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Global Commerce to Progress in 2014 & 2015, says WTO

The world economy appears to be steadily recuperating from the financial crisis of 2008-2009. Based on GDP forecasts, the World Trade Organization (WTO) has projected that world trade will increase to 4.7% in 2014 and 5.3% in 2015.

world-tradeFor the last couple of years, world trade remained below the 20-year average of 5.3%. In fact, world trade growth in 2012 and 2013 averaged around 2.2%. This is largely a result of the long-term effect that the recession cast on the global economy. The slow pace of growth in 2013 was a mix of flat import demand and a marginal rise in exports.

Winds of positive change have been visible from early 2014. The momentum in the US job market picked up permitting further tapering by the US Federal Reserve. The European recovery pace is improving though still uneven. However, with quantitative easing inching closer to its end developing economies are experiencing volatile financial markets. This trend is likely to continue through 2014. India, Turkey, Argentina and other developing nations have been facing problems such as large current account deficits, overinvestment in productive capacity and currency crises. The Chinese growth story has also witnessed a slowdown. Despite all this, Asia is expected to lead in exports (6.9%) and imports (6.4%).

Post the financial crisis, countries became over-protective in terms of trading. The resultant protectionist measures have severely impacted global economic recovery. Free trade agreements are therefore very important to boost international trade, especially in developing countries. There is also an imminent need to arrive at new trade liberalization agreements or revive existing ones such as the Doha Development Agenda. This will facilitate heightened trade flows regionally and globally.

Reining in Flash Boy Trading: EU’s New Rules on High Speed Trading to Make Markets Safer

Globally, high speed trading has been under immense scrutiny over allegations of rigging the stock markets. Consequently, demands for appropriate regulation have been gaining strength. In this context, the latest regulations announced by the European Union (EU) on Tuesday, April 14, assume high significance.

high-frequency-tradingKnown as the Markets in Financial Instruments Directive (Mifid), these latest checks are arguably the toughest in the world and a part of the revamped EU markets legislation. Traders now need to have algorithms tested on venues and authorized by regulators. The new rules also prevent minimum increment in prices at which shares trade from becoming too small and prevent traders to gain nanoseconds of advantage during trading.  Market makers have been mandated to provide liquidity for a designated number of hours each day.

High speed trading increases liquidity in the market, lowers costs for investors and leads to higher volumes. However, high speed trading has been blamed for increasing market volatility as markets plunged unbelievably in an instant. In 2010,  the Dow Jones Industrial Average in the US witnessed a never before drop of 1000 points resulting in a whopping loss of USD1 trillion shareholder value. The new EU rules are expected to curb these risks by ensuring that financial markets are less volatile, safer and more efficient, although they are unlikely to come into force for at least three years.

While there are many who hail these restrictions as the most comprehensive regulatory response to high speed trading, there is no dearth for critics too. Supporters of high-frequency trading argue that the new rules are likely to push transaction costs up.

Investors Sue 12 Banks in New York for Tampering Forex Prices

The USD5 trillion-a-day foreign exchange currency market has constantly been marred by alleged irregularities around the world. It has come under the scanner once again what with 12 US banks being accused of rigging forex prices to boost their profits.

Tampering-Forex-PricesSome investors, comprising pension funds and hedge funds across US and the Caribbean islands, have filed a consolidated antitrust lawsuit in a New York court against 12 banks. According to the suit, these banks colluded to manipulate prices via chat room discussions, instant messages, and emailsinfluencing the pricing of trillions of dollars’ worth of FX instruments.

In addition to putting an end to thealleged collusive conduct, the lawsuit also seeks unspecified damages. Media reports indicate that the banks have already suspended more than 20 employees in connection with forex rigging. Filed on March 31,2014, this lawsuit combines several lawsuits filed individually by some of these investors since November.

Regulatory crackdown on the collusion to manipulate currency rates has intensified across the world. Most recently, Switzerland’s competition commission WEKO and the UK Financial Conduct Authority have stepped-up investigations. The crackdown is spreading from Europe and US to other nations such as Hong Kong and New Zealand as well. Several major banks are being scrutinised on activities such as global interest rate benchmarks and credit derivatives trading.

However, prosecuting traders for manipulation of forex prices might not be an easy task. Regulators do not identify spot foreign exchange transactions as a financial instrument and hence they are no specific rules to govern the trading. The unregulated foreign exchange market has turned very murky kindling the demands for regulation.

