Untitled

News Summary
China publishes its October trade data on Sunday; in dollar

terms exports fell 6.9% while imports down 18.8%.
Meanwhile, trade surplus widened in to US$61.6bn from
US$60.34bn. When Doves Cry I. The PBOC, on Saturday,
announced FX reserve levels rose by US$11.39bn to
US$3.526trln in October from a month ago. Changes in
Chinas foreign-exchange reserves are a proxy for capital
inflows and outflows, though money also moves past Chinas
borders in ways officials cant track (page 15).
Once again, forecasters got it totally wrong. Nonfarm payrolls
rose a seasonally adjusted 271k versus estimates of 185k.
Jobless rate improved to 5% from 5.1%. Fed officials had
expected it to reach by years end and near the 4.9% rate they
project as normal in the long run.
Text of a speech by Fed Res Bank San Francisco President
John Williams, to be delivered before an audience in Tempe,
Arizona, was published in WSJ. The report said Williams said
he is still eyeing a Fed rate rise, noting its important to get the
process going so that future increases can come at a gradual
pace. But the FOMC voter did not say when hed like to boost
borrowing costs (page 13).
When Doves Cry II. In the WSJ, solid wage growth and
robust hiring raise chances of rate hike at December meeting;
probability of a hike rose to about 70% Friday from 58% a day
earlier; Dow Jones Industrial Average rose 46.90 points to
17910.33, boosted by bank stocks. The dollar gained sharply
against the euro and the yen. Yields on Treasuries rose, with
the rate-sensitive two-year note at 0.889%, the highest close
since May 2010 (page 10).
Greg Ip argued there isnt enough good news in wage growth.
He said digging into the October data, its still unclear these
employers are representative. Retail wages rose 0.2% after a
0.4% rise in September, keeping the annual increase at 3.2%.
Thats good, but not a marked acceleration. Furthermore,
productivity gains remain quite sluggish, which is why labor
costs, adjusted for productivity, are rising 2% per year (page
11).
Irwin Stelzer in Sunday Times said this jobs report is an early
Christmas gift to Fed Res Chairwoman Janet Yellen, who had
been hoping to turn her hints about raising rates into actual
increases. Markets will be surprised if interest rates do not go
up 0.25% when the Feds monetary policy committee meets in
mid-December (page 12).
John Authers in FT said US government has done virtually
nothing to prime the pump of this labour market. Whether
that shows the folly of government austerity, or the wisdom of
getting out of the private sectors way, can be left for the
politicians to argue about. Will the prospect of a rate rise drive
new strength for the dollar, new weakness for emerging
markets, and force the Fed to stand down again (see page 12)?
From CIBC Research Team - The strong rise in payrolls,
healthy gain in wages and further drops in measures of
unemployment and underemployment significantly boost the
case for a Fed rate hike in December. And the widespread
nature of job gains within the service sector are another
indication that, even with weakness in manufacturing, the US
economy can keep growing at the moderate pace Fed officials
expect in the quarters ahead. The strong employment figures
saw investors placing greater odds that the Fed would start
hiking interest rates in December, supporting the US$ and
seeing bond yields rise. Equity futures initially fell on the

news, likely because of the increase in wage inflation, but had
recovered some of that ground an hour after the release.
http://research.cibcwm.com/economic_public/download/use
mploy.pdf
Over to UK, Sunday Times Kathryn Cooper said the Sterling
could slide to its lowest level against the dollar since 2009
with Americas Federal Reserve poised to lift interest rates
next month. The moves in America are in sharp contrast to
Britain, where economists have pushed back their forecasts
for rate rises until later next year, following a dovish inflation
report from Mark Carney on Thursday (see page 4). For what
its worth, Dennis Petit at Bloomberg News said there is a
masked man at 1.5000, so be warned.
On BOE Governor Mark Carney, The Sunday Telegraph said a
few months ago he said interest rate policy would get
interesting again around the turn of the year. What he failed
to add was which year. It now looks entirely possible that UK
interest rates will not rise at all in 2016 (page 4).
Brazil central bank Governor Alexandre Tombini told The
Nikkei that the central bank will keep short-term interest rates
at the current high level for some time (page 9).
Aussie Treasurer Scott Morrison said tax cuts is on the table
(page 16).
WSJ reported on Saturday that Brevan Howard Asset
Management has cut at least 10% of its workforce, as it battles
lackluster performance and investor outflows (page 2).
In Sunday Times, UKs 33.4bn energy giant, National Grid is
poised to kick off the 10bn sale of its gas distribution
operation (page 2).
Sunday Times also reported that Jaguar Land Rover has
launched a secret 4.5bn cost-cutting plan to offset rising
emissions costs and the slowdown in China (page 5).
In The Sunday Telegraph, Lonmin, the worlds third-largest
platinum miner, is expected to unveil record losses as it
discloses support for a $400m rescue rights issue (page 5).
Nordea Asset Management, which manages around 190bn of
assets, said it plans to join several different class actions
against Volkswagen (page 22).
Ouch! Goldman Sachs calling loans totaling $100 million it
had made to the Valeant Pharmaceuticals International Inc.
chief executive backed by Valeant stock, as the once-soaring
shares slumped (page 9).
Theres trouble brewing in Athens. Apparently the Euro
Working Group meeting was postponed, which meant that the
disbursement of the next bailout sub-tranche will be delayed
(see page 6).
Keep a close watch on Portugal and Finland. After weeks of
negotiations, Portuguese Communists Party has resolved their
differences to form a "triple Left" coalition that will bring
down the government of Prime Minister Pedro Passos Coelho
when a parliamentary vote of confidence is held on Tuesday.
In Helsinki, disagreement between the Prime Minister Juha
Sipila and Finance Minister Alexander Stubb over health-care
overhauls brought the Finnish coalition government to the
brink of collapse on Friday as it strains to turn around a
struggling economy (page 6-7).
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.
UK News
Hedge Fund Brevan Howard Cuts 10% of
Workforce
Taken from the WSJ Saturday, 7 November 2015
Firm has closed funds amid client redemptions

Brevan Howard Asset Management, one of Europes biggest
hedge funds, has cut at least 10% of its workforce, said a
person familiar with the matter, as it battles lackluster
performance and investor outflows.
The cuts from the firms approximately 400-strong global
workforce is a dramatic move for a firm once seen by many
investors as near-invincible. It comes after the closure of a
number of funds and as the firm focuses on reviving its
flagship hedge fund.
We have had to reassess our staffing needs, predominantly in
back and middle office support functions, in light of our
decision to focus on our core macro business and shut or spin
off noncore funds over the last 12 to 18 months, Brevan said
in a statement.
The cuts affect support staff rather than investment
professionals, the person familiar with the matter said.
Headed by Switzerland-based billionaire Alan Howard, whose
fortune is estimated at 1.5 billion by the Sunday Times Rich
List for the U.K., Brevan is one of the most influential players
in the European hedge fund industry.
Its recent difficulties come at a tough time for the hedge fund
industry, with the average fund down 1.5% this year,
according to Hedge Fund Research, with other big-name
funds including BlueCrest Capital Management, Pershing
Square Capital Management and Fortress Investment Group
having been hit by bad bets or client outflows this year.
Brevans assets under management have dropped to $25
billion from $37 billion last spring, while funds launched in
areas such as commodities and emerging markets have been
shut in recent years.
Its flagship Master fund has, like many so-called macro hedge
funds, struggled to cope with financial markets heavily
influenced by central bank money printing. Macro funds bet
on a range of asset classes including stocks, bonds, currencies
and commodities.
The fund returned 20% in 2008s market chaos but has
struggled in recent years, posting its first-ever calendar year
loss in 2014. This year it is down 0.44% after losing 0.68% in
October, said a person who had seen the numbers.
Brevan said in the statement that it was becoming
increasingly excited about our opportunity set in the
immediate future.
The policy divergence between the U.S. and the rest of the
world, which we had anticipated for mid-2015, now looks
imminent, it added. We believe that once it starts we may
well get the market dislocations in which macro trading
thrives.
The firm suffered the loss of co-founder and star trader Chris
Rokos in 2012, seen by many in the industry as more willing
to take risky bets than Mr. Howard.
The pair got into a public spat over a noncompete agreement,
which was eventually settled out of court earlier this year,
though not before some of the inner workings of the firm were
exposed in court filings. The dispute was resolved in October
and Mr. Howard agreed to invest in Mr. Rokoss new fund.
Some in the industry have attributed part of Brevans
problems to the move by Mr. Howard to Geneva, a move that
split up the trading team.
Brevan also said in the statement that its commitment and
ability to continue to broaden and deepen our investment
team by hiring the best talent available remains unchanged.
(Full article click - WSJ)
---
CBI backtracks on Europe after row over

Brexit
Taken from the Sunday Times 8 November 2015
BRITAINS biggest business lobby group will tomorrow tone

down its support for staying in the EU amid claims that it
jumped the gun with its pro-EU stance.
Paul Drechsler, the new president of the CBI, will admit there
is no uniform view on the EU referendum among the
organisations members or the wider business community. But
in his speech at the employer groups annual conference he
will also say that, on balance, the benefits of the single
market outweigh its shortcomings.
His comments mark a break with the pro-EU sentiments of
his predecessor, Sir Mike Rake, chairman of BT. In recent
days, out campaigners have attacked the CBI, questioning its
polling.
Drechsler, chairman of Bibby Line, will hit back in his speech.
The great British public deserves a debate based on a sober
analysis of the arguments, not heated attacks on those making
them, he will tell the conference.
Rake said at the CBI dinner in May that the overwhelming
majority of businesses supported staying in the EU and that
membership was in the national interest.
Rakes comments prompted Sajid Javid, the business
secretary, to accuse the organisation of undermining the
governments negotiations on EU reform before they had
begun.
Lord (Digby) Jones, former director-general of the CBI, said
last week the organisation had shot its bolt and should have
waited for the prime minister to secure a reform package
before setting out its position.
Vote Leave, one of the groups seeking Britains exit from the
single market, last week wrote to some of the biggest CBI
members, including BAE Systems, BP, British Airways and
HSBC. It asked if their support for the CBI was compatible
with their company policies on political campaigning.
(Full article click - Times)
---
National Grid eyes 10bn gas sale

