BOJ's Kuroda welcomes expansion of China-led infrastructure bank www.reuters.com

Bank of Japan Governor Haruhiko Kuroda welcomed the expansion of China-led Asian Infrastructure Investment Bank as positive for the regional economy and urged multinational lenders to cooperate in meeting fast-growing infrastructure needs in Asia.

China’s $11 Trillion Economy and Markets Are in a Tug of War www.bloomberg.com

China’s run of solid economic indicators proved little consolation for its shaky financial markets in April. The dichotomy stems from a shift in the leadership’s focus toward reducing leverage -- one that’s set to determine whether growth joins asset prices in heading down.

Economists are practically unanimous in saying that reduced debt loads would be good for China’s longer-term health. The big unknown is whether officials can manage that without a dose of short-term pain. As UBS Group AG analysts put it in a note last week: if authorities’ initiatives are "not managed well, it could lead to a rise in credit events, excessive liquidity tightening, faster-than-intended slowdown of credit growth, and greater market volatility."

What started in the fall of 2016 as a tightening in money-market liquidity has intensified to a broader attack by policy makers on the shadow-banking system, where patchy regulation has allowed investors to make leveraged bets. When President Xi Jinping last week warned top officials to crack down on financial risks, the benchmark equities index at one point gave up gains for the year, while bonds suffered their biggest tumble of 2017.

While past regulatory shifts -- especially pricking a stock bubble and letting the yuan depreciate in 2015 -- have sometimes spooked international investors, this time around the reaction has been muted. The positive economic backdrop has helped, along with the conviction that Xi and his lieutenants won’t allow turmoil to disrupt a key, once-in-five-years Communist Party leadership gathering this autumn.

The imperative of heading off disorderly moves in financial markets is a backdrop to the slew of regulatory initiatives over the past two months. Besides broad increases in money-market rates, the list includes:

The People’s Bank of China incorporated off-balance-sheet wealth-management products in its macroprudential assessment of banks’ risks, putting lenders on notice that shadow banking is facing deeper scrutiny
The China Banking Regulatory Commission, under new leadership since February, stepped up scrutiny of entrusted investments -- funds that banks farm out to external managers
The CBRC issued guidelines to enhance liquidity risks at banks, including all of lenders’ interbank and WMP business in their monitoring
Authorities stepped up inquiries about wholesale funding after smaller banks sold a record amount of negotiable certificates of deposit

For now at least, the economy isn’t expected to take a major hit. For one thing, growth accelerated last quarter to 6.9 percent according to official figures, and the debt hangover is getting easier to service as factory prices snap years of deflation.

Some indicators suggest the expansion may be coming off the boil. Caixin Media and Markit Economics’s manufacturing purchasing managers’ index slipped to 50.3 in April -- the lowest since September. But while trends in the property market signal a slowdown ahead, China has plenty of infrastructure needs in central and western parts of the nation, and urbanization remains a long-term engine.

Track Record

In the most recent tussle between market sentiment and economic fundamentals, it was the latter that won out. The economy weathered the 2015 market turmoil, first stabilizing and then perking up as the housing market took off again and the government stepped in with massive doses of infrastructure investment.

The latest push to contain financial risks is focused more on speculative bets than on curtailing credit to the "real" economy. The PBOC has kept benchmark lending rates at a record low and the government continues to spend on pipes, rail and bridges.

"China’s current economic recovery is likely to be in its early days, and has more legs to run," said China International Capital Corp. economist Liang Hong. Better policy coordination and ongoing liquidity injections by the PBOC make a credit crunch seem unlikely, she said.

Crucially, the increase in yields on Chinese government bonds (CGBs) has coincided with the emergence of inflation that’s reflected the economy’s quicker growth. Nominal GDP rose 11.8 percent in the first quarter from a year before, according to Bloomberg Intelligence economist Tom Orlik. That helps fuel corporate profits, government revenue and household income, along with making debt easier to service.

Wringing out leverage may make economic sense, but it may not be pretty for equities and higher-yield bonds.

"We could see more forced redemptions from high-yield bonds and a flight to quality back to high-grade bonds like CGBs," Nomura Holdings Inc. analysts including Hong Kong-based Albert Leung wrote in an April 26 note. Any further sell-off in central government bonds offers "an opportunity for long-term investors," they wrote.

But overshadowing all: the 19th Communist party Congress slated for later this year, when Xi will preside over a reshuffle of leadership positions below him. It’s unlikely that the government will allow the economy to veer off script, said Minyuan Zhao, an associate professor of management at the University of Pennsylvania’s Wharton School.

"This is not unlike injecting strong medicine into a patient -- make sure you kill the disease before killing the body," she said of the deleveraging push.

