3 NOV, 2010,

World Bank warns China at risk from global trade imbalances

The World Bank on Wednesday boosted its 2010 growth forecast for China to 10 percent, but
warned that global tensions over trade imbalances could cast a shadow over the rosy economic
outlook. 

The bank based its new prediction on the "still surprisingly strong" 9.6 percent growth in gross
domestic product seen in the third quarter, and said the prospects for the world's second-largest
economy "remain sound". 

The Washington-based bank forecast 2011 growth of a more modest but still robust 8.7 percent,
slightly up from its previous estimate of 8.5 percent, in its latest quarterly update on China. 

It suggested that a more flexible exchange rate mechanism would allow for more policy options
such as further interest rate hikes, which would help Beijing contain mounting inflation. 

"Coming from this very strong growth that we have seen recently, China should be able to ease
gently into a more sustainable rate of growth in 2011 and the medium term," the report's main
author, Louis Kuijs, told reporters. 

But the bank warned: "The combination of large current account surpluses in some countries,
including China, and large current account deficits in other countries, notably the US, poses
financial and economic risks, including from possible tension and contentious policy responses
to them." 

It said those risks were "probably the key ones for China", adding: "In this connection, a lack of
success in rebalancing China's growth pattern would be among the more serious medium-term
risks, for China and the world economy." 

Global trade woes and the prospect of a looming "currency war" are expected to dominate
discussions at next week's Group of 20 summit in Seoul. 

G20 finance ministers vowed to move towards more market-determined exchange rate systems
and "refrain from competitive devaluation of currencies" when they met last month in the South
Korean city of Gyeongju. 

The United States and Europe accuse China of deliberately holding down the value of the yuan
to benefit exporters. The currency has appreciated about two percent against the dollar since
Beijing pledged in June to loosen its grip. 

The World Bank's lead China economist, Ardo Hansson, said China should target the yuan's
value against a basket of currencies rather than one bilateral exchange rate -- and seemed to be
doing so. 

"Having a basket, or to at least target it, is a good direction," he said, noting that otherwise China
would suffer a lot of "shocks" as a result of being tied to one particular currency, an apparent
reference to the dollar. 

China says that irresponsibly loose US monetary policy is causing a wave of speculative cash to
flood emerging markets in search of higher non-dollar returns, given current exchange rates. 

The World Bank said those capital inflows would "add to the upward pressure on the renminbi",
or yuan, but should be "more manageable" in China, adding they "should not be a reason not to
raise interest rates". 

China's central bank last month raised one-year lending and deposit rates for the first time in
nearly three years as Beijing ramped up efforts to contain rising inflation and cool the red-hot
real estate market. 
5 NOV, 2010
Emerging economies vow to combat QE2 in US

SEOUL/BEIJING: Policymakers from the world's new economic powerhouses in Latin America
and Asia pledged on Thursday to come up with fresh measures to curb capital inflows after the
US Federal Reserve said it would print billions of dollars to rescue the economy.

Emerging economies expressed displeasure at the Fed's move, making any substantive deal on
global imbalances and currencies at next week's Group of 20 meeting that Seoul is hosting even
less likely.

"As long as the world exercises no restraint in issuing global currencies such as the dollar -and
this is not easy -then the occurrence of another crisis is inevitable, as quite a few wise Westerners
lament," Xia Bin, an advisor to China's central bank wrote in a newspaper managed by the bank.

South Korea's Ministry of Finance and Strategy said it had sent "a message to the markets" on
Thursday and would "aggressively" consider controls on capital flows while Brazil's Foreign
Trade Secretary said the Fed's move could cause "retaliatory measures".

Thailand raised the possibility of concerted action to combat the flood of investment dollars that
are expected to wash into emerging markets.

"The central bank governor has confirmed discussions with central banks of neighbouring
countries, which are ready to impose measures together if needed to curb possible speculative
money flowing into the region," Finance Minister Korn Chatikavanij told reporters.

A senior Indian finance official, who spoke on condition of anonymity, said while the US had a
right to stimulate its own economy, others would also serve their own interests and said any deal
on currencies in Seoul had to be a "win for both the blocs."