EU Seals Agreement on World’s Toughest Car Emissions

Concluding months of discussions, the European Union finally sealed the deal on automobile carbon emissions in February 2014. Hailed as the world’s toughest auto carbon emission target, this move will need car makers to aim for carbon emissions of 95 grams per kilometre (g/km) in 2020 from the current 130 grams per kilometre by 2015. The new agreement provides for a one-year ‘phasing –in’ period and offers ‘super credits’ allowing car makers to earn extra points by making vehicles that are low on emissions.

car-emissionsWorried that the emissions target could hurt premium car makers BMW and Daimler, Germany is reported to have lobbied hard to reduce the target of 95 grams per kilometre. Terming the targets as the toughest in the world, the German Association of the Automotive Industry said that massive efforts would be required to achieve the target.

Auto manufacturers need to hike R&D spends to create engines that emit less carbon. According to reports, European car manufacturers may need to spend approximately USD16 billion plus by 2021 to get compliant. Spends in this regard may particularly burden mid-market auto manufacturers such as Fiat, Renault and PSA that rely heavily on the European market. Contrary to assumptions however, European environmental group Transport & Environment argues that fuel efficient cars will not be very expensive as they will generate an additional manufacturing cost of less than EUR500.

In the long run, as more nations adhere to emission cuts globally, European auto firms could have the advantage to compete. Some auto firms are expected to ramp up their R&D budgets on designing electric and hybrid cars that emit lesser carbon. Call this target ambitious or the need of the hour, it is surely going to benefit the European automobile industry. 

Auto Expo Reaffirms Indian Auto Market’s Increasing Strength

The 12th edition of the Indian Auto Expo, held in the country’s capital region in February, saw 70 models unveiled and 26 global launches (the highest number ever). The event did not just pump fresh energy into the dull Indian auto sector but also reaffirmed the country’s growing clout as a significant global auto market.

AUTO EXPOThe Expo progressed from a ‘me too’ event to a top-notch successful one thanks to the interesting line up of models and concepts by domestic (Tata Motors, Mahindra & Mahindra, Bajaj Auto) and international players (Honda, General Motors, Ford, Renault). Some of the show stoppers included Renault’s high-tech concept car Kwid, GM’s Chevrolet Adra - a concept SUV, Datsun’s the redi-GO concept - a hatchback-SUV crossover, Tata Motors’ Nexon concept - a youthful compact SUV, Maruti’s Celerio, and Mahindra Halo, India’s first electric sports car.

A much-needed boost
The Expo hit the Indian roads at an appropriate time. Car sales had fallen yet again in January, declining by almost 8% over the four months. Slowdown in economic growth and the resultant impact on consumer sentiment has brought down 2013 car sales to 18,07,011 units, a 9.59% drop from 19,98,703 units in 2012, as per the Society of Indian Automobile Manufacturers (SIAM).
Troubled by poor sales, the auto industry has been in a down beat mood.

However, the Expo did not just help perk up customer interest but going by the sheer number of global unveilings it also brought out the inherent confidence the world has in the Indian auto market. As per projections, India is to turn into the world’s third largest automotive market by 2016 and the fourth largest producer of automobiles by 2020.

A projection well-grounded
Having recorded a turnover of USD39.7 billion for 2012-2013, the Indian auto-components industry is also significantly scaling up and is expected to touch USD115 billion by 2020. Displaying the sector’s might was the components section of the Auto Expo where 650 exhibitors showcased a range of components, technology and services.

An expanding middle class with rising income levels will continue to benefit the auto industry in the long run. And what's more, India is emerging as a major production base for small cars along with having earned a good reputation for designing low cost cars. Thanks to the country’s world-class professionals, engineers and cost-efficiencies, an increasing number of global firms are also setting up shop for both domestic and global production and R&D.  German auto parts maker Bosch recently committed an investment of INR1,200 crores  for automotive technology advancement. Additionally, Renault Nissan JV, Hyundai and Mercedes-Benz have set up major R&D centers in India.

Surviving competition & zooming ahead
In the wake of the global recession and high fuel costs, vehicle demand has been declining in the mature markets. Consulting firm AlixPartners says that car sales in Western Europe are likely to fall from 13.2 million units in 2013 to 12 million units in 2014, remaining in a gloom until 2019. As a result, auto firms are making firmer strides towards emerging economies such as China, India and Brazil.

Racing ahead of the pack, China has been the best performing auto market in 2013 with car sales of 21.98 million units, a 13.9% rise compared to 2012, according to the China Association of Automobile Manufacturers (CAAM). Second in line is the US with 15.6 million unit sales in 2013, as per consulting firm IHS Automotive. The US performance comes close on the heels of the on-going recovery. 

Currently the world’s sixth largest auto market by volume, the Indian auto market is expected to remain weak in the first half of 2014. A new government, improving economy and policy stimulus are expected to help the industry bounce back.  Supported by sustained economic growth and an enhanced supply chain, there is no reason why the Indian auto story can’t turn more heads.