U.S. GDP Rose 4.6% in Q2, Flat with Expectations; Personal Consumption, Private Investment Led Gains Sep 26, 2014 08:38AM

(Updated - September 26, 2014 8:38 AM EDT)

Q2 GDP 4.6% vs 4.6% Expected

More from the U.S. Bureau of Economic Analysis:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.6 percent in the second quarter of 2014, according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 4.2 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in exports were larger than previously estimated.

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Real GDP increased 4.6 percent in the second quarter, after decreasing 2.1 percent in the first. This upturn in the percent change in real GDP primarily reflected upturns in exports and in private inventory investment, accelerations in nonresidential fixed investment and in PCE, and upturns in state and local government spending and in residential fixed investment that were partly offset by an acceleration in imports.

S&P Affirms Ratings of, Issues Commentary on Japan Sep 25, 2014 06:56AM

On Sept. 25, 2014, Standard & Poor's Ratings Services affirmed its long- and short-term unsolicited sovereign credit ratings on Japan at 'AA-' and 'A-1+', respectively. The outlook on the long-term ratings remains negative. Our transfer and convertibility (T&C) assessment remains 'AAA'.


Our ratings on Japan balance the country's strong external position, its prosperous and diversified economy, political stability, and its stable financial system against a very weak fiscal position that the country's aging population and persistent deflation exacerbate.

Japan's high-income economy remains a key factor underpinning its credit quality, despite years of low growth and deflation. We estimate per capita GDP at close to US$37,000 in fiscal 2014 (ending March 31, 2015). In the period to fiscal 2017, we project average nominal GDP growth of just below 2.5% annually as the yen exchange rate remains little changed. This projection partly reflects our belief that the government's economic strategy--termed "Abenomics"--will help to sustain annual real GDP growth at slightly above 1% and return inflation to positive territory. We estimate the 10-year weighted average income growth at 1.1% in fiscal 2014.

The strength of Japan's institutional and governance effectiveness remains a key factor supporting the sovereign ratings. Japan's homogeneous and cohesive society, generally effective checks and balances in the government, strong respect for the rule of law, and free flow of information facilitate policymaking. This has helped popular acceptance of challenging policy changes such as the recent increase in the sales tax rate in April 2014. However, we see slow decision-making among policy institutions impairing policy implementation somewhat.

Japan's strong external position and monetary policy settings also support its sovereign credit fundamentals. The free-floating yen's status as a reserve currency is a reason for these strengths. We believe that the status of the yen derives from the credible political and policy institutions in the country--including the Bank of Japan (BOJ), a sound financial system, freedom of capital flows, and sizable domestic capital markets. Demand for the yen as a reserve currency reduces Japan's vulnerability to large fluctuations in international capital flows and augments the BOJ's ability to conduct monetary policy.

A strong external balance sheet further strengthens support for the sovereign rating. Despite the slide in the household saving rate as the population ages, the current account remains in consistent surplus. This indicates that private-sector savings in the country continues to exceed dissaving in the government sector. We project that financial assets held by the financial and public sector will continue to outsize total Japanese external debt by between 35%-40% of current account receipts (CAR) in the next three years. Other external assets held by the nonfinancial sector are even more substantial. We expect the net international asset position of Japan to amount to above 270% of its CAR in the next few years.

Japan's very weak fiscal attributes are an important weakness in its credit metrics. Since fiscal 2008, the damage dealt to the Japanese economy by the global economic crisis and the Great Tohoku earthquake has depressed government revenue. However, general government spending continued to grow partly as a result of growing social security spending associated with population aging.

Despite the increase in the sales tax in April and the expected improvements in economic conditions, we project annual general government deficits at approximately 7%-8% of GDP in 2014-2017. By our projections, the corresponding increase in net general government debt will bring it to 160% of GDP in fiscal 2017 from 148% in fiscal 2014. Japanese banks already hold more than 20% of their assets in government debt. If demand for loans in the private sector picks up strongly, the banks may not be able to absorb more government securities unless real interest rates rise significantly. We project interest expenses to rise to 8.6% of general government revenue by the end of this period from a little less than 6% in fiscal 2014.


