News Summary

News Summary
The most significant news article from the weekend came

from Chinese Premier Li Keqiang. On Saturday, Li revealed
that China has never said the economy absolutely must grow
7% this year, adding that he had faith in the country's ability
to overcome its economic difficulties (see page 6).
PBOC Vice-Governor Yi Gang said on Saturday that China will
be able to keep economic growth at around 6-7% annually
over the next three to five years. Comments appeared to be
aimed at reassuring investors this level of growth, China's
slowest pace in two decades but still faster than other major
economies, is the Chinese economy's "new normal". Speaking
at a conference in Beijing, Yi said China will lower the reserve
requirement ratio - the amount of cash that major banks need
to keep on hand - in the future at a "normal" pace (page 6).
Are you surprised by the rate cut? PBOC has been steadily
reducing interest rates since November last year, cutting them
roughly every two months. The last cut came 59 days ago, on
August 25 and the previous cut came 59 days before that. See
AFR article on page 4.
The Chinese central bank also announced it will eliminate the
cap on bank deposit interest rates, allowing banks in principle
to set rates freely. The move is part of efforts to liberalize
financial markets in hopes of having the Yuan included in the
basket of elite currencies underlying SDR (page 4).
FT said the PBOC move highlight a wider nervousness in
official circles over the health of the global economy. Eswar
Prasad, former China head of IMF said, It heightens concerns
that the economy may be losing growth momentum somewhat
faster than suggested by the headline official GDP growth
rate. Analysts say the latest rate cut is aimed at industrial
borrowers, who are struggling to service debt that is fixed in
nominal terms, even as falling prices decrease their revenue.
Yet economists caution that benchmark rate cuts will not
benefit all borrowers equally. The WSJ wrote, Days after
reporting its worst economic performance since the global
financial crisis, China unleashed a one-two punch to prop up
growth. There were signs of investor skepticism. Offshore
trading in Chinas currency, whose value is controlled by
Chinas central bank on the mainland, indicated that investors
were betting on a further devaluation of Yuan. Abolishing the
ceiling on deposit rates would also help lift the income that
ordinary households earn on their savingsseen as critical to
Chinas efforts to transition to an economy driven by
consumption. But it also brings considerable risk: A scramble
for deposits could destabilize the banking sector (see pages 23).
The 18th Communist Party Central Committee kicks off its
fifth plenary session on Monday Oct 26. Investors will be
focused on the government's new annual growth target.
An article in The Sunday Times said Chinese President Xi
Jinping has returned home to face bitter infighting at the top
of the Communist party and resistance to his authority over
the Peoples Liberation Army. The paper wrote evidence is
accumulating that Xi may be in political trouble. There has
even been talk of an abortive conspiracy last March to stage a
coup dtat against him, leading to the postponement of a visit
to Pakistan. The coup talk came after Xi purged two top
generals, Xu Caihou and Guo Boxiong, for corruption. Xu died
of cancer before he could face trial. Xis problem is that 134 of
Chinas generals were promoted by his two predecessors,
Jiang Zemin and Hu Jintao. Both men are still Xis rivals and
lead factions opposed to his group of princelings (page 5).
No Chinese data till Nov 1. But we have RBNZ rates decision
on Wednesday and BOJ on Oct 30. Market is not expecting
changes on Nov 28 but it will be a tricky on come Friday. Last
Friday Japan Finance Minister Taro Asos remarks brushed
aside an immediate need for additional monetary easing by
BOJ. This has created mixed views among financial market
players over whether it will take action at its next policysetting meeting.
UK will publish the preliminary Q3 GDP growth on Tuesday.
The Sunday Telegraph said UK growth slowed in the third
quarter as construction output shrank and manufacturing
stagnated, official figures will show this week. Experts believe
the economy expanded by 0.6% following growth of 0.7% in
Q2. The newspaper highlighted official figures show monthly
construction output fell by 1% in July and 4.3% in August,
while industrial production fell 0.4% in July before rising 1%
the following month. This suggests the sectors, which account
for just over 20% of GDP, added little or nothing to growth in
Q3 (page 8). However, Kathryn Cooper in The Sunday Times
said the acceleration in retail sales growth suggests domestic
demand held up in the third quarter despite growing
international risks (page 9).
I dont know why but probably he loves ready The Daily Mail.
BOE Governor Mark Carney gave an exclusive interview with
The Mail on Sunday. Carney said there was no certainty that
rates would rise, but it was the central expectation. He also
insisted any interest rates rise would be 'gentle' and not steep
(see page 12).
Liam Halligan in The Sunday Telegraph wrote it would appear
that a Eurozone QE programme running to 1trln isnt
enough. Having churned out 60bn of virtually printed
money a month since March, Preseident Mario Draghi has
now signalled theres likely to be even more. Draghi delivered
his coup de grce, declaring that the ECB is now vigilant.
That was it, the magic V-word, the sign that has previously
pointed to definite policy action to come. In his view, the Fed
wont put up rates. What well see instead, on some pretext of
another, is yet another large dollop of US money printing,
which will become known as QE4 (page 11).
Barrons Online said how the Fed Res can swim against the
global current of increased monetary accommodation is
puzzlement. The federal-funds futures market says the odds
are about 2-to-1 against the lift-off in rates commencing in
December. Whats clear to the equity markets is that the
central-bank tide has turned decisively toward more easing.
And so yet again, the timing for the first Fed boost is being
pushed further into the future (page 15).
Polish elections kick off on Sunday, seems like the Eurosceptic
PiS is the frontrunner with more than 30%. PiS opposes
joining the 'euro zone' in the near future, promises more
welfare spending on the poor and wants banks subject to new
taxation (see page 12).
Finally, market data on Sunday showed South Koreas top
three shipbuilders, Samsung Heavy Industries Co., Hyundai
Heavy Industries Co. and Daewoo Shipbuilding & Marine
Engineering Co. are expected to post an operating loss of 3trln
won in the second half of 2015 (page 19).
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
News China
China joins nervous global easing
Taken from the FT Saturday, 24 October 2015
Chinas central bank cut benchmark interest rates for the sixth
time in 12 months in a bid to support an economy which is
forecast to grow at its slowest annual rate in 25 years.
The move comes a day after the European Central Bank
indicated it would extend its quantitative easing programme
and cut its deposit rate in a bid to boost the eurozones
sluggish recovery.
The Peoples Bank of Chinas actions, combined with
Thursdays ECB announcement and market doubts over the
US Federal Reserves commitment to raise interest rates this
year, highlight a wider nervousness in official circles over the
health of the global economy.
Expectations for global growth have already been revised
down to 3.1 per cent in 2015, the lowest International
Monetary Fund forecast since 2009, and analysts are
concerned that prospects for next year are also dimming.
The PBoC said on its website that it was lowering the one-year
benchmark bank lending rate by 25 basis points to 4.35 per
cent and the one-year benchmark deposit rate to 1.5 per cent
its lowest on record from 1.75 per cent.
The central bank also cut the share of customer deposits
banks must hold in reserve, injecting Rmb560bn ($90bn) of
cash into the banking system to counteract the cash drain
from capital outflows in recent months. The required reserve
ratio was lowered by 0.5 percentage points to 17.5 per cent.
The PBoCs two-pronged monetary policy action signals an
intensification of policy measures intended to combat the
economic slowdown in China, said Eswar Prasad, Cornell
University professor and former China head of the
International Monetary Fund.
It heightens concerns that the economy may be losing growth
momentum somewhat faster than suggested by the headline
official GDP growth rate.
The PBoCs actions are the latest in a string of domestic
interest rate reductions and injections of credit into the
Chinese economy, designed to raise lending and spending by
reducing financing costs for home mortgages and loans to big
companies.
Official figures released earlier this week showed Chinas
economy expanded at its slowest pace since 2009 in the third
quarter. The data showed the challenges facing Chinas
leaders in achieving their growth target of around 7 per cent
for the year.
China has long been an engine of growth for the global
economy, and its slowdown has had far-reaching
consequences, depressing commodity prices, triggering big
swings in emerging market currencies and provoking doubts
about the wisdom of raising interest rates in the US.
Fears about China were further stoked by a plunge in the
countrys stock market during the summer and a surprise
devaluation of the renminbi.
Analysts say the latest rate cut is aimed at industrial
borrowers, who are struggling to service debt that is fixed in
nominal terms, even as falling prices decrease their revenue.
Yet economists caution that benchmark rate cuts will not
benefit all borrowers equally. Since 2013, Chinese banks have
been free to set lending rates as they choose. The benchmark
lending rate is only a guideline. In practice, home mortgages
and loans to big state-owned companies are correlated most
closely with PBoC benchmarks.
The central bank has drawn down its foreign exchange
reserves in recent months to prop up the renminbi exchange
rate following the surprise move on August 11 to let the
currency depreciate.
This intervention, which involves selling dollars and buying

renminbi, sucks money out of Chinas banking system because
the renminbi that the PBoC buys is taken out of circulation.
The cut in banks required reserve ration on Friday aims to
offset the tightening impact of the PBoCs currency moves by
pumping funds back into the system.
We see rising [downward] pressures on [renminbi] and

[offshore renminbi] exchange rates as PBoC will find it
difficult to strike a balance between monetary policy easing
and a stable exchange rate, Zhou Hao, China economist at
Commerzbank, wrote on Friday.
In addition to the easing moves, the PBoC also took its final
step towards deregulating Chinas domestic interest rates by
removing the ceiling on all bank deposit rates. Alongside its
previous rate cut in August, the PBoC removed the ceiling for
deposits above one year. Fridays move eliminates the cap for
deposits for all maturities.
Analysts say liberalising interest rates is a key prerequisite for
China to win the IMFs endorsement of the renminbi as a
global reserve currency. The fund is expected to decide late
this year whether to include the renminbi in its Special
Drawing Rights.
(Full article click - FT)
---
Chinas Central Bank

Economic Growth
Moves
to
Spur
Taken from the WSJ Saturday, 24 October 2015
PBOC cuts benchmark one-year lending, deposit rates by 0.25

percentage point
Days after reporting its worst economic performance since the
global financial crisis, China unleashed a one-two punch to
prop up growth while also sweeping away a major control on
how banks set deposit rates.
The countrys central bank combined a quarter-point cut in
benchmark interest rates with a half-percentage reduction in
banks reserve-requirement ratios, moves aimed at lowering
corporate financing costs and pumping liquidity into the
economy.
Fridays moves marked the sixth time since November that the
Chinese central bank has cut interest rates and the fourth
across-the-board reduction of the amount of deposits banks
are required to hold in reserve.
China is the latest of the worlds big economies to turn to its
central bank to stimulate flagging growth. The Federal
Reserve, with rates already near zero, expanded its holdings of
government and mortgage bonds through last year to push

down long-term interest rates. Now it is grappling with the
timing to raise short-term rates.
Chinas announcement came one day after European Central
Bank chief Mario Draghi signaled the ECB could do more to
stoke growth and inflation in the eurozone as early as
December.
The actions helped extend a global rally in stocks for a second
day. The Dow Jones Industrial Average climbed 158 points to
a three-month high of 17646.70, erasing a long losing streak
that began with Chinas surprise devaluation of its currency
Aug. 11. The S&P 500 swung into positive territory for the year
for the first time since August.
In a statement posted on the central banks website late
Friday, the Peoples Bank of China attributed the measures to
what it said was downward pressure on the countrys
economy. Beijing is fighting a host of economic ills that have
put at risk its goal of achieving growth of about 7% for the
year.
Investors cheered the prospect of expanded easy-money
policies by the worlds central banks, snapping up risky assets
such as stocks while paring back on safer Treasurys. The yield
on the 10-year note rose to 2.081% from 2.025% on Thursday.
Chinas latest action reduces the probability of some of the
more dire predictions about a slowdown in the worlds
second-largest economy, said Aaron Kohli, interest-rate
strategist at BMO Capital Markets.
But there were also signs of investor skepticism. Offshore
trading in Chinas currency, whose value is controlled by
Chinas central bank on the mainland, indicated that investors
were betting on a further devaluation of yuan. The yuan in
Hong Kong slumped to a nearly one-month low against the
dollar.
Along with the moves easing rates, China took a crucial step
toward overhauling its creaky banking system by removing
caps on deposit rates, illustrating a persistent dilemma for the
countrys economic stewards.
Broad credit-easing risks funneling money into unproductive
parts of the economy, such as heavily indebted state-owned
companies and inefficient sectors. To help solve that problem,
the PBOC will now allow banks to set deposit rates more
freely. The central bank thus intends to create greater
competition among lenders, which could in turn steer money
toward areas that need it most, such as small and private
businesses.
Abolishing the ceiling on deposit rates would also help lift the
income that ordinary households earn on their savingsseen
as critical to Chinas efforts to transition to an economy driven
by consumption. But it also brings considerable risk: A
scramble for deposits could destabilize the banking sector.
As a result, Chinas central bank said in its statement that it
will continue to manage rates, as officials seek to control
lending risks and put a lid on borrowing costs.
Other central banks, including the Fed, the ECB and Bank of
Japan, pushed rates down and started their own bondpurchase programs, known as quantitative easing, in response
to their domestic economic troubles. The ECB is now
contemplating expanding its bond program.
Despite these efforts, growth and inflation have lagged,
pointing to the limits of monetary policy to jump-start
economies with problems that cant be resolved by easy credit
alone.
For all the Chinese central banks maneuvering over the past
year, the countrys economy has shown few signs of regaining
its previous strength. On Monday, China said third-quarter
growth was 6.9%, compared with a year ago. The pace was
7.0% in the second quarter.
While third-quarter growth was at the high end of estimates,
raising eyebrows among economists as other data had
indicated a sharper deceleration, it marked the slowest rate of