NATIONAL GRID is poised to kick off the 10bn sale of its gas
distribution operation.
The 33.4bn energy giant has been spurred into action by
rampant demand for infrastructure assets from foreign
investors.
National Grid, which owns and runs much of the countrys
electricity system, offloaded half the gas distribution network
11 years ago. Now it is weighing up plans to sell part or all of
the other half, City sources said.
The mooted sale comes at a pivotal moment. Last week
National Grid used emergency powers to ask industry to
reduce electricity use because of a shortfall in supply. Some of
the sale proceeds could be used to upgrade the grid.
The board is understood to have started weighing up options
for the four gas distribution networks owned by the company.
They supply 10.9m customers across the Midlands, northwest
and eastern England and north London.
The board may decide against an outright sale and opt for
piecemeal deals or selling a stake. It has yet to appoint
advisers and sale talks are at an early stage, insiders said.
National Grid declined to comment.
The 2004 sale of four gas networks by National Grid Transco,
as it was known, lured buyers including Hong Kong tycoon Li
Ka-shing, Australias Macquarie, Scottish & Southern Energy
and United Utilities.
The 5.8bn deal for operations in Scotland, southern England
and Wales allowed the company to cut debt and increase its
dividend. It also provided funds for expansion in America.
Demand for quality infrastructure assets with stable returns

has rocketed as returns on bonds and gilts have slumped. In
the past year all three of Britains train-leasing companies
have been sold at eye-watering prices. Also, Associated British
Ports was sold for 1.6bn to Hermes and Canadas Pension
Plan Investment Board.
The Grids sale is likely to attract the interest of Canadian
pension funds and Asian sovereign wealth funds, as well as
dedicated infrastructure firms, City sources said.
In May, The Sunday Times revealed that National Grid was
lining up a 1bn sale of 17m gas meters in homes and
businesses. The sale of the distribution networks is
understood to have been sanctioned by outgoing boss Steve
Holliday.
---
David Smith
Economic Outlook: Carney spins his wheels
as growth fears mount
FORECASTS are always risky, but if I wanted to venture a

couple, they would be these. At some stage next summer Mark
Carney, the Bank of England governor, will make a speech
warning that interest rates could be going up, perhaps around
Christmas.
Then, at roughly this time next year, when it becomes clear
they are not, the markets and the Bank will between them
push out their expectations of the first rate hike into late 2017
or beyond.
This is not, I should say, some bold leap into the dark, though
it could still turn out to be wrong. Fridays strong US jobs
figures, putting the Federal Reserves on-off December rate
rise back on again, show how quickly these things can change.
But expecting a hint next summer from Carney that rates
could soon be rising merely assumes the governor will follow
the pattern of the past two years.
In the summer of last year at the Mansion House in the City
and summer this year at Lincoln Cathedral, Carney put
markets, households and businesses on alert for higher rates.
And, although he pointed out on Thursday that we have not
yet reached the turn of the year, which is when he said the
decision on rates would come into sharper relief, the tone of
the Banks latest inflation report was that everybody can stand
down; rates are going nowhere.
My other prediction is not particularly bold either. All it
assumes is that the history of the past few years will repeat
itself and the Banks monetary policy committee will continue
to find more reasons not to raise interest rates than to do so.
For added comfort, the market assumptions on which the
Banks latest growth and inflation forecasts are based are for
no change in rates next year.
Thus continues an extraordinary period. If it is indeed the
case that interest rates are on hold until 2017, this will be the
missing decade, perhaps even the lost decade, for rate
increases. The last change in interest rates the cut to 0.5%
was in March 2009 but the last rise was as long ago as July
2007. The previous time we went so long without a rate hike
was in the period that included the Great Depression and the
Second World War. Bank rate was at 2% from 1932 to 1951.
If the rate was still at 0.5% in 2018, Carney would return to
Canada as that rarest of modern-day Bank governors: one who
has never presided over a change in interest rates. He still
seems keen on getting one under his belt next year,
notwithstanding the inflation report. Many City economists
also have a rate hike pencilled in for 2016, though they were
surprised by the dovishness of the report.
The other extraordinary thing is that the Bank, having never
done quantitative easing (QE) before the crisis, is in no hurry
to unwind it. Electronically creating money to purchase assets
was novel in 2009. By the time the Bank gets around to

reversing it, it will be old hat. A few weeks ago I suggested that
the Bank might want to run down its QE to take the
temptation away from politicians to launch much dodgier
versions of it.
Instead, the Bank has hardened its commitment to
maintaining QE. Until last week the understanding was that as
soon as interest rates started to rise it could quietly start
running down QE, by not reinvesting the proceeds of the
maturing gilts it has on its books. Now it says it will not do
that, let alone start actively selling the gilts back, until Bank
rate is up to 2%, which might not be until 2020. As well as a
decade without rate hikes, we would by then have had a
decade or more of QE.
Does it matter? You could say things do not get much better
than this. While savers have been deprived of the returns they
would normally have expected, borrowers are continuing to
enjoy the bonus of low rates. Indeed, to be charitable to
Carney, his 2014 and 2015 warnings were both scuppered by
what the Bank regards as an unforecastable plunge in oil
prices, with a second downward lurch for prices in recent
months.
The latest inflation report includes a useful comparison of
what the Bank expected in August last year and what
subsequently happened. The halving of oil prices since then
meant that instead of inflation being just below the 2% target
now, as it projected, it is running at -0.1%.
You could also say that consumers have had a double bonus
from cheap oil: the fall itself and the postponement of possible
rate increases. So these are good times for households: real
post-tax household incomes will rise by 3% this year and more
than 2% annually for the three following years. They are also
good times for businesses, with the Bank projecting a 5.5%
rise in investment this year, followed by 7.5% to 8.75% rises
for the following three years. Growth is good, inflation is
benign: what could possibly go wrong?
Three things. One striking thing about inflation in recent years
has been how much it has been driven by factors outside the
Banks control: the rise and fall of commodity prices, and the
fall and rise of sterling. Those factors are currently blowing in
a favourable direction. There is no guarantee that this will
continue. Low oil prices seem to be set in stone but the Middle
East looks unstable.
Second, the longer that interest rates stay low, the greater the
danger of risky behaviour. House price inflation is back within
a whisker of 10%, according to Halifax, and consumer credit is
picking up strongly. The intention of low rates is to encourage
households to spend and businesses to invest. But spending
can turn to splurge and judgments can go awry when the risk
of higher interest rates appears to have been removed from
the table.
Finally, the Banks new forecast, in which consumer spending
grows by an average of 3% a year and the growth of imports
comfortably exceeds that of exports each year, is one that
could be expected to exacerbate Britains already parlous
balance of payments position. In the past we would have
worried about that because of the impact on sterling, and the
knowledge that a plunging pound has previously meant higher
interest rates. This time, so far at least, it has been different.
But this time is different does not usually work as a longterm plan.
PS: One of the big arguments about whether Britain should
stay in the European Union or leave is about trade. The
leave camp points to the declining share of British exports
going to the EU and that there is an exciting world out there
in exports to faster-growing (though less faster-growing
than they were) emerging economies such as China and
India.
In this context, PwC will present some interesting projections

in its UK Economic Outlook this week. Yes, it will say, the
share of exports of goods and services to the rest of the EU
has declined, from 54% in 1999 to 44% in 2013. However, the
EU remains comfortably our biggest export market and still
will be in 2030, with a projected export share of 37%.
Emerging economies, meanwhile, may not carry the promise
we hope for. The share of exports to the seven largest rose
from 4% in 1997 to 9% in 2013 but progress from now on is
expected to be gentle 11% by 2020 and 13.5% by 2030.
Even then, we will be selling nearly three times as much to
the rest of the EU as to the largest emerging economies.
Leave campaigners would say PwC has not allowed for a
Brexit and the liberating effects on Britains trade it could
bring. True, but it might be unwise to assume the non-EU
world would be desperate for what we could sell it. It wasnt
true in the 1950s and 1960s, before we joined the EU, and it
probably isnt now.
---
Kathryn Cooper
Sterling set to tumble when Fed raises rates
Pound could slide to 2009 lows as America prepares to

increase rates while Britain holds off for a year
STERLING could slide to its lowest level against the dollar
since the depths of the financial crisis with Americas Federal
Reserve poised to lift interest rates next month.
The greenback jumped to a six-month high against the pound
and the euro last week after figures showed the US economy
added a forecast-busting 271,000 jobs in October, the
strongest growth this year.
Economists said it was now all but certain that the Federal
Reserve, Americas central bank, would raise interest rates in
December for the first time in nearly a decade. Markets are
pricing in an 80% chance of a rise next month.
The European Central Bank, by contrast, is expected to cut
deposit rates next month and extend its bond-buying
programme in an unprecedented move for foreign-exchange
markets.
The Fed and the ECB have never changed rates in opposite
directions in the same month since the euro was launched in
1999. The last time the Bundesbank cut rates and the Fed
hiked was in May 1994.
The moves in America are in sharp contrast to Britain, where
economists have pushed back their forecasts for rate rises
until later next year, following a dovish inflation report from
Mark Carney, Bank of England governor, on Thursday.
Sterling is suffering a sharp reappraisal in international
markets, with traders expecting it to decouple from the
dollar.
It has previously moved in line with its American counterpart
because both countries have enjoyed strong economic
recoveries, but many now expect the pound to dovetail with
the euro or euro-satellite currencies such as the Swiss
franc and Swedish krona.
The Bank of England now appears unlikely to follow the Fed
hand in hand, said Shahab Jalinoos, head of global foreignexchange strategy at Credit Suisse. In essence we see the
pound becoming a bit more euro and a bit less dollar.
He thinks the pound could drop to about $1.40, its lowest
level since 2010, if the ECB cut rates and the Fed hiked
simultaneously. The pound closed at $1.50 on Friday.
If you then compound the problem by creating political and
financial risk through the EU referendum, the market could
try to test the pounds 2009 lows of $1.35. A lot of things have
to happen to get there, but you cant rule that out, Jalinoos
said.
The Bank of England surprised markets last week by

signalling that inflation would return to its 2% target in about
two years only if interest rates remained at record lows until
early 2017.
Economists said the Bank was signalling that rate rises were
off the cards until late spring or summer next year.
---
Time to ignore the bankers and pull up the

drawbridge
Taken from the Sunday Telegraph 8 November 2015
When it comes to rate rises, Mark Carney is starting to

resemble the Boy Who Cried Wolf
Super Thursday? More like superfluous Thursday.
A few months ago he said interest rate policy would get
interesting again around the turn of the year. What he failed
to add was which year. It now looks entirely possible that UK
interest rates will not rise at all in 2016.
And it is not just the starting point for the rate hike cycle that
has been pushed out. The trajectory just got a lot flatter too.
On the basis of the Banks own projections, the only way
inflation will be back above the 2pc target in two years time is
if the Old Lady limits herself to two quarter-point hikes in
2017. Interest rates will be just 1pc a decade after the start of
the financial crisis.
As for quantitative easing, the Bank says it will hang on to
375bn of bonds, buying more as the ones it holds mature,
until interest rates rise to 2pc.
Market expectations put that somewhere after 2020. So no
UK taper for another four or five years.
And then there was one. Until Thursdays blizzard of data, it
looked like the UK would be hot on the heels of America when
it came to monetary tightening.
Now it seems Janet Yellen will be ploughing a very lonely
furrow next year. Britain has joined the Europeans and
Japanese on the easier side of the fence.
What are the investment implications of this much lower for
much longer policy?
Here are six things that look more likely this weekend than
they did seven days ago.
First, the pound will weaken, notably against the dollar but
probably against the euro too, given that the European Central
Banks easing bias was a great deal more in the price than
the Bank of Englands.
That is good news for exporters and overseas earners
(especially those with significant US operations), bad news for
anyone dependent on UK tourists spending power.
Second, the increasing divergence between still robust wage
growth and persistently low inflation and interest rates will be
good news for domestically-focused companies.
Incomes expected to be rising at up to 3.5pc by the middle of
next year, inflation of under 1pc and interest rates stuck at
0.5pc all point to a disinflationary boom in the UK next year.
The real surprise in 2016 might be that economic growth at
home is a lot better than the Banks pretty subdued forecast.
Motor dealers, carpet showrooms, restaurant chains any
business reliant on buoyant consumer confidence should
have a good year.
That means that the outperformance of the FTSE 250 and
FTSE Small Cap versus the blue-chip FTSE 100 index could
continue for a good while yet.
There is a slight differential in valuations in favour of the
largest companies but nothing like enough to compensate for
the much better conditions at home than in the markets
served by the FTSE 100s internationally-focused companies.
Third, if Mr Carneys concerns about emerging markets are
right, then it will be too soon to think about trying to time the
bottom in the developing worlds stock markets
(notwithstanding Chinas 20pc rally since its August low

point).
The turning point for commodities may be some way off too.
Thats particularly the case because there is little sign of the
supply side of the equation turning much more supportive.
Typically, too, a strong dollar is bad for natural resources
prices.
U.S. one dollar bills are arranged for a photograph in New
York, US
Fourth, finding an income will get no easier in 2016. That
means that savers and investors will continue to favour highyielding shares, bonds and property.
Good businesses may be more expensive than ever but that is
because in a low-growth world they are more valuable than
ever
The commercial property cycle looks like being extended even
further on the back of a happy combination of rising rents, a
lack of development and overseas investors encouraged by the
weaker pound.
Fifth, house prices will continue to rise as the prospect of
higher mortgage rates recedes and even the stretched London
market looks less out of reach to non-sterling buyers.
Sixth, the concerns about the punchy valuations attached to
high-quality shares with strong brands and pricing power
could look premature.
Good businesses may be more expensive than ever but that is
because in a low-growth world they are more valuable than
ever. It will seem more and more sensible to pay up for
companies sitting secure behind what Warren Buffett calls a
defensive moat.
In a world in which we can rely less and less on what our
central bankers have to say, we need to rely more and more on
the companies we invest in.
(Full article click - Telegraph)
---
Jaguar to slash 4.5bn in costs

