4/3/15: BRIC Services PMIs: Stronger Growth and Russia Divergence

I covered BRIC Manufacturing PMI earlier this week: http://trueeconomics.blogspot.ie/2015/03/2315-bric-manufacturing-pmi-february.html

Now, let's take a look at the Services sectors performance.

• Russia Services PMI are covered in detail here: http://trueeconomics.blogspot.ie/2015/03/4315-russian-services-and-composite.html
• Brazil Services PMI came in at a surprising 52.3, breaking four months streak of sub-50 readings and rising strongly up on 48.4 in January. 3mo average through February 2015 is at 49.9 against the 3mo average through November 2014 at 49.3. An improvement on 3mo basis, but down on year ago 3mo average through February 2014 (50.7).
• China Services PMI came in at 52.0, a slight improvement on relatively weak performance in January (51.8). 3mo average through February is at 52.4 against 3mo average through November 2014 at 53.4 and against 3mo average through February 2014 at 50.9. There is very little of anything spectacular in Chinese data so far.
• India Services PMI came in at 53.9 a rise on 52.4 in January 2015. On 3mo average basis, current average through February 2015 is at 52.5 against previous 3mo average through November 2014 at 51.2 and against 3mo average through February 2014 at 47.9. 

Summary: Services PMIs have deteriorated over the last five months in Russia and deteriorated very sharply, signalling massive contraction in the Services sectors in the economy, mostly concentrated on financial services. Meanwhile, Services PMIs posted strengthening is India (surprise reversal of downward momentum over October 2014 - January 2015 period). China still showing some weaknesses, but positive growth in the sector, while India is clearly on a rebound with PMIs increasing over the last 3 months and now standing at the highest level since June 2014.

As the above clearly shows, Russia is a major point of divergence for Services sectors within the BRIC economies. This is not new, but the divergence is getting sharper and sharper. We are not yet at 2009 rates and levels of decline, but we are getting there.

Composite BRICs PMIs will be covered in the next post.

4/3/15: Russian Services and Composite PMIs signal continued deterioration in the economy

Services PMI for Russia for February 2015 came in at a disappointing - nay disastrous - 41.3 down from January 43.9 and marking the fifth consecutive month of contraction. 3mo average through February is now at 43.7 which is much worse than already poor 3mo average through November 2014 (47.5) and is down massively on 3mo average through February 2014 (51.5). February reading is the lowest in 71 months.

Composite PMI came in at 44.7 - marking a sharp contraction in the economy, down from 45.6 in January 2015. February was the 5th consecutive monthly sub-50 reading and  the lowest for 69 months. 3mo average for Composite indicator is at 45.8, which is down on 3mo average through November 2014 (49.2) and sharply down on 3mo average through February 2014 (50.8).

Chart above shows continued downward trend in all three series since around October 2012, preceded by a weak growth trend from the point of recovery after the Global Financial Crisis in and around Q4 2009 through Q3 2012. The current sub-trend of accelerated decline in composite and services PMIs (August 2014-present) is, dynamically, very similar to the sub-trend over October 2013-May 2014 and similar, again to the sub-trend over January 2013 through July 2013. Dynamically, all indication are that over the next 4-6 months we will see both services and composite indicators hitting mid-30s and manufacturing PMI falling toward high 30s, as consistent with the economic contraction rate closer to 4-5 percent over the year.

Note: Russian manufacturing PMIs were covered here: http://trueeconomics.blogspot.ie/2015/03/2315-russian-manufacturing-pmi-february.html

4/3/15: Core biases in Hedge Funds returns

My second post on the topic of measuring hedge funds returns for LearnSignal blog, covering the issue of biases in measurement, induced by timing and risk considerations is now available here: http://blog.learnsignal.com/?p=161

3/3/15: Those 'tanked' Russian Forex reserves

So, according to some Western media, Russian forex reserves have tanked in February 2015. What happened, folks?

At the end of January 2015, Russian forex reserves stood at USD376.208 billion. Of which USD327 was in currency and liquid assets form. The latest data, given to us is for February 20, 2015 when, according to the Russian Central Bank, the reserves dropped to USD364.6 billion - a drop of 3.11% or USD11.6 billion. That's a lot of cash. But is not qualifying it as 'tanked'. Here's a chart plotting all reserves changes m/m

So (incomplete still) data for February puts drawdowns from the Forex reserves at USD11.61 billion against 12 mo running average monthly drawdown of USD10.73 billion. February marks the fourth biggest drawdown in 12 months. Again - large, significant, but 'tanking'?!