expansion since the beginning of 2009, at the height of the
global financial crisis. The performance adds pressure on
Beijing to pile on further pro-growth measures to meet its fullyear growth target.
Until this summer, it had been rare for the PBOC
simultaneously to lower interest rates and banks reserve
requirements. The central bank made such a combination
move also in late August, amid a severe selloff of Chinese
stocks and growing worries over Chinas economy following a
surprise currency devaluation.
Taking such a rare action again means the real economy is
performing poorly, said a senior official at the PBOC. A lot of
companies have seen their profitability falling sharply and
thats a key reason why we took the action again today.
Profits at Chinese industrial companies plunged 8.8% in
August from a year earlier, latest data show, the biggest
monthly fall since 2011. Coal-mining companies, as well as oil
and metal producersindustries notorious for having excess
capacitywere among those that suffered the worst declines.
Economists say liberalizing interest rates and getting more
capital to private companies that employ large numbers of
workers are crucial to securing future growth. Beijing eased
controls over lending rates in July 2013, though that move has
made little difference to companies borrowing costs.
By loosening controls on deposit rates now, the government is
attempting to inject market competition into a politically
powerful state-run banking sector that has favored big state
companies over a more dynamic private sector.
The measure likely will further hurt the profitability of
Chinese banks already grappling with rising bad-debt levels.
Still, the central bank was able to overcome considerable
opposition from the banking industry to push through the
reform, according to people with knowledge of the matter, as
it convinced the leadership that China needed to take the step
to get the International Monetary Fund to include the Chinese
yuan in its elite basket of reserve currencies when the IMF
board votes on the issue next month.
Senior leaders including President Xi Jinping are eager to see
the yuan enjoy the same reserve-currency status as the dollar,
the euro, the British pound and the Japanese yen. They see
that as elevating Chinas role in the global financial system
even though it might not benefit the Chinese economy in any
meaningful way in the short run.
In recent weeks, Beijing has been stepping up efforts to win
reserve-currency status for the yuan. It has allowed foreign
central banks to invest in Chinas bond and currency markets
and is planning to extend trading hours for the Chinese
currency within China.
Eliminating the deposit-rate ceiling removes one of the last
remaining hurdles to satisfying the technical criteria set by the
IMF for designation of the yuan as a reserve currency, said
Eswar Prasad, a Cornell University professor and former IMF
China head.
However, China still has a way to go before declaring full
interest-rate liberalization, as the central bank will continue to
guide banks over how much they charge borrowers and pay
depositors. A completely market-based interest-rate system,
central-bank officials fear, could lead to risky lending behavior
and higher funding costs at a time many businesses already
are having a hard time getting loans.
Its a big test to commercial banks now that they can decide
on what rates to charge and to pay on their own, the PBOC
senior official said. Of course well continue to provide
window guidance to them.
After the latest rate cuts, Chinas benchmark one-year lending
rate will be 4.35% and its one-year deposit rate will be 1.5%,
effective Saturday. The reduction in banks reserve
requirementsmade to offset continued capital outflowswill
pump about 680 billion yuan ($108 billion) worth of funds

into Chinas banking system, estimates Zhu Chaoping, China
economist at UOB Kay Hian Holdings Ltd., a Singapore-based
brokerage.
The barrage of easing measures since late last year has had
some success in getting more credit flowing in the economy.
Chinese banks issued 1.05 trillion yuan of new loans last
month, the highest on record. However, as credit continues to
expand while growth slows, China risks a further buildup in
debt. An analysis by consultancy McKinsey & Co. shows that
Chinas debt load increased to 282% of GDP last year from
158% in 2007.
Still, companies borrowing costs remain elevated, and
bankers say they have had no choice but to charge more, given
the heightened risks in a slowing economy. Banks funding
costs are rising fast, and they have to pass them on to their
customers, said a senior executive at Shanghai Rural
Commercial Bank.
(Full article click - WSJ)
---
Ceiling on deposit rates scrapped

Taken from the Nikkei Saturday, 24 October 2015
China's central bank said Friday that it will eliminate the cap
on bank deposit interest rates, allowing banks in principle to
set rates freely.
The People's Bank of China will remove the ceiling on
Saturday. Banks had been allowed to set rates only within a
certain range based on a benchmark determined by the
central bank. The bottom limit on lending rates was removed
in July 2013, while the deposit rate ceiling had been gradually
relaxed, with the central bank saying it planned to scrap the
limit entirely this year.
The move is part of efforts to liberalize financial markets in
hopes of having the yuan included in the basket of elite
currencies underlying Special Drawing Rights, the
International Monetary Fund's global reserve asset.
The deposit rate had been held down to protect bank profits.
The controls resulted in a massive shift of money from bank
deposits to high-yield wealth management products,
endangering the health of the market. The elimination of the
cap, along with the floor on lending rates, will improve market
transparency and prevent distortions in fund allocation.
But creating an environment in which the central bank
deploys monetary policy to guide market-based interest rates
will take time. Even after rates are liberalized, the PBOC will
maintain the benchmark rate, which it said will continue to
function as a policy guide to some extent.
---
China interest rates cut explained

Taken from the AFR Saturday, 24 October 2015
China's central bank has cut benchmark interest rates for the
sixth time since November last year and removed its
remaining controls on deposit rates, in a bid to prop up the
economy by lowering corporate financing costs and boosting
household income.
The People's Bank of China announced the move on its web
site late Friday, cutting the one-year benchmark bank lending
and deposit rates by 25 basis points to 4.35 per cent and 1.5
per cent, respectively.
It also removed the ceiling on deposit rates, an important
reform that will allow banks to compete freely for customers.
And it reduced the banks' required reserve ratio by 50 basis
points to 17.5 per cent, which is expected to inject an
estimated 700 billion yuan ($153 billion) into the banking
system. The cash injection is aimed at countering the capital
outflows in recent months.
This is what you need to know:
The latest easing move comes ahead of a key meeting by the

country's political elite next week, at which they will set the
next five-year plan for 2016 to 2020, including economic
growth and development targets.
While the latest interest rate cut follows China's
announcement this week the economy grew at 6.9 per cent in
the third quarter it's slowest pace since the global financial
crisis it is not necessarily a knee-jerk reaction. As Capital
Economics points out the PBOC has been steadily reducing
interest rates since November last year, cutting them roughly
every two months. The last cut came 59 days ago, on August
25 and the previous cut came 59 days before that.
China now has a fully liberalised interest rate regime. While
it will probably take some time for interest rates to be
determined by the market, the reform fulfills one of the
International Monetary Fund's requirements for the yuan to
be designated a global reserve currency. The IMF is expected
to make its decision as early as next month.
This easing cycle is not over. Most economists expect one
more interest rate cut this year, probably in December,
followed by another in early 2016. Even though the central
bank had cut rates five times before Friday's move, real
interest rates are still higher than a year ago, leaving
companies struggling to service their debt.
The easing is both good and bad news for the global
economy. On the one hand, it shows China is continuing to
reform and open up its economy. However, it also suggests
Chinese policymakers are concerned. Economic activity is
subdued and there is downward pressure on prices. This
clearly has implications for China's major trading partners
and the stability of the global economy.
(Full article click - AFR)
---
What will it mean for the yuan to get IMF

reserve-currency nod?
Taken from the Business Times Saturday, 24 October 2015
International Monetary Fund (IMF) representatives have

given China strong signals that the yuan is likely to soon join
the fund's basket of reserve currencies, known as Special
Drawing Rights, Chinese officials with knowledge of the
matter told Bloomberg News this week.
Here's a primer on what that means.
What is a Special Drawing Right?
The fund created the SDR in 1969 to boost global liquidity as
the Bretton Woods system of fixed exchange rates unraveled.
While the SDR is not technically a currency, it gives IMF
member countries who hold it the right to obtain any of the
currencies in the basket - currently the dollar, euro, yen and
pound - to meet balance-of-payments needs. So the ability to
convert SDRs into yuan on demand is crucial. Its value is
currently based on weighted rates for the four currencies.
How much of these SDRs are out there?
The equivalent of about US$280 billion in SDRs were created
and allocated to IMF members as of September, compared
with about US$11.3 trillion in global reserve assets. The US
reported about US$50 billion in SDR holdings as of August.
Why does China want this status so badly?
In a 2009 speech, People's Bank of China Governor Zhou
Xiaochuan said the global financial crisis underscored the
risks of a global monetary system that relies on national
reserve currencies. While not mentioning the yuan by name,
Zhou argued that the SDR should take on the role of a "supersovereign reserve currency," with its basket expanded to
include currencies of all major economies.
Chinese officials have since been more explicit. After meeting
President Barack Obama last month at the White House,
President Xi Jinping thanked the US for its conditional
support for the yuan joining the SDR. Winning the IMF's
endorsement would allow reformers within the Chinese
government to argue that the country's shift toward a more

market-based economy is bearing fruit.
Why is the IMF likely to approve this?
Global use of the yuan has surged since the IMF rejected SDR
inclusion in the last review in 2010. By one measure, the
currency became the fourth most-used in global payments
with a 2.79 per cent share in August, surpassing the yen,
according to the Society for Worldwide Interbank Financial
Telecommunication, known as Swift.
The IMF uses several indicators to determine if a currency is
"freely usable," the benchmark for inclusion in the SDR
basket. IMF staff members said in a report in August that the
yuan trails its global counterparts in major benchmarks, such
as its use in official reserves, debt holdings and currency
trading. But staffers have also stressed that the fund's 24
executive directors, who will make the final call, will need to
use their judgment.
Many major economies, including the US, Germany and UK,
say they're prepared to back the yuan's inclusion if it meets
the IMF criteria. Supporting the yuan may boost relations
between China and countries such as the UK, which has
sought to make London a major yuan trading hub.
Adding the yuan to the basket may also help the IMF improve
its standing with the Chinese. China and other emerging
markets were supposed to gain greater representation at the
fund under reforms agreed to in 2010, but the U.S. Congress
has yet to ratify the changes.
What's likely to happen to yuan assets in the longer term?
At least US$1 trillion of global reserves will migrate to Chinese
assets if the yuan joins the IMF's reserve basket, according to
Standard Chartered Plc and AXA Investment Managers.
Foreign companies' issuance of yuan-denominated securities
in China, known as panda bonds, could exceed US$50 billion
in the next five years, according to the World Bank's
International Finance Corp.
"Once the Chinese yuan becomes part of the SDR, centralbank reserve managers and institutional investors will
automatically want to accumulate yuan-denominated assets,"
Hua Jingdong, vice president and treasurer at IFC, said in an
interview in Lima earlier this month during the IMF and
World Bank annual meetings. "It will be strategically
important for China to welcome all kinds of issuers to become
regular issuers in China's onshore market."
(Full article click - BT)
---
Coup whispers sour Xis return

Taken from the Sunday Times 25 October 2015
WREATHED in the glow of royal pomp and ceremony, the

Chinese president, Xi Jinping, has returned home from
Britain to face bitter infighting at the top of the Communist
party and resistance to his authority over the Peoples
Liberation Army (PLA).
The British government placed a huge bet on Xi, 62, by
honouring him last week with a state visit while talking of a
golden era of trade and friendship. Chinese newspaper
readers and television viewers were shown images of their
leader riding with the Queen in her gilded carriage.
But evidence is accumulating that Xi who heads the state,
the party and the army may be in political trouble. There
has even been talk of an abortive conspiracy last March to
stage a coup dtat against him, leading to the postponement
of a visit to Pakistan.
The information comes from insiders connected to the party
elite, amplified by leaks to the Chinese-language media in
Hong Kong.
Threats to Xis prestige multiplied after Chinas stock market
crashed in the summer, its economy slowed and thousands of
officials and army officers fell to his campaign against
corruption.
Earlier this month the official PLA Daily newspaper

acknowledged dissent in the ranks by denouncing resistance
blocking the reforms of military command appointments.
The coup talk came after Xi purged two top generals, Xu
Caihou and Guo Boxiong, for corruption. Xu died of cancer
before he could face trial.
A retired general, in an interview with the Hong Kong political
magazine Qianshao, said Xi could not sleep soundly at night
in the leadership compound at Zhongnanhai, in the old centre
of Beijing. What does he worry about? First, about the
military power on which his life depends, the unidentified
general was quoted as saying.
A group of 14 generals, including the chiefs of all of Chinas
seven military regions, earlier made an unprecedented public
vow of loyalty to Xi.
This demonstration that the PLA had his back was a sign of
weakness as much as strength, said Roderick MacFarquhar of
Harvard, an expert on Chinese politics.
Xis problem is that 134 of Chinas generals were promoted by
his two predecessors, Jiang Zemin and Hu Jintao. Both men
are still Xis rivals and lead factions opposed to his group of
princelings, the privileged sons and daughters of the leaders
of the 1949 revolution. The anti-corruption campaign, led by a
dour enforcer named Wang Qishan, met fierce resistance.
The risk for Xi is that he is confronting dozens and dozens of
families who feel they contributed to the building of China and
who face losing their wealth, their positions and their place in
history, said MacFarquhar.
Government business has slowed or come to a stop as midranking officials start to worry about making decisions and
resent the fact they cannot take bribes. Some analysts believe
that if the campaign goes on as it is, the partys morale could
crumble, along with its organisational strength. Mingjing, a
Hong Kong magazine, said in its latest report on the issue:
The biggest risk is that Xi Jinping and Wang Qishan will be
killed.
Xi, who arrived back yesterday, faces a difficult party meeting
tomorrow at which a barely concealed split over the economy
with his prime minister, Li Keqiang, will be on the table. The
fifth plenum of the 18th party congress is meant to set out the
next five-year plan. In reality, a venomous dispute has broken
out among the leadership about the stockmarket crash and its
aftermath. The meeting was delayed because of the tensions.
During the crisis Xi is said to have banged the table and
shouted at the premier to fix the market or come back with his
head on a plate. He then ordered state intervention to prop up
stock prices to protect millions of small investors from losing
money. Officials threatened financial firms with punishment.
Chinese journalists say the premiers faction retaliated with
leaks to the Hong Kong media that economic reform has
reached a dead end.
The Chinese public has read none of this in the statecontrolled press, which has been full of Xis triumphant
progress through Britain. There was no mention of the fact
that the Queen, in her speech at a state banquet, avoided using
the words golden era.
MacFarquhar, who is close to the White House, says the US
government reacted to Britains embrace of the Chinese leader
with disbelief. They will be rethinking their whole vision of
Britain, he said.
(Full article click - Times)
---
China central bank sees 'very normal'

