EURUSD 1.1851 |
USDJPY 111.52 |
GBPUSD 1.3772 |
AUDUSD 0.7485 |
USDCAD 1.2406 |
GBPJPY 153.59 |
EURJPY 132.15 |
AUDJPY 83.48 |
CADJPY 89.86 |
Silver 26.23 |
China's Currency Trick خدعة عُملة اليوان
China's priority to make the yuan a lending currency instead of a reserve or invoicing currency. Here is what/why it means.
Latest Charts EURGBP & Gold مخططات
Here are the latest levels in EURGBP & GOLD discussed earlier with the WhatsApp Bdcst Group.
View Hot-Chart..
Unfortunately, the answer to the fiscal austerity question isnt black and white. There is no question that countries cannot run these kinds of enormous deficits without getting into trouble. Deficit hawks point to the Britain under Margaret Thatcher and the benefits of that painful restructuring.
While the Thatcher experience is instructive, there is a differences between then and now. Thatchers Britain was the only country in the region to take the deficit reduction path at the time. It worked because of my favorite economist phrase everything else being equal. What happens everything else wasnt equal and if everyone tries austerity at the same time? Martin Wolf of the FT explains [emphasis added]:
[S]uch thrift entails either current account surpluses or fiscal deficits. Of these countries, only Germany and Japan have current account surpluses. The rest are capital importers. These countries will duly run fiscal deficits that are bigger than their private surpluses. We have, as the hysterics note, a tide of fiscal red ink. Which came first private retrenchment or fiscal deficits? The answer is: the former. In the case of the US, the huge shift in the private balance between the fourth quarter of 2007 and the second quarter of 2009, from a deficit of 2.2 per cent of GDP to a surplus of 6.6 per cent, coincided with the financial crisis. The fact that aggregate demand and long-term interest rates tumbled at the same time shows that the collapse in private spending crowded in the fiscal deficits. Wild private behaviour drove the wild public behaviour.
Yet it would now be particularly damaging for fiscal austerity to overcome the European economy and so force beggar-my-neighbour outcomes on the hapless US. As Fred Bergsten of the Peterson Institute for International Economics in Washington noted in the FT last week, such policies could be very dangerous. Thus, far from being stabilising, premature fiscal retrenchment threatens destabilisation of the world economy. In this case, a decision to turn the eurozone into a huge Germany would and should be seen as an act of mercantilist warfare upon the US. How long would the latter put up with the hypocrisy of surplus countries that blame borrowers for the deficits their own surpluses make inevitable? Not much longer, would be my guess, at least now that the US government has become the worlds borrower of last resort.to be a balance.
New Keynesians like Paul Krugman believe that its far too early for austerity and such policies would be disastrous for the world economy. Indeed, it may be somewhat early to implement austerity programs. In their book This Time is Different, economists Reinhart and Rogoff studied a range of financial crises throughout history and observed that government debt rises an average of 86% after a banking crisis.
The US states as fiscal laboratories
Consider what would happen if that kind of budget cutting were to occur in the US. We have a laboratory in America: the states, which are required to be balance their budgets. The New York Times reports that individual states are starting to look like Greece. Time has written on the dire state of the states. California is on the verge of system failure and that experience is not isolated. Barry Ritholz pointed out that much of the state budget woes stem from unemployment. State budget austerity is therefore pro-cyclical, which would exacerbate the problem.
What about the muni market?
This is a recipe for disaster in the financial markets. The muni market seems to be oblivious to the coming storm. Minyanville recently reported that investors are flying to municipal bonds like moths to a flame. I agree with Rick Bookstaber that the municipal bond market is an accident waiting to happen.
What happens then? TARP for state and local governments? What happens to sovereign debt risk then?
Remember the adage that all politics are local and populist sentiment is sure to rise under such circumstances. The Globe and Mail quoted Warren Buffett as believing that bailouts are inevitable:
Billionaire Warren Buffett, who advised U.S. President Barack Obama during his White House run, suggested recently that a Washington bailout of California and other troubled states is inevitable. How, he wondered, can Washington deny California after saying yes to General Motors, AIG and dozens of banks.
Do we want to really want to see the US government pile on with fiscal austerity at the federal level?
In the near term, the main focus of attention will be on the US June jobs report released at the end of the week. Non-farm payrolls are set to record a decline over the month due to a reversal in census hiring, with a consensus expectation of a 110k fall. Private sector hiring is likely to record a positive reading, however, suggesting some improvement in the underlying trend in jobs growth, albeit a very gradual one. Downside risks to consensus suggest plenty of scope for disappointment.
Interestingly, weaker US data of late, has managed to restrain the USD, suggesting that cyclical factors and not just risk aversion are beginning to play into FX movements. Notably the USD was on the back foot against a number of currencies as last week progressed. Even the beleaguered EUR managed to end the week well off its weekly low and close to where it closed the previous week whilst risk currencies such as the AUD and NZD as well as GBP also posted firm performances.
Perhaps some reversal of the optimism towards US recovery prospects give USD bulls some cause for concern, but pressure is likely to prove temporary, especially given that the US economy is still on course to outperform many other major economies. Over the short-term, especially ahead of the US jobs report markets are set to remain cautious with range trading likely to dominate in the week ahead, suggesting that EUR/USD is unlikely to breach the key level of 1.2500. GBP performance has been robust but even this currency is likely to make much headway above GBP/USD 1.5000, where there are likely to be plenty of sellers.