JAGUAR LAND ROVER has launched a secret 4.5bn costcutting plan to offset rising emissions costs and the slowdown
in China.
The project known as Leap 4.5 will scrutinise almost
every area of spending at Britains biggest manufacturer,
raising fears of job cuts. The 3bn-a-year capital budget,
focused on research and development and new plants, will be
spared.
Jaguar has been one of Britains biggest success stories since it
was bought for 1.3bn by Indias Tata Motors from Ford in
2008. It made 2.6bn profit last year, has almost 37,000 staff
and builds about 500,000 cars a year.
The companys pace of expansion is unprecedented in recent
automotive history. It has spent about 11bn on a new range
of cars, quickly built plants in China and India, with another
under way in Brazil, and has overhauled its three British
manufacturing plants. It aims to build 1m cars a year by 2020.
Sources close to Jaguar said it was a natural time to take stock
after such rapid growth, and insisted that there were no plans
for redundancies.
However, recent results have been hit by Chinas economic
slowdown and moves against corruption and overt displays of
wealth. Sales in the Peoples Republic from July to September
were down by a third year-on-year to 20,149 cars, against a
wider market fall of 1.9%. That drop was offset by strong
growth in America and Europe, leaving quarterly sales broadly
flat at a total of 110,200 cars.
However, Jaguar sank to a 157m pre-tax loss after booking a
245m charge on 5,800 vehicles damaged in the huge
explosion at the Chinese port of Tianjin in August. Even
before accounting for the cost of the blast, the underlying
profit margin fell from 19.4% to 12.2%.
As well as the Chinese problems, Jaguar faces pressure from

regulators to cut its emissions or face hefty fines. It has largely
switched from steel to aluminium bodies, which lead to lower
fuel consumption, but tougher emissions rules will require
costly upgrades to models.
Leap 4.5 targets 4.5bn of cumulative savings by the end of
the decade. It is likely to see more models built on similar core
skeletons, greater efficiency in manufacturing, supply chains
overhauled and recruitment slowed or halted. No stone will
be left unturned, said a source close to the company.
Jaguars costs last year included more than 13bn for
materials and 2bn for wages. Ralf Speth, the chief executive,
is believed to be determined to continue the 3bn-a-year
spending on research and development and new plant and
equipment. Jaguar declined to comment.
---
SAB sells Miller to seal beer deal

SAB MILLER is set to offload its American business for more

than $10bn (6.6bn) this week when the British brewer finally
agrees terms on a merger with Anheuser- Busch InBev.
The Peroni maker is selling its 58% stake in Miller Coors to
joint venture partner Molson Coors. The sale is seen as an
essential step in winning competition watchdogs approval for
Budweiser brewer AB InBevs 70bn takeover of SAB.
The Takeover Panel has twice extended the deadline for a firm
agreement between SAB and AB InBev. It is understood that,
barring a last-minute catastrophe, the announcement will be
made on Wednesday. The sale of SABs American business is
likely to be confirmed at the same time.
Molson Coors, which owns Carling and Doom Bar, had first
refusal on buying SABs stake. European brewing giant
Heineken was known to be interested if Molson declined.
The string of beer deals has sent shockwaves through the
drinks industry. Diageo will this week reaffirm its
commitment to Guinness amid speculation that the FTSE 100
drinks giant will sell the 256-year-old brand.
Ivan Menezes, the chief executive, will tell investors in New
York that the stout is still central to the companys strategy.
Beer accounts for 19% of Diageos 10.8bn annual sales, about
half of which come from Guinness.
---
Lonmin to unveil record losses as it fights

for survival
Taken from the Sunday Telegraph 8 November 2015
World's third largest platinum miner will unveil yawning

losses in annual results as it struggles with tumbling prices
and the rising cost of labour
Lonmin, the worlds third-largest platinum miner, is expected
to unveil record losses as it discloses support for a $400m
(266m) rescue rights issue.
Alongside annual results, due tomorrow , the 106-year-old
miner is to publish a prospectus for the lifeline rights issue,
detailing investor support.
The group has been hammered as platinum prices have
plunged to six-and-a-half-year lows, due to oversupply and
slowing demand from China, as well as rising South African
labour costs.
The company will write down the value of its mines by as
much as $2bn, with operating losses reaching $207m, in
results for the year to September 30.
It is the third time in six years that Lonmin has gone cap in
hand to shareholders. Investors paid $457m in 2009, at 9
per share, and $777m at a deeply discounted 140p per share in
2012.
The measures, including thousands of job losses, are
necessary for banks to agree to refinance $563m in debt.
Investors will meet in London to vote on the proposals on Nov

19. The issue is backed by Lonmins third-largest shareholder,
the Public Investment Corporation, which owns about 7pc,
and the Bapo Community, which owns 2pc.
The firm, founded in 1909 as the London and Rhodesian
Mining and Land Company (Lonrho), was turned into a
sprawling conglomerate under chief executive Roland Tiny
Rowland. The shares have fallen more than 90pc this year,
closing last week at 16.3p.
European News
Eurogroup unlikely to release next 2 billion
after failure to settle pending issues
Taken from the Kathimerini Saturday, 7 November 2015
The chances of eurozone finance ministers approving the

disbursement of the next bailout sub-tranche when they meet
in Brussels on Monday appear slim after Fridays Euro
Working Group meeting was postponed until there is greater
clarity about where Greece stands in its efforts to complete
the prior actions demanded by its lenders.
The teleconference of technical experts who prepare the
agenda for Eurogroup meetings was called off on Friday after
it emerged that between 10 and 15 of 49 prior actions due to
be completed before the next 2-billion-euro installment can be
released have not yet been addressed.
Mondays Eurogroup meeting is an opportunity to take stock
of progress, EU economic affairs spokeswoman Annika
Breidthardt. Once the assessment is concluded, it will be up
to the member-states to make a decision on disbursement.
Sources suggested that it is more likely the gathering of
eurozone finance ministers will conclude with a joint
statement noting progress in Greece but that no disbursement
would occur before the government has passed more
legislation. It remains to be seen if Athens and its lenders
agree on Monday on what issues to be settled.
There are several key matters on which the eurozone is
expecting initiatives from the coalition. Top of this list is the
criteria for the repossession and foreclosure of primary
residences. Also, the government has yet to come up with a
definitive fiscal alternative to imposing value-added tax on
private education.
The institutions also want the government to settle on changes
to the 100-installment payment plan for taxpayers who owe
money to the state. The lenders want the rules to be tightened
so that anyone not keeping up with monthly payments loses
the right to be part of the scheme.
The government is also being asked not to set any minimum
price for generic or off-patent drugs. The coalition has
proposed lowering the current minimum level gradually over
the next two years.
(Full article click - Kathimerini)
---
Communists ready to assume power in

Portugal
and
topple
conservative
government
Taken from the Telegraph Saturday, 7 November 2015
Anti-euro Communist party say 'conditions are in place' to

form historic triple Left coalition and bring down centre-right
after just 11 days
Portugal's Communist party has struck a historic deal with the
country's Socialists and radical Left in a bid to assume power
and overthrow the incumbent centre-right after just 11 days.
After weeks of negotiations, the Communists have resolved
their differences to form a "triple Left" coalition that will bring
down the government of Prime Minister Pedro Passos Coelho
when a parliamentary vote of confidence is held on Tuesday.
A statement on the party's website said conditions are in
place to bring an end to the nascent minority government.
Between them, the Communists, Socialists and Left Bloc
would have a 51pc parliamentary majority.
Mr Passos Coelho was only sworn into office last Friday. His
centre-right coalition oversaw four years of austerity policies
in the former bailout country, but lost its parliamentary
majority in elections last month.
The re-appointment of the centre-right has been clouded in
controversy after Portugal's head of state vowed to block antieuro Communists and Leftists from assuming power.
President Anibal Cavaco Silva could now be forced into a

humiliating climbdown when the minority government is set
to fall on Tuesday.
He has warned that Portugal risks becoming "ungovernable"
and warned Leftist forces to respect the terms of Portugal's
EU membership.
Should the president fail to provide a mandate to the Leftists,
a caretaker regime is likely to assume office until new
elections are held in March 2016.
The left-wing coalition would be led by Socialist party leader
Antonio Costa - a moderate who has promised to adhere to the
bail-out terms set by the country's former creditor powers.
But anti-austerity left forces are set to derail Portugal's fiscal
consolidation by raising the minimum wage, and reversing
cuts to social security and pensions. The Left have also
renounced the terms of the EU's Fiscal Compact and could
force Mr Costa into slashing VAT rates and scrap cuts to
public sector wages.
A political stalemate has also seen Lisbon fail to submit its
draft 2016 budget plans to Brussels by an October deadline.
Despite exiting its 78bn rescue programme last year,
Portugal continues to lumber under the highest combined
debt burden in the eurozone.
The economy is only set to grow by 1.5pc next year - lower
than its former bailout counterparts in Spain and Ireland.
---
Finlands
Government
Teeters
Amid
Disagreement Over Health-Care Overhauls
Prime Minister Juha Sipila and Finance Minister Alexander

Stubb continue talks to resolve crises
A disagreement between the prime minister and one of his
allies over health-care overhauls brought the Finnish coalition
government to the brink of collapse on Friday as it strains to
turn around a struggling economy.
In a news conference late Thursday, Prime Minister Juha
Sipila said he would likely meet the president Friday to tender
the cabinets resignation if he is unable to make a deal with
the leader of one of the two parties with which he governs,
Finance Minister Alexander Stubbs Coalition Party.
Mr. Sipila called talks for Friday morning, which were
supposed to be wrapped up by midday local time but were
continuing well into the evening.
The nationalist Finns Party, the third party in the coalition,
has already signed up to Mr. Sipilas plan and is a bystander to
Fridays flare-up.
At the heart of the disagreement is how centralized the healthcare system should be, a question that has troubled successive
Finnish governments. The prime ministers Center Party,
which draws strong support from rural areas, insists on a
more decentralized system, while the center-right Coalition
Party thinks that welfare administration should be more
concentrated.
Both sides are aiming to streamline the current system, which
gives a lot of autonomy over health care to Finlands many
municipalities. The Center Party wants to consolidate much of
the decision making within 18 new bodies while the Coalition
Party think it would be better done with just five.
The government estimates that the changes could save the
state around 3 billion, or about $3.3 billion.
The disagreement reflects how strained the Finnish political
situation has become as the six-month-old government battles
to reverse the worst slump in decades in this previously
highflying Nordic economy.
The decline of Nokia Corp.s handset business, a slowdown
within the vital forestry sector and sanctions against Finlands
important trading partner Russia have subjected the economy
to a three-pronged assault. A sharp rise in the number of
asylum seekers arriving in the country from war zones such as

