News & Views: Monday, December 29
What you need to know for today's trading day.
Ruble Weakens for Second Day as Russian Tax Payments Wind Down (Bloomberg)
Google's Gmail Blocked in China (WSJ)
Greece Faces Snap Election as Presidency Pick Fails (Bloomberg)
Shares Drop for AirAsia After Plane Disappears (NYTimes)
Emerging-Market Distressed Debt Loss Worst Since 2008 (Bloomberg)
The best performing asset overnight is offshore Chinese equities - specifically the Hang Seng China Enterprises Index, which represents state-run industries that are the most sensitive to the latest rate cut by the Chinese government. Last week, the People's Bank of China reclassified 11trln Yuan in savings that will be the equivalent of a 100bps-200bps cut to the reserve-requirement ratio. Specifically, the new rules stipulate that deposits from a wide variety of financial institutions - including SPV's and offshore institutions - will be eligible as ordinary deposits that will, until further notice, require a temporary reserve ratio of zero. The upside is that because all of these deposits will be moved onto a balance sheet, it will allow regulators much more access to loans made in the shadow banking sector. So ultimately the benefit is twofold - enhanced regulatory scrutiny and a larger deposit base (~7trln Yuan).
The Russian Ruble basket is down 4.7% this morning. In a report on its website this morning, the Russian Economy Ministry said that GDP fell by 0.2% Mom in November and was down 0.5% from a year ago. It was up 0.1% in October. And as a reminder, last week over the Christmas holidays, Russia's 15th-largest bank - the National Bank Trust - received a 30bln RUB bailout and another trillion is authorized by the government to recapitlize lenders.
The worst performing asset on a risk-adjusted basis this morning is Greek equities. The third attempt at electing PM Antonis Samaras' presidential choice failed with 168 lawmakers of the 300 person Greek Parliament voting in favor. As such, the Greek government will be dissolved and new snap elections will take place on Jan 25. Samaras needed 180 votes to pass and he got one less than the previous round of voting. The leading contender to take a majority in the Greek Parliament is the left-wing Syriza party, which in the past has argued vehemently against any bailouts, has considered pushing Greece to exit the Eurozone, and reneg on its existing debts. Recent polls show they hold a lead.
Japanese PM Shinzo Abe announced over the weekend that instead of raising consumer taxes next year, he instead will unveil a new $30bln stimulus plan to boost consumer spending and economic activity. First, the government will offer subsidies to local municipalities to bolster consumption through spending vouches and coupons to residents. We already know that giving citizens money in the form of a rebate check or cash does nothing, and only places more unproductive debt on the government's shoulders hence hurting future growth. The second is there will be hand-outs for low income households and poorer residents, namely those with small children and heating oil. Separately, Japan's ruling Liberal Democratic Party is planning on cutting Japan's corporate tax rate by 3.29% over th next two years to 31.33%. The majority of the cut will come in the fiscal year beginning April 2015 and the rest in the following year. However, the amount of taxable income that will be able to be written off for tax losses will be reduced to 80% from 50%.
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