--Futures decline as US oil inventories rise to a seven-month high
--Oil recently down 2% to $105.14/bbl
--France's statements on strategic oil release also weigh
NEW YORK -- Crude-oil futures fell Wednesday as U.S. oil inventories surged higher and a French official said the country is considering whether to release oil from its strategic reserves.
Light, sweet crude oil for May delivery recently traded $2.19, or 2%, lower at $105.14 a barrel on the New York Mercantile Exchange after moving below $105 a barrel. Brent crude oil on the ICE futures exchange traded $1.71 lower at $123.83 a barrel.
Crude-oil prices, which fell throughout the session Wednesday, declined further after the U.S. Energy Information Administration reported that U.S. oil stockpiles rose by 7.1 million barrels last week to a seven-month high. Analysts had expected a more modest 2.2-million-barrel increase, and the larger build suggested that, at least in some parts of the U.S., supplies are plentiful.
"It's huge," Tony Rosado, a broker at GA Global Markets, said of the inventory report. "If you've been fighting against this market at $106, $107, these numbers should make you a happy camper. The market should be working lower."
Gasoline stockpiles fell by 3.5 million barrels, the EIA said, with some of those declines reflecting a change to summer-grade fuels from winter-grade fuels. Analysts had expected a 1.5-million-barrel drop. Stocks of distillates, which include heating oil and diesel fuel, fell by 700,000 barrels.
Gasoline futures pared early losses on the inventory drop, with front-month April reformulated gasoline blendstock, or RBOB, recently trading 3.81 cents lower at $3.3675 a gallon after falling as low as $3.3439 earlier in the session.
Still, the weekly data added to worries among oil traders that prices are due for a correction. Earlier Wednesday, new speculation that developed countries will release oil from their strategic stockpiles in an effort to combat high crude-oil prices sent futures lower.
France is working "alongside the U.S. and the U.K. in the consultation with the IEA [International Energy Agency], which could allow reserves to be used," said French government spokeswoman Valerie Pecresse on Wednesday.
The statements follow pledges earlier this month from U.S. and U.K. leaders that they will keep open discussion about an oil release. But last week, the IEA's executive director said the agency hadn't discussed plans for a release with its members.
"It's looking more and more like they are going to go ahead and do it," said Carl Larry, head of trading adviser Oil Outlooks and Opinions.
A release of oil from strategic stockpiles would bring futures prices back to near $100, Larry said, though he said he doubted a release will have much of a long-term impact.
Oil prices in recent weeks have held in a narrow band between $105 and $110 a barrel, as investors are worried that any push higher would convince developed nations to provide additional supplies.
Smaller price swings suggest a larger break in prices one way or the other is ahead, said Rich Ilczyszyn, a broker at II Trader in Chicago.
"The daily ranges are getting tighter and tighter and tighter. Something is going to happen when the market is consolidating like this," Ilczyszyn said.
April heating oil recently traded 2.28 cents, or 0.7%, lower at $3.1958 a gallon.
Thursday, 29 March 2012
Fitch: Global Econ Recovery Modest; Euro-Zone Recession Likely In 1H
Fitch Ratings said it believes short-term risks to the global economy have eased over the past few months, though it continues to expect a bumpy recovery among the world's major advanced economies, particularly in Europe.
Pointing to a 0.3% decline in the euro zone's fourth-quarter gross domestic product and other weak economic data, Fitch said it believes a recession in the first half of 2012 is likely for the region.
Euro-zone businesses suffered their first fall in exports in two-and-a-half years in the fourth quarter, underscoring the real economic impact of the region's massive sovereign debt crisis.
In contrast to problems in Europe, Fitch said the recovery in the U.S. has gained momentum, supported by the stronger-than-expected improvement in the labor market and a seeming strengthening of confidences among businesses and households.
In line with those improvements, Fitch raised its forecast for U.S. growth this year to 2.2% from 1.8%. It kept its 2013 forecast unchanged at 2.6%.
As a whole, Fitch expects the growth of major advanced economies to remain weak at 1.1% this year, a slight revision from the 1.2% growth last predicted in December. The firm also notched down its expectations for next year, to 1.8% growth from 1.9% previously seen.
Pointing to a 0.3% decline in the euro zone's fourth-quarter gross domestic product and other weak economic data, Fitch said it believes a recession in the first half of 2012 is likely for the region.
Euro-zone businesses suffered their first fall in exports in two-and-a-half years in the fourth quarter, underscoring the real economic impact of the region's massive sovereign debt crisis.
In contrast to problems in Europe, Fitch said the recovery in the U.S. has gained momentum, supported by the stronger-than-expected improvement in the labor market and a seeming strengthening of confidences among businesses and households.
In line with those improvements, Fitch raised its forecast for U.S. growth this year to 2.2% from 1.8%. It kept its 2013 forecast unchanged at 2.6%.
As a whole, Fitch expects the growth of major advanced economies to remain weak at 1.1% this year, a slight revision from the 1.2% growth last predicted in December. The firm also notched down its expectations for next year, to 1.8% growth from 1.9% previously seen.
ECB Cash Not Yet Benefiting Private Sector
-- ECB cash benefits governments, financial markets
-- ECB cash hasn't reached real economy
-- Italian sentiment improves, bond sales solid
-- Greece, Spain remain sore spots, ECB data show
FRANKFURT -- The European Central Bank's massive injections of cash into the banking system haven't yet reached companies and households but have benefited governments and improved market sentiment, as evidenced by various data released Wednesday.
Any signs that the ECB money is reaching the private sector "so far are disappointing and tight credit conditions remain a concern for euro-zone growth prospects," said Howard Archer, economist at IHS Global Insight.
Growth in lending to companies and households in the euro zone slowed sharply in February in annual terms compared with the previous month while the increase in lending to governments accelerated, ECB data showed.
Bank lending growth to the private sector slowed to 0.7% in February compared with the year-earlier period, after rising by an unrevised 1.1% in January, unadjusted ECB data showed.
Prompted by a deepening of the euro-zone debt crisis in the last five months of 2011, the ECB has lent more than EUR1 trillion to banks operating in the euro zone in recent months via its three-year loans in an effort to prevent a credit crunch and boost lending.
The ECB's long-term refinancing operations, or LTROs, have succeeded in averting the credit crunch. An important gauge of European banks' willingness to lend to their peers, the Euro Interbank Offered Rate, or Euribor, continued to ease Wednesday due to the plentiful ECB cash despite recent strains felt in Italian and Spanish government bond markets. Euribor--which measures the cost of borrowing euros for three months in the European interbank market--fell and was fixed at 0.787% Wednesday, down from 0.790% Tuesday. The rate was above 1.4% in early December.
Thanks to the ECB funds, banks' lending to governments grew at a 6.0% rate in February from 4.9% in January though lending to other parts of the economy remained weak.
Purchases of euro-area government debt by banks rose sharply, ECB figures show. Portuguese banks bought EUR4.24 billion worth of government bonds in February, versus only EUR543 million in January. Greek banks purchased government bonds to a value of EUR4.12 billion, a swing from being net sellers of bonds worth EUR128 million in January.
Italian banks bought a staggering EUR23 billion in euro-area government debt last month, even more than the EUR22.6 billion they bought in January in the immediate aftermath of the first LTRO. Spanish banks reduced their net purchases from EUR22.9 billion to a still-hefty EUR15.7 billion.
One beneficiary of the ECB cash has been the Italian government, which is also enjoying renewed investor confidence in the wake of Prime Minister Mario Monti's austerity measures.
The Italian Treasury Wednesday continued its series of solid debt sales, as newly confident investors accepted lower yields than at a similar auction a month ago, despite recent yield rises in secondary markets.
"Italy has gained the most in the post-LTRO landscape," said Nicholas Spiro, managing director at Spiro Sovereign Strategy, adding that the market is becoming more concerned about country-specific risks as the LTRO's psychological boost wanes.
Italy's business confidence index inched up in March as the outlook for production improved even though the prospects for orders languished, national statistics institute Istat said Wednesday. The manufacturing business confidence index rose to 92.1 in March from 91.7 in February.
Istat's separate quarterly survey of Italian exporters reported a decline in the number of complaints about access to credit but an increase in worries about cost factors, likely representing rising transportation costs in the wake of steeply higher oil prices.
But the ECB hasn't succeeded yet in its efforts to boost actual lending to the private sector. Bank lending growth to companies slowed in February to 0.4% from 0.7% in January and lending growth to households hardly changed at 1.2%, versus 1.3% in the previous month, adjusted data showed.
That confirms the ECB's warning that it may take several months for the three-year LTROs to feed through to the real economy.
"Money and credit growth may remain subdued for some time, before strengthening as a result of these three-year [loans] albeit recent data on money and credit growth also need to be seen in the context of the current subdued economic activity," the ECB said in its monthly bulletin earlier this month.
Negative signs continued to come from Greece and Spain. Adjusted ECB data show that deposits at Greek banks were just EUR170 billion in February, down from the peak of EUR245 billion in December 2009, after a drop of EUR4 billion in February and a EUR5 billion drop in January, Barclays Capital said. Spanish deposits fell by EUR6.4 billion, after a drop of EUR16.8 billion in January.
The wall of ECB cash so far poses no upward pressure on inflation. German inflation fell to 0.3% on the month and 2.1% on the year in March, from 0.7% and 2.3%, respectively, in February, official preliminary estimates showed Wednesday. Oil and clothing prices were the boosters while cheaper package holidays kept overall prices lower.
With energy and food prices stripped out, German core inflation remains well below the ECB's 2% price-stability ceiling, said economist Annalisa Piazza at Newedge. "Underlying pressures are non-existent as also suggested by the poor monetary aggregate report" from the ECB, Piazza added.
-- ECB cash hasn't reached real economy
-- Italian sentiment improves, bond sales solid
-- Greece, Spain remain sore spots, ECB data show
FRANKFURT -- The European Central Bank's massive injections of cash into the banking system haven't yet reached companies and households but have benefited governments and improved market sentiment, as evidenced by various data released Wednesday.
Any signs that the ECB money is reaching the private sector "so far are disappointing and tight credit conditions remain a concern for euro-zone growth prospects," said Howard Archer, economist at IHS Global Insight.
Growth in lending to companies and households in the euro zone slowed sharply in February in annual terms compared with the previous month while the increase in lending to governments accelerated, ECB data showed.
Bank lending growth to the private sector slowed to 0.7% in February compared with the year-earlier period, after rising by an unrevised 1.1% in January, unadjusted ECB data showed.
Prompted by a deepening of the euro-zone debt crisis in the last five months of 2011, the ECB has lent more than EUR1 trillion to banks operating in the euro zone in recent months via its three-year loans in an effort to prevent a credit crunch and boost lending.
The ECB's long-term refinancing operations, or LTROs, have succeeded in averting the credit crunch. An important gauge of European banks' willingness to lend to their peers, the Euro Interbank Offered Rate, or Euribor, continued to ease Wednesday due to the plentiful ECB cash despite recent strains felt in Italian and Spanish government bond markets. Euribor--which measures the cost of borrowing euros for three months in the European interbank market--fell and was fixed at 0.787% Wednesday, down from 0.790% Tuesday. The rate was above 1.4% in early December.
Thanks to the ECB funds, banks' lending to governments grew at a 6.0% rate in February from 4.9% in January though lending to other parts of the economy remained weak.
Purchases of euro-area government debt by banks rose sharply, ECB figures show. Portuguese banks bought EUR4.24 billion worth of government bonds in February, versus only EUR543 million in January. Greek banks purchased government bonds to a value of EUR4.12 billion, a swing from being net sellers of bonds worth EUR128 million in January.
Italian banks bought a staggering EUR23 billion in euro-area government debt last month, even more than the EUR22.6 billion they bought in January in the immediate aftermath of the first LTRO. Spanish banks reduced their net purchases from EUR22.9 billion to a still-hefty EUR15.7 billion.
One beneficiary of the ECB cash has been the Italian government, which is also enjoying renewed investor confidence in the wake of Prime Minister Mario Monti's austerity measures.
The Italian Treasury Wednesday continued its series of solid debt sales, as newly confident investors accepted lower yields than at a similar auction a month ago, despite recent yield rises in secondary markets.
"Italy has gained the most in the post-LTRO landscape," said Nicholas Spiro, managing director at Spiro Sovereign Strategy, adding that the market is becoming more concerned about country-specific risks as the LTRO's psychological boost wanes.
Italy's business confidence index inched up in March as the outlook for production improved even though the prospects for orders languished, national statistics institute Istat said Wednesday. The manufacturing business confidence index rose to 92.1 in March from 91.7 in February.
Istat's separate quarterly survey of Italian exporters reported a decline in the number of complaints about access to credit but an increase in worries about cost factors, likely representing rising transportation costs in the wake of steeply higher oil prices.
But the ECB hasn't succeeded yet in its efforts to boost actual lending to the private sector. Bank lending growth to companies slowed in February to 0.4% from 0.7% in January and lending growth to households hardly changed at 1.2%, versus 1.3% in the previous month, adjusted data showed.
That confirms the ECB's warning that it may take several months for the three-year LTROs to feed through to the real economy.
"Money and credit growth may remain subdued for some time, before strengthening as a result of these three-year [loans] albeit recent data on money and credit growth also need to be seen in the context of the current subdued economic activity," the ECB said in its monthly bulletin earlier this month.
Negative signs continued to come from Greece and Spain. Adjusted ECB data show that deposits at Greek banks were just EUR170 billion in February, down from the peak of EUR245 billion in December 2009, after a drop of EUR4 billion in February and a EUR5 billion drop in January, Barclays Capital said. Spanish deposits fell by EUR6.4 billion, after a drop of EUR16.8 billion in January.
The wall of ECB cash so far poses no upward pressure on inflation. German inflation fell to 0.3% on the month and 2.1% on the year in March, from 0.7% and 2.3%, respectively, in February, official preliminary estimates showed Wednesday. Oil and clothing prices were the boosters while cheaper package holidays kept overall prices lower.
With energy and food prices stripped out, German core inflation remains well below the ECB's 2% price-stability ceiling, said economist Annalisa Piazza at Newedge. "Underlying pressures are non-existent as also suggested by the poor monetary aggregate report" from the ECB, Piazza added.
MARKET TALK: Treasurys Pare Gains On EU Bailout Report
The safe-haven market's strength got a dent as Bloomberg TV, citing a draft, reported that EU is set to boost bailout funding cap to $651.8bln to fight the region's debt crisis. But the reaction is pretty muted as bond prices just slightly bounce off the session peaks because Germany earlier this week had dropped its opposition to a large cash infusion. The biggest fund provider in the euro zone agrees to let the EFSF run in parallel with a more permanent bailout mechanism. The benchmark 10-yr note is recently 2/32 higher to yield 2.18%. The yield hit 2.157% earlier as US stocks slip.
MARKET TALK: Euro Reverses Losses On ECB Policy Talk, Firewall Report
EUR/USD trades near 1.33, all but reversing session losses as ECB's Constancio says euro-zone monetary policy must become "less asymmetric" after the debt crisis has been stamped out. The headlines dovetail with a Bloomberg report that Europe may boost its bailout facility to EUR940 billion for the year, according to a draft the news service cites. If the report is accurate, that would alleviate concerns that the fund is too small to firewall Portugal and increasingly embattled Spain. And with Italy retreating further from the radar, a boosted bailout facility may -- in theory -- have just enough resources on hand to contend with struggling peripheral nations.
MARKET TALK: Recovering Municipalities Need Better PR
Investors don't have a good understanding on what some troubled municipalities have done to improve their finances, and "it's incumbent on you as a municipality coming out of distress to take a really hard look at how you communicate with the market," says Philadelphia Treasurer Nancy Winkler at a distressed-municipalities conference in the city. She notes a "really eye-opening conversation" she had with a "major market maker" who thought Philadelphia only had 700K residents when the actual figure is about 1.5M. "We're trying to put a lot more information out there that gives people a better handle of what's going on in the city." An authority was created to oversee Philadelphia's finances in 1991.
MARKET TALK: What To Expect When You're Expecting A Canadian Budget
"If you think you're going to get a very draconian budget tomorrow, you're wrong," says RBC's Ian Pollick. When Canada's Conservative government presents its budget Thursday, RBC expects to see a deficit figure that is better than initial guidance, and a budget plan that lays out a reallocation of funds, but no "strict austerity." With Canada's economy doing quite alright, Pollick said there's a better-than-even chance the budget could foretell of an earlier-than-currently planned closing of the fiscal gap. The Conservatives are calling for a balanced budget in fiscal 2015-16, having previously called for balance in fiscal 2014-15. Maybe they'll bring back that 2014-15 call, muses Pollick.
Treasury To Save With New Coins, Less Paper
WASHINGTON -- Treasury Secretary Tim Geithner outlined how his department will find savings, including $286 million in the next fiscal year, by changing the materials that go into coins, replacing paper with electronic communications and consolidating internal agencies.
The effort to find efficiencies is part of a broader effort by the Obama administration to reduce budget deficits by $4 trillion over the next 10 years.
Geithner, in written testimony prepared for the House Committee on Appropriations, said a good portion of next year's savings at Treasury will come from changing the composition of U.S. coins to more cost-effective materials.
"Currently, the costs of making the penny and the nickel are more than twice the face value of each of those coins," Geithner said in his remarks.
Changing the makeup of coins and improving the efficiency of currency production will save more than $75 million in the next fiscal year. In addition, the suspension of presidential dollar coin production, announced in December, will save another $50 million.
Geithner said the department is also finding savings by encouraging electronic communication instead of paper. For example, this year 77% of taxpayers will file returns online. Treasury has saved $63.9 million since 2009 by encouraging electronic filing.
Treasury is also working to consolidate the Bureau of the Public Debt and the Financial Management Service. This consolidation will save $36 million over five years, Geithner said.
Geithner said the broader deficit reduction plan outlined in the president's 2013 budget is "sufficient to stabilize our debt as a share of the economy by 2015."
The effort to find efficiencies is part of a broader effort by the Obama administration to reduce budget deficits by $4 trillion over the next 10 years.
Geithner, in written testimony prepared for the House Committee on Appropriations, said a good portion of next year's savings at Treasury will come from changing the composition of U.S. coins to more cost-effective materials.