What is more critical is the source of drawdowns: how much of this is due to repayment of corporate and sovereign debt? How much is down to changing dollar value of other assets held? How much taken in form of loans to companies and banks (at least in theory or in part - repayable)? and so on.

No, the numbers are not catastrophic. Although they are unpleasant. Just as the gloating in the media is unpleasant: if the U.S. were to cut its external deficit by 2/3rds - what would be the headlines in Western media? And now note: February drawdowns from the forex reserves marked:

• 2/3rds reduction in drawdowns compared to December (real disaster of a month); and
• Large chunk of these drawdowns probably (we will know later for sure) went to fund debt reductions of Russian banks, companies and sovereign.

2/3/15: BRIC Manufacturing PMI: February Marks Slowdown in Growth

BRIC Manufacturing PMIs (individual countries data published by Markit) have posted some renewed weakness in February compared to January.

• Russian Manufacturing PMIs are covered here: http://trueeconomics.blogspot.ie/2015/03/2315-russian-manufacturing-pmi-february.html
• Brazil Manufacturing PMI came in at 49.6 - signifying shallow contraction, down from 50.7 in January. 3 mo average through February is at 50.2 (barely signalling any growth), which is an improvement on 3mo average through November 2014 (49.3) but is weaker than 3mo average through February 2014 (50.5). 
• China Manufacturing PMI is at 50.7, an improvement on January's 49.7 and breaking previous two-months streak of sub-50 readings. 3mo average is at 50.0, which is weaker than 50,2 3mo average through November 2014, but an improvement on 3mo average through February 2014 (49.5)
• India Manufacturing PMI slipped to 51.2 in February from 52.9 in January, with 3mo average through February at 52.9, which is stronger than 3mo average through November 2014 (52.1) and 3mo average through February 2014 (51.6).

Table below and chart summarise the trends:

2/3/15: Russian Manufacturing PMI: February 2015

Russian Manufacturing PMI (based on HSBC/Markit data) improved from 47.6 in January (sharp contraction that is marked by a statistically significant sub-50 reading) to 49.7 in February (also contractionary, but at a much weaker rate and statistically not significantly different fro 50.0).

According to Markit release, "Russian manufacturing business conditions deteriorated only fractionally in February, as stronger domestic demand drove an increase in new work and production rose slightly. The latest HSBC PMI® data compiled by Markit also signalled weaker – but still severe – inflationary pressures during the month, reflecting the ruble’s recovery from record lows. That said, overall growth of new orders was weak as new export business continued to decline sharply, and employment extended a survey-record sequence of decline to 20 months."

This marks third consecutive month of sub-50 readings, with 3mo average through February 2015 standing at 48.7, weaker than 50.8 3mo average through November 2014, but somewhat better than 3mo average of 48.4 recorded for the 3 months through February 2013. So year on year rate of decline in Manufacturing activity slowed down, but conditions remain weak and are still close to weakening.

2/3/15: EU Exporters: No More Than 20-30% Will Return to Russian Markets

A very interesting note reporting comments by Russia's head of Rosselkhoznadzor (organisation that certifies food imports and grants food market access to foreign exporters) on the post-sanctions regime for Western exporters into Russia. The full text is here: http://www.interfax.ru/russia/426955 in Russia.

The core point is that head of Rosselkhoznadzor expects the return of just 20-30% of EU exporters back to the Russian market once Russian sanctions on food imports are lifted. And that is 20-30% "at most". Quoting from Interfax report, the head of Rosselkhoznadzor thinks that "Products from the EU will find it difficult to return to Russian markets, because we will be forced to cut back on the number of European producers, allowing only 20-30% of previously active suppliers back into the market. The rest will be able to supply [exports to Russia] only after they restore [market] trust".

In another report (http://www.interfax.ru/business/427220), President Putin's press secretary stated today that Moscow is considering allowing imports of agricultural raw materials that serve as inputs for production of food in Russia, as long as actual production takes place in Russia. The statement relates to the President Putin's promise made in Budapest last month that Russia can expand cooperation with Hungary in food trade. According to the press secretary statement, this can only be done by relaxing sectoral restrictions as Hungary (or any other country) cannot be privileged in trade relations with the EU under the WTO rules.

