Raising the interest rate on 10-year Treasury bonds from today’s 2% to 4% — in line with Fed expectations — would halve the present value of the stock market.

If you’re thinking of investing in stocks (or bonds) because you can’t think of anywhere better to put your money, you might want to take a pause and ponder what Stanley Fischer, the vice chairman of the Federal Reserve, just said at a conference in Tel Aviv, Israel.

Fischer, speaking this week, said the Fed expects to raise short-term interest rates from its current 0% to around 3.25% to 4% within the next three or four years.

That was not his personal guess, he said, but the central target being used by the economists at the Federal Reserve.

Three-and-a-quarter to 4%. Compared with 0% today.

If short rates go there, then history says the 10-year Treasury bond rate TMUBMUSD10Y, -0.49%  may rise from today’s 2% to about 4.25% to 5%.

And from those two simple things, a gigantic chain of dominoes all across the stock market — and the world, for that matter — will start to fall.

How?

Raising the interest rate on 10-year Treasury bonds from today’s 2% to 4% — in line with Fed expectations — would halve the present value of the stock market.

No one will want to buy a 2% Treasury bond when they can buy a 4% or 5% Treasury bond. So the Treasuries you own will get marked down, massively, to compete.

No one will want a 5% corporate bond with a risk of default when they can buy a 5% Treasury bond with no such risk. History says that, in order to compensate for their risks, corporate bonds will have to yield considerably more than equivalent Treasuries to compete — so they, too, will be marked down sharply.

Bad news for your bond funds.

And then we come to stocks.

How easy it is to forget, amid the news and noise of corporate earnings, buybacks and sundry other deals, that half of the value of the stock market has nothing do to with what companies or stocks are doing.

Half the value of the stock market lies, instead, in the so-called “cost of capital” — in other words, the rate of interest you could earn by ignoring stocks and sticking your money somewhere else.

So when the interest rate on Treasury bonds rises, stocks become a lot less attractive by comparison.

Their price has to fall in order to keep the same relative appeal. That is simple mathematics.

Based on the standard financial model used on Wall Street, raising the interest rate on 10-year Treasury bonds from today’s 2% to 4% — in line with Fed expectations — would halve the present value of the stock market.

Yikes.

That, I hasten to add, is neither a forecast nor a guesstimate nor really an opinion. It is simply what happens when you take the predictions offered by the vice chairman of the Federal Reserve and plug them into Wall Street’s standard model for valuing stocks.

Make of it what you will. School will soon be out for the summer. But mathematics, I’m afraid, never takes a vacation.

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What are the top reasons why startups fail?

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Currently 108 unicorns worldwide and 13 FinTech Unicorns: The Industry Disrupters That Are Worth Billions

 

With currently 108 unicorns worldwide, the billion-dollar valuation club is nowhere near getting smaller.

According to venture capital tracker CB Insights, the number of new entrants in 2015 should double last year’s record, with the total this year to reach more than 76 new unicorns.

This upward trend can be explained by a combination of factors,including the continuously lower cost of launching a tech startup, quicker technology adoption, and the overall faster pace of disruption, Anand Sanwal, CEO and co-founder of CB Insights, said in a webinar put on by the company last week.

But for now, let’s focus on the startups that are attacking every product and service line typically offered by banks and financial institutions.

Fintech Unicorns

Based on a report from KPMG and CB Insights, CoinTelegraph has compiled a list of 13 FinTech startups that are valued over US$1 billion, or the so-called FinTech unicorns.

Overall, investors have mostly placed their bets on payments startups. However, other attractive markets include lending, insurance, remittance and personal finance management.

Among the venture capital investors that are putting big money on these market disrupters, several names are redundant: Khosla Ventures, Union Square Ventures, Accel Partners, Index Ventures, Sequoia Capital, Felicis Ventures, to name a few.