"Currently, the costs of making the penny and the nickel are more than twice the face value of each of those coins," Geithner said in his remarks.
Changing the makeup of coins and improving the efficiency of currency production will save more than $75 million in the next fiscal year. In addition, the suspension of presidential dollar coin production, announced in December, will save another $50 million.
Geithner said the department is also finding savings by encouraging electronic communication instead of paper. For example, this year 77% of taxpayers will file returns online. Treasury has saved $63.9 million since 2009 by encouraging electronic filing.
Treasury is also working to consolidate the Bureau of the Public Debt and the Financial Management Service. This consolidation will save $36 million over five years, Geithner said.
Geithner said the broader deficit reduction plan outlined in the president's 2013 budget is "sufficient to stabilize our debt as a share of the economy by 2015."
WSJ BLOG/MarketBeat: Goldman Sachs: Buy Gold!
Hey gold bugs, Goldman Sachs reiterates this morning that investors should buy the precious medal.
Goldman Sachs remains bullish on gold, citing low interest rates and subdued economic growth as catalysts for gold prices to rise this year.
Goldman economists expect another round of quantitative easing from the Federal Reserve will weigh on the U.S. dollar and push gold higher. From Goldman:
Gold prices remain too low relative to the current level of real rates. Under our gold framework, US real interest rates are the primary driver of US$-denominated gold prices. However, after being remarkably strong in the first half of 2011, this relationship broke down last fall, with gold prices falling sharply in the face of declining US real rates, as tracked by 10-year TIPS yields. While gold prices have returned to trading with a strong inverse correlation to US real rates since late December, at sub-$1,700/toz they remain below the level implied by the current 10-year TIPS yields.
The gold market's expectation that real rates would be rising along with economic growth may help explain this valuation gap. We believe that despite last fall's decline in 10-year TIPS yields, the gold market may have been expecting that real rates would soon be rising along with better economic growth, leading to a sharp decline in net speculative length in gold futures. Accordingly, a simple benchmarking of real rates to US consensus growth expectations suggested a level of +40 bp by year end. Our models suggest this higher level of real rates would be consistent with the current trading range of gold prices. As we look forward, our US economists expect subdued growth and further easing by the Fed in 2012, which should push the market's expectations of real rates back down near 0 bp and gold prices back to our 6-mo forecast of $1,840/toz.
Goldman has three, six and 12-month price forecasts for gold of $1785, $1840 and $1940 a troy ounce, respectively.
The big caveat to Goldman's call is strengthening U.S. economic data, which would represent a growing risk for gold, the firm says.
"We reiterate our view that at current price levels gold remains a compelling trade but not a long-term investment," Goldman says.
Gold prices rallied earlier today and touched a two-week high. But prices have weakened throughout the day. The most actively traded contract for April delivery recently fell $12.50, or 0.7%, to $1672.30 a troy ounce.
Goldman Sachs remains bullish on gold, citing low interest rates and subdued economic growth as catalysts for gold prices to rise this year.
Goldman economists expect another round of quantitative easing from the Federal Reserve will weigh on the U.S. dollar and push gold higher. From Goldman:
Gold prices remain too low relative to the current level of real rates. Under our gold framework, US real interest rates are the primary driver of US$-denominated gold prices. However, after being remarkably strong in the first half of 2011, this relationship broke down last fall, with gold prices falling sharply in the face of declining US real rates, as tracked by 10-year TIPS yields. While gold prices have returned to trading with a strong inverse correlation to US real rates since late December, at sub-$1,700/toz they remain below the level implied by the current 10-year TIPS yields.
The gold market's expectation that real rates would be rising along with economic growth may help explain this valuation gap. We believe that despite last fall's decline in 10-year TIPS yields, the gold market may have been expecting that real rates would soon be rising along with better economic growth, leading to a sharp decline in net speculative length in gold futures. Accordingly, a simple benchmarking of real rates to US consensus growth expectations suggested a level of +40 bp by year end. Our models suggest this higher level of real rates would be consistent with the current trading range of gold prices. As we look forward, our US economists expect subdued growth and further easing by the Fed in 2012, which should push the market's expectations of real rates back down near 0 bp and gold prices back to our 6-mo forecast of $1,840/toz.
Goldman has three, six and 12-month price forecasts for gold of $1785, $1840 and $1940 a troy ounce, respectively.
The big caveat to Goldman's call is strengthening U.S. economic data, which would represent a growing risk for gold, the firm says.
"We reiterate our view that at current price levels gold remains a compelling trade but not a long-term investment," Goldman says.
Gold prices rallied earlier today and touched a two-week high. But prices have weakened throughout the day. The most actively traded contract for April delivery recently fell $12.50, or 0.7%, to $1672.30 a troy ounce.
ECB Allots EUR25.127 Bln In Three-month LTRO
Banks tapped the European Central Bank for EUR25.127 billion Wednesday in its first three-month refinancing operation, since the ECB pumped more than EUR1 billion into the euro-zone banking system through two three-year loan operations.
In February, the same day when the ECB allotted EUR529.53 billion of three-year loans at a 1% interest rate, the central bank also allotted EUR6.496 billion of three-month loans.
Wednesday's allotment indicates that three-month borrowing has probably returned to levels seen before the three-year tenders.
Wednesday's offer attracted 48 bids. The ECB doesn't disclose the identity of the bidders by any measure.
In February, the same day when the ECB allotted EUR529.53 billion of three-year loans at a 1% interest rate, the central bank also allotted EUR6.496 billion of three-month loans.
Wednesday's allotment indicates that three-month borrowing has probably returned to levels seen before the three-year tenders.
Wednesday's offer attracted 48 bids. The ECB doesn't disclose the identity of the bidders by any measure.
Euro Area Fin Mins To Consider Accelerating Paid-In Capital Into Firewall -EU Official
Euro area countries are strongly considering paying cash into the currency union's firewall faster in order to raise its ability to lend money to countries in trouble, a senior European Union official said Wednesday.
The finance ministers of the 17 countries that use the euro will discuss this option as part of their decision on how to boost the firewall--the combined war-chest of the euro area's permanent and temporary rescue funds--in Copenhagen Friday.
The fund, known as the European Stability Mechanism, or ESM, has to hold approximately 15% of capital against its lending capacity. So far the arrangement was that the EUR80 billion in paid-in capital would be paid by the countries in five tranches of some EUR16 billion each.
Two of these tranches, amounting to a total of EUR32 billion, are set to be paid in July 2012 when the ESM becomes operational. But that money would only raise the ESM's lending capacity to roughly EUR200 billion, less than half of the fund's full EUR500 billion capacity.
The senior official said that "what you have is a possibility of accelerating further the [remaining] three tranches... [paying] two into 2013 and one into 2014" and added that that "pulls forward the overall disbursement capacity of the ESM as a certain ratio needs to be maintained at all times."
The official also said a decision on the new member of the European Central Bank board was expected at the same summit of finance ministers Friday.
"The main support has been gathering around the Luxembourgish and the Spanish candidates and there is a strong expectation that a decision will be reached on Friday," the official said.
The finance ministers of the 17 countries that use the euro will discuss this option as part of their decision on how to boost the firewall--the combined war-chest of the euro area's permanent and temporary rescue funds--in Copenhagen Friday.
The fund, known as the European Stability Mechanism, or ESM, has to hold approximately 15% of capital against its lending capacity. So far the arrangement was that the EUR80 billion in paid-in capital would be paid by the countries in five tranches of some EUR16 billion each.
Two of these tranches, amounting to a total of EUR32 billion, are set to be paid in July 2012 when the ESM becomes operational. But that money would only raise the ESM's lending capacity to roughly EUR200 billion, less than half of the fund's full EUR500 billion capacity.
The senior official said that "what you have is a possibility of accelerating further the [remaining] three tranches... [paying] two into 2013 and one into 2014" and added that that "pulls forward the overall disbursement capacity of the ESM as a certain ratio needs to be maintained at all times."
The official also said a decision on the new member of the European Central Bank board was expected at the same summit of finance ministers Friday.
"The main support has been gathering around the Luxembourgish and the Spanish candidates and there is a strong expectation that a decision will be reached on Friday," the official said.
Wednesday, 28 March 2012
WSJ: Chinese City In New Bid To Allow Citizens To Invest Overseas
Officials in the Chinese city of Wenzhou have launched a new attempt to allow residents of the city to invest directly offshore, a move that would mark a small but significant step toward opening the country's capital account.
Beijing rebuffed a similar proposal by the eastern Chinese coastal city last year, but some officials say they are confident of success this time around.
The opening of the capital account is a key condition for the Chinese yuan to become an international currency.
Early last year, the Wenzhou government took a bold step to give residents more freedom to invest abroad, only to suspend the move due to a lack of consent by the central government. Wenzhou officials then worked out a new proposal--similar to the original one--and submitted it for approval as part of a broader plan to make the city a testing ground for financial reforms, according to local government officials and lobbyists for Wenzhou's private businesses.
Officials and business leaders say they have been encouraged by recent public remarks by some of China's top regulators and decision-makers. Premier Wen Jiabao told a news conference this month that China's central bank and securities regulators are "actively considering" making Wenzhou part of a financial reform experiment involving private capital.
Su Xiangqing, head of the Wenzhou Bureau of Commerce, told The Wall Street Journal on Tuesday that "relevant government agencies," including the country's central bank, have signed off on the investment proposal, which is now awaiting final approval from the State Council, China's cabinet. Mr. Su said he expects the approval to come through in April.
An official at the People's Bank of China referred questions to the State Administration of Foreign Exchange, an arm of the central bank that serves as the country's currency watchdog. SAFE didn't respond to a request for comment.
Zhou Dewen, head of the Wenzhou Small- and Medium-sized Enterprises Promotion Association, a trade group for private entrepreneurs, said allowing individual investments overseas would be in line with the central government's "go out" push. "People in Wenzhou love to invest, but there are always all kinds of foreign-exchange restrictions that make it difficult to invest abroad," Mr. Zhou said.
Analysts say there could still be resistance in Beijing. The government has lately become concerned about excessive capital outflows as China's economy slows, but many analysts don't expect China to suffer a massive flight of capital given its still-solid economic growth compared to the rest of the world. Meanwhile, Beijing is continuing its drive to encourage Chinese businesses to invest overseas, as part of its effort to help diversify its $3.2 trillion worth of foreign-exchange reserves, by far the world's largest.
China's capital account is tightly controlled by the authorities as a way to manage the exchange rate and prevent speculative capital flows. SAFE generally has to approve any sizable amount of currency--foreign and domestic--flowing in and out of the country.
The deliberation comes as the PBOC has allowed greater two-way swings in the yuan's exchange rate this month, in what traders view as a way of testing how the market will value the yuan as the central bank seeks to establish a more flexible exchange-rate regime.
Since June 2010, when the PBOC allowed the yuan to float somewhat, the central bank has intervened frequently to guide the currency higher. But the future direction of the yuan has become increasingly murky as China's trade surplus has eroded in recent months. The yuan has fallen 0.2% against the U.S. dollar so far this year. That compares to 4.7% appreciation in 2011.
The recent fluctuations in the yuan's value, many say, are a sign the Chinese currency is maturing and could lead to a greater willingness among Chinese households to diversify their earnings into foreign currencies. When the yuan falls in value, Chinese nationals may be more inclined to hold dollar assets. But currently, citizens of the world's No. 2 economy can exchange only up to the equivalent of $50,000 a year into foreign currency.
"China has to liberalize its capital account sooner or later to promote international use of the yuan," said Li Wei, a Shanghai-based economist with Standard Chartered. "Nowhere is a better place to start this experiment than Wenzhou," Mr. Li said.
Wenzhou, with a population of around 1.9 million people, was early to embrace private enterprise after Deng Xiaoping launched his "reform and opening" drive in 1978. It rose to prominence over the years by making cigarette lighters but is now known for its heavy concentrations of everything from sophisticated electronics manufacturing to property development.
The city also is known for its emigrants to Europe and the U.S., who have gained a reputation for running restaurants, retail and wholesale businesses in their adopted countries.
Under the proposal spearheaded by the Wenzhou Bureau of Commerce, residents in Wenzhou would be allowed to spend up to $200 million a year--or as much as $3 million a person--to set up, acquire, or invest in nonfinancial companies in foreign markets. Wenzhou residents would also be able to reinvest abroad any profits generated abroad. Still, there could be "revisions" to the details pending the State Council's approval, Mr. Su of the commerce bureau said.
At present, Chinese individuals have very limited channels to invest overseas. They often have to set up companies for that purpose or invest through the so-called Qualified Domestic Institutional Investor program. However, the QDII program differs from the Wenzhou initiative in that it represents a controlled avenue for domestic investors to park their funds in foreign securities, while the Wenzhou plan focus on the ability to buy real assets overseas.
Entrepreneurs in Wenzhou have had their share of trouble. Financial woes among small manufacturers there have intensified since 2010, when China moved to rein in bank lending. Private companies--traditionally underserved by state banks who favor lending to massive state-owned enterprises--have found financing increasingly hard to come by.
To help solve their funding woes, China's policymakers have said recently they are looking for ways to legalize lending practices in Wenzhou by wealthy individuals and private companies, traditionally known as China's "informal lending" system. The process of legitimizing informal finance could involve giving existing underground lenders a license to operate as small-loan companies while imposing deposit collection and capital requirements.
Beijing rebuffed a similar proposal by the eastern Chinese coastal city last year, but some officials say they are confident of success this time around.
The opening of the capital account is a key condition for the Chinese yuan to become an international currency.
Early last year, the Wenzhou government took a bold step to give residents more freedom to invest abroad, only to suspend the move due to a lack of consent by the central government. Wenzhou officials then worked out a new proposal--similar to the original one--and submitted it for approval as part of a broader plan to make the city a testing ground for financial reforms, according to local government officials and lobbyists for Wenzhou's private businesses.
Officials and business leaders say they have been encouraged by recent public remarks by some of China's top regulators and decision-makers. Premier Wen Jiabao told a news conference this month that China's central bank and securities regulators are "actively considering" making Wenzhou part of a financial reform experiment involving private capital.
Su Xiangqing, head of the Wenzhou Bureau of Commerce, told The Wall Street Journal on Tuesday that "relevant government agencies," including the country's central bank, have signed off on the investment proposal, which is now awaiting final approval from the State Council, China's cabinet. Mr. Su said he expects the approval to come through in April.
An official at the People's Bank of China referred questions to the State Administration of Foreign Exchange, an arm of the central bank that serves as the country's currency watchdog. SAFE didn't respond to a request for comment.
Zhou Dewen, head of the Wenzhou Small- and Medium-sized Enterprises Promotion Association, a trade group for private entrepreneurs, said allowing individual investments overseas would be in line with the central government's "go out" push. "People in Wenzhou love to invest, but there are always all kinds of foreign-exchange restrictions that make it difficult to invest abroad," Mr. Zhou said.
Analysts say there could still be resistance in Beijing. The government has lately become concerned about excessive capital outflows as China's economy slows, but many analysts don't expect China to suffer a massive flight of capital given its still-solid economic growth compared to the rest of the world. Meanwhile, Beijing is continuing its drive to encourage Chinese businesses to invest overseas, as part of its effort to help diversify its $3.2 trillion worth of foreign-exchange reserves, by far the world's largest.
China's capital account is tightly controlled by the authorities as a way to manage the exchange rate and prevent speculative capital flows. SAFE generally has to approve any sizable amount of currency--foreign and domestic--flowing in and out of the country.
The deliberation comes as the PBOC has allowed greater two-way swings in the yuan's exchange rate this month, in what traders view as a way of testing how the market will value the yuan as the central bank seeks to establish a more flexible exchange-rate regime.
Since June 2010, when the PBOC allowed the yuan to float somewhat, the central bank has intervened frequently to guide the currency higher. But the future direction of the yuan has become increasingly murky as China's trade surplus has eroded in recent months. The yuan has fallen 0.2% against the U.S. dollar so far this year. That compares to 4.7% appreciation in 2011.
The recent fluctuations in the yuan's value, many say, are a sign the Chinese currency is maturing and could lead to a greater willingness among Chinese households to diversify their earnings into foreign currencies. When the yuan falls in value, Chinese nationals may be more inclined to hold dollar assets. But currently, citizens of the world's No. 2 economy can exchange only up to the equivalent of $50,000 a year into foreign currency.
"China has to liberalize its capital account sooner or later to promote international use of the yuan," said Li Wei, a Shanghai-based economist with Standard Chartered. "Nowhere is a better place to start this experiment than Wenzhou," Mr. Li said.
Wenzhou, with a population of around 1.9 million people, was early to embrace private enterprise after Deng Xiaoping launched his "reform and opening" drive in 1978. It rose to prominence over the years by making cigarette lighters but is now known for its heavy concentrations of everything from sophisticated electronics manufacturing to property development.
The city also is known for its emigrants to Europe and the U.S., who have gained a reputation for running restaurants, retail and wholesale businesses in their adopted countries.
Under the proposal spearheaded by the Wenzhou Bureau of Commerce, residents in Wenzhou would be allowed to spend up to $200 million a year--or as much as $3 million a person--to set up, acquire, or invest in nonfinancial companies in foreign markets. Wenzhou residents would also be able to reinvest abroad any profits generated abroad. Still, there could be "revisions" to the details pending the State Council's approval, Mr. Su of the commerce bureau said.
At present, Chinese individuals have very limited channels to invest overseas. They often have to set up companies for that purpose or invest through the so-called Qualified Domestic Institutional Investor program. However, the QDII program differs from the Wenzhou initiative in that it represents a controlled avenue for domestic investors to park their funds in foreign securities, while the Wenzhou plan focus on the ability to buy real assets overseas.
Entrepreneurs in Wenzhou have had their share of trouble. Financial woes among small manufacturers there have intensified since 2010, when China moved to rein in bank lending. Private companies--traditionally underserved by state banks who favor lending to massive state-owned enterprises--have found financing increasingly hard to come by.
To help solve their funding woes, China's policymakers have said recently they are looking for ways to legalize lending practices in Wenzhou by wealthy individuals and private companies, traditionally known as China's "informal lending" system. The process of legitimizing informal finance could involve giving existing underground lenders a license to operate as small-loan companies while imposing deposit collection and capital requirements.
