At 2:00 AM UK August Nationwide House Prices (exp 0.5%, prev 0.1%)
At 4:00 AM Germany August Unemployment Rate (exp 8.9%, prev 9.0%)
Germany August Unemployment Change (-30.0k, prev –45.0k)
At 4:30 AM UK July Consumer Credit (exp 875 mln stg, prev 874 mln stg)
At 8:30 AM Canada July PPI m/m (exp –0.5%, prev –1.3%)
Canada Q2 Current Account Balance (exp C$8.5 bln, prev C$6.49 bln)
US Weekly Jobless Claims (exp 322.0k, prev 322.0k)
US Q2 GDP preliminary (exp 4.0%, prev 3.4%)
US Q2 PCE (exp 4.3%, prev 4.3%)
US Q2 core PCE (exp 1.4%, prev 1.4%)
Sharp swings in the currency market corresponded with the rebound in US equity bourses, with the yen bearing the brunt of the losses against the majors. The Japanese unit relinquished all of its previous session’s gains to stand unchanged from two trading days prior, hovering around 234 against the sterling and just beneath 159 versus the euro. Although the liquidity injections by global central banks have tempered the panic rampant in markets in recent weeks, the credit markets are still not out of the woods yet and we can expect periods of heightened volatility and risk aversion in the coming weeks.
The session ahead will see several key G7 data releases including UK August nationwide house prices, Germany August jobs report, UK July consumer credit, Canada Q2 current account balance, Canada July PPI, US weekly jobless claims and US Q2 GDP. The preliminary reading for second quarter growth in the US is expected to rise to 4.0%, versus 3.4% from the previous quarter, pointing towards robust economic activity that could sway the Fed to stand pat at its September meeting. Also to be closely watched will be the Q2 PCE, with the headline seen remaining unchanged at 4.3% and the core PCE reading steady at 1.4%.
Friday, August 31, 2007
Fed Chairman Bernanke's Speech Will Make or Break Rate Cut Expectations
How Will The Markets React?
The markets will get a taste of consumption data for the beginning of the third quarter on Friday, as personal spending for the month of July will be released. The figure is anticipated to rebound 0.3 percent, in line with the improvement in advance retail sales and a sign that the labor market has thus far been strong enough to prevent a collapse in spending, softening the blow of a weak housing sector and a widening credit crunch. Even with a resilient consumer, the Federal Open Market Committee said on August 17th that “downside risks to growth have increased appreciably,” ramping up speculation they will cut interest rates next month and signaling that the worst of the economic slowdown is yet to come. Meanwhile, PCE Core, the Fed’s preferred inflation measure, is anticipated to edge up to 2.0 percent in July from a year earlier. Such a rise in price pressures would leave the central bank in a rock and a hard place, as they would be forced to contend with unstable financial markets, a slowing economy, and upside inflation risks. Nevertheless, the biggest market mover of the day will likely be Fed Chairman Ben Bernanke’s speech on housing and monetary policy at 14:00 GMT at the central bank’s symposium in Jackson Hole, Wyoming. Currently, Fed fund futures are pricing in a 25 basis point rate cut on September 18th, but any commentary that sways investor sentiment on coming monetary policy will shift market expectations and spark major price action. Traders should also keep in mind that Bernanke and other policymakers attending the conference could also be quoted over the course of the weekend, which may be reflected in the markets on Monday.
Bonds – 10-Year Treasury Note Futures
On Thursday, 10-year Treasury note futures continued to rally, hitting a high of 109-27 as the contracts continue to take aim on 110-00. Holding within an uptrending channel, a break below a supporting trendline near 109-00 will eliminate some of the bullish bias on the contracts, but the shaky nature of the equity markets are lending Treasuries decent strength. The biggest event risk for US government bonds is in Bernanke’s speech at 14:00 GMT, as traders anxiously await clues as to the Fed’s next policy move. Though it sounds counterintuitive, signs of a looming rate cut could send Treasuries plummeting as equity markets would rally.
crossmarkets_0830_1
FX – EUR/USD
The EURUSD pair has remained range bound over the past few days, as mixed risk averse sentiment keeps US dollar traders on edge. Outside of the 1.3565 – 1.3685 range, the next level of resistance sits at the 78.6% fib at 1.3750, which could be the pair’s next bullish target. However, EURUSD faces massive event risk on Friday and the pair’s reaction may sound counterintuitive, as signs that the Federal Reserve will cut rates in September could send EURUSD higher as the US dollar has traded more as a safe-haven asset over the past two weeks and the data would help to assuage credit crunch concerns. Furthermore, the prospect of lower interest rates would limit the dollar’s attractiveness in terms of carry trade differentials. On the other hand, if Bernanke sounds as though he is content with leaving rate steady, equity markets could unravel as risk averse sentiment returns and pushes EURUSD down towards support at 1.3565, with sharp declines taking on 1.3485.
crossmarkets_0830_2
Equities – Dow Jones Industrial Average
The Dow Jones Industrial Average eased back from a descending trendline (which is currently at 13,289) on Thursday, ending the day down 0.38 percent at 13,238.73. This trendline has blocked gains for the equity index since late July, and the Dow’s hesitance to break above this level signals that price could be moving lower to target the 200 SMA at 12,892 once again. On the other hand, a surge through that resistance level would aim to complete a 78.6 percent retracement of the decline from the August 17th high at 13,665, but this will only be possible if credit jitters subside. While US equities face event risk from Friday’s personal spending and core CPE releases, Fed Chairman Ben Bernanke’s speech at 14:00 GMT has the potential to set the tone for price action throughout the day. Traders will be looking for any clues to the bank’s next policy decision, and comments signaling a potential rate cut on September 18th could send the Dow skyrocketing. On the other hand, if Bernanke clearly avoids discussing the Fed’s next move or suggests that the bank will not cut interest rates, equities could sell off quickly and take the Dow down to test the 200 SMA at 12,892.
crossmarkets_0830_3
The markets will get a taste of consumption data for the beginning of the third quarter on Friday, as personal spending for the month of July will be released. The figure is anticipated to rebound 0.3 percent, in line with the improvement in advance retail sales and a sign that the labor market has thus far been strong enough to prevent a collapse in spending, softening the blow of a weak housing sector and a widening credit crunch. Even with a resilient consumer, the Federal Open Market Committee said on August 17th that “downside risks to growth have increased appreciably,” ramping up speculation they will cut interest rates next month and signaling that the worst of the economic slowdown is yet to come. Meanwhile, PCE Core, the Fed’s preferred inflation measure, is anticipated to edge up to 2.0 percent in July from a year earlier. Such a rise in price pressures would leave the central bank in a rock and a hard place, as they would be forced to contend with unstable financial markets, a slowing economy, and upside inflation risks. Nevertheless, the biggest market mover of the day will likely be Fed Chairman Ben Bernanke’s speech on housing and monetary policy at 14:00 GMT at the central bank’s symposium in Jackson Hole, Wyoming. Currently, Fed fund futures are pricing in a 25 basis point rate cut on September 18th, but any commentary that sways investor sentiment on coming monetary policy will shift market expectations and spark major price action. Traders should also keep in mind that Bernanke and other policymakers attending the conference could also be quoted over the course of the weekend, which may be reflected in the markets on Monday.
Bonds – 10-Year Treasury Note Futures
On Thursday, 10-year Treasury note futures continued to rally, hitting a high of 109-27 as the contracts continue to take aim on 110-00. Holding within an uptrending channel, a break below a supporting trendline near 109-00 will eliminate some of the bullish bias on the contracts, but the shaky nature of the equity markets are lending Treasuries decent strength. The biggest event risk for US government bonds is in Bernanke’s speech at 14:00 GMT, as traders anxiously await clues as to the Fed’s next policy move. Though it sounds counterintuitive, signs of a looming rate cut could send Treasuries plummeting as equity markets would rally.
crossmarkets_0830_1
FX – EUR/USD
The EURUSD pair has remained range bound over the past few days, as mixed risk averse sentiment keeps US dollar traders on edge. Outside of the 1.3565 – 1.3685 range, the next level of resistance sits at the 78.6% fib at 1.3750, which could be the pair’s next bullish target. However, EURUSD faces massive event risk on Friday and the pair’s reaction may sound counterintuitive, as signs that the Federal Reserve will cut rates in September could send EURUSD higher as the US dollar has traded more as a safe-haven asset over the past two weeks and the data would help to assuage credit crunch concerns. Furthermore, the prospect of lower interest rates would limit the dollar’s attractiveness in terms of carry trade differentials. On the other hand, if Bernanke sounds as though he is content with leaving rate steady, equity markets could unravel as risk averse sentiment returns and pushes EURUSD down towards support at 1.3565, with sharp declines taking on 1.3485.
crossmarkets_0830_2
Equities – Dow Jones Industrial Average
The Dow Jones Industrial Average eased back from a descending trendline (which is currently at 13,289) on Thursday, ending the day down 0.38 percent at 13,238.73. This trendline has blocked gains for the equity index since late July, and the Dow’s hesitance to break above this level signals that price could be moving lower to target the 200 SMA at 12,892 once again. On the other hand, a surge through that resistance level would aim to complete a 78.6 percent retracement of the decline from the August 17th high at 13,665, but this will only be possible if credit jitters subside. While US equities face event risk from Friday’s personal spending and core CPE releases, Fed Chairman Ben Bernanke’s speech at 14:00 GMT has the potential to set the tone for price action throughout the day. Traders will be looking for any clues to the bank’s next policy decision, and comments signaling a potential rate cut on September 18th could send the Dow skyrocketing. On the other hand, if Bernanke clearly avoids discussing the Fed’s next move or suggests that the bank will not cut interest rates, equities could sell off quickly and take the Dow down to test the 200 SMA at 12,892.
crossmarkets_0830_3
Hungary 2Q Fixed Cap Invest +0.1%QQ, -0.4%YY
Of DOW JONES NEWSWIRES
BUDAPEST (Dow Jones)--Investment into fixed capital assets swung into a year-on-year decline in Hungary in the second quarter due to a sharp fall in public investment, the central statistics office, KSH, said Friday.
Investment into fixed capital assets fell 0.4% on the year in the second quarter in volume terms, after rising 0.8% on the year in the first quarter.
On the quarter, it rose 0.1% in seasonally adjusted terms between April and June after increasing 2.6% in the first three months of the year.
Fixed capital investment in the first half of 2007 was 0.2% higher on the year in volume terms.
(MORE TO FOLLOW) Dow Jones Newswires
BUDAPEST (Dow Jones)--Investment into fixed capital assets swung into a year-on-year decline in Hungary in the second quarter due to a sharp fall in public investment, the central statistics office, KSH, said Friday.
Investment into fixed capital assets fell 0.4% on the year in the second quarter in volume terms, after rising 0.8% on the year in the first quarter.
On the quarter, it rose 0.1% in seasonally adjusted terms between April and June after increasing 2.6% in the first three months of the year.
Fixed capital investment in the first half of 2007 was 0.2% higher on the year in volume terms.
(MORE TO FOLLOW) Dow Jones Newswires
Thursday, August 30, 2007
Asian Stocks Gain on Esprit, Cnooc Earnings; BHP, Sony Rise
Aug. 30 (Bloomberg) -- Asian stocks rebounded as better-than- estimated earnings at Esprit Holdings Ltd. and Cnooc Ltd. boosted expectations for profit growth in the region.
Esprit, which sells clothes in more than 40 countries, surged to a record. Samsung Electronics Co. paced gains among semiconductor stocks after Seagate Technology, the world's biggest maker of hard-disk drives, boosted revenue forecasts.
``Earnings we've seen so far are upbeat, fueling positive sentiment in the market,'' said Mona Chung, who helps manage $2.5 billion at Daiwa Asset Management Ltd. in Hong Kong. ``There's a strong growth story in Esprit and we believe it's sustainable.''
The Morgan Stanley Capital International Asia-Pacific Index climbed 0.8 percent to 149.09 at 1:47 p.m. in Tokyo, following a 1.6 drop yesterday. Technology and materials stocks accounted for a third of today's gain.
The Nikkei 225 Stock Average added 1.1 percent, while Hong Kong's Hang Seng Index rose 2.1 percent. The Philippine Stock Exchange Index surged 3.5 percent, the region's biggest gain, after President Gloria Arroyo said the nation's economy grew faster than expected. All other benchmarks advanced.
BHP Billiton Ltd., Australia's biggest oil producer, climbed after the price of crude gained the most in a month. A decline in the yen helped lift Japanese exporters Sony Corp. and Nintendo Co. Industrial and Commercial Bank of China Ltd. rose on an acquisition.
Higher profits have helped ease concerns that a credit crisis stemming from U.S. subprime, or higher risk, mortgages would stunt growth in the world's largest economy. A sell-off last month erased at least $5.5 trillion from global equities.
`Good Shape'
Esprit jumped 7.5 percent to HK$112.50. Full-year profit rose 39 percent to HK$5.2 billion ($666 million) on higher sales in Europe, beating the HK$4.8 billion analysts in a Bloomberg News survey expected. Credit Suisse Group raised its share-price target on Esprit by 18 percent, a report today said.
``Strong corporate earnings provided a safety net for investors in the face of turmoil in the U.S. financial market,'' said Phil Chen, who manages $154 million at Grand Cathay Securities Investment Trust Co. in Taipei.
Cnooc Ltd., China's largest offshore oil producer, climbed 4 percent to HK$9.22 in Hong Kong. The company said first-half profit declined 11 percent, less than analysts estimated, as it reined in operating costs.
Net income slid to 14.6 billion yuan ($1.9 billion) from 16.3 billion yuan a year earlier, Cnooc said yesterday, reflecting lower average oil prices. Analysts in a Bloomberg survey had estimated a median 15 percent decline.
Uni-President Enterprises Corp., Taiwan's biggest processed food maker, was headed for a record close, jumping 6.9 percent to NT$36.25. Second-quarter profit more than doubled from a year earlier to NT$2.3 billion ($70 million).
