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Stronger greenback helps boost Australian gold

August 30, 2015 - reuters.com

By James Regan SYDNEY, Aug 30 (Reuters) - A stronger U.S. dollar is helping drive Australian gold production and buffeting local prospectors from the effects of a global sell-off in bullion, according to a sector survey released on Sunday. Production of the precious metal in Australia rose by 4 percent in the second quarter to 72 tonnes versus the previous quarter, second only to China, mining consultants Surbiton Associates Pty Ltd said in its latest tally of Australia's gold mining industry. A stronger greenback is playing into the hands of Australian prospectors, with the bullion price in Australian dollar terms XAUAUD=R relatively stable since the start of 2015, according to Surbiton's director, Sandra Close. "Despite lower gold prices in U.S. dollar terms, the depreciation of the Australian dollar is proving a blessing for Australian gold producers," Close said. "Although the gold price XAU= averaged U.S.$1,192 per ounce in the June quarter, the Australian dollar gold price averaged A$1,532 per ounce," she said. Australia's gold output over the 12 months to June 30 rose 1 percent to 285 tonnes, which at today's prices is worth about A$14 billion ($10.05 billion). China is estimated to have produced around 450 tonnes in calendar 2014. A looming U.S. rate hike has long dimmed the appeal of non-interest bearing assets such as precious metals, and gold on Friday posted its biggest weekly drop in five weeks after robust U.S. economic data suggested stronger growth. But in Australia, gold still shines. "We feel we are in terrific shape," said Jake Klein, executive chairman of Evolution Mining EVN.AX , which has spent close to A$800 million ($574 million) buying mines in Australia this year and reported an 112 percent rise in underlying profit in fiscal 2015. "The balance sheet is strong and the gold price is A$100 an ounce higher than we achieved last year," Klein said. ($1 = 1.3935 Australian dollars) (Reporting by James Regan in; Australia, Editing by Franklin Paul in New York) Keywords: GOLD AUSTRALIA/SURVEY

