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PRC Besets with Bubble Risk Due to Excessive Reserves

The People's republic of China is confronted with bubble risk which was mainly due to higher money supply, as mentioned on Thursday by the deputy chairman of the economic and finance committee of the National People’s Congress.

Huang being the appointed deputy chairman is also considered as the top financial expert where he noted the necessity to change the reserve system of the country’s foreign exchange. At the same time, the central bank needs to be independent in implementing the monetary policy.

Increasing Japan Exports in October due to High Export Demand

The exports from Japan are anticipated to increase for eleven consecutive months in October which would be supported by a strong demand from cars and electronic manufacturing machinery since they are the third biggest economy which is in the path to recovery according to the survey from Reuters on Friday.

The gross domestic product of the Asian country improved for seven uninterrupted months until the third quarter because of high exports demand such as cars and electronic parts within Asia and to the United States. Economists forecast that the economy will improve at a moderate pace as exports maintain the solid trend. Although, Japan is facing problems as they aspire to raise low consumer spending and inflation.

Exports are predicted to increase by 15.8 percent in October compared last year based on the survey of 20 economists because of overseas demand for cars and increase in semiconductor manufacturing tools.

Imports increased 20.2 percent in October than last year. This has been the quickest pace since January 2014 with more expensive oil prices which also increased the imports costs according to the survey.

The trade balance would possibly be at 330.0 billion yen or $2.93 billion in October. A decline was seen from the 667.7 billion yen in September. Exports are forecasted to continuously increase since the external factors are kept unchanged in the fourth quarter as mentioned by the chief market economist at SMBC Nikko Securities.

The finance ministry will publish the trade data at 8:50 a.m. Tokyo time on Monday (23.50 GMT Sunday). The latest economic data saying that Japan could get free from deflation which they were faced with for years according to the analysis from the government which was submitted to the advisory panel on Thursday.

The government of Japan is anticipated to publicized their economic schemes by end of the year with a goal to have a higher investment in skills training and more productivity.

VAT Returns of Small Firms Incorporates to UK GDP Calculation

The Office for National Statistics evaluates the British economy by overhauling its way which includes huge VAT amounts from smaller companies for the first time. In the previous survey, the gross domestic product of the country was mainly based on the turnover of 45,000 largest firms. Since December, the data from the third of Britain’s 1.8m VAT returns will also be included in the turnover for the calculation of official GDP results.
With this, assessing UK economic growth will have dramatic changes for this could provide further insights from particular areas and industries. A higher proportion of VAT returns involves small businesses with a total of 98pc of UK companies.

In the past estimates of GDP, pubs and restaurants sectors, particularly "food and beverage service activities" have high levels according to the 172 monthly poll and 28,000 tax returns.
According to the ONS, a much more detailed data will provide a comprehensive output of pubs, restaurants and takeaways and restaurants among various regions. The first new estimate encompasses VAT returns coming from small and medium businesses including 100 or fewer headcounts. While survey for large companies will remain to be part of the data gathering and ONS’s report. As there is only 20 percent of smaller firms in the UK economy, which means that the data accumulated by the national statistical institute will be more accurate but the overall GDP result could possibly be not altered despite its inclusion because major firms have a greater impact.

Based on the perspective of PwC’s Economist John Hawksworth, it would be better if the Statistics authority will release GDP forecast “ with and without (the) use of the new VAT data" respectively, in order for the public to understand the difference. On the other hand, ONS chief economist Nick Vaughan announced that including additional information will be a gradual process.

Record Low Drop of Aussie After RBA November Meeting

It is still unknown when will the Reserve Bank of Australia be able to return to sufficient wages which would lift weakened inflation. At the same time, commentaries from the board push the dollar to its lowest level in five months.

During the minutes of the Reserve Bank's Melbourne Cup day, it can be concluded that they are heedful that low unemployment rate could not be directly associated with the globalization and technology and put upward pressure on inflation.

The cash rate positioned at a historic low of 1.5 percent following the November meeting when board member expressed their uncertainty on wage growth. When the unemployment rate drops, the salaries are expected to have an incremental increase. This could have a cooldown effect on the diminishing surge of the mining sector. Although the board members expressed that uncertainty with the possibility of a wage pressure and the size of its effect on the inflationary pressure.

At the same time, tension coming from strong competition and a quicker rate in productivity pickup could hamper the push through of tighter labor market conditions to inflationary pressure.

Following the release of the meeting, the Aussie dollar dropped to 75.33 US cents from 75.58 US cents which have been the lowest level since June.