Samsung, Miners
Samsung Electronics, the world's second-largest semiconductor maker, added 2.1 percent to 574,000 won, the most since Aug. 20. Hynix Semiconductor Inc., the second-largest memory-chip maker, climbed 3.4 percent to 33,800 won.
Intel Corp. and Dell Inc. rallied following Seagate's announcement, contributing to a 2.2 percent jump in the U.S. Standard & Poor's 500 Index yesterday. Profit in the three months ending Sept. 28 will be as much as 61 cents a share, compared with a previous projection of as much as 39 cents, Seagate said.
The company also said its first-quarter revenue will be as much as $3.25 billion, up from a previous forecast of up to $3 billion. Earnings growth at technology companies in the S&P 500 next year is expected to be the highest among 10 industry groups, according to a Bloomberg analyst survey compiled on Aug. 24.
BHP, Sony
BHP added 1.6 percent to A$37.65. Rio Tinto Group, the world's third-biggest mining company, gained 1.3 percent to A$91.29. PetroChina Co., China's largest oil producer, climbed 2.2 percent to HK$11.38 in Hong Kong.
A measure of six metals traded on the London Metal Exchange, including copper and nickel, yesterday climbed 0.6 percent. Crude oil in New York climbed 2.5 percent to $73.51, the biggest gain since July 27.
In Japan, Sony, the world's second-largest consumer electronics maker, added 1.3 percent to 5,300 yen, snapping a four-day, 3.5 percent slide. Nintendo, the largest maker of handheld game players, climbed 3.3 percent to 53,200 yen.
The yen weakened 1.7 percent against the dollar to 116.18 in New York yesterday, the biggest fall since January 2005. Versus the euro, the yen slumped 2.3 percent to 158.93, its steepest decline since January 2001. Japan's currency recently changed hands at 115.77 to the dollar and 158.14 versus the euro.
A weaker yen increases the value of Japanese exporters' dollar-denominated sales when converted into local currency.
Equine Influenza
``Seagate's profit announcement was positive,'' said Mitsushige Akino, who oversees $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``That, combined with the weaker yen, makes today a good day to be buying stocks.''
Industrial and Commercial Bank, the world's largest lender by market value, rose 2.9 percent to HK$5 in Hong Kong. The company agreed to buy a controlling stake in Macau's Seng Heng Bank for $582 million, ICBC's second overseas acquisition.
Among decliners today, Australian bookmakers Tabcorp Holdings Ltd. and Tattersall's Ltd. fell on concern Australia's A$15 billion ($12.3 billion) horse-race betting industry is under threat after a thoroughbred contracted equine influenza.
The outbreak was previously only reported in recreational horses. Tabcorp, Australia's biggest betting shop owner, fell 2 percent to A$15.10. Tattersall's, the country's second-largest wagering company, slid 7.1 percent to A$4.55.
Guangdong Midea Electric Appliances Co., China's largest publicly traded appliance maker by market value, slid 4.1 percent to 34.33 yuan. Regulators blocked Goldman Sachs Group Inc.'s plan to buy 10.7 percent of the company, Midea said.
Esprit, which sells clothes in more than 40 countries, surged to a record. Samsung Electronics Co. paced gains among semiconductor stocks after Seagate Technology, the world's biggest maker of hard-disk drives, boosted revenue forecasts.
``Earnings we've seen so far are upbeat, fueling positive sentiment in the market,'' said Mona Chung, who helps manage $2.5 billion at Daiwa Asset Management Ltd. in Hong Kong. ``There's a strong growth story in Esprit and we believe it's sustainable.''
The Morgan Stanley Capital International Asia-Pacific Index climbed 0.8 percent to 149.09 at 1:47 p.m. in Tokyo, following a 1.6 drop yesterday. Technology and materials stocks accounted for a third of today's gain.
The Nikkei 225 Stock Average added 1.1 percent, while Hong Kong's Hang Seng Index rose 2.1 percent. The Philippine Stock Exchange Index surged 3.5 percent, the region's biggest gain, after President Gloria Arroyo said the nation's economy grew faster than expected. All other benchmarks advanced.
BHP Billiton Ltd., Australia's biggest oil producer, climbed after the price of crude gained the most in a month. A decline in the yen helped lift Japanese exporters Sony Corp. and Nintendo Co. Industrial and Commercial Bank of China Ltd. rose on an acquisition.
Higher profits have helped ease concerns that a credit crisis stemming from U.S. subprime, or higher risk, mortgages would stunt growth in the world's largest economy. A sell-off last month erased at least $5.5 trillion from global equities.
`Good Shape'
Esprit jumped 7.5 percent to HK$112.50. Full-year profit rose 39 percent to HK$5.2 billion ($666 million) on higher sales in Europe, beating the HK$4.8 billion analysts in a Bloomberg News survey expected. Credit Suisse Group raised its share-price target on Esprit by 18 percent, a report today said.
``Strong corporate earnings provided a safety net for investors in the face of turmoil in the U.S. financial market,'' said Phil Chen, who manages $154 million at Grand Cathay Securities Investment Trust Co. in Taipei.
Cnooc Ltd., China's largest offshore oil producer, climbed 4 percent to HK$9.22 in Hong Kong. The company said first-half profit declined 11 percent, less than analysts estimated, as it reined in operating costs.
Net income slid to 14.6 billion yuan ($1.9 billion) from 16.3 billion yuan a year earlier, Cnooc said yesterday, reflecting lower average oil prices. Analysts in a Bloomberg survey had estimated a median 15 percent decline.
Uni-President Enterprises Corp., Taiwan's biggest processed food maker, was headed for a record close, jumping 6.9 percent to NT$36.25. Second-quarter profit more than doubled from a year earlier to NT$2.3 billion ($70 million).
Samsung, Miners
Samsung Electronics, the world's second-largest semiconductor maker, added 2.1 percent to 574,000 won, the most since Aug. 20. Hynix Semiconductor Inc., the second-largest memory-chip maker, climbed 3.4 percent to 33,800 won.
Intel Corp. and Dell Inc. rallied following Seagate's announcement, contributing to a 2.2 percent jump in the U.S. Standard & Poor's 500 Index yesterday. Profit in the three months ending Sept. 28 will be as much as 61 cents a share, compared with a previous projection of as much as 39 cents, Seagate said.
The company also said its first-quarter revenue will be as much as $3.25 billion, up from a previous forecast of up to $3 billion. Earnings growth at technology companies in the S&P 500 next year is expected to be the highest among 10 industry groups, according to a Bloomberg analyst survey compiled on Aug. 24.
BHP, Sony
BHP added 1.6 percent to A$37.65. Rio Tinto Group, the world's third-biggest mining company, gained 1.3 percent to A$91.29. PetroChina Co., China's largest oil producer, climbed 2.2 percent to HK$11.38 in Hong Kong.
A measure of six metals traded on the London Metal Exchange, including copper and nickel, yesterday climbed 0.6 percent. Crude oil in New York climbed 2.5 percent to $73.51, the biggest gain since July 27.
In Japan, Sony, the world's second-largest consumer electronics maker, added 1.3 percent to 5,300 yen, snapping a four-day, 3.5 percent slide. Nintendo, the largest maker of handheld game players, climbed 3.3 percent to 53,200 yen.
The yen weakened 1.7 percent against the dollar to 116.18 in New York yesterday, the biggest fall since January 2005. Versus the euro, the yen slumped 2.3 percent to 158.93, its steepest decline since January 2001. Japan's currency recently changed hands at 115.77 to the dollar and 158.14 versus the euro.
A weaker yen increases the value of Japanese exporters' dollar-denominated sales when converted into local currency.
Equine Influenza
``Seagate's profit announcement was positive,'' said Mitsushige Akino, who oversees $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``That, combined with the weaker yen, makes today a good day to be buying stocks.''
Industrial and Commercial Bank, the world's largest lender by market value, rose 2.9 percent to HK$5 in Hong Kong. The company agreed to buy a controlling stake in Macau's Seng Heng Bank for $582 million, ICBC's second overseas acquisition.
Among decliners today, Australian bookmakers Tabcorp Holdings Ltd. and Tattersall's Ltd. fell on concern Australia's A$15 billion ($12.3 billion) horse-race betting industry is under threat after a thoroughbred contracted equine influenza.
The outbreak was previously only reported in recreational horses. Tabcorp, Australia's biggest betting shop owner, fell 2 percent to A$15.10. Tattersall's, the country's second-largest wagering company, slid 7.1 percent to A$4.55.
Guangdong Midea Electric Appliances Co., China's largest publicly traded appliance maker by market value, slid 4.1 percent to 34.33 yuan. Regulators blocked Goldman Sachs Group Inc.'s plan to buy 10.7 percent of the company, Midea said.
Dollar remains higher at noon
THE dollar remained higher at noon after the release of balance of payments and capital expenditure figures for the June quarter.
At 12pm (AEST), the Australian dollar was trading at $US0.8194/99, up from yesterday's close of 0.8100/03.
During the morning session, it traded between a low of $US0.8175 and a high of 0.8241.
ABN AMRO currency strategist Gregg Gibbs said Australian dollar movements were relatively muted today following steep gains overnight, with the currency edging slightly lower from its opening level of $US0.8216/19 during the morning session.
The Australian dollar rose sharply overnight as confidence returned and the US stock market recovered the previous day's losses.
The Dow Jones Industrial Average jumped 247.44 points, or 1.90 per cent, to 13,289.29, while the Standard & Poor's 500 index climbed 31.4 points, or 2.18 per cent, to 1463.76.
"It's not really doing a great deal today to suggest that it is trading on the back of anything in particular," Mr Gibbs said.
He said financial sector news could be preventing the Australian dollar from further gains.
Adelaide Bank recently increased its interest rate for low-doc mortgages by 30 basis points, while Australian hedge fund manager Basis Capital filed for US bankruptcy protection for one of its funds exposed to US sub-prime mortgages.
"That might be keeping the market a little bit wary of the financial stress developing around the world," he said.
Mr Gibbs said strong capital expenditure figures released today could add to Australian dollar support.
New private capital expenditure rose 6.3 percent in real terms, seasonally adjusted, in the June quarter, which was better than expectations of a two per cent gain.
Meanwhile, the current account deficit widened to $15.998 billion in the June quarter, from $15.545 billion in the March quarter.
The median market forecast was for a deficit of $15.7 billion.
Mr Gibbs said the Australian dollar would this afternoon likely keep to its trading range of the last 24 hours between $US0.8126 and 0.8235.
The Australian bond market remained weaker at noon after tracking US Treasuries overnight as investors went seeking riskier assets amid the sharp rise in US stocks.
At 12pm, the yield on the Commonwealth Government February 2017 bond was at 5.945 per cent, up from yesterday's close of 5.863 per cent, while the August 2010 bond yield was at 6.210 per cent from 6.140 per cent.
The September 10-year bond futures contract was at 94.060, down from yesterday's close of 94.130, while the three-year contract was at 93.800 from 93.865.
At 12pm, the Reserve Bank of Australia's trade weighted index (TWI) was at 66.1, up from yesterday's close of 65.2.
At 12pm (AEST), the Australian dollar was trading at $US0.8194/99, up from yesterday's close of 0.8100/03.
During the morning session, it traded between a low of $US0.8175 and a high of 0.8241.
ABN AMRO currency strategist Gregg Gibbs said Australian dollar movements were relatively muted today following steep gains overnight, with the currency edging slightly lower from its opening level of $US0.8216/19 during the morning session.
The Australian dollar rose sharply overnight as confidence returned and the US stock market recovered the previous day's losses.
The Dow Jones Industrial Average jumped 247.44 points, or 1.90 per cent, to 13,289.29, while the Standard & Poor's 500 index climbed 31.4 points, or 2.18 per cent, to 1463.76.
"It's not really doing a great deal today to suggest that it is trading on the back of anything in particular," Mr Gibbs said.
He said financial sector news could be preventing the Australian dollar from further gains.
Adelaide Bank recently increased its interest rate for low-doc mortgages by 30 basis points, while Australian hedge fund manager Basis Capital filed for US bankruptcy protection for one of its funds exposed to US sub-prime mortgages.
"That might be keeping the market a little bit wary of the financial stress developing around the world," he said.
Mr Gibbs said strong capital expenditure figures released today could add to Australian dollar support.
New private capital expenditure rose 6.3 percent in real terms, seasonally adjusted, in the June quarter, which was better than expectations of a two per cent gain.
Meanwhile, the current account deficit widened to $15.998 billion in the June quarter, from $15.545 billion in the March quarter.
The median market forecast was for a deficit of $15.7 billion.
Mr Gibbs said the Australian dollar would this afternoon likely keep to its trading range of the last 24 hours between $US0.8126 and 0.8235.
The Australian bond market remained weaker at noon after tracking US Treasuries overnight as investors went seeking riskier assets amid the sharp rise in US stocks.
At 12pm, the yield on the Commonwealth Government February 2017 bond was at 5.945 per cent, up from yesterday's close of 5.863 per cent, while the August 2010 bond yield was at 6.210 per cent from 6.140 per cent.
The September 10-year bond futures contract was at 94.060, down from yesterday's close of 94.130, while the three-year contract was at 93.800 from 93.865.
At 12pm, the Reserve Bank of Australia's trade weighted index (TWI) was at 66.1, up from yesterday's close of 65.2.
DATA SNAP:Hungary July Producer Prices -2.8% YY Vs -2% June
Of DOW JONES NEWSWIRES
BUDAPEST (Dow Jones)--Hungarian industrial producer prices fell on the year in July after recording their first decline this year in June, data released by the Central Statistics Office KSH showed Thursday.
Industrial producer prices fell 2.8% on the year in July after a 2% fall in June. However, producer prices were 0.4% higher on the month in July.
The annual reading is slightly less than the median forecast of five analysts polled by Dow Jones Newswires for a fall of 3.0%.
