Intelligentguess

Situation

• On a monthly basis prices rose by 0.97 % (1.36 % in Mar’07)
• On an annual basis prices rose by  3.17 % p.a ( 3.21% p.a in Mar’07)

Core inflation stands at 1.51% p.a ( was 1.70% in Mar’07)

Background

The Fed under these circumstances may not consider a drop in interest rates for their rate meeting due on June 27th

Related Links

• USA - Fed meeting : No change in interest rate ( Fed remains open to hiking rates)

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In a previous post I had mildly chided the Reserve Bank of India for sticking to its commitment on releasing the draft guidelines for trading in Credit Default Swaps by May 15.

These guidelines have now been released. The circular can be found here. The full text of the guidelines is here (pdf document).

So after all, they missed the deadline, but just by a day.

To begin with only “banks” and “primary dealers” are being allowed to trade in CDS. These are entities directly regulated by the RBI. Insurance Companies and Mutual Funds would be allowed once the respectively regulators of these entities permit them to do so. It’s now upto the insurance industry to lobby with IRDA and for the mutual fund industry to lobby with SEBI to get the needful done.

Key highlights of the draft guidelines :

• Only plain vanilla CDS allowed. Total return swaps, Credit linked notes, Credit spread options are not being allowed.
• Reference entity has to be a single, resident legal entity.
• Only rupee denominated transactions are being allowed. Even the underlying asset /obligation has to be denominated in Indian rupees.
• Credit rating has been made mandatory for the underlying reference. Further only live ratings are allowed.
• Banks barred from trading in derivatives which include “materiality thresholds” (I have to figure out what this means)

There are quite a few other conditions, but that would take a lot of space here.

As usual, it’s an extraordinarily cautious regulator. The guidelines are now in the public domain for comments / suggestions. Let’s hope that the regulator displays a little more adventurism by the time the final guidelines are formulated.

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Situation

• On a monthly basis orders contracted by -15.73%  ( 2.78% growth in Feb’07)
• On a yearly basis order contracted by -16.46% p.a ( 5.83 % p.a growth in Feb’07)

Background

• Production growth rate drops in Mar’07
• Orders grow at a slower pace in Feb’07
• This site expected that the strong fall in new orders would be post mid’07 towards mid’08 ( click here )

The fall has happened much earlier and much faster than expected

Conclusion ( click on image for a bigger visual)

1. In the April-June period the total amount of machinery orders is forecasted to decrease by 3.3%
2. Even if New orders grows on a monthly basis by 9.33% ( the highest month on month growth in the past 12 months) in Apr’07 over Mar’07 , the annual growth will be a decrease of -2.91% p.a
3. We can now expect a decrease in new orders between - 3 % p.a and -17% p.a till end ‘07 - mid ‘08
4. Production can be expected to continue declines - following the trend in New Orders .

Japans GDP cannot be expected to offer a very positive picture for Q2 and Q3 2007

In the current circumstances Bank of Japan ( BOJ ) is not going to be looking at hiking interest rate anywhere in the near future , but may again consider dropping rates

Related links 

• Japan - Orders grow at a slower pace in Feb’07
• USA - New Orders declines in Mar’07
• Europe - New Orders growth rate drops in Feb 2007

• Japan - Production growth rate drops in Mar’07
• USA - Production grows in Mar’07 at the slowest pace since Sept’05
• Euro area - Production (IIP) grows in Feb’07
• UK - Production - annual growth rate slips to a negative in Mar’07
• India - Production grows in Mar’07

• Japan - Bank leaves rates unchanged

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