The negative outlook on the long-term ratings reflects our view of the still-sizable risk of a slow return to sustained inflation and healthier economic performance. Following several quarters of strong growth, the economy contracted sharply in the wake of the sales tax hike in April 2014. Economic sentiments could have turned more cautious as a result. We see at least a one-in-three chance that nominal GDP growth could fail to improve sufficiently to stabilize the general government debt level vis-a-vis GDP in the near future. If we believe that this scenario is likely, we could lower the sovereign ratings on Japan. Conversely, we could revise the outlook back to stable if we expect the economy to sustain healthy growth and the monetary authorities to succeed in achieving their inflation target of 2% annually. This is possible if, for instance, investors and businesses are encouraged by the government's implementation of important structural reforms. In this scenario, we expect the general government deficit to shrink sufficiently to stabilize the level of government debt with respect to GDP.


Table 1

Japan--Selected Indicators
Nominal GDP (US$ bil)4,3574,7365,0655,4715,9355,9244,9334,6714,7534,8755,077
GDP per capita (US$)34,23837,19939,77242,95846,61846,55038,76036,73537,42338,42040,054
Real GDP growth (%)1.8(3.7)(2.0)
Real GDP per capita growth (%)1.7(3.8)(2.1)
Change in general government debt/GDP (%)2.0(0.0)11.48.311.
General government balance/GDP (%)(2.0)(2.9)(8.2)(7.9)(8.4)(8.3)(9.0)(8.0)(8.0)(7.7)(7.3)
General government debt/GDP (%)184.4193.3211.0216.6230.7241.6246.2249.3252.2253.9254.6
Net general government debt/GDP (%)79.687.8101.6105.7118.2122.0138.1147.8153.2157.2160.5
General government interest expenditure/revenues (%)
Oth dc claims on resident non-govt. sector/GDP (%)152.1155.7154.8146.8144.3145.6148.6148.7150.0150.9151.4
CPI growth (%)0.01.4(1.4)(0.7)(0.3)
Gross external financing needs/CARs +use. res (%)102.1110.0126.1116.9135.5144.1153.5149.5148.3147.4146.9
Current account balance/GDP (%)
Current account balance/CARs (%)
Narrow net external debt/CARs (%)(47.7)(31.4)(51.7)(34.1)(25.5)(26.0)(41.2)(38.2)(37.7)(35.8)(34.9)
Net external liabilities/CARs (%)(218.5)(228.0)(341.6)(291.8)(291.4)(296.1)(288.9)(285.0)(280.6)(278.3)(276.0)
Other depository corporations (dc) are financial corporations (other than the central bank) whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private- sector borrowings from nonresidents minus official reserves minus public-sector liquid assets held by nonresidents minus financial sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. CARs--Current account receipts. The data and ratios above result from S&P’s own calculations, drawing on national as well as international sources, reflecting S&P’s independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.

Table 2

Japan--Ratings Score Snapshot
Key Rating Factors
Institutional and governance effectivenessStrength
Economic structure and growthStrength
External liquidity and international investment positionStrength
Fiscal flexibility and performanceWeakness
Debt burdenWeakness
Monetary flexibilityStrength
Standard & Poor's analysis of sovereign creditworthiness rests on its assessment and scoring of five key rating factors: (i) institutional and governance effectiveness; (ii) economic structure and growth prospects; (iii) external liquidity and international investment position; (iv) the average of government debt burden and fiscal flexibility and fiscal performance; and (v) monetary flexibility. Each of the factors is assessed on a continuum spanning from 1 (strongest) to 6 (weakest). Section V.B of Standard & Poor's "Sovereign Government Rating Methodology And Assumptions," published on June 24, 2013, summarizes how the various factors are combined to derive the sovereign foreign currency rating, while section V.C details how the scores are derived. The ratings score snapshot summarizes whether we consider that the individual rating factors listed in our methodology constitute a strength or a weakness to the sovereign credit profile, or whether we consider them to be neutral. The concepts of "strength", "neutral", or "weakness" are absolute, rather than in relation to sovereigns in a given rating category. Therefore, highly rated sovereigns will typically display more strengths, and lower rated sovereigns more weaknesses. In accordance with Standard & Poor's sovereign ratings methodology, a change in assessment of the aforementioned factors does not in all cases lead to a change in the rating, nor is a change in the rating necessarily predicated on changes in one or more of the assessments.