(MORE TO FOLLOW) Dow Jones Newswires
BUDAPEST (Dow Jones)--Hungarian industrial producer prices fell on the year in July after recording their first decline this year in June, data released by the Central Statistics Office KSH showed Thursday.
Industrial producer prices fell 2.8% on the year in July after a 2% fall in June. However, producer prices were 0.4% higher on the month in July.
The annual reading is slightly less than the median forecast of five analysts polled by Dow Jones Newswires for a fall of 3.0%.
(MORE TO FOLLOW) Dow Jones Newswires
Tuesday, August 28, 2007
Currency Volatility Declines as Subprime Credit Concerns Wane
Volatility on currency options fell further from the eight-year high touched this month as concern eases that a U.S. housing slump is spreading.
JPMorgan Chase & Co.'s index of implied volatility on options for the most-traded currencies fell to 8.19 percent yesterday, down from 8.32 percent at the close of last week, and down 5.21 percentage points from 13.4 percent on Aug. 17, the highest since 1999. Implied volatility, a gauge of traders' expectations for future price swings on currencies, is a component of option prices.
The Federal Reserve cut by a half a percentage point on Aug. 17 the rate it charges banks borrow, to 5.75 percent, in an attempt to avert a credit crunch and restore investor confidence. Rising delinquencies on subprime mortgages forced two hedge funds managed by New York-based Bear Stearns Cos. to file for bankruptcy in July and other funds, including BNP Paribas SA in France, to halt withdrawals.
``The central banks told the markets that they were going to be involved and that things were going to be ok,'' said Evan Steed, head of currency options at TD Securities Inc. in Toronto. ``The huge panic that we had seen seems to be alleviated.''
Implied volatility on one-month dollar-yen options was at 12.18 percent yesterday in New York, down from 23.5 percent on Aug. 17, the highest since January 1999. Swings in the exchange rate increased as the yen rallied after investors, exiting prior bets the yen would fall, drove the currency to a 14-month high of 111.61 per U.S. dollar on Aug. 17. It traded at 115.87 per U.S. dollar yesterday.
U.S. Treasury three-month bills yields rose 25 basis points, or 0.25 percentage point, yesterday to 4.47 percent. On Aug. 20 they touched 2.505 percent, the lowest since February 2005 as investors sought the safety of government debt.
Volatility Decline Temporary
Sales of previously owned homes in the U.S. in July declined 0.2 percent, less than forecast, to an annual rate of 5.75 million, from 5.76 million in June, the National Association of Realtors said yesterday. New home sales unexpectedly rose in July for the second time this year, to an annual pace of 870,000, the Commerce Department said Aug. 24.
The decline in currency volatility may be temporary, until after the Sept. 1 Labor Day holiday, according to Tim Graf, derivatives strategist at Credit Suisse Holdings in New York.
``The subprime related credit issues are far from over,'' said Graf. ``For the next year or two, volatility should stay fairly elevated as people won't take risk for granted anymore. Actual volatility in the underlying currencies will stay high.''
A reduced certainty on the direction of interest rate changes by major central banks may increase swings in currencies.
ECB President Steps Back
European Central Bank President Jean- Claude Trichet stepped back yesterday from his earlier signal that interest rates will be increased next week, saying policy makers plan to wait before deciding whether financial market turbulence is hurting economic growth.
In his first public appearance since the market rout began, Trichet said in Budapest that the bank was not ``pre-committed'' to raising borrowing costs on Sept. 6. He avoided repeating his Aug. 2 statement that the ECB was monitoring inflation with ``strong vigilance,'' a phrase used to foreshadow previous rate increases.
``No-one can say with any certainty what any of these central banks will do,'' said Graf. ``This will provide volatility to the currency markets in the months ahead.''
Fed funds futures contracts yesterday showed traders see a 28 percent chance the Fed will lower its target for overnight bank lending to 4.75 percent from 5.25 percent at its next meeting on Sept. 18, down from 42 percent odds on Aug. 24.
JPMorgan Chase & Co.'s index of implied volatility on options for the most-traded currencies fell to 8.19 percent yesterday, down from 8.32 percent at the close of last week, and down 5.21 percentage points from 13.4 percent on Aug. 17, the highest since 1999. Implied volatility, a gauge of traders' expectations for future price swings on currencies, is a component of option prices.
The Federal Reserve cut by a half a percentage point on Aug. 17 the rate it charges banks borrow, to 5.75 percent, in an attempt to avert a credit crunch and restore investor confidence. Rising delinquencies on subprime mortgages forced two hedge funds managed by New York-based Bear Stearns Cos. to file for bankruptcy in July and other funds, including BNP Paribas SA in France, to halt withdrawals.
``The central banks told the markets that they were going to be involved and that things were going to be ok,'' said Evan Steed, head of currency options at TD Securities Inc. in Toronto. ``The huge panic that we had seen seems to be alleviated.''
Implied volatility on one-month dollar-yen options was at 12.18 percent yesterday in New York, down from 23.5 percent on Aug. 17, the highest since January 1999. Swings in the exchange rate increased as the yen rallied after investors, exiting prior bets the yen would fall, drove the currency to a 14-month high of 111.61 per U.S. dollar on Aug. 17. It traded at 115.87 per U.S. dollar yesterday.
U.S. Treasury three-month bills yields rose 25 basis points, or 0.25 percentage point, yesterday to 4.47 percent. On Aug. 20 they touched 2.505 percent, the lowest since February 2005 as investors sought the safety of government debt.
Volatility Decline Temporary
Sales of previously owned homes in the U.S. in July declined 0.2 percent, less than forecast, to an annual rate of 5.75 million, from 5.76 million in June, the National Association of Realtors said yesterday. New home sales unexpectedly rose in July for the second time this year, to an annual pace of 870,000, the Commerce Department said Aug. 24.
The decline in currency volatility may be temporary, until after the Sept. 1 Labor Day holiday, according to Tim Graf, derivatives strategist at Credit Suisse Holdings in New York.
``The subprime related credit issues are far from over,'' said Graf. ``For the next year or two, volatility should stay fairly elevated as people won't take risk for granted anymore. Actual volatility in the underlying currencies will stay high.''
A reduced certainty on the direction of interest rate changes by major central banks may increase swings in currencies.
ECB President Steps Back
European Central Bank President Jean- Claude Trichet stepped back yesterday from his earlier signal that interest rates will be increased next week, saying policy makers plan to wait before deciding whether financial market turbulence is hurting economic growth.
In his first public appearance since the market rout began, Trichet said in Budapest that the bank was not ``pre-committed'' to raising borrowing costs on Sept. 6. He avoided repeating his Aug. 2 statement that the ECB was monitoring inflation with ``strong vigilance,'' a phrase used to foreshadow previous rate increases.
``No-one can say with any certainty what any of these central banks will do,'' said Graf. ``This will provide volatility to the currency markets in the months ahead.''
Fed funds futures contracts yesterday showed traders see a 28 percent chance the Fed will lower its target for overnight bank lending to 4.75 percent from 5.25 percent at its next meeting on Sept. 18, down from 42 percent odds on Aug. 24.
China yuan central parity rate set at record 7.5545 to dollar vs 7.5629
BEIJING (XFN-ASIA) - The central bank has set the yuan central parity rate at a record 7.5545 to the dollar, according to the China Foreign Exchange Trading System.
The rate, published on the official Chinamoney website (www.chinamoney.com.cn), compares with the midpoint of 7.5629 set the previous trading day.
The People's Bank of China (PBoC) started setting a daily central parity rate on Jan 4, 2006.
On July 21, 2005, China freed the yuan from its long-standing peg to the dollar in favor of a trade-weighted basket of currencies, and allowed the local unit to appreciate by 2.1 pct. The PBoC allows a trading band of 0.5 pct on either side of the central parity rate.
The rate, published on the official Chinamoney website (www.chinamoney.com.cn), compares with the midpoint of 7.5629 set the previous trading day.
The People's Bank of China (PBoC) started setting a daily central parity rate on Jan 4, 2006.
On July 21, 2005, China freed the yuan from its long-standing peg to the dollar in favor of a trade-weighted basket of currencies, and allowed the local unit to appreciate by 2.1 pct. The PBoC allows a trading band of 0.5 pct on either side of the central parity rate.
BOJ Board Agrees In Jul To Check Risks Before Action
TOKYO -(Dow Jones)- Most Bank of Japan board members agreed at their July policy setting meeting that the central bank should wait and see whether their April forecast for the nation's economy to achieve about 2% growth materializes before raising interest rates.
Meeting minutes released by the BOJ Tuesday showed that policy makers were in agreement that the economy and prices continue to move in line with their forecast, suggesting they could consider raising interest rates if conditions warrant a hike in the coming months.
"The Bank should continue to examine various indicators and other relevant information carefully to be more certain whether the April forecast is likely to materialize and identify the risk factors," the minutes showed.
The policymakers voted by 8-to-1 to keep monetary policy steady at the July meeting in the first split vote by the board members in five months.
The minutes also confirmed that Atsushi Mizuno, who is regarded as the most hawkish member, was the sole member against keeping policy steady.
He proposed to lift the key interest rate from 0.50% to possibly 0.75% at the July meeting.
"Economic developments have deviated slightly above or at least been in line with the April forecast and in addition, the probability that the downside risks mentioned in the April outlook report would materialize remained low," the minutes quoted Mizuno as saying.
The minutes showed that board members thought it was important to explain at every opportunity the BOJ's basic thinking on how it conducts monetary policy and to clearly explain its assessment of both current and future developments in economic activity and prices to prevent market players from forming preconceived ideas about the timing of policy changes.
On the subject of inflation, the board members maintained the view that on-year changes in core consumer prices are expected to stay in positive territory, judging from a tight labor market and a positive gap between supply and demand in the economy.
However, one member noted that "attention should be paid to the risk that inflationary pressure might start to grow stronger than expected." But the minutes showed that the view wasn't shared by the rest of the nine-board members.
Global Econ May Worsen If Subprime Affects Credit Mtks
The BOJ policy makers maintained the view that the U.S. economy will likely achieve a soft-landing toward the end of the year, according to the minutes.
But some members expressed concerns about the future economy, saying "if subprime loan issues seriously affect credit markets - although this is not likely to happen - the possibility could not ruled out that the economic and financial situation worldwide, including in Japan, would be negatively affected."
One member said that adjustments in the U.S. housing market have become less important for Japan's monetary policy, as the issue has become a problem limited to certain areas of the financial sector rather than one involving economic fundamentals.
The minutes showed that the BOJ policy makers see the development of the subprime loan issue and the impact on the economy and global markets as holding the key to the BOJ's rate hike decision.
A representative from the Ministry of Finance, as he did at the June meeting, emphasized the need for the BOJ to carefully assess prices.
He added that the government hopes the central bank will continue to support the economy through monetary policy, suggesting the government doesn't want the BOJ to raise interest rates anytime soon.
Meeting minutes released by the BOJ Tuesday showed that policy makers were in agreement that the economy and prices continue to move in line with their forecast, suggesting they could consider raising interest rates if conditions warrant a hike in the coming months.
"The Bank should continue to examine various indicators and other relevant information carefully to be more certain whether the April forecast is likely to materialize and identify the risk factors," the minutes showed.
The policymakers voted by 8-to-1 to keep monetary policy steady at the July meeting in the first split vote by the board members in five months.
The minutes also confirmed that Atsushi Mizuno, who is regarded as the most hawkish member, was the sole member against keeping policy steady.
He proposed to lift the key interest rate from 0.50% to possibly 0.75% at the July meeting.
"Economic developments have deviated slightly above or at least been in line with the April forecast and in addition, the probability that the downside risks mentioned in the April outlook report would materialize remained low," the minutes quoted Mizuno as saying.
The minutes showed that board members thought it was important to explain at every opportunity the BOJ's basic thinking on how it conducts monetary policy and to clearly explain its assessment of both current and future developments in economic activity and prices to prevent market players from forming preconceived ideas about the timing of policy changes.
On the subject of inflation, the board members maintained the view that on-year changes in core consumer prices are expected to stay in positive territory, judging from a tight labor market and a positive gap between supply and demand in the economy.
However, one member noted that "attention should be paid to the risk that inflationary pressure might start to grow stronger than expected." But the minutes showed that the view wasn't shared by the rest of the nine-board members.
Global Econ May Worsen If Subprime Affects Credit Mtks
The BOJ policy makers maintained the view that the U.S. economy will likely achieve a soft-landing toward the end of the year, according to the minutes.
But some members expressed concerns about the future economy, saying "if subprime loan issues seriously affect credit markets - although this is not likely to happen - the possibility could not ruled out that the economic and financial situation worldwide, including in Japan, would be negatively affected."
One member said that adjustments in the U.S. housing market have become less important for Japan's monetary policy, as the issue has become a problem limited to certain areas of the financial sector rather than one involving economic fundamentals.
The minutes showed that the BOJ policy makers see the development of the subprime loan issue and the impact on the economy and global markets as holding the key to the BOJ's rate hike decision.
A representative from the Ministry of Finance, as he did at the June meeting, emphasized the need for the BOJ to carefully assess prices.
He added that the government hopes the central bank will continue to support the economy through monetary policy, suggesting the government doesn't want the BOJ to raise interest rates anytime soon.
Wednesday, August 22, 2007
Sterling Mixed Against Majors On Tuesday [GBP/USD]
Tuesday, August 21, 2007 2:38:21 PM - The British currency moved little against its world counterparts in action on Tuesday afternoon in New York. The sterling traded with little economic data from the area.
In trading against the European currency on Tuesday, the British pound saw mixed movement. The currency dropped sharply in the early hours of the day past 0.6810 and held near that mark into the early afternoon. However, the pound earned back most of its losses as action progressed to move at 0.6793 by 2:25PM EST. Traders considered data from the area that showed the Euro zone trade surplus widened to 7.8 billion euros in June from the 1.7 billion euros seen in the prior month. Meanwhile, the ZEW Economic Sentiment Indicator for Germany fell 17.3 points to minus 6.9 points in August, following 10.4 points recorded in the prior month.