 

Company   Country   Industry Valuation (billion USD) Select Investors
Square Inc. US Mobile Payments 6 First Round Capital, Citi Ventures, GGV Capital
Stripe US Online Payments 3.5   Andreessen Horowitz, Khosla Ventures, Lowercase Capital, Redpoint Ventures, Union Square Ventures
Powa Technologies UK E-Commerce 2.7 Bright Station Ventures, Wellington Management
Prosper US P2P Lending 1.9   Benchmark, Accel Partners, DAG Ventures, Draper Fisher Jurvetson, Sequoia Capital
Adyen NL Payments 1.5 Felicis Ventures, Index Ventures, Temasek Holdings
Oscar US Health Insurance 1.5 BoxGroup, Formation8, Khosla Ventures
Deem US E-Commerce 1.35 Empire Ventures, Foundational Capital, Oak Investment Partners
Social Finance US Student Loan Refinancing 1.3 Baseline Ventures, Doll Capital Management, Institutional Venture Partners, Third Point, Wellington Management
  TransferWise UK Remittance 1 Andreessen Horowitz, IA Ventures, Index Ventures, SV Angel
Shopify CA E-Commerce 1   FirstMark Capital, Felicis Ventures, Insight Venture Partners
Credit Karma US Financial Management Platform 1 Felicis Ventures, SV Angel, Founders Fund
Klarna SE Online Payments 1 Institutional Venture Partners, Sequoia Capital, General Atlantic
Funding Circle UK P2P Lending 1 Accel Partners, Index Ventures, Ribbit Capital, Union Square Ventures
Source: http://www.slideshare.net/kpmg/kpmg-cbinsightsunicornreport

 

The Booming FinTech Scene

With almost US$14 billion injected into the space in the past 12 months, investors are obviously taking an increasing interest in FinTechs.

In the webinar on May 19, Sanwal discussed these new trends and the emerging players that are challenging our traditional financial services.

“In 2010, there were 223 unique investors within the FinTech space, and these are VCs only, not the angels, accelerators, or other types of investors that we track. In 2015, […] there are now 894 active investors. Investors see opportunities, they see blood in the space; it’s a massive industry.”

While the overall industry is burgeoning, a few niche markets are particularly attracting “smart money” from top VC investors. These focus areas include payments, personal finance management, lending and Bitcoin, Sanwal pointed out, with notable investments into Coinbase, Stripe, Funding Circle, Zuora and Prosper.

Beyond VC firms, players from diverse industries and “unusual suspects” are making significant moves, as well. These nonfinancial services corporations that are betting on FinTechs include Google — which has invested in 37 FinTech deals in the last 5 years — Intel and Salesforce, as well as Japanese SoftBank, Chinese RenRen and Ping An Insurance, and South African Naspers.

 

 

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Will Greece have until late July to come to an agreement with its creditors ?

Greece probably has until late July to come to an agreement with its creditors before potentially being forced out of the monetary union. Possible delays in payments to the International Monetary Fund in June shouldn’t prompt the European Central Bank to shut off vital liquidity to Greek banks. By contrast, a default on marketable debt — specifically the failure of the Greek government to pay 3.5 billion euros due to the ECB on July 20 — would probably force the central bank’s hand. The Greek government and its creditors are still likely to reach a deal on a list of reforms before that crucial date.June 5: Greece will have to make a payment of about 240 million SDRs to the IMF. That equals about 303 million euros. Greek Finance Minister Yanis Varoufakis has stated Greece will seal a deal with its creditors by this date. This is a medium-risk event. The raid from Greece’s own reserve account at the IMF to make a recent payment to the fund suggests the Syriza-led government is running out of cash to pay its creditors and will be unable to make this payment in the absence of additional bailout funds, though the immediate consequences of missing a payment to the IMF would be limited.June 12: Greece will have to make a payment of about 270 million SDRs to the IMF. That equals about 341 million euros. This is a medium-risk event, similar to June 5.

June 12: Greece must roll over 3.6 billion euros of Treasury bills. This is a low-risk event.

June 16: Greece will have to make a payment of about 451 million SDRs to the IMF. That equals about 568 million euros. This is a medium-risk event. (See June 5.)

June 18: The Eurogroup will meet. This seems like a low-risk event because the finance ministers would still be able to discuss Greece at their next meeting even if an agreement were to remain elusive.