Syria and Iraq has strained state finances further.
Analysts said that if Mr. Sipila went to the president to tender
the cabinets resignation on Friday, his next move would likely
be to replace the Coalition Party with two smaller opposition
parties rather than call new elections.
---
Nordea to sue Volkswagen over losses

The Nordic regions largest asset manager will sue VW over its
deceit regarding emissions
The Nordic regions largest asset manager has become the first
to confirm it will sue Volkswagen over its deceit regarding
emissions, which has resulted in huge losses for investment
managers globally.
Nordea Asset Management, which manages around 190bn of
assets, said it plans to join several different class actions
against the German carmaker.
Lawyers have been circling Volkswagen since US regulators
accused it of using defeat devices to cheat US emissions tests
for its diesel cars in September.
[The investors in our funds] should not bear the cost of VW
fraud, said Sasja Beslik, head of responsible investments at
Nordeas fund arm.
Given how deep and rife this scandal is, we want to evaluate
both European and US class actions in order to [find the best
options for us], he added.
VWs share price has plunged almost 40 per cent since
September, leaving investors with billions in losses.
Among those worst affected is Norways oil fund, the largest
sovereign wealth fund in the world. It lost NKr4.9bn, or
around 500m, from its stake in VW during the three months
until the end of September. The fund is one of VWs largest
shareholders and had a 1.2 per cent stake in the company at
the end of 2014.
Nordea, which banned its fund managers from making any
further investments in the carmaker after details of the
emissions problems emerged, had around half a million VW
shares, worth more than 80m, in September. It has since
offloaded 90 per cent of its shares.
Mr Beslik said: Investors are evaluating how to protect their
losses.
APG, the Dutch pension fund that manages 400bn, is also
considering suing VW. We are reviewing our options and are
not ruling out legal action, said a spokesperson.
VW had not responded to a request for comment at the time of
going to press.
It is understood several other institutional investors are
weighing up taking legal action against the carmaker. Clive
Zietman, head of commercial litigation at Stewarts Law, who
has worked on lawsuits against banks such as Royal Bank of
Scotland, which is being sued for allegedly misleading
investors during the financial crisis, said asset managers had
contacted him about VW.
Class actions against VW, which allow one person to sue on
behalf of a group of individuals or companies, have already
been filed in the US and Australia.
DSW, a German shareholder association, backed by European
investor rights group Better Finance, said it is in close and
advanced talks with private and institutional investors across
Europe and the US about taking legal action in VWs home
market.
Several national and international institutional investors
expressed their interest to co-operate with us in this case,
said Marc Tngler, general manager at DSW.
Bentham Europe, a litigation finance group backed by Elliott
Management, the US hedge fund, and Australian-listed IMF
Bentham, said last week it is in talks with VWs top 200
investors and plans to launch a damages claim in Germany as

soon as next February.
David Seidel, chief executive of the Institutional Investors
Tort Recovery Association, which helps institutions decide
which class actions to join, said law firms in the UK are also in
the process of putting together cases against the carmaker. He
warned that it will be years before lawsuits against VW reach
the courts.
(Full article click - FT)
News Americas
Keystone XL pipeline rejection sends a chill
over Canadas energy industry
Taken from the Globe and Mail Saturday, 7 November 2015
The rejection of TransCanada Corp.s Keystone XL pipeline

project puts new pressure on Canadas energy industry to
figure out how to ship growing oil sands production from the
landlocked west to global markets.
U.S. President Barack Obamas categorical no to the
830,000-barrel-a-day project will not immediately shut down
new oil sands projects but could have a cooling effect on
growth in the industry, already stung by more than a year of
sharply lower oil prices.
Hal Kvisle the man who conceived the Keystone XL pipeline
when he was TransCanadas chief executive officer called
Friday a sad day.
This is very difficult for the Canadian oil and gas industry,
Mr. Kvisle, who headed TransCanada from 2001 to 2010, said
in an interview.
And access to market is the single biggest problem we face. In
many ways, it is even bigger than $45 oil. Forty-five-dollar oil
will come and go as global supply and demand sorts itself out.
But if Western Canada cant get access to markets, and we
persist with things like dangerous rail transportation, it is just
bad.
Even before the White House made its announcement Friday,
there had been fallout because of limited transport capacity
for future oil sands production. Last month, Royal Dutch Shell
PLC halted construction on its massive steam-driven project,
Carmon Creek, blaming both the collapse in oil prices and the
lack of pipeline capacity.
At a time when the energy sector is rife with job losses, current
TransCanada CEO Russ Girling said the Keystone XL project
would have put 2,200 Canadians to work almost overnight.
Following the rejection of the project, TransCanada said it
would review its options, which include filing a new
application for a presidential permit for a cross-border
pipeline.
Alberta Premier Rachel Notley said the Keystone XL decision
emphasizes why Canada needs to push hard for domestic
pipelines particularly those likely to succeed. She spoke
directly to TransCanadas Energy East pipeline project, which
would bring crude oil from Alberta and Saskatchewan to
refineries in Eastern Canada, and Kinder Morgan Canadas
Trans Mountain pipeline expansion from just east of
Edmonton to Burnaby, B.C.
She pressed the need for getting oil to tidewater with Prime
Minister Justin Trudeau Friday morning.
We need to really focus and have some very careful
discussions about how we can work collaboratively to ensure
that we get energy infrastructure and pipelines to tidewater.
Bottom line, she said.
Gatan Caron, the former head of Canadas National Energy
Board and an executive fellow at the University of Calgarys
School of Public Policy, characterized the U.S. decision Friday
as a low point in North American energy security.
Mr. Caron said Keystone XL is one of four key pipeline
projects to get Canadian oil to refineries and global markets
where the crude fetches a higher price than it does in landlocked North America. The other key projects, he said, are
Energy East, the Trans Mountain expansion and Enbridge
Inc.s Northern Gateway project to the B.C. Pacific Coast.
If you stopped all four, then what youre left with is the
upgrade of existing systems and heaven forbid a
significant increase again in the movement of oil by rail.
Nobody yet has found a way to stop the movement of oil by
rail, Mr. Caron said.
While oil prices were high, rail was an increasingly used as a

fallback method for shipping crude. However, oil prices below
$50 (U.S.) a barrel has made rail a less economical means of
transportation.
At Cenovus Energy Inc., spokesman Reg Curren said: We
havent put all of our eggs in one basket when it comes to
transporting our oil. Were building a portfolio of market
options for our production.
The oil sands producer will get its product to market by using
shipping capacity on the existing Trans Mountain system and
Enbridges Flanagan South pipeline in the U.S., as well as its
70,000-barrel-a-day crude oil transloading terminal at
Bruderheim, northeast of Edmonton. Still, Cenovus is
counting on more pipeline capacity coming on line.
We have made commitments to both Energy East and Trans
Mountain, Mr. Curren said.
Although downtown Calgary has for months expected a
rejection of the project, Fridays news from the White House
was still a major blow.
Clearly, were disappointed in todays decision, said Steve
Williams, CEO of Suncor Energy Inc., one of Canadas largest
oil companies.
Keystone XL is important infrastructure not only for
producers in the U.S. Bakken and Canada as it would provide
expanded connectivity to the Gulf Coast, but also for U.S.
refiners as it would provide security of supply from a longtime energy provider and trading partner.
(Full article click - Globe and Mail)
---
Valeant CEO Forced to Sell Company Stock

in Margin Call
Goldman Sachs Group Inc. was calling loans totaling $100

million it had made to the Valeant Pharmaceuticals
International Inc. chief executive backed by Valeant stock, as
the once-soaring shares slumped.
Goldman told Mr. Pearson on Friday, Oct. 30, the debt needed
to be repaid by Tuesday, or it would sell the shares it held as
collateral, a person familiar with the matter said.
The bank made good on its warning on Thursday, selling 1.3
million Valeant shares to cancel the outstanding balance,
Valeant said Friday. The trade contributed to a selloff that
sent the companys shares down 14% on Thursday, extending
a rout that has seen Valeant lose about two-thirds of its
market value since early August.
The margin call represented the latest challenge for the drug
maker and its chief executive, and the latest twist in the long
relationship between Goldman and Valeant, one of the biggest
sources of Wall Street banking fees.
Mr. Pearson in a statement Friday said that since joining
Valeant, he hasnt sold any shares received as compensation,
and it was not my desire that shares be sold now. The sale
accounted for about 13% of his holdings in the company as of
Dec. 31. He still owns about 2.5% of Valeant, a relatively large
holding for a nonfounder CEO.
Valeants New York-listed shares rallied Friday, with some
investors expressing relief that the previous days selloff was
at least in part a forced sale, rather than a large holder
deciding to bail out. Shares closed up $3, or 3.8%, to $81.77.
They have tumbled amid questions about Valeants drug
pricing, business and accounting practices. The company said
it has found no evidence of illegality but established a board
committee to look into its relationship with a specialty
pharmacy that distributed its drugs.
CEOs and other executives are often permitted to pledge
shares they own as collateral for loans. But the practice is
unpopular among some institutional investors, who said it
allows executives to cash in on a form of compensation meant
to be longer term. Another issue, as Thursdays events depict,
is that in crisis, company management can inadvertently help

to speed a stocks decline.
About 15% of S&P 500 companies reported that executives
pledged shares for loans in 2015, down from 22% in 2012,
according to proxy-advisory firm Institutional Shareholder
Services Inc.
Valeant last year banned any new share-pledging by
employees and board members as part of a package of
governance changes, including reducing Mr. Pearsons salary
to zero and compensating him in stock and cash tied to
performance. No other high-level executives have pledged
Valeant shares in connection with personal loans, a company
spokeswoman said.
Mr. Pearson pledged about two million shares to borrow to
help cover tax and other obligations, the company said in a
2014 regulatory filing. Valeant said Friday that some of the
loan proceeds also went to a charitable donation to Mr.
Pearsons alma mater, Duke University, and to help build a
community swimming pool. Duke said in June 2014 that Mr.
Pearson and his wife, Christine, made a $30 million gift to the
universitys engineering school, among the largest ever given
to that school.
Separately, Goldman lent Mr. Pearson $4 million to buy a
Spring Lake, N.J., beach home in 2013, property records
show. Mr. Pearson holds Valeant stock in Goldmans
brokerage unit, and the banks wealth-management arm
oversees trusts for his children, according to the person
familiar with the matter.
Goldman, like other Wall Street banks, has long worked with
Valeant. Its appetite for acquisitions, and need to raise cash to
fund them, has made Valeant the fourth-biggest corporate
payer of investment-banking fees since 2010, according to
consulting firm Freeman & Co. It has paid more than $700
million to investment banks, with some $85 million of that
flowing to Goldman, according to Freeman estimates.
Valeants former chief financial officer and current board
member, Howard Schiller, is an ex-Goldman partner who was
a top executive in its investment bank.
Goldman found itself across from the longtime client last year,
when it helped defend Allergan Inc. from a hostile takeover
bid mounted by Valeant. Over the course of a bitter sevenmonth fight, Allergan criticized Valeants stock as overvalued,
and the company as inscrutable and dependent on constant
acquisitions.
Goldman hasnt done any banking work for Valeant since
then. But the flame may still flicker. Goldman said in a recent
research note that the bank expected to collect or seek
investment-banking fees from the company in the next three
months.
---
Brazil Central bank chief says interest rates

will stay high
Taken from the Nikkei Saturday, 7 November 2015
Brazil's central bank will keep short-term interest rates at the

current high level for some time, Gov. Alexandre Tombini told
The Nikkei, signaling that controlling inflation takes priority
over stimulating a recession-bound economy.
The central bank's policy rate stands at a lofty 14.25%, as high
as in 2006 when South America's largest economy was
booming.
Inflation will reach the roughly 4.5% midpoint of the bank's
target range sometime after December 2016 but no later than
the end of 2017, Tombini predicted in an interview at the
bank's headquarters here.
This is about a year later than the current forecast and
suggests the bank will have little leeway to support the
economy with a more accommodative stance. The ICPA
consumer price index compiled by the Brazilian Institute for
Geography and Statistics rose a steep 9.49% on the year in