HK Chief Executive-Elect: Won't Alter HK Dollar Peg To US Dollar
Hong Kong's next leader, Leung Chun-ying, said Wednesday he won't alter the Hong Kong dollar's peg to the U.S. dollar after he takes office, noting that the fixed exchange rate is serving the city well.
Leung spoke at a briefing Wednesday, three days after the city's elites elected him chief executive by a narrow margin in the most contentious leadership race to date.
He will replace incumbent chief executive Donald Tsang, whose term ends June 30.
Hong Kong's government pegged the local currency at HK$7.80 to the U.S. dollar in 1983 as part of a currency board system, amid mounting uncertainty about the city's 1997 handover to Chinese rule.
The city's government, which manages its own financial and political systems separately from those of mainland China, has reiterated that the peg is the cornerstone of its monetary policy, thus requiring that local interest rates move in lock-step with those of the U.S.
Leung spoke at a briefing Wednesday, three days after the city's elites elected him chief executive by a narrow margin in the most contentious leadership race to date.
He will replace incumbent chief executive Donald Tsang, whose term ends June 30.
Hong Kong's government pegged the local currency at HK$7.80 to the U.S. dollar in 1983 as part of a currency board system, amid mounting uncertainty about the city's 1997 handover to Chinese rule.
The city's government, which manages its own financial and political systems separately from those of mainland China, has reiterated that the peg is the cornerstone of its monetary policy, thus requiring that local interest rates move in lock-step with those of the U.S.
MARKET TALK: More Emerging Mkt Rate Decisions Thu
More emerging mkt rate decisions to come this week with the Czech Republic, Romania and South Africa all due to deliver announcements Thursday. "We forecast no changes to policy rates in Czech Republic, but a 25bp cut in Romania," says JPMorgan. Adds in South Africa, the decision will garner more attention in light of recent hawkish comments from the SARB governor. Nonetheless, the bank expects the policy rate to be kept on hold until at least the end of next year. Thursday's rate announcements will round off a busy week for emerging markets with central banks in Israel, Turkey and Hungary already having kept key rates unchanged in decisions earlier in this week.
DATA SNAP: UK Economy Shrank More Than Expected In 4Q
The U.K. economy shrank more than previously thought in the fourth quarter of 2011 due to a sharper-than-expected decline in the financial services sector, official data showed Wednesday.
In its third and final estimate, the Office for National Statistics said gross domestic product contracted 0.3% between October and December after growing 0.6% in the third quarter. The annual growth rate for 2011 was 0.7%.
An ONS official said the downward revision was driven by a decline in output from the dominant services sector, in particular financial and insurance services. Services output was revised down to show a contraction of 0.1% from a previous flat reading.
The overall contraction in the fourth quarter was caused by falling output in the production, manufacturing and construction sectors.
The ONS said there are signs, however, that consumers are beginning to feel more confident about spending with household consumption rising 0.4%--the first quarterly increase in consumption in six quarters, but the household saving ratio dropped to 7.7% in the fourth quarter from 7.9% in the previous quarter, suggesting consumers may have been dipping into their savings to spend.
Business investment fell in the fourth quarter by an upwardly revised GBP1 billion, or 3.3%, to GBP29.7 billion compared with the previous quarter.
Other data released Wednesday showed the current account deficit shrank to GBP8.5 billion in the fourth quarter, from an upwardly revised deficit of GBP10.5 billion in the third quarter.
The current account, or the balance of trade, is the difference between the U.K.'s exports of goods and services and its imports of goods and services.
In its third and final estimate, the Office for National Statistics said gross domestic product contracted 0.3% between October and December after growing 0.6% in the third quarter. The annual growth rate for 2011 was 0.7%.
An ONS official said the downward revision was driven by a decline in output from the dominant services sector, in particular financial and insurance services. Services output was revised down to show a contraction of 0.1% from a previous flat reading.
The overall contraction in the fourth quarter was caused by falling output in the production, manufacturing and construction sectors.
The ONS said there are signs, however, that consumers are beginning to feel more confident about spending with household consumption rising 0.4%--the first quarterly increase in consumption in six quarters, but the household saving ratio dropped to 7.7% in the fourth quarter from 7.9% in the previous quarter, suggesting consumers may have been dipping into their savings to spend.
Business investment fell in the fourth quarter by an upwardly revised GBP1 billion, or 3.3%, to GBP29.7 billion compared with the previous quarter.
Other data released Wednesday showed the current account deficit shrank to GBP8.5 billion in the fourth quarter, from an upwardly revised deficit of GBP10.5 billion in the third quarter.
The current account, or the balance of trade, is the difference between the U.K.'s exports of goods and services and its imports of goods and services.
Asian Shares End Mostly Lower; Miners, Metal Stocks Tumble In Shanghai
HONG KONG (MarketWatch)--Asian stock markets ended mostly lower Wednesday, with the Shanghai benchmark suffering this year's worst percentage loss so far, led by mining and metal stocks.
On mainland bourses, the Shanghai Composite tumbled 2.7%, its worst loss since late November 2011, while the Shenzhen Composite slumped 4.1%. Hong Kong's Hang Seng Index lost 0.8%.
"State enterprises' combined earnings are going down. This is relatively new, so sellers are using that as an excuse to drag down the market," said Steve Cheng, associate director at Shenyin Wanguo. The selling might also be an effort by institutional investors to lock in profits before the end of the first quarter, he added.
Elsewhere, Japan's Nikkei Stock Average fell 0.7% and South Korea's Kospi lost 0.4%, giving back some of gains recorded the previous day on hopes U.S. monetary policy will remain accommodative.
Going the other direction, Australia's S&P/ASX 200 index rose 1.0% to 4,343.50 - a closing level not seen since Nov. 9. Taiwan's Taiex added 0.1%.
The losses on mainland bourses came a day after data from the National Bureau of Statistics showed a 5.2% drop in profits for China's largest industrial groups during the first two months of the year.
Mining and metal stocks were hit hard. Yanzhou Coal Mining fell 5.6% and Jiangxi Copper fell 5.5% in Shanghai, while Yunnan Tin shed 7.7% and Hebei Iron & Steel declined 4.2% in Shenzhen.
The losses also weighed in Hong Kong, where Jiangxi lost 2.4% and Aluminum Corp. of China gave up 2.1%. Jiangxi's losses came after it reported a 33% increase in annual profit, but missed analyst forecasts.
Also weighed by weak earnings reports, Gome Electrical Appliances Holding slumped 21.2% after the appliance retailer said Tuesday that higher costs limited its 2011 net-profit rise to just over 6.0%, also falling short of expectations. The performance earned a stock downgrade to underperform from outperform from Macquarie.
Merchandise sourcing and supplying firm Li & Fung dropped 5.2% after raising $501 million via a share placement.
In Tokyo, shares of Sharp Corp. soared by the day's 16.3% limit following reports that Hon Hai Precision Industry Co. is buying a 10% stake in the Japanese firm for 66.91 billion yen ($806 million).
"The Hon Hai Group's roster of customers should be a strong asset for Sharp," analysts at Nomura Securities wrote in a report. "We think Hon Hai would like to leverage Sharp's strength in large-size panels to bid Apple Inc.'s iTV project."
Shares of Hon Hai jumped 4.6% in Taipei, also aided by better-than-expected quarterly results announced Tuesday, to support the broader market.
South Korean liquid crystal display makers declined following the reports. Samsung Electronics dropped 0.7%, while LG Display fell 4.9%.
Recent yen weakness also helped lift other exporters, with Toyota Motor rising 1.8% and Nissan Motor gaining 1%.
Sony Corp. gained 2.5% after a Nikkei business news report that its money-losing television business would be placed under the direct control of the company's new chief executive officer.
In Sydney, gold miner Newcrest Mining rose 2.9% and Fortescue Metals Group added 2.1%.
Banks were also higher, with Westpac up 1.0% and National Australia Bank 1.1% higher.
Peter Esho at City Index in Sydney said that the Australian benchmark index closed over the key 4,300 level on Tuesday, and the market was possibly experiencing some technical buying Wednesday.
"We're seeing a lot of beaten-down names doing well today," he said.
On mainland bourses, the Shanghai Composite tumbled 2.7%, its worst loss since late November 2011, while the Shenzhen Composite slumped 4.1%. Hong Kong's Hang Seng Index lost 0.8%.
"State enterprises' combined earnings are going down. This is relatively new, so sellers are using that as an excuse to drag down the market," said Steve Cheng, associate director at Shenyin Wanguo. The selling might also be an effort by institutional investors to lock in profits before the end of the first quarter, he added.
Elsewhere, Japan's Nikkei Stock Average fell 0.7% and South Korea's Kospi lost 0.4%, giving back some of gains recorded the previous day on hopes U.S. monetary policy will remain accommodative.
Going the other direction, Australia's S&P/ASX 200 index rose 1.0% to 4,343.50 - a closing level not seen since Nov. 9. Taiwan's Taiex added 0.1%.
The losses on mainland bourses came a day after data from the National Bureau of Statistics showed a 5.2% drop in profits for China's largest industrial groups during the first two months of the year.
Mining and metal stocks were hit hard. Yanzhou Coal Mining fell 5.6% and Jiangxi Copper fell 5.5% in Shanghai, while Yunnan Tin shed 7.7% and Hebei Iron & Steel declined 4.2% in Shenzhen.
The losses also weighed in Hong Kong, where Jiangxi lost 2.4% and Aluminum Corp. of China gave up 2.1%. Jiangxi's losses came after it reported a 33% increase in annual profit, but missed analyst forecasts.
Also weighed by weak earnings reports, Gome Electrical Appliances Holding slumped 21.2% after the appliance retailer said Tuesday that higher costs limited its 2011 net-profit rise to just over 6.0%, also falling short of expectations. The performance earned a stock downgrade to underperform from outperform from Macquarie.
Merchandise sourcing and supplying firm Li & Fung dropped 5.2% after raising $501 million via a share placement.
In Tokyo, shares of Sharp Corp. soared by the day's 16.3% limit following reports that Hon Hai Precision Industry Co. is buying a 10% stake in the Japanese firm for 66.91 billion yen ($806 million).
"The Hon Hai Group's roster of customers should be a strong asset for Sharp," analysts at Nomura Securities wrote in a report. "We think Hon Hai would like to leverage Sharp's strength in large-size panels to bid Apple Inc.'s iTV project."
Shares of Hon Hai jumped 4.6% in Taipei, also aided by better-than-expected quarterly results announced Tuesday, to support the broader market.
South Korean liquid crystal display makers declined following the reports. Samsung Electronics dropped 0.7%, while LG Display fell 4.9%.
Recent yen weakness also helped lift other exporters, with Toyota Motor rising 1.8% and Nissan Motor gaining 1%.
Sony Corp. gained 2.5% after a Nikkei business news report that its money-losing television business would be placed under the direct control of the company's new chief executive officer.
In Sydney, gold miner Newcrest Mining rose 2.9% and Fortescue Metals Group added 2.1%.
Banks were also higher, with Westpac up 1.0% and National Australia Bank 1.1% higher.
Peter Esho at City Index in Sydney said that the Australian benchmark index closed over the key 4,300 level on Tuesday, and the market was possibly experiencing some technical buying Wednesday.
"We're seeing a lot of beaten-down names doing well today," he said.
CHARTING EUROPE: EUR/AUD Gains Unveil Scope to 1.3050
-- Australian dollar continues to weaken generally
-- EUR/AUD to extend corrective rally to 1.2925
-- Upside risk potential to 1.3050 before forging a peak
LONDON (Dow Jones)--The Australian dollar continues to offload a sizeable chunk of its medium- to long-term bull trends across the board.
For the EUR/AUD cross, this translates to an extended corrective rally to 1.2925, and potentially 1.3050 before forming a top reversal pattern.
The Australian dollar continues to be adversely affected by data pointing to a further slowing in China's economic growth. Metals play a dominant role in leading the AUD's direction, and mining is also dependent on China steering the world out of a global recession.
The November 2011 to February 1.3811/1.2133 bear wave pierced the 38.2% Fibonacci retracement level at 1.2774 during Wednesday's Asian session, to post fresh twelve-week highs.
This corrective bull wave is part of the sub-dividing wave that originated at the March 2 higher low at 1.2262.
On surpassing the late February reaction high at 1.2620, an achievable upside target at 1.2856 was generated. Now, EUR bulls are gathering evidence that this 1.2856 target can be exceeded, at least to the pivotal 1.2925 area.
For details, see the EUR/AUD weekly chart below.
However, the degree of resistance between 1.2925 and 1.3050 is expected to be immense.
The 1.2925 level is a pivot dating back to December 2010, where action was confined within a corrective rectangle for exactly one year before crumbling.
The effect of that downside break means former significant support at 1.2925 is now a significant resistance level.
Then there is the 200-day moving average just above 1.2925 at 1.2963, that lies close to the 50% Fibonacci retracement level of the 1.3811/1.2133 decline, at 1.2972.
To cap an overshoot, a broader, encapsulating 1.618 Fibonacci extension target lies at 1.3050.
A sustained setback below 1.2620 is required to undermine the EUR bullish/AUD bearish scenario.
-- EUR/AUD to extend corrective rally to 1.2925
-- Upside risk potential to 1.3050 before forging a peak
LONDON (Dow Jones)--The Australian dollar continues to offload a sizeable chunk of its medium- to long-term bull trends across the board.
For the EUR/AUD cross, this translates to an extended corrective rally to 1.2925, and potentially 1.3050 before forming a top reversal pattern.
The Australian dollar continues to be adversely affected by data pointing to a further slowing in China's economic growth. Metals play a dominant role in leading the AUD's direction, and mining is also dependent on China steering the world out of a global recession.
The November 2011 to February 1.3811/1.2133 bear wave pierced the 38.2% Fibonacci retracement level at 1.2774 during Wednesday's Asian session, to post fresh twelve-week highs.
This corrective bull wave is part of the sub-dividing wave that originated at the March 2 higher low at 1.2262.
On surpassing the late February reaction high at 1.2620, an achievable upside target at 1.2856 was generated. Now, EUR bulls are gathering evidence that this 1.2856 target can be exceeded, at least to the pivotal 1.2925 area.
For details, see the EUR/AUD weekly chart below.
However, the degree of resistance between 1.2925 and 1.3050 is expected to be immense.
The 1.2925 level is a pivot dating back to December 2010, where action was confined within a corrective rectangle for exactly one year before crumbling.
The effect of that downside break means former significant support at 1.2925 is now a significant resistance level.
Then there is the 200-day moving average just above 1.2925 at 1.2963, that lies close to the 50% Fibonacci retracement level of the 1.3811/1.2133 decline, at 1.2972.
To cap an overshoot, a broader, encapsulating 1.618 Fibonacci extension target lies at 1.3050.
A sustained setback below 1.2620 is required to undermine the EUR bullish/AUD bearish scenario.
MARKET TALK: Malaysian Govt Bonds Mostly Up; S/T Notes In Focus
Most Malaysian government bonds are higher though volumes remain thin ahead of an auction due Thursday; Malaysia's central bank plans to sell September 2019 Government Investment Issues worth MYR4.5 billion. "While many players are staying on the sidelines, the short-term Bank Negara Malaysia bills and notes are in focus," says a local trader. "Investors are treading cautiously given the weaker ringgit against the U.S. dollar at the moment," he adds. The yield on the September 2016 MGS is flat at 3.28% while the September 2018 MGS yield is down 1 bp at 3.55% and August 2022 MGS yield is down 3 bps at 3.66%.
Euro Zone Private Sector Loan Growth Slows
Bank lending growth to companies and households slowed sharply in the euro zone in February in annual terms compared to the previous month, data from the European Central Bank showed Wednesday, reflecting that lending has remained weak despite the ECB's massive amount of cheap three-year loans to banks.
Bank lending growth to the private sector slowed to 0.7% in February compared with the year-earlier period, after rising by an unrevised 1.1% in January, ECB data showed.
The effects on lending of banks' similarly huge, over half a trillion-euro uptake of the ECB's second offer of its longest-ever, three-year loans will only be visible in the money growth data in the coming months since the allotment took place Feb. 29, too late in the month to make an impact on the data released Wednesday.
The annual growth of the broad monetary aggregate known as M3 accelerated, meanwhile, in February to 2.8% compared with January's unrevised 2.5% growth rate, most likely as the result of the ECB's three-year loans allotted in December. M3 already increased sharply in January as a result of the ECB's first offer of the three-year loans to banks in December and also due to improved market sentiment.
February's M3 growth of 2.8% is sharply faster than the median expectations of analysts in a Dow Jones Newswires poll for a growth rate of 2.4%.
Growth in monetary aggregates and in lending to the private sector has both remained at low levels when compared to their average growth rates since the launch of the euro, ECB President Mario Draghi said Monday. The average growth rate of M3 has been 5.9% and that of private-sector lending has been 6.8%, Draghi said.
A significantly higher number of small banks borrowed cheap long-term ECB money in February compared with the first offer of the three-year loan window in December. That has raised the ECB's hopes that lending to the private sector, especially to the small and medium-size firms, which provide a large number of jobs and could contribute to the economic recovery, will rise, Draghi said.
Calming financial markers and prompted by a deepening of the euro-zone's sovereign debt crisis in the five months of 2011, the ECB lent a total of more than EUR1 trillion to banks operating in the euro zone via its three-year loans to prevent a credit crunch and boost lending.
M3 increased 2.3% on the year on average in the December-February period, outpacing the previous three-month period's 2.0% increase. That's also faster than expectations of experts polled by Dow Jones Newswires for a three-month moving average growth rate at 2.1%.
The three-month average still remains well below the ECB's "reference value" of 4.5%, which it considers to be consistent with its price-stability mandate of an inflation rate of just below 2% over the medium term. That probably indicates that inflation pressures are still muted in the euro zone.
Bank lending growth to the private sector slowed to 0.7% in February compared with the year-earlier period, after rising by an unrevised 1.1% in January, ECB data showed.
The effects on lending of banks' similarly huge, over half a trillion-euro uptake of the ECB's second offer of its longest-ever, three-year loans will only be visible in the money growth data in the coming months since the allotment took place Feb. 29, too late in the month to make an impact on the data released Wednesday.