"And that begs a political solution and that's why we are all looking to Seoul," he said.
G20 finance ministers last month thrashed out an agreement that papered over the radically
different views of the two main belligerents -the US and China -in a statement that called for
competitive currency devaluations to be avoided and for governments to work toward a full suite
of policies to reduce current account imbalances.

The earlier G20 deal fell short of a firmer statement to allow currencies - in particular the
Chinese yuan - to rise, a measure that could have reassured investors that firm policy action
was on the agenda, rather than just words.

China's Xia bluntly warned in the Chinese language Financial News that Beijing would pursue its
own interests, saying: "We must think 'what is good for us'."

"It doesn't seem to me that this is the kind of environment in which any country will commit to
targets," said Credit Suisse currency strategist Olivier Desbarres.

In the wake of the Fed's move to buy $600 billion of US bonds, South Korea's central bank was
seen selling its won currency on Thursday in a bid to cap gains after it hit six-month highs in the
run-up to the Fed announcement.
8 NOV, 2010
Rupee can trade in two bands
One of the key themes in the FX markets, of late, has been the degree of deviation between price
movements of USD/ Majors, USD/Asia and USD/Commodity currency corridors. 

A function of flows, policy divergence and interest rate action, allowed DXY to stay well
supported at 75.6 levels.
Rupee can trade in two bands, 44.14 to 45.67 and 42.24 to 44.14, with an appreciation bias.
USDINR has found it difficult to get past the 44.50 region on several occasions, reinforcing the
appreciation story. 

USDINR traded at an implied spot of ~44.05 (relative to the Nov-end futures price of 44.20) in
muhurat trading on the exchanges. This forces us to broaden our outlook for the next week to a
range of 43.88 to 44.60 with flag posts at 43.97, 44.14, 44.35 and 44.53 levels. If 43.88 and
44.60 are taken off, look for an immediate move to 43.50 and 44.75 on either sides. 

Of particular interest is the RBI stance in the current environment. If we take the recent monetary
policy review to be the authoritative source, it seems that on REER basis the RBI is not
immediately concerned with rupee appreciation. 

Weekly events/data lineup include German industrial production, Greece and Portugal bond
auctions, UK inflation, G20 meeting, German and Euro-zone GDP updates and US jobless
claims. Globally, as long as it's a risk-on environment, USD will face continued pressure.
8 NOV, 2010

India is one of strongest markets in world: Aaron Smith,

To some extent, the markets did factor in a stimulus package and I do believe that the short-to-medium term
technical trend is in favour of equities. We maintain long positions in most global equity markets.
However, the question that you have to ask yourself as an investor is if the Sensex goes to 30000, if Dow
Jones trades at 20000, if Heng Seng is 40000, what will be the purchasing power of the underlying paper
money that you have supporting that? 

So it does not really help you if equity markets go up 50% or 100% from here when the paper money is
behind such as the US dollar loses 50% of its purchasing power. So basically what we see in the media
today, most people have this widespread notion that inflation is not a factor. However, if you look at the
United Nation's data, they say that there is increase in food prices over 26% year over year ending
October. If you compare that with energies, oil is up to around $86 a barrel. So any consumer price index
which does not really factor into food and energy is really ignoring the vast majority of the 6 million plus
people in the world today. 

So inflation really is there. The value of your rupee, your yen, your dollar, all of those currencies, no
matter how they relatively strengthen or weaken against each other, are actually losing value relative to
the daily goods that you need in your life.

15 NOV, 2010,
Dollar lifted by higher Treasury yields

LONDON: The dollar index hit a six-week high on Monday, boosted by a rise in US Treasury
yields that heightened the appeal of US assets, while the euro was stung as Ireland's debt
problems shook confidence in the euro zone. 

The 10-year Treasury yield hit a three-month high as the Wall Street Journal reported that a
group of Republican-leaning economists is launching a campaign calling for the Federal Reserve
to drop its plan to buy $600 billion of Treasuries. 

Analysts said the rise in yields gave further reason to buy the dollar, which has recovered as
investors reduce short dollar positions built up before the Fed's well-flagged decision earlier this
month to begin another bout of quantitative easing. 