ECB Allots EUR 82.6B in First Targeted Longer-Term Refinancing Operation (FXE) Sep 18, 2014 08:52AM

The European Central Bank has today allotted €82.6 billion to 255 counterparties in the first of eight targeted longer-term refinancing operations (TLTROs) to be conducted between September 2014 and June 2016. The programme is designed to enhance the functioning of the monetary policy transmission mechanism by supporting bank lending to the real economy.

In order to participate in the tender that was announced on 16 September, credit institutions had to express their interest and send completed reporting templates by 28 August. A total of 382 entities were eligible to bid in the first TLTRO, representing, either directly or indirectly, 1372 credit institutions. Additional counterparties that intend to participate in the second TLTRO in December will have to send completed reporting templates by 20 November 2014, 3.30 p.m. CET.

The second TLTRO, as previously communicated, will be announced on 9 December and allotted on 11 December.

In the first two tenders, banks and groups of banks are entitled to an initial borrowing allowance equal to 7% of the total amount of their loans to the euro area non-financial private sector, excluding loans to households for house purchase, outstanding on 30 April 2014. Therefore, eligible banks who have not reached their initial allowance limit in the first TLTRO will be able to increase their initial borrowing amount up to that limit in the second TLTRO.

Thereafter, banks will be able to apply for additional funding, depending on the evolution of their lending activities against a specific benchmark.

The TLTROs, first announced on 5 June, together with measures announced on 4 September related to the purchase of non-financial private sector assets, will have a sizeable impact on the ECB’s balance sheet.

Key points:

  • Banks take up €82.6 billion in first of eight TLTROs

  • Programme supports lending to the real economy

  • Part of package of ECB measures that will have sizeable impact on ECB’s balance sheet

Hold on Tight... Fed Day Could Bring a Number of Changes Sep 17, 2014 08:23AM

The FOMC wraps up its 2-day meeting today and is expected to deliver its policy statement at 2PM ET. The meeting and subsequent press conference is considered very important by market watchers as the Fed is expected to make a number of changes which could have widespread ramifications on asset prices.

Economists at Nomura expect to receive another round of FOMC forecasts for the first time since June, which they say will incorporate significant new data. The forecasts should also be extended to 2017, thus giving a better sense of how the participants judge the current balance between actual and potential output.

They also expect the Fed to make changes to its forward guidance. "At a minimum, we expect the FOMC to add language that stresses the “data dependence” of future interest rate decisions," they said. They expect the FOMC will continue to state that the adjustment of interest rates, when it comes, will be “balanced” and that it expects interest rates to converge to normal levels more slowly than employment and inflation. However, "in the light of the sustained improvement in labour market performance, and the inherent complexities in assessing their state, we expect the FOMC to drop its assessment that “lift-off” is still a “considerable time” away."

Nomura said these change reflect the progress of the US recovery. The changes are also easier to make because the current state of financial markets - stable long-term interest rates and resilient financial conditions - gives the FOMC some comfort that it can take another step towards normalizing policy without an outsized impact on the economy.

"Although we expect substantial changes to the FOMC’s forward guidance, we do not think that the FOMC will want to send a signal that a “lift-off” is imminent. In this context, we continue to believe that the most likely timing for the first interest rate hike is June 2015. However, recent developments in US monetary policy have shifted the risk around our call forward."