China crisis covers tracks of Japan

August 30, 2015 - reuters.com

* Only weak comparisons with global crisis or Asian crisis * China crash most closely matches Japan's in early 90s * Both booming, export-led economies had asset bubbles * Difference is global growth was strong when Japan crashed * China more active, Japan response too little, too late By Vidya Ranganathan SINGAPORE, Aug 30 (Reuters) - As China's stock markets have lurched wildly, seeding dramatic falls across the world, some have drawn parallels with the global financial crisis of 2008 or the Asian version a decade earlier. They are weak comparisons. The abrupt end of Japan's boom in the 1990s, complete with stock crash and property bust, offers the most striking similarities, and the most valuable lessons. China's stocks ran up gains of 150 percent in about a year before the mid-June crash, supercharged by margin lending and ignoring the drumbeat of disappointing economic data. That makes for facile comparisons with 2008, the most recent example of a credit-fuelled bubble. But there was no trigger like U.S. authorities' shock decision to let Lehman Brothers, at the heart of the global banking system, collapse in 2008. "If you look at the extremes in the equity market they are almost comparable with the Lehman days. In those days we had a trigger, a real event, something clearly defined," said Christian Lenk, rate strategist at DZ Bank in Frankfurt, on Tuesday. "What we saw yesterday was ongoing fears about China ... but there was no trigger, so we see a bit of normalisation today." And it was no surprise that China's stock bull run, like its property bubble a year earlier, came to an end, Japanese Finance Minister Taro Aso said this week. The anatomy of the Asian financial crisis was also quite different, as hot money deserted a region with high foreign debt and trade deficits and currencies they couldn't support. "There are few similarities to the Asian crisis in 1997 and 1998, which was driven more by large deficits in trade accounts," said John Vail, chief global strategist at Nikko Asset Management in New York. "What we're seeing now is more of a rapid change in sentiment around the world," he said. The comparisons between China now and Japan in the 1990s, however, are striking. Like Japan then, China was trying to cool frothy property and equity markets. Both economies were powered by massive investment, huge trade surpluses and overvalued currencies and were liberalising their financial sectors. China's share of the global economy now is roughly the same as Japan's was in 1990, about 12 percent. AVOIDING JAPAN'S MISTAKES Japan's real GDP growth averaged 5 percent in the run-up to the crash, while China's averaged 10 percent over the past decade. Credit growth was explosive in both, and the market crashes were triggered in part by efforts to temper exuberance. Policy response was stop-and-go in both cases, with China seesawing on IPO policies, market liquidity operations and its treatment of shadow banking loans. Chinese policymakers fear falling into the trap of deflation and stagnation that has gripped Japan ever since. "They aren't a single bit interested in Japan's successes. Their biggest interest is in Japan's mistakes," one China-based Japanese source in touch with Chinese regulators told Reuters in March. ID:nL4N0WA02P "Japanese and Chinese economies do share many similarities, so I assume there is quite a lot to learn from our experiences." Global investors will also see some threatening differences. Global growth is weak, and China accounts for two fifths of that. It also accounts for most of the growth of many multinationals. As the largest consumer of commodities, its slowdown is hammering the price of fuel resources and metals, unleashing deflationary pressure across the world. Japan's woes coincided with robust global growth and had fewer international consequences. "Japan's collapse in the 90s was very much reflected into itself with just some knock-on effect into the rest of Asia," said Adam Slater, lead economist at UK-based Oxford Economics. "The impact of China's slowdown will ... leave us in a very disappointing growth phase for the next year or two for the world as a whole." Some important differences, and lessons learned from Japan's experience, will be welcome to global investors and Chinese policymakers alike. China's stock market is much smaller relative to GDP than Japan's was - 40 percent versus 140 percent - so should have less economic impact. Per capita it is still a middle-income nation with only 55 percent urbanisation, so has plenty of scope for infrastructure spending to support the economy. While Japan was slow to act - monetary easing came too little, too late, fiscal stimulus was withdrawn early - and its capital markets at the mercy of international flows, while China, with tight control of its capital account, has been proactive to a fault. Its frequent monetary interventions and constant regulatory tinkering, whether in the stock or housing markets or in local government lending, are not always effective and sometimes counterproductive, but it rarely fiddles while Beijing burns. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic-China and Japan crises http://link.reuters.com/ryg55w Graphic-Global markets http://graphics.thomsonreuters.com/15/globalmarkets/index.html ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Vidya Ranganathan; Additional reporting by Leika Kihara in Tokyo, Marius Zaharia in London, David Randall in New York; Writing by Will Waterman; Editing by Rachel Armstrong) ((vidya.ranganathan@thomsonreuters.com; +65-68703090; Reuters Messaging: vidya.ranganathan.thomsonreuters.com@reuters.net)) Keywords: GLOBAL MARKETS/CHINA PARALLELS

WRAPUP 1-Fed's Fischer sees inflation rebound, allowing gradual rate hikes

August 29, 2015 - reuters.com

* Fed, BoE sound confident notes in face of China fears * Fischer says pressure on U.S. inflation dissipating * Global markets edgy, awaiting Fed rate hike By Jonathan Spicer and Howard Schneider JACKSON HOLE, Wyo., Aug 29 (Reuters) - U.S. inflation will likely rebound as pressure from the dollar fades, allowing the Federal Reserve to raise interest rates gradually, Fed Vice Chairman Stanley Fischer said on Saturday in a speech careful not to overreact to a possible Chinese slowdown. The influential U.S. central banker was circumspect whether he would prefer to raise rates from near zero at a much-anticipated policy meeting on Sept. 16-17. But he said downward price pressure from the rising dollar, falling oil prices, and slack in the U.S. labor market is fading. The cautious confidence from Fischer, as well as from Bank of England Governor Mark Carney who spoke at a conference alongside him, suggests at least two major central banks are poised to look beyond a week of financial-market turmoil brought on by fears that China's economy is faltering. "Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further," Fischer told a central bankers' conference in Jackson Hole, Wyoming. "With inflation low, we can probably remove accommodation at a gradual pace," he added. "Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening." Central banks and governments globally are bracing for the Fed decision, which could weaken foreign currencies and put even more pressure on emerging markets already reeling after the volatile global stocks selloff. At the same time, Fischer, Carney and other policymakers are wrestling with the world's stubbornly low levels of inflation, and recognizing that the rapid pace of globalization over the last quarter century may have made it harder for any individual country to move inflation higher. "There are profound secular and cyclical disinflationary forces at work in the global economy," Carney said, making it harder for central banks in London, Washington and elsewhere to reach the inflation targets they have set as a core policy goal. The Fed has said it wants to be reasonably confident that inflation, which has been stuck below its 2-percent target for a few years, will rebound in the medium term. The pickup in prices could stall, however, if a slowdown in China and falling commodity prices drag down the global economy. ID:nL4N1125BC "At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual," said Fischer, a close ally of Fed Chair Janet Yellen. The Fed's preferred measure of inflation slipped to 1.2 percent in July, the lowest in more than four years. Fischer said the dollar's year-long rise played a big role in that weakness, and it could restrain U.S. gross domestic product growth through 2016 and even into 2017 - all the more reason to "proceed cautiously" in raising rates, he said. Outside the conference on Friday, Fischer made an impromptu television appearance to say it was too early to say whether the Fed should in September hike rates for the first time in nearly a decade. Markets, on alert for any sign policymakers were ruling out a September liftoff, read Fischer's remarks as suggesting a tightening would at least come this year. ID:nL1N1130HX While central banks in China, Japan, and Europe are ramping up monetary stimulus to fight off deflation or boost growth, the BoE, like the Fed, is plotting when to begin tightening policy. Carney said a slowdown in China could depress UK inflation further but it did not, for now, change his central bank's position on when and how it might raise rates. Economists predict the Bank of England is likely to start raising rates in the first quarter of next year. The developments "are unlikely to change the process of rate increases from limited and gradual to infinitesimal and inert," Carney told the conference, reiterating that the BoE's policy decision would become clearer "around the turn of the year." ID:nL1N1140F5 (Reporting by Jonathan Spicer and Howard Schneider; Additional reporting by William Schomberg in London; Editing by Andrea Ricci) ((jonathan.spicer@thomsonreuters.com)(+1 646 223 6253)(Reuters Messaging: jonathan.spicer.thomsonreuters.com@reuters.net www.twitter.com/jonathanspicer)) Keywords: USA FED/