Versus its American counterpart in action on Tuesday, the British currency saw little direction through to the afternoon. The sterling held in a range with a high of 1.9851 and a low of 1.9747. On the whole, the British currency remains near a two month low against the dollar.
The British currency moved little against its Japanese counterpart in trading on Tuesday. By the afternoon, the pound had bounced between a high of 227.60 and a low of 225.73. The pair moved as data showed Japan's all industry index rose 0.2% in June to 107.5, while Japanese crude steel production climbed 1.5% year-over-year in July.
In trading against the European currency on Tuesday, the British pound saw mixed movement. The currency dropped sharply in the early hours of the day past 0.6810 and held near that mark into the early afternoon. However, the pound earned back most of its losses as action progressed to move at 0.6793 by 2:25PM EST. Traders considered data from the area that showed the Euro zone trade surplus widened to 7.8 billion euros in June from the 1.7 billion euros seen in the prior month. Meanwhile, the ZEW Economic Sentiment Indicator for Germany fell 17.3 points to minus 6.9 points in August, following 10.4 points recorded in the prior month.
Versus its American counterpart in action on Tuesday, the British currency saw little direction through to the afternoon. The sterling held in a range with a high of 1.9851 and a low of 1.9747. On the whole, the British currency remains near a two month low against the dollar.
The British currency moved little against its Japanese counterpart in trading on Tuesday. By the afternoon, the pound had bounced between a high of 227.60 and a low of 225.73. The pair moved as data showed Japan's all industry index rose 0.2% in June to 107.5, while Japanese crude steel production climbed 1.5% year-over-year in July.
Japanese Currency Moves Little Against Majors Tuesday Afternoon [USD/JPY]
Tuesday, August 21, 2007 2:43:43 PM - The Japanese currency was mixed against its major counterparts in trading on Tuesday afternoon in New York. The yen traded as data from Japan showed Japan's all industry index rose 0.2% in June to 107.5, while Japanese crude steel production climbed 1.5% year-over-year in July.
The Japanese currency moved little against its British counterpart in trading on Tuesday. By the afternoon, the yen had bounced between a low of 227.60 and a high of 225.73. In general, the yen remains near an eight month high against the pound.
Versus the euro, the Japanese currency saw choppy action into the mid afternoon trading on Tuesday. The yen bounced between a low of 154.99 and a high of 153.71 as action progressed. Traders considered data that showed the Euro zone trade surplus widened to 7.8 billion euros in June from the 1.7 billion euros seen in the prior month. Meanwhile, the ZEW Economic Sentiment Indicator for Germany fell 17.3 points to minus 6.9 points in August, following 10.4 points recorded in the prior month.
The yen was mixed against its American counterpart in action on Tuesday afternoon. The Japanese currency held in a range between a high of 114.10 and a low of 114.70. The Japanese yen remains near its yearly high against the buck.
The Japanese currency moved little against its British counterpart in trading on Tuesday. By the afternoon, the yen had bounced between a low of 227.60 and a high of 225.73. In general, the yen remains near an eight month high against the pound.
Versus the euro, the Japanese currency saw choppy action into the mid afternoon trading on Tuesday. The yen bounced between a low of 154.99 and a high of 153.71 as action progressed. Traders considered data that showed the Euro zone trade surplus widened to 7.8 billion euros in June from the 1.7 billion euros seen in the prior month. Meanwhile, the ZEW Economic Sentiment Indicator for Germany fell 17.3 points to minus 6.9 points in August, following 10.4 points recorded in the prior month.
The yen was mixed against its American counterpart in action on Tuesday afternoon. The Japanese currency held in a range between a high of 114.10 and a low of 114.70. The Japanese yen remains near its yearly high against the buck.
Mexico 1H Foreign Direct Invest Up 52.4% To $13.24B
Foreign direct investment in Mexico rose by 52.4% in the first half of this year to $13.24 billion, the Economy Ministry said Tuesday.
Deputy Economy Minister Carlos Arce said at a press conference that the investment was the most ever for the first half of a year, and that the ministry has raised its estimate for full-year FDI to $23 billion from its previous forecast of $18.3 billion.
That would be the second-largest amount of foreign direct investment ever, he said.
Mexico's foreign direct investment in 2001 was about $27 billion, when Citigroup Inc. (C) bought Mexico's Banamex for $12.5 billion.
Arce said the latest figures indicate "that the management of the economy is correct, that investors have confidence, and that they see Mexico as an attractive country."
The ministry is constantly revising its historical figures, and the first-half investment number is up 39.2% from the $9.51 billion that has been registered for the first half of 2006 through the end of August, Arce said.
The ministry said that in the first six months of this year, 43.3% of the foreign direct investment, or $5.74 billion, was new investment, while 35.4%, or $4.69 billion, was transfers among companies, and 21.2%, or $2.81 billion, was due to reinvestment of profits.
The U.S. was the main source of FDI in the first half, with 60.7%, followed by Spain.
Of the total, 44.2% went into manufacturing, 29% into financial services, and 8.9% into commerce, the ministry reported.
Deputy Economy Minister Carlos Arce said at a press conference that the investment was the most ever for the first half of a year, and that the ministry has raised its estimate for full-year FDI to $23 billion from its previous forecast of $18.3 billion.
That would be the second-largest amount of foreign direct investment ever, he said.
Mexico's foreign direct investment in 2001 was about $27 billion, when Citigroup Inc. (C) bought Mexico's Banamex for $12.5 billion.
Arce said the latest figures indicate "that the management of the economy is correct, that investors have confidence, and that they see Mexico as an attractive country."
The ministry is constantly revising its historical figures, and the first-half investment number is up 39.2% from the $9.51 billion that has been registered for the first half of 2006 through the end of August, Arce said.
The ministry said that in the first six months of this year, 43.3% of the foreign direct investment, or $5.74 billion, was new investment, while 35.4%, or $4.69 billion, was transfers among companies, and 21.2%, or $2.81 billion, was due to reinvestment of profits.
The U.S. was the main source of FDI in the first half, with 60.7%, followed by Spain.
Of the total, 44.2% went into manufacturing, 29% into financial services, and 8.9% into commerce, the ministry reported.
Pound Drops on Concern Credit Market Crisis Spreading to U.K.
Aug. 21 (Bloomberg) -- The pound dropped against the euro on concern the credit-market crisis is spreading to Europe's second- biggest economy.
The pound held near a three-month low reached yesterday as Odey Asset Management, a London-based hedge fund, reported a fall in profits, and after hedge fund manager Solent Capital Partners LLP said it may be forced to sell assets after it was unable to borrow in the commercial-paper market yesterday.
``The markets are really nervous and in that environment stories in the press about U.K. institutions exposed to U.S. subprime losses don't help,'' said Martin McMahon, a currency strategist at Credit Suisse Group in Zurich. ``Nobody really knows what anyone else has on their balance sheets.''
Against the euro the pound dropped to 68.02 pence by 5:43 p.m. in London, from 67.79 pence yesterday, when it reached the lowest since May 22.
The U.K. currency also fell to $1.9817, near a two-month low, from $1.9878 on Aug. 20.
Britain's currency extended its decline after the Bank of England said it loaned 314 million pounds ($621 million) from its standing facility. That's the first time a commercial bank has asked for additional money since July 17.
The standing facility allows U.K. banks to borrow from the BOE at 1 percentage point above the benchmark interest rate, currently at 5.75 percent.
Corporate Bond Risk
The risk of owning European corporate bonds rose, credit- default swaps trading showed, on concern money markets won't refinance about $550 billion of commercial paper coming due, forcing investors to sell assets.
Contracts on the iTraxx Europe Index rose 0.75 basis point to 49 basis points, JPMortgan Chase & Co. prices show.
The pound remained lower versus the dollar after U.S. Treasury Secretary Henry Paulson said market volatility and concern about subprime mortgages will ``take time'' to subside.
``You're going to see liquidity return to normal,'' Paulson said in a CNBC interview from Washington.
Paulson is meeting with Fed Chairman Ben S. Bernanke and Senate Banking Committee Chairman Christopher Dodd today to discuss how to handle problems roiling the credit market.
Gilts advanced, rising with European bonds and Treasuries, as a decline in stocks stoked demand for the safest assets.
The yield on the 4 percent gilt due September 2016 fell 6 basis points to 5.00 percent, while the yield on the 4 percent note maturing March 2009 slipped 8 basis points to 5.26 percent. Yields move inversely to bond prices.
The pound held near a three-month low reached yesterday as Odey Asset Management, a London-based hedge fund, reported a fall in profits, and after hedge fund manager Solent Capital Partners LLP said it may be forced to sell assets after it was unable to borrow in the commercial-paper market yesterday.
``The markets are really nervous and in that environment stories in the press about U.K. institutions exposed to U.S. subprime losses don't help,'' said Martin McMahon, a currency strategist at Credit Suisse Group in Zurich. ``Nobody really knows what anyone else has on their balance sheets.''
Against the euro the pound dropped to 68.02 pence by 5:43 p.m. in London, from 67.79 pence yesterday, when it reached the lowest since May 22.
The U.K. currency also fell to $1.9817, near a two-month low, from $1.9878 on Aug. 20.
Britain's currency extended its decline after the Bank of England said it loaned 314 million pounds ($621 million) from its standing facility. That's the first time a commercial bank has asked for additional money since July 17.
The standing facility allows U.K. banks to borrow from the BOE at 1 percentage point above the benchmark interest rate, currently at 5.75 percent.
Corporate Bond Risk
The risk of owning European corporate bonds rose, credit- default swaps trading showed, on concern money markets won't refinance about $550 billion of commercial paper coming due, forcing investors to sell assets.
Contracts on the iTraxx Europe Index rose 0.75 basis point to 49 basis points, JPMortgan Chase & Co. prices show.
The pound remained lower versus the dollar after U.S. Treasury Secretary Henry Paulson said market volatility and concern about subprime mortgages will ``take time'' to subside.
``You're going to see liquidity return to normal,'' Paulson said in a CNBC interview from Washington.
Paulson is meeting with Fed Chairman Ben S. Bernanke and Senate Banking Committee Chairman Christopher Dodd today to discuss how to handle problems roiling the credit market.
Gilts advanced, rising with European bonds and Treasuries, as a decline in stocks stoked demand for the safest assets.
The yield on the 4 percent gilt due September 2016 fell 6 basis points to 5.00 percent, while the yield on the 4 percent note maturing March 2009 slipped 8 basis points to 5.26 percent. Yields move inversely to bond prices.
Canada dollar down on inflation numbers
The Canadian dollar was down on Tuesday as slim gains after domestic inflation came in as expected were not enough to erase overnight losses.
Domestic bond prices remained higher as fears about the credit market lingered, while the inflation data made the idea of a Bank of Canada rate hike in September seem unlikely.
At 7:50 a.m. ET the Canadian unit was at $1.0600 to the U.S. dollar, or US94.34 cents, up from pre-data levels around $1.0613 to the U.S. dollar, or US94.22 cents. But it was below its Monday close of US$1.0541 to the U.S. dollar, or US94.87 cents.
The inflation figures helped comfort a market that had been mulling if a much weaker report might prompt talk of a Bank of Canada rate cut. Statistics Canada said Canada's annual inflation rate was 2.2% in July, while the core rate fell to 2.3%, exactly as expected by analysts.
"Not much to say really, all the data came out as expected across the board on a headline and core basis," said George Davis, chief technical strategist, at RBC Capital Markets. "So we haven't really seen much of a significant reaction in the currency."
Davis suggested it is "steady as she goes" for the Bank of Canada, which he expects will not hike rates next month.
But the modest boost to the Canadian dollar from the data was not enough to help it reverse losses overnight, when the currency fell to a low of $1.0637 to the U.S. dollar, or US94.01 cents.
Concerns about the credit crunch and oil prices that extended losses to below US$71 a barrel as Hurricane Dean was expected to spare the U.S. Gulf Coast are still weighing on the currency.
The market will now focus on Canadian retail sales data due at 8:30 a.m. Retail sales are expected to drop 0.5% in June after an unexpectedly strong a 2.8% gain in May.
BONDS KEEP HIGHER
Canadian bond prices remained higher after the domestic inflation report.
The central bank had been widely expected to lift its key rate to 4.75% next month, but the latest market turmoil has made that unlikely.
The two-year bond rose 5 cents to $99.46 to yield 4.065%, while the 10-year bond increased 23 cents to $97.27 to yield 4.345%.
The yield spread between the two-year and 10-year bond moved to 28.2 basis points from 27.0 at the previous close.
The 30-year bond rose 3 cents to $109.33 to yield 4.432%. In the United States, the 30-year treasury yielded 4.962%.
The three-month when-issued T-bill yielded 4.15%, down from 4.17% at the previous close.
Domestic bond prices remained higher as fears about the credit market lingered, while the inflation data made the idea of a Bank of Canada rate hike in September seem unlikely.
At 7:50 a.m. ET the Canadian unit was at $1.0600 to the U.S. dollar, or US94.34 cents, up from pre-data levels around $1.0613 to the U.S. dollar, or US94.22 cents. But it was below its Monday close of US$1.0541 to the U.S. dollar, or US94.87 cents.
The inflation figures helped comfort a market that had been mulling if a much weaker report might prompt talk of a Bank of Canada rate cut. Statistics Canada said Canada's annual inflation rate was 2.2% in July, while the core rate fell to 2.3%, exactly as expected by analysts.
"Not much to say really, all the data came out as expected across the board on a headline and core basis," said George Davis, chief technical strategist, at RBC Capital Markets. "So we haven't really seen much of a significant reaction in the currency."
Davis suggested it is "steady as she goes" for the Bank of Canada, which he expects will not hike rates next month.