FreeSeas (FREE) Complets $12.25M Sale of M/V 'Free Jupiter' Sep 16, 2014 09:08AM

FreeSeas (Nasdaq: FREE) announced that it has sold to unrelated third parties the M/V 'Free Jupiter' for USD 12,250,000 and subsequently entered into a long term bareboat charter with the vessel's new Owners.

The vessel has been chartered by the Company for seven years at a rate of USD 5,325 per day on bareboat charter terms typical for this type of transaction which grant the Company the full commercial utilization of the vessel against payment of the charter rate to her Owners. In addition, the terms of the charter afford a number of purchase options during its course. An amount of USD 3,750,000 was deposited by the Company as security for the fulfillment of the terms of the charter.

Mr. Ion Varouxakis, the Company's Chairman, President and CEO made the following statement: "We are pleased to announce today's transaction which releases significant liquidity and evidences the Company's ability to leverage its balance sheet at an opportune time without diluting its shareholders. The additional liquidity will provide invaluable balance sheet flexibility as part of our growth strategy moving forward, which follows the recently announced debt extinguishment and forgiveness which significantly reduced the Company's bank debt to USD 23 million from USD 90 million within the space of a few months." Mr. Varouxakis added: "The bareboat charter rate allows for significant upside from future operating earnings, especially as the market improves, while the purchase options allow participation in potential future asset appreciation. The vessel will be deployed in the spot market, which has shown recent signs of improvement."