The annual growth of the broad monetary aggregate known as M3 accelerated, meanwhile, in February to 2.8% compared with January's unrevised 2.5% growth rate, most likely as the result of the ECB's three-year loans allotted in December. M3 already increased sharply in January as a result of the ECB's first offer of the three-year loans to banks in December and also due to improved market sentiment.
February's M3 growth of 2.8% is sharply faster than the median expectations of analysts in a Dow Jones Newswires poll for a growth rate of 2.4%.
Growth in monetary aggregates and in lending to the private sector has both remained at low levels when compared to their average growth rates since the launch of the euro, ECB President Mario Draghi said Monday. The average growth rate of M3 has been 5.9% and that of private-sector lending has been 6.8%, Draghi said.
A significantly higher number of small banks borrowed cheap long-term ECB money in February compared with the first offer of the three-year loan window in December. That has raised the ECB's hopes that lending to the private sector, especially to the small and medium-size firms, which provide a large number of jobs and could contribute to the economic recovery, will rise, Draghi said.
Calming financial markers and prompted by a deepening of the euro-zone's sovereign debt crisis in the five months of 2011, the ECB lent a total of more than EUR1 trillion to banks operating in the euro zone via its three-year loans to prevent a credit crunch and boost lending.
M3 increased 2.3% on the year on average in the December-February period, outpacing the previous three-month period's 2.0% increase. That's also faster than expectations of experts polled by Dow Jones Newswires for a three-month moving average growth rate at 2.1%.
The three-month average still remains well below the ECB's "reference value" of 4.5%, which it considers to be consistent with its price-stability mandate of an inflation rate of just below 2% over the medium term. That probably indicates that inflation pressures are still muted in the euro zone.
MARKET TALK: Sweden Business Confidence Beats Views -Nordea
Sweden business confidence index beat expectations, says Nordea, as the National Institute for Economic Research survey shows confidence in the total business sector improved more than expected in March, to +11 from 0, just above the historical average. Notes the sentiment in the manufacturing industry improved sharply, in contrast to recent indicators seen abroad. Still, Nordea expects to see a sluggish GDP growth for 1Q and the labor market to deteriorate, "which will put pressure on the Riksbank to cut rates further." EUR/SEK trades at 8.8663.
BOE FPC: EU Rules Could Constrain FPC's Ability To Act
The Bank of England's committee in charge of financial stability said European Union rules could hinder its ability to act, and welcomed efforts by the U.K. government to prevent that happening, minutes from the committee's latest meeting showed Wednesday.
Members of the Financial Policy Committee said at the March 16 meeting that "implementation of the FPC's macroprudential powers... might be constrained by EU law or regulatory or technical standards."
In particular, they said the "scope and timing" of FPC action to ensure financial stability could be hindered by draft EU legislation aimed at implementing the new Basel III capital requirements.
Committee members welcomed the U.K. Treasury's efforts to ensure EU legislation didn't impede the FPC's ability to use its tools.
The FPC currently holds an advisory position only, pending the passage of legislation granting it powers to act. That is expected to happen later this year or in 2013.
Members of the Financial Policy Committee said at the March 16 meeting that "implementation of the FPC's macroprudential powers... might be constrained by EU law or regulatory or technical standards."
In particular, they said the "scope and timing" of FPC action to ensure financial stability could be hindered by draft EU legislation aimed at implementing the new Basel III capital requirements.
Committee members welcomed the U.K. Treasury's efforts to ensure EU legislation didn't impede the FPC's ability to use its tools.
The FPC currently holds an advisory position only, pending the passage of legislation granting it powers to act. That is expected to happen later this year or in 2013.
MARKET TALK: Inflation Data Decisive For NBP -Commerzbank
Commerzbank says Poland's inflation reading is decisive for the central bank. Says, "Should inflation not ease below 4%, the hawks are likely to gain the upper hand in the MPC." Notes PLN will struggle to make notable ground after NBP Governor Belka stopped speculation about an imminent rate rise Tuesday. "Belka would rather raise rates too late than too early to be completely certain that this was the right move," notes Commerzbank. EUR/PLN currently trades at 4.1510 compared with 4.1428 late Tuesday in New York.
Wednesday, 21 March 2012
Majority Of Britons Fear Budget Will Leave ..
LONDON -(Dow Jones)- Nearly two-thirds of Britons believe they will be left worse off by measures announced in Wednesday's budget, an opinion poll showed Tuesday, suggesting government assertions that the bulk of the measures will be aimed at helping low and middle income earners have failed to reassure the public.
In recent days, pre-budget speculation has focused on whether Chancellor of the Exchequer George Osborne will announce a cut to the top income tax rate of 50% on income over GBP150,000, with U.K. media reporting the rate could be lowered to 45% to appeal to entrepreneurs and other wealthy individuals.
The chancellor has refused to comment on the speculation and has instead said his priority is to help workers on low and middle incomes.
But the poll, conducted by ComRes for ITV News, found that 64% of Britons believe they will be worse off after the budget and 59% believe the budget will look after the rich more than it will look after the poor. The poll, which interviewed 2,057 adults between March 16 and 18, found that just one in five people believe Osborne understands the concerns of ordinary Britons.
Another poll, carried out by Ipsos Mori for the Evening Standard newspaper, report similar findings Tuesday, with 50% of those surveyed believing the budget would favor the wealthy.
The polls are a blow for Osborne's Conservative Party, which has worked hard to change the perception that it is a party of the rich elite.
In contrast, the ComRes poll found strong support for the idea of increasing the threshold at which people start paying income tax to GBP10,000, with 81% of people saying they were in favor of it. Junior coalition partners the Liberal Democrats have been publicly pushing for the proposal to be included in the budget.
This year's budget negotiations have seen an unusual public tussle between the Liberal Democrats' goal of an income tax break for families and the Conservative's wish for a business-friendly budget and a potential cut to the top income tax rate. However, a compromise could be reached, allowing a cut to the top tax rate if Osborne promises to increase measures to clamp down on wealthy people who avoid paying property taxes and to close other tax loopholes.
In recent days, pre-budget speculation has focused on whether Chancellor of the Exchequer George Osborne will announce a cut to the top income tax rate of 50% on income over GBP150,000, with U.K. media reporting the rate could be lowered to 45% to appeal to entrepreneurs and other wealthy individuals.
The chancellor has refused to comment on the speculation and has instead said his priority is to help workers on low and middle incomes.
But the poll, conducted by ComRes for ITV News, found that 64% of Britons believe they will be worse off after the budget and 59% believe the budget will look after the rich more than it will look after the poor. The poll, which interviewed 2,057 adults between March 16 and 18, found that just one in five people believe Osborne understands the concerns of ordinary Britons.
Another poll, carried out by Ipsos Mori for the Evening Standard newspaper, report similar findings Tuesday, with 50% of those surveyed believing the budget would favor the wealthy.
The polls are a blow for Osborne's Conservative Party, which has worked hard to change the perception that it is a party of the rich elite.
In contrast, the ComRes poll found strong support for the idea of increasing the threshold at which people start paying income tax to GBP10,000, with 81% of people saying they were in favor of it. Junior coalition partners the Liberal Democrats have been publicly pushing for the proposal to be included in the budget.
This year's budget negotiations have seen an unusual public tussle between the Liberal Democrats' goal of an income tax break for families and the Conservative's wish for a business-friendly budget and a potential cut to the top income tax rate. However, a compromise could be reached, allowing a cut to the top tax rate if Osborne promises to increase measures to clamp down on wealthy people who avoid paying property taxes and to close other tax loopholes.
Majority Of Britons Fear Budget Will Leave Them Worse Off -Poll
LONDON (Dow Jones)--Nearly two-thirds of Britons believe they will be left worse off by measures announced in Wednesday's budget, an opinion poll showed Tuesday, suggesting government assertions that the bulk of the measures will be aimed at helping low and middle income earners have failed to reassure the public.
In recent days, pre-budget speculation has focused on whether Chancellor of the Exchequer George Osborne will announce a cut to the top income tax rate of 50% on income over GBP150,000, with U.K. media reporting the rate could be lowered to 45% to appeal to entrepreneurs and other wealthy individuals.
The chancellor has refused to comment on the speculation and has instead said his priority is to help workers on low and middle incomes.
But the poll, conducted by ComRes for ITV News, found that 64% of Britons believe they will be worse off after the budget and 59% believe the budget will look after the rich more than it will look after the poor. The poll, which interviewed 2,057 adults between March 16 and 18, found that just one in five people believe Osborne understands the concerns of ordinary Britons.
Another poll, carried out by Ipsos Mori for the Evening Standard newspaper, report similar findings Tuesday, with 50% of those surveyed believing the budget would favor the wealthy.
The polls are a blow for Osborne's Conservative Party, which has worked hard to change the perception that it is a party of the rich elite.
In contrast, the ComRes poll found strong support for the idea of increasing the threshold at which people start paying income tax to GBP10,000, with 81% of people saying they were in favor of it. Junior coalition partners the Liberal Democrats have been publicly pushing for the proposal to be included in the budget.
This year's budget negotiations have seen an unusual public tussle between the Liberal Democrats' goal of an income tax break for families and the Conservative's wish for a business-friendly budget and a potential cut to the top income tax rate. However, a compromise could be reached, allowing a cut to the top tax rate if Osborne promises to increase measures to clamp down on wealthy people who avoid paying property taxes and to close other tax loopholes.
In recent days, pre-budget speculation has focused on whether Chancellor of the Exchequer George Osborne will announce a cut to the top income tax rate of 50% on income over GBP150,000, with U.K. media reporting the rate could be lowered to 45% to appeal to entrepreneurs and other wealthy individuals.
The chancellor has refused to comment on the speculation and has instead said his priority is to help workers on low and middle incomes.
But the poll, conducted by ComRes for ITV News, found that 64% of Britons believe they will be worse off after the budget and 59% believe the budget will look after the rich more than it will look after the poor. The poll, which interviewed 2,057 adults between March 16 and 18, found that just one in five people believe Osborne understands the concerns of ordinary Britons.
Another poll, carried out by Ipsos Mori for the Evening Standard newspaper, report similar findings Tuesday, with 50% of those surveyed believing the budget would favor the wealthy.
The polls are a blow for Osborne's Conservative Party, which has worked hard to change the perception that it is a party of the rich elite.
In contrast, the ComRes poll found strong support for the idea of increasing the threshold at which people start paying income tax to GBP10,000, with 81% of people saying they were in favor of it. Junior coalition partners the Liberal Democrats have been publicly pushing for the proposal to be included in the budget.
This year's budget negotiations have seen an unusual public tussle between the Liberal Democrats' goal of an income tax break for families and the Conservative's wish for a business-friendly budget and a potential cut to the top income tax rate. However, a compromise could be reached, allowing a cut to the top tax rate if Osborne promises to increase measures to clamp down on wealthy people who avoid paying property taxes and to close other tax loopholes.
MARKET TALK: Aussie Wheat May Drop Again After CBOT Softens
Australian wheat values are likely Wednesday to extend Tuesday's declines after U.S. wheat futures fell overnight to a 1-week low, influenced by widespread selling in commodities. Reduced risk exposure across asset classes encouraged traders to take profits, analysts say. CBOT May wheat fell 9.75 cents to $6.4250/bushel. The AUD/USD is now at 1.0474, after collapsing Tuesday afternoon from 1.0625, a slump that will support local wheat prices. On Tuesday, the nearby ASX wheat futures deliverable May in New South Wales fell A$4.00 to A$210.50/metric ton, while those in Western Australia lost A$5.50 to A$224.50.
Fed's Kocherlakota: Fed Doing As Well As It Can On Mandates
NEW YORK (Dow Jones)--The Federal Reserve may be legally charged with keeping prices stable and employment as high as it can be, but the nature of recent difficulties makes it hard for the central bank to have success on the latter goal, a U.S. monetary policy maker said Tuesday.
"The Federal Reserve is performing about as well as it can on both mandates," Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said in the text of remarks to be given at Washington University in St. Louis.
"The Fed is clearly doing well on the price stability mandate" set for it by Congress, the non-voting member of the interest rate setting Federal Open Market Committee argued. But things haven't gone nearly as well when it comes to labor markets, despite a massive course of stimulus provided by the central bank. It hasn't had anywhere near the level of success because of the nature of what has wounded job markets, the policymaker said.
Zero-percent interest rates and massive balance-sheet expansion have been "unable to offset the large adverse shocks to labor demand" that have resulted from the economy's recent difficulties, Kocherlakota said. It appears "there are limits to what monetary policy can achieve on its own."
The official explained that "monetary policy can offset the impact of the product demand shocks on employment, but it cannot offset the employment loss due to the fall in labor demand and any associated slow real wage adjustment." As a result, he said, "the level of 'maximum employment' achievable through monetary policy is less than the 'full employment' of labor resources."
If the Fed has help in a situation like that, it could achieve more for the labor market. Kocherlakota said "non-monetary policies specifically designed to stimulate the demand for workers (such as government subsidies for hiring) can offset some of the employment loss due to the labor demand shocks" as long as the Fed keeps policy relatively easy.
"Monetary and non-monetary policy must work in concert to reduce the impact of a decline in labor demand; neither can do it alone," Kocherlakota said.
Kocherlakota's remarks were primarily academic in nature and they did not offer any forward-looking views on the economy or monetary policy. The central banker was a persistent critic of the Fed's decision last year to provide additional stimulus to the economy. Currently, markets are downgrading their once high expectations the Fed will provide additional support to the economy this year in light of improving economic data, most notably on the jobs front.
"The Federal Reserve is performing about as well as it can on both mandates," Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said in the text of remarks to be given at Washington University in St. Louis.
"The Fed is clearly doing well on the price stability mandate" set for it by Congress, the non-voting member of the interest rate setting Federal Open Market Committee argued. But things haven't gone nearly as well when it comes to labor markets, despite a massive course of stimulus provided by the central bank. It hasn't had anywhere near the level of success because of the nature of what has wounded job markets, the policymaker said.
Zero-percent interest rates and massive balance-sheet expansion have been "unable to offset the large adverse shocks to labor demand" that have resulted from the economy's recent difficulties, Kocherlakota said. It appears "there are limits to what monetary policy can achieve on its own."
The official explained that "monetary policy can offset the impact of the product demand shocks on employment, but it cannot offset the employment loss due to the fall in labor demand and any associated slow real wage adjustment." As a result, he said, "the level of 'maximum employment' achievable through monetary policy is less than the 'full employment' of labor resources."
If the Fed has help in a situation like that, it could achieve more for the labor market. Kocherlakota said "non-monetary policies specifically designed to stimulate the demand for workers (such as government subsidies for hiring) can offset some of the employment loss due to the labor demand shocks" as long as the Fed keeps policy relatively easy.
"Monetary and non-monetary policy must work in concert to reduce the impact of a decline in labor demand; neither can do it alone," Kocherlakota said.
Kocherlakota's remarks were primarily academic in nature and they did not offer any forward-looking views on the economy or monetary policy. The central banker was a persistent critic of the Fed's decision last year to provide additional stimulus to the economy. Currently, markets are downgrading their once high expectations the Fed will provide additional support to the economy this year in light of improving economic data, most notably on the jobs front.
WSJ: Italy Unveils Key Labor Market Changes
ROME (Dow Jones)--Prime Minister Mario Monti's government outlined a major overhaul of Italian labor laws, a domestically controversial effort that anchors the economic revival Italy promised the European Central Bank last year as it was pulled into the continent's debt crisis.
The measures, which were hashed out during a marathon meeting on Tuesday night among ministers, labor unions and business leaders, aim to usher millions of young Italians into the job market and help the country's struggling companies manage economic downturns by cutting jobs--but also create a wider safety net for those who lose their jobs.
The measures still need to be presented and approved by parliament--a process Monti has promised to complete by the end of the month. Yet hurdles remain: Italy's largest labor union--the CGIL--didn't sign off on a key part of the overhaul, raising the specter of possible labor unrest. Italy's business lobby also said it wasn't entirely satisfied, meaning further negotiations may lie ahead.
"If Parliament backs us, we will be able to say that Italy's labor market has modernized, and that there are no more hurdles to foreign investment," Monti said during a news conference, days before he heads on a planned trip to Asia, partly to speak with foreign investors.
Tackling Italy's inefficient labor market is seen as a key challenge facing Monti's technocrat government as it tries to reverse years of economic stagnation in the euro zone's third-largest economy. European Central Bank President Mario Draghi--both in his current role and in his previous position as head of Italy's central bank--has long urged a rebalancing of Italy's labor market to make it less burdensome for companies but also more inclusive, particularly for young people and women.
Only 57% of working-age Italians have jobs, while two million people remain unemployed. The employment rate for people between the ages of 15 and 24 years old stands at 20%, compared to 46% in Germany, according to European statistics agency Eurostat. At the same time, despite its reputation for having a generous welfare state, Italy has one of the lowest levels of unemployment benefits in Europe, spending some 3.1% of gross domestic product on such services compared to 4.1% in Germany and 8% in Denmark and Belgium, according to 2010 figures by the Organization for Economic Development and Cooperation.
The most controversial measure unveiled on Tuesday night is a revamp of Italy's 40-year-old workers' statute which says, notably, that workers who are laid off by their employers--for any reason--can appeal in court, and judges can force companies to rehire them if the layoff was "without just cause." This system has effectively created a two-tier labor market, with older workers in iron-clad jobs and younger employees in temporary ones that are easier to shed in hard times. The clause has also left labor decisions mired in years of legal battles in Italy's slow courts.
The proposed labor measures would allow companies to lay off a worker for economic reasons, but in exchange that worker would get monetary compensation that can reach up to 27 months salary, Italy's Welfare Minister Elsa Fornero said during a news conference. Automatic reinstatement would only remain in cases of proven discrimination.
Stefano Scarpetta, economist at the OECD, says immediate payment of compensation should be a relief to both companies and employees because it removes the uncertainty of years of costly legal battles that often ensue when businesses have to downsize. In Spain, he says, companies prefer to pay employees compensation--which is usually 45 days of salary for every year worked--rather than risk a drawn-out legal battle.
But Emma Marcegaglia, head of the employers' lobby, said the 27-month compensation was too high a cost for companies and should be revised significantly.
Companies would continue to be able to hire people on short-term contracts, but these contracts will be more expensive--raising the company's costs by some 1.4%, Fornero said. Companies will also be encouraged to offer apprenticeship programs to young people, helping train them for future jobs.
