|As a member of the L.A. Area Chamber's Global Initiatives Council, we are pleased to provide you with the first edition of our monthly "Trade Intelligence Brief," which will provide a quick snapshot on news items and topics that effect the international business community. We trust that this overview will help you keep on top of the fast changing world we face. In addition, you can further follow-up on news items of special interest by clicking on the headings. This is part of our effort to provide you with the tools to access relevant trade information this year.
2011 Global Initiatives Council Chair
VSI Venture Strategies Innovations
monetary tightening taking effect:
Money supply (M2) growth slowed down to a 30 month low of 15.1
percent missing forecasts of 15.4 percent. Banks are extending fewer loans and
are down 12.5 percent YTD. The decrease isn’t due to lower demand but the
central bank’s tightening policy. The central bank has raised interest rates
twice this year and bank reserve requirements five times. Inflation is a top
priority for Beijing which is at 5.5 percent. A decrease in M2 increases
interest rates resulting in lower economic activity and deflation can result.
Chinese firms will begin to demand less which will impact commodity prices.
trade deficit decreased 6.7 percent to $43.7 billion in April: The decrease was
much lower than forecasts predicted. However, the reduction is temporary and
not sustainable. Four factors helped lower the deficit:
weak dollar made U.S. goods cheaper and more competitive
exports fell 25.5 percent but will return to previous levels in the latter
half of 2011
exports, which make up a large portion of the trade deficit, fell 5.5
percent due to lower demand
increased 1.3 percent being led by computers, petroleum products and
import prices rise 0.2 percent in May:
Economists predicted a 0.7 percent decrease. Import prices for
May year-to-year are 12.5 percent higher. The price index increase resulted
from the rise in oil prices. Since oil is priced in dollars a weaker dollar
translates into higher oil prices. In addition, growing demand from Asia and
rising commodity prices are pushing up the costs of business.
South Korea warns United States on consequences of not passing the FTA
by the end of summer:
The Korean National Assembly will vote on the United States-
Korea Free Trade Agreement (KORUS) after U.S. approval. Congress’ failure to
pass KORUS by August could push the Korean vote into the 2012. Any vote after
summer is too close to the 2012 Korean elections and domestic politics will
push the authorization into May. Obama will present the three pending FTAs for
a vote if Congress renews the Trade Adjustment Assistance. The program costs
$1bn annually but Republicans are questioning its costs and effectiveness.
European Central Bank(ECB) and Germany are in standoff over Greek
indicated it would not concede its position for private creditors to swap bonds
for a longer maturity of seven years. The ECB argues any debt restructuring
could scare financial markets and trigger financial turmoil pushing Ireland and
Portugal bonds into junk territory. However, investors and rating
agencies believe some form of debt restructuring is inevitable. One of the
parties will have to concede at the end of the month when an agreement is
needed to keep Greece afloat.
S&P downgrades Greece’s credit rating to CCC: A triple C rating
pushes Greek bonds into junk territory meaning they are highly speculative. A
restructuring of Greece’s debt is becoming increasingly likely which S&P
would consider a default. Debt restructure would be either a bond swap or
maturity extension. The cost of insuring against Greek debt default soared to a
new high. European banks are starting to agree on a rollover where they would
buy new debt to replace maturing bonds
Chinese monetary official warns of risks in holding heavy dollar
denominated assets: Chinese
Official Guan Ho spoke on his own personal views and not the state’s. His
warning of excessive holdings in dollars reflects concern over Washington’s
policy of weakening the dollar, and potential future easing. He urged capital
control easing and widening of the Chinese yuan trading band. Also, he
noted that market conditions were ripe for two-way renminbi, China's official
currency, price movement.
manufacturing fell in May:
The Purchasing Managers Index (PMI) for the United States fell
from 60.4 in April to 53.5 in May missing economists’ expectations of 57.7.
China’s PMI fell from 52.9 in April to 52 in May but was higher than the
expected drop to 51.6. However, China’s PMI has seasonal patterns of decreasing
in May but the markets will still overreact. The Eurozone’s PMI went from
58 in April to 54.6 in May. The PMI is an indicator of economic health and
usually sets the tone for the next month’s economic expectations.
States signs telecommunications agreement with Mexico: U.S. manufacturers
no longer have to do redundant testing in Mexico to prove telecommunications
products meet the country’s technical requirements. Mexico will allow
recognized American testing facilities to test products in the US and certify
they meet Mexican standards.