UPDATE 1-Bank of England stance on rates unchanged by China - Carney

August 29, 2015 - reuters.com

(Adds details from speech, background) By Howard Schneider and Jonathan Spicer JACKSON HOLE, Wyo., Aug 29 (Reuters) - Bank of England Governor Mark Carney said on Saturday that a slowdown in China's economy could push down further on inflation but it did not change, for now, the central bank's position on when and how it might increase interest rates. Carney, speaking at an annual U.S. central banking conference in Jackson Hole, Wyoming, reiterated his view that the recovery in Britain's economy "will likely put the decision as to when to start the process of gradual monetary policy normalisation into sharper relief around the turn of this year." That comment echoed one he made in mid-July, before global financial markets took a hit in recent days over concerns about the health of China's economy. The BoE cut rates to 0.5 percent, a record low, at the height of the financial crisis in 2009. Although inflation in Britain is almost zero, the Bank is likely to start raising rates in the first quarter of next year as wage growth picks up, economists predict. Carney said on Saturday a Chinese slowdown could add to pressure pushing down on prices in Britain and risk aversion in global markets could make financial conditions in the country tighter, which would also weigh on inflation. "These are possibilities, not certainties. Their evolution needs to be monitored, not taken for granted," he said, before adding the direct exposure of Britain's economy to China was relatively modest. He also said the BoE could "look through" the temporary disinflationary impact on inflation from lower demand in China for commodities but would watch for any longer-lasting impact on Britain from a slowing of the world's No.2 economy. "Developments in China are unlikely to change the process of rate increases from limited and gradual to infinitesimal and inert," Carney said. The BoE's main guidance on interest rates has been that when the time comes to raise them, they will go up gradually and to a level lower than before the financial crisis. Carney stressed that his comment on the timing of a decision by the BoE on rates did not prejudge any particular decision. "But it does indicate that recent events do not yet, to my mind, merit changing the MPC's (Monetary Policy Committee's) strategy for returning inflation to target," he said. (Reporting by Howard Schneider and Jonathan Spicer; Writing by William Schomberg in London; Editing by Andrea Ricci) ((william.schomberg@thomsonreuters.com; +44 207 542 7778; Reuters Messaging: william.schomberg.reuters.com@reuters.net)) Keywords: USA FED/CARNEY