Another key plank of the labor overhaul is inspired by the Scandinavian and Dutch labor models of so-called flexicurity which--while giving businesses more flexibility in managing their workforce, also grant workers a greater safety net if they are between jobs.
The new overhaul would provide a universal unemployment insurance, as opposed to the limited one that only applies to workers in cradle-to-grave contracts and largely those in industrial sectors. Workers under the age of 54 who lose their jobs will be able to rely on one year of unemployment benefits, and up to 1,119 euros a month of jobless insurance, Fornero said. The total cost of the new insurance fund is 1.8 billion euros.
"This part of the reform brings Italy close to other European countries and introduces a better balance between flexibility and worker protection," says Stefano Scarpetta, a labor economist at the OECD.
But the head of the CGIL promised war. "We will do whatever it takes to fight this reform," said Susanna Camusso, head of the CGIL union. "We will mobilize as necessary and it won't be brief."
The measures, which were hashed out during a marathon meeting on Tuesday night among ministers, labor unions and business leaders, aim to usher millions of young Italians into the job market and help the country's struggling companies manage economic downturns by cutting jobs--but also create a wider safety net for those who lose their jobs.
The measures still need to be presented and approved by parliament--a process Monti has promised to complete by the end of the month. Yet hurdles remain: Italy's largest labor union--the CGIL--didn't sign off on a key part of the overhaul, raising the specter of possible labor unrest. Italy's business lobby also said it wasn't entirely satisfied, meaning further negotiations may lie ahead.
"If Parliament backs us, we will be able to say that Italy's labor market has modernized, and that there are no more hurdles to foreign investment," Monti said during a news conference, days before he heads on a planned trip to Asia, partly to speak with foreign investors.
Tackling Italy's inefficient labor market is seen as a key challenge facing Monti's technocrat government as it tries to reverse years of economic stagnation in the euro zone's third-largest economy. European Central Bank President Mario Draghi--both in his current role and in his previous position as head of Italy's central bank--has long urged a rebalancing of Italy's labor market to make it less burdensome for companies but also more inclusive, particularly for young people and women.
Only 57% of working-age Italians have jobs, while two million people remain unemployed. The employment rate for people between the ages of 15 and 24 years old stands at 20%, compared to 46% in Germany, according to European statistics agency Eurostat. At the same time, despite its reputation for having a generous welfare state, Italy has one of the lowest levels of unemployment benefits in Europe, spending some 3.1% of gross domestic product on such services compared to 4.1% in Germany and 8% in Denmark and Belgium, according to 2010 figures by the Organization for Economic Development and Cooperation.
The most controversial measure unveiled on Tuesday night is a revamp of Italy's 40-year-old workers' statute which says, notably, that workers who are laid off by their employers--for any reason--can appeal in court, and judges can force companies to rehire them if the layoff was "without just cause." This system has effectively created a two-tier labor market, with older workers in iron-clad jobs and younger employees in temporary ones that are easier to shed in hard times. The clause has also left labor decisions mired in years of legal battles in Italy's slow courts.
The proposed labor measures would allow companies to lay off a worker for economic reasons, but in exchange that worker would get monetary compensation that can reach up to 27 months salary, Italy's Welfare Minister Elsa Fornero said during a news conference. Automatic reinstatement would only remain in cases of proven discrimination.
Stefano Scarpetta, economist at the OECD, says immediate payment of compensation should be a relief to both companies and employees because it removes the uncertainty of years of costly legal battles that often ensue when businesses have to downsize. In Spain, he says, companies prefer to pay employees compensation--which is usually 45 days of salary for every year worked--rather than risk a drawn-out legal battle.
But Emma Marcegaglia, head of the employers' lobby, said the 27-month compensation was too high a cost for companies and should be revised significantly.
Companies would continue to be able to hire people on short-term contracts, but these contracts will be more expensive--raising the company's costs by some 1.4%, Fornero said. Companies will also be encouraged to offer apprenticeship programs to young people, helping train them for future jobs.
Another key plank of the labor overhaul is inspired by the Scandinavian and Dutch labor models of so-called flexicurity which--while giving businesses more flexibility in managing their workforce, also grant workers a greater safety net if they are between jobs.
The new overhaul would provide a universal unemployment insurance, as opposed to the limited one that only applies to workers in cradle-to-grave contracts and largely those in industrial sectors. Workers under the age of 54 who lose their jobs will be able to rely on one year of unemployment benefits, and up to 1,119 euros a month of jobless insurance, Fornero said. The total cost of the new insurance fund is 1.8 billion euros.
"This part of the reform brings Italy close to other European countries and introduces a better balance between flexibility and worker protection," says Stefano Scarpetta, a labor economist at the OECD.
But the head of the CGIL promised war. "We will do whatever it takes to fight this reform," said Susanna Camusso, head of the CGIL union. "We will mobilize as necessary and it won't be brief."
CHARTING MARKETS: Major Mining Company Breaks Aussie Dollar's Mettle
--The Aussie dollar estimated to fall to targets as low as US$1.0260
--Technical resistance is US$1.0520.
--But a move below US$1.0260 would be going for parity with the U.S. dollar
NEW YORK (Dow Jones)--Commmodity-linked currencies were hit hard by sellers Tuesday after misgivings about the slowing Chinese economy were given weight by a major mining company.
By 1214 GMT, the New Zealand dollar traded at US$0.8165, while the U.S. dollar traded at C$0.9930 against the Canadian dollar, bouncing sharply off a two-week low struck in overnight trade.
But the conspicuous casualty of the selling was the Aussie dollar, which is now vulnerable to a move to support targets near US$1.0000. After all, the catalyst for the selling came from Australia.
Ian Ashby, a senior executive at BHP Billiton Ltd (BHP.AU), told a press conference in Perth that Chinese demand for iron ore was "flattening out" as the world's second-biggest economy, closely tied to the Australian economy, cooled.
That was a trigger. Investors had become increasingly concerned that Beijing's tight credit policies will result in a "hard landing" where business activity would stall. And Australia, whose iron ore, natural gas and other commodity exports depend heavily on Chinese demand, would be hardest hit by that. So the BHP news, as nuanced as it likely was, was taken as a clear sell signal for Aussie dollar holders.
The Aussie has been has been trading lower against the U.S. dollar since the end of February when it peaked at US$1.0859. The current low for the downtrend is US$1.0421, recorded on March 15. Current trading is A$1.0486.
I estimate that the Aussie will find an interim bottom at US$1.0260. Resistance is US$1.0520.
Lower trading would be going for support in the US$1.0127-US$0.9932 support band. Last Aussie trading near the parity level was Dec. 20.
--Technical resistance is US$1.0520.
--But a move below US$1.0260 would be going for parity with the U.S. dollar
NEW YORK (Dow Jones)--Commmodity-linked currencies were hit hard by sellers Tuesday after misgivings about the slowing Chinese economy were given weight by a major mining company.
By 1214 GMT, the New Zealand dollar traded at US$0.8165, while the U.S. dollar traded at C$0.9930 against the Canadian dollar, bouncing sharply off a two-week low struck in overnight trade.
But the conspicuous casualty of the selling was the Aussie dollar, which is now vulnerable to a move to support targets near US$1.0000. After all, the catalyst for the selling came from Australia.
Ian Ashby, a senior executive at BHP Billiton Ltd (BHP.AU), told a press conference in Perth that Chinese demand for iron ore was "flattening out" as the world's second-biggest economy, closely tied to the Australian economy, cooled.
That was a trigger. Investors had become increasingly concerned that Beijing's tight credit policies will result in a "hard landing" where business activity would stall. And Australia, whose iron ore, natural gas and other commodity exports depend heavily on Chinese demand, would be hardest hit by that. So the BHP news, as nuanced as it likely was, was taken as a clear sell signal for Aussie dollar holders.
The Aussie has been has been trading lower against the U.S. dollar since the end of February when it peaked at US$1.0859. The current low for the downtrend is US$1.0421, recorded on March 15. Current trading is A$1.0486.
I estimate that the Aussie will find an interim bottom at US$1.0260. Resistance is US$1.0520.
Lower trading would be going for support in the US$1.0127-US$0.9932 support band. Last Aussie trading near the parity level was Dec. 20.
INTERVIEW: Iceland Min: "Open" To Bond Markets, Will Seek Longer Issuances
Iceland likely to seek a 10-year issuance, no date specified
--Iceland's GDP to grow 2.5% in 2012
--Replacing Icelandic krona with Canadian dollar "off the table"
TORONTO (Dow Jones)--Iceland remains "open" to tapping international debt markets and will likely pursue issuing longer government notes when it follows up last year's successful bond offering, Steingrur Sigfusson, Iceland's minister of economic affairs, said in an interview.
With Iceland's "somewhat improved (credit) ratings" and easing credit-default swaps, the country's financial situation "has improved", said Sigfusson. The decision to move toward another government bond issuance is "kept open and we would most likely go for a longer duration of the issuance," specifically, a 10-year note, he said. He didn't specify when Iceland would decide to issue another bond.
Last July, Iceland returned to the bond market after a two-year absence. It successfully issued a five-year bond worth US$1 billion, which was twice oversubscribed by investors.
After paying off nearly a fifth of its loans from the International Monetary Fund and Nordic neighbors this month, Iceland won't likely continue to repay remaining debt at that same pace "for a while," Sigfusson said.
Iceland has repaid 116 billion Icelandic kronas (US$909 million), an amount that was paid earlier than expected.
Sigfusson said the government forecasted that Iceland's gross domestic product will grow at 2.5% this year, driven largely by the country's fisheries and tourism industries.
Separately, Sigfusson ruled out the idea of Iceland adopting the Canadian dollar, a move that some fringe opposition politicians have recently floated. The idea is "theoretical speculation more than practical realities," he said.
The Icelandic krona has lost about half of its value since 2008, when its banks collapsed during the global financial crisis. At the time, opposition politicians and a handful of academics and economists started floated the idea of adopting the Canadian currency, seizing on the relative stability of the loonie and some similarities between the two northern countries' economies.
Although Sigfusson said he is an "admirer" of how Canada has fared economically over the past several years, replacing the krona with the loonie is "not on the table." The government is evaluating whether it will keep the krona or adopt the euro if Iceland succeeds in ascending to the European Union, he said.
Adopting the Canadian dollar is "not a ridiculous idea in my mind, but neither is it for the time being something we are considering as the government," said Sigfusson.
--Iceland's GDP to grow 2.5% in 2012
--Replacing Icelandic krona with Canadian dollar "off the table"
TORONTO (Dow Jones)--Iceland remains "open" to tapping international debt markets and will likely pursue issuing longer government notes when it follows up last year's successful bond offering, Steingrur Sigfusson, Iceland's minister of economic affairs, said in an interview.
With Iceland's "somewhat improved (credit) ratings" and easing credit-default swaps, the country's financial situation "has improved", said Sigfusson. The decision to move toward another government bond issuance is "kept open and we would most likely go for a longer duration of the issuance," specifically, a 10-year note, he said. He didn't specify when Iceland would decide to issue another bond.
Last July, Iceland returned to the bond market after a two-year absence. It successfully issued a five-year bond worth US$1 billion, which was twice oversubscribed by investors.
After paying off nearly a fifth of its loans from the International Monetary Fund and Nordic neighbors this month, Iceland won't likely continue to repay remaining debt at that same pace "for a while," Sigfusson said.
Iceland has repaid 116 billion Icelandic kronas (US$909 million), an amount that was paid earlier than expected.
Sigfusson said the government forecasted that Iceland's gross domestic product will grow at 2.5% this year, driven largely by the country's fisheries and tourism industries.
Separately, Sigfusson ruled out the idea of Iceland adopting the Canadian dollar, a move that some fringe opposition politicians have recently floated. The idea is "theoretical speculation more than practical realities," he said.
The Icelandic krona has lost about half of its value since 2008, when its banks collapsed during the global financial crisis. At the time, opposition politicians and a handful of academics and economists started floated the idea of adopting the Canadian currency, seizing on the relative stability of the loonie and some similarities between the two northern countries' economies.
Although Sigfusson said he is an "admirer" of how Canada has fared economically over the past several years, replacing the krona with the loonie is "not on the table." The government is evaluating whether it will keep the krona or adopt the euro if Iceland succeeds in ascending to the European Union, he said.
Adopting the Canadian dollar is "not a ridiculous idea in my mind, but neither is it for the time being something we are considering as the government," said Sigfusson.
Brazil's Real Ends Weaker On China Concern, Central Bank Action
Brazil's real ended Tuesday's session slightly weaker, but still up from the day's lows.
By late afternoon, the currency was at BRL1.8190, weaker than Monday's close of BRL1.8055, according to Tullett Prebon via Factset.
Brazil's currency weakened sharply Tuesday morning, following concerns about China's economic growth. The Asian nation cut its 2012 growth target to 7.5% from 8%. Negative comments on China from BHP Billiton (BHP, BHP.AU) and Rio Tinto (RIO, RIO.LN) also raised concerns about the pace of the slowdown.
The initial strength of the U.S. dollar versus the Brazilian real diminished during the session until Brazil's central bank called a late-afternoon auction to buy dollars, reinforcing the market's fears about goverment interventions. "The central bank probably wanted to give a sign that it was there, following the market," said Vanderlei Muniz, partner at Brazilian brokerage house Onnix.
The central bank bought dollars at a rate of BRL1.8210 at the spot market auction. The real weakened almost as soon as the auction was called.
"The market has been nervous, waiting for the Central Bank or the Finance Ministry to act at any moment to try to prevent the appreciation of the currency", says Mauriciano Cavalcanti, FX director of brokerage OM, formerly known as Ouro Minas.
While Brazil's currency market moved Tuesday on the international news, the country's National Treasury gave signs that it may take a more active role in the government's efforts to contain the real's appreciation, buying back up to $15 billion in overseas debts ahead of schedule. In a interview with Estado de S.Paulo newspaper, Treasury Secretary Arno Augustin said the government is already in talks to pay back ahead of schedule a $2.9 billion loan from the Inter-American Development Bank, or IDB.
"If the government were not intervening, the exchange rate would be now at around BRL1.50 to BRL1.60", said Muniz.
By late afternoon, the currency was at BRL1.8190, weaker than Monday's close of BRL1.8055, according to Tullett Prebon via Factset.
Brazil's currency weakened sharply Tuesday morning, following concerns about China's economic growth. The Asian nation cut its 2012 growth target to 7.5% from 8%. Negative comments on China from BHP Billiton (BHP, BHP.AU) and Rio Tinto (RIO, RIO.LN) also raised concerns about the pace of the slowdown.
The initial strength of the U.S. dollar versus the Brazilian real diminished during the session until Brazil's central bank called a late-afternoon auction to buy dollars, reinforcing the market's fears about goverment interventions. "The central bank probably wanted to give a sign that it was there, following the market," said Vanderlei Muniz, partner at Brazilian brokerage house Onnix.
The central bank bought dollars at a rate of BRL1.8210 at the spot market auction. The real weakened almost as soon as the auction was called.
"The market has been nervous, waiting for the Central Bank or the Finance Ministry to act at any moment to try to prevent the appreciation of the currency", says Mauriciano Cavalcanti, FX director of brokerage OM, formerly known as Ouro Minas.
While Brazil's currency market moved Tuesday on the international news, the country's National Treasury gave signs that it may take a more active role in the government's efforts to contain the real's appreciation, buying back up to $15 billion in overseas debts ahead of schedule. In a interview with Estado de S.Paulo newspaper, Treasury Secretary Arno Augustin said the government is already in talks to pay back ahead of schedule a $2.9 billion loan from the Inter-American Development Bank, or IDB.
"If the government were not intervening, the exchange rate would be now at around BRL1.50 to BRL1.60", said Muniz.
MARKET TALK: 10-yr Treasury Futures Near 2.375% Implied Rate
Treasury futures grapple with conflicting market sources, including concerns about slower economic growth in China vs improved outlook in the US June 10-yr Tsy note futures price rebounds from 4 1/2-month low of 127-23. They settled at 127-29+, which is close to 2.375% yield equivalent. 2.375% implied rate equal to June 10-yr Tsy futures price of 127-30+, according to Optima Investment Research. June classic Tsy bonds held above Monday's 4 1/2-month low of 135-05. Classics -- covering 15-25 yr maturities -- settled 8/32 higher at 135-20. June ultra Tsy bonds -- covering maturities longer than 25yrs -- settled 18/32 higher at 148-01.
Peru's Main Stock Indexes End Lower; Sol Unchanged
Peru's main stock market indexes ended lower Tuesday as weakness on Wall Street and a decline in mineral prices dragged down a number of blue-chip shares.
The Lima Stock Exchange's broad General Index closed 0.81% lower at 22,893.33.
The blue-chip Selective Index ended 0.85% lower at 31,878.65.
Base metals miner Southern Copper Corp. (SCCO) decreased 3.80% to end at $31.10, on a decline in copper prices. Copper miner Sociedad Minera Cerro Verde SAA (CVERDEC1.VL) lost 1.01% at end at $39.20.
Tin miner Minsur SA (MINSURI1.VL) fell 0.33% to end at 3.05 soles, ($1.14) on weakness in tin prices.
Financial holding company Credicorp Ltd. (BAP, BAP.VL) lost 1.18% to end at $126.00. It owns Peru's largest bank, Banco de Credito.
The Central Reserve Bank of Peru intervened in the foreign-exchange market Tuesday to buy $82 million at an average of PEN2.671 a U.S. dollar.
The central bank intervenes to smooth out volatility in the exchange market. So far this year, the central bank has intervened to purchase about $5.0 billion.
Meanwhile, the sol closed unchanged at PEN2.672 a dollar. So far this year, the sol has appreciated 0.93% against the dollar.
The Lima Stock Exchange's broad General Index closed 0.81% lower at 22,893.33.
The blue-chip Selective Index ended 0.85% lower at 31,878.65.
Base metals miner Southern Copper Corp. (SCCO) decreased 3.80% to end at $31.10, on a decline in copper prices. Copper miner Sociedad Minera Cerro Verde SAA (CVERDEC1.VL) lost 1.01% at end at $39.20.