September.
The government is holding the line on austerity. Finance
Minister Joaquim Levy, in office since January, has tried to
control spending -- including by seeking stricter qualifications
for unemployment benefits -- as well as increase revenue. This
fiscal fine turning has contributed to inflation, Tombini said.
Companies increasingly are passing along the burdens of
higher taxes and lower subsidies to consumers.
To fight inflation, the central bank raised its policy rate seven
times in a row starting in October 2014 for a total increase of
325 basis points. Having gone this far and facing a sagging
economy, the bank held pat at its past two monetary policy
committee meetings.
"Anything can happen," but the strategy is to keep the rate at
this level, Tombini said.
With a U.S. interest rate hike looming, Brazil's currency, the
real, remains prone to downward pressure. It sold off to over
4.1 to the dollar in late September, the weakest since the
current foreign exchange regime was adopted in 1994. The
real has recovered to around 3.8 to the dollar but remains well
below the roughly 2.5 level of a year ago.
Tombini signaled that the central bank stands ready to defend
the currency, saying it can use "any instrument" including
spot interventions. Brazil is "prepared" for the risk of a surge
in capital outflows triggered by a U.S. rate increase, he said,
citing $370 billion in foreign exchange reserves. The country
has ways to manage volatility and stress, he said.
The economic slowdown in China, a major buyer of iron ore,
soybeans and other exports, has hit Brazil hard. China is in a
"transition period" from an "exporting industrial powerhouse"
to a more "consumer-driven service economy," Tombini said.
It is a difficult process, but the Chinese government and
central bank are in control of the situation, he said.
Brazil's economy is forecast as of September to shrink 2.7% in
real terms this year, Tombini said. But thanks to a weak real,
Brazilian-made goods are regaining competitiveness in foreign
markets, he said.
(Full article click - Nikkei)
---
Brisk Job Gains Ease Feds Path

Solid wage growth and robust hiring raise chances of rate hike
at December meeting
U.S. employers added jobs in October at the quickest pace this
year, while boosting wages at the fastest rate since 2009,
giving the Federal Reserve its clearest signal yet that the
economy may be strong enough to withstand an interest-rate
increase next month.
Nonfarm payrolls rose a seasonally adjusted 271,000 last
month, the Labor Department said Friday. Revisions showed
employers added a combined 12,000 more jobs in September
and August than previously estimated, bringing the years
average to 206,000. The unemployment rate fell to 5%, a level
Fed officials expected it to reach by years end and near the
4.9% rate they project as normal in the long run.
Average hourly earnings of private-sector workers rose at a
2.5% annual pace in October. That marked the best year-overyear performance since July 2009, just as the economy was
emerging from recession, and a notable rise from the 2%
average pace during the six-year economic expansion.
The upbeat report eased fears that market turmoil and
slowing growth in China and Europe were crimping the U.S.
economy.
The Federal Reserve has kept interest rates at near zero since
the 2008 financial crisis. To raise them, it has come up with a
new set of tools.
Economists and investors interpreted the news, particularly
the signs of wage growth, as raising the likelihood that,
barring some surprise in coming weeks, Fed officials would

feel more comfortable about increasing short-term interest
rates when they hold their next policy meeting in midDecember.
Fed officials have said for months they would start lifting their
benchmark rate, which has been near zero since late 2008,
after they saw more improvement in the labor market and felt
reasonably confident annual inflation would rise toward
their 2% target.
This is the kind of employment report that even the most
diehard doves on the [Fed] cannot ignore, said Stephen
Stanley, chief economist at Amherst Pierpont Securities.
Employers have had the upper hand since the crisis, and
thats starting to swing a little bit. Workers are starting to get
more leverage. Firms have a lot of job openings and theyre
having trouble filling them.
In financial markets, investors began adjusting to the
possibility of a December rate increase.
The probability of a hike rose to about 70% Friday from 58% a
day earlier, based on trading in fed-funds futures tracked by
CME Group.
The Dow Jones Industrial Average rose 46.90 points to
17910.33, boosted by bank stocks. The dollar gained sharply
against the euro and the yen. Yields on Treasurys rose, with
the rate-sensitive two-year note at 0.889%, the highest close
since May 2010.
Should the central bank raise rates in December, the focus
would then shift to a subject that Fed officials have said is
even more important: the pace of tightening.
The central banks message, reinforced this past week by
Chairwoman Janet Yellen and other officials, is that rates will
likely be raised gradually as the Fed watches for confirmation
that inflation is rising.
Policy makers have unanimous support for a gradual pace of
rate increases once the process starts, St. Louis Fed President
James Bullard said Friday. He added that the first move will
be followed by a healthy debate about subsequent steps. The
Feds next policy meetings after December are scheduled for
the end of January and mid-March, giving policy makers a
chance to survey the landscape as the new year gets under
way.
The Fed, at one point moving toward a rate increase as early
as September, held back due to worries including a strong
dollar and weak growth in major overseas economies.
Many of the hires in October were in domestically oriented
service sectors that are largely immune to overseas
turbulence, including retail, food services, health care and
construction.
Some of the latest hiring could reflect retailers getting an early
jump on what they expect to be a strong holiday season. Retail
jobs rose by 44,000 in October, and major retail chains like
Macys and Target are offering more hours and higher pay to
attract workers for the holidays. Even for nonsupervisory
workers in the retail sector, average hourly pay rose 2.7% over
the past year to $14.90 an hour, outpacing the overall annual
wage growth.
Other signs of the labor markets gathering strength: A broad
measure of unemployment that includes Americans stuck in
part-time jobs or too discouraged to look for work fell to 9.8%
in October, the lowest level since May 2008. This was largely
due to a sharp drop in the number of involuntary part-time
workers. About 269,000 fewer people described themselves as
working part-time for economic reasons in October than
September.
Still, despite the strong overall labor-market reading, some
signs of slack linger. In October, 7.9 million workers who
wanted a job couldnt find one, a relatively elevated level six
years after the expansion began.
And some segments of the job market have shown distress

from the overseas tumult, with steep losses in the mining and
other export-oriented sectors. The mining and logging sector
shed 4,000 jobs in October to bring its total losses this year to
108,000.
Cotta Transmission Co., a Beloit, Wis., firm that makes
mining, drilling and industrial equipment for multinational
firms including Caterpillar Inc., cut about 20 of its 90
employees this year as orders fell.
Chief Executive Wayne Hanna said hes hoping to maintain
headcount by cutting hours, boosting productivity and raising
his firms flexibility by training workers to operate a variety of
machines. Im not sure that mining has hit bottom yet, he
said. The commodities business is more world-economy
dependent.
At the higher-skilled end of the labor market, Raanan
Horowitz has been raising pay to better compete for
engineering talent at Elbit Systems of America LLC, a defense
electronics company. In the past year, the Fort Worth, Texas,
company has doubled the engineering staff at its medicalequipment division to 120, bringing total employment to 250.
Theres definitely strong competition for the skilled, technical
workforce, so weve had to adjust some of our expectations on
pay and stuff in order to be competitive, said Mr. Horowitz,
the companys chief executive.
---
Greg Ip: Still Not Enough Good News on

Wages
The October jobs report was full of positive signs for the
economy but by far the most important was the 0.4% jump in
average hourly earnings, which brought the annual increase to
2.5%, the highest since 2009.
By broad measures, the labor market has gotten steadily
tighter: The unemployment rate, at 5%, is down by half since
2010, and the vacancy rate is the highest since 2000. But until
now, there has been precious little sign of broad upward
pressure on wages. Many promising monthly jumps were
followed by flattening later.
Is this one for real? There are reasons to believe it is. In the
last year, many companies from Wal-Mart to McDonalds
announced broad-based wage increases for their lowest-paid
employees. It was always an open question whether they were
responding to public criticism of their low wages, or because
they genuinely were having trouble filling job openings. Since
self-interest is a more durable influence on business behavior
than altruism, the second explanation would be the more
encouraging, as it means the wage boosts were more likely to
persist even at the expense of narrower profit margins, and
that other businesses would have to follow suit.
Digging into the October data, its still unclear these
employers are representative. Retail wages rose 0.2% after a
0.4% rise in September, keeping the annual increase at 3.2%.
Thats good, but not a marked acceleration. Leisure and
hospitality wages rose 0.4% but that followed a flat September
and the annual gain is just 2.5%, which is actually a significant
slowing from earlier this year.
More broadly, the hourly wage data have been volatile enough
that reading a lot into Octobers number is dangerous. Even if
wages are on an upswing, there is nothing in the last few years
to suggest a rapid acceleration is in the works.
Productivity gains remain quite sluggish, which is why labor
costs, adjusted for productivity, are rising 2% per year. Thus,
if hourly wages keep rising at 2.5% either profit margins are
going to be squeezed, productivity will have to rise, or they
will be passed on to prices.
Of these three possibilities, the last seems least likely. Profit
margins are quite wide and easily able to handle some
rebound in labor expense, especially if accompanied by rising

sales. Productivity is overdue for at least a modest cyclical
uptick assuming economic growth doesnt falter. As for prices,
the fact inflation has remained below the Feds 2% target for
so long speaks both to the lack of pricing power and the
absence of the sort of inflationary psychology that would ease
the way to higher prices.
So while the rise in wages should be welcomed by the Fed, it is
not a sign that inflation pressures are about to build. Between
the strong jobs report and a drumbeat of Fedtalk, the markets
are coming around to the view that the Fed will start to raise
rates in December. But theres no rush. A few more months of
wage gains like Octobers would provide a more secure
foundation on which to start normalizing rates.
---
Jon Authers: Only a crisis can stop the

