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Monday, September 1, 2014

Asian stocks fall, ECB uncertainty continues to pummel euro

(Reuters) - Asian shares slipped on Tuesday as a U.S. holiday robbed markets of momentum, while the euro hit a fresh one-year low on uncertainty over the European Central Bank's policy decision later this week. Spreadbetters expected an effectively flat open for Europe, with Britain's FTSE .FTSE, Germany's DAX .GDAXI and France's CAX .FCHI forecast to open about 0.1 percent higher. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost 0.6 percent after managing to carve out gains on the previous day.

With U.S. markets closed for Labor Day, investors in Asia were somewhat subdued. The mood was also tempered by persistent geopolitical concerns and anemic manufacturing surveys in Asia and Europe showing pockets of weakness in the global economy. Tokyo's Nikkei .N225 bucked the trend and rose 1.2 percent, with a planned cabinet reshuffle by Prime Minister Shinzo Abe helping fuel reform hopes. The dollar, boosted by the flagging euro and gains in Tokyo shares that dented the appeal of the safe-haven yen, rose to a seven-month high of 104.87 yen JPY=. "The dollar's gains are driven by actual flows, such as options-related buying. The market is also keeping an eye on the rise in equities," said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo. Immediate focus was on the ISM's report on U.S. manufacturing due later in the day, which might point to the U.S. phasing out quantitative easing just as the ECB contemplates its adoption.

The euro slipped to a fresh one-year low of $1.3115 EUR=. The common currency was expected to remain under pressure ahead of Thursday's European Central Bank policy meeting. While many market participants do not expect the ECB to take major easing steps this week, a few are seen braced for new policy measures. Further central bank easing is considered a matter of when and not if in the face of risks to euro zone growth posed by the Ukraine conflict and stubbornly low inflation. "This week may start to mark the biggest shift in global monetary policy since 'Abenomics' went into full steam on the appointment of Haruhiko Kuroda to head up the BOJ," equity strategists at Jefferies wrote in a note to clients. The decline in European headline inflation rates, collapse in German bund yields, and the call by the president of the ECB for 'growth friendly' fiscal policy suggests that Europe is finally moving towards quantitative easing, they said.

The Australian dollar showed little reaction to the well-anticipated decision by the Reserve Bank of Australia to keep its cash rate at a record low 2.5 percent for the 12th consecutive meeting. The Aussie was down 0.4 percent at $0.9296 AUD=D4 after brushing a one-week low of $0.9285. In commodities, Brent crude held steady below $103 a barrel on Tuesday, with new unrest in OPEC oil producer Libya balanced by concerns of slowing oil demand growth due to weak economic recoveries in China and Europe. [O/R] Palladium hovered near a 13-1/2 year high of $910 an ounce hit overnight on fears that possible Western sanctions against Russia over the Ukraine crisis could hit supply from the world's top producer of the metal, while gold nudged higher. [GOL/] Spot palladium XPD= last traded at $904.50 an ounce. Russia accounted for more than 40 percent of global palladium supply last year. (Editing by Eric Meijer & Shri Navaratnam)

A man stands in front of an electronic board, showing the various stock prices, outside a brokerage in Tokyo August 6, 2014. REUTERS/Yuya Shino

A man stands in front of an electronic board, showing the various stock prices, outside a brokerage in Tokyo August 6, 2014. REUTERS/Yuya Shino

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Tuesday, August 26, 2014

Soros’s Argentine Bond Bet Revealed in Lawsuit in London

Unknown di 9:31 PM No comments:

Less than a month after Argentinadefaulted for the second time in 13 years,George Soros has suddenly emerged as a key rival of fellow billionaire Paul Singer in the legal fight over the nation’s debt.

According to court documents filed inLondon last week, Quantum Partners LP, a fund managed by Soros’s family office, has joined a group of investors suing bond trustee Bank of New York Mellon Corp. for failing to distribute 226 million euros ($298 million) of interest payments on Argentine debt. The group, which also includes Kyle Bass’s Hayman Capital Management LP, owns more than 1.3 billion of euro-denominated bonds, court documents obtained by Bloomberg News show.