Tin miner Minsur SA (MINSURI1.VL) fell 0.33% to end at 3.05 soles, ($1.14) on weakness in tin prices.
Financial holding company Credicorp Ltd. (BAP, BAP.VL) lost 1.18% to end at $126.00. It owns Peru's largest bank, Banco de Credito.
The Central Reserve Bank of Peru intervened in the foreign-exchange market Tuesday to buy $82 million at an average of PEN2.671 a U.S. dollar.
The central bank intervenes to smooth out volatility in the exchange market. So far this year, the central bank has intervened to purchase about $5.0 billion.
Meanwhile, the sol closed unchanged at PEN2.672 a dollar. So far this year, the sol has appreciated 0.93% against the dollar.
Canadian Bonds Mixed As Demand For Fixed-Income Fizzles Out
Canadian bonds retraced most of their gains late Tuesday, finishing the session mixed after demand for fixed income fizzled toward the end of the day.
Yields for the two-year bond were at on 1.279% late Tuesday, unchanged from late Monday, while the 10-year bond was yielding 2.268%, from 2.274%, according to data provider CQG.
Yields for the 30-year bond were at 2.802% on Tuesday, from 2.800% late Monday.
Bond prices move inversely to bond yields.
Canadian bonds continued to take cues from its U.S. counterparts. As bids for 10-year U.S. Treasurys eased in the afternoon, the rally in Canadian fixed-income also lost steam. The result was a choppy market where Canadian bonds "outperformed the US in the front end and were underperforming in the back end," said Ian Pollick, senior fixed income strategist at RBC Capital Markets in Toronto.
"It's really been a day of two halves where we saw a rally in the morning and a moderate sell-off in the afternoon," Pollick said.
Pollick added that Wednesday will see the last supply of 30-year bonds for the fiscal year and if the government maintains the same auction schedule as last year with the next issuance coming in June, "it could scare people out of the market."
Canadian bonds rallied earlier on Tuesday after fresh concerns about China's growth mounted during the overnight session, pushing investors to move money into safer assets.
Yields for the two-year bond were at on 1.279% late Tuesday, unchanged from late Monday, while the 10-year bond was yielding 2.268%, from 2.274%, according to data provider CQG.
Yields for the 30-year bond were at 2.802% on Tuesday, from 2.800% late Monday.
Bond prices move inversely to bond yields.
Canadian bonds continued to take cues from its U.S. counterparts. As bids for 10-year U.S. Treasurys eased in the afternoon, the rally in Canadian fixed-income also lost steam. The result was a choppy market where Canadian bonds "outperformed the US in the front end and were underperforming in the back end," said Ian Pollick, senior fixed income strategist at RBC Capital Markets in Toronto.
"It's really been a day of two halves where we saw a rally in the morning and a moderate sell-off in the afternoon," Pollick said.
Pollick added that Wednesday will see the last supply of 30-year bonds for the fiscal year and if the government maintains the same auction schedule as last year with the next issuance coming in June, "it could scare people out of the market."
Canadian bonds rallied earlier on Tuesday after fresh concerns about China's growth mounted during the overnight session, pushing investors to move money into safer assets.
MARKET TALK: Traders Price In Late 2013 Funds Rate Increase
Fed-funds futures traders expect FOMC to start raising funds rate late next year, about a year sooner than the central bank's own timeframe for beginning to lift the yield from very low levels. Fed members' acknowledgment that the economy is picking up fuels current sentiment, as November 2013 fed-funds contract prices in 92% chance for committee to raise rate to 0.5% at that month's meeting. Market priced in 82% chance Monday and only a 34% chance a week earlier. Longer-dated contract fully priced for 0.5%, with 44% chance for further tightening to 0.75% at the late January 2014 FOMC meeting. FOMC has held funds rate near zero since December 2008.
Canadian Dollar Down, But Off Lows, As Commodity Currencies Retreat
The Canadian dollar lost some ground against the greenback Tuesday as commodity currencies in general retreated, but managed to pare some of its losses and remain well within recent trading ranges.
The U.S. dollar was recently at C$0.9918, from C$0.9860 late Monday, according to data provider CQG.
The New Zealand, and Australian and Canadian dollars all retreated in overnight trading after an executive at mining giant BHP Billiton cautioned that Chinese demand for iron ore would be lower than expected.
"We saw, overnight, the commodity currencies come under particular pressure after that BHP comment regarding China's demand for raw materials," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc. in Washington.
The selling pressure was more pronounced for the Aussie and Kiwi dollars because of their close ties to China, but the worries about China also weighed on the commodity-sensitive Canadian unit, he said.
Buying interest in the Canadian unit from sovereign players, including central banks, helped reverse some of the Canadian dollar's losses after the U.S. dollar scrambled to a session high of C$0.9970 in morning trading, said Dave Bradley, director of foreign-exchange trading at Scotia Capital.
Some of Scotia's corporate clients are also interested in the currency in the C$0.9980 to C$1.0000 range, he said.
Bradley said the rapid dash higher by the greenback may have been triggered partly by traders taking short positions on the U.S. dollar on the view that Swiss-based Glencore International's proposed purchase of Canadian grain handler Viterra Inc. would trigger Canadian dollar buying in the amount of its total C$6.1 billion value, and then reversing them when it was reported that Glencore's Canadian currency needs would be closer to C$3 billion because it's selling some of Viterra's assets.
"I think the market was surprised, [and] caught off guard, caught short," Bradley said.
The U.S. dollar couldn't sustain its advance against the Canadian dollar as it retreated against the euro and other major currencies in North American trading.
"The move was a little bit exaggerated, I would have to say, and we're right back at the levels we opened at first thing this morning," Bradley said.
The U.S./Canadian dollar pair remains mired in a trading range between C$0.9840 and C$1.000, he said.
These are the exchange rates at 3:59 p.m. EDT (1959 GMT) and 8:00 a.m. EDT (1200 GMT) Tuesday, and late Monday.
The U.S. dollar was recently at C$0.9918, from C$0.9860 late Monday, according to data provider CQG.
The New Zealand, and Australian and Canadian dollars all retreated in overnight trading after an executive at mining giant BHP Billiton cautioned that Chinese demand for iron ore would be lower than expected.
"We saw, overnight, the commodity currencies come under particular pressure after that BHP comment regarding China's demand for raw materials," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc. in Washington.
The selling pressure was more pronounced for the Aussie and Kiwi dollars because of their close ties to China, but the worries about China also weighed on the commodity-sensitive Canadian unit, he said.
Buying interest in the Canadian unit from sovereign players, including central banks, helped reverse some of the Canadian dollar's losses after the U.S. dollar scrambled to a session high of C$0.9970 in morning trading, said Dave Bradley, director of foreign-exchange trading at Scotia Capital.
Some of Scotia's corporate clients are also interested in the currency in the C$0.9980 to C$1.0000 range, he said.
Bradley said the rapid dash higher by the greenback may have been triggered partly by traders taking short positions on the U.S. dollar on the view that Swiss-based Glencore International's proposed purchase of Canadian grain handler Viterra Inc. would trigger Canadian dollar buying in the amount of its total C$6.1 billion value, and then reversing them when it was reported that Glencore's Canadian currency needs would be closer to C$3 billion because it's selling some of Viterra's assets.
"I think the market was surprised, [and] caught off guard, caught short," Bradley said.
The U.S. dollar couldn't sustain its advance against the Canadian dollar as it retreated against the euro and other major currencies in North American trading.
"The move was a little bit exaggerated, I would have to say, and we're right back at the levels we opened at first thing this morning," Bradley said.
The U.S./Canadian dollar pair remains mired in a trading range between C$0.9840 and C$1.000, he said.
These are the exchange rates at 3:59 p.m. EDT (1959 GMT) and 8:00 a.m. EDT (1200 GMT) Tuesday, and late Monday.
WSJ BLOG/Real Time Economics: Bernanke Goes Back To School To Perform Public Service
Perhaps next we'll seek Speaker of the House John Bohner (R., Ohio), and Sen. Harry Reid (D., Nev.), the Senate Majority Leader, jointly teach a college course on the history of Congress.
It might not spur greater bipartisanship on Capitol Hill, but no doubt Americans can use a bit more history.
Such educational fantasies are sparked by witnessing today the first of four lectures by Professor Ben Bernanke, who spends most of his time heading up the Federal Reserve, delivered to a classroom of students at George Washington University in the nation's capital. (Watch the lecture here.)
By swinging through a quick history of the Fed, the central bank's basic responsibilities, and the policy mistakes made by the central bankers during the Great Depression, all of it web cast, Bernanke performed a nice public service.
One presumes this and the coming lectures, which will bring us through the Fed's response to the 2008-09 financial crisis, will be viewed in other classrooms besides the one that gets to see the chairman live.
Other Washingtonians in positions of power should take note. It's a nice idea. Journalists, market types and others, of course, tuned in to Bernanke at midday for any implications of the historical tour for current circumstances, policy and controversies. Certainly you could get some tidbits out of it if you wanted to follow such a course. For instance, Bernanke still doesn't think the gold standard has a place in the contemporary world.
Even history, of course, isn't straightforward. Choices have to be made, analyses offered, points of view presented. So there was that to analyze, if you were of a mind.
The chairman professed to simply be happy to be back in the classroom (likely there are days Bernanke wishes he was back professoring full time at Princeton University).
In the greater scheme of things, it is another communications tool for the Fed in an era when the central bank and Bernanke as its leader are often underappreciated, perhaps particularly among the hopefuls for the Republican nomination to run for president.
So add public lectures to "60 Minutes" appearances, press conferences and other venues Bernanke has pioneered to get the central bank a bigger public profile.
Among the things we learned:
--Sweden had the first central bank, started in 1668.
--The students who got to ask questions at the end of the lecture uniformly asked good ones, almost all tied in some way to the substance of the lecture and to current events and issues for the Fed. They didn't get Bernanke to break any big news, but he did move out of the history only paradigm.
--On the flip side, not many of the students seemed familiar with the film classic "It's A Wonderful Life," part of whose plot line Bernanke used to explain a bank run. Ah well, time marches on.
It might not spur greater bipartisanship on Capitol Hill, but no doubt Americans can use a bit more history.
Such educational fantasies are sparked by witnessing today the first of four lectures by Professor Ben Bernanke, who spends most of his time heading up the Federal Reserve, delivered to a classroom of students at George Washington University in the nation's capital. (Watch the lecture here.)
By swinging through a quick history of the Fed, the central bank's basic responsibilities, and the policy mistakes made by the central bankers during the Great Depression, all of it web cast, Bernanke performed a nice public service.
One presumes this and the coming lectures, which will bring us through the Fed's response to the 2008-09 financial crisis, will be viewed in other classrooms besides the one that gets to see the chairman live.
Other Washingtonians in positions of power should take note. It's a nice idea. Journalists, market types and others, of course, tuned in to Bernanke at midday for any implications of the historical tour for current circumstances, policy and controversies. Certainly you could get some tidbits out of it if you wanted to follow such a course. For instance, Bernanke still doesn't think the gold standard has a place in the contemporary world.
Even history, of course, isn't straightforward. Choices have to be made, analyses offered, points of view presented. So there was that to analyze, if you were of a mind.
The chairman professed to simply be happy to be back in the classroom (likely there are days Bernanke wishes he was back professoring full time at Princeton University).
In the greater scheme of things, it is another communications tool for the Fed in an era when the central bank and Bernanke as its leader are often underappreciated, perhaps particularly among the hopefuls for the Republican nomination to run for president.
So add public lectures to "60 Minutes" appearances, press conferences and other venues Bernanke has pioneered to get the central bank a bigger public profile.
Among the things we learned:
--Sweden had the first central bank, started in 1668.
--The students who got to ask questions at the end of the lecture uniformly asked good ones, almost all tied in some way to the substance of the lecture and to current events and issues for the Fed. They didn't get Bernanke to break any big news, but he did move out of the history only paradigm.
--On the flip side, not many of the students seemed familiar with the film classic "It's A Wonderful Life," part of whose plot line Bernanke used to explain a bank run. Ah well, time marches on.
Emerging Market Currencies, Debt Weaker On Lower Confidence
Emerging market currencies and debt were weaker Tuesday, in a return to broad concerns about slowing global growth and rising oil prices.
Emerging markets started the day with concerns about China's weakening economy and another increase in its local oil prices. The dollar, which has been on a winning streak against emerging market currencies, is expected to continue its run on the back of a U.S. economic recovery.
"It's bit of a challenging environment for emerging currencies right now, and possibly for the rest of this year," says Guillaume Salomon, strategist at Societe Generale.
Earlier this year, all emerging market currencies rallied--but investors don't have such a broad-based confidence anymore.
"Now, there's going to be greater differentiation between emerging markets," he said. These days, investors like the Mexican peso and Polish zloty, and are staying away from the South African rand, the Turkish lira and the Hungarian forint.
Late afternoon in New York trade, the dollar was up more than 1% on the South African rand at ZAR7.6220 and 1.1% against the Turkish lira at TRY1.8243, according to CQG data.
The Brazilian real weakened sharply in the morning as investors reacted to the news of that country's Treasury Department repaying up to $15 billion in dollar bonds this year. This pushed the currency to BRL1.8345 on the dollar, but it has snapped back to trade at BRL1.8213 on the dollar, according to CQG data. Late afternoon, the central bank was in the spot market buying dollars at BRL1.8210.
"The Brazil move is part of a coordinated effort to stem the appreciation of the real," said Flavia Cattan-Naslausky, strategist with RBS. Market consensus also moved to accept the real's new normal rate to be BRL1.80 on the dollar rather than the previous BRL1.70.
The Mexican peso is trading on the dollar at MXN12.6625. But earlier in the afternoon, a 7.6 magnitude earthquake pushed the rate to MXN12.7035.
Meanwhile, emerging European currencies also weakened modestly against the euro.
The zloty, despite a stronger outlook for Poland's economy, was trading on the euro at PLN4.1224 and the forint at HUF290.10, according to CQG data.
Emerging markets sovereign bonds were a tad weaker with the J.P. Morgan Emerging Market Index Global trading two basis points wider at 317 basis points over comparable Treasury yields.
Emerging markets started the day with concerns about China's weakening economy and another increase in its local oil prices. The dollar, which has been on a winning streak against emerging market currencies, is expected to continue its run on the back of a U.S. economic recovery.
"It's bit of a challenging environment for emerging currencies right now, and possibly for the rest of this year," says Guillaume Salomon, strategist at Societe Generale.
Earlier this year, all emerging market currencies rallied--but investors don't have such a broad-based confidence anymore.
"Now, there's going to be greater differentiation between emerging markets," he said. These days, investors like the Mexican peso and Polish zloty, and are staying away from the South African rand, the Turkish lira and the Hungarian forint.
Late afternoon in New York trade, the dollar was up more than 1% on the South African rand at ZAR7.6220 and 1.1% against the Turkish lira at TRY1.8243, according to CQG data.
The Brazilian real weakened sharply in the morning as investors reacted to the news of that country's Treasury Department repaying up to $15 billion in dollar bonds this year. This pushed the currency to BRL1.8345 on the dollar, but it has snapped back to trade at BRL1.8213 on the dollar, according to CQG data. Late afternoon, the central bank was in the spot market buying dollars at BRL1.8210.
"The Brazil move is part of a coordinated effort to stem the appreciation of the real," said Flavia Cattan-Naslausky, strategist with RBS. Market consensus also moved to accept the real's new normal rate to be BRL1.80 on the dollar rather than the previous BRL1.70.
The Mexican peso is trading on the dollar at MXN12.6625. But earlier in the afternoon, a 7.6 magnitude earthquake pushed the rate to MXN12.7035.
Meanwhile, emerging European currencies also weakened modestly against the euro.
The zloty, despite a stronger outlook for Poland's economy, was trading on the euro at PLN4.1224 and the forint at HUF290.10, according to CQG data.
Emerging markets sovereign bonds were a tad weaker with the J.P. Morgan Emerging Market Index Global trading two basis points wider at 317 basis points over comparable Treasury yields.
MARKET TALK: Funding-Currency 'Competition' Helps Dollar
Comparing the Dollar Index's correlation to stocks and Treasurys, Wells Fargo says the currency tends to be more correlated with stocks "when the greenback has faced competition, or has become less attractive on a relative basis, as a funding currency." Despite Tuesday's whipsaw price action, yen- and euro-carry trades have become increasingly popular. The bank believes the emerging contest between funding currencies "potentially explains the changing dollar dynamics" that lie at the heart of why the greenback now responds more favorably to risk-positive data. "While this competition for a funding currency role persists, so too might the positive correlation between the dollar and equities."
UPDATE: Bernanke Defends Country's Break With Gold Standard
--Federal Reserve Chairman Ben Bernanke defends country's break with gold standard
--Gold standard can cause both inflations and deflations, Bernanke says
--Adds there are practical, policy problems with gold standard
WASHINGTON (Dow Jones) -- Federal Reserve Chairman Ben Bernanke on Tuesday defended the country's break with a gold standard at the first of his four lectures at George Washington University.
Bernanke explained to a packed lecture hall why a gold standard harmed the global economy during the Great Depression. Some recent critics of the Fed have pushed for a return to the gold standard, in which paper money is backed by gold. The U.S. was on the gold standard between the Civil War until the 1930s, and the tie was fully severed by President Richard Nixon in 1971.
The gold standard poses both practical and policy problems, Bernanke said. On the practical side, it can be a waste of resources to secure all the gold needed to back currency, moving it from South Africa to the basement of the Federal Reserve Bank of New York, for example, or as he put it, "all this gold is being dug up and being put back into another hole."
More significantly, a country on a gold standard will see more short-term volatility, Bernanke said.
"Since the gold standard determines the money supply, there's not much scope for the central bank to use monetary policy to stabilize the economy," he said. Bernanke noted the gold standard did not prevent frequent financial panics.
During the Great Depression, "policy errors" in the United States spread to other countries that were also on the gold standard, Bernanke said. Countries on the gold standard must maintain fixed exchange rates, making it easy for bad policies in one country to spread to another on the gold standard, he noted.
The gold standard can also cause both periods of deflation and inflation in the medium term, Bernanke said. If not "perfectly credible," the gold standard can be subject to speculative attack and ultimately collapse as people try to exchange paper money for gold. However, he did acknowledge that over decades, prices are very stable for countries using the gold standard.