Investors also sold the euro as Ireland struggled to convince investors it was in control of its debt
problems, leaving open the possibility of a bailout. "There is evidence of stretched positioning -
long positions in US Treasuries and short positions in the US dollar," said Elsa Lignos, currency
strategist at RBC. 
"Unlike QE1, which came more out of the blue, the market had a long time to process QE2 and
to factor it in". 

The dollar was particularly strong against the yen, rising to a near 6-week high above 83.00 yen,
supported by a widening in yield spreads between US and Japanese benchmark government
bonds. 

The dollar index was 0.5 per cent higher on the day at 78.472, having hit a high of 78.562, its
strongest since early October. Its gains came as the euro fell 0.5 per cent to $1.3627. 

The US currency was boosted as the 10-year Treasury yield's climb to a three-month high around
2.86 per cent

suggested higher returns on US assets. Yields also rose after Richmond Federal Reserve
President Jeffrey Lacker indicated opposition to the central bank's latest round of monetary
easing. 

"The market still wants to trade the correlation between yield spreads and the dollar, especially
versus the yen," said Paul Mackel, director of currency strategy at HSBC. 

Analysts say the Fed's decision to pump liquidity into the market through Treasury purchases
will limit the upside for yields, but some say investors may trim long Treasury positions as a
slight recovery in US fundamentals suggests the Fed may not be as aggressive on QE. 

EURO SUFFERS Mackel at HSBC said higher yields would continue to boost the dollar. HSBC
expects the euro to trade at $1.35 by year-end. 

The single currency has taken a hit in the past week or so as Irish bond yields have rocketed on
the country's struggles to control its spiralling debt. 

Still, some investors have taken heart from reports that the European Union has an aid package
of up to 90 billion euros prepared for Dublin, keeping the euro above Friday's six-week low of
$1.3573. 

The euro also had support at its 55-day moving average at $1.3551, while the dollar index must
clear its 55-day average at 78.97 to extend its rally. 

The possibility of a bailout lowered the cost of insuring against an Irish default on Monday,
while the spread between Irish 10-year bond yields and their safer, German counterparts
tightened a touch. 
However, five-year Irish credit default swaps and the Irish/German yield spread remain near
their widest ever, suggesting that investors have little faith in Ireland's ability to repay its debts
without assistance. 

Some analysts were unconvinced a possible rescue plan for Ireland would offer much support for
the euro, gien that other countries including Portugal are also battling debt problems.

1 DEC, 2010,  
Euro zone debt crisis deepens; Portugal warns on banks

LISBON/DUBLIN: The euro zone's debt crisis deepened on Tuesday as investors pushed the spreads on
Spanish, Italian and Belgian bonds to euro lifetime highs and Portugal warned of 'intolerable risks' facing
its banks.

The euro dipped below $1.30 for the first time since mid-September, immune to new attempts by
European policymakers to calm markets hell-bent on testing the EU's determination to shield its
financially weak members and increasingly nervous about the possibility of future euro zone defaults. 

Two days after the bloc approved an 85 billion euro ($111.7 billion) emergency aid package for Ireland,
worries about contagion to Portugal and Spain persisted and the borrowing costs of large countries like
Italy and France shot higher. Markets are already discounting an eventual rescue of Portugal although the
government in Lisbon denies, as Irish leaders initially did, that the country needs outside aid. 

While a Portuguese rescue would be manageable, assistance for its larger neighbour Spain would sorely
test EU resources, raise deeper questions about the integrity of the 12-year old currency area, and
possibly spread contagion beyond Europe. Italy, the euro zone's third-largest economy, is now being
referred to as "too big to fail" and "too big to bail". 

Citigroup chief economist Willem Buiter described the turbulence hitting the euro zone as an 'opening act'
and predicted that sovereign default fears could soon extend to Japan and the United States. 

"There is no such thing as an absolutely safe sovereign," he wrote in a research note. 

