 

Market is busy saying this is signal on FX rate, which of course is part of explanation but the REAL DRIVER economically and politically is DEFLATION fear. The "recovering Spain" CPI have dropped from +1.8% to +0.1% in less than ten months. Yes ten months, that not exactly a sign of economy coming back..... I have bought big DAX put Options on this rally.... spot ref. 9160.00 - buying 8700 DEC (See attached....)

 

Our models still sees strong end to the year but I'm buying DOWNSIDE protection and to be honest as a rare exception I trust myself more than the model (happens 1 in 265 trading days...) 

 

Why am I fading the model:

1- CPI which if continued will have us in deflation by Q1-2014
2- Europe registered higher unemployment ever.
3- Spain CPI have in less than ten month dropped from +1.8% to +0.1%
4- Commodities continues down
5 - Dr. Doom - Copper and CRB continues down
6- Tapering is WRONGLY being moved forward in date due to... hold on dont laugh: Two academic papers!!!

One simple lesson from his financial crisis:
Market impulses and changes is:

90% politics - So does the "expected call" fit or not the political narrative - (Hence: NO chance of tapering while Obamacare, Yellen not actually confirmed, Bernanke will not be allowed reign supreme as he is sitting duck.......)
5% practical - actual rea life need for change..
5% fundamentals...

I must admit I prone to smiles these days - The world has gone totally bonkers..... enjoy this last frothy part where stock market is up and down 2% each day .... its sign of worse to come not better...unfortunately…

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

Please visit our website at www.saxobank.com

 

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Re. Macro Digest: The main conclusion ...sorry....

Forgot the biggest point:

 

The market is re-pricing TAPERING again – this time forward. GS and other spoint to a potential exercise of Fed announcing lower threshold on employment (6% due to two senior Fed economist's recent papers stating need for lower nominal target) as "payment" for starting tapering early in Yellen's reign….

 

Market, however, only sees "tapering" and like in May focus on this as indicating "an exit strategy"…….Again – the point is: It shows how fragile our "more of the same" scenario is……..and how Fed's forward guidance have backfired…

 

S

 

The market right now is sending a strong warning signal and like in May it comes from EMG – and more specifically MXN and BRL…:

 

See chart below but here is a few points:

 

#1 :  USD /EMG never came even close to its break-out levels in May….

#2:  The current account trends in BRIC's continues to go to ZERO and even negative – increasing cost-of-capital for deficit countries….

#3:   Market liquidity is SIMPLY overrated considering the present FX investigation, the end-of-year, the decrease in proprietary capital due to BIS III and general new higher capital requirements…

#4:  Today EU Commision outlook is classic pretend-and-extend…. But singling out France as in CLEAR non-compliance even in 2015 will only increase stakes for EU Com. Two-pack and Six-pack financial examination…… (EU Com. Sees France deficit @ -3.7% in 2015 vs. promised 3.0% maximum deficit…)

 

Conclusion:

 

Add long volatility to your portfolio, our models still indicate more upside in risk, but personally, this is one time where I for once may want to walk away from model and focus on preservation of capital – the risk is increasing day by day and not only

 

 

 

USD-Brazil this morning….

 

 

USD-Mexico this morning….

 

 

 

& Now… back to May 21^st – When Bernanke first mentioned the "tapering word"….

 

http://blogs.reuters.com/anatole-kaletsky/2013/09/19/the-markets-and-bernankes-taper-tantrums/

 

The same chart now including May 2013 and Tapering..

 

 

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

Please visit our website at www.saxobank.com

 

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Macro Digest: A world of simple rules...

 

The market right now is sending a strong warning signal and like in May it comes from EMG – and more specifically MXN and BRL…:

 

See chart below but here is a few points:

 

#1 :  USD /EMG never came even close to its break-out levels in May….

#2:  The current account trends in BRIC's continues to go to ZERO and even negative – increasing cost-of-capital for deficit countries….

#3:   Market liquidity is SIMPLY overrated considering the present FX investigation, the end-of-year, the decrease in proprietary capital due to BIS III and general new higher capital requirements…

#4:  Today EU Commision outlook is classic pretend-and-extend…. But singling out France as in CLEAR non-compliance even in 2015 will only increase stakes for EU Com. Two-pack and Six-pack financial examination…… (EU Com. Sees France deficit @ -3.7% in 2015 vs. promised 3.0% maximum deficit…)

 

Conclusion:

 

Add long volatility to your portfolio, our models still indicate more upside in risk, but personally, this is one time where I for once may want to walk away from model and focus on preservation of capital – the risk is increasing day by day and not only

 

 

 

USD-Brazil this morning….

 

 

USD-Mexico this morning….

 

 

 

& Now… back to May 21^st – When Bernanke first mentioned the "tapering word"….

 

http://blogs.reuters.com/anatole-kaletsky/2013/09/19/the-markets-and-bernankes-taper-tantrums/

 

The same chart now including May 2013 and Tapering..

 

 

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

Please visit our website at www.saxobank.com

 

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China’s Leaders to Start Reform Summit With Recovery: Econo & The gullible media.......

One have to smile at how gullible the media is: Let me see - is there any major Chinese event where a narrative of improving data would fit in ? Is it the norm that data improves ahead of major events in China (and that internet is closed down...) ?
Incredible - I see major risk in the "hope" for reform - I am not sure reform in chinese version is similar to Western version - actually reform is more likely to me more old China, more Mao as this scholar excellently explain...