Federal Reserve
Taken from the FT Saturday, 7 November 2015
After the initial astonishment, a few clear lessons arise from

the October US non-farm jobs report, which revealed that
almost 100,000 more people had found work last month than
economists had predicted.
First, the data are nowhere near robust enough for the weight
that markets and policymakers put on it. This report followed
Septembers survey that was equally shocking in the opposite
direction, suggesting that growth was far weaker than had
been thought. That report has now been revised, and the
dramatic market gyrations of the past two months look as
though they owed much to bad data. It is galling to think of
the amount of money that has changed hands, and the amount
of analysis that has been produced, on essentially false
premises.
This is not a new problem. As long ago as 2006, well before
the financial crisis, Tim Bond, then an analyst at Barclays,
complained that non-farm payroll data were so unreliable that
bussing in grannies for a monthly Bingo Friday would be the
more optimal way to allocate capital in the global bond
market.
A second lesson is that the rise is almost entirely down to the
private sector, which accounted for 267,000 of the extra
271,000 jobs created. The government has done virtually
nothing to prime the pump of this labour market. Whether
that shows the folly of government austerity, or the wisdom of
getting out of the private sectors way, can be left for the
politicians to argue about.
Third and by far the most important is that we can revert
to assuming a rate rise from the Federal Reserve next month
is a virtual certainty. There is no reason from the labour
market for a central bank that plainly wants to raise rates
from zero to stay its hand. The initial reaction in the Fed
Funds futures market, which put the implied chance of a
December rate rise up to 72 per cent, looks understated.
The rise in interest rate-sensitive two-year Treasury bond
yields to their highest level since early 2010, however, seems
reasonable. That was a point when many assumed, wrongly,
that the Fed was already finished with its QE bond purchases.
Despite the turbulence of the last few months, it also looks as
though the US stock market, at least, can handle a rate rise.
Stocks are close to the record highs set in May this year; the
Fed has successfully prepared traders for higher rates.
The question now is what could stop the Fed. The
chances of a hike were deemed at least this high by the futures
market until August 18 when the assumption was that the
first rise would come in September. Then they dipped, for
reasons that had little or nothing to do with economic data.
That was the week when the Chinese authorities shocked the
rest of the world with a currency devaluation, and global stock
markets were starting a sudden and dramatic slide. Emerging
market currencies were under severe pressure, and many

feared that some were at risk of a financial crisis.
The possibility of a rate rise was then driven down to minimal
levels after the September jobs report, which appears to have
been based on bad information, and by signs of dissent among
Fed governors that appear to have died down.
But the important point here is the link between markets and
the Feds decision. Stock markets, and emerging market
currencies, began to recover precisely because their swoon
was seen as making it impossible for the Fed to raise rates.
Doing so would have attracted more capital to the US and
away from emerging markets, and might have precipitated a
crisis.
Since then, with the Fed apparently on hold, stock markets
have recovered, and emerging currencies have at least
stabilised somewhat. With a Fed rate rise appearing certain
and imminent, the same question will emerge as in August.
Will the prospect of a rate rise drive new strength for the
dollar, new weakness for emerging markets, and force the Fed
to stand down again?
Judging by the initial market reaction, that is at least a
possibility. The dollar trade-weighted index, judging the US
against its main trading partners, is at its highest since April,
and has appreciated by 7.26 per cent since the August low.
The JPMorgan emerging markets currency index, after a brief
recovery, is down 2.86 per cent over the past month, and
down 13 per cent for the year. Industrial metals prices, central
to many emerging economies, continue to plumb new lows.
It is worth paying close attention to these markets over the
weeks ahead. At this point, it looks as though it would take a
fresh emerging market crisis to stop the Fed from raising rates
next month.
(Full article click - FT)
---
Irwin Stelzer
American Account: Job boom gives Fed
green light to raise rates next month
LIFT-OFF. Thats the conclusion to which observers jumped

when the government announced on Friday that the economy
added 271,000 jobs in October. And that the August and
September figures have been revised upwards by 12,000. And
that the unemployment rate fell to 5%. And that discouraged
workers and those looking for fuller-time jobs fell to 9.8% of
the workforce, the lowest level since May 2008. And that
average hourly earnings in the private sector were up by 2.5%
from October of last year, the strongest reading since July
2009.
Federal Reserve Board chairwoman Janet Yellen said only a
few days ago that the monetary policy committee would
probably raise rates if the economy seemed strong enough to
generate further improvements in the labour market. This
jobs report is an early Christmas gift to Yellen, who had been
hoping to turn her hints about raising rates into actual
increases.
It is fashionable for economists to say that a single month is
not a trend, which Charles Evans, president of the Chicago
Federal Reserve Bank, hastened to point out. But 271,000 is
undoubtedly all right, most probably the number Yellen
has been hoping to see so that she can raise interest rates in
December, putting monetary policy on the path to normality
before the champagne corks pop in the Fed on New Years
Eve.
More than fashionable, it is mandatory for economists to have
an on the other hand, this one provided by the Lindsey
Group. The number of new workers over 55 years of age with
no college education was actually greater than the net increase
in jobs, meaning younger, better educated workers remain on
the side- lines. Bad news for future productivity.
Still, markets will be surprised if interest rates do not go up

0.25% when the Feds monetary policy committee meets in
mid-December. Never mind that the annual rate of inflation
has not yet reached the Feds 2% target that can be papered
over with a vague statement that if the jobs market improves,
inflation cannot be far behind, a theory beloved of Fed
forecasters despite the fact that it is being increasingly
challenged by many economists. And never mind that it was
only a month ago that the Fed was refusing to raise rates
because of slower growth and perhaps worse in China: it has
since rather regretted tying its decisions to what might be
happening in the Peoples Republic.
So much for what the Fed is likely to do. Here are some
guesses as to the impact of what would be a long-awaited
reversal of the monetary policy adopted by the Fed in an effort
to prevent a deep recession from descending into something
far worse.
The two big drivers of the rather weak recovery have been the
motor and housing sectors. Vehicles are moving off showroom
floors in record numbers, in part because dealers and
manufacturers have been able to offer 72-month loans at very
low interest rates below 3% for qualifying customers. They
might have to tighten those terms a bit but can easily offset
any discouraging effect that might have on potential buyers by
increasing what are called incentives price cuts, in
ordinary English. My guess is that the industry will march into
2016 in good order, scandal-ridden VW excepted.
The effect on the housing sector is a bit more difficult to
predict because interest rates on mortgages are only one
factor determining the ability of buyers to realise the so-called
dream of home ownership. Those rates will start to tick up.
But interest rates are having less effect on the pace of home
sales than the unwillingness of banks to lend to potential
buyers with less than very high credit scores. Banks have been
bloodied by regulators for making loans to borrowers who had
no prospect of repaying them, triggering the wave of
foreclosures that drove the housing market to record low
levels and contributed to the financial mayhem initiated by
the collapse of Lehman Brothers. They are not about to risk
another round of fines by lending to young, cash-stretched
first-time buyers, or others who are not so well off.
In short, the sort of people who have qualified for mortgages
during the recovery are unlikely to be deterred from
continuing their hunt for new or bigger homes by a modest
increase in interest rates. Besides, the rise in average hourly
wages suggests that the labour market has become sufficiently
healthy to permit incomes to continue to rise, offsetting any
downward effect on demand higher mortgage rates might
have.
Nor is any modest increase in interest rates likely to dampen
holiday spirits. The giant Christmas tree that is installed every
year at Rockefeller Centre in New York arrived on Friday,
marking the beginning of the holiday season. Retailers are
hiring extra staff earlier than usual and there are all those
iPhones, gadgets and Star Wars, er, stuff to be bought, houses
to be spiffed up and experiences holidays, spa visits and
the like to be had. A few stores, TJ Maxx among them, have
decided that they will not participate in the Black Friday mall
madness so their employees can have leisurely, familyorientated Thanksgiving dinners. In part this is a simple
display of kindness; in part it is a reflection of a tighter labour
market that has many employers raising wages and becoming
more sensitive to workers demands for more predictable work
schedules. But these kindly employers are the exception: most
will open on the Thursday evening before Black Friday to
accommodate what Brian Cornell, Targets chief executive,
calls our guests shop talk for customers.
All of this puts America on a course far different from the rest
of the world. China is easing monetary policy, the European
Central Bank is prepared to ease further, the Bank of England

has no stated plans to reverse current easy monetary policy.
With interest rates here almost certainly headed up, albeit on
a very gradual path, the economy strengthening and Congress
and the president agreeing to a budget deal that will run for
the next two years, it is no surprise that the dollar is
strengthening and will continue to do so. Unless, of course,
one month does not a trend make.
---
further appreciation in the dollar relative to other currencies,

which could eat into American export sales, he said.
Feds Williams: Next Step for Fed Is to

Raise Rates, Data Decides When
Taken from the Dow Jones Newswire Saturday, 7 November 2015
Federal Reserve Bank of San Francisco President John

Williams said Saturday hes still eyeing a central bank rate
rise, noting its important to get the process going so that
future increases can come at a gradual pace.
But the official, who holds a voting role on the interest-ratesetting Federal Open Market Committee, declined to say when
hed like to boost borrowing costs off of their current nearzero levels.
I view the next appropriate step as the start of a process of
gradually raising interest rates, Mr. Williams said in the text
of a speech to be delivered before an audience in Tempe, Ariz.
The data will determine the when when it comes to lifting
rates, he said.
Mr. Williams spoke amid a robust rise in expectations the Fed
will move rates up at its mid-December policy meeting. Last
week, Fed Chairwoman Janet Yellen and New York Fed
President William Dudley both said the December meeting
could bring action if the economy meets the Feds forecast.
October hiring data released on Friday was particularly robust
and increased market and economists expectations the Fed
will finally be able to lift rates off the near-zero levels theyve
rested at since the end of 2008.
Many central bankers are ready to act. But some continue to
worry that inflation is too low relative to the Feds 2% target in
a climate of weakening global growth. Those officials have said
they are skeptical its time for the Fed to shift gears.
Mr. Williams said he recognized the Feds decision not to raise
rates in late October was a close call, and he said he could
see the arguments for raising rates and keeping them where
they are now. On one hand, the U.S. economy continues to
grow and is closing in on full employment. On the other, in
large part due to developments abroad, inflation has remained
lower than wed like, he said.
But Mr. Williams said there are good reasons for the Fed to
end a policy put in place to deal with an economic and
financial emergency.
An earlier start to raising rates would also allow a smoother,
more gradual process of policy normalization, giving us space
to fine-tune our responses to any surprise changes in
economic conditions, Mr. Williams said. If we were to wait
too long to raise rates, the need to play catch-up wouldnt
leave much room for maneuver, he said.
Mr. Williams offered an upbeat outlook on the economy, and
he said that its okay the pace of job creation has slowed
relative to recent history because continuing on that pace
could cause problems.
With the jobless rate at 5%, well reach our maximum
employment mandate in the near future and Im increasingly
confident that inflation will gradually move back to our 2%
goal, Mr. Williams said. He added, I see real [gross domestic
product growth] increasing at about a 2% annual rate on
average over the second half of 2015 and next year.
Mr. Williams said an upside risk to the outlook is an even
faster rebound in the housing market. On the downside,
theres the threat posed by overseas economic trouble and a
News Asia
China Delays Economic Liberalization
Taken from the Dow Jones Newswire Saturday, 7 November 2015
The closed-door meeting of some of China's most powerful