At the crux of the dispute is a U.S. court ruling won by Singer’s Elliott Management Corp., which blocked Argentina from paying its overseas bonds until the country compensates him and other holders of debt from its 2001 default. While the ruling prevents BNY Mellon from transferring any money deposited by Argentina until Singer is paid, it shouldn’t apply to bonds governed by jurisdictions outside of the U.S., the group says.

“The trustee isn’t acting in its official capacity as trustee,” Bass said in a telephone interview fromNew York. “Our interest payment is governed by U.K. law, which hasn’t ruled on this. Until there’s a similar injunction in the U.K., they owe us our interest payments.”
Legal Pursuit

Michael Vachon, a spokesman for Soros, declined to comment. Stephen Spruiell, a spokesman for New York-based Elliott, didn’t return e-mails seeking comment on the lawsuit.

Singer, who also sued the governments of Peru and the Republic of Congo after they reneged on their obligations, bought Argentine bonds before its $95 billion default in 2001.

After a more than decade-long legal pursuit for full repayment, Singer and other creditors who refused to accept losses of 70 percent to provide Argentina debt relief are now owed $1.5 billion as of result of the U.S. court orders.

Soros, meanwhile, has been an investor in the South American country for decades, having joined a group that purchased Argentine real estate company IRSA Inversiones y Representaciones SA in the early 1990s.

On June 26, Argentina deposited $539 million into an account at BNY Mellon for an interest payment on its foreign-currency bonds due four days later -- without also depositing the amount owed to the holdout creditors led by Singer.
‘Illegal’ Payment

U.S. District Judge Thomas Griesa called the payment “illegal” and prohibited New York-based BNY Mellon from distributing the funds to bondholders.

A default was triggered on July 30, after Argentina failed to reach a settlement with the holdouts by the end of a grace period for making the interest payments. The money remains at BNY Mellon’s account in Buenos Aires.

Argentina revoked the authorization of two BNY Mellon officials for failing to provide local financing, according to an Aug. 25 resolution. The lender had no operations in the country since December 2012, the document said.

In the U.K. lawsuit, Soros, Bass, Knighthead Capital Management LLC and RGY Investments LLC said that BNY Mellon’s London-based unit acted “consistently to protect its own interests, without reference to the interests of the beneficiaries,” according to the documents.

The bondholder group asked the London court to require BNY Mellon to disburse the money to holders of Argentina’s euro-denominated bonds and prevent the bank from doing anything else with the cash.
‘Without Merit’

“The suit is without merit,” Ron Gruendl, a spokesman for BNY Mellon, said in a statement on Aug. 22. “BNY Mellon has consistently followed the binding court orders that govern its actions as trustee in this matter.”

A separate group of investors in euro-denominated bonds plans on appealing Griesa’s ruling in New York. Last year, that group sued Bank of New York Mellon Brussels and Brussels-based Euroclear SA in Belgian court. The outcome of a Sept. 9 hearing set for that case will be “important” for investors and the holdouts, said Bass.

Euroclear, the world’s biggest settlement system, has said the orders are in violation of Belgian law, which prohibits the obstruction of cash transfers made by settlement agents. The law was established in 2004 after an appeals court in Brussels overturned a lower-court order that had prevented Euroclear from accepting or making any payments on Nicaraguan bonds at the request of holdout creditors.
Distributing Payments

Citigroup Inc.’s Argentina unit is also appealing a decision by the judge that bars the bank from distributing payments on securities issued under Argentine law. Fintech Advisory Inc., a hedge fund run by David Martinez, who has litigated against Singer in other cases, said on Aug. 19 it will also appeal Griesa’s ruling.

