Sign up for the newsletter: http://on.wsj.com/grandcentralsignup
Highlights
HILSENRATH'S TAKE: CHINA'S SLOWDOWN IS OF GREATER CONSEQUENCE THAN GREECE'S DEBT
Greece's looming debt default has become the focal point for market angst in the past few days. Perhaps investors should be paying more attention to China, where the People's Bank of China is trying to tame an increasingly volatile stock market and a deepening economic slowdown with ever-easier monetary policy.
Tuesday was another roller-coaster ride for Chinese stocks. The Shanghai Composite Index closed up 5.5%, after falling more than 5%. It is down 17% from a June 12 high but has doubled over the past year. This is like the Dow Jones Industrial average veering between 17,000 and 18,900 in a single day and falling to less than 15000 after shooting up from 9000.
Greece - slow growing, uncompetitive in many industries and burdened by unmanageable government debts - is in far worse economic condition than China. But the stakes in China's economic slowdown are greater for the globe, the unknowns greater and at this point the prospect for market misjudgments potentially wider than in Greece.
China is the world's second largest economy. Its output of goods and services in U.S. dollar terms is projected by the International Monetary Fund to reach $11.2 trillion in 2015, compared to $207 billion for Greece. You could fit 54 Greek economies into one of China's. A two percentage point slowdown in Chinese growth is equivalent to Greece's economy coming to a complete stop and producing nothing at all.
Investors and European authorities have had half a decade to prepare for Greece's default, size up the problem, insulate other European economies from it and plan for different scenarios. Along the way, the market's reservoir of faith in the capacity of Greek officials to manage the nation's debt overhang has dried up. That means the probability of a downside surprise is diminished.
On the other hand, investors and authorities are still coming to grips with the nature of China's problem. Growth has slowed from more than 14% in 2007 to something close to 7% in official ledgers and less than that in other estimates. Along the way, manufacturing overcapacity and a real estate bubble cropped up in many places. Central government debt, just 43% of gross domestic product according to the IMF, is small, but the scale of debt at state-owned firms and local and provincial governments is an unknown. Faith remains high among investors and global finance officials in the skill and wisdom of Chinese authorities to manage the slowdown and financial turbulence.
Investors and finance officials might well be right in that faith. If they're wrong, the prospect of financial and economic dislocation for the globe is growing.
-By Jon Hilsenrath
MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD
For Fed to Delay Rate Hikes, Global Tumult Would Need to Infect U.S. A wave of financial turbulence overseas could confound the Federal Reserve's plans to raise short-term interest rates in the months ahead, but only if it ends up knocking the U.S. economy off track. Fed officials signaled after a policy meeting earlier this month they expect to raise rates in 2015 after keeping them pinned near zero for almost seven years. Several officials have said since their gathering that September could be the time for liftoff. They could wait longer to move if the dollar surges and depletes the U.S. economy, heightened uncertainty saps households and businesses or broader financial market instability follows the recent turmoil in Greece, China and Puerto Rico.
Europe, Athens Battle for Greek Hearts and Minds Ahead of Referendum. European and Greek leaders began a singular election campaign Monday, a weeklong dash to persuade Greece's battered voters that one of two imperfect referendum choices will bring them the least pain. Meanwhile, a senior Greek official confirmed on Monday what Friday's negotiation breakdown made inevitable: that Greece will default on a EUR1.55 billion loan repayment to the IMF that is due on Tuesday.
What Happens If Greece Defaults on Its Payment to the IMF? If Greece fails to pay the International Monetary Fund a $1.7 billion debt coming due at the close of business Tuesday--around 6 p.m. EDT--the country will immediately be in arrears to the fund, an event normally known in the financial world as a "default." The default would be the first by an advanced economy in the fund's seven-decade history, as well as the largest single overdue payment.