D.S Rajan: China: Heavy stess on "ideological struggles" in the run-up to November 2013 Party Plenum: http://www.southasiaanalysis.org/node/1368


(BN) China's Leaders to Start Reform Summit With Recovery: Econo my

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China's Leaders to Start Reform Summit With Recovery: Economy
2013-11-04 07:37:04.481 GMT


By Bloomberg News
Nov. 4 (Bloomberg) -- China's Communist Party leaders will enter a policy-making summit this week with the economy on an upswing, services and manufacturing surveys show.
A non-manufacturing Purchasing Managers' Index rose to the highest level this year in October, a government report showed yesterday. The increase follows faster-than-estimated growth in two manufacturing indexes last week.
Signs of sustained strength in the world's second-largest economy may give President Xi Jinping and Premier Li Keqiang more confidence in tackling reforms. At the same time, excessive credit growth, rising local-government debt and weaker export momentum may cap a stronger recovery from a two-quarter slowdown.
"Growth momentum will still be relatively robust" in the fourth quarter, said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. "The government will tone down its pro-growth rhetoric but there won't be a significant tightening of monetary policy as new leaders still need a stable economic and financial environment to consolidate their power base."
The benchmark Shanghai Composite Index was little changed at the close, as property stocks declined amid concern the nation will introduce more measures to curb home prices.
Lu estimates gross domestic product will rise 7.7 percent in the fourth quarter from a year earlier, down from 7.8 percent in the July-September period.
China's top party officials will meet in Beijing from Nov.
9-12 to map out a blueprint for reform as the country heads for its slowest growth in more than two decades.

Balance Growth

GDP will increase 7.6 percent this year, according to the median estimate of 52 economists surveyed by Bloomberg last month. That's down from 7.7 percent in 2012 and the same pace as 1999, which was the weakest expansion since 1990. Growth may slide to 7.4 percent in 2014, according to the median projection of 47 analysts.
Premier Li reiterated that the government must balance the need for economic restructuring with a reasonable pace of growth to ensure sufficient employment, China National Radio reported yesterday, citing comments he made at a meeting with academics and business leaders.
The non-manufacturing PMI rose to 56.3 in October from 55.4 in September, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday.
A number more than 50 indicates an expansion. HSBC Holdings Plc and Markit Economics will release a services PMI for October tomorrow. Their index fell to 52.4 in September from 52.8 in August.

Too Bullish

"The room for a further improvement in the non- manufacturing PMI is limited so we should still avoid being too bullish," Lu said, pointing to a decline in new orders and a contraction in export orders in yesterday's report.
A manufacturing index from HSBC and Markit rose to the highest level since March in October, according to a Nov. 1 report. The federation's gauge advanced to an 18-month high driven by faster output, while measures of new orders and export orders declined.
"Like the manufacturing PMI, activity in the non- manufacturing PMI appears to have run ahead of demand," said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong, pointing to a 1.8 percentage point drop in the new order sub-index in yesterday's report and a widening gap between a gauge of business activity and new orders.
"Unless demand catches up, this pace of activity expansion will not be sustainable," he said.

Sustainable Growth

Xi and Li have indicated that the days of annual GDP expansion of more than 10 percent are over. The government will focus on policy changes to support more sustainable growth that will reduce inequality and doesn't damage the environment.
Xi said a blueprint for "comprehensive reform" will be put forward to the third plenary session of the Communist Party Central Committee, according to a Nov. 2 report from the official Xinhua News Agency. The nation is transforming its mode of development and readjusting its economic structure through a new style of industrialization, urbanization, technology and agricultural modernization, he said.
The economy is entering a phase of "transformation"
involving a slowdown in growth "from a high speed to a medium- to-high speed," Li said in September. He has also signaled that the government's bottom line for expansion is 7 percent, the level needed to meet the Communist Party's target of doubling per capita income in the decade through 2020.
Elsewhere today in the Asia-Pacific region, Australia's retail sales rose more than estimated in September from the previous month and an inflation gauge by TD Securities and the Melbourne Institute rose 0.1 percent last month from September.

European PMI

The final reading of a euro-area manufacturing PMI will probably show that the gauge rose in October from September, according to economists surveyed by Bloomberg News. The U.S.
will release data on factory orders for September.
Chinese industries including leisure, e-commerce and transport are becoming a bigger part of the economy, supporting the government's efforts to shift the focus of growth away from investment and exports. Alibaba Group Holding Ltd., China's biggest e-commerce company, plans a fivefold increase in the number of college graduates it hires to 1,000 and may offer them as much as triple last year's average pay.
Service industries accounted for about 45 percent of GDP last year, according to statistics bureau data, up from 41 percent in 2003. The government is seeking to increase the share to 47 percent by 2015, according to its five-year plan. In the U.S., services comprise about 90 percent of the economy.

For Related News and Information:
Manufacturing Strengthens From China to South Korea: Economy NSN MVL0XX6KLVRT <GO> China Growth Rebounds After Li Stimulus to Meet Target: Economy NSN MUUSJD0D9L35 <GO> China Services Index Increases in Sign of Sustained Rebound NSN MU2RRS6KLVRP <GO> Most-read stories on China: MNI CHINA 1W <GO> Most-read China economy stories: TNI CHECO MOSTREAD BN <GO>

--Nerys Avery, Sarah Chen. With assistance from Sharon Chen in Singapore. Editors: Nerys Avery, Scott Lanman

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Macro Friday Fun

This weeks greatest headline (hat-tip: Jesper)

(BFW) *WEIGHT WATCHERS CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS 

Also for those interested in Saxo Cycling team here is great and funny report: Ride on! Produced by our own Saxo TV's Sara Walker for Saxo Intranet incl. Alberto Contador & Bjarne Riis and our ride in London. 

 

http://video.saxobank.com/secret/8815670/9743663cecd061a5b459808a655ac2f8

 

Enjoy the week-end

 

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