“Clearly there’s a process of trying to carve out legal and local law” from the ruling,’’ Siobhan Morden, head of Latin America fixed-income strategy at Jefferies Group LLC, said by phone from New York. “The euro bondholders are aggressively trying to separate U.K. law from this expansive injunction.”

Argentina’s euro-denominated debt has outperformed its dollar bonds since the default, with yields on notes due 2033 rising about 2 percentage points, compared with a 2.7-point increase on same-maturity dollar bonds. The spread between the securities widened 15 basis points today to 45 basis points, the biggest since January.
Soros Investments

Soros, the world’s 23rd wealthiest person, met with Argentina’s President Cristina Fernandez de Kirchner last year to discuss investment in the country, according to local newspaper BAE. Soros Fund Management LLC more than doubled its stake in Argentina’s state-owned oil producerYPF SA (YPF), adding 8.47 million shares in the second quarter, according to an Aug. 14 filing. Soros’s 3.5 percent stake worth $450 million makes him the fourth-biggest private holder.

Soros also owned 25.9 million shares worth about $244.6 million in South American agricultural company Adecoagro SA as of June 30, according to a filing with the U.S. Securities and Exchange Commission. That works out to a 21 percent stake, according to data compiled by Bloomberg.

Economy Minister Axel Kicillof has called on bondholders to demand their money from BNY Mellon, saying the nation fulfilled its obligations and isn’t in default.

“In a broader sense, what’s going on right now is the chickens coming home to roost,” Tim Samples, a professor of legal studies at the University of Georgia, said in a telephone interview. “People have been warning for years about the complexities and burdens for third parties in this case and we’re just seeing that unfold.”

(An earlier version of this story corrected the dollar amount of Adecoagro shares Soros owns in the 22nd paragraph.)

By Katia Porzecanski and Camila Russo Aug 27, 2014 4:18 AM GMT+0700
To contact the reporters on this story: Katia Porzecanski in New York atkporzecansk1@bloomberg.net; Camila Russo in Buenos Aires atcrusso15@bloomberg.net

To contact the editors responsible for this story: Michael Tsang at mtsang1@bloomberg.net; Bradley Keoun at bkeoun@bloomberg.net Lester Pimentel, Bradley Keoun

FOREX

technical

fundamental

trading signal

economic calendar	prev	cons
German GfK Consumer Sentiment Sep	9	8.9
UBS Consumption Indicator Jul	2.06	-
Crude Oil Inventories	1.1M	-4.5M
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Sunday, August 24, 2014

Why Interest Rates Need to Stay Low

Unknown di 9:30 AM No comments:

A sharp debate within the Federal Reserve over when to raise interest rateswas publicly aired last week at the annual central bankers’ conference in Jackson Hole, Wyo. On one side is a small yet vocal minority of Fed officials who want to head off inflation by raising rates sooner rather than later. On the other is a majority that thinks a near-term rate hike would stifle growth and, with it, any chance of restoring health to the labor market. That group includes Janet Yellen, the Fed’s chairwoman, and most members of the Fed’s policy committee.

The economic evidence indisputably favors Ms. Yellen, who has indicated that rate increases should not begin until sometime next year, at the earliest. It will take until then to be able to say with confidence whether recent improvements in growth and hiring are sustainable. For now, the prospects for both are mixed at best, with the preponderance of evidence — including the Fed’s own analysis — indicating that growth this year will average out around a still-sluggish 2.3 percent. That is too slow to reliably boost the number and quality of jobs and, as such, too slow to justify raising rates.

It is also unknown whether growth and hiring, if and when they fully recover, will spark inflation. For that to occur, wage increases would have to be substantial enough to push up prices, meaning annual raises in excess of 3.5 percent given present rates of inflation and productivity growth. Wage increases of that magnitude are not in the cards, and neither is any hint of worrisome inflation. Since the economic recovery began in mid-2009, hourly wages have risen by a mere 1.9 percent a year on average.