But the modest boost to the Canadian dollar from the data was not enough to help it reverse losses overnight, when the currency fell to a low of $1.0637 to the U.S. dollar, or US94.01 cents.
Concerns about the credit crunch and oil prices that extended losses to below US$71 a barrel as Hurricane Dean was expected to spare the U.S. Gulf Coast are still weighing on the currency.
The market will now focus on Canadian retail sales data due at 8:30 a.m. Retail sales are expected to drop 0.5% in June after an unexpectedly strong a 2.8% gain in May.
BONDS KEEP HIGHER
Canadian bond prices remained higher after the domestic inflation report.
The central bank had been widely expected to lift its key rate to 4.75% next month, but the latest market turmoil has made that unlikely.
The two-year bond rose 5 cents to $99.46 to yield 4.065%, while the 10-year bond increased 23 cents to $97.27 to yield 4.345%.
The yield spread between the two-year and 10-year bond moved to 28.2 basis points from 27.0 at the previous close.
The 30-year bond rose 3 cents to $109.33 to yield 4.432%. In the United States, the 30-year treasury yielded 4.962%.
The three-month when-issued T-bill yielded 4.15%, down from 4.17% at the previous close.
Thursday, August 16, 2007
Consistent Stand
The markets were waiting for a strong hit, which will navigate markets back into direction and the trend will defined by economic fundamentals; today the second major inflation indicator that has the focus was released at last...
The CPI data retained market calmness more or less and was not as investors hoped to acquire abnormal profits; yet on the other hand they provided the final touch to the American economy story.
Today data showed that Core prices on the consumer level in the month of July did not gain form the previous month coming in at 0.2% and 2.2% on the year. Meanwhile over all prices added 0.1% down form 0.2 percent in June affected by lower oil prices and transportation. The stability of core readings were an additional entry to the lost and forgotten petition that inflation in no longer a priority and should not be referred to as the predominant concern.
Despite that the data did not shake markets quite strong yet remains that the actual liquidity in the market and the fed contributing to the intervention seems more of a written confession that the sub-prime mortgages are of a predicament facing the federal government; one problem that needs to be addresses and by an induced rate cut in the US market.
With dragged tired growth levels which affected spending levels that the American economy has lived through since the first quarter of this year. All combined affected industrial production levels and the dollar's FX rates, yet that boosted exports from the greenback nation. We say the evidence in yesterday's report which affected inventories and helped production wheel to speed back up, as July's Industrial Production gained 0.3% from 0.5% previous while the capacity utilization inclined to 81.9% from 81.7 percent previous. While the NY Manufacturing Index for August fell to 25.1 slightly from 26.5, nevertheless expectations were much worse at 18.5.
Despite the comeback in the industrial sector which we see as a short to last spike, it will not help the falling economy on its own back on track; all are combined now to face a rate cut to be seen by the Fed. The question remains will their actually be a rate cut in the upcoming meeting?
The CPI data retained market calmness more or less and was not as investors hoped to acquire abnormal profits; yet on the other hand they provided the final touch to the American economy story.
Today data showed that Core prices on the consumer level in the month of July did not gain form the previous month coming in at 0.2% and 2.2% on the year. Meanwhile over all prices added 0.1% down form 0.2 percent in June affected by lower oil prices and transportation. The stability of core readings were an additional entry to the lost and forgotten petition that inflation in no longer a priority and should not be referred to as the predominant concern.
Despite that the data did not shake markets quite strong yet remains that the actual liquidity in the market and the fed contributing to the intervention seems more of a written confession that the sub-prime mortgages are of a predicament facing the federal government; one problem that needs to be addresses and by an induced rate cut in the US market.
With dragged tired growth levels which affected spending levels that the American economy has lived through since the first quarter of this year. All combined affected industrial production levels and the dollar's FX rates, yet that boosted exports from the greenback nation. We say the evidence in yesterday's report which affected inventories and helped production wheel to speed back up, as July's Industrial Production gained 0.3% from 0.5% previous while the capacity utilization inclined to 81.9% from 81.7 percent previous. While the NY Manufacturing Index for August fell to 25.1 slightly from 26.5, nevertheless expectations were much worse at 18.5.
Despite the comeback in the industrial sector which we see as a short to last spike, it will not help the falling economy on its own back on track; all are combined now to face a rate cut to be seen by the Fed. The question remains will their actually be a rate cut in the upcoming meeting?
Helicopter Ben Faces His First Financial Crisis: What Will He Do?
It appears that no Federal Reserve Chairman is able to escape the first year curse. Although we are a few months beyond the first year mark of Ben Bernanke's term, the current credit crunch has been slowly gnawing at the economy since the beginning of the year. In the past three weeks, we have seen a drastic shift in investor appetite. The Dow has plunged 1000 points at its low point this morning, two year Treasury yields hit an 18 month low, while carry trades as a basket have fallen over 6 percent, which is the fourth largest drawdown since the inception of the Euro.
As risk aversion rises, speculators and investors have been liquidating out of their risky positions and moving back to cash. The lack of buyers across the markets has forced hedge funds to freeze redemptions and mortgage lenders to report major losses. For the credit market, this drove short term interest rates to six year highs, forcing central banks around the world to respond with massive liquidity injections.
What is the First Year Curse?
Since 1970, every Fed Chairman that assumed the top job has faced a major crisis shortly after entering office. According to Toni Straka of Prudent Investor, “Arthur F. Burns, chairman from February 1, 1970, climbed the top chair only to oversee the beginning of the 1970's bear market, the closing of the gold window and the first oil shock in 1973. When he stepped down on August 6, 1979, his successor Paul A. Volcker had to fight double digit inflation with the highest Fed Funds rates seen ever and through his tightening managed to turn the economic downturn into only an on-and-off recession from 1979 to 1982 with GDP never declining more than a quarter in a row.” Greenspan himself had to deal with the stock market crash of 1987 and now Bernanke is faced with his own credit and liquidity crisis. The markets rely on him to be as successful as his predecessors.
Helicopter Ben Showers the Markets with Liquidity
In response to the crisis, the Federal Reserve and the European Central Bank have collectively added at least $350 billion of temporary reserves into the banking system. It is worth noting that the Federal Reserve was not the only central bank to take this action, as the European Central Bank, Bank of Japan, Reserve Bank of Australia, and the Bank of Canada all enacted similar measures. This is the largest amount of liquidity injection since September 11, 2001. This injection brought interest rates down significantly, helping to give banks a cheap source of funding to meet their financial obligations. To put this into perspective, overnight Federal funds rates have traded as high as 6 percent to below 1 percent in late afternoon trading over the past few days. They are now back at around 5.00 percent. Whenever there is a liquidity problem, ensuring an ample supply of reserves is a central bank's top priority. This is especially true for Helicopter Ben who earned his title by saying in a speech in 2002 that if interest rates fell to zero in a weak economy, he would drop money from helicopters into the banking system to keep it going. This was in reference to the price phenomenon plaguing Japan at the time, which sparked concerns that slowing inflation in the US could lead to the same situation (for the entire speech, click here).
Bernanke also penned a publication titled, Essays on the Great Depression (2004). One of the key points in his book is that the Federal Reserve essentially caused the Great Depression because they failed to increase the money supply, as a run on the dollar depleted its value rapidly and led to deflation. He certainly lived up to that reputation, but will the liquidation be enough?
Is an Interest Rate Cut Next?
Although the Federal Reserve refrained from injecting further liquidity into the financial system on Tuesday, they added $7 billion in overnight reserves this morning. It appears that the worst is not behind us and credit markets have not normalized as much as ECB President Trichet indicated yesterday. Central bankers continue to pump money into the system and if the problems in the credit markets continue to exacerbate, which they could once these hedge funds begin to report losses the next option for the Fed would have to be an interest rate cut. Today is what everyone is calling the “red letter day” because it is the last opportunity for investors to request redemptions by the end of September based upon the standard 45 days notice rule. The expectation is that many investors will be looking to withdraw and funds will need to raise cash to meet those withdrawals. With many companies refusing to lend out cash, the only way to raise cash would be through further asset liquidation. Large scale redemptions could continue to weigh on the equity and bond markets in the weeks to come. The markets have already priced in a 100 percent chance of an interest rate over the next 2 months with the possibility of 50bp of easing by the end of the year. An interest rate cut would strip the US dollar of its safe haven status. We do not expect Bernanke to be too reluctant about lowering rates since this may be the only to restore confidence to the markets.
As risk aversion rises, speculators and investors have been liquidating out of their risky positions and moving back to cash. The lack of buyers across the markets has forced hedge funds to freeze redemptions and mortgage lenders to report major losses. For the credit market, this drove short term interest rates to six year highs, forcing central banks around the world to respond with massive liquidity injections.
What is the First Year Curse?
Since 1970, every Fed Chairman that assumed the top job has faced a major crisis shortly after entering office. According to Toni Straka of Prudent Investor, “Arthur F. Burns, chairman from February 1, 1970, climbed the top chair only to oversee the beginning of the 1970's bear market, the closing of the gold window and the first oil shock in 1973. When he stepped down on August 6, 1979, his successor Paul A. Volcker had to fight double digit inflation with the highest Fed Funds rates seen ever and through his tightening managed to turn the economic downturn into only an on-and-off recession from 1979 to 1982 with GDP never declining more than a quarter in a row.” Greenspan himself had to deal with the stock market crash of 1987 and now Bernanke is faced with his own credit and liquidity crisis. The markets rely on him to be as successful as his predecessors.
Helicopter Ben Showers the Markets with Liquidity
In response to the crisis, the Federal Reserve and the European Central Bank have collectively added at least $350 billion of temporary reserves into the banking system. It is worth noting that the Federal Reserve was not the only central bank to take this action, as the European Central Bank, Bank of Japan, Reserve Bank of Australia, and the Bank of Canada all enacted similar measures. This is the largest amount of liquidity injection since September 11, 2001. This injection brought interest rates down significantly, helping to give banks a cheap source of funding to meet their financial obligations. To put this into perspective, overnight Federal funds rates have traded as high as 6 percent to below 1 percent in late afternoon trading over the past few days. They are now back at around 5.00 percent. Whenever there is a liquidity problem, ensuring an ample supply of reserves is a central bank's top priority. This is especially true for Helicopter Ben who earned his title by saying in a speech in 2002 that if interest rates fell to zero in a weak economy, he would drop money from helicopters into the banking system to keep it going. This was in reference to the price phenomenon plaguing Japan at the time, which sparked concerns that slowing inflation in the US could lead to the same situation (for the entire speech, click here).
Bernanke also penned a publication titled, Essays on the Great Depression (2004). One of the key points in his book is that the Federal Reserve essentially caused the Great Depression because they failed to increase the money supply, as a run on the dollar depleted its value rapidly and led to deflation. He certainly lived up to that reputation, but will the liquidation be enough?
Is an Interest Rate Cut Next?
Although the Federal Reserve refrained from injecting further liquidity into the financial system on Tuesday, they added $7 billion in overnight reserves this morning. It appears that the worst is not behind us and credit markets have not normalized as much as ECB President Trichet indicated yesterday. Central bankers continue to pump money into the system and if the problems in the credit markets continue to exacerbate, which they could once these hedge funds begin to report losses the next option for the Fed would have to be an interest rate cut. Today is what everyone is calling the “red letter day” because it is the last opportunity for investors to request redemptions by the end of September based upon the standard 45 days notice rule. The expectation is that many investors will be looking to withdraw and funds will need to raise cash to meet those withdrawals. With many companies refusing to lend out cash, the only way to raise cash would be through further asset liquidation. Large scale redemptions could continue to weigh on the equity and bond markets in the weeks to come. The markets have already priced in a 100 percent chance of an interest rate over the next 2 months with the possibility of 50bp of easing by the end of the year. An interest rate cut would strip the US dollar of its safe haven status. We do not expect Bernanke to be too reluctant about lowering rates since this may be the only to restore confidence to the markets.
Yen Gives Back Early Gains Against Majors
Wednesday, August 15, 2007 12:52:05 PM - The Japanese yen gave back early gains against the other majors and returned to its overnight levels on Wednesday in New York. The Japanese currency touched multi-month highs against the sterling, euro and dollar in early trading. There was no major economic news out of Japan on Wednesday.
The yen retreated back to its overnight levels against the dollar after rising to a five-month high earlier Wednesday in New York. It got as high as 116.62 at 7:15 a.m. ET. The yen began to decline at around 9:45 a.m. ET and the pair moved at 117.35 three hours later. Investors mulled American CPI data, which was in-line with analyst expectations.
The yen was little changed against the euro on Wednesday in New York. The Japanese currency rose to a resistance level of 157.11 and later fell as low as 158.57. The currencies moved at 157.97 at 12:40 p.m. ET. Overall, the yen remained near a 4 ½ month high against the euro. The euro suffered as traders expressed concerns that the European Central Bank will delay raising interest rates amid signs of a deepening global credit crunch.
The yen was little moved against the pound on Wednesday in New York. The yen rose to as high as 231.74 in early-morning trading and remained up until a slump at around 10 a.m. ET. The pair moved at 233.66 at 12:45 p.m. ET. Trading took place after the minutes of the latest Bank of England policy meeting revealed a 9-0 vote in favor over maintaining the current 5.75 percent interest rate.
The yen retreated back to its overnight levels against the dollar after rising to a five-month high earlier Wednesday in New York. It got as high as 116.62 at 7:15 a.m. ET. The yen began to decline at around 9:45 a.m. ET and the pair moved at 117.35 three hours later. Investors mulled American CPI data, which was in-line with analyst expectations.
The yen was little changed against the euro on Wednesday in New York. The Japanese currency rose to a resistance level of 157.11 and later fell as low as 158.57. The currencies moved at 157.97 at 12:40 p.m. ET. Overall, the yen remained near a 4 ½ month high against the euro. The euro suffered as traders expressed concerns that the European Central Bank will delay raising interest rates amid signs of a deepening global credit crunch.