Tomasso Padoa-Schioppa, a former Italian finance minister and ECB member who is advising Greece's
government, admitted that markets were 'very nervous', describing worries about Spain and other large
euro members as 'excessive'. 
The euro dipped below $1.30 and has now shed more than 7% of its value against the dollar since early
November. The yield spreads of 10-year Spanish, Italian and Belgian bonds over German benchmarks
spiked to their highest levels since the birth of the euro in January 1999. The iTraxx SovX index of
western European credit default swap prices rose to an all-time high above 200 basis points as the cost of
protecting against a euro zone sovereign debt default surged. "It's very worrying because Spain is almost
too big to be bailed out ... whereas Italy is too big to be bailed out," said Everett Brown, European bond
strategist at IDEAglobal. 

Jitters also hit European banking shares, which were led lower by French banks BNP Paribas, Societe
Generale and Credit Agricole on market rumours Standard & Poor's might cut France's outlook - talk
swiftly denied by the government in Paris. 

"There is no reason for concern, no risk," said Francois Baroin, budget minister and government
spokesman. 

Deepening the sense of gloom, Portugal's central bank warned that its country's banks faced an
'intolerable risk' if the government in Lisbon failed to consolidate public finances. 

Although the minority Socialist government in Portugal approved an austerity budget for 2011 last week, it
is struggling to meet its targets for deficit reduction, with the core state sector shortfall widening 1.8% in
the first 10 months of this year. The worry is that troubles in Portugal could spread quickly to Spain
because of their close economic ties. 

2 DEC, 2010,

Coca-Cola, IBM receiving millions in EU subsidies

Multinational giants including Coca-Cola , IBM and McDonalds are receiving European Union
subsidies in an attempt to prevent them leaving the economic zone, the Financial Times said on
Thursday.

EU structural funds are intended to even out disparities in wealth across the area by targeting
small and medium businesses in poorer member nations.

However, global corporations are also eligible to the pool of money and are taking advantage of
the EU's desire to retain its competitive edge, according to the FT and Bureau of Investigative
Journalism's study.
"There is a global contest," EU commissioner Johannes Hahn told the paper. "If we don't
participate in this contest all the production sites will go out of Europe, so we have to find ways
to keep them."

The paper found that IBM was granted 20 million euros for a project in Poland, Fiat applied for a
25 million euro grant and McDonalds received 60,000 euros to train Swedish staff.

Poland received 67 billion euros of structural funds, which the paper claimed was used to attract
blue-chip companies. "EU money is very correctly spent in Poland and has very positive effects,"
Polish deputy minister of regional development Waldemar Slugocki told the paper.

"It allows a business to build up long-term competitive advantage, which helps make the Polish
and European economy more innovative," he added.

The study also found that millions of euros in EU funds were given to businesses who were
moving factories from rich to poorer countries, despite rules forbidding the use of grants to help
companies search for cheaper labour.

Companies including British tea-maker Twinings and mobile phone giant Nokia took advantage
of grey areas in the method of allocating structural funds to help subsidise their moves to
countries with cheaper labour, the FT claimed.

The paper said the companies were "at the very least receiving EU subsidies to help with the
establishment of new factories, the extension of existing ones and the training of workers in their
new homes."

2 DEC, 2010,

Indian economy's growth to match IMF forecast

Indian economy is growing at its full potential and is likely to match the International Monetary
Fund's forecast of over 9 per cent, the chief of the multilateral lending institution said Thursday.
"In terms of economic growth and inclusive growth, India's growth is amazing," Dominique
Strauss-Kahn told reporters after a meeting with Finance Minister Pranab Mukherjee here. "The
growth is exactly following our forecast," said Strauss-Kahn.

The Indian economy grew by 8.9 per cent in the second quarter of this fiscal, latest data on gross
domestic product ( GDP )) showed, beating the government's own expectations of an 8.5 per cent
expansion this whole fiscal.

The growth was identical to the 8.9 per cent expansion logged during the first quarter and 0.2 per
centage points above the 8.7 per cent registered in the July-September period of the previous
fiscal. "You are running as fast as you can. More will be probably too much, so far it is very well
managed," said Strauss-Kahn.