growth of 6-7 percent in next few years
European News
China will be able to keep economic growth at around 6-7

percent annually over the next three to five years, a top
People's Bank of China policymaker said on Saturday, a day
after the bank cut interest rates for the sixth time in less than
a year.
The comments from Yi Gang, vice governor of the People's
Bank of China, appeared to be aimed at reassuring investors
this level of growth - the slowest pace in two decades but still
faster than other major economies - is the Chinese economy's
"new normal".
"China's future economic growth will still be relatively quick.
Around seven, six-point-something - these will all be very
normal," he told a conference in Beijing.
As well as cutting interest rates on Friday, the PBOC lowered
the amount of cash that banks must hold as reserves.
Both moves were bids to jumpstart growth in China's slowing
economy, a drag on global growth that has been of major
concern in emerging markets and other leading economies.
Monetary policy easing in the world's second-largest economy
is at its most aggressive since the 2008/09 financial crisis, as
growth looks set to slip to a 25-year-low this year of under 7
percent.
China will lower the reserve requirement ratio - the amount of
cash that major banks need to keep on hand - in the future at
a "normal" pace, Yi said.
The vice governor said the PBOC planned to keep interest
rates at a reasonable level to reduce the corporate debt
burden, and noted that interest rate liberalization does not
mean that the central bank would reduce regulation of rates.
China will also continue to set benchmark lending and deposit
rates for some time, he said, but these rates would not restrict
market pricing.
Yi also noted that China's stock market, which has fallen
sharply since June, had completed most of its adjustments
and that the yuan, which was buffetted in the wake of a
surprise devaluation in early August, has stabilised. The PBOC
was looking into leverage levels in the debt market, he noted.
Yi also commented on China's debt levels. He said that China
did not have exceptionally high debt levels, and while the bank
is not overly anxious about cutting the level of leverage in the
economy, the overall strategy is to stabilize leverage levels.
(Full article click - Nikkei)
---
Taken from the FT Saturday, 24 October 2015
Taken from the Nikkei Sunday, 25 October 2015
China premier says 7 percent growth goal

never set in stone
China has never said the economy absolutely must grow seven
percent this year, Premier Li Keqiang said in comments
reported by the government late on Saturday, adding that he
had faith in the country's ability to overcome its economic
difficulties.
China's economy in the July-to-September quarter grew 6.9
percent from a year earlier, data showed last week, dipping
below 7 percent for the first time since the global financial
crisis.
Speaking at the Central Party School, which trains rising
officials, Li said that China's economic achievements had been
not easy to come by and that the difficulties ahead should not
be underestimated.
(Full article click - Reuters)
Portugal faces months of political upheaval

A divided Portugal, torn between keeping to a narrow path of
fiscal rigour or turning the page on austerity, faces months
of political upheaval after the appointment of a minority
centre-right government that is vehemently rejected by a leftof-centre majority in parliament.
President Anbal Cavaco Silva on Thursday night reappointed
Pedro Passos Coelho as prime minister three weeks after his
centre-right alliance (PAF) emerged from a general election as
the largest political force but lost its outright majority.
The opposition Socialists (PS) denounced the presidents
decision as a waste of time, saying they would bring down
the new government and replace it with an anti-austerity
administration backed by the radical Left Bloc (BE) and
hardline Communists (PCP).
I give this government a week, a week and a half at the most,
said Pedro Filipe Soares, a senior BE official.
The fallout from Portugals election has raised concerns
among fiscally-conservative eurozone leaders that moderate
centre-left parties could also ally themselves to anti-austerity
groups in upcoming elections in Spain and Ireland.
Comparing the BE to Spains Podemos movement, Mariano
Rajoy, the Spanish prime minister whose conservative
Popular party faces a tough general election in December,
condemned parties that oppose the euro and EU rules at a
Madrid meeting of the centre-right European Peoples Party
(PPP) on Thursday.
After four years of majority rule under Mr Passos Coelho,
whose government steered the country through a punishing
international bailout, Portugal has been brought to a political
crossroads by a historic compromise between moderate proEuropean Socialists and the hard anti-euro left.
The main protagonist of this change has been Antnio Costa,
the PS leader, who rejected pressure to strike a deal with the
centre-right after losing the election to Mr Passos Coelhos
Forward Portugal alliance.
Instead, Mr Costa, the former mayor of Lisbon, turned to the
BE and the PCP, parties that support unilateral debt
restructuring, oppose the EUs fiscal pact on cutting budget
deficits and had previously spurned the PS as a political
enemy subservient to the conservative right.
The pact with the BE and PCP was like tearing down the last
remains of a Berlin Wall, Mr Costa said last week. The hard
left parties had agreed to put aside any demands that
conflicted with eurozone rules in support of a PS government
determined to break the cycle of impoverishment.
But Mr Cavaco Silva said in a televised address that
Portuguese governments had never before depended on antiEuropean forces who defended leaving the euro and
dissolving Nato, suggesting he would make every effort to
exclude the BE and PCP from government.
His comments were interpreted as an appeal for moderate PS
deputies to defy party discipline and not support a planned
parliamentary motion rejecting Mr Passos Coelhos new
government programme.
There are signs of disagreement inside the PS. Francisco Assis,
a potential challenger to Mr Costas leadership, said he was
absolutely opposed to any government based on a
hypothetical leftwing majority.
But at least nine PS deputies would have to break ranks to see
the government programme through parliament, a possibility
that party officials described as unlikely.
The president, a former leader of Mr Passos Coelhos centreright Social Democrats, warned that a stable government that
complied with eurozone rules and maintained the confidence
of international lenders, investors and financial markers was
absolutely crucial to the financing of our economy, economic

growth and job creation.
In an editorial on Friday, Pblico newspaper described Mr
Cavaco Silvas address as deeply ideological and at times
alarmist, questioning how he could legitimately prevent a PSled government taking office if it was supported by a
parliamentary majority.
After a bailout that triggered a deep recession, record
unemployment and a wave of emigration, Mr Costa argues
that 62 per cent of the electorate the combined votes of the
PS, BE and PCP voted to roll back austerity. The drop in the
centre-rights share of the vote to 38.6 per cent, down from
50.4 per cent, amounted to a rejection of rightwing policies.
However, Mr Passos Coelho denounced a potential leftist front
government as politically illegitimate, saying many people
would not have voted for the PS if Mr Costa had raised the
possibility of such an alliance before the election.
More than 70 per cent of the electorate, the prime minister
argues, voted for mainstream parties the PS and the centreright coalition who are firmly in favour of staying in the
euro.
Yields on Portugals 10-year debt rose by up to 20 basis points
following the election, but have since fallen back to about the
same level as before the vote.
(Full article click - FT)
---
Ambrose
Evans-Pritchard:
Eurozone
crosses Rubicon as Portugal's anti-euro
Left banned from power
Taken from the Telegraph Saturday, 24 October 2015
Constitutional crisis looms after anti-austerity Left is denied

parliamentary prerogative to form a majority government
Portugal has entered dangerous political waters. For the first
time since the creation of Europes monetary union, a member
state has taken the explicit step of forbidding eurosceptic
parties from taking office on the grounds of national interest.
Anibal Cavaco Silva, Portugals constitutional president, has
refused to appoint a Left-wing coalition government even
though it secured an absolute majority in the Portuguese
parliament and won a mandate to smash the austerity regime
bequeathed by the EU-IMF Troika.
He deemed it too risky to let the Left Bloc or the Communists
come close to power, insisting that conservatives should
soldier on as a minority in order to satisfy Brussels and
appease foreign financial markets.
Democracy must take second place to the higher imperative of
euro rules and membership.
In 40 years of democracy, no government in Portugal has
ever depended on the support of anti-European forces, that is
to say forces that campaigned to abrogate the Lisbon Treaty,
the Fiscal Compact, the Growth and Stability Pact, as well as
to dismantle monetary union and take Portugal out of the
euro, in addition to wanting the dissolution of NATO, said Mr
Cavaco Silva.
This is the worst moment for a radical change to the
foundations of our democracy.
"After we carried out an onerous programme of financial
assistance, entailing heavy sacrifices, it is my duty, within my
constitutional powers, to do everything possible to prevent
false signals being sent to financial institutions, investors and
markets, he said.
Mr Cavaco Silva argued that the great majority of the
Portuguese people did not vote for parties that want a return
to the escudo or that advocate a traumatic showdown with
Brussels.
This is true, but he skipped over the other core message from
the elections held three weeks ago: that they also voted for an
end to wage cuts and Troika austerity. The combined parties
of the Left won 50.7pc of the vote. Led by the Socialists, they
control the Assembleia.
The conservative premier, Pedro Passos Coelho, came first
and therefore gets first shot at forming a government, but his
Right-wing coalition as a whole secured just 38.5pc of the
vote. It lost 28 seats.
The Socialist leader, Antonio Costa, has reacted with fury,
damning the presidents action as a grave mistake that
threatens to engulf the country in a political firestorm.
It is unacceptable to usurp the exclusive powers of
parliament. The Socialists will not take lessons from professor
Cavaco Silva on the defence of our democracy, he said.
Mr Costa vowed to press ahead with his plans to form a tripleLeft coalition, and warned that the Right-wing rump
government will face an immediate vote of no confidence.
There can be no fresh elections until the second half of next
year under Portugals constitution, risking almost a year of
paralysis that puts the country on a collision course with
Brussels and ultimately threatens to reignite the countrys
debt crisis.
The bond market has reacted calmly to events in Lisbon but it
is no longer a sensitive gauge now that the European Central
Bank is mopping up Portuguese debt under quantitative
easing.
Portugal is no longer under a Troika regime and does not face
an immediate funding crunch, holding cash reserves above
8bn. Yet the IMF says the country remains highly
vulnerable if there is any shock or the country fails to deliver
on reforms, currently deemed to have stalled.
Public debt is 127pc of GDP and total debt is 370pc, worse
than in Greece. Net external liabilities are more than 220pc of
GDP.
The IMF warned that Portugal's export miracle remains
narrowly based, the headline gains flattered by re-exports with
little value added. A durable rebalancing of the economy has
not taken place, it said.
The president has created a constitutional crisis, said Rui
Tavares, a radical green MEP. He is saying that he will never
allow the formation of a government containing Leftists and
Communists. People are amazed by what has happened.
Mr Tavares said the president has invoked the spectre of the
Communists and the Left Bloc as a straw man to prevent the
Left taking power at all, knowing full well that the two parties
agreed to drop their demands for euro-exit, a withdrawal from
Nato and nationalisation of the commanding heights of the
economy under a compromise deal to the forge the coalition.
President Cavaco Silva may be correct is calculating that a
Socialist government in league with the Communists would
precipitate a major clash with the EU austerity mandarins. Mr
Costas grand plan for Keynesian reflation led by spending
on education and health is entirely incompatible with the
EUs Fiscal Compact.
This foolish treaty law obliges Portugal to cut its debt to 60pc
of GDP over the next 20 years in a permanent austerity trap,
and to do it just as the rest of southern Europe is trying to do
the same thing, and all against a backdrop of powerful
deflationary forces worldwide.
The strategy of chipping away at the countrys massive debt
burden by permanent belt-tightening is largely self-defeating,
since the denominator effect of stagnant nominal GDP
aggravates debt dynamics.
It is also pointless. Portugal will require a debt write-off when
the next global downturn hits in earnest. There is no chance
whatsoever that Germany will agree to EMU fiscal union in
time to prevent this.
The chief consequence of drawing out the agony is deep
hysteresis in the labour markets and chronically low levels of
investment that blight the future.
Mr Cavaco Silva is effectively using his office to impose a

reactionary ideological agenda, in the interests of creditors
and the EMU establishment, and dressing it up with
remarkable Chutzpah as a defence of democracy.
The Portuguese Socialists and Communists have buried the
hatchet on their bitter divisions for the first time since the
Carnation Revolution and the overthrow of the Salazar
dictatorship in the 1970s, yet they are being denied their
parliamentary prerogative to form a majority government.
This is a dangerous demarche. The Portuguese conservatives
and their media allies behave as if the Left has no legitimate
right to take power, and must be held in check by any means.
These reflexes are familiar and chilling to anybody
familiar with 20th century Iberian history, or indeed Latin
America. That it is being done in the name of the euro is
entirely to be expected.
Greeces Syriza movement, Europes first radical-Left
government in Europe since the Second World War, was
crushed into submission for daring to confront eurozone
ideology. Now the Portuguese Left is running into a variant of
the same meat-grinder.
Europes socialists face a dilemma. They are at last waking up
to the unpleasant truth that monetary union is an
authoritarian Right-wing enterprise that has slipped its
democratic leash, yet if they act on this insight in any way they
risk being prevented from taking power.
Brussels really has created a monster.
(Full article click - Telegraph)
---
Steel bosses in Treasury crisis talks