The yen was little moved against the pound on Wednesday in New York. The yen rose to as high as 231.74 in early-morning trading and remained up until a slump at around 10 a.m. ET. The pair moved at 233.66 at 12:45 p.m. ET. Trading took place after the minutes of the latest Bank of England policy meeting revealed a 9-0 vote in favor over maintaining the current 5.75 percent interest rate.
Minutes Show Bank Of England's MPC Voted Unanimously To Keep Base Rate In August
Wednesday, August 15, 2007 10:57:29 AM - The Bank of England's nine-member strong Monetary Policy Committee cast a unanimous vote to hold the key interest rate early August, showed the minutes of the meeting, released Wednesday. Policymakers preferred to stick to a wait and watch stance to study the effect of the previous five hikes in less than a year.
The MPC voted 9-0 during the rate-setting session, which was held on August 1 and 2, when the central bank maintained the official bank rate at a six-year high of 5.75%, after boosting it by 25 basis points in the previous month.
In July, the MPC had voted 6-3 to lift rates, when the BoE raised interest rates for the fifth time since August 2006. The interest rate is currently at its highest level since April 2001.
The minutes stated, “The future path of Bank Rate would depend on the evidence in the months ahead about whether and how the risks were crystallizing; most members emphasized that they had no firm view on whether rates would need to rise further.”
Official data revealed a day earlier that the UK annual inflation rate sharply fell in the month of July. The Consumer Price Index - CPI annual inflation stood at 1.9% in July, much below the 2.4% witnessed in the previous month. Economists had expected the rate to moderately slow to 2.3% in July. The July annual inflation rate is the lowest since March 2006, when it was 1.8%.
The July annual inflation rate unexpectedly came in below the central bank target of 2%, after lingering above the level for 14 months. Annual inflation touched 3.1% in March, breaching the sensitive level of 3%. The March rate forced the central bank chief Mervyn King to pen an explanatory letter to the Chancellor.
Going forward, policymakers said, “…the near-term outlook was still clouded with uncertainty, particularly about the path of household goods, food and utility prices.” This matched the view presented in the Inflation Report.
The MPC were not in possession of the July inflation data during the August session. Members were of the opinion that “CPI inflation had continued to return towards the target in June, reducing the probability that inflation expectations would become dislodged.”
The latest inflation data dampened expectations of another interest rate hike from the Bank of England in the near term. However, analysts say upward inflationary pressures persist in the U.K. economy.
The Bank of England minutes comes at a time when global stock markets are experiencing extreme turbulence due to concerns over the U. S. subprime rout. Central banks across the globe continue to intervene in the financial market pumping in and mopping off liquidity to calm markets faced with a credit crunch. The minutes stated, “…members largely viewed the credit market developments as posing a risk to their projections for output and inflation, rather than a factor directly influencing their central view.”
The Inflation Report of the BoE, released last week, showed that policymakers expect inflation to remain above the 2% target until 2009, if interest rates move in sync with market expectations. The central bank also hinted in the report that it may have to raise the key interest rate one more time to bring inflation back to target.
Separately, the Office for National Statistics announced that U.K claimant count rate came in at 2.6% in July. The rate dropped 0.3 percentage points from the previous year. Economists expected a rate of 2.7%. The claimant count totaled 855,300, down 8,500 from June. On an annual basis, claimant count slid 99,800.
Further, the ONS said that the jobless rate dropped 0.2 percentage points to 5.4% during three months to June. The number came in line with economists' expectations. Compared to last year, the unemployment rate fell 0.1 percentage point. The jobless level was 1.65 million, down 29,000 annually.
The annual growth in average earnings excluding bonuses was 3.4% during three months to June. The number matched economists' expectations. Meanwhile, earnings including bonuses slid 0.2 percentage points to 3.3%. Economists expected the earning growth including bonus to remain stable at 3.5%.
Dollar Returns To Overnight Levels Against Major Counterparts []
Wednesday, August 15, 2007 10:30:11 AM - The dollar was little moved on Wednesday in New York amid uncertain trading against the other majors. The greenback reached near-term highs against the euro and dollar and a five-month low against the yen in early activity. The buck changed its course in the mid-morning and returned close to its overnight mark against all three. Trading took place as the Fed cancelled overnight repurchase options, a move that pushed U.S. stocks higher. Investors also mulled U.S. CPI data, which was in-line with analyst expectations.
The U.S. dollar cooled off in the mid-morning against the euro on Wednesday in New York to give up part of its earlier gains. Earlier, the greenback extended a six-week high. The greenback moved up starting around 8:45 a.m. ET and got as high as 1.3458 at 9 a.m. ET. It fell back about 45 minutes later and traded at 1.3496 at 10:30 a.m. ET. Overall, the dollar has been gaining on the euro for a week.
The greenback was little-moved against the sterling and remained near an eight-week high on Wednesday in New York. The buck began to drop sharply at around 9:45 a.m. ET and gave back gains from earlier in the morning, when it reached as high as 1.9856. The pair moved at 1.9919 at 10:10 a.m. ET.
The dollar rebounded against the yen to get back to its overnight levels after falling to a five-month low earlier Wednesday in New York. It got as low as 116.62 at 10:15 a.m. ET. The buck began to surge at around 9:45 a.m. ET and moved back to 117.31 a half-hour later.
The consumer price index, released Wednesday morning, report revealed that the CPI for July increased at a rate of 0.1 percent, less than the 0.2 percent increase in June. This is the slowest growth rate since November. Analysts had predicted a 0.1 percent increase. The core CPI reading also matched June's increase of 0.2 percent.
The MPC voted 9-0 during the rate-setting session, which was held on August 1 and 2, when the central bank maintained the official bank rate at a six-year high of 5.75%, after boosting it by 25 basis points in the previous month.
In July, the MPC had voted 6-3 to lift rates, when the BoE raised interest rates for the fifth time since August 2006. The interest rate is currently at its highest level since April 2001.
The minutes stated, “The future path of Bank Rate would depend on the evidence in the months ahead about whether and how the risks were crystallizing; most members emphasized that they had no firm view on whether rates would need to rise further.”
Official data revealed a day earlier that the UK annual inflation rate sharply fell in the month of July. The Consumer Price Index - CPI annual inflation stood at 1.9% in July, much below the 2.4% witnessed in the previous month. Economists had expected the rate to moderately slow to 2.3% in July. The July annual inflation rate is the lowest since March 2006, when it was 1.8%.
The July annual inflation rate unexpectedly came in below the central bank target of 2%, after lingering above the level for 14 months. Annual inflation touched 3.1% in March, breaching the sensitive level of 3%. The March rate forced the central bank chief Mervyn King to pen an explanatory letter to the Chancellor.
Going forward, policymakers said, “…the near-term outlook was still clouded with uncertainty, particularly about the path of household goods, food and utility prices.” This matched the view presented in the Inflation Report.
The MPC were not in possession of the July inflation data during the August session. Members were of the opinion that “CPI inflation had continued to return towards the target in June, reducing the probability that inflation expectations would become dislodged.”
The latest inflation data dampened expectations of another interest rate hike from the Bank of England in the near term. However, analysts say upward inflationary pressures persist in the U.K. economy.
The Bank of England minutes comes at a time when global stock markets are experiencing extreme turbulence due to concerns over the U. S. subprime rout. Central banks across the globe continue to intervene in the financial market pumping in and mopping off liquidity to calm markets faced with a credit crunch. The minutes stated, “…members largely viewed the credit market developments as posing a risk to their projections for output and inflation, rather than a factor directly influencing their central view.”
The Inflation Report of the BoE, released last week, showed that policymakers expect inflation to remain above the 2% target until 2009, if interest rates move in sync with market expectations. The central bank also hinted in the report that it may have to raise the key interest rate one more time to bring inflation back to target.
Separately, the Office for National Statistics announced that U.K claimant count rate came in at 2.6% in July. The rate dropped 0.3 percentage points from the previous year. Economists expected a rate of 2.7%. The claimant count totaled 855,300, down 8,500 from June. On an annual basis, claimant count slid 99,800.
Further, the ONS said that the jobless rate dropped 0.2 percentage points to 5.4% during three months to June. The number came in line with economists' expectations. Compared to last year, the unemployment rate fell 0.1 percentage point. The jobless level was 1.65 million, down 29,000 annually.
The annual growth in average earnings excluding bonuses was 3.4% during three months to June. The number matched economists' expectations. Meanwhile, earnings including bonuses slid 0.2 percentage points to 3.3%. Economists expected the earning growth including bonus to remain stable at 3.5%.
Dollar Returns To Overnight Levels Against Major Counterparts []
Wednesday, August 15, 2007 10:30:11 AM - The dollar was little moved on Wednesday in New York amid uncertain trading against the other majors. The greenback reached near-term highs against the euro and dollar and a five-month low against the yen in early activity. The buck changed its course in the mid-morning and returned close to its overnight mark against all three. Trading took place as the Fed cancelled overnight repurchase options, a move that pushed U.S. stocks higher. Investors also mulled U.S. CPI data, which was in-line with analyst expectations.
The U.S. dollar cooled off in the mid-morning against the euro on Wednesday in New York to give up part of its earlier gains. Earlier, the greenback extended a six-week high. The greenback moved up starting around 8:45 a.m. ET and got as high as 1.3458 at 9 a.m. ET. It fell back about 45 minutes later and traded at 1.3496 at 10:30 a.m. ET. Overall, the dollar has been gaining on the euro for a week.
The greenback was little-moved against the sterling and remained near an eight-week high on Wednesday in New York. The buck began to drop sharply at around 9:45 a.m. ET and gave back gains from earlier in the morning, when it reached as high as 1.9856. The pair moved at 1.9919 at 10:10 a.m. ET.
The dollar rebounded against the yen to get back to its overnight levels after falling to a five-month low earlier Wednesday in New York. It got as low as 116.62 at 10:15 a.m. ET. The buck began to surge at around 9:45 a.m. ET and moved back to 117.31 a half-hour later.
The consumer price index, released Wednesday morning, report revealed that the CPI for July increased at a rate of 0.1 percent, less than the 0.2 percent increase in June. This is the slowest growth rate since November. Analysts had predicted a 0.1 percent increase. The core CPI reading also matched June's increase of 0.2 percent.
Forex - Dollar finds safe haven bids; Pound succumbs to weak data, BoE minutes
LONDON (Thomson Financial) - The dollar stayed well bid as stocks market got off to another round of falls after a dismal performance on Wall Street overnight.
While the fallout on US sub-prime sector has rendered the country's credit market a no-go area, funds are flocking to US fixed income assets -- a key factor boosting the dollar.
Notably, the euro slipped under 1.35 usd for the first time since end June, the drop all the more noticeable as the euro had stood over 1.38 usd just a week ago.
'Risk aversion remained the topic of the day, with the financial sector leading European stock market declines,' BNP Paribas (other-otc: BNPQY.PK - news - people ) analysts said.
Steve Pearson (nyse: PSO - news - people ) at HBOS pointed out that the dollar has been boosted by safe haven type flows and that the effect has been exaggerated by positioning.
The dollar in enjoying good demand what with many players are starting from an underweight position in US stocks and bonds. Additionally, outflows of US domestic capital to emerging markets is dropping, he said.
These factors, he believes, will 'amply offset the reduction in foreign buying of US credit products.'
Markets will be next looking at US inflation data. If the figures fall short of expectations, the dollar may lose some of its recently gained ground as the case for a US rate cut will strengthen.
The headline US consumer price index is forecast to rise by 0.1 pct while the core rate is seen at 0.2 pct. Both rose 0.2 pct in June.
Analysts at BNP Paribas said shelter costs could be key in the core rate.
That aside, the recent market turbulence caused by the fallout in the US subprime market seems to have slowed after the series of interventions from major central banks, particularly the European Central Bank.
For now, concerns over liquidity have appear to have abated -- judging by the relative steadiness in overnight interbank rates, said Neill Mellor at Bank of New York (nyse: BK - news - people ) Mellon.
'But it seems clear that instilling sustainable stability in the market is a work in progress. Markets will presumably now turn to central banks for their response to the latest stage of the current crisis,' he added.
In line with the trend of risk aversion, the yen was higher across the board, much at the expense of higher yielding currencies such at the Aussie and Kiwi dollars.
Elsewhere, the pound's falls accelerated after news of a drop in wages and a dovish set of minutes from the Bank of England added to the argument that UK interest rates have already peaked.
The UK currency had started the day on the back foot after surprisingly weak inflation figures were released yesterday.
In data out today, the theme continued. Earnings growth in the UK fell unexpectedly in the three months to June to the lowest level in four years, official figures showed. The Office of National Statistics said average earnings growth, including bonuses, slowed to 3.3 pct in the three months to June -- the weakest rate since June 2003 -- from 3.5 pct in the three months to May.
Additionally, the prospect of another interest rate hike from the Bank of England in the next couple of months diminished further with the news that the rate-setting body voted unanimously to keep its benchmark interest rate unchanged at 5.75 pct at its meeting earlier this month.
Minutes to the August 2 meeting show that the nine-member panel did not even discuss the need for a back-to-back rate rise to 6.00 pct, and that most members emphasised that they had no firm view on whether rates actually need to rise further.
The non-committal message weighed on the pound and it looks like the currency is set for a period of falls, analysts said.
'We remain of the view that rates will not have to rise again and 5.75 pct marks the peak in the current cycle,' said David Page at Investec.
After all, financial developments, while still inconclusive, have worsened since the bank last met; news on the international outlook has deteriorated modestly and headline inflation has dropped unexpectedly below target, he said.