More Forex

View Older Stories

Sep 12, 2014 03:10PM Investors Could Be Lowballing Risk of FOMC Hawkishness, Says Citi
Sep 12, 2014 11:47AM UPDATE: S&P Upgrades Greece from 'B-' to 'B'; Risks to Fiscal Consolidation Have Faded
Sep 12, 2014 11:47AM UPDATE: S&P Upgrades Greece from 'B-' to 'B'; Risks to Fiscal Consolidation Have Faded
Sep 11, 2014 06:37AM EU sanctions on Russia to enter into force tomorrow (RSX)
Sep 9, 2014 10:11AM Moody's Lowers Outlook on Brazil to Negative (EWZ)
Sep 9, 2014 09:05AM Bank of England's Carney Hints at Spring 2015 Rate Increase (FXB)
Sep 8, 2014 02:57PM UPDATE: eBay (EBAY) Unit May Start Accepting Bitcoin (V) (MA)
Sep 8, 2014 02:57PM UPDATE: eBay (EBAY) Unit May Start Accepting Bitcoin (V) (MA)
Sep 5, 2014 11:48AM ECB Measures are Credit-Positive Event, but Challenges May Continue - Moody's (FXE) (UUP)
Sep 5, 2014 08:47AM Nonfarm Payrolls Rose 142K in August, Missing Expectations; Unemployment Rate Flat at 6.1%
Sep 4, 2014 07:47AM ECB Cuts Benchmark Interest Rate to 0.05% (FXE)
Sep 4, 2014 07:47AM ECB Cuts Benchmark Interest Rate to 0.05% (FXE)
Sep 4, 2014 07:45AM Bank of England Maintains Bank Rate at 0.5% (FXB) (UUP)
Sep 3, 2014 02:02PM Fed saw Moderate or Modest Economic Growth in 10 of 12 Regions - Beige Book
Aug 22, 2014 10:00AM Fed's Yellen says FOMC sees 'significant' under-use of labor resources
Aug 21, 2014 11:54AM First Bitcoin ATM Pops-Up in Manhattan
Aug 20, 2014 02:03PM Many Fed Officials Said Job Gains Might Bring Rate Rise Sooner; Labor Market Still Far from Normal
Aug 15, 2014 11:16AM UPDATE: Ukraine Forces Attacked, Destroyed Part of Armed Convoy from Russia - Ukraine's Lysenko (RSX) (SPY) (QQQ)
Aug 15, 2014 11:16AM UPDATE: Ukraine Forces Attacked, Destroyed Part of Armed Convoy from Russia - Ukraine's Lysenko (RSX) (SPY) (QQQ)
Aug 15, 2014 06:51AM eBay's (EBAY) Payment Processing Unit May Begin Accepting Bitcoin
Aug 14, 2014 05:58PM eBay (EBAY) payment unit in talks to accept Bitcoin - WSJ
Aug 14, 2014 09:39AM DISH Network Corp. (DISH) Begins Accepting Bitcoin
Aug 14, 2014 07:46AM Euro Area GDP Flat in Q2; Inflation Falls to Lowest Annual Rate Since Oct. 2009 (FXE)
Aug 13, 2014 07:13AM Japan GDP Fell 6.8% in Q2 Following New Consumer Tax Hike (FXY)
Aug 1, 2014 12:07PM UPDATE: ISDA Rules Argentina in 'Failure-to-Pay' Credit Event (ARGT)
Aug 1, 2014 12:07PM UPDATE: ISDA Rules Argentina in 'Failure-to-Pay' Credit Event (ARGT)
Jul 25, 2014 11:01AM Durable Goods Orders Rose 0.7% in June, Topping Expectations Amid Lagging Shipments
Jul 24, 2014 11:08AM UPDATE: IMF Cuts Global Growth Outlook to 3.4%
Jul 24, 2014 11:08AM UPDATE: IMF Cuts Global Growth Outlook to 3.4%
Jul 21, 2014 10:07AM U.K. Prosecutors Open Criminal Probe into FX Rigging - Bloomberg
Jul 18, 2014 12:29PM UPDATE: Dell Now Accepts Bitcoin
Jul 18, 2014 12:29PM UPDATE: Dell Now Accepts Bitcoin
Jul 18, 2014 08:53AM Portugal Central Bank Official Moves to Qualm Market Fears Over Banco Espírito Santo (PT)
Jul 16, 2014 02:02PM Fed saw Modest to Moderate Growth in June on Consumer Spending (SPY) (UUP)
Jul 16, 2014 02:02PM Fed saw Modest to Moderate Growth in June on Consumer Spending (SPY) (UUP)
Jul 16, 2014 08:13AM New Jersey Resources (NJR) Brings FY14 Profit Outlook In-Line with Expectations
Jul 16, 2014 07:30AM China GDP Rose 7.5% in Q2, Outpacing Estimates on Investment, Industrial Output (FXI)
Jul 15, 2014 06:36AM Bank of Japan Trims FY14 Growth Expectations (FXY) (YCL)
Jul 14, 2014 01:46PM ECB President Draghi's Introductory Statement for Hearing at the Committee on Economic and Monetary Affairs of the European Parliament (FXE)
Jul 10, 2014 07:45AM China Exports Showed Lighter-than-Expected Growth in June (FXI)
Jul 10, 2014 07:00AM Bank of England maintains benchmark rate at 0.5 percent
Jul 9, 2014 02:03PM Some Fed Officials Saw Investors as Too Complacent on Risk - FOMC Minutes
Jul 9, 2014 02:03PM Some Fed Officials Saw Investors as Too Complacent on Risk - FOMC Minutes
Jul 8, 2014 09:39AM Delta Air Lines (DAL) Plans Large Cut to Venezuelan Flights Amid Currency Battle
Jul 3, 2014 09:50AM Markit U.S. Services PMI Hits 61.0 in June; Fastest Expansion Pace Since Late 2009
Jul 3, 2014 08:44AM ECB will start 6-week meeting schedule, minutes in FY15 (FXE)
Jul 3, 2014 08:36AM Nonfarm Payrolls Rose 288K in June; Unemployment Rate Drops to 6.1%
Jul 3, 2014 07:55AM ECB Leaves Deposit Rate at -0.1%, Benchmark Interest Rate Unchanged at 0.15% (FXE)
Jul 3, 2014 07:55AM ECB Leaves Deposit Rate at -0.1%, Benchmark Interest Rate Unchanged at 0.15% (FXE)
Jul 2, 2014 08:58AM UPDATE: Tim Draper Said to Have Won U.S. Marshal's Auction of 30,000 Bitcoin
View Older Stories