Mongolia Expects IMF Bailout to Happen 'Soon' After Postponement www.bloomberg.com

Mongolia will work to get its bailout approved soon, according to a senior finance ministry official, after the International Monetary Fund postponed a vote on it over concerns about a new law that affected foreign exchange and investment.

Presidential candidate nomination begins today www.montsame.mn

Ulaanbaatar /MONTSAME/ Nomination of candidates for the upcoming Presidential Election of June 26 begins today, May 2 to continue until May 6, in compliance with the Law of Mongolia on Election.

North Korea cut off by 3rd biggest trading partner www.cnn.com

North Korea has lost one of its biggest trading partners after India banned most dealings with the country.
The Indian government announced last week it is halting all trade, except for food and medicine, as tension mounts on the Korean peninsula and the U.S. administration urges more global action to isolate Pyongyang.
The ban came into force in April. It brings India into line with United Nations sanctions on North Korea.
The U.N. Security Council has been trying for more than a decade to stifle North Korea's nuclear weapons program by imposing harsh economic sanctions.
Most Western countries had ceased to trade with North Korea. India was, until recently, its third biggest trading partner after China and Saudi Arabia -- according to data from the International Monetary Fund.

Japan wants to lead talks on TPP without US www.nhk.or.jp

Japan's chief negotiator for the Trans-Pacific Partnership talks says he wants to lead working-level discussions toward the deal's implementation without the United States.

FM Ts.Munkh-Orgil to pay official visit to European Union www.montsame.mn

Ulaanbaatar /MONTSAME/ Minister of Foreign Affairs of Mongolia Ts.Munkh-Orgil is to pay an official visit to the European Union on May 2 and 3. He will be paying a courtesy call on Mr Jean-Claude Juncker, President of the European Commission, and hold official talks with Ms Federica Mogerini, High Representative of the European Union for Foreign Affairs and Security Policy and Vice President of the European Commission.

US probes car motor patent infringement www.nhk.or.jp

A US regulator will launch an investigation into electric motors used in automobiles for possible infringement of a US company's intellectual property.

France election: Macron says EU must reform or face 'Frexit' www.bbc.com

The front-runner in the French presidential election has told the BBC that the EU must reform or face the prospect of "Frexit".
Pro-EU centrist Emmanuel Macron made the comments as he and his far-right rival Marine Le Pen entered the last week of campaigning.
French voters go to the polls on Sunday to decide between the pair.
Ms Le Pen has capitalised on anti-EU feeling, and has promised a referendum on France's membership.
She won support in rural and former industrial areas by promising to retake control of France's borders from the EU and slash immigration.

*Polling results up to this date show how people said they would vote on 7 May, if Macron and Le Pen reached the second round

The polling average line looks at the five most recent national polls and takes the median value, ie, the value between the two figures that are higher and two figures that are lower.

"I'm a pro-European, I defended constantly during this election the European idea and European policies because I believe it's extremely important for French people and for the place of our country in globalisation," Mr Macron, leader of the recently created En Marche! movement, told the BBC.
"But at the same time we have to face the situation, to listen to our people, and to listen to the fact that they are extremely angry today, impatient and the dysfunction of the EU is no more sustainable.
"So I do consider that my mandate, the day after, will be at the same time to reform in depth the European Union and our European project."
Mr Macron added that if he were to allow the EU to continue to function as it was would be a "betrayal".
"And I don't want to do so," he said. "Because the day after, we will have a Frexit or we will have [Ms Le Pen's] National Front (FN) again."

Both Mr Macron - who is leading in the polls by 20 percentage points - and Ms Le Pen spent Sunday campaigning around France.
Mr Macron visited Paris's Holocaust memorial, where he paid his respects. Sunday was France's national day of remembrance for the French Jews who were deported to Nazi Germany during the Second World War.
The war has proved a difficult area for Ms Le Pen. She suggested earlier this month France was not responsible for a 1942 wartime round-up of 13,000 Jews, who were sent from France to Nazi death camps.
Meanwhile, Jean-François Jalkh - the man she named as interim president of the FN while she campaigned - was forced to step down on Tuesday amid claims he had questioned the reality of Nazi gas chambers, which is a crime under French law. He denies wrongdoing.
It was an unwelcome development for Ms Le Pen, who has worked hard to distance her party from past links with anti-Semitism.

She laid a wreath at the World War II monument in Marseille, after visiting an aluminium plant in the nearby town of Gardanne.
The plant is known for dumping toxic waste into the Mediterranean. It was given six years to reach compliance with EU norms last year, after improving its filtering process.
While there, Ms Le Pen said she would pursue a vision of "true ecology", saying she wanted to "make the link between the choice of economic model and environmental and health problems".

Budget deficit forecasted to be 9.5 per cent of GDP www.montsame.mn