Part of the reason the Fed failed in its managing of the Great Depression were its attempts to stay on the gold standard, he noted. One of Franklin Delano Roosevelt's most successful moves as president was to begin to take the country off the gold standard, he said.
Thursday, 15 March 2012
Greek Fin Min To Resign After Sunday's Election
--Minister to step down after taking on position as head of Socialists
--Announcement comes after euro-zone countries sign off on second Greek bailout
ATHENS -- Greek Finance Minister Evangelos Venizelos said Wednesday he will step down from his position once formally elected to lead the country's Socialists Sunday.
According to a transcript of his comments in a television interview with privately owned television station Alpha, Venizelos said discussions have been held on his replacement but stopped short of saying when exactly he will step down and who his replacement might be.
"I cannot continue to play a double role. Once I take on my duties as the head of the biggest party in this parliament, I will have to dedicate myself to these duties," he said.
Government spokesman Pantelis Kapsis refrained from commenting on when Venizelos will be replaced or by whom, after being contacted by Dow Jones Newswires.
On Sunday, the finance minister, 55 years old, is expected to be appointed as the head of the Socialists, also known as Pasok, in a party vote to be held across the country. The procedure is largely a formality after Venizelos emerged last Sunday as the only candidate for the position.
His comments comes after euro-zone countries finally signed off Wednesday on Greece's second bailout program, ending a protracted and dramatic negotiating process that started last July.
Venizelos, a constitutional lawyer, has been overseeing an unprecedented debt restructuring of EUR206 billion worth of Greek bonds held by private-sector investors that was a crucial prerequisite for the country's second program. The nominal value of their holdings was more than halved and their repayment period extended.
The biggest chunk of the restructuring was settled earlier this week through a bond swap. Holders of foreign-law Greek government bonds are set to settle their bond swap in early April.
With the country expected to go to elections in April or early May, Venizelos will take over the reins of the Socialist party, which controls 131 seats in Greece's 300 member parliament, at a time where popularity levels are scraping against historic lows.
He will replace as former prime minister George Papandreou who is expected to step down as Pasok president after Sunday's vote.
According to a poll published earlier in March, the Socialist party garners just 11% of the vote, up three percentage points from a month ago. Rivals conservatives New Democracy continue to lead in public opinion, getting 28% of the vote, but not enough to form a governing majority in the Greece's parliament.
Both Pasok and New Democracy back Greece's interim government, which took power in November with the task of bringing the country's second bailout to fruition.
--Announcement comes after euro-zone countries sign off on second Greek bailout
ATHENS -- Greek Finance Minister Evangelos Venizelos said Wednesday he will step down from his position once formally elected to lead the country's Socialists Sunday.
According to a transcript of his comments in a television interview with privately owned television station Alpha, Venizelos said discussions have been held on his replacement but stopped short of saying when exactly he will step down and who his replacement might be.
"I cannot continue to play a double role. Once I take on my duties as the head of the biggest party in this parliament, I will have to dedicate myself to these duties," he said.
Government spokesman Pantelis Kapsis refrained from commenting on when Venizelos will be replaced or by whom, after being contacted by Dow Jones Newswires.
On Sunday, the finance minister, 55 years old, is expected to be appointed as the head of the Socialists, also known as Pasok, in a party vote to be held across the country. The procedure is largely a formality after Venizelos emerged last Sunday as the only candidate for the position.
His comments comes after euro-zone countries finally signed off Wednesday on Greece's second bailout program, ending a protracted and dramatic negotiating process that started last July.
Venizelos, a constitutional lawyer, has been overseeing an unprecedented debt restructuring of EUR206 billion worth of Greek bonds held by private-sector investors that was a crucial prerequisite for the country's second program. The nominal value of their holdings was more than halved and their repayment period extended.
The biggest chunk of the restructuring was settled earlier this week through a bond swap. Holders of foreign-law Greek government bonds are set to settle their bond swap in early April.
With the country expected to go to elections in April or early May, Venizelos will take over the reins of the Socialist party, which controls 131 seats in Greece's 300 member parliament, at a time where popularity levels are scraping against historic lows.
He will replace as former prime minister George Papandreou who is expected to step down as Pasok president after Sunday's vote.
According to a poll published earlier in March, the Socialist party garners just 11% of the vote, up three percentage points from a month ago. Rivals conservatives New Democracy continue to lead in public opinion, getting 28% of the vote, but not enough to form a governing majority in the Greece's parliament.
Both Pasok and New Democracy back Greece's interim government, which took power in November with the task of bringing the country's second bailout to fruition.
IMF Board Approves Longer Loan-Program Schedule -Source
The International Monetary Fund board Wednesday approved a change to one of its lending facilities that will allow the fund to give Greece a four-year program, according to a person familiar with the matter.
Despite one board member raising concerns, the tweak of the IMF's Extended Fund Facility was tailored to meet a particular country's financing needs, namely Greece, the person said the board approved the policy change because it could be used by other countries in the future.
Previously, the Extended Fund Facility had an initial three-year payout, with the possibility of later extending it to a fourth year, if needed.
But now, the fund can go ahead with a four-year payout from the start of a program.
That paves the way for Thursday's expected board approval of the EUR28 billion Greek loan program.
The facility also has a longer payback schedule. Unlike the standard Stand-By Arrangement, which typically has a three-to-five year repayment period, the Extended Fund Facility can be repaid over a period of four to 10 years.
Late last week, IMF Managing Director Christine Lagarde said she's proposing a four-year program for Greece, saying the fund's financial support "over an extended period of time would be commensurate with the long-term nature of the challenges facing Greece."
The longer payment period allows for smaller disbursements, helping to limit the fund's exposure to Greece and to the euro zone in general. The fund has lent Greece proportionally more compared to Athens's IMF contributions than any other country in the fund's history. Also, most of the IMF's lending resources have been promised to euro-zone nations.
Many board members, including the U.S. and other emerging-market economies, are concerned that the IMF has overexposed itself to the risk of defaults in the euro zone.
The person familiar with the matter said the board member who raised concerns about the tweak to the lending facility warned that it could undermine the perceived credibility of the IMF.
Despite one board member raising concerns, the tweak of the IMF's Extended Fund Facility was tailored to meet a particular country's financing needs, namely Greece, the person said the board approved the policy change because it could be used by other countries in the future.
Previously, the Extended Fund Facility had an initial three-year payout, with the possibility of later extending it to a fourth year, if needed.
But now, the fund can go ahead with a four-year payout from the start of a program.
That paves the way for Thursday's expected board approval of the EUR28 billion Greek loan program.
The facility also has a longer payback schedule. Unlike the standard Stand-By Arrangement, which typically has a three-to-five year repayment period, the Extended Fund Facility can be repaid over a period of four to 10 years.
Late last week, IMF Managing Director Christine Lagarde said she's proposing a four-year program for Greece, saying the fund's financial support "over an extended period of time would be commensurate with the long-term nature of the challenges facing Greece."
The longer payment period allows for smaller disbursements, helping to limit the fund's exposure to Greece and to the euro zone in general. The fund has lent Greece proportionally more compared to Athens's IMF contributions than any other country in the fund's history. Also, most of the IMF's lending resources have been promised to euro-zone nations.
Many board members, including the U.S. and other emerging-market economies, are concerned that the IMF has overexposed itself to the risk of defaults in the euro zone.
The person familiar with the matter said the board member who raised concerns about the tweak to the lending facility warned that it could undermine the perceived credibility of the IMF.
Templeton Bond Star Hasenstab Shines Again After A Tough 2011
--Hasenstab's fund lured new money in February, breaking three-month drought
--Hasenstab buys short-dated Asian debt, avoids longer maturities
--Hasenstab also likes Poland
--In euro-zone bond market, Hasenstab holds only Irish bonds.
--Hasenstab sees further declines in dollar, euro, yen vs emerging-market currencies in era of slack monetary policy
NEW YORK (Dow Jones)--After getting burned in 2011, Franklin Templeton's star bond-fund manager Michael Hasenstab has turned his performance around and is again drawing investors to his door.
Hasenstab's $61.6 billion U.S.-incorporated Templeton Global Bond Fund (TPINX), which has posted a year-to-date gain of 8%, lured $461.6 million in new cash in February, after suffering a total of $1.85 billion in outflows over the previous three months, according to data provided by fund-tracker Morningstar Inc.
The fresh intake was a confidence booster for Hasenstab, whose bullish bets on emerging-market assets were roiled by the euro zone's sovereign-debt crisis during the second half of 2011. Last year, his fund handed investors a loss of 2.37% and slipped to nearly the bottom among its peers, after posting gains of 18.9% and 12.7%, respectively, in 2009 and 2010.
Unlike many fund managers who rushed out of emerging markets late last year, Hasenstab stocked up his holdings at cheaper levels while skeptical clients cashed out. The bold strategy reflected his belief that policy makers wouldn't allow the euro zone's crisis to spin out of control, the U.S. wouldn't be hit with another recession, and China's economy might slow down but a sharp downfall was unlikely.
"Despite short-term volatility, we see our job as really being to cut through the noise, and try and take advantage of the market dislocations such noise creates," Hasenstab said in an interview late Tuesday afternoon. "Our performance so far this year reflects this."
The fund's 8% gain so far in 2012 is well above the average of 1.85% for the 117 funds Lipper tracks and the 0.93% loss posted by its benchmark index, the Citigroup World Government Bond Index.
The 38-year-old Hasenstab, who is based in San Mateo, Calif., has been described by some as the next-generation Bill Gross, the legendary bond manager who runs the world's biggest fixed-income fund at Pacific Investment Management Co.
Hasenstab shot to fame in 2008, when his fund took in $2.66 billion and then continued to draw investors. Even after the redemptions in the last two months of 2011, the fund took in a net gain of $1.3 billion last year, accounting for nearly 60% of all new cash flowing into the world bond category tracked by Morningstar.
With the scenario of a euro-crisis-fueled pandemic fading, investors this year have flushed out of safe assets such as Treasury bonds and sought higher returns from U.S. stocks, corporate bonds and emerging-market assets. Bond yields in Italy and Spain have tumbled to less-stressed levels and U.S. stock indices have rallied to their highest since 2008. That has played to the advantage of Hasenstab, whose risk-oriented portfolio was well positioned for the rebound.
"To the credit of the large asset managers like Templeton, they have used the recent euro crisis and uncertainty surrounding growth as an opportunity to get into the Asian and emerging-market space earlier than most," said Adrian K. Miller, senior global market strategist at GMP Securities LLC in New York.
The danger is if the global economic recovery falters again, the fund could struggle against its rivals, said Miriam Sjoblom, a bond fund analyst with Morningstar who tracks Hasenstab's portfolio. But she added that last year's poor performance didn't put a dent in Hasenstab's credibility.
"It showcases the potential risks of his long-term, contrarian approach, so it's an instructive period for investors. But we continue to give the fund an analyst rating of gold," she said.
Hasenstab is heavily invested in short-dated bonds from South Korea, Malaysia, Australia and other countries whose fortunes are tied to those of the China. He said he avoids long-dated bonds to limit interest-rate risk and to best capture gains in these and other countries' currencies against the dollar, euro and yen--a trio for which he sees further declines against emerging-market currencies due to comparatively slack monetary policy in the U.S., Europe and Japan.
Meanwhile, he likes Poland. In the euro-zone bond market, he holds only Irish bonds.
--Hasenstab buys short-dated Asian debt, avoids longer maturities
--Hasenstab also likes Poland
--In euro-zone bond market, Hasenstab holds only Irish bonds.
--Hasenstab sees further declines in dollar, euro, yen vs emerging-market currencies in era of slack monetary policy
NEW YORK (Dow Jones)--After getting burned in 2011, Franklin Templeton's star bond-fund manager Michael Hasenstab has turned his performance around and is again drawing investors to his door.
Hasenstab's $61.6 billion U.S.-incorporated Templeton Global Bond Fund (TPINX), which has posted a year-to-date gain of 8%, lured $461.6 million in new cash in February, after suffering a total of $1.85 billion in outflows over the previous three months, according to data provided by fund-tracker Morningstar Inc.
The fresh intake was a confidence booster for Hasenstab, whose bullish bets on emerging-market assets were roiled by the euro zone's sovereign-debt crisis during the second half of 2011. Last year, his fund handed investors a loss of 2.37% and slipped to nearly the bottom among its peers, after posting gains of 18.9% and 12.7%, respectively, in 2009 and 2010.
Unlike many fund managers who rushed out of emerging markets late last year, Hasenstab stocked up his holdings at cheaper levels while skeptical clients cashed out. The bold strategy reflected his belief that policy makers wouldn't allow the euro zone's crisis to spin out of control, the U.S. wouldn't be hit with another recession, and China's economy might slow down but a sharp downfall was unlikely.
"Despite short-term volatility, we see our job as really being to cut through the noise, and try and take advantage of the market dislocations such noise creates," Hasenstab said in an interview late Tuesday afternoon. "Our performance so far this year reflects this."
The fund's 8% gain so far in 2012 is well above the average of 1.85% for the 117 funds Lipper tracks and the 0.93% loss posted by its benchmark index, the Citigroup World Government Bond Index.
The 38-year-old Hasenstab, who is based in San Mateo, Calif., has been described by some as the next-generation Bill Gross, the legendary bond manager who runs the world's biggest fixed-income fund at Pacific Investment Management Co.
Hasenstab shot to fame in 2008, when his fund took in $2.66 billion and then continued to draw investors. Even after the redemptions in the last two months of 2011, the fund took in a net gain of $1.3 billion last year, accounting for nearly 60% of all new cash flowing into the world bond category tracked by Morningstar.
With the scenario of a euro-crisis-fueled pandemic fading, investors this year have flushed out of safe assets such as Treasury bonds and sought higher returns from U.S. stocks, corporate bonds and emerging-market assets. Bond yields in Italy and Spain have tumbled to less-stressed levels and U.S. stock indices have rallied to their highest since 2008. That has played to the advantage of Hasenstab, whose risk-oriented portfolio was well positioned for the rebound.
"To the credit of the large asset managers like Templeton, they have used the recent euro crisis and uncertainty surrounding growth as an opportunity to get into the Asian and emerging-market space earlier than most," said Adrian K. Miller, senior global market strategist at GMP Securities LLC in New York.
The danger is if the global economic recovery falters again, the fund could struggle against its rivals, said Miriam Sjoblom, a bond fund analyst with Morningstar who tracks Hasenstab's portfolio. But she added that last year's poor performance didn't put a dent in Hasenstab's credibility.
"It showcases the potential risks of his long-term, contrarian approach, so it's an instructive period for investors. But we continue to give the fund an analyst rating of gold," she said.
Hasenstab is heavily invested in short-dated bonds from South Korea, Malaysia, Australia and other countries whose fortunes are tied to those of the China. He said he avoids long-dated bonds to limit interest-rate risk and to best capture gains in these and other countries' currencies against the dollar, euro and yen--a trio for which he sees further declines against emerging-market currencies due to comparatively slack monetary policy in the U.S., Europe and Japan.
Meanwhile, he likes Poland. In the euro-zone bond market, he holds only Irish bonds.
Canadian Bonds Extend Thier Dramatic Selloff
The dramatic selloff in Canadian bonds continued Wednesday, with the Federal Reserve's acknowledgement of an improving U.S. labor market and growth picture still echoing through the market.
The yield for Canada's two-year bond was at 1.224% late Wednesday, up from 1.191% late Tuesday. The 10-year was at highs not seen since early December, yielding 2.154%, up from 2.046%, according to data provider CQG.
The 30-year yield was also at levels not seen since early December, yielding 2.696%, from 2.613%.
Bond yields move inversely to their prices.
"We are stringing together the view that we have seen the low in government bond yields, both in Canada and the United States," said David Tulk, chief Canada macro strategist for TD Securities.
The statement Tuesday from the Fed's policy-making body revealed some economic hopefulness, trampling expectations that the central bank was poised to unleash another round of asset purchases.
That helped drive U.S. and Canadian government bond markets lower, in conjunction with a reduction in European tail risks to the broader global economy.
"Recognizing that we can be a little bit more constructive about the state of the global economy makes you reflect on yields that have been really held low as a result of those issues," Tulk said.
Government bond selling accelerated on a technical breakdown in late morning, as the yield on the 10-year U.S. Treasury benchmark note touched fresh highs for the year, said Fergal Smith, managing market strategist at Action Economics in Toronto. Meanwhile, the 10-year and 30-year yield spreads between the U.S. Treasury benchmark and the corresponding Canadian bonds were delving deeper into negative territory.
While more attractive prices on Canada's highly coveted triple-A rated government securities were attracting some buyers, the rout was nonetheless holding many investors at bay, Smith said.
"It's not more attractive if you believe there is further downside risk," Smith said. "There is hope for a bounce in Canada, but in our view, the selloff will continue from here."
Smith said he is watching for a surge in Canada's 10-year benchmark bond to the late October high of 2.517%.
The yield for Canada's two-year bond was at 1.224% late Wednesday, up from 1.191% late Tuesday. The 10-year was at highs not seen since early December, yielding 2.154%, up from 2.046%, according to data provider CQG.
The 30-year yield was also at levels not seen since early December, yielding 2.696%, from 2.613%.
Bond yields move inversely to their prices.
"We are stringing together the view that we have seen the low in government bond yields, both in Canada and the United States," said David Tulk, chief Canada macro strategist for TD Securities.
The statement Tuesday from the Fed's policy-making body revealed some economic hopefulness, trampling expectations that the central bank was poised to unleash another round of asset purchases.
That helped drive U.S. and Canadian government bond markets lower, in conjunction with a reduction in European tail risks to the broader global economy.
"Recognizing that we can be a little bit more constructive about the state of the global economy makes you reflect on yields that have been really held low as a result of those issues," Tulk said.
Government bond selling accelerated on a technical breakdown in late morning, as the yield on the 10-year U.S. Treasury benchmark note touched fresh highs for the year, said Fergal Smith, managing market strategist at Action Economics in Toronto. Meanwhile, the 10-year and 30-year yield spreads between the U.S. Treasury benchmark and the corresponding Canadian bonds were delving deeper into negative territory.
While more attractive prices on Canada's highly coveted triple-A rated government securities were attracting some buyers, the rout was nonetheless holding many investors at bay, Smith said.