London 1203 GMT London 0816 GMT
US dollar
yen 116.75 down from 116.88
chf 1.2166 up from 1.2140
Euro
usd 1.3474 down from 1.3492
yen 157.33 down from 157.66
sfr 1.6385 unchanged 1.6385
stg 0.6779 up from 0.6777
Sterling
usd 1.9882 down from 1.9900
yen 232.10 down from 232.60
sfr 2.4176 up from 2.4166
Australian dollar
usd 0.8222 down from 0.8384
stg 0.4156 down from 0.4161
yen 95.99 down from 96.82
While the fallout on US sub-prime sector has rendered the country's credit market a no-go area, funds are flocking to US fixed income assets -- a key factor boosting the dollar.
Notably, the euro slipped under 1.35 usd for the first time since end June, the drop all the more noticeable as the euro had stood over 1.38 usd just a week ago.
'Risk aversion remained the topic of the day, with the financial sector leading European stock market declines,' BNP Paribas (other-otc: BNPQY.PK - news - people ) analysts said.
Steve Pearson (nyse: PSO - news - people ) at HBOS pointed out that the dollar has been boosted by safe haven type flows and that the effect has been exaggerated by positioning.
The dollar in enjoying good demand what with many players are starting from an underweight position in US stocks and bonds. Additionally, outflows of US domestic capital to emerging markets is dropping, he said.
These factors, he believes, will 'amply offset the reduction in foreign buying of US credit products.'
Markets will be next looking at US inflation data. If the figures fall short of expectations, the dollar may lose some of its recently gained ground as the case for a US rate cut will strengthen.
The headline US consumer price index is forecast to rise by 0.1 pct while the core rate is seen at 0.2 pct. Both rose 0.2 pct in June.
Analysts at BNP Paribas said shelter costs could be key in the core rate.
That aside, the recent market turbulence caused by the fallout in the US subprime market seems to have slowed after the series of interventions from major central banks, particularly the European Central Bank.
For now, concerns over liquidity have appear to have abated -- judging by the relative steadiness in overnight interbank rates, said Neill Mellor at Bank of New York (nyse: BK - news - people ) Mellon.
'But it seems clear that instilling sustainable stability in the market is a work in progress. Markets will presumably now turn to central banks for their response to the latest stage of the current crisis,' he added.
In line with the trend of risk aversion, the yen was higher across the board, much at the expense of higher yielding currencies such at the Aussie and Kiwi dollars.
Elsewhere, the pound's falls accelerated after news of a drop in wages and a dovish set of minutes from the Bank of England added to the argument that UK interest rates have already peaked.
The UK currency had started the day on the back foot after surprisingly weak inflation figures were released yesterday.
In data out today, the theme continued. Earnings growth in the UK fell unexpectedly in the three months to June to the lowest level in four years, official figures showed. The Office of National Statistics said average earnings growth, including bonuses, slowed to 3.3 pct in the three months to June -- the weakest rate since June 2003 -- from 3.5 pct in the three months to May.
Additionally, the prospect of another interest rate hike from the Bank of England in the next couple of months diminished further with the news that the rate-setting body voted unanimously to keep its benchmark interest rate unchanged at 5.75 pct at its meeting earlier this month.
Minutes to the August 2 meeting show that the nine-member panel did not even discuss the need for a back-to-back rate rise to 6.00 pct, and that most members emphasised that they had no firm view on whether rates actually need to rise further.
The non-committal message weighed on the pound and it looks like the currency is set for a period of falls, analysts said.
'We remain of the view that rates will not have to rise again and 5.75 pct marks the peak in the current cycle,' said David Page at Investec.
After all, financial developments, while still inconclusive, have worsened since the bank last met; news on the international outlook has deteriorated modestly and headline inflation has dropped unexpectedly below target, he said.
London 1203 GMT London 0816 GMT
US dollar
yen 116.75 down from 116.88
chf 1.2166 up from 1.2140
Euro
usd 1.3474 down from 1.3492
yen 157.33 down from 157.66
sfr 1.6385 unchanged 1.6385
stg 0.6779 up from 0.6777
Sterling
usd 1.9882 down from 1.9900
yen 232.10 down from 232.60
sfr 2.4176 up from 2.4166
Australian dollar
usd 0.8222 down from 0.8384
stg 0.4156 down from 0.4161
yen 95.99 down from 96.82
Forex - Dollar remains strong after upbeat US economic data
LONDON (Thomson Financial) - The dollar remained stronger against most currencies after a string of upbeat US economic data, including another rise in US CPI, which suggests the Federal Reserve will not cut interest rates in coming months.
US CPI rose 0.1 pct from June to July, while core CPI was up 0.2 pct, both rates in line with analyst expectations. The three-month annualised rate has risen for the third consecutive month to 2.5 pct.
'The pattern gives backbone to the Fed's continued insistence that a 'sustained moderation' in the inflationary environment may not yet have taken hold,' said Kenneth Beauchemin at Global Insight.
Lower energy prices were behind the moderate monthly gains, but a wide range of consumer products saw price increases.
'With so many categories increasing, it's hard to characterize the outlook on core inflation as benign. Credit events may yet overrule, but from an inflation perspective, the Fed has no business contemplating a rate cut,' said Jeoff Hall at IFR Markets.
Other data was also dollar-supportive this afternoon. The TICS figures showed overseas demand for US long-term securities remained very strong at 121 bln usd in June, just below May's 126 bln usd. Analysts said this suggests that there are no signs of any external funding problems with respect to the overall balance-of-payments. Meanwhile, the Empire State manufacturing index slipped by less than expected in August, while US industrial production rose in July, all dollar-supportive news.
Traditionally bought in times of uncertainty in global financial markets, the dollar also remained strong after rallying for several days, during which central banks were required to inject money into money markets in order to keep liquidity sufficient in the financial system. How long this risk-aversion will last will determine the dollar's future behaviour.
Elsewhere, the pound was weaker after minutes to the Bank of England's last policy meeting showed that all the rate-setters had voted to keep rates unchanged, and that a hike hadn't even been considered.
Along with a further fall in earnings growth data in the morning, the news made a further interest rate hike in the UK more unlikely. This mood is reflected in the euro zone, where weak GDP data and the ongoing credit market troubles suggest interest rates may be nearing their peak.
'The emerging trend in Europe appears to be that the tightening cycle appears to have reached its final destination and rates have probably peaked,' said David Brown at Bear Stearns (nyse: BSC - news - people )
'The latest market and fundamental conditions leave us more inclined to can the last quarter point hikes we had been looking for in the euro zone and UK,' said Brown.
London 1203 GMT London 1203 GMT
US dollar
yen 117.29 up from 116.75
sfr 1.2126 down from 1.2166
Euro
usd 1.3479 up from 1.3474
yen 158.10 up from 157.33
sfr 1.6416 up from 1.6385
stg 0.6766 down from 0.6779
Sterling
usd 1.9922 up from 1.9882
yen 233.66 up from 232.10
sfr 2.4269 up from 2.4176
Australian dollar
usd 0.8244 up from 0.8222
stg 0.4138 down from 0.4156
yen 96.58 up from 95.99
US CPI rose 0.1 pct from June to July, while core CPI was up 0.2 pct, both rates in line with analyst expectations. The three-month annualised rate has risen for the third consecutive month to 2.5 pct.
'The pattern gives backbone to the Fed's continued insistence that a 'sustained moderation' in the inflationary environment may not yet have taken hold,' said Kenneth Beauchemin at Global Insight.
Lower energy prices were behind the moderate monthly gains, but a wide range of consumer products saw price increases.
'With so many categories increasing, it's hard to characterize the outlook on core inflation as benign. Credit events may yet overrule, but from an inflation perspective, the Fed has no business contemplating a rate cut,' said Jeoff Hall at IFR Markets.
Other data was also dollar-supportive this afternoon. The TICS figures showed overseas demand for US long-term securities remained very strong at 121 bln usd in June, just below May's 126 bln usd. Analysts said this suggests that there are no signs of any external funding problems with respect to the overall balance-of-payments. Meanwhile, the Empire State manufacturing index slipped by less than expected in August, while US industrial production rose in July, all dollar-supportive news.
Traditionally bought in times of uncertainty in global financial markets, the dollar also remained strong after rallying for several days, during which central banks were required to inject money into money markets in order to keep liquidity sufficient in the financial system. How long this risk-aversion will last will determine the dollar's future behaviour.
Elsewhere, the pound was weaker after minutes to the Bank of England's last policy meeting showed that all the rate-setters had voted to keep rates unchanged, and that a hike hadn't even been considered.
Along with a further fall in earnings growth data in the morning, the news made a further interest rate hike in the UK more unlikely. This mood is reflected in the euro zone, where weak GDP data and the ongoing credit market troubles suggest interest rates may be nearing their peak.
'The emerging trend in Europe appears to be that the tightening cycle appears to have reached its final destination and rates have probably peaked,' said David Brown at Bear Stearns (nyse: BSC - news - people )
'The latest market and fundamental conditions leave us more inclined to can the last quarter point hikes we had been looking for in the euro zone and UK,' said Brown.
London 1203 GMT London 1203 GMT
US dollar
yen 117.29 up from 116.75
sfr 1.2126 down from 1.2166
Euro
usd 1.3479 up from 1.3474
yen 158.10 up from 157.33
sfr 1.6416 up from 1.6385
stg 0.6766 down from 0.6779
Sterling
usd 1.9922 up from 1.9882
yen 233.66 up from 232.10
sfr 2.4269 up from 2.4176
Australian dollar
usd 0.8244 up from 0.8222
stg 0.4138 down from 0.4156
yen 96.58 up from 95.99
Tropical storm Erin heads towards Texas, Dean gains strength
MIAMI (Thomson Financial) - The National Hurricane Center on Wednesday issued a warning for the gulf coast of Texas as a Tropical Storm Erin inched towards landfall, as another storm named Dean formed in the Atlantic and headed towards the Caribbean.
Erin reached tropical storm status at 3.00 pm Wednesday, and the Florida-based Hurricane Center issued a storm watch for much of the state's gulf coast.
At 3.30 pm GMT, Erin's centre was located about 400 kilometres east of Brownsville, Texas, and some 480 kilometres northeast of La Pesca, Mexico.
Erin was moving in a west-northwest direction at about 19 kilometres per hour.
The storm had maximum sustained winds of 65 kilometres per hour, with higher gusts. Forecasters expected it to strengthen over the next 24 hours.
Meanwhile Tropical Storm Dean, which formed in the central Atlantic, gained strength and threatened to become the first hurricane of the 2007 north Atlantic season.
At 3.00 pm GMT Dean was located some 1,685 kilometres east of the Lesser Antilles.
It was moving at around 32 kilometres an hour towards the Caribbean on a path to rip through the islands of Puerto Rico, Hispaniola and Cuba.
The hurricane season normally extends from early June to late November, but US forecasters on August 9 warned that up to nine storms could still develop into hurricanes in the next months.
Erin reached tropical storm status at 3.00 pm Wednesday, and the Florida-based Hurricane Center issued a storm watch for much of the state's gulf coast.
At 3.30 pm GMT, Erin's centre was located about 400 kilometres east of Brownsville, Texas, and some 480 kilometres northeast of La Pesca, Mexico.
Erin was moving in a west-northwest direction at about 19 kilometres per hour.
The storm had maximum sustained winds of 65 kilometres per hour, with higher gusts. Forecasters expected it to strengthen over the next 24 hours.
Meanwhile Tropical Storm Dean, which formed in the central Atlantic, gained strength and threatened to become the first hurricane of the 2007 north Atlantic season.
At 3.00 pm GMT Dean was located some 1,685 kilometres east of the Lesser Antilles.
It was moving at around 32 kilometres an hour towards the Caribbean on a path to rip through the islands of Puerto Rico, Hispaniola and Cuba.
The hurricane season normally extends from early June to late November, but US forecasters on August 9 warned that up to nine storms could still develop into hurricanes in the next months.
Xcel subsidiary sells $350M of bonds
MINNEAPOLIS (AP) - Gas and electric utility operator Xcel Energy Inc. said Wednesday its Public Service Co. of Colorado unit has sold $350 million of its 30-year first mortgage bonds with an annual interest rate of 6.25 percent.
The bonds are redeemable at any time subject to certain "make whole" provisions.
Proceeds from the sale of the bonds will be added to the company's general funds. A portion of the proceeds will go toward repaying short-term debt the company incurred to fund the payment of $100 million of 7.11 percent secured medium-term notes when they matured in March.
Xcel shares fell 30 cents to $20.57 in midday trading.
The bonds are redeemable at any time subject to certain "make whole" provisions.
Proceeds from the sale of the bonds will be added to the company's general funds. A portion of the proceeds will go toward repaying short-term debt the company incurred to fund the payment of $100 million of 7.11 percent secured medium-term notes when they matured in March.
Xcel shares fell 30 cents to $20.57 in midday trading.
Wednesday, August 8, 2007
Australia central bank raises rates to decade high
SYDNEY, Aug 7 (Reuters) - Australia's central bank raised interest rates to a decade-high of 6.5 percent on Wednesday, as expected, saying higher borrowing costs were needed to check inflation.
The Australian dollar edged higher while bond futures remained soft after the Reserve Bank of Australia (RBA) raised its key cash rate a quarter of a percentage point to 6.5 percent following its monthly policy meeting on Tuesday.
This was the ninth tightening in a cycle that began in mid-2002, and took rates to their highest since December 1996.
The central bank cited a pick up in demand, tight labour markets, strong demand for credit, a lack of spare capacity and an unexpected acceleration in inflation as reasons for the move.
"Based on these considerations, the board judged that a somewhat more restrictive monetary policy setting was required in order to keep inflation consistent with the target in the medium term," the RBA said in a brief statement.
Underlying inflation jumped 0.9 percent in the second quarter, well above expectations and threatening to push the annual pace of 2.75 percent toward the ceiling of the central bank's 2 percent to 3 percent target range. "It's the expected rise for the expected reasons," said John Edwards, chief economist at HSBC. "Growth indicators have strengthened and inflation at this point is rather higher than RBA expected it to be."