June 19: Greece will have to make a payment of about 270 million SDRs to the IMF. That equals about 341 million euros. This is a medium-risk event. (See June 5.)

June 19: Greece must roll over 1.6 billion euros of Treasury bills. This is a low-risk event.

June 25-26: The European Council meets in Brussels. German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras could use this opportunity to speak about financial aid to Greece. The heads of governments could force their officials to move in a particular direction, though the finance ministers are the government representatives who have to sign an agreement. This seems like a low-risk event because the Eurogroup will meet again on July 13.

End-June: The extension expires for the “Master Financial Assistance Facility Agreement,” as Greece’s bailout is known. This will probably be a medium-risk event. If Greece were no longer officially in a bailout program, the ECB could decide to re-assess its collateral rules linked to Emergency Liquidity Assistance, though the most likely outcome of this soft — and arbitrary — deadline is an extension if an agreement remains elusive.

July 10: Greece must roll over 2 billion euros of Treasury bills. This is a low-risk event.

July 13: Greece will have to make a payment of about 360 million SDRs to the IMF. That equals about 454 million euros. This is a medium-risk event. (See June 5.)

July 13: The Eurogroup will meet. This will probably be a high-risk event because it is the last scheduled Eurogroup meeting ahead of the July 20 payment to the ECB. In other words, this may be the last opportunity for the finance ministers to agree on the disbursement of funds ahead of that date.

July 17: Greece must roll over 1 billion euros of Treasury bills. This is a low-risk event.

July 19 and 20: Greece must make the largest coupon payments of the month — about 199 million euros and 104 million euros, respectively — on government bonds. The total for the month is 810 million euros. In addition, Greece’s 3.5 billion-euro bond held by the ECB matures on July 20. This is a high-risk event. A default could cause the ECB to cut off Greek banks’ access to ELA. That would probably be the first step to an exit of the beleaguered country from the monetary union.

Aug. 1: Greece will have to make a payment of about 141 million SDRs to the IMF. That equals about 177 million euros. This is a medium-risk event. (See June 5.)

Aug. 7: Greece must roll over 1 billion euros of Treasury bills. This is a low-risk event.

Aug. 14: Greece must roll over 1.4 billion euros of Treasury bills. This is a low-risk event.

Aug. 20: Greece must make the largest coupon payment of the month — about 194 million euros — on government bonds. The total for the month is 211 million euros. In addition, Greece’s 3.2 billion-euro bond held by the ECB matures. The riskiness of these events is path-dependent. If Greece has managed to secure bailout funds by this date, the payment shouldn’t create a problem. If it hasn’t secured the funds, Greece will probably have defaulted on the July 20 payment already and this second payment might be immaterial. If Greece hasn’t secured bailout funds and managed to somehow make the July 20 payment, this would be a high-risk event.

This post is courtesy of Bloomberg Intelligence Economics.

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China’s richest man might have been running a massive fraud

The only thing we know for sure is that stock in Hanergy Thin Film Power, a solar panel company equipment owned by what was at the time China’s richest man, fell 47 percent last Wednesday. We don’t know exactly why it fell, or even how much its Chairman Li Hejun lost when it did, since he apparently upped his bet against his own company in the days before the crash. Just that it did.

When you put all the pieces together, though, it looks even worse. It looks like Hanergy might be China’s Enron: an Energy Company of the Future™ whose stock price could only go up as long as it was borrowing money and could only borrow money as long as its stock price was going up. In other words, a house of cards that was just waiting for the first piece to fall.

Now, the first thing to know about Hanergy is that it’s really two companies. There’s the privately owned parent corporation, Hanergy Group, and the publicly traded subsidiary, Hanergy Thin Film Power (HFT). So far, so normal. The curious part, though, is that almost all of HFT’s sales are to its parent company at a net profit margin of 50 percent. And even more curious is that the parent company hasn’t actually, well, paid for most of the solar panel equipment it’s ostensibly bought from HFT. Through 2013, only 35 percent of the accounts between the two had been settled.