Taken from the Sunday Telegraph 25 October 2015
Industry expected to demand more help from Chancellor in

first meeting since trouble erupted
The steel industry is preparing for crunch talks with the
Chancellor as fears grow more jobs could be lost unless
ministers deliver on pledges to help hard-pressed companies.
Pressure is building on George Osborne to provide financial
relief on high energy prices, with him scheduled to meet a
representative from the industry next week.
Terry Scuoler, chief executive of industry body UK Steels
parent EEF, is understood to be ready to meet Mr Osborne
next week. The talks the first between the Chancellor and
the industry since the steel crisis erupted will lay out the
huge pressures Britains steel-makers are under.
Last week Tata Steel announced 1,200 redundancies at its
plants in Scunthorpe and Scotland, taking the number of
positions it has cut this year to almost 2,200. Earlier this
month SSIs Redcar plant closed with the loss of 2,200 jobs
after the company went into administration, and there are
doubts over the future of 1,700 roles at Caparo Industries after
it also collapsed.
Co-ordinated by EEF and UK Steel, the industry has been
campaigning for a reduction in green levies which make power
bills for the energy-intensive industries (EEIs) such as steelmakers some of the highest in Europe.
The calls form part of EEFs regular submission to the
Chancellor ahead of the Autumn Statement, but next weeks
meeting will give the industry its first opportunity to set out its
position to the Treasury. With the crisis currently ravaging the
steel industry, the meeting is expected to be dominated by
demands for further support.
The 2014 Budget introduced measures that helped remove
some costs for EEIs, but the final part of the scheme is not due
to come into effect until April 2016 and has yet to win
European approval under state aid rules.
At last weeks Steel Summit in Rotherham, Sajid Javid, the
Business Secretary, pledged to fight for European approval for
the full relief. He is due to meet European commissioners this
week to plead the industrys case.
However, industry chiefs are worried that unless support

comes soon, more steel businesses could fail.
The current situation is unsustainable and I believe we could
see more collapses and jobs lost if approval takes months,
rather than weeks, said UK Steel director Gareth Stace.
The industry body believes that implementing the full relief
for steel-makers from the green levy would cost the
Government 3.8m a month in taxes the industry would not
pay.
British steel-makers are buckling under a combination of high
energy bills, more onerous business rates than many foreign
competitors and the dumping of Chinese steel. Tata Steel which yesterday revealed a 9m package jointly funded by it
and the Government to help retrain Scunthorpe staff being
made redundant - has cited cripplingly high energy costs as
a factor in it cutting jobs. Senior industry sources calculate
that since 2013 Tata has paid 150m in energy taxes in the
UK, with about 20pc of that being returned in rebates. Last
year the company posted a pre-tax loss of 768m, more than
doubling the 354m it was in the red last year.
Steel bosses demanding action include Sheffield Forgemasters
chairman Tony Pedder, who called for an industry advisory
board.
An advisory board would give a voice to underpin the
Department for Business, Innovation and Skills (BIS) and give
it more clout in Westminster, he said. Otherwise they get
outgunned by Treasury or the Department for Energy and
Climate Change as witnessed by how long our energy strategy
has been unhelpful to the manufacturing sector.
John Beeley, managing director of Finnish-owned
Outokumpu Stainless in Sheffield, said: The green levy is
excessive and unfair when we are up against Chinese steel
makers who are not facing these pressures. We have been
promised relief for years and I think the wider industry has a
future if it comes, otherwise it could be driven into the
ground.
Pressure for action will be ratcheted up on Tuesday when MPs
on the BIS Committee take evidence from ministers, industry
bosses and union chiefs.
Committee chairman Iain Wright said: The UKs steel
industry has been dealt a series of major blows in recent
weeks and months. It is facing terminal decline and we will
be pressing the Government to explain what action it is taking
now to help the steel industry through this crisis.
---
UK recovery slows amid 'bumpy' growth

patch
Britain's recovery slows in the third quarter as faltering

manufacturing and construction means UK relies on single
engine of services to drive growth
UK growth slowed in the third quarter as construction output
shrank and manufacturing stagnated, official figures will show
this week.
Experts believe the economy expanded by 0.6pc between July
and September, following growth of 0.7pc in the second
quarter.
Global weakness has weighed on the recovery in recent
months as jitters in China and weakness in the eurozone have
raised concerns about the impact of a sharp slowdown on the
UK.
Official figures show monthly construction output fell by 1pc
in July and 4.3pc in August, while industrial production fell
0.4pc in July before rising 1pc the following month.
This suggests the sectors, which account for just over 20pc of
gross domestic product (GDP), added little or nothing to
growth in the third quarter.
Economists said growth would be entirely reliant on Britains

dominant services sector, where output rose by 0.2pc in July.
A closely-watched survey showed that the sector expanded at
the weakest pace in nearly two-and-a-half years in September.
Many economists believe there is a risk that the third quarter
expansion slowed to 0.5pc.
However, this would still represent the 11th consecutive
quarter of positive growth.
Ross Walker, chief UK economist at RBS, said tighter fiscal
policy and significant difficulties facing Britains
manufacturing sector were likely to drag on growth for some
time.
Given that fiscal consolidation implies only negligible growth
in public services, which represents around one-fifth of GDP,
and that manufacturing is facing significant difficulties, this
means that around one-third of the UK economy is likely to
remain mired in a state of broad stagnation over the next
quarter or two, he said.
Recent data have shown pay growth is strengthening, while
bumper retail sales in September also suggest consumer
confidence remains robust. Capital Economics believes
growth will be bumpy in the coming months, but expects a
stronger recovery as productivity rebounds, the drag from the
pound eases and the eurozone recovers.
Mark Carney, the governor of the Bank of England, said this
summer that eliminating remaining slack in the economy
would require growth above its past average of around 0.6pc
per quarter for a sustained period.
Mr Walker said slower growth would keep interest rates lower
for longer. GDP growth of 0.5pc quarter-on-quarter in Q3
would see the annual rate inch down to 2.3pc, he noted.
Although these outturns would be only a little below trend,
global and domestic headwinds are more apparent than
tailwinds at present and this warrants some caution in
withdrawing monetary policy stimulus.
Markets do not believe the Bank will raise rates until 2017.
---
Kathryn Cooper: Shopping spree keeps

economy on track
BRITAINS shoppers lifted the economy out of a late-summer

soft patch, official figures are likely to reveal this week.
The economy is expected to have grown 0.6% in the third
quarter, down only slightly from 0.7% in the previous three
months, after consumers went on a spending spree in
September.
Economists had been braced for a slowdown to 0.5% or 0.4%,
but the strength of retail sales has convinced many that
Britain has been able to shrug off the global downturn.
The acceleration in retail sales growth suggests domestic
demand held up in the third quarter despite growing
international risks, said Kallum Pickering, senior UK
economist at Berenberg, the investment bank.
This gives an early hint that while the pace of economic
growth may have slowed a little in the third quarter as a result
of financial market turbulence . . . the economy grew by 0.6%
quarter on quarter.
The Office for National Statistics said retail sales rose 1.9% in
September and 6.5% over the year. The boom was led by a
2.3% monthly rise in food and drink sales, boosted by the
rugby World cup.
Households have been lifted by record levels of employment,
wage growth of about 3% a year and good deflation. Prices
for goods and services fell 0.1% in September and inflation has
been hovering around zero for much of the year.
---
Jeremy Warner
Sorry, but Britain has little reason to thank
the EU for superior growth
Thatcher's structural reforms were a much bigger boost to the

UK than Europe
There are some things which Mark Carney, Governor of the
Bank of England, is not allowed to say. Never the less, he came
as close as he dared in a speech at St Peters College, Oxford,
last week on British membership of the European Union, and
hes been getting stick for it from both sides of the debate ever
since.
There were some caveats, but Mr Carney left little doubt
where he stands. Britain has benefited quite a bit from being
part of the European Union, he argued.
Mr Carney didnt actually say it, but he might well have done,
and it is certainly what he believes - like David Cameron and
George Osborne, it is to Mr Carney unconscionable that
Britain would leave a supranational organisation such as the
EU - worse, in the signals it sends to the rest of the world,
than quitting the United Nations, the World Trade
Organisation, or the International Monetary Fund.
This is scarcely the first time a Governor of the Bank of
England has waded into the political debate. They used to do
it all the time. More recently, Eddie George pre-judged the
governments own assessment of whether it made sense to
join the euro by warning in terms of the dangers of Europes
one size fits all monetary policy. Thank goodness for such
interventions.
And Mr Carney himself made a possibly decisive intervention
in the Scottish referendum vote by telling Scots that they
could not have both full independence and the pound.
In both these cases, however, there were profound
implications for monetary policy; beyond the basically
unknowable effect on the economy, there are no such
ramifications if Britain were to leave the European Union.
Even so, I cant agree with the former Chancellor and now
head of the Conservative out campaign, Lord Lawson, that the
Governor has strayed beyond his mandate. As one of Britains
two mainstay economic institutions (the other being the
Treasury) the Bank plainly does have some sort of a duty to
assess the economic pros and cons. Nobody is obliged to agree
with the Banks conclusions, and in particular, I would
challenge the Governors assertion that Britain has been
perhaps the prime beneficiary of the EUs four freedoms
capital, goods, labour and services. As evidence, he points to
superior rates of growth in GDP and productivity since Britain
joined. These gains, however, almost certainly have much
more to do with Thatchers capital and labour market reforms
than membership of the EU, whose regulatory demands often
seem to push Britain in the other direction.
All the same, the Governor has in a round about way managed
to highlight what promise to be the key drivers of the Brexit
debate, at least from an economic perspective. Im not sure
the EU was ever quite the benign globalising force it pretends
to be, but if the degree of seemingly perpetual crisis
management and further integration thought necessary to
salvage the euro is making it into something else defensive,
inward looking and protectionist is that really in Britains
interests as one of the most open and outward looking
economies in the world? If it isnt, might not these interests be
best pursued by going it alone? And finally are these potential
rewards worth the massive business uncertainty and
disruption that would come with the act of leaving?
---
Shoppers put life back into the eurozone

Consumer confidence in Europe has soared but slower

emerging markets have hit exporters
CHISTOPHER NIEPER is doing so well selling quality British
clothes to the French that he is sponsoring a prime-time
French TV programme for the first time.
David Nieper, the company set up by his father in 1961 in
Alfreton, Derbyshire, has been sponsoring Des Chiffres et des
Lettres (Numbers and Letters) the forerunner to Channel
4s Countdown for two months. The company is also
running TV ads in France and Germany to boost brand
recognition.
We are a British manufacturer reaching continental
consumers in their own homes. I dont know any other British
manufacturer doing that, said Nieper, 51, the managing
director.
Confidence has returned remarkably well in Europe. In
August, which is normally a quiet month, our French sales
were up 12% and in Germany they were up 21%, prompting us
to increase our marketing budget to try to boost our market
share further.
European consumers, in the doldrums for so long, have roared
back to life over the past 12 months. In Germany and France,
but also in Spain, Italy and Ireland, households are feeling
confident again and have been spending their cash.
Household spending has been boosted by good deflation
prices are falling just enough to make consumers feel richer
but not enough to discourage them from making big
purchases.
Domestic demand, rather than trade, looks set to drive GDP
growth in the eurozone this year, reversing a trend that has
been in place since the single currencys debt crisis in 2011,
according to Barclays.
Yet while falling prices may be good news for consumers, they
are a headache for Mario Draghi, president of the European
Central Bank (ECB). At a meeting of eurozone policymakers in
Malta last week, he made it clear the bank stands ready to
pump more money into the economy to rid it of the spectre of
long-term deflation. Five-year inflation expectations have
fallen to 1.6%, well below the ECBs 2% target and close to a
record low.
Draghi signalled that he is primed to extend the 1.1 trillion
(790bn) bond-buying programme launched in March, under
which the bank has pledged to purchase 60bn a month of
assets until next September.
He also left the door open for the bank to cut deposit rates
deeper into negative territory meaning it would in effect
charge more to hold cash. The deposit rate already stands at
-0.2%. This would weaken the euro and give a much-needed
boost to the regions exporters, which have been hit hard by
the slowdown in emerging markets.
After Draghis announcement the euro dropped nearly 2%
against the dollar on the promise of further stimulus, while
yields on two-year government bonds fell to record lows. They
are now below zero for almost every eurozone state.
The ECB is still deeply concerned about the threats to the
eurozones patchy recovery, said David Lamb, head of dealing
at the foreign exchange specialist Fexco. Such a strong signal
that the money presses will soon be set rolling again sent the
euro slumping.
Despite tentative signs that the first wave of quantitative
easing has succeeded in getting credit moving to businesses,
the slowdown in emerging markets has come at just the wrong
time for the euro area and in particular Germany, the blocs
largest economy.
German consumers may be spending again, but growth in the
countrys trade has more than halved over the past six months
as the downturn in China has taken its toll. Germany exports
about 6% of its goods to China. With cars accounting for about

a sixth of industrial production, the emissions scandal at
Volkswagen is also expected to weigh heavily in the coming
months.
The slowdown in China and the deterioration in other
emerging economies, combined with the Volkswagen scandal,
are key risks to the euro area, said Tomas Holinka, economist
at Moodys Analytics.
The troubles in Germany come just as the economies of
Europes embattled periphery seemed to be coming back to
life. Figures last week showed that Spains unemployment
rate, while still worryingly high, fell to a four-year low of
21.2% in the third quarter. Consumer confidence in the
country is at its highest for 10 years, house prices are rising
strongly again and Spain is expected to be the fastest-growing
of the largest eurozone economies this year with a GDP rise of
more than 3%.
Spains rebound has provided rich pickings for British
companies that were brave enough to venture into the country
during the depths of the crisis.
Will Butler-Adams, managing director of Brompton Bicycle,
said sales of the London companys folding bikes have
doubled over the past five years in Spain and the number of
stockists there has soared from 20 to nearly 100.
Spain went through a brutal five years but our customers are
young, cool people who were encouraged by the downturn to
ride a bike rather than drive, showing you can still get growth,
even when the wider economic picture doesnt look good, he
said.
Ireland, too, has been one of the eurozones star performers
with predicted growth of nearly 5% this year. With the era of
harsh austerity largely over, employment has picked up, the
housing market has stabilised and consumers are spending
again.
Even in Germany, British exporters are making inroads into a
market that is notoriously difficult for overseas companies to
crack, and they have seen little sign of a slowdown following
the Volkswagen scandal yet.
Rowan Crozier, chief executive of Brandauer, a precisionmetal components manufacturer in Birmingham, is taking his
sales team to the Productronica electronics trade fair in
Munich next month for the first time in 30 years.
He said orders from Germanys car industry have flooded in
since the summer, in defiance of the global slowdown, and
Crozier wants to show his German counterparts that he can
undercut them.
Last month we had a huge volume of orders from the
automotive sector in Germany, he said. Our customers may
manufacture [car parts] in Germany and eastern Europe but
they have a global customer base that isnt just Volkswagen.
Its about being selective over who you sell to.
Yet Draghi is worried about the impact of a stronger euro on
the blocs exporters. The currency has risen nearly 10% since
April as the impact of the ECBs last stimulus has started to
fade, and as Americas Federal Reserve has delayed interestrate rises. This had been one of the key factors supporting the
dollar against the euro.
Economists also question whether European consumers can
continue to drive growth, particularly when the boost from
lower fuel prices starts to fade towards the end of the year.
When this drops out of the numbers, underlying inflation will
still remain persistently weak, suggesting there is little
underlying demand to drive growth.
For now at least the eurozone seems to be experiencing good
short-term deflation, which is helping to boost consumer
spending, but that temporary boost from the lower oil price
cant be relied on in future and we expect consumer spending
to slow, said Jennifer McKeown, senior European economist
at the consultancy Capital Economics.
That is why Draghi cheered markets, and sent the euro