Interest rate futures had been pricing in a better than 80 percent chance of a hike, so the initial reaction in financial markets was muted, particularly as the RBA offered few clues on the outlook for further rate moves.
INSURANCE
"It is very much an insurance against medium term inflation pressures," said Su-Lin Ong, a senior economist at RBC Capital. "The RBA will remain in tightening mode, but like many other central banks will also adopt a wait and watch mode given the global developments."
The central bank did note that it had carefully considered the recent turmoil in financial markets, but judged that the outlook for global economic growth was still bright.
Interest rate futures <0#YBA:> still showed a real chance that a further tightening to 6.75 percent would be needed, though likely not until early next year.
"On most of the traditional measures monetary policy has now entered the restrictive zone, and that's occuring at a time when we know the household sector is particularly exposed to higher interest rates or negative income shocks," said Michael Blythe, chief economist at Commonwealth Bank.
"I think the test for a further rate rise will be quite high," he added.
In some senses Australia is a victim of its own success in that, after 17 years of ceaseless expansion, there is little spare capacity in the economy. In particular, the unemployment rate has fallen to 4.3 percent, near three-decade lows, and firms constantly complain of a lack of skilled labour.
A strong Australian dollar and fierce global competition has helped somehwat by keeping import prices down, but the costs of domestic services from education to healthcare continue to climb.
"As a result we see the RBA retaining a tightening bias for the foreseeable future and do not see a peak in the domestic cash rate cycle unless and until the global economy slows markedly," said Deutsche Bank's chief economist, Tony Meer.
The Australian dollar edged higher while bond futures remained soft after the Reserve Bank of Australia (RBA) raised its key cash rate a quarter of a percentage point to 6.5 percent following its monthly policy meeting on Tuesday.
This was the ninth tightening in a cycle that began in mid-2002, and took rates to their highest since December 1996.
The central bank cited a pick up in demand, tight labour markets, strong demand for credit, a lack of spare capacity and an unexpected acceleration in inflation as reasons for the move.
"Based on these considerations, the board judged that a somewhat more restrictive monetary policy setting was required in order to keep inflation consistent with the target in the medium term," the RBA said in a brief statement.
Underlying inflation jumped 0.9 percent in the second quarter, well above expectations and threatening to push the annual pace of 2.75 percent toward the ceiling of the central bank's 2 percent to 3 percent target range. "It's the expected rise for the expected reasons," said John Edwards, chief economist at HSBC. "Growth indicators have strengthened and inflation at this point is rather higher than RBA expected it to be."
Interest rate futures had been pricing in a better than 80 percent chance of a hike, so the initial reaction in financial markets was muted, particularly as the RBA offered few clues on the outlook for further rate moves.
INSURANCE
"It is very much an insurance against medium term inflation pressures," said Su-Lin Ong, a senior economist at RBC Capital. "The RBA will remain in tightening mode, but like many other central banks will also adopt a wait and watch mode given the global developments."
The central bank did note that it had carefully considered the recent turmoil in financial markets, but judged that the outlook for global economic growth was still bright.
Interest rate futures <0#YBA:> still showed a real chance that a further tightening to 6.75 percent would be needed, though likely not until early next year.
"On most of the traditional measures monetary policy has now entered the restrictive zone, and that's occuring at a time when we know the household sector is particularly exposed to higher interest rates or negative income shocks," said Michael Blythe, chief economist at Commonwealth Bank.
"I think the test for a further rate rise will be quite high," he added.
In some senses Australia is a victim of its own success in that, after 17 years of ceaseless expansion, there is little spare capacity in the economy. In particular, the unemployment rate has fallen to 4.3 percent, near three-decade lows, and firms constantly complain of a lack of skilled labour.
A strong Australian dollar and fierce global competition has helped somehwat by keeping import prices down, but the costs of domestic services from education to healthcare continue to climb.
"As a result we see the RBA retaining a tightening bias for the foreseeable future and do not see a peak in the domestic cash rate cycle unless and until the global economy slows markedly," said Deutsche Bank's chief economist, Tony Meer.
Japan July Bank Lending Table Of Data
Japan July Bank Lending Table Of Data
July 2007 June 2007
City Banks -1.0% -0.5%
Regional Banks +2.3% +2.5%
2nd Tier Regional Banks +0.6% +1.0%
Total (excl. Shinkin banks) +0.3% +0.7%
Shinkin Banks +0.3% +0.4% r
Total (incl. Shinkin) +0.3% +0.7%
Foreign Banks -24.8% -6.9%
An "r" sign indicates a revised figure.
-By Tokyo Bureau, Dow Jones Newswires; 813-5255-2929, djnews.tokyo@dowjones.com
July 2007 June 2007
City Banks -1.0% -0.5%
Regional Banks +2.3% +2.5%
2nd Tier Regional Banks +0.6% +1.0%
Total (excl. Shinkin banks) +0.3% +0.7%
Shinkin Banks +0.3% +0.4% r
Total (incl. Shinkin) +0.3% +0.7%
Foreign Banks -24.8% -6.9%
An "r" sign indicates a revised figure.
-By Tokyo Bureau, Dow Jones Newswires; 813-5255-2929, djnews.tokyo@dowjones.com
Japan June core machinery orders fall 10.4 pct from May, misses forecast
TOKYO (Thomson Financial) - Japan's core private-sector machinery orders fell a seasonally adjusted 10.4 percent from the previous month to 960.2 billion yen in June, after rising by 5.9 percent in May, the Cabinet Office said on
Wednesday.
The decline was much deeper than market expectations for a drop of 1.8 percent.
Core private-sector machinery orders, which exclude orders from electric utilities and for ships, are regarded as a leading indicator of corporate capital spending.
Year-on-year, machinery orders were down 17.9 percent in June after dropping by 3.1 percent in May.
Machinery orders placed by the manufacturing sector fell 11.4 percent in June from May and 23.6 percent lower than a year earlier.
Orders placed by non-manufacturers declined 6.5 percent from the previous month and were down 12.8 percent year-on-year.
For the April-June quarter, core machinery orders fell 2.4 percent from the previous quarter. The
Cabinet Office had forecast a fall of 11.8 pct.
Orders placed by manufacturers fell 4.0 percent in the second quarter from the previous three
months, while orders from non-manufacturers rose 0.1 percent.
Core machinery orders are forecast to rise 3.7 percent in the three months to September from the previous quarter.
(1 US dollar = 118.95 yen)
Wednesday.
The decline was much deeper than market expectations for a drop of 1.8 percent.
Core private-sector machinery orders, which exclude orders from electric utilities and for ships, are regarded as a leading indicator of corporate capital spending.
Year-on-year, machinery orders were down 17.9 percent in June after dropping by 3.1 percent in May.
Machinery orders placed by the manufacturing sector fell 11.4 percent in June from May and 23.6 percent lower than a year earlier.
Orders placed by non-manufacturers declined 6.5 percent from the previous month and were down 12.8 percent year-on-year.
For the April-June quarter, core machinery orders fell 2.4 percent from the previous quarter. The
Cabinet Office had forecast a fall of 11.8 pct.
Orders placed by manufacturers fell 4.0 percent in the second quarter from the previous three
months, while orders from non-manufacturers rose 0.1 percent.
Core machinery orders are forecast to rise 3.7 percent in the three months to September from the previous quarter.
(1 US dollar = 118.95 yen)
Wednesday, August 1, 2007
Major Market Movers: Inflation Stable
Major Market Movers: Inflation Stable
All eyes were fully focused onto the United States as the Commerce Department released today the Feds' favorite inflationary indicator... the PCE, along with the income and spending data, indicating that higher gasoline prices side by side with the housing slump affected consumers' spending...
The PCE is said to be the Feds' favorite inflationary indicator when deciding the monetary policy, and just as Mr. Bernanke reported to the panel house in his testimony inflation is actually easing; indicated by the 1.9% rise in the Personal Consumption Price Index the lowest in three years. The Core PCE rose 0.1% in June the same rise in May and slightly lower than the expected 0.2% rise, and the yearly reading came at 1.9% inline with expectations and the same as the previous, and still in the feds unofficial comfortable zone between the 1.0%-2.0%.
The Personal Income for the month of June rose 0.4% the same rise in May and almost inline with the expected 0.5% rise. The Personal Spending eased as well to its lowest in nine months, rising 0.1% slightly lower than the expected 0.2% rise and the previous 0.5% rise in May, affected mostly by higher gasoline prices and the ongoing housing slump and Mortgage crisis.
The PCE figures is a relief to all market participants on the outlook to the US economy inflation is steady and remains in the feds comfortable zone, and with growth reported to be 3.4% in the second quarter, now if the feds could keep that up!!! Yet with the lower Spending that is definitely going to affect growth levels for the rest of this year, and the affect of the housing crisis that is yet to show its effect on the US economy.
The Chicago PMI was released today as well, dropping to 53.4 in July down from 60.2 last May, the expected reading was to see a slight drop to 58, and the report showed that the fall was due to a fall in new orders and production. As lower consumer demand forced companies to reduce spending, yet a surprising increase in the prices paid index was due to an increase in aluminum and nickel prices. The Construction Spending in June fell 0.3% much worse than the expected rise of 0.3% and the previous rise of 0.9% which was revised to the upside coming at 1.1%.
The US also released the Consumer Confidence, rising unexpectedly to 112.6 in July its highest since 2001 from 103.9 the previous reading and the expected 105 reading. This rise could help the US economy as if people are confident about the future of the economy then they will spend their money in it, and maybe by that they can help the Federal Bank to overcome the slowing pace in the housing market...
The data above now confirm that the current policy the federal bank is undergoing proves to be right at least for now and inflation is stabilizing now, so it is the time to concentrate on other perspectives especially a way to maintain healthy growth levels...
disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.
Forex Fundamental Outlook
Daily Market Commentary - Fundamental Outlook
€
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3725 level and was supported around the $1.3685 level. Technically, the pair continues to orbit the 23.6% retracement of the move from $1.3260 to $1.3850. Many data were released in the U.S. today. First, the Q2 employment cost index rose 0.9% while benefit costs were up 1.3% - the largest increase since Q1 2005. Second, June personal spending was up +0.1% and June personal incomes were up +0.4%. Third, the core PCE price index was up +0.1% m/m and +1.9% y/y, within the Federal Reserve's perceived 1% to 2% comfort zone. Fourth, July consumer confidence improved to 112.6 from 105.3 in June, a six-year high. Fifth, June construction spending was down 0.3%, defying expectations of a +0.2% increase. Sixth, the July Chicago PMI survey fell to 53.4 from 60.2 in June. The new orders component of the survey was down sharply while manufacturing input prices were up with the prices paid component up to 73.1 from 68.1 in June. Traders await tomorrow's ISM report followed by Friday's all-important July non-farm payrolls report. In eurozone news, preliminary July harmonized consumer price inflation moderated to +1.8% from +1.9% in June. Also, the EMU-13 July economic sentiment indicator fell back to 111.0 from 111.7 in June. Eurozone unemployment moderated to 6.9% in June, unchanged from a downwardly revised figure in May. These data confirm that employment is increasing in the eurozone and European Central Bank policymakers will pay close attention to any wage-driven inflation that results. Other data released today saw Germany's July jobless rate at 3.715 million, up 28,000 from June, while June retail sales were up 0.7% m/m and off 0.8% y/y. Euro bids are cited around the US$ 1.3625 level.
¥/ CNY
The yen came off vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥119.50 level and was supported around the ¥118.75 level. Technically, today's intraday low was just below the 50% retracement of the move from ¥115.15 to ¥124.15. Many data were released in Japan overnight. First, the unemployment rate fell to a nine-year low of 3.7% in June from 3.8% in May. Second, household spending was up 0.1% y/y, below forecasts. Third, overall household income was up 7.6% y/y. Fourth, average monthly cash earnings were off 1.1% y/y. Fifth, June construction orders were up 26.4% y/y. Sixth, June housing starts were up 6.0% y/y, the first rise in three months. Seventh, June orders by the 50 largest contractors were up 26.4% y/y. Bank of Japan announced it will begin to sell shares over a ten-year period that it began purchasing from banks in September 2002 to support the market. BoJ purchases about ¥2 trillion as part of the plan and will gradually reduce its holdings. The Nikkei 225 stock index lost 0.23% to close at ¥17,248.89. Dollar bids are cited around the ¥117.25 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥163.80 level and was supported around the ¥162.65 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥242.90 and ¥99.15 levels, respectively. In Chinese news, the yuan's central parity rate vis-à-vis the U.S. dollar was set at CNY 7.5737, down from CNY 7.5824. U.S. Treasury Secretary Paulson continues his visit to China in which he is calling on China's leadership to allow the yuan to strengthen further. Data released in China today saw June consumer confidence print at 97.5, up from 96.7 in May.
₤
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 2.0340 level and was supported around the US$ 2.0235 level. Traders await the outcome of this week's Bank of England Monetary Policy Committee meeting with most expecting the central bank to keep the repo rate unchanged at 5.75%. Many dealers believe the MPC will lift the repo rate by +25bps to 6.00% by the end of the year with some hawks expecting a repo rate as high as +6.25% by the end of the year. Data released in the U.K. today saw the July GfK/ NOP headline consumer confidence index retreat to -6 from -3 in June. Also, the CBI retail sales survey saw a balance of +18% y/y of retailers saw higher sales in July, up from +17% in June. Cable bids are cited around the US$ 2.0135 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6735 level and was capped around the ₤0.6765 level.
CHF
The Swiss franc came off marginally vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2065 level and was supported around the CHF 1.2010 level. Technically, today's intraday high was right around the 50% retracement of the move from CHF 1.1960 to CHF 1.2165. Data released in Switzerland today saw the June UBS private consumption indicator rise to +2.31 from +2.10 in May. Dollar offers are cited around the CHF 1.2080/ 1.2155 levels. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6525 and CHF 2.4515 levels, respectively.
DISCLAIMER : GCI's Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.
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