 

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/05/27/chinas-richest-man-might-have-been-running-a-massive-fraud/

 

 

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Greek Endgame Nears for Tsipras as Collateral Evaporates

 

Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors.

As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap more and more emergency liquidity every week. In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say.

 

“The point where collateral is exhausted is likely to be near,” JPMorgan Chase Bank analysts Malcolm Barr and David Mackie wrote in a note to clients May 15. “Pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June.”

European policy makers are losing patience with Tsipras who said as recently as May 14 that he won’t compromise on any of his key demands. He’s planning to force a discussionof Greece at a summit of European Union leaders in Latvia that begins on May 21, a day after the European Central Bank’s Governing Council meets in Frankfurt.

Bonds Drop

Greek shares and bonds fell on Monday, with the benchmark Athens Stock Exchange dropping 1.4 percent at 1.28 p.m. local time. The ASE has fallen 26.3 percent in the past year, making it one of the worst performing primary equity indices tracked by Bloomberg. Yields on two-year Greek notes jumped 280 basis points to 23.71 percent, the highest level this month. Greek bonds remain the best-performing sovereign securities over the past month, according to Bloomberg’s World Bond Indexes.

While talks are centering on whether to give Greece more money, the ECB could decide to raise the stakes as soon as this week if it increases the discount on the collateral Greek banks pledge in exchange for cash under its Emergency Liquidity Assistance program.

Such a move might inadvertently prompt a further outflow of bank deposits and pressure Tsipras to choose between doing a deal and putting his country on the road to capital controls. A Greek government spokesman declined to comment, as did officials at the Greek central bank and the ECB.

“We are in an endgame,” ECB Executive Board member Yves Mersch said in an interview with Luxembourg radio 100.7 broadcast Saturday. “This situation is not tenable.”

Liquidity Lifeline

The arithmetic goes as follows: Greek lenders have so far needed about 80 billion euros ($91 billion) under the ELA program.

Banks have enough collateral to stretch that lifeline to about 95 billion euros under the terms currently allowed by the ECB, a person familiar with the matter said. With the central bank raising the ELA by about 2 billion euros every week, that could take banks to the end of June.

A crunch will come if the ECB increases the haircut on Greek collateral to levels not seen since last year. That could be prompted by anything from a complete breakdown in talks to a missed debt payment, the official said. A continuation of the current impasse could even be all that’s needed, the official said.

An increased haircut would reduce the ELA limit to about 88 billion euros, the person said. While that gives banks about four weeks before hitting the buffers, the leeway is so limited that Greece might need to impose capital controls, limiting transactions such as ATM withdrawals, to conserve the cushion. Market News International first reported on the reduced ceiling on May 12.

ECB Tools

“Since the great crisis of 2008, Europe has created many tools to control the flow of money and banks,” said Andreas Koutras, an analyst at In Touch Capital Markets in London. “Thus the crisis in Greece is more likely to be resolved through the tools of the ECB rather than” by political means.

Investors in Greek debt are showing few signs of panic for now, with the yield on the Greek 10-year bond having dropped about 3 percentage points from the 13.64 percent on April 21.

Nor are ECB policy makers willing to raise the pressure on Greek banks on their own. Central bank governors won’t take any action which would be seen as pushing Greece out of the currency bloc if negotiations show progress and convergence, the person said.

Collateral Fix?

Greek lenders are also working with the country’s central bank on plans to collateralize additional assets, a separate local official with knowledge of the matter said.

Still, it’s unclear if these assets, including government guarantees, would be accepted by the ECB if the standoff in bailout negotiations persists. According to a senior Greek commercial banker, the ECB’s decision on what to accept as collateral is essentially a judgment call, and not necessarily related to the quantity of the assets available.

“The Greek government at this point has no room for maneuver,” Spanish Economy Minister Luis de Guindos said in a speech in Madrid on Monday. He said he was still optimistic a deal will be reached in the coming days. “This deal is essential for Greece given its liquidity situation,” he said.