tumbling, with his promise of further stimulus last week.
Overall, [it] was a vintage Draghi performance, said Marchel
Alexandrovich, European financial economist at the
investment bank Jefferies International.
The euro was down more than 1.5 cents against the dollar,
the markets were left expecting something in December and
all the while the euro area economy continues to quietly, but
steadily, recover.
---
Liam Halligan
Mario Draghi gives the V-sign
dangerous QE day looms
but
QE-to-infinity is pumping up equity and bond markets,

blowing an even bigger bubble than that which led to the
Lehman collapse
Its all about the V-word, apparently. Thats a nod not to Sir
Winston Churchill, but a rather different character namely
Mario Draghi, president of the European Central Bank.
It would appear that a eurozone quantitative easing
programme running to 1,100bn (795bn) isnt enough.
Having churned out 60bn of virtually printed money a
month since March, and committed to maintaining that pace
until September 2016, Draghi has now signalled theres likely
to be even more.
The degree of monetary policy accommodation will need to
be re-examined at our December meeting, he said last week,
following the latest gathering of the central banks Governing
Council.
The size, composition and duration of eurozone QE could be
adjusted, Draghi continued, with the monthly amounts getting
bigger or the schedule extending into 2017 and beyond.
Alternatively, or in addition, the ECB could use credits created
ex nihilo to extend its bond-buying to some of the more ropy
corporate bonds otherwise burning holes in the balance sheets
of various eurozone banks.
Were open to a whole menu of monetary policy
instruments, Draghi continued, indicating that further
interest rate cuts were also now on the table.
No matter that the benchmark rate is 0.05pc, with the deposit
rate at minus 0.2pc both record lows. No matter that the
ECB has only recently said such rates were already at their
lower bound.
Then, as traders held their collective breath, Draghi delivered
his coup de grce, declaring that the ECB is now vigilant.
That was it, the magic V-word, the sign that has previously
pointed to definite policy action to come.
And, on that utterance, across the entire continent with
absolutely no regard to actual macroeconomic or company
news, or any other kind of information that would, under
normal circumstances, influence financial markets stocks
and bonds dutifully rallied.
The Europe-wide Stoxx60 share index surged after Draghis
oral intervention, closing 2pc up. Italian and Spanish
benchmark 10-year yields dropped to their lowest levels since
April, with the shorter two-year German sovereign bond
hitting an all-time low of minus 0.32pc.
The euro itself, on the prospect of even greater moneyprinting, shed a whopping 1.7pc against the dollar a big win
for the ECB given the implied boost to eurozone exports.
As a result, Draghi is now being hailed, once again, as a
rhetorical wizard, a veritable horse-whisperer among central
bankers. Back in mid-2012, when the single currency was
imploding, the smooth-talking Italian proclaimed that the
ECB would do whatever it takes to save the euro.
Bond vigilantes retreated, the markets were calmed and the
euro crisis was solved. Since then, at regular intervals,
Draghi has committed the ECB to fulfilling, if needs be, the

pledged Outright Market Transactions programme, a more
sustained form of central bank sovereign bond-buying, never
yet formally used.
So the ECB supremo has not only glued the single currency
together again, putting the great European project back on
track by dint of artificial balance sheet expansion.
Hes also delivered to Europes political and financial classes
an asset price rally thats kept various grossly mismanaged
banks afloat and allowed governments to continue with heavy
borrowing, despite having nothing to do at all with the
eurozones economic facts on the ground. And now, with
another rhetorical flourish, ahead of yet another round of
stock-and-bond pumping, Draghi has re-loaded his big
bazooka.
How should a rational person respond to all this? What are we
to make of the fact that, across the Western world, financial
asset prices now appear to be driven largely, in the absence of
big shocks, by the promises of central bankers further to
extend, sooner or later, what have become known as
extraordinary monetary measures?
The first thing is to understand what is actually happening
and why. The ECB, like the Federal Reserve and the Bank of
England before it, goes to great lengths to maintain the myth
that it is only rolling out ever more QE in an attempt to meet
our inflation mandate.
Yes, annual inflation across the eurozone was negative in
September, at minus 0.1pc, down from 0.1pc the month before
and a long way from the 2pc target. But thats mainly
because oil prices are some 50pc lower than they were a year
ago, and the United Nations FAO food price index is 20pc
down on September 2014. Strip out those entirely cyclical
commodity components and eurozone inflation was positive
last month at close to 1pc.
The threat of deflation is often wielded, not just in the
eurozone but across the Western world, as an alibi for
politicians and central bankers to keep extending and
pretending with ever more QE.
As the commodity cycle shifts back, and the price drop falls
out of the inflation numbers, other reasons to keep on printing
will no doubt be cited be it turmoil in emerging markets
(already being lined up) or yet another destabilising row
between Congress and the White House over Americas
federal borrowing limit (also coming into view).
A major motivation for ever more QE, apart from keeping the
asset price rally going, and pushing further into the future the
inevitable market tantrum when the sugar-rush (and the
prospect of future sugar rushes) finally ends, is to bear down
on domestic currencies.
The leading central banks involved (be they based in
Frankfurt or Washington, London, Tokyo or Beijing) are
trying to protect themselves in an largely unspoken, yet
ongoing currency war. Growth in the emerging markets has
slowed, of course, not least in China in part due to the
beginnings of a necessary and natural shift from investment to consumer-focused economics.
Sales of goods and services to such countries now account for
25pc of eurozone exports, and almost 35pc in Germany. Faced
with a still-fragile banking sector, the eurozone authorities
have sprayed around a great deal of QE money and that will
continue. Given moribund domestic growth, also, the ECB
wants to gain competitive ground against the dollar which
means, for now at least, doing more QE than the Fed.
In the end, the Fed will decide. If Americas central bank does
finally raise rates for the first time since 2006 in early
December, as expected, the dollar will get firmer, with the
euro falling. That would make it less likely well see additional
eurozone QE, beyond the remaining 680bn of the
announced programme still to come.
In my view, though, the Fed wont put up rates. What well see
instead, on some pretext of another, is yet another large
dollop of US money-printing, which will become known as
QE4.
As the euro rises, the ECB will then have to respond,
exploiting Draghis latest V-word preparatory work to extend
Frankfurts QE programme to 2018 or even beyond. Given the
UKs woeful export performance, and our massive trade
deficit, where will that then leave the Bank of England
which has never ruled out more QE?
People talk about currency wars between the West and the
emerging markets. Far more serious to my mind, and
potentially explosive, are the related intra-Western struggles.
QE-to-infinity is pumping up equity and bond markets,
blowing an even bigger bubble than that which led to the
Lehman collapse and theres little sign of a convincing exit
strategy. With the best will in the world, its hard to imagine
this seemingly endless monetary expansion will end well.
Never run away from anything, said Churchill. Never!
Western policy-makers, though, and much of the
commentariat, those lauding Marios big bazooka, are
running away from the screaming dangers of yet more QE.
---
Government faces mountain of work as

cash runs low
Taken from the Kathimerini Sunday, 25 October 2015
After a first round of talks with creditors failed to establish

virtually any common ground, the government must next
week push efforts to honor bailout commitments as concerns
about state coffers return.
With so many of the prior actions pledged to creditors
pending, it appeared unclear whether the government would
make enough progress next week to secure the release of a
first tranche of 2 billion euros in loans.
But officials are already under pressure to compile a second
bill featuring tough measures including increases to taxes on
farmers and an overhaul of the pension system; the second bill
is linked to another slice of 1 billion euros in loans.
The two sides have differing opinions on several issues,
however, including on whether and how to impose a valueadded tax on private education, on a law allowing debtors to
honor their dues in a larger number of installments and on
foreclosures involving primary residences.
Another sticking point is the budget for next year: the
creditors are not convinced that the measures Greece is
proposing will meet fiscal targets.
During his visit to Athens, French President Francois
Hollande suggested that there should be more discussion
about the threshold for foreclosures.
Berlin might not welcome any attempt to seek concessions,
however. Also, there are fears that delays could revive the risk
of a haircut on bank deposits.
If Greeces banks are not recapitalized before the end of the
year, new European rules on bank bailouts, coming into effect
on January 1, mean deposits of over 100,000 euros can be
tapped.
Before Greek banks can be recapitalized, however, Greece
must undergo a review by creditors and that can only be done
once both sets of prior actions have been legislated.
Meanwhile, state coffers are running low. This comes as the
draft budget for 2016 indicates that authorities are hardly
cutting spending, relying almost entirely on tax increases to
achieve budget targets.
The draft points to only 214 million euros in cuts to primary
expenditure while aiming to raise more than 2 billion euros
from value-added tax increases alone.
(Full article click - Kathimerini)
---
BOE Governor Mark Carney interview:

Interest rate rise will be gentle not steep
Taken from the Daily Mail Sunday, 25 October 2015
Almost one in 25 mortgage borrowers could be vulnerable

when interest rates start to rise, the Governor of the Bank of
England warned this weekend.
In an exclusive interview with The Mail on Sunday, Mark
Carney said about four per cent of mortgage-holders were at
risk of being unable to pay their debts if, as expected, the Bank
of England lifts rates in the next year.
But he insisted any rise would be gentle and the Bank would
keep a close eye on whether it was causing problems.
The Governors warning applies to borrowers for whom the
cost of paying their debts amounts to 40 per cent or more of
their income.
He said: If you are spending more than 40 per cent of your
income on debt service you are vulnerable.
'If you are off sick from work or you get not as many hours of
work or interest rates go up, those type of factors make it
more likely that you would not be able to pay those debts.
Today we have about two per cent of households who are in
that position. For mortgage-holders, its about four per cent of
households.
With almost seven million mortgage holders in Britain, the
vulnerable group amounts to roughly 280,000.
Carney said there was no certainty that rates would rise, but it
was the central expectation of the Banks rate-setting
Monetary Policy Committee.
There has been significant progress in the last seven years.
The economy has grown, a lot of jobs have been created and
we are now seeing wages pick up.
'Wage growth is about three per cent, though thats not evenly
distributed. So a lot of things are happening which are
consistent with the idea of interest rates beginning to increase.
'Weve talked on the MPC and the view is that the next move
in rates is likely to be up. That is still a decision to be taken.
'We have underscored that the path of rate rises will be a
modest, gentle pace because there are headwinds against the
economy.
Most City economists expect interest rates which have been
at a historically low 0.5 per cent since the financial crisis will
start to rise next year. But uncertainty in the global economy
means there is still huge debate about when.
(Full article click - Daily Mail)
---
Poland votes, conservative

party looks set to win
eurosceptic
Taken from the Reuters News Sunday, 25 October 2015
Poles vote in an election on Sunday that could end nearly a

decade of economic and political stability in the country of 38
million, bringing to power a conservative, eurosceptic party
whose policies diverge from many of Poland's European allies.
If opinion polls are correct, the ruling Civic Platform (PO), a
pro-market, centrist grouping in power for the past eight
years, will lose to the conservative Law and Justice opposition
party (PiS), run by the twin brother of late president Lech
Kaczynski, Jaroslaw.
Most polls show PiS as the frontrunner on more than 30
percent, while PO is second with just over 20 percent. Several
small parties are also running, spanning the political spectrum
from ultra-right to liberal and extreme left.
Distrustful of the European Union and an advocate of a strong
NATO hand in dealing with Moscow, PiS opposes joining the
'euro zone' in the near future, promises more welfare spending
on the poor and wants banks subject to new taxation.
It also opposes the relocation of migrants from the Middle
East to Poland, arguing they could threaten Poland's Catholic
way of life - raising the prospect of tensions with the EU on
the issue.
On the campaign trail, Kaczynski and other PiS leaders have

sought to tap into anger that the economic success is not more
evenly shared out and into nationalist sentiment fanned by
immigration fears, particularly among young voters.
"If (PO) maintains power, if we don't manage to take it from
them, things will be much worse than before. You may say
things cannot get worse. Things can always get worse,"
Kaczynski told supporters during a rally in Lublin, some 80
km (50 miles) from the Ukraine border.
Poland has seen its economy expand by nearly 50 percent in
the last decade and is the only EU member not to experience
recession after the 2008 financial crisis. But pockets of
poverty and stagnation remain, particularly in the east.
"There is a broader phenomenon of a return to national,
religious, community values being seen all across Europe,"
said political analyst Aleksander Smolar.
"PiS uses clear ... language in this respect."
FANNING RACISM
Kaczynski was accused by some Polish media this month of
fanning racism when he said migrants fleeing war in the
Middle East and Africa may bring new diseases and parasites
to Poland.
PO Prime Minister Ewa Kopacz later quipped Kaczynski, a
known cat lover, wasn't too worried to own cats even though
they can carry diseases dangerous to people.
"There are many diseases that come from animals, but at the
same time that doesn't stop (Kaczynski) from having a cat,"
she said.
PiS's advocacy of a robust Western approach towards Russia
following Moscow's 2014 annexation of the Crimean
peninsula in Ukraine might also complicate any future bridgebuilding between the EU and Russia.
Several new parties are running on anti-establishment
platforms, supported largely by young voters.
Among them, Kukiz'15, a grouping run by former Polish rock
star Pawel Kukiz, which wants to tax "bank gangsters" and
says Poland is a "colony of foreign governments". Kukiz ran in
a presidential election in May, winning a shock 21 percent.
"I hope we enter parliament in such numbers that it will allow
us to make a crack in the system, allowing the citizens, the
nation to win back control over the state, which has been
taken away from them," Kukiz told a campaign rally.
The smattering of fringe parties in the election means PiS,
even if it wins, will likely have to seek coalition partners to
rule, raising the possibility of extended talks in the weeks after
the vote.
It also leaves room for PO to retain its hold on power, if PiS
fails to form a functioning majority in parliament and the
centrists secure the support of leftist groupings such as United
Left (ZL) or liberal Nowoczesna.
Polls open at 7 a.m. local time (0600 British time) and close at
9 p.m., (2000 British time). Exit polls will be available
immediately after voting ends.
---
VW pressed to sell Porsche after debacle