As mentioned, the board members see the competitive pressures effect on the outlook for inflation is predicted to decrease down to 2.25 percent but this is still within the target range of the central bank until the middle of 2019.

In effect, it seems that the food retailers and other enterprise adjusted their business models to able to cope with cost problems. It is anticipated that the pressure on retail margins and costs will remain for a while.

On the other hand, the board member also took notice that the wages growth weakened even though the supply in the labor market is declining. Hence, there is a chance that the current wage growth would not have a direct effect on the demand for labor and be less receptive to the changes in demands for labor.

The chief economist of Royal Bank of Canada Su-Lin Ong presumed that the wages growth will reach the lowest rate in 2017.

Considering the global trend, it cannot be clearly deduced whether the pace of wage growth could be maintained.

Ong mentioned that the RBA could hold the rates at a steady pace in 2018 and proceed with increasing their prices the year after and end with two percent cash rate. She noted other factors such as weak domestic demand and variability in housing that is still far from reaching its goals amid an excessive labor market would have a minimal effect to raise the cash rate from 1.5 percent in early 2019.

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Italian Economy Gradually Improves, says Dombrovskis

The economic situation in Italy is gradually improving, however, it is also important to cut down public debt, according to European Commission Vice-President Valdis Dombrovskis.

Dombrovskis is expecting that the economy will grow in 2018, otherwise, it will remain below the EU average. He mentioned that debt "remains a source of vulnerability" that holdbacks the GDP of the country by 3.8% for debt servicing.

The former Latvian prime minister stated that the Italian debt has a significant cost for the country as the current environment we are living has low-interest rates, however, changes in monetary policy upon an increase in inflation will heighten the costs which could further trigger instability. He also talks about the "structural problem" including stagnant growth and insufficient production which are the considerations with regards the reforms.

Moreover, the vice president added that there are some developments among the banks in Italy while the level of impaired credits suddenly declined this year. Due to the interposition of Banca Monte dei Paschi di Siena (MPS) and Veneto banks, there are more or less 44 billion euros to 13.5% of the overall stock of NPLs is withdrawing from Italy’s banking system.

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Post-Brexit Economy Plan of UK to be Launch

The plan of the government in expanding the British industry prior the EU exit is scheduled to be launched later. According to official forecasts, the purpose of the industrial strategy is to revised growth which has the tendency to slow down because of UK’s low economic performance. As mentioned by Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, Brexit indicates that the strategy could be considered as "even more important".

Moreover, an agreement with the MSD (Merck Sharp & Dohme) to start a UK research centre is included in the strategy. The investment cost more than £1bn with an expectation to generate 950 jobs. Based on the government’s announcement, there was a significant vote of confidence within the strategy in boosting the UK economic performance after the EU exit.

The launch of the strategy followed some days after the Office for Budget Responsibility (OBR) reported about the productivity outlook and the aggressive reduction of growth in Britain. While political allies and corporate groups believe that the solution is to acquire improved productivity and higher compensation is regarded as greater investments.

Good US Economy to be Passed to Powell

Jerome Powell is officially getting closer to becoming the next Fed Reserve Chairman. The Fed Governor said that he is not worried about another financial crisis in the banking system. Powell was asked during the Senate hearing on Tuesday if banks remain too big to fail, and he answered “No”. He noted that regulators were able to conduct positive negotiations and there could be nobody to have an idea about the previous situation in case that a run on occurred on one of these giant financial institutions.

The incoming Fed head described that regulators were left with “no practical choice” and decided to let these huge banks to fail since the entire financial system resulted in a breakdown. In 2008, the Fed together with Treasury Department organized programs that could bring liquidity to American banks during the crunch which includes Bank of America (BAC), Citigroup and JPMorgan (JPM). Moreover, some were unable to survive like Lehman Brothers while Bear Stearns was bought by JPM at an extremely discounted price.

At the same time, the US economy is seated in a better position compared during the Great Recession. The next Fed chair stated that the country may expand nearly at 2.5% in 2018 as reported this year. The 2 percent growth is regarded below the average level according to the majority of forecasters. Goldman Sachs also has the same prediction of 2.5% growth in the economic growth of the United States, and for the world economic outlook is expected at 4% increase.

When talking about the US labor market, J.Powell expressed that the decline in the labor force participation rate among prime-age men indicates a dull employment despite the 4.1% jobless rate, as the reduced wage growth shows slack labor market. Just like Yellen, Powell stated his fears regarding low inflation rates, stressing the importance of reaching the 2% annual target.