economic mandarins this fall was getting tense.
Their boss, President Xi Jinping, was already unhappy he was
taking the blame for the economic gloom that had settled over
China this summer, and it was their job to come up with ways
to fix it.
Officials from the state planning commission at the Sept. 22
meeting in an conference room at the agency's headquarters
called for the kind of big spending on airports, roads and
other government projects that Beijing had relied on to rev up
the economy in recent years, according to internal minutes of
the meeting.
Finance-ministry officials disagreed, favoring a plan to
encourage Chinese consumers to buy more electronics, cars,
clothes and other goods China churns out.
But most in the room agreed on one thing: It would be hard to
proceed with plans to liberalize the tightly controlled economy
and still hope to meet Mr. Xi's 7% GDP-growth target for
2015. Such plans, laid out in better times, weren't likely to
deliver the shot of growth China's economy needed.
"Reform itself faces huge problems," said an attendee at the
Sept. 22 meeting, which gathered officials of the National
Development and Reform Commission -- the planning agency
-- and the finance ministry, according to the minutes,
reviewed by The Wall Street Journal. "It's doubtful that any
reform dividends can be translated into economic growth in
the foreseeable future."
A planning-agency press official declined to comment.
Finance-ministry press officials didn't respond to inquiries.
In the weeks following, China has taken new steps to slow
plans that had been meant to loosen control over the financial
system, adding to similar delaying moves since summer. Some
steps have the effect of keeping industries on life support. On
Oct. 23, the central bank scrapped its cap on deposit rates. But
it backed away from freeing interest rates from its control, as
it was previously expected to do, saying it feared that might
raise funding costs for businesses and consumers.
Other steps seek to hold money in the domestic economy
rather than letting it flow abroad. On Oct. 30, the central bank
and other agencies dialed back on plans for Shanghai's freetrade zone, a testing ground for financial overhauls, that
would have let residents more easily buy foreign assets.
Many measures China's leaders have delayed since summer
are ones that economists and some Chinese leaders have long
said are needed to put the world's second-largest economy on
a sustainable growth path in coming years. U.S. Treasury
Secretary Jacob Lew has urged Beijing not to postpone
overhauling its economy even as growth falters.
Some economists in China are calling on Beijing to press
ahead on steps such as fostering more competition among
banks, although they urge caution in opening markets wider
for cross-border money flows.
"The reason you want opening-up is to introduce market
discipline into the system," says Huang Yiping, a Peking
University economics professor and member of the central
bank's monetary-policy committee. "A very slow pace of
reform would be the consequence of a cautious stance."
Spurring China's new cautious stance are financial woes that
have worsened beyond central authorities' expectations and
ability to counter. "The outlook for the economic situation is
quite pessimistic," a finance-ministry official said at the Sept.
22 meeting, "and probably is worse than people think."
Stock-market regulators couldn't arrest declines this summer
that erased more than $2 trillion of value in less than a month.
The yuan's devaluation shook the confidence of investors, who
rushed to move money offshore. Senior officials privately

worry that a wave of layoffs may loom as the downturn bites.
Stocks have rallied since the summer, and China's securities
regulator said Friday it intends to soon lift a four-month ban
on stock listings.
But Chinese leaders are facing a longer-term reckoning with
the realities of economic gravity, as the high growth of past
years peters out and the levers they relied on to boost the GDP
prove less effective.
Mr. Xi has expressed dissatisfaction with his government's
handling of the economy. In July, when officials scrambled to
try stopping the stock selloff, he got an unpleasant surprise:
Economist magazine put him on its cover, portraying him with
arms raised, trying in vain to hold up the plunging stock
index.
"I didn't want to be on that cover," Mr. Xi said at a meeting
with top Chinese economic and financial officials, according to
people with knowledge of the gathering, "but thanks to you, I
made the cover."
The malaise threatens a Communist Party tenet: China must
grow at a high rate. Mr. Xi had said annual gross domestic
product growth of around 7% was needed to meet the goal,
enshrined in planning documents, of doubling China's 2010
GDP and per capita income by 2020.
This month, Mr. Xi lowered expectations for the coming years,
saying China needs a rate of at least 6.5% for the 2020 goal.
Many analysts say that new floor is still ambitious and will
require Beijing to step up stimulus measures at the expense of
making changes that could squeeze near-term growth.
China's economy is still growing, but at a much slower rate
than in years past. The 7% target for 2015, if met, would be the
lowest in a quarter century. Some economists predict growth
in coming years of around 4%, well below what Chinese
leaders say is needed to create enough jobs.
Chinese officials now see the previously envisioned path
toward liberalization as fraught with risk, people familiar with
the leadership's thinking say.
Among those risks: relaxed financial control could let money
flee China at a time it badly needs that money at home to prop
up the economy; letting companies fail will kill jobs at the
worst time; giving banks full freedom to set deposit and loan
rates may encourage reckless lending amid already rising badloan levels.
Yu Yongding, a former adviser to the central bank and now an
economist at the Chinese Academy of Social Sciences, a
government think tank, worries China's huge savings will pour
abroad if it loosens capital controls before more investment
opportunities are created within China.
Zhang Ming, a protege of Mr. Yu's at the think tank, estimates
that in the worst-case scenario, opening cross-border money
movements could produce nearly $5 trillion in net outflows
over several years from China.
Facing those risks, leaders are shifting emphasis to "stability,"
code for going slow on overhauls. The Sept. 22 meeting
agenda, the minutes show, focused on "stabilizing growth."
For much of the past decade, the Communist Party was widely
praised by Western officials and business people for
maintaining high growth and powering through the global
financial crisis.
But China's policy blueprints, known as five-year plans, have
for a decade called for making consumption and services the
economic drivers instead of exports and credit-fueled
investment in real estate and infrastructure.
"The government first talked about transforming the
economic growth model in 1995," says Wu Jinglian, a
prominent economist with the Development Research Center
of the State Council, an advisory body that recommends
policies to the leadership, "but it still hasn't been realized to
this day."
Chief among the casualties is a plan China launched in 1994 -delayed several times -- to methodically open its financial
borders so funds can flow freely in and out, according to
interviews with Chinese officials, executives and government
advisers with knowledge of government deliberations.
The so-called capital-account liberalization initiative, long
championed by central-bank chief Zhou Xiaochuan and other
officials, aims to enhance efficiency in a Chinese financial
system that has often directed funds into excessive investment
in businesses such as steelmaking, property and
infrastructure. Central-bank press officials didn't respond to
inquiries.
Among that initiative's objectives was to loosen controls over
cross-border investment to give Chinese individuals more
freedom to invest overseas. Before the downturn, the initiative
was seen by policy makers and economists as a way to give
Chinese savers more investment opportunities and greater
returns, which would spur consumption that supported longterm growth.
Pushback against moves toward financial-market openness
came in August at a meeting of the State Council, the cabinet
led by Premier Li Keqiang, as stocks sank. Some senior
officials argued against a year-end timetable the government
had set, people familiar with the event say. Says one of them:
"Stability now trumps everything else."
The leadership has decided to push beyond the year-end time
frame for capital-account opening to the end of 2020,
according to an official announcement this month.
One early outcome of that initiative's delay was the Oct. 30
Shanghai announcement. The program there was part of a
trial the government planned, which aimed to give citizens in
select cities more freedom in buying assets overseas. It is still
considering launching the trial. But, if enacted by year-end as
originally planned, the program would come with conditions
like those being considered for Shanghai, such as limits on the
amount individuals could take out of the country -- stricter
conditions than previously envisioned, say people familiar
with the decision-making process.
Since August, Chinese authorities have also put off a plan to
create better-functioning stock markets, which had been
moribund for years before an epic run-up early this year. Part
of that delayed plan was to create an initial-public-offering
system based on market demand, as opposed to
administrative decrees that limit it now. China's securities
regulator on Friday said the government plans to move ahead
on revamping the IPO system but didn't give a time frame.
---
Chinas Foreign-Exchange Reserves Rise,

Snapping Streak of Outflows
Taken from the WSJ Sunday, 8 November 2015
Chinas massive foreign-exchange hoard rose in October,

snapping a five-month streak of capital outflows in a
development that could help Beijing shore up the value of its
currency.
The rise reported by the central bank on Saturday follows five
consecutive monthly declines. It indicates weakening investor
expectations of a depreciating yuan and Beijings successes in
stemming the outflow of illegal money transfers out of the
country.
Still, as worries remain over slowing growth in the worlds
second-largest economy, it is likely that Chinas central bank
will continue its monetary-easing policies to shore up growth.
Last month, China lowered interest rates for the sixth time
over the past year.
Chinas reserve levels rose by $11.39 billion to $3.526 trillion
in October from a month earlier, the Peoples Bank of China
said. This is only the third time Chinas foreign-exchange
reserves have risen in the last 15 months and the first since
dipping sharply in August after Chinas surprise move to

devalue its currency.
Changes in Chinas foreign-exchange reserves are a proxy for
capital inflows and outflows, though money also moves past
Chinas borders in ways officials cant track.
Outflows are a relatively new puzzle for Beijing. Its foreignexchange reserves piled up for more than a decade as the
central bank bought dollars flowing into its money supply
from the countrys massive export volumes. As the worlds No.
2 economy slows, the direction of its capital movement has
reversed.
Outflows reached a historic volume after Chinas central bank
devalued the yuan in mid-August, then was forced to step up
its selling of dollar assets, particularly U.S. Treasurys, to
counter a sharp selloff in its currency. The move led to Chinas
foreign-exchange reserves falling by a record monthly $93.9
billion in August, its steepest percentage drop since March
2012.
Those pressures have eased as interventions from the Peoples
Bank of China signal it is unlikely the central bank will
tolerate further major movements in the currency, at least to
the end of the year, analysts say. The summers slump in
Chinese stock markets has also reversed, potentially giving
investors more reason to keep their money inside the country.
We think these outflows are now reversing because market
expectations for significant renminbi depreciation have now
eased after PBOC intervention helped stabilize the currency
and expectations for U.S. rate hikes have been pushed back,
Capital Economics economist Julian Evans-Pritchard said,
referring to the currency by its other name.
The U.S. Federal Reserves decision not to raise rates at its
September meeting made capital less likely to flee China for
the U.S. seeking higher returns. The Fed last week kept alive
the possibility of a rate increase in December. Such a renewed
likelihood could again amp up outflow pressures on China in
coming weeks, though that is likely to be outweighed by
expectations that the PBOC would continue to put a floor
under yuan depreciation.
We have long held the view that the capital outflows pressure
is manageable, said Larry Hu, China economist for
Macquarie Securities.
Illegal foreign-exchange transfers out of the country were a
factor in the decline, and reducing such flows are likely a
factor in the reversal, analysts say. Foreign-exchange reserves
are released back to the market when the central bank sells its
dollar holdingsin a reversal of what it does with foreigncurrency inflows during a boomto support the yuan, but not
all of it makes it out of the country via approved investments.
Some end up spirited offshore in amounts beyond Chinas
legal limits in search of hard-currency assets. The central bank
has said it is escalating a campaign to stem illicit outflows,
which are often associated with money laundering.
The PBOC has estimated that outflows attributed to illegal
underground banks amounted to about 800 billion yuan
($125 billion) from April to October this year.
The central bank continues to spend to prevent its currency
from sharply falling further. The onshore yuan on Oct. 30
posted its biggest one-day gain since March 2014 after an
apparent intervention by the central bank. Traders said
authorities could be boosting the currency ahead of the
International Monetary Funds meeting later this month,
when it will determine the composition of its elite basket of
reserve currencies.
---
Xi, Ma reaffirm support for 'one China'