VOLKSWAGEN could face pressure to spin off or float its

Porsche luxury sports car maker as the emissions cheating
scandal continues to engulf the car giant.
VWs third-quarter profits on Wednesday will be
overshadowed by the biggest crisis in the German companys
78-year history, with new chief executive Matthias Mller
expected to face a barrage of questions about how it will pay
for and recover from the scandal.
It emerged a month ago that the car maker, which competes
with Japans Toyota for the world No 1 title, used defeat
devices to trick American emissions tests into thinking its
diesel cars are far less polluting than they are.
VW has said about 11m cars are affected globally 1.2m of

them in Britain. It has so far set aside 6.5bn (4.7bn) to
cover the costs of the scandal. However, many believe more
impairments will follow as it is hit by fines, lawsuits and recall
costs. The ratings agency Moodys last week warned it could
cost VW up to $31bn (20bn).
Fiat Chryslers successful float of Ferrari last week raises
questions about whether VW should carve out divisions such
as Porsche or commercial vehicles to raise funds, said George
Galliers, automotive analyst at the investment bank Evercore.
They could list 40% of Porsche and maintain control, and
that would unlock a lot of value for shareholders. Its a
question they will get from the investment community,
Galliers said. With Ferrari, we now have a brilliant case study
of arguably how easily it can be achieved.
A more difficult option would be to combine and spin off its
two luxury brands, Porsche and Audi, he added.
VW is 52%-owned by the Porsche family, who tried to buy the
group in 2007.
VW declined to comment.
---
Renault pact with Japanese in peril

RENAULT and Nissan bosses are set for crisis talks this week
as French government activism threatens to unravel the car
makers 16-year alliance.
Executives will discuss how to water down Renaults influence
over Nissan to reduce the impact of a power grab by Franois
Hollandes socialist government last April.
The talks at the Tokyo motor show will centre on how to
shrink Renaults stake in Nissan below 40% from the current
43.4%. This would hand voting rights to Nissan, which has a
15% interest in its French partner but no formal say at the
moment.
The Renault-Nissan alliance, formed in 1999, is widely seen as
one of the industrys most successful unions, sharing
development, purchasing, parts, manufacturing and basic car
skeletons. It is held together by a mesh of cross shareholdings
and run by one chief executive, Carlos Ghosn.
However, the alliance has been shaken to its core since
Frances economy minister Emmanuel Macron increased the
countrys stake in Renault from 15% to 19.7% to force a
doubling of its voting rights in the French company. When the
double voting rights come into force in April, industry insiders
fear Paris will use its greater clout to preserve French jobs at
the expense of Nissan plants.
They warned that this could lead to Nissans Sunderland
factory, which makes more than half a million cars a year,
losing work to France. Industry sources said Renault factories
were only 40% utilised, while Sunderland was the most
productive plant in the alliance.
France had been due cut its stake to 15% soon after buying it,
but has yet to do so after a fall in Renaults share price. It is
believed to be sitting on a 100m (72m) paper loss.
A recent decision on where to build Nissans new version of its
Juke small SUV was delayed by the Franco-Japanese power
struggle, but a source said sanity prevailed when Sunderland
was reselected.
Frances activism has strained relations, with a Japanese
minister last week insisting Tokyo would not accept the power
grab passively.
Measures that could reduce French influence over the alliance
include a share buyback, sources said. They added that both
companies were keen on giving Nissan a greater say.
---
Formula One owner eyes RAC

THE owner of Formula One racing has made a 1bn approach

for a large stake in roadside services company RAC. The
buyout firm CVC has opened talks with Carlyle, one of RACs
owners, about buying its stake, senior City sources said this
weekend.
The discussions were described as very early stage and may
not lead to a formal offer. It is understood that investment
bankers have not yet been appointed to work on the deal.
CVC is understood to have asked for access to the accounts of
RAC, which traces its roots to 1897 and has more than 8m
members. It provides car insurance as well as breakdown
cover, and was part of the insurance giant Aviva until Carlyles
1bn takeover in 2011.
A sale to CVC would all but rule out a stock market float for
RAC, sources suggested. The private equity house would make
its investment through a long-term fund and probably hold
on to the business for several years, sources said.
RAC was primed as a stock market candidate last year until
Carlyle struck a deal to sell a large chunk of its stake to GIC,
the Singapore sovereign wealth fund. The deal valued the
breakdown service at 2bn.
Insiders said Carlyle had received several approaches for its
stake in the past year. Carlyle and GIC could still decide to
float the business, but the sources said they had been put off
by the lacklustre stock market performance of its larger rival,
the AA.
CVC, Carlyle and RAC declined to comment.
---
Anglo boss tees up 1bn sell-off

ANGLO AMERICAN boss Mark Cutifani hopes to revive his

stuttering turnaround plan by selling another piece of the
struggling mining empire.
The Australian executive, 57, is understood to have started
sounding out advisers about selling Anglos 1bn niobium and
phosphates arm, which is based in Brazil. A sale is not
expected to kick off for a couple of months. It would follow a
flurry of disposals by Cutifani, who has been frantically
cutting debt to stop credit agencies slashing the companys
rating.
Anglo plunged to a $3bn loss in the first six months of the
year because of writedowns and a steep drop in the price of
some of its key products, including iron ore and coal.
In a recent round of shareholder meetings, Cutifani said that
he may slash the dividend for the first time since 2009 to
protect the balance sheet.
The share price has halved in a year. It closed at just under
610p on Friday, valuing the company at 8.5bn
Cutifani was hired two years ago to rehabilitate the flagging
FTSE 100 miner but his efforts have been undermined by the
slump in commodity prices. His most pressing problem is the
$12bn debt pile. The chief executive has pledged to raise at
least $3bn to cut the burden. So far he has brought in $2bn by
selling South African platinum operations, Chilean copper
mines and the Tarmac building materials business.
If Cutifani approves the disposal of the niobium and
phosphates arm, Goldman Sachs and Morgan Stanley could
get the job. They handled the recent copper sale.
Anglo declined to comment.
---
Shell and BP prepare for further costcutting as oil prices stay low
Results this week could give more detail on savings to protect

dividend payments
Britains oil giants are preparing to make further cuts to their
investment plans in the face of plummeting crude prices.
Shell, like many oil explorers, has already slashed spending
and jobs to counteract the effects of a 40pc slump in oil prices
in the past year, with the price sliding as low as $43 a barrel
from highs of more than $110 in 2014.
However, Shell is this week expected to unveil a new round of
cuts alongside its third quarter results, which are set to show a
38pc slump in sales to $67bn (43.7bn) and a 54pc drop in
adjusted earnings.
The budget cuts will come on top of the 10bn reduction in
investment that was announced in January. The company also
halted drilling in the Arctic in September after disappointing
tests.
Many oil firms are expected to burn through their cash flows
this year, leaving spending cuts and asset sales as tools to
avoid sacrificing their dividends. Shells position is
complicated by a pending cash-and-shares takeover of BG
Group, which at current prices is worth more than 40bn.
Analysts are nevertheless optimistic about Shell maintaining
its dividend, which at $11.8bn last year represented one of the
biggest shareholder payments in the FTSE 100.
On our numbers, at $50-a-barrel oil and a further 10pc
reduction to capex, Shell will add 3pc to its [debt] gearing
each year, and with gearing at the deal close around 22pc, we
see ample room to weather the storm, said analysts at RBC
Capital Markets.
Meanwhile, BP is forecast to report a 47pc slump in its thirdquarter revenues to $49bn and adjusted earnings 60pc lower
on Tuesday.
The company, which last week formalised a $10bn gas supply
deal with the Chinese state-owned power firm Huadian, is
already set to save about $1.8bn from its yearly costs by 2018.
BP has rebuilt its dividend track record after cutting payments
in the wake of the Gulf of Mexico spill five years ago, and
recently agreed a deal to end US charges relating to the
disaster, bringing total related charges to $53.5bn.
However, RBC analysts said BP was at greater risk of a
dividend cut than Shell, estimating that the group has one or
two years with oil at $50 before it will have to address its
dividend.
News Americas
Global Realities May Stay Feds Hand on
Rate Hike
Taken from the Barrons Online Saturday 24 October 2015
Central banks once again get the credit for the sharp advance
at the end of last week. European Central Bank head Mario
Draghi
Thursday strongly
suggested that
further
accommodative measuresin addition to the ECBs current
quantitative easing and negative interest rateswould be
forthcoming in December. Then, on Friday, the Peoples Bank
of China announced its sixth round of interest-rate cuts since
last November, along with further reductions in bank-reserve
requirements.
In other words, it was the same story of central banks largess
flowing to the equity markets. Moreover, the Bank of Japan
this week may expand its asset purchases, which include
exchange-traded funds, in addition to the mundane
government bonds that have been central banks traditional
asset.
Among the exclusive club of central bankers, Federal Reserve
Chair Janet Yellen would appear to be the odd woman out.
The majority of economists continue to predict that, by
December, the U.S. central bank will begin raising short-term
rates from the near-zero floor where theyve been stuck since
late 2008.
For its part, however, the federal-funds futures market says
the odds are about 2-to-1 against the liftoff in rates
commencing in December (a 36% probability, according to
Bloomberg calculations). As for this weeks meeting of the
Federal Open Market Committee, the probability of a rate hike
is a mere 6%. The fed-funds futures market reckons that the
first increase will come in March, with a 60.6% probability.
Whats clear to the equity markets is that the central-bank tide
has turned decisively toward more easing. And so yet again,
the timing for the first Fed boost is being pushed further into
the future. And other central banks are dealing with
weakening growth.
In China, there is further monetary ease, even though official
third-quarter numbers show the economy grew 6.9% from its
level a year ago. The divergence of government data from
reality has increased, according to Barclays estimates, with
the bank calculating that actual growth is one to 1.7
percentage points below the official numbers. President Xi
will announce a new five-year plan this week. The emphasis
will be on continued reforms, but growth will remain a focus.
How the Fed can swim against the global current of increased
monetary accommodation is puzzlement. With interest rates
near zero almost everywhere, the effects of monetary policy
are seen most clearly in the foreign-exchange market.
Expectations of ECB easing sent the euro down sharply
against the greenback, from above $1.13 at midweek to around
$1.10 at weeks end.
Currency effects have been a major depressant for thirdquarter earnings now rolling in; no surprise to the stock
market, which has largely been willing to look past them.
While the U.S. economy is less export-dependent than others,
the strong dollar restrains prices of goods. Preventing these
prices from falling leads to central-bank accommodation and,
in turn, higher asset prices.
(Full article click - Barron's)
---
John Boehner Races Time on Debt Limit

Taken from the WSJ Saturday, 24 October 2015
If speaker wants to leave his likely successor, Paul Ryan,

without a standoff, he must act early in week
Departing House Speaker John Boehner doesnt want to leave
increasing the debt ceiling to Rep. Paul Ryan, the Wisconsin
Republican expected to win an election to succeed him this
coming week.
But Mr. Boehner (R., Ohio) has little time and few options to
dispatch one of the most politically repellent issues for
Republicans. That is likely to leave him with no other choice
than to bring to the House floor early in the week legislation
raising the federal governments borrowing limit with no
policy strings attached, known as a clean increase.
It would be great if they could come up with some big deal
that makes us all feel great about ourselves, but if past is
precedent, then were going to end up doing a clean debt limit
vote soon, said Rep. Tom Rooney (R., Fla.), who said he
would vote against it.
The Treasury Department has said that in order for it to
continue paying bills on time, Congress must act by Nov. 3 to
increase the federal governments current $18.1 trillion
borrowing limit. Republicans have said that they will raise the
debt limit only if other measures are passed to reduce federal
spending.
But President Barack Obama has vowed that he wont
negotiate over the debt limit, which Congress has increased
before without extracting any policy concessions. Raising the
debt limit doesnt authorize spending on new government
programs. It allows the government to pay debts on items for
which Congress already approved spending.
Mr. Boehner, who plans to leave Congress by Oct. 30, has little
time to act if he wants to ensure the debt ceiling doesnt land
on Mr. Ryan in his first week on the job. House Republicans
are expected to select Mr. Ryan as their nominee for speaker
on Wednesday, with his election on the House floor scheduled
for Thursday.
If the conference cares about Paul Ryans ability to succeed,
we do need to do that, Rep. Frank Lucas (R., Okla.) said of
resolving the debt-limit standoff.
House GOP leaders have struggled to find the roughly 30
Republican votes needed to pass a debt-ceiling increase. They
shelved a proposal this past week from the Republican Study
Committee, a large group of House conservatives, that would
have tied an increase to large spending cuts and a freeze on
new federal regulations.
A House debt-limit increase tied to other conservative policies
would probably not come back from the Senate, shorn of those
measures, until after Mr. Boehners departure.
Many Republicans say that they arent willing to vote for any
debt-limit increase without assurances that Mr. Obama will
compromise elsewhere.
Im not going to raise the debt ceiling if I dont have any
guarantees of spending cuts, said Rep. Richard Hudson (R.,
N.C.) Mr. Hudson said Republicans wouldnt cause an
economic catastrophe if they hold out beyond the Nov. 3
deadline. Its not like all the lights go out on the 3rd or 4th of
November, he said. Markets go up and down all the time.
Financial markets have showed rising unease over the debtlimit standoff this past week. Investors shied away from shortterm debt that matures after next months deadline, sending
yields to levels last seen during a similar standoff two years
ago. Yields on securities that mature later this year saw no
such uptick.
The Treasury pre-emptively postponed an auction of two-year
notes that had been scheduled for next Tuesday amid
concerns it wouldnt be able to settle as planned on Nov. 2, the
day before the Treasury says its cash balance could drop to
extremely low levels.
Treasury Secretary Jacob Lew, shown earlier this month, has
urged Congress to raise the debt limit before damage is done.
The debt-limit impasse is adversely affecting the operation of
government financing, increasing federal government
borrowing costs, reducing the Treasury bill supply and
increasing the operational risk associated with holding a lower
cash balance, the department said in a statement Thursday.
House and Senate leaders have made clear they don't want the
GOP-controlled Congress to miss the Nov. 3 deadline. That
means GOP leaders will likely have to pass debt limit increases
with predominantly Democratic votes, as they have in the
past.
On Friday, Rep. Peter Welch (D., Vt.) sent Mr. Boehner a
letter saying he would support a clean debt-limit increase,
signed by nearly the entire Democratic caucus.
Lawmakers from both sides of the aisle are hoping Mr.
Boehner can wrap up the debt ceiling before Mr. Ryan takes
his gavel.
John Boehners made it clear that he wants us to pay our
bills, Mr. Welch said. It is definitely better for the country,
its better for the Republicans and better for the Democrats if
we get this done under John Boehners watch.
Even if Mr. Boehner cant pass a debt-limit increase before his
departure, conservatives said they wouldnt blame Mr. Ryan
for cleaning up the mess left him. Holding him responsible
for something hes got at the very last hourI dont think
most folks are going to say thats his fault, said Rep. Matt
Salmon (R., Ariz.).
---
Irwin Stelzer
American Account: Britain may pay high
price for jilting America for China
JILTED. Thats how policymakers here in America feel now