Tsipras will push Greece’s case at this week’s EU leaders’ summit in Riga after a weekend that showed few signs of progress. An International Monetary Fund memo dated May 14 said Greece won’t be able to make an IMF payment on June 5 unless an accord is reached with partners, the U.K’s Channel 4 news reported on Saturday.

The ECB’s next full monetary policy meeting is on June 3, two days before the IMF payment.

“There were too many people crying wolf before,” Koutras said. “But as Hemingway wrote: How did you go bankrupt? Two ways: Gradually, then suddenly.”

 

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Do you own Gold ? You should … Listen why

“If you dont own gold…there is no sensible reason other than you dont know history or you dont know the economics of it”

 


Ray Dalio is an American businessman and founder of the investment firm Bridgewater Associates.

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Greece Readies for Another Week of Deadlines

Warnings of an accidental default loom over debt-swamped Greece as Prime Minister Alexis Tsipras’ anti-austerity government heads for another confrontation with an increasingly testy German-led bloc of creditors.

Greece needs at least a symbolic show of progress at Monday’s meeting of euro-area finance ministers in Brussels to persuade the European Central Bank to keep emergency funds flowing to Greek banks at the current pace. The next hurdle comes just a day later, when Greece has to pay about 750 million euros ($840 million) to the International Monetary Fund.

Tsipras met with top cabinet ministers for several hours on Sunday to brief them on the negotiations. Athens expects the Eurogroup to officially acknowledge important progress, a Greek government official, speaking on the condition of anonymity as the talks were private, said after the meeting. Tsipras and his ministers confirmed the need for a mutually beneficial deal within the framework of the government’s mandate, the official said.

The meeting in Athens took place under mounting pressure to abandon election promises made just months ago for more generous retirement benefits and to recommit to selling government-held stakes in companies to raise cash. No one outside of Athens knows for sure how long the country can stay afloat.

Schaeuble’s Warning

“Experience elsewhere in the world has shown that a country can suddenly become unable to pay its bills,” German Finance Minister Wolfgang Schaeuble said in an interview with Frankfurter Allgemeine Sonntagszeitung published Saturday. Schaeuble said if Greece is forced out of the euro “it won’t be because of us.”

Tsipras’s determination to junk the budget cuts associated with Greece’s 240 billion-euro bailout — and to tap creditors for more money after that — has hammered Greek markets since he took power. Greek 10-year bonds now yield 10.67 percent, up from 8.41 percent on the eve of the Jan. 25 election. The yield touched 13.64 percent last month.

Strains are emerging in Tsipras’ Syriza party, a novice at governing. Tsipras took the job of dealing with creditors away from Finance Minister Yanis Varoufakis, who was accused by euro ministers following the last meeting on April 24 of lacking rigor and wasting time.

Agreement Elusive

The personnel change has improved the structure and organization of the negotiations, a European Union official said on Friday. While there has been a rapprochement with Greece in a number of areas, no final agreement is in sight, the official said on condition of anonymity under Brussels briefing rules.

Greece’s program runs until the end of June. The EU official said that while deadlines aren’t cast in stone, a technical agreement on a revised program needs to be struck by early June to allow time for approval by creditor governments.

An accord “will surely not be reached at the Eurogroup meeting on Monday,” Dutch Finance Minister Jeroen Dijsselbloem, the meeting’s chairman, told Italy’s Corriere della Sera newspaper. “We will need more time, but I don’t know how much.” The meeting starts at 3 p.m.

Varoufakis’ Position

While day-to-day deliberations are now in the hands of Deputy Foreign Minister Euclid Tsakalotos, Varoufakis will be Greece’s chief representative at the Brussels meeting. He denied being demoted, telling BBC World on Thursday: “I am the chief negotiator for the Greek government.”

Enthusiasm for Tsipras’s cause has been sapped by Greece’s economic ordeal and the potential choice between a shrunken welfare state inside the euro or an unknown future outside it. Fifty-four percent of Greeks back the government’s negotiating strategy, down from 82 percent in February, a Marc poll for Efimerida Ton Sintakton showed Saturday. Still, Syriza continues to outpoll other parties.