2 DEC, 2010

China envoy: Beijing worried about EU protectionism

Ambassador Song Zhe also told the trade committee of the European Parliament that China believed it
was not objective and unfair to blame global economic imbalances on the value of the Chinese currency.

2 DEC, 2010,
IMF chief describes India as economic power house
 IMF Managing Director Dominique Strauss-Kahn on Thursday described India as a "leading
power" and an "economic powerhouse" going by the performance of the economy. 

"Your result here in terms of economic growth and also in terms of inclusive growth are really
amazing", he told reporters after a meeting with Finance Minister Pranab Mukherjee . 

" We had a very frutiful discussion and relationship between India and the IMF is expanding", he
said on the meeting with Mukherjee. 

"India is becoming one of the leading power in the world. It is really an economic powerhouse",
he said. 

"Your result here in terms of economic growth and also in terms of inclusive growth are really
amazing. 

"The forecast we had in the IMF is exactly what you are following now which is probably the
maximum that the Indian economy can provide these days. So you are running as fast as you
can," he said. 

IMF has projected Indian economy to grow by 9.7 per cent in 2010 though it uses a different
methodology for its calculation. 

India, which uses different computation for calculating GDP than IMF, however, expects the
economy to grow by 8.5 per cent this fiscal. 

The IMF chief said higher economic growth than what is being witnessed by India may lead to
risks of inflation and high current account deficit in the country

8 DEC, 2010,
Global equity markets may rise 13 pc in 2011: Credit
Suisse
Global equity markets will likely rise 13 percent in 2011 due to improving economic momentum, attractive
valuations and above-trend earnings growth, Credit Suisse said, and recommended investors stay
overweight on equities. 

The brokerage, which forecast global earnings growth of 10-15 percent next year, said economic
momentum is re-accelerating, with global GDP growth set to be 4-4.5 percent next year. 

Credit Suisse prefers equities over corporate bonds, as it believes equities are relatively cheap compared
to other asset classes and are also likely to benefit from an outflow from bond funds. 

"We think flow momentum is now turning, with investors realizing that a combination of the Fed being set
on pushing up inflation, a rebounding macro cycle and strong corporate earnings is bond-negative and
equity-positive," it said. 

The brokerage upgraded Japan to "overweight" from "benchmark," saying the country historically starts
outperforming four months after a trough in global lead indicators. The global economic momentum
troughed in October, it said. 

The UK, however, tends to underperform when the global equity market and economic lead indicators are
rising, Credit Suisse said, and downgraded UK to "benchmark" from "overweight." 

It stayed "overweight" on global emerging markets, and "underweight" on continental Europe and the
United States.
30 DEC, 2010

Sterling steady vs dollar, economic concerns weigh

Sterling was steady against a weaker dollar on Thursday, off an earlier one-week high and
underperforming other major currencies as concerns about a fragile UK economic outlook weighed on the
pound. 

Trade was very thin, exaggerating price action. With only a few year-end flows going through, sterling was
mostly driven by movements elsewhere, hitting a fresh low against the Swiss franc, which was
underpinned broadly by its safe-haven status. 

Comments from Bank of England policymaker Andrew Sentance warning against a delay in raising
interest rates to contain inflation had little impact on the pound. 

Sentance is known to be a hawk and is seen as a lone voice among UK policymakers, while investors'
primary concern is about the negative impact the government's planned austerity measures could have
on the UK economy. 

"Sterling is just following everything else. Markets are thin and just one order can turn things around," said
Geoffrey Yu, currency strategist at UBS in London. 

"Going forward we think sterling will stay rangebound against the dollar and the euro, but soft against
commodity currencies and the Swiss franc," he said, adding that recent UK data had been "not that bad
but not inspiring either". 

Sterling was steady versus the dollar at $1.5493, having hit a high of $1.5535, its strongest in nine days
as lower U.S. bond yields hit the greenback. This took it comfortably above a 3-1/2 month low of $1.5345
hit earlier this week, which has seen some sharp moves in choppy trade. 

The pound has support above its 200-day moving average, currently at $1.5402. 

The euro was up 0.3 percent at 85.47 pence, though it held below a four-week high around 85.93 hit on
Tuesday. 