ECB's Benoit Coeure Says Greek Exit From Euro Can't Be Ruled Out. Greece's potential exit from the euro can no longer be ruled out after Athens ended talks with its creditors late last week and called for a referendum, European Central Bank executive board member Benoit Coeure said in a French newspaper interview released Monday. "An exit of Greece from the eurozone, which had been a theoretical idea, can unfortunately no longer be ruled out," Mr. Coeure said in an interview with Les Echos that was posted on the ECB's website. "It's the result of the choice the Greek government made to end discussions with its creditors and to call a referendum, which led the eurogroup to not extend the second aid plan," Mr. Coeure said--Dow Jones Newswires.
East European Banks Scramble to Stem Contagion Fears. Central bankers in Eastern European countries with extensive links to Greece took steps to ease concerns among investors and depositors that the Greek debt crisis could hurt their fragile economies. In Bulgaria, the poorest country in the European Union, the prime minister said the fallout in Greece could derail the country's long-standing plans to join the eurozone. Greek-owned banks control more than a fifth of the country's banking assets. Greek banks are also active in other Balkan states, including Macedonia, Romania, Albania and Serbia.
Fed's Dudley: International Standards Boost Resilience of Financial System. Federal Reserve Bank of New York President William Dudley highlighted Tuesday the importance of consistent international standards to the safety and soundness of the global payment and market infrastructure system.
BOE's Haldane: Low Rates Necessary for Recovery. Raising interest rates too early could risk another recession in the U.K., the Bank of England's chief economist Andy Haldane plans to say during a speech Tuesday. According to a prepared text of the speech, Mr. Haldane plans to argue that the central bank should keep the short-term policy rate at its current record-low of 0.5% for the short-to-medium term.
Indonesia Bans Foreign Currencies in Domestic Transactions. Indonesia's central bank is pushing through a regulation prohibiting foreign currencies, including U.S. dollars, from being used in domestic transactions as it tries to get a grip on the falling rupiah, despite concerns from some industries.
Brazil Central Bank Reaffirms Commitment to Reduce Inflation. Central bank head Alexandre Tombini said the monetary authority is committed to bring the country's rampant inflation down to the official target by the end of next year. "We are conducting a classic economic adjustment, which is necessary to reduce domestic and external vulnerabilities, put public debt back on a declining path and send inflation back to its target by the end of 2016," Mr. Tombini said in a speech in Basel, Switzerland.
RBA Governor: Unorthodox Central Banking Here for a While Yet. The unorthodox world of central bank policy, in vogue since the global economy plunged into a deep banking and markets crisis almost a decade ago, will remain the norm for some time yet, according to the head of Australia's central bank.
GRAPHIC CONTENT
Puerto Rico Calls for Concessions from Creditors. The U.S. commonwealth owes about $72 billion, nearly 70% of its economic output. Puerto Rico has been struggling with a weak economy and declining population. Despite recent efforts to raise taxes and balance the budget, analysts believe the central government could run out of cash as soon as July, which could lead to a government shutdown, employee furloughs and other emergency measures.
FORWARD GUIDANCE
-1630 GMT (12:30 p.m. EDT): ECB's Nowotny speaks in Vienna
-6 p.m. EDT: St. Louis Fed's Bullard speaks in St. Louis, Mo.
RESEARCH
Redistributive Policies May Not Be As Effective As Thought. New research from the San Francisco Fed, released Monday, takes stock of so-called redistributive economic policies. Simply put, these strategies take money from those that have the most of it, generally by way of taxation, and give it to those who have the least. Authors Bart Hobijn and Alexander Nussbacher write "there is evidence that differences in propensities to consume this additional income across households are smaller than commonly assumed." What's more, the ability to borrow is important, and can "provide the opportunity for lower-income households to smooth their consumption and maintain it at an acceptable level even when their incomes decline, thereby providing an alternative source of economic stimulus," they said.
(MORE TO FOLLOW) Dow Jones Newswires
June 30, 2015 07:06 ET (11:06 GMT)
#FX
#Forex
#SaleForex
#GrandCentral
#ChinaSlowDown
#GreaterConsequence
#GreeceDebt
0 Response to "Grand Central: China's Slowdown is of Greater Consequence than Greece's Debt"
Thanks for give comment.