that David Cameron has dubbed Britains bond with the
Peoples Republic of China as a very special relationship,
trumping the merely special relationship used by Winston
Churchill in 1946 to describe our close security and cultural
ties. Britain also trumped the state dinner accorded to
President Xi Jinping in Washington by providing Chinas ironfisted leader with bed and board at Buckingham Palace, as a
guest of the more benign head of state of the United Kingdom.
So we enter what the chancellor dubs a new golden era in
relations between China and Britain not a silver era, but a
golden one, as in the stuff of which the Midas legend is made.
For some reason, Britain, the worlds fifth-largest economy,
feels a need to woo Xi so that he will pour capital into the
countrys needy infrastructure, finance the nuclear plants the
government believes are necessary to keep the lights on, and
do China the favour of using the deep, liquid capital markets
of London for Beijing has none such to help the Peoples
Republic trade its yuan and flog its financial paper.
The US administration has been leaking to the press its
unhappiness at what one unnamed official called Britains
constant accommodation of China. That is understandable,
but comes with ill grace. For one thing, President Barack
Obama has put European allies on notice that America is
pivoting to Asia and away from Europe. One nations pivot is
another nations abandonment. And the 21st-century
circumstances that justify the US pivot surely equally justify
Britains pivot from an America that is shrinking its
international footprint to a China that is expanding its global
reach.
For another, Americas reputation as a reliable ally has been
tarnished by Obamas refusal to provide Jordan with drones,
Ukraine and the Kurds with weapons, and Israel with
unambiguous support. So Britain certainly has reason to

reduce the value of the special relationship to second rank by
adding very to its description of its special relationship with
China.
But that does not mean America has no justification for its
concerns. As part of its seeking an accommodation with
China, Britain was the first western country to join the Asian
Infrastructure Investment Bank (AIIB), the regimes
competitor to the Washington-based World Bank, despite the
Obama administrations objections. Of course, if the British
government thought joining the AIIB was in its economic
interest, it quite properly treated US objections as irrelevant.
But it might worry about the long-term consequences of
transferring power from a democratic, market-based economy
to an authoritarian, centrally managed one.
Then there is the deal Rolls-Royce has signed with Chinas
SNPTC to develop civilian nuclear products. State-owned
SNPTC has been accused by America of cybertheft and
cyberespionage of nuclear power technology, which the
company denies. Expanding SNPTCs reach into an important
British manufacturing company is a reason for concern for the
US, and perhaps should be for Britain. As should turning over
an important future part of the nations energy infrastructure
to China by involving it in financing and eventually designing
and constructing nuclear power plants. If those plants were
economically viable, markets would make capital available to
finance their construction. If China has leapt into the breach,
it must be expecting a non-financial quid pro quo.
Most important from the American point of view is concern
about the loss of support from the UK should one of the
worlds flash points spark and ignite a conflagration. China
demonstrated a few years ago that if Britain makes it cross, it
will retaliate. When the prime minister made it cross in May
2012 by meeting the Dalai Lama, Beijing imposed an 18month diplomatic freeze. Imagine how cranky Xi would be if
Britain sided with America in the event of a serious
confrontation with China.
Some 30% of maritime trade goes through the South China
Sea, and it has been the historic responsibility of the US to
keep the route open to all. Now China has created military
bases out of bits of land known as the Spratly Islands, and
announced that it has developed missiles capable of sinking
an aircraft carrier. The ideological Xi seems less likely to
favour unimpeded movement of goods, regardless of their
source and destination, than America has been. Bad news, and
not only for the US.
Then there is the problem of Chinas theft of intellectual
property, both by cybertheft and by coercing foreign
companies to turn over IP in return for access to the Chinese
market. These companies, hoist with their own greed, may not
merit our sympathy, but nothing can justify plain oldfashioned theft. And if Obama does lay on the sanctions he
has threatened, British support risks bringing the just-dawned
golden era to a premature close. As it will if Britain joins
Americas complaints about Chinas manipulation of its
currency.
Then there is the not small matter of the role of the dollar as
the worlds reserve currency. China has long pressed for its
replacement by a basket of currencies including the yuan.
British backing for that position would be a significant
triumph for Xis war to reduce the role of America in the world
economy and increase that of China.
Finally, American policymakers have raised the issue of
human rights publicly when the opportunity presents itself. In
his departments latest report on human rights practices, John
Kerry, the secretary of state, cited China as a country that
continued to stifle free and open media and the development
of civil society through the imprisonment of journalists,
bloggers, and non-violent critics. Cameron promises to
continue pressing China to adopt human rights policies

consistent with British values, but henceforth will do so in
private, eschewing what the Chinese and George Osborne call
megaphone diplomacy.
There is no reason to doubt the prime ministers word, or
believe he will abandon his advocacy merely to extend the new
golden era Britain so values. Whether private criticism will be
as effective as a public roasting remains to be seen.
---
Nasdaq may see record with Apple earnings

Taken from the Reuters News Sunday, 25 October 2015
The Nasdaq 100 index, dominated by U.S. technology stocks,

may set a record high next week, helped by good earnings
from Apple Inc expected on Tuesday.
Technology shares led the U.S. stock market's recovery this
week from its worst correction in four years in August, thanks
to gains in Alphabet, Amazon and Microsoft, after the three
companies reported better-than-expected earnings results.
The Dow Jones industrial average rose 0.9 percent to
17,646.70, the S&P 500 index recovered another 1.1 percent to
2,075.15, and the Nasdaq Composite closed the week up 2.27
percent at 5,031.86.
Shares across Asia, Europe and the Americas all climbed,
boosted by Thursday's message from European Central Bank
chief Mario Draghi that he was ready to increase the ECB's
bond buying program, and by an interest rate cut by China's
central bank.
Factors this coming week that may provide further support for
U.S. stocks include a Federal Reserve policy meeting, which is
not expected to raise interest rates yet, a report on U.S. thirdquarter economic growth, and earnings from Apple.
The Nasdaq 100 index, including Apple, is just 1.5 percent
below its year high and 4.0 percent from its record high back
in March 2000.
Intel and Microsoft have seen their stocks recover more than
30 percent each since Aug. 25, while Amazon and Facebook
rose 28 percent and 23 percent, respectively.
But the 'underperformer' among these companies has been
Apple, up only 14.8 percent from its Aug. 25 close, less than
the Nasdaq 100's 15.1 percent gain in that time.
In contrast to Microsoft, Facebook, Alphabet and Amazon,
Apple shares did not post record or multi-year highs this
week, even though it rose 7.2 percent, the largest weekly gain
in a year.
On Tuesday, though, Apple is expected to report $51.1 billion
in revenue, a 21.3 percent increase compared to the same
quarter of last year. Earnings are seen at $1.879 per share.
"The bar has been raised a bit on its earnings report from
where it was a week ago. The price action is telling you there's
more optimism built into it," said Michael James, managing
director of equities trading at Wedbush Securities in Los
Angeles.
Options market action shows traders expect Apple shares to
move roughly 5.0 percent by the end of next week. The
average move for the stock the day after its report in the last
eight quarters was 4.4 percent, up or down.
"Will an above-estimates from Apple and raised guidance
help? Sure it will. But we could still get there without that
happening," said James of the possibility of the Nasdaq 100
hitting a record.
"The power of the moves in some of these large cap tech stocks
has been breathtaking," he said.
Chip makers were also among the top five percentage gainers
in the Nasdaq 100 since the index closed at its 2015 low on
Aug. 25, with SanDisk topping the list with a 70 percent jump
on the back of a takeover bid from Western Digital.
The overwhelming leadership from established technology
companies is a positive for this market move higher, according
to Kim Forrest, senior equity research analyst at Fort Pitt

Capital Group in Pittsburgh.
"The last time the Nasdaq 100 was the market leader a lot of it
was speculative investments, but these (tech) companies
actually return money to shareholders," she said.
"Tech deserves the leadership; the stock market is rewarding
growth."
BIOTECH THE FLIP SIDE TO TECH STOCK
LEADERSHIP
While technology stocks have led the market recovery, biotech
stocks have been a drag on performance.
The Nasdaq Biotech Index is down 3.5 percent from its Aug.
25 close, and more than 20 percent below its year high. The
three index components with the largest declines in market
capitalization in the last eight weeks are Mylan, Illumina and
Biogen.
"There has been a major rotation out of healthcare and into
tech and it has continued after the recent earnings reports,"
said Wedbush's James, referring to strong results from
Amazon, Microsoft and Alphabet.
Biotech stocks were shaken in September when U.S.
presidential candidate Hillary Clinton first tweeted concerns
about drug prices and the selling spread to other areas of the
healthcare sector. Investors have been dumping shares of
everything from hospitals to traditional pharmaceutical
companies and insurers in recent weeks.
Since peaking in July, the Nasdaq Biotech Index has fallen 23
percent, the broad S&P Health Care Index has lost 12 percent
and the S&P 500 Health Care Facilities index is down 31
percent.
Fund managers now say they expect regulatory threats on
drug prices, disappointing earnings, higher interest rates that
could hurt heavily indebted hospitals, and the loss of the
initial Obamacare boost to business to all weigh on health
sector stocks this year.
---
Alberta Regulator Lifts Suspension Order

on Cnooc Oil-Sands Plant
Taken from the WSJ Sunday, 25 October 2015
Alberta Energy Regulator rescinded suspension of 24

pipelines at Cnooc subsidiary Nexens Long Lake oil-sands
facility
The chief energy regulator in oil-dependent Alberta province
lifted a suspension order impacting a plant operated by the
Canadian unit of Chinese state-controlled energy giant Cnooc
Ltd., but said late Friday that a related investigation into a
pipeline breach is ongoing.
The Alberta Energy Regulator rescinded its suspension
targeting 24 pipelines at Cnooc subsidiary Nexen Energy
ULCs Long Lake oil-sands facility, but kept a shut-down order
for several other pipes, including one that ruptured this
summer and connects to smaller oil-sands plant nearby,
according to a spokesman.
Nexen said in a statement on Thursday that the remaining
pipelines under suspension are discontinued and not
required for operations at its troubled 50,000 barrel-a-day
Long Lake operation, which was forced to curb production
after authorities imposed the order after a pipeline spill was
detected in July.
The provincial energy regulator initially imposed the ban for
what Nexen itself termed its non-compliance with rules on
documenting pipeline maintenance, effectively rendering
Long Lake inoperable. The AER scaled back its suspension
last month after receiving assurances the facility could be
operated safely.
The regulatory action was the latest setback for the Long Lake
plant, which started up in 2008 but has never reached its
capacity of 72,000 barrels a day. That has proved a challenge
for parent company Cnooc, which bought Nexen for $15

billion in 2013 and installed its own management team to run
it last year.
In July, Nexen cut its production by 9,000 barrels a day after
the pipeline incident that spilled 31,500 barrels of crude oil,
wastewater and sand from its Kinosis oil-sands project
adjacent to Long Lake in northern Albertas boreal forests.
Representatives for Nexen werent available for comment on
the current status of Kinosis or the cause of the pipeline spill.
The industry-funded AER has launched a probe into that spill
and its response has been watched closely by both the
Canadian energy industry, whose reputation for pipeline
safety has suffered a black eye from the leak, and critics of
Albertas track record enforcing environmental regulations.
News Asia
Former Rabobank Trader Accused of Libor
Rigging Arrested in Australia
Taken from the WSJ Sunday, 25 October 2015
Paul Thompson was detained in Perth following an extradition