June 27, 2010
As last week progressed there was a clear deterioration in sentiment as growth worries crept back into the market psyche. It all started well enough, with a positive reaction to Chinas de-pegging of the CNY but the euphoria faded as it became evident that there was still plenty of two-way risk on the CNY. A change in Prime Minister in Australia, which fuelled hopes of a resolution to a controversial mining tax, and an austere budget in the UK, were also key events. However, sentiment took a hit as the Fed sounded more cautious on the US economy in its FOMC statement.
The US Congress finalised a major regulatory reform bill towards the end of the week and markets, especially financial stocks, reacted positively as the bill appeared to give some concessions to banks and was not as severe as feared. However, equity market momentum has clearly faded against the background of renewed growth concerns including sprouting evidence of a double-dip in the US housing market as well as fresh worries about the European banking sector. As if to demonstrate this US Q1 GDP was duly revised lower once again, to a 2.7% annualised rate of growth.
The US Independence Day holiday and World Cup football tournament will likely keep liquidity thin in the run up to month and half year end. However, there is still plenty to digest this week including the all important employment report and consumer confidence data in the US. In Europe economic sentiment gauges, purchasing managers indices and the flash CPI estimate will be in focus. Elsewhere, Japans Tankan survey and usual slate of month end Japanese releases, Switzerlands KoF leading indicator and Australian retail sales will be of interest.
On balance, economic data this week is unlikely to relieve growth concerns, with Eurozone, US and UK consumer and manufacturing confidence indicators likely to post broad based declines due to a host of factors. The data will further indicate a slowing in growth momentum following Q2 2010, with forward looking surveys turning lower, albeit gradually. Whilst a double-dip scenario still seems unlikely there can be no doubt that austerity measures and the waning of fiscal stimulus measures are beginning to weigh on growth prospects even if there is still plenty of optimism for emerging market and particularly Asian growth prospects.
This suggests that Q3 could turn into a period of heightened uncertainty in which equity markets and risk assets will struggle to gain traction. In addition to growth worries, some tensions in money markets remain in place whilst banking sector concerns seem to be coming back to the fore, especially in Europe and these factors will prevent a sustained improvement in risk appetite from taking place over the coming quarter. Some more clarity may come from the results of European stress tests but much will depend on just how stressful the tests are.
Housing bulls are coming out of the woodwork just as housing is about to collapse for the second time. http://globaleconomicanalysis.blogspot.com/2010/06/inane-thoughts-of-day-cnnmoney-article.html
Jim,MtnViewCA,USA says:Today, 19:59:58
Off topic, but it seems possible that the Dems will suffer a big defeat in Fall elections. There is talk of, not a "lame" duck, but a "mad duck" Congress passing laws blatantly opposed to good governance.
Here is one example-- http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/house-shreds-our-constitution-for-raw-ugly-partisan-gain-by-vote-of-219-206-97108044.html
a snip below--
The language in question would exempt from disclosure requirements transfers of cash from dues-funded groups ... inserted into the bill by Rep. Robert Brady (D-Pa.), chairman of the House Administration Committee and a big union backer.
So unions now get nearly unrestricted, undisclosed political spending. Further, the restrictions in the DISCLOSE Act only cut one way against business. If you took TARP funds as a business, express political advocacy is now verboten. So GM has very limited first amendment rights, but even though arguably primary beneficiary of the auto bailout was the United Auto Workers union which got government garunteed billions directly as a result of the TARP funding UAW can spend almost whatever it pleases ...
Further, under the DISCLOSE Act if a company has more than $7 million in government contracts, it has no right to political speech. But public sector unions can spend millions of recycled tax dollars campaigning for Democrats, no problem.
Nice vote of confidence for the beleaguered euro.
U.S. Economy Grew by 2.7% in First Quarter, Less Than Previously Estimated
Stocks, Copper Fall, U.S. Index Futures Fluctuate; Yen Gains Against Euro
Spanish, German Regional Banks Might Be Included in European Stress Tests
EU Said To Discuss Applying Stress Tests To Cajas, Landesbanken
EU officials meeting in Brussels to discuss whether Spanish savings banks and Germanys state-owned regional Landesbanken should be included in current round of stress tests.
Some Hope For Relief Rally After Finreg Deal
Bank shares have been shunned in recent days over the uncertainty surrounding negotiations over financial regulatory reform. Now that a deal has been concluded, the hope is that bank shares rebound a bit.
Looks Like That German Politician Was On To Something
Greece is indeed selling land on its islands to help pay down debt
Q1 GDP Falls To 2.7%
Consumer spending falls to 3.0% from an earlier 3.5% reading
Business investment revised to 2.2% from 3.1% previously
The PCE price index rose to 1.6% from 1.5%
A disappointing set of figures, especially as Q2 is shaping up to be softer.
Chinese Central Banker: No Basis For Big CNY Appreciation
Reuters quotes a Chinese central banker as saying that there is no basis for a big appreciation in the yuan but that the currency will have more price flexibility. Yuan policy will have limited impact on global economy prices, he says. More reform of the international monetary system is need to solve global imbalances.
Markets are range trading in quiet pre-G20 trade. Expect news wires to be busy today as world leaders, finance ministers and central bankers gather in Toronto
EUR/USD trades at 1.2285 after a pop back above 1.2300 a short while ago. Central bank bids are rumored between 1.2250/70. It trades at 1.2290
At least at this early, early hour, the general tone of the market looks negative. Europe is down across the board, while the US is generally, though not wildly, negative.