In a technically bullish signal for euro/sterling, the pair's 100 day moving average, currently at 85.01
pence, has crossed above its 200-day moving average, at 84.92 pence. 

Sterling also hit an all-time low versus the Swiss franc of 1.4528 francs. The dollar and the euro also fell
to record lows against the franc. 

Investors are wary that 2011 could bring more bad news on the UK economy after recent higher-than-
expected unemployment data and evidence of falling house prices, with government spending cuts and a
hike in VAT expected to dampen growth. 

The problem of weak growth is compounded by stubbornly high inflation, making it difficult for the BoE to
act to counter either problem, with both interest rates and the bank's quantitative easing target expected
to stay on hold early in 2011. 

"We expect sterling to weaken as the outlook on the UK deteriorates," analysts at BNP Paribas said,
adding they expect it to extend the downtrend against the dollar towards the $1.5300 area.
Aussie & NZ dollars swept up in global commodity
rally

The New Zealand and Australian dollars held hefty gains on Wednesday courtesy of surging commodities
and robust global economic data, with the market paying little attention so far to a massive cyclone
heading for Queensland. 

In late trade the Australian dollar was enjoying the view at $1.0122, after climbing 1.5 percent on Tuesday
to as far as $1.0149, the highest since Jan 4. 

Its rally from a low of $0.9864 on Monday caught the market in a vicious short squeeze and which now
has would-be bears reluctant to sell again. 

"It's a symptom of risk environment," said Robert Rennie, chief currency strategist at Westpac. "We have
a number of metals doing particularly well; we had fresh record high for tin; the U.S. ISM at highs since
May 2004; the UK PMI was the highest in a 20 year history." 

"It's just risk on, risk on, risk on." A string of strong global manufacturing data augured well for continued
strong demand for Australia's resource exports, notably iron ore and coal which have boasted huge prices
increases in recent weeks. 

As a result, an index of Australian commodity prices from the Reserve Bank of Australia (RBA) surged 4.5
percent in January to be a staggering 49 percent higher on the same month last year. 

The boom in export earnings is boosting profits, investment, employment and incomes and is a major
reason the RBA is still likely to lift interest rates again in coming months, despite the drag from floods and
cyclones . 

That outlook was in marked contrast to the Federal Reserve which has committed to near zero rates until
unemployment shows clear signs of trending lower. 

"I expect the Aussie to remain in a $0.9950 to$1.0250 range," said Westpac's Rennie. "I don't think there
is a particularly compelling argument to go lower but if we do it's purely on the basis of the risk
environment." 

Support for the Aussie was seen from its Jan 24 high of $1.0023, with the currency now set to test
resistance at $1.0152 and $1.0183. 

The New Zealand dollar has also been buoyed by commodity prices with prices at its latest dairy auction
soaring 7.2 percent -- a level that will benefit the country's farmers. 

On Tuesday, a survey showed prices for New Zealand's main commodity exports hit a record high in
January, raising hopes that it will slowly filter through to the broader economy, which is struggling to pick
up steam. 

The NZ dollar was firm around $0.7812, after powering to a two-month high of $0.7823 overnight.
Technically, the kiwi is set to test $0.7837, the high on Nov. 22, if it can hold above key resistance at
$0.7815, which may lead the way to a new trading range of $0.7800 to $0.8000. 

"While the road higher may not be particularly easy, further dips in the currency will be supported and
may be shallow," said ANZ Bank senior strategist David Croy. 

The kiwi also edged up on the Aussie to NZ$1.2929, from NZ$1.3004 on Tuesday. 
Still, traders were cautious in the run-up to the December quarter unemployment number on Thursday,
after some initial data hinted at possible downside risk to market expectations of stable jobless rate
around 6.4 percent. 

A rate rise is fully priced in for both July and September this year, while about 67 basis points were priced
in over the next 12 months . 

New Zealand government debt recovered, with yields down a tad across the curve, while swap rates were
largely flat. The swap curve has steepened following a slew of weak economic data. 

Australian bond futures eased as stocks rallied. The three-year contract dipped 0.020 points to 94.90 and
the 10-year contract fell 0.020 points to 94.430