request by the U.S.
A former Rabobank trader wanted by U.S. prosecutors for his
alleged role in manipulating a key benchmark interest rate has
been arrested, Australian authorities said Saturday.
Paul Thompson, an Australian citizen and former derivatives
trader for Dutch bank Rabobank Groep NV in Singapore, was
detained Thursday in the Western Australian capital of Perth
following an extradition request by the U.S., a spokesperson
from the Australian Attorney-Generals Department said.
Mr. Thompson is one of seven former Rabobank employees
charged in connection with the world-wide Libor
manipulation scandal that has ensnared at least 18 financial
institutions and 35 individuals. The interest rate underpins
bank lending products worth trillions of dollarsfrom
mortgages to student loans.
Mr. Thompson is wanted to face prosecution in the United
States for wire and bank fraud offenses, the spokesperson
said.
In a statement, Mr. Thompsons wife, Robyn, said: There is
no reason for Paul to be charged by the U.S. For this reason
we were hoping that Paul could defend himself against any
allegations in either Australia or the U.K., so he could have
access to the necessary evidence, financial and emotional
support to do this properly. Ms. Thompson also said his
family would be seeking bail for the trader. A spokeswoman at
Rabobanks base in Utrecht declined to comment on the arrest
and court case, saying Rabobank wasnt a party in the current
U.S. trial.
Two other former Rabobank traders, Anthony Allen and
Anthony Conti, are currently facing court in New York on
charges of conspiring to rig Libor for their own benefit
between May 2006 and early 2011. If convicted, they could
spend years in prison. Both men deny the allegations.
Meanwhile, three former Rabobank colleagues have pleaded
guilty to criminal charges of manipulating Libor. Another
former Rabobank yen Libor derivatives trader, Tetsuya
Motomura, hasnt yet entered a plea. He was charged,
alongside Mr. Thompson, with conspiracy to commit wire and
bank fraud, according to the Justice Department.
The Rabobank trial parallels similar court cases under way in
the U.K. So far, 13 individuals have been charged in the U.S. in
connection with the Libor investigation. Some of the worlds
largest banks have admitted to manipulating the rate,
including Rabobank.
In 2013, when Rabobank agreed to pay $1.07 billion in a
settlement with U.S., British, Dutch and Japanese authorities,
a member of its executive board said: Its shameful what has
happened.
This summer, a British judge sentenced Tom Hayes, a former
UBS and Citigroup trader, to 14 years in prison for
manipulating Libor. He became to first individual to be
criminally convicted in the world-wide probe.
---
Korea's top 3 shipbuilders to lose over 7 tln

won in 2015
Taken from the Korea Herald Sunday, 25 October 2015
South Korea's top three shipbuilders are expected to post a

combined operating loss of more than 7 trillion won ($6.2
billion) in 2015 amid an industry-wide slump, data showed
Sunday.
Market data showed the country's top three shipbuilders -Samsung Heavy Industries Co., Hyundai Heavy Industries Co.
and Daewoo Shipbuilding & Marine Engineering Co. -- are
expected to post an operating loss of 3 trillion won in the
second half of 2015.
The three players already posted an operating loss of 4.7
trillion won in the first half, due mainly to the slowing global
economy leading to falling demand.
Daewoo Shipbuilding, which posted an operating profit of 471
billion won in 2014, suffered an operating loss of more than 3
trillion won in the first half of 2015 alone, largely due to
increased costs stemming from a delay in the construction of
low-priced ships and offshore facilities.
The shipbuilder is pushing to restructure, including selling
assets and reducing the number of its executives.
Its creditors, led by the state-run Korea Development Bank, is
currently devising a rescue plan for the shipbuilder that will
likely include an injection of additional funds from its
creditors, as well as a $5 billion refund guarantee on advance
payments made to Daewoo Shipbuilding.
Samsung Heavy Industries said it is expected to post an
operating loss of 1.37 trillion won in its guidance report, but
industry watchers said the amount could reach 1.5 trillion
won.
Hyundai Heavy Industries, which lost 3.2 trillion won last
year, is also expected to post an operating loss of 729.9 billion
won in 2015, posting shortfalls for the second consecutive
year.
Industry watchers added the three players are expected to face
further challenges down the road amid their tensions with
labor unions and the rise of Chinese rivals.
(Full article click - KH)
---
Deal to give Japan company 50% of Brazil's

gas distribution market
Mitsui & Co. plans to acquire a 49% stake in a subsidiary of

Brazilian state-owned oil company Petrobras for some 60
billion yen (about $500 million). Through the purchase,
Mitsui & Co. will control 50% of Brazil's natural gas
distribution market, up from roughly 22% now.
Demand for natural gas in Brazil is expected to increase about
30% by 2020, mainly from industry and owners of natural
gas-powered vehicles. The Japanese trading company aims to
secure a stable profit source by enhancing its gas distribution
business in the country.
Mitsui & Co., through subsidiary Mitsui Gas e Energia do
Brasil, will acquire shares of Gaspetro, a wholly owned
subsidiary of Petrobras, as well as the gas distribution network
of 11 utilities under Gaspetro. Along with supplies from its
current network of eight Brazilian partners, the new deal will
allow Mitsui & Co. to furnish Brazil with 30 million cu. meters
of natural gas a day.
Petrobus has been weakened by accusations that it and the
administration of Brazilian President Dilma Rousseff were
involved in bribery as well as by the falling prices of natural
resources. Hoping to improve its finances, Petrobras has
decided to sell the stake in Gaspetro to the trading house.
Petrobras can expect more production from deepwater oil
fields it is currently developing.
By expanding its gas distribution network in the country,

Mitsui will benefit from growing demand as Brazil's economy
expands.
(Full article click - Nikkei)
---
Myanmar Vote 2015: What the vote means

for Thailand
Taken from the Bangkok Post Sunday, 25 October 2015
Policies force migrant workers and border security into

spotlight
Irrespective of who wins the Myanmar election in two weeks'
time, the result is expected to have a significant impact on
Thailand in the areas of border security, labour and economic
cooperation.
The ruling Union Solidarity and Development Party has
vowed to reform the charter and move toward a federal state
to address conflict among ethnic groups, many near the ThaiMyanmar border.
A major policy platform of Aung San Suu Kyis opposition
National League for Democracy is job creation. The NLD says
a lack of employment opportunities has been a failure of the
current government, forcing Myanmar workers across the
border to look for employment.
The fact that Thailand currently accommodates millions of
Myanmar workers fits the context of the NLD political
message, said Wirat Niyomtam, director of the Myanmar
Language Learning Development Centre at Naresuan
University.
According to Thanit Sorat, founder and former secretarygeneral of the Thai Myanmar Business Forum, about 1.6
million documented Myanmar migrants now work in
Thailand, while a further 1.6 million are unregistered.
Many workers dont have a passport or even an ID. Thailand
and the new government of Myanmar will have to work
together to oversee these migrants, he said.
The economic role Thailand will play within Myanmar under a
new government may not prove to be as significant. Once the
number one foreign investor, largely because of PTT's 26-year
involvement in the energy sector, Thailand's clout has slipped
as Myanmar's economy opened up after 50 years of isolation.
Myanmar's Directorate of Investment and Company
Administration says Thailand accounted for 6.69% of foreign
investment as of last month. This consisted of 51 enterprises
with US$3.16 billion (112 billion baht) worth of approved
investment.
Thailands ranking is not significant," Mr Thanit said. "In
fact, it shows Myanmar has increasingly gained confidence
from many foreign investors in terms of trade and
investment.
He said Thai investment in Myanmar has diversified from the
energy sector, citing the recently-signed Memorandum of
Intent between Japan, Myanmar and Thailand to build the
Dawei Special Economic Zone.
Bumrungrad Hospital recently received a business permit
from the Myanmar Investment Commission to operate a
private clinic and diagnostic services there.
George McLeod, a manager at PricewaterhouseCoopers, said
Thailand has been very successful in Myanmar and better at
mitigating political risks than the West.
There is a general trend of outbound investment in Thailand,
changing from becoming an investment destination to a
foreign investor in its own right, he said.
That trend is going to continue regardless of the result of the
election.
Myanmar has an investment promotion body, but foreign
investors face skyrocketing land prices and complicated
money transfers that take more than 10 days.
The new government is likely to further amend the
regulations to promote foreign investment, such as laws to
liberalise the financial sector to enable the easier transfer of

currency, Mr Thanit said.
The USDP's push for a federal system and peace with all
ethnic groups is crucial to investor confidence. When we do
business in the country, we have to get the buy-in not only
from the government but also representatives from different
ethnic groups such as the Karen, Mr Thanit said.
For instance, there are about 30 checkpoints in Mae Sot and
each is controlled by a different ethnic group. There are
around 20 piers in Mae Sot and they are controlled by
different ethnic groups as well. It is complicated."
Thai ambassador to Myanmar Pisanu Suvanajata said during
a recent seminar that true democracy would not be possible
unless longstanding problems relating to ethnic minorities are
resolved peacefully.
The next government has to work with the rebel groups which
have not yet signed an agreement as a way forward to
democracy, according to Mr Pisanu.
It is welcoming that Myanmar unity is one of the themes that
we have heard during the campaign, Mr Thanit said.
Foreign ministry spokesman Sek Wannamethee said
longstanding ties between Thailand and Myanmar would not
be changed by the election result.
Mr Wirat said although the election has been billed as free and
fair, he does not expect to see drastic change.
I doubt whether the political structure will change under a
'controlled democracy' as the constitution reserves a quarter
of the parliamentary seats for the military, he said.
The junta is likely to continue to influence the government
anyway.
Incumbent Thein Sein is the frontrunner for the position of
president should the USDP win.
Prajak Kongkirati, chair of Thammasat Universitys Centre for
Southeast Asian Studies, said if there is a free and fair
election, pressure will increase on Thailand to return to
democracy. If the NLD wins, Thailand will be the only country
in Southeast Asia under military rule.
No one has ever really thought that Thailand would go
backwards and be in the same position that Myanmar was in
the past, Mr Prajak said.
(Full article click - BP)
Other News
Saudi Arabia: Eight of the 12 surviving sons
of country's monarch support move to oust
King Salman
Taken from the Independent Saturday, 24 October 2015
Eight of the 12 surviving sons of Saudi Arabias founding

monarch are supporting a move to oust King Salman, 79, the
countrys ailing ruler, and replace him with his 73-year-old
brother, according to a dissident prince.
The prince also claims that a clear majority of the countrys
powerful Islamic clerics, known as the Ulama, would back a
palace coup to oust the current King and install Prince Ahmed
bin Abdulaziz, a former Interior Minister, in his place. The
Ulama and religious people prefer Prince Ahmed not all of
them, but 75 per cent, said the prince, himself a grandson of
King Ibn Saud, who founded the ruling dynasty in 1932.
Support from the clerics would be vital for any change of
monarch, since in the Saudi system only they have the power
to confer religious and therefore political legitimacy on the
leadership.
The revelation suggests there is increasing pressure within the
normally secretive Saudi royal family to bring to a head the
internal power struggle that has erupted since King Salman
inherited the throne at the beginning of this year. The prince,
who cannot be named for security reasons, is the author of
two recently published letters calling for the royal family to
replace the current Saudi leadership.
In 1964 King Saud was finally deposed after a long power
struggle, when the majority of senior royal family members
and the Kingdoms religious establishment spoke with one
voice and withdrew their support. The prince says something
similar is going to happen again soon.
Either the King will leave Saudi Arabia, like King Saud, and
he will be very respected inside and outside the country, he
told The Independent. Alternatively Prince Ahmed will
become Crown Prince, but with control of and responsibility
for the whole country the economy, oil, armed forces,
national guard, interior ministry, secret service, in fact
everything from A to Z.
Unhappiness at King Salmans own diminishing faculties he
is reported to be suffering from Alzheimers disease has
been compounded by his controversial appointments, the
continuing and costly war in Yemen and the recent Hajj
disaster. Earlier this week the International Monetary Fund
warned that Saudi Arabia may run out of financial assets
within five years unless the government sharply curbs its
spending, because of a combination of low oil prices and the
economic impact of regional wars.
The Kings appointment of his favourite son, Mohammed bin
Salman, 30, to the novel post of Deputy Crown Prince in April,
and the decision to make him Defence Minister enabling
him to launch a proxy war in Yemen against the Iranianbacked Houthi rebels who forced the pro-Saudi former
President to flee have heightened tensions. He is said to
have assumed too much power and wealth since being
elevated to this position. Any paper or phone call to his father
goes through him, said the prince. The current Crown Prince,
Mohammed bin Nayef, 56, a nephew of King Salman, is also
unpopular.
Prince Ahmed, the man most family members support to take
over the throne, is the youngest son of the Kingdoms founder
by his favourite wife, Hassa bint Ahmed Al Sudairi. He was
deputy interior minister for 37 years and spent four years
responsible for the religious sites in Mecca before being
appointed Interior Minister in 2012.
He left the post five months later, officially at his own request,
and was replaced by Prince Mohammed bin Nayef, now the
Crown Prince. The dissident prince claims Prince Ahmed left

after a disagreement about the treatment of political
detainees.
Prince Ahmed wants to introduce reforms like freedom of
thought, cleaning up the justice system and freeing political
prisoners who dont have anything to do with terrorism, he
said.
Many political prisoners have been in prison since before
2001 because of their wise opinion and their moderate Islamic
views. If Prince Ahmed has the authority he will allow such
people out.
Prince Ahmed, who has a Masters degree in political science,
is favoured by clerics and by others within the royal family
because of his professional experience and moderate lifestyle,
according to the prince. The eldest brothers want him
because he is healthy and wise, and he has been clean all his
life. He is not in trouble with gambling, women, drink or
drugs.
Prince Ahmed likes the desert, hunting and sitting by the Red
Sea or in Taif, by the mountains. He is religious but openminded, he knows English and follows the world news.
The current Kings third wife, Fahda Al Hithlain, is said by the
prince to be another key figure. She is Mohammed bin
Salmans mother and has influence on his father, he said.
The King is in love with her and so he is in love with
Mohammed bin Salman. However, because of ill health she
has reportedly spent little time in Saudi Arabia recently.
The struggle to remove King Saud took several years and led
to tension between Saudi Arabias main armed organisations
the army, interior ministry and national guard before
finally he left without bloodshed. The prince expects the same
will happen this time. It is a kind of internal revolution. We
want financial and political reform, freedom of thought and
cleaning the justice system, freeing the political prisoners and
proper Islamic sharia, he said.
The Saudi embassy in London did not respond to a request for
comment.
(Full article click - Independent)

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