Taken from the Nikkei Sunday, 8 November 2015
Chinese President Xi Jinping and Taiwanese President Ma

Ying-jeou on Saturday spoke of Taiwan and China belonging
to the same country. And during the first summit between the
leaders from the two sides, which split in 1949, they also said
they share opposition to the island's independence.
For Ma, the announcement appears to be an attempt to corner
presidential hopeful Tsai Ing-wen, chairwoman of the main
opposition and pro-independence Democratic Progressive
Party. Opinion polls show Tsai maintaining a comfortable
margin against her opponents in Taiwan's quadrennial
presidential election, to take place in January. While Tsai has
repeatedly said she wants to continue exchanges and uphold
the status quo of relations with China, she is also keen on
safeguarding the island's de facto independence and
democracy.
As for Xi, he is eager to find a sympathizer in the region now
that tensions are mounting between Beijing and Washington
over disputes in the South China Sea. While Taiwan and China
did not touch on South China Sea issues, the two leaders
appeared to have reached some common political ground.
During the summit, at the Shangri-la Hotel, both leaders
acknowledged a highly controversial principle known as the
1992 Consensus. It specifies that both sides belong to one
China and has served as the basis for cross-strait exchanges
over the past seven and half years, since Ma took office in
2008.
"I hope that the two sides will continue to work together to
uphold the '92 Consensus and bolster our common political
foundation to walk on the path of peaceful development," Xi
said in his opening remarks. Zhang Zhijun, director of the
Taiwan Affairs Office of Beijing, further highlighted China's
longstanding opposition to Taiwan independence when
speaking to reporters after the summit.
The '92 Consensus is an important basis for the two sides to
push forward peaceful development," Ma said following the
summit. The consensus was reached between the two sides
based on the one-China principle, but specific interpretations
are left to each party. Ma stressed that it has allowed the
signing of "23 agreements and achieved peaceful prosperity
over the past seven and half years."
He added, "The constitution of the Republic of China does not
allow us to interpret [the '92 consensus] as 'one China' and
'one Taiwan,' or the independence of Taiwan."
The Republic of China is Taiwan's official name.
China and Taiwan split in 1949 after the Nationalist Party, or
the Kuomintang, fled to the island following its civil war
defeat to the Communists. Beijing still considers Taiwan to be
part of China and has said it would not give up the use of force
to achieve unification. While Ma has reduced tensions
significantly since coming to power, many in Taiwan eschew
the ruling Nationalists' cross-strait efforts, believing closer
links with the Chinese economy has harmed Taiwan's de facto
independence and led to sluggish economic growth on the
island.
Xi did not make concrete promises on giving Taiwan more
international space, an issue many Taiwanese care deeply
about. Ma neither mentioned Taiwan's democracy nor
touched upon human rights issues during his meeting with Xi.
Further, while talking to reporters Ma downplayed any
Chinese military threats looming over the island.
"I have mentioned the public concerns over [China's military]
to Xi," Ma said after the summit. "And he told me China's
deployment is not specifically targeted at Taiwan."
According to the Pentagon's latest China military power report
as well the latest annual report from Taiwan's defense
ministry, China has more than 1,000 missiles pointed at the
island.
In Taiwan, opposition politicians and Ma's detractors argued

that Ma only hurt Taiwanese people with what they termed an
attempt to limit Taiwan's choices.
"We regret to see that the only outcome of the meeting was an
attempt to limit Taiwanese people's choices on cross-strait
relations on the international stage," Tsai said following the
meeting, pointing out Ma failed to mention Taiwan's
democracy and freedom as well as the Taiwanese people's
rights to choose. A senior DPP official told the Nikkei Asian
Review that voters at the grassroots level "care very little"
about the Ma-Xi meeting as they are preparing to vote the
Nationalist Party out of power in January.
Some 1,000 people marched on the streets of Taipei on
Saturday to protest the summit. Lin Fei-fan -- the activist who
led last year's Sunflower Movement against Ma's efforts to
forge closer trade ties with China -- said Ma made too many
concessions.
"Ma failed to create any boon for Taiwan this time," Lin said,
"and no one in Taiwan can approve of his acceptance of the
one-China principle."
Wu Chih-Chung, a political scientist at Taipei-based Soochow
University who is affiliated with a DPP think tank, said in the
short run China may benefit from the summit if it manages to
get Taiwan on its side in its ongoing tussle with the U.S. and
Japan. But "after Tsai comes into power," Wu added, "she will
not adopt the framework set by Ma and Xi."
---
Chipmaker would sell stake to China 'if the

price is right'
Taken from the Nikkei Sunday, 8 November 2015
Taiwan Semiconductor Manufacturing Co., the world's largest

contract chipmaker and the biggest Taiwanese company by
market capitalization, is willing to consider selling itself to a
Chinese bidder if the price is high enough, its founder and
Chairman Morris Chang said on Saturday.
Chang's statement came the same day that the leaders of
Taiwan and China met for the first time since the two sides
split in 1949.
Chang was in the northern Taiwanese city of Hsinchu, home
to the company's headquarters, for TSMC's annual sports day
when reporters asked him whether he would consider selling
to a Chinese buyer. Chang replied that he is open to the
possibility, "if the price is right and if it is beneficial to
shareholders."
He said with TSMC's current share price at 140 New Taiwan
dollars ($4.28), he is prepared to consider an offer of NT$280
per share, though he said only a few suitors have deep enough
pockets to ask for TSMC's hand.
"If some company wants to buy a 25% stake in TSMC now,"
Chang said, "it needs to pay at least $30 billion, which is a lot
of money."
Chang's statement comes as Chinese tech conglomerate
Tsinghua Unigroup is aggressively looking for Taiwanese
acquisitions, raising concerns that China is posing significant
threats to the future of the island's technology sector.
Taiwanese companies have long struggled against their
Chinese counterparts in a cutthroat price war. In the third
quarter of this year, the competition led to declining exports
and a shrinking economy.
Over the past month, Tsinghua has bought a 25% stake in
Powertech, a microchip packaging service provider in Taiwan,
and said it is interested in acquiring shares in MediaTek, a
leading Taiwanese chip designer.
Chang said he is open to Chinese investments in Taiwan and
that "there is no reason to ban investments coming from
China."
---
Federal politics: Treasurer Scott Morrison

puts income tax cuts on the table
Taken from the SMH Sunday, 8 November 2015
Treasurer Scott Morrison has signalled income tax cuts are

squarely in the federal government's sights as part of a
sweeping review of the tax system, while warning the states
they will not simply be handed a "bucket of money" from an
overhaul of the system.
With Mr Morrison and state treasurers now expected to meet
again in December to discuss tax reform, Mr Morrison has
also turned his guns on Labor for being unwilling to engage in
political debate, while asserting they have made $62 billion in
spending commitments but set out just $5 billion in savings or
revenue raising measures to pay for them.
Income tax, personal income tax, has become a silent tax in
Australia.
The Treasurer said the federal government had, and would
continue to, engage with state governments, the welfare lobby,
business groups, unions and anyone else willing to come to
the table and that " the only people who have made it pretty
clear they are not going to engage is the opposition".
Treasurer Scott Morrison says changes are needed to
Australia's tax system to increase the incentive for people to
work more.
Treasurer Scott Morrison says changes are needed to
work more. Photo: Luis Ascui
And he said the Harper competition report was "inextricably
linked" to tax reform and that Australians expected to receive
"better services, more choices, better spending" as a result of
any tax changes that adopted.
"The Australian people, I don't think, will cop any changes in
the tax system just to give the states a bucket of money to
spend it as they are now," he told Sky News.
"When you have the situation where the average wage earner
in this country next year is going to be in the second-highest
tax bracket, you know you have a problem. That means you
have to apply your mind to what all the potential solutions are
so you can come up with a system which is going to support
growth and jobs in the economy.
"Income tax, personal income tax, has become a silent tax in
Australia. It's not unlike the wholesale sales tax was back in
the 1990s everyone was paying it but not everyone knew
how much they were paying."
"We need to have this conversation with Australians saying
you are getting taxed more than you should be, I would like
you to take more of your pay home."
Mr Morrison said "significant" changes were needed to
work more, grow the economy and thus grow revenue for
government.
He dismissed suggestions that the federal government had a
revenue problem, arguing that "a revenue problem I would
define as not taxing people enough and that you need to tax
people more to lift your revenue I don't think we have that
problem".
"I think the issue we have had is that revenue is below trend at
the moment, but is forecast to be above trend over the course
of the budget estimates," he said.
" Our problem at the moment is that Australians aren't
earning enough, not that they're not paying enough tax. Real
wages growth has been very flat in this country for a some
period of time now, the government earns its income off
people earning more. That's why I said I want to see
Australians earn more."
He said the federal government would engage with the states
and territories in a collaborative way, rather than taking a
partisan approach because "what we all agree is we have to
grow our economiesthat is our principle goal".
State Labor governments were being more constructive in the

early stages of the tax reform debate than the federal
opposition because "they are governments...they need to get
something done...they are not engaged of this, they are
engaged in the outcomes of this".
Mr Morrison hit back at Labor's claims the government would
not examine superannuation tax breaks that benefit the most
well-off, promising the government was looking at the issue,
while declaring "we are leading the world on making sure that
income earned here in Australia by multinationals will be
taxed here".
" To suggest otherwise I think is just to blatantly lie to the
Australian people."
In comments that will reassure the economic dries within the
Liberal Party who are concerned about an increase in the
overall tax take, Mr Morrison said: "We are a pragmatic
government which understands that the one thing the
Australian people reward and appreciate is results. To get the
result you have to work with others. We don't want to see the
tax burden increased on Australians, we don't think the way
you grow your economy is by increasing the tax burden.
" They [Labor] can shout at the clouds all they like and shake
their fists but at the end of the day they have to come up
with a credible plan and at the moment there is no credible
plan and they are not a credible alternative.
" They're hanging out there with about $62 billion worth of
commitments over and above our books and they have come
up with about $5 billion to pay for them."
And with mid-year economic update to be handed down in
December, Mr Morrison said he was confident the
government would maintain its debt reduction trajectory
"which it is currently projected at about 0.5 per cent of GDP
every year".
"We will continue on that track, that we will continue to be at
a point where our expenditure as percentage of GDP will
continue to decline that's what the forward estimates and
projections are."
Last week, Treasury Secretary John Fraser revealed a
downgrade in his department's growth forecasts, cutting
expected improvements in government revenue and
potentially pushing out its estimate of the date the budget
returns to surplus.
Greens Treasury spokesman Adam Bandt, meanwhile, said his
party wanted a "fundamental rethink" of how tax worked in
Australia and advocated the restoration of a price on
pollution.
"The Liberals want to tax every thing you buy, the Greens say
lets tax pollution," Mr Bandt said.
Modelling prepared by the independent Parliamentary Budget
Office for the Greens shows a rise to a 12.5 per cent GST would
collect the same amount of revenue for the Turnbull
government as a $28 per tonne carbon price, but cost
households about three times as much.
Amid growing debate about changes to the tax system,
including the prospect of a GST rise to as much as 15 per cent,
the Australian Council of Social Service (ACOSS) released
modelling that showed the current 10 per cent GST consumes
13.4 per cent of disposable income for those in the bottom
fifth of households, which would rise to more than 20 per cent
if the rate were lifted to 15 per cent, as is favoured by some
within the Coalition government.
(Full article click - SMH)

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News Summary

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