UPDATE 1-'Good reason to believe' U.S. inflation will rise -Fed's Fischer

August 29, 2015 - reuters.com

(Adds China comment, policy context) By Jonathan Spicer and Howard Schneider JACKSON HOLE, Wyo., Aug 29 (Reuters) - U.S. inflation will likely rebound as pressure from the dollar and other factors fade, allowing the Federal Reserve to raise interest rates gradually, Fed Vice Chairman Stanley Fischer said on Saturday. The influential U.S. central banker was circumspect whether he would prefer to raise rates from near zero at a much-anticipated policy meeting on Sept. 16-17. But he said downward price pressure from the rising dollar, falling oil prices, and slack in the U.S. labor market is fading. "Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further," he told a central bankers' conference in Jackson Hole, Wyoming. "With inflation low, we can probably remove accommodation at a gradual pace," he added. "Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening." The Fed has said it wants to be reasonably confident that inflation, which has been stuck below a 2-percent target for a few years, will rebound in the medium term. Recent financial market turmoil and fears of a Chinese economic slowdown could stall that rebound. "At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual," said Fischer, who on Friday said it was too early to decide whether September was the time to hike rates for the first time in nearly a decade. (Reporting by Jonathan Spicer and Howard Schneider; Editing by Andrea Ricci) ((jonathan.spicer@thomsonreuters.com)(+1 646 223 6253)(Reuters Messaging: jonathan.spicer.thomsonreuters.com@reuters.net www.twitter.com/jonathanspicer)) Keywords: USA FED/FISCHER

'Good reason to believe' U.S. inflation will rise -Fed's Fischer

August 29, 2015 - reuters.com

JACKSON HOLE, Wyo., Aug 29 (Reuters) - U.S. inflation will likely rise as the dollar and other influences fade, and the Federal Reserve can probably raise rates gradually, Vice Chairman Stanley Fischer said on Saturday. "Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further," he told a central bankers' conference in Jackson Hole, Wyoming. "With inflation low, we can probably remove accommodation at a gradual pace," he added. "Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening." (Reporting by Jonathan Spicer and Howard Schneider; Editing by Andrea Ricci) ((jonathan.spicer@thomsonreuters.com)(+1 646 223 6253)(Reuters Messaging: jonathan.spicer.thomsonreuters.com@reuters.net www.twitter.com/jonathanspicer)) Keywords: USA FED/FISCHER

China's Commerce Ministry defends devaluation, sees 'limited' impact

August 29, 2015 - reuters.com

BEIJING, Aug 29 (Reuters) - China on Saturday defended the recent revamp of its foreign exchange regime that led to a sharp devaluation of the yuan, calling it a "normal adjustment". State news agency Xinhua quoted an unnamed Commerce Ministry spokesman as saying the devaluation will have "limited impact" on the country's foreign trade. On Aug. 11, in a move that stunned markets, China devalued the yuan CNY=CFXS by nearly 2 percent. The devaluation was meant to correct a "relatively large deviation" between the yuan's spot rate in the market and the daily midpoint fixing by the central bank, the spokesman said. China allows the yuan to rise or fall a maximum of 2 percent from a day's midpoint. The ministry spokesman said a country's exchange rate hinges on its competitiveness and China's economic reforms will help ensure the yuan can remain "basically stable" within a "reasonable" and "balanced" level. The remarks come on the heels of state media commentaries defending China's policymaking, showing Beijing's sensitivity to suggestions it may have fumbled economic policy. China has billed its currency devaluation as a free-market reform measure, and denies allegations that it has started a round of competitive currency devaluations between governments to help exporters. The ruling Communist Party has drawn much of its legitimacy in past decades from fostering economic growth and raising incomes, and wants to be seen as a responsible player in the global economy. On Thursday, Yao Yudong, head of the central bank's Research Institute of Finance and Banking, told Reuters the past week's global stock market rout was sparked by concerns over a possible interest rate rise by the U.S. Federal Reserve and not by the yuan's devaluation. He urged the Fed to delay any rate hike to give fragile emerging market economies time to prepare. China had said the revamp in its foreign exchange regime was an effort to let market forces play a greater role in setting the currency's value. Officials in Washington, who had long pressed Beijing to move toward a more market-determined exchange rate, greeted the shift with some scepticism and indicated they would watch to make sure it was not meant simply to prop up China's exports. Chinese exports tumbled 8.3 percent in July, their biggest drop in four months and far worse than expected. (Reporting by Koh Gui Qing and Benjamin Kang Lim; Editing by Richard Borsuk) ((guiqing.koh@thomsonreuters.com; +86 10 6627 1242; Reuters Messaging: guiqing.koh.reuters.com@reuters.net)) Keywords: CHINA ECONOMY/YUAN

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