Подробнее:http://www.kommersant.ru/doc/2677352

2/3/15: Religious Restrictions and Hostilities: Russia 2008-2013

A very interesting data set from the PewResearch mapping "Restrictions and Hostilities in the Most Populous Countries" by year: http://www.pewforum.org/2015/02/26/restrictions-and-hostilities-in-the-most-populous-countries-2013/ based on the report on Religious Restrictions and Hostilities, published last month: http://www.pewforum.org/2015/02/26/religious-hostilities/

Two charts showing relative evolution of restrictions and hostilities in Russia between 2008 and 2013:

28/2/15: A sad day for Russia.

Tonight, in Moscow, a gunman shot dead one of the most charismatic and experienced leaders of Russian liberal opposition, Boris Nemtsov.

Here is the best obituary I have read so far (in Russian) from any source: Western or Russian: http://kommersant.ru/doc/2677630

It sums up perfectly the vision of Nemtsov, the memory of his public life that I have in my own mind.

He was legendary as the Governor of Nizhniy Novgorod - both in his managerial and reformist roles and in his ability to speak openly about his views on Yeltsin Presidency. He was given a tough lot as a Deputy PM in 1997 and he did the job, honestly and to his best ability. He was relentless in trying to build a fully functional opposition within the liberal wing in Russian politics, and he never succeeded in doing that - not for the lack of trying or the lack of talent, but for the lack of liberal tradition and culture in Russia. Despite that, he and his fellow thinker, Garry Kasparov, remained and will remain respected by many, including those who did not support them.

There is a political 'weight' to every public intellectual and leader. Nemtsov had that. Nemtsov had huge public support in the 1990s, and despite the fact that he had little popular backing after 1997, he held high moral and intellectual ground and never traded away idealism of his opposition to President Putin for pragmatism of having a shot at gradual reforms. This waining of popular support for him and his causes is sad, because he was a talented, bright, experienced, hard working politician Russia needed and needs. And he brought into public ideas and ideals that Russia needed and needs - ideas and ideals of alternative, of functional opposition.

There is an 'integrity' weight to every public intellectual and leader too - a combination of honesty, openness, transparency and willingness to learn, accept and acknowledge mistake. In that currency, Nemtsov was pure gold. And that Russia will always have as a memory of him.

The White House statements - http://www.whitehouse.gov/the-press-office/2015/02/27/statement-president-murder-boris-nemtsov - and I would say it is also pitch-perfect: "Nemtsov was a tireless advocate for his country, seeking for his fellow Russian citizens the rights to which all people are entitled.  I admired Nemtsov’s courageous dedication to the struggle against corruption in Russia... We offer our sincere condolences to Boris Efimovich’s family, and to the Russian people, who have lost one of the most dedicated and eloquent defenders of their rights."

Boris Nemtsov is survived by his four children, and his mother. May he rest in peace!

27/2/15: Deflation and Retail Sales: Ireland 2015...

Deflation harms consumer demand?

So Irish retail sales are up 8.8% y/y in volume and 5.5% in value, implying people are buying on lower prices, not delaying buying for lower prices. And...

Irish consumer prices are shrinking (deflation).

Note, the above retail sales figures are reflective of total sales. Core sales, excluding motors were down 0.1% in value and volume m/m, but up y/y by 4.8% in volume and 0.9% in value.

More granular:

27/2/15: Of a momentary surrender and a longer fight: Greece v Eurogroup

Couple more earlier comments on Greek situation for print edition of Expresso, 31.12.2015 pages 8-9 and online http://expresso.sapo.pt/os-trabalhos-herculeos-de-varoufakis-mercados-financeiros-a-espera-da-lista-de-reformas=f911931, February 22, 2015.