Whether Greece yields before the northern creditor governments’ patience snaps is an open question. Some members of German Chancellor Angela Merkel’s Christian Democratic bloc are challenging her intention to keep Greece in the euro, and some officials in the German Finance Ministry are leaning toward the conclusion that the euro area would be better off without Greece, two people familiar with internal German discussions said.

“In Greece there is a growing awareness that time is running out,” Italian Finance Minister Pier Carlo Padoan said in a Sunday interview with Messaggero.

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    http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf
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German bond yields on course for biggest weekly rise in a decade

 

German government bond yields jumped on Thursday as a rout in euro zone markets worsened, putting them on course for their biggest weekly rise in over a decade.

Yields on 10-year German bonds — the bloc’s benchmark — rose as much as 20 basis points to hit 0.799 percent, their biggest daily rise since the middle of 2012.

As of 0930 GMT, yields were up some 38 basis points on the week, set for their biggest rise seen since at least 2004, according to Tradeweb data.

Other euro zone government bond yields rose 4-15 bps.

Strategists said the market capitulation which started last week was sparked by easing deflation fears and investor weariness with ultra-low yields.

“It’s a historical move that we’re experiencing – a continuation of the move we’ve seen in the past few days,” said Jean Francois Robin, head of strategy at Natixis. “The macro picture is getting better in Europe.”

 

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BIG MARKET NEWS WEEK 04 MAY 2015 – 09 MAY 2015

 

This Week : May3-May9

 

Australia Monday, May 4 2015 03:30
AUD Building Permits (MoM) (Mar)
China Monday, May 4 2015 03:45
CNY HSBC Manufacturing PMI (Apr)
Australia Tuesday, May 5 2015 03:30
AUD Trade Balance (Mar)
Australia Tuesday, May 5 2015 06:30
AUD RBA Interest Rate Decision
Australia Tuesday, May 5 2015 06:30
AUD RBA Rate Statement
Spain Tuesday, May 5 2015 09:00
EUR Unemployment Change (Apr)
Canada Tuesday, May 5 2015 14:30
CAD     International Merchandise Trade (Apr)
United States Tuesday, May 5 2015 16:00
USD ISM Non-Manufacturing PMI (Apr)
New Zealand Tuesday, May 5 2015 n/a
NZD GDT Price Index
New Zealand Wednesday, May 6 2015 00:45
NZD Unemployment Rate (Q1)
New Zealand Wednesday, May 6 2015 00:45
NZD Employment Change (Q1)
Australia Wednesday, May 6 2015 03:30
AUD Retail Sales s.a. (MoM) (Mar)
United Kingdom Wednesday, May 6 2015 10:30
GBP Markit Services PMI (Apr)
United States Wednesday, May 6 2015 14:15
USD ADP Employment Change (Apr)
Canada Wednesday, May 6 2015 16:00
CAD     Ivey Purchasing Managers Index s.a (Apr)
United Kingdom Thursday, May 7 2015 24h
GBP Parliamentary Election
Australia Thursday, May 7 2015 03:30
AUD Unemployment Rate s.a. (Mar)
Australia Thursday, May 7 2015 03:30
AUD Employment Change s.a. (Mar)
Canada Thursday, May 7 2015 14:30
CAD Building Permits (MoM) (Mar)
Australia Friday, May 8 2015 03:30
AUD RBA Monetary Policy Statement
China Friday, May 8 2015 n/a
CNY Trade Balance (Apr)
       United States Friday, May 8 2015 14:30
USD Nonfarm Payrolls (Apr)
       United States Friday, May 8 2015 14:30
USD Unemployment Rate (Apr)
Canada Friday, May 8 2015 14:30
CAD Net Change in Employment (Apr)
Canada Friday, May 8 2015 14:30
CAD Unemployment Rate (Apr)
China Saturday, May 9 2015 n/a
CNY Consumer Price Index (YoY) (Apr)
China Saturday, May 9 2015 n/a
CNY Producer Price Index (YoY) (Apr)
China Saturday, May 9 2015 n/a
CNY Consumer Price Index (MoM) (Apr)

 

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