"It's not more attractive if you believe there is further downside risk," Smith said. "There is hope for a bounce in Canada, but in our view, the selloff will continue from here."
Smith said he is watching for a surge in Canada's 10-year benchmark bond to the late October high of 2.517%.
MARKET TALK: Danger Lurks As Yield Curve Steepens
A steeper curve has been the logic trade for those banking on an improving US economic data and budding fears on inflation. The 2-10yr yield spread has widened 0.11 percentage point today to 1.89, the most since October. Yet the steepening trade could be jolted if the growth outlook generates a broad shift among investors to bets that the Fed may hike rates before its projected late-2014 time frame. A change of the Fed outlook could spark a selloff in short-dated Treasurys like the 2-year note, causing the curve to flatten some.
MARKET TALK: Ex-Tsy Sec Rubin: More Fed Stimulus Would Do Little
Former Treasury Secretary Robert Rubin said a third round of bond buying by the Fed would "accomplish little or nothing." Central bank officials have debated launching another round of economic stimulus, in the form of more quantitative easing. Rubin, while speaking at the Atlantic's Economy Summit in Washington, said that the last round of bond buying barely moved interest rates and a third round would have "little effect on business and consumer behavior." Additional stimulus, however, could stoke inflation and heighten concerns that the US won't come up with a plan to address its growing debt load, he said.
WSJ: How JP Morgan Chase Scooped The Fed
.P. Morgan Chase & Co. (JPM) did more than pass the Federal Reserve's "stress test"--it beat the Fed to the punch in announcing its results.
That move left some rival bankers seething.
The Fed told many of the nation's largest banks around midday Tuesday that it would announce stress-test results at 4:30 p.m. EDT, after the close of the New York Stock Exchange, and that banks could issue news releases about increasing their dividends or share buybacks after the Fed's release.
But J.P. Morgan, the nation's largest bank, issued a news release at 3:04 p.m. outlining its results and plans. Its shares jumped 7% after the release and pulled up other bank stocks. The next bank to disclose that it had passed the test was U.S. Bancorp (USB) at 3:58 p.m., just before the market close.
(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)
Several rival banks said they received instructions from the Fed to stay quiet until the central bank put out its own results for all 19 banks covered by the latest stress test.
An executive at one rival bank said the bank was instructed by the Fed "not to tell anyone" the results.
The banks said they were frustrated by J.P. Morgan's release because they felt they were playing by the Fed's rules.
The J.P. Morgan announcement was the result of miscommunication between the Fed and J.P. Morgan, said a senior Fed official, who also indicated that it wasn't J.P. Morgan's fault.
The quick J.P. Morgan release had its origin in a decision by the Fed to put out its numbers earlier than expected.
The Fed announcement of the results originally had been planned for Thursday. But the banks were told that there was "a leak" of information about the tests and plans for raising capital, so the Fed decided to move up its announcement to Tuesday, said people familiar with the matter.
One person familiar with J.P. Morgan's talks with the Fed said there was a discussion about timing and an honest misunderstanding on both sides about what the plan was.
Adding to the confusion was a scramble on both sides: Not only was the Fed working to put out results two days earlier than planned, but Tuesday was also a day when top Fed officials were releasing their statement on monetary policy.
Another person familiar with the matter said J.P. Morgan wasn't given specific guidance about timing during the meeting.
J.P. Morgan also shared a draft of its news release with the Fed before it went out, this person said.
That move left some rival bankers seething.
The Fed told many of the nation's largest banks around midday Tuesday that it would announce stress-test results at 4:30 p.m. EDT, after the close of the New York Stock Exchange, and that banks could issue news releases about increasing their dividends or share buybacks after the Fed's release.
But J.P. Morgan, the nation's largest bank, issued a news release at 3:04 p.m. outlining its results and plans. Its shares jumped 7% after the release and pulled up other bank stocks. The next bank to disclose that it had passed the test was U.S. Bancorp (USB) at 3:58 p.m., just before the market close.
(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)
Several rival banks said they received instructions from the Fed to stay quiet until the central bank put out its own results for all 19 banks covered by the latest stress test.
An executive at one rival bank said the bank was instructed by the Fed "not to tell anyone" the results.
The banks said they were frustrated by J.P. Morgan's release because they felt they were playing by the Fed's rules.
The J.P. Morgan announcement was the result of miscommunication between the Fed and J.P. Morgan, said a senior Fed official, who also indicated that it wasn't J.P. Morgan's fault.
The quick J.P. Morgan release had its origin in a decision by the Fed to put out its numbers earlier than expected.
The Fed announcement of the results originally had been planned for Thursday. But the banks were told that there was "a leak" of information about the tests and plans for raising capital, so the Fed decided to move up its announcement to Tuesday, said people familiar with the matter.
One person familiar with J.P. Morgan's talks with the Fed said there was a discussion about timing and an honest misunderstanding on both sides about what the plan was.
Adding to the confusion was a scramble on both sides: Not only was the Fed working to put out results two days earlier than planned, but Tuesday was also a day when top Fed officials were releasing their statement on monetary policy.
Another person familiar with the matter said J.P. Morgan wasn't given specific guidance about timing during the meeting.
J.P. Morgan also shared a draft of its news release with the Fed before it went out, this person said.
CHAT: The Fed Does Not Want These Higher Yields
The central bank made a careful nod to improvements in the US economy yesterday. It was slight, but market participants took that acknowledgement and ran with it. Yields are shooting higher. But higher borrowing costs is the last thing the Fed wants, especially ahead of the spring home selling season. "Housing is the Achilles heel of the recovery and Bernanke is not about to let borrowing costs move too far against him," says TD Securities chief US rates strategist Eric Green. Higher rates also spell trouble for the US' tremendous debt load. "This is an appropriate re-pricing of rates as all the factors that compressed yields to record lows give way," Green says, but sellers beware of the Fed's looming presence.
OPEC Pins High Prices On Speculators, IEA Warns On Supply
Leaders of some of the world's largest oil producing nations Wednesday pinned current high oil prices primarily on market speculators, just as consuming nations warned that even present increased output levels are being more than offset by numerous supply problems.
Brent crude oil prices are up around 17% this year, and in early March hit highs last seen in July 2008. Fears over a loss of Iranian oil supplies amid rising tension with the West over its nuclear program, in addition to supply losses from South Sudan, Yemen, Syria and the North Sea have fuelled concerns over whether tightened global oil supply can meet demand.
Addressing the International Energy Forum of major oil producers and consumers here, Saudi Oil Minister Ali al-Naimi said growing interest in energy commodities as an asset class had increased market speculation, which was based on guesswork that oil supply would be constrained in the future. He blamed speculators' focus on oil futures, without taking delivery of physical oil, for causing volatile price distortions.
Naimi said the physical oil market is "generally balanced, and there is ample production and refining capacity."
"Saudi Arabia and others remain poised to make good any shortfalls--perceived or real--in crude oil supply," Naimi said, according to a copy of his remarks, which he made outside the presence of reporters.
The International Energy Agency, however, said Wednesday in its monthly report that global oil supply fell by 200,000 barrels a day in February, despite Saudi Arabian production hitting a 30-year high, as supply from countries outside the Organization of Petroleum Exporting Countries fell by 500,000 barrels a day, putting extra pressure on OPEC's already slim spare production capacity.
Naimi's speech didn't tackle Iranian threats to close the strategic Strait of Hormuz, through which Persian Gulf producers export around one-fifth of the world's oil supplies, or the disruption such a move would cause a spike in the crude markets.
Iran's Oil Minister Rostam Ghasemi blamed sanctions and the political use of oil by consumer nations for endangering global energy security and contributing to volatile oil prices, saying major energy consumers use oil "as a political tool against oil-producing countries." But U.S. Deputy Energy Secretary Daniel Poneman said Iran's noncompliance with international nuclear safeguards is the underlying case of current oil-market instability.
In recent months, the West has been ratcheting up sanctions on Iran's oil sector over Tehran's nuclear program.
South Korea, for instance, is considering reducing its crude oil imports from sanctions-hit Iran and is in talks with the United Arab Emirates to secure more oil-field contracts, the country's vice minister of knowledge economy said. But Ghasemi, whose country is the world's fourth largest crude exporter, also joined Abdalla Salem el-Badri, secretary general of the Organization of Petroleum Exporting Countries, and al-Naimi in blaming speculation for current high prices.
"The role of oil exchange market in market fluctuations and price volatility cannot be overlooked," he said.
Brent crude oil prices are up around 17% this year, and in early March hit highs last seen in July 2008. Fears over a loss of Iranian oil supplies amid rising tension with the West over its nuclear program, in addition to supply losses from South Sudan, Yemen, Syria and the North Sea have fuelled concerns over whether tightened global oil supply can meet demand.
Addressing the International Energy Forum of major oil producers and consumers here, Saudi Oil Minister Ali al-Naimi said growing interest in energy commodities as an asset class had increased market speculation, which was based on guesswork that oil supply would be constrained in the future. He blamed speculators' focus on oil futures, without taking delivery of physical oil, for causing volatile price distortions.
Naimi said the physical oil market is "generally balanced, and there is ample production and refining capacity."
"Saudi Arabia and others remain poised to make good any shortfalls--perceived or real--in crude oil supply," Naimi said, according to a copy of his remarks, which he made outside the presence of reporters.
The International Energy Agency, however, said Wednesday in its monthly report that global oil supply fell by 200,000 barrels a day in February, despite Saudi Arabian production hitting a 30-year high, as supply from countries outside the Organization of Petroleum Exporting Countries fell by 500,000 barrels a day, putting extra pressure on OPEC's already slim spare production capacity.
Naimi's speech didn't tackle Iranian threats to close the strategic Strait of Hormuz, through which Persian Gulf producers export around one-fifth of the world's oil supplies, or the disruption such a move would cause a spike in the crude markets.
Iran's Oil Minister Rostam Ghasemi blamed sanctions and the political use of oil by consumer nations for endangering global energy security and contributing to volatile oil prices, saying major energy consumers use oil "as a political tool against oil-producing countries." But U.S. Deputy Energy Secretary Daniel Poneman said Iran's noncompliance with international nuclear safeguards is the underlying case of current oil-market instability.
In recent months, the West has been ratcheting up sanctions on Iran's oil sector over Tehran's nuclear program.
South Korea, for instance, is considering reducing its crude oil imports from sanctions-hit Iran and is in talks with the United Arab Emirates to secure more oil-field contracts, the country's vice minister of knowledge economy said. But Ghasemi, whose country is the world's fourth largest crude exporter, also joined Abdalla Salem el-Badri, secretary general of the Organization of Petroleum Exporting Countries, and al-Naimi in blaming speculation for current high prices.
"The role of oil exchange market in market fluctuations and price volatility cannot be overlooked," he said.
Legal & General Upbeat As Profit Rises
U.K. insurer Legal & General Group PLC (LGEN.LN) said Wednesday it remained confident in its business prospects despite a weak U.K. economy and after the lower value of its long-term investments pulled full-year net profit down by around 11%.
Net profit dropped to GBP726 million in 2011 from GBP820 million a year earlier.
Nonetheless, L&G's operating profit was higher over the period. Operating profit is closely watched by analysts because it reflects the company's main insurance and asset management activities. It rose to GBP1.06 billion last year from GBP1 billion in 2010, slightly above the GBP1.04 billion average forecast from 18 analysts.
The increase was due in part to a stronger contribution from L&G's asset management business LGIM.
The company raised its dividend by 35% to 6.40 pence a share from 4.75 pence previously, boosting its stock sharply in early trading. At 1003 GMT, L&G shares were up 5.3% at 132 pence, making it the best performer among FTSE100 stocks. Meanwhile, the FTSE100 index was up 0.3%.
It said the dividend hike was made possible by the company's ability to generate cash and the "high visibility" of its future cash flows. L&G had net cash generation of GBP846 million last year, up from GBP760 million in 2010.
Revenue fell to GBP18.3 billion from GBP38.4 billion the year before as investment returns dropped almost 63% to GBP12.14 billion.
Worldwide new business sales on an annual premium equivalent, or APE, basis were up 7% at GBP1.9 billion from GBP1.8 billion a year earlier. APE counts 100% of regular premium sales and 10% of the money earned from selling single-premium products.
"Legal & General had a strong 2011. All four of our operating business divisions--risk, savings, investment management and international--delivered increased sales, cash generation and profits. Our balance sheet is strong, and our outlook for 2012 positive," said outgoing Chief Executive Tim Breedon.
In September, Breedon said he will be stepping down as CEO at the end of this year, ending a 25-year career with the company.
The company said: "There is little prospect of a substantial rebound in real economic growth in 2012 across the U.K., Europe and probably the U.S. .. We also expect global inflation to continue which will result in positive nominal economic growth."
However, it also said: "We remain confident about the prospects for the group. We have a strong platform to continue to deliver growth in cash generation, dividends and shareholder value."
Shore Capital analyst Eamonn Flanagan said L&G reported "a powerful set of 2011 results," highlighted by the 35% rise in dividend.
"This is supported by excellent cash generation, IFRS operating profits and earnings," he said, adding that he would "tend to agree" with the company's confidence in its prospects in the risk, annuity and savings market. Flanagan kept his buy rating on the stock.
Panmure Gordon analyst Barrie Cornes said the LGIM business is performing well, with assets under management of GBP371 billion, up from GBP353 billion.
"We view L&G's ability to export the LGIM model internationally as a key strength going forward," said Cornes, who kept his buy rating and 139 pence target price on the stock.
In a briefing, Breedon said the company is hoping to set up an office for LGIM in Asia shortly. "We must have something in the fast growing markets of the Far East," he said, but added that L&G has yet to finalize where and when this will be set up.
Breedon said the search for his successor is ongoing but gave no further detail.
He also joined other U.K. insurers in expressing concern over the possible negative impact of some provisions of an upcoming set of new capital rules for European insurers called Solvency II.
Among the worries about Solvency II, he said, is the way an insurer's capital is counted and treated. There is also a question over so-called "equivalence," or whether the EU sees other markets as having an equivalent solvency regime to Solvency II.
L&G's rivals, Prudential PLC (PRU.LN) and Standard Life PLC (SL.LN) on Tuesday voiced the same concerns.
There are worries that European insurers may be forced to hold extra capital to protect their non-EU businesses if the solvency rules of the markets they are in are not considered "equivalent" to Solvency II.
"Solvency II seems no close to providing us with the clarity were looking for.. This is a wider European concern," Breedon said.
The new rules are set to be implemented by European regulators in Jan 2013, and by insurers a year later, but skeptics say these could be delayed due to the complexity of the rules being discussed.
Net profit dropped to GBP726 million in 2011 from GBP820 million a year earlier.
Nonetheless, L&G's operating profit was higher over the period. Operating profit is closely watched by analysts because it reflects the company's main insurance and asset management activities. It rose to GBP1.06 billion last year from GBP1 billion in 2010, slightly above the GBP1.04 billion average forecast from 18 analysts.
The increase was due in part to a stronger contribution from L&G's asset management business LGIM.
The company raised its dividend by 35% to 6.40 pence a share from 4.75 pence previously, boosting its stock sharply in early trading. At 1003 GMT, L&G shares were up 5.3% at 132 pence, making it the best performer among FTSE100 stocks. Meanwhile, the FTSE100 index was up 0.3%.
It said the dividend hike was made possible by the company's ability to generate cash and the "high visibility" of its future cash flows. L&G had net cash generation of GBP846 million last year, up from GBP760 million in 2010.
Revenue fell to GBP18.3 billion from GBP38.4 billion the year before as investment returns dropped almost 63% to GBP12.14 billion.
Worldwide new business sales on an annual premium equivalent, or APE, basis were up 7% at GBP1.9 billion from GBP1.8 billion a year earlier. APE counts 100% of regular premium sales and 10% of the money earned from selling single-premium products.
"Legal & General had a strong 2011. All four of our operating business divisions--risk, savings, investment management and international--delivered increased sales, cash generation and profits. Our balance sheet is strong, and our outlook for 2012 positive," said outgoing Chief Executive Tim Breedon.
In September, Breedon said he will be stepping down as CEO at the end of this year, ending a 25-year career with the company.
The company said: "There is little prospect of a substantial rebound in real economic growth in 2012 across the U.K., Europe and probably the U.S. .. We also expect global inflation to continue which will result in positive nominal economic growth."
However, it also said: "We remain confident about the prospects for the group. We have a strong platform to continue to deliver growth in cash generation, dividends and shareholder value."
Shore Capital analyst Eamonn Flanagan said L&G reported "a powerful set of 2011 results," highlighted by the 35% rise in dividend.
"This is supported by excellent cash generation, IFRS operating profits and earnings," he said, adding that he would "tend to agree" with the company's confidence in its prospects in the risk, annuity and savings market. Flanagan kept his buy rating on the stock.
Panmure Gordon analyst Barrie Cornes said the LGIM business is performing well, with assets under management of GBP371 billion, up from GBP353 billion.
"We view L&G's ability to export the LGIM model internationally as a key strength going forward," said Cornes, who kept his buy rating and 139 pence target price on the stock.
In a briefing, Breedon said the company is hoping to set up an office for LGIM in Asia shortly. "We must have something in the fast growing markets of the Far East," he said, but added that L&G has yet to finalize where and when this will be set up.
Breedon said the search for his successor is ongoing but gave no further detail.
He also joined other U.K. insurers in expressing concern over the possible negative impact of some provisions of an upcoming set of new capital rules for European insurers called Solvency II.
Among the worries about Solvency II, he said, is the way an insurer's capital is counted and treated. There is also a question over so-called "equivalence," or whether the EU sees other markets as having an equivalent solvency regime to Solvency II.
L&G's rivals, Prudential PLC (PRU.LN) and Standard Life PLC (SL.LN) on Tuesday voiced the same concerns.
There are worries that European insurers may be forced to hold extra capital to protect their non-EU businesses if the solvency rules of the markets they are in are not considered "equivalent" to Solvency II.
"Solvency II seems no close to providing us with the clarity were looking for.. This is a wider European concern," Breedon said.
The new rules are set to be implemented by European regulators in Jan 2013, and by insurers a year later, but skeptics say these could be delayed due to the complexity of the rules being discussed.
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