English version of some of the comments:


# In which points did Greek delegation change its position?

Last night Eurogroup saw significant changes to the Greek Government position vis-a-vis the current bailout. Firstly, the Government has now abandoned its elections promises to achieve a debt write down and end the agreement with the Troika. Instead, the old agreement has been extended until the end of June on the basis of Greece committing to full implementation of the original Master Financial Assistance Facility Agreement (MFAFA) and, thus, Memorandum of Understanding (MOU). The dreaded austerity programme remains in place, despite the Greek Government claims to the contrary. The dreaded Troika is still there, now referenced as Institutions. Secondly, Greece failed to secure control over banks recapitalisation funding. A major point of Government plans was to use of some of these funds for the purpose of funding public investment and/or debt redemptions. This is no longer an option under the new bridging Agreement. Thirdly, the Greek Government failed to secure any concessions on the future programme. The Eurogropup conceded to allow the Greece to present its proposals for the future pos-MOU agreement, but any proposals will have to be with the parameters established by the current programme.


# In which points Germany change its hard position?

So far, Germany and the Eurogroup conceded nothing to the Greek Government. The much-discussed references in the Eurogroup statement that allow for some flexibility on fiscal targets, principally recognition of the economic conditions in computing the target primary surplus for 2015, is not a new concession. Under the MOU, present conditions were always a part of analysis performed to establish deficit targets and the current programme always allowed for some flexibility in targets application. Crucially, Greece went into the negotiations with two objectives in sight: reduction in the debt burden and reduction in the austerity burden. The fist objective was abandoned even before last night's Eurogroup meeting. The second objective was severely diluted when it comes to the Eurogroup statement and the bridging programme. There are no concessions relating to the future (post-June 2015) programme. In a sense, Germany won. Greece lost.


# What do you expect for the list of reforms to be presented on Monday?

We can expect the Greek Government to further moderate its position before Monday. The new set of proposals is likely to contain request for delays (not abandonment, as was planned before) of privatisations, a request for the primary deficit target for 2015 to be lowered to around 2-2.5% of GDP, and a request to allow for some of the past austerity measures to be frozen, rather than reversed, for the duration of 2015. The Greek Government is likely to present new short term growth strategy based on a promise to enforce more rigorously taxation, set higher tax rates on higher earners, in exchange for using the resulting estimated 'savings' to fund public spending and jobs programme. The final agreement on these will likely be in the form of a temporary programme, covering 2015, and possible extension of this programme will be conditional on 2015 debt and deficit dynamics. Beyond Monday, however, a much more arduous task will be to develop a new programme. In very simple terms, Greece still requires a debt restructuring to cancel a significant quantum of current debt. This now appears to be off the table completely. As the result, any new agreement achieved before June 2015 will be inadequate in terms of restoring Greek economy to any sustainable growth path. Both Greece and Europe, today, are at exactly the same junction as two weeks ago: an insolvent economy is faced with the lenders unwilling to recognise the basics of financial realities.  

27/2/15: Running out of cash: Greece heading into March

My comments to Portuguese Expresso on Greek agreement:

http://leitor.expresso.pt/#library/expressodiario/26-02-2015/caderno-1/temas-principais/divida-portuguesa-com-juros-em-minimos-mas-grecia-arrisca-se-a-entrar-em-incumprimento-em-marco

Unedited version here:

"Over the next four months, Greece is facing significant debt redemption pressures. In March, EUR5.83 billion of T-bills and IMF loans maturing and requiring a re-financing. Between now and the end of April, Greece will require to roll over EUR8.1 billion of T-bills and refinance EUR2 billion worth of IMF loans.

Currently, Greece has no money to cover its debt maturity redemptions in March and it is quite questionable if the country can find cash, outside the Programme extension facilities agreed last week but are yet to be ratified by the Eurogroup members and the Institutions, to do so in the markets. Currently Greek 10 year bonds are priced at 65.354, with a yield of 9.23% and rising. This suggests there is unlikely to be significant appetite in the markets to cover a substantial issue of new debt by Greece. At the same time, internal reserves available to the Government are virtually non-existent, especially given the rate of tax receipts deterioration in recent months. December 2014 tax revenues were 14 percent below target, January 2015 tax revenues fell 20% below target, implying a monthly shortfall close to EUR1 billion. In all likelihood, shortfall was at least as big in February as the new Government was tied up in negotiations with the Troika and deposits fled from the banks.

The key problem is that Greece has no option when it comes to delaying repayment of the above funds. IMF is the super-senior lender of last resort and T-bills markets are the bloodline for the Greek Government. Failing to redeem maturing T-bills will be a disaster for the country. In short, Syriza urgently needs to secure new funds to cover these redemptions."