Against that backdrop, arguing in favor of a near-term rate increase is to argue for subpar wage growth and for continuing a status quo in which economic gains flow largely into profits rather than wages. Ms. Yellen and her supporters are right to rebut that stance in both word and deed.

The debate over interest rates does not stop there. Another argument in favor of near-term rate increases is that the Fed’s prolonged low-rate policy is inflating asset bubbles that could burst with harmful consequences. Unlike the inflation argument, for which there is no evidence, concern about bubbles is justified.

The Fed’s loose policies have pushed up stock, bond and real estate prices — which is, in fact, the point of a low-rate policy. There is legitimate debate about how overvalued assets may be. But low rates, by fostering investments with borrowed money, invariably create the conditions for bubbles.

The answer, however, is not to raise rates, slowing the entire economy in order to tame the markets. The answer, laid out in recent remarks by Ms. Yellen and Stanley Fischer, the Fed vice chairman, is to use bank regulation and financial oversight to ensure that institutions and investors do not use low rates as a springboard for speculating.

That requires identifying and stopping reckless lending of the sort that has surfaced in subprime auto loans and unaffordable student loans. And it requires vigilance for signs of systemic risk in the complex activities that make institutions interdependent. Here the Fed is still too lax, as in itsrecent indulgence of too-big-too-fail banks that have failed to meet regulatory demands intended to reduce risks and prevent bailouts.

There is no guarantee that keeping rates low for a “considerable period,” as the Fed leadership has pledged, will propel the economy forward. But it is all but certain the economy will backslide if rates are raised too soon. That’s because the economy’s critical underpinning — good jobs at good pay — has not yet been restored, and until it is, monetary support from the Fed and fiscal support from Congress are needed. Fiscal support has been withdrawn and reversed in recent years, a misguided move that has needlessly depressed growth and represents a failure of both policy and politics. Raising rates too soon would be a policy error on a par with that debacle, a mistake that the economy can ill afford.

http://www.nytimes.com/

By THE EDITORIAL BOARD

AUG. 23, 2014

Friday, August 22, 2014

Dollar Rises to 11-Month High as Yellen Notes Employment Gains

Unknown di 9:03 PM No comments:

http://www.bloomberg.com/
By Andrea Wong Aug 23, 2014 4:10 AM GMT+0700

Aug. 22 (Bloomberg) -- Federal Reserve Chair Janet Yellen said slack remains in the U.S. labor market even after gains made during the five years of economic recovery. Michael McKee reports on “Market Makers.” (Source: Bloomberg)

The dollar reached an 11-month high against the euro after Federal Reserve Chair Janet Yellen cited jobs gains made during the five years of economic recovery while noting slack remains in the U.S. labor market.

The U.S. currency rose to the highest level since February against its major peers as Yellen’s remarks in Jackson Hole, Wyoming, supported speculation the Fed will raise interest rates next year. The euro pared losses after European Central Bank President Mario Draghisaid he’s confident the stimulus put in place will boost demand in the economy. Brazil’s real dropped after as the nation’s current account deficit widened last month more than forecast.

“The market reaction has been positive for the dollar,” Brian Daingerfield, currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a phone interview. “We’re very used to Chair Yellen’s view of the labor market being generally considered on the dovish side. Today’s commentary was neither particularly hawkish or dovish.”

The U.S. dollar gained 0.3 percent to $1.3242 per euro at 5 p.m. in New York, after appreciating to $1.3221, the strongest level since Sept. 9. The greenback added 0.1 percent to 103.95 yen after advancing to 104.18, the highest since Jan. 23. The euro fell 0.2 percent to 137.64 yen.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, increased 0.1 percent to 1,028.81, touching the highest level since Feb. 4. The measure is up 0.9 percent this week and this year.
Draghi’s Speech

Europe’s 18-nation currency trimmed losses after Draghi said in a speech in Jackson Hole that fiscal policy should play greater role in aiding economic recovery, reducing speculation the central bank will ease monetary policies further. The ECB slashed one of its main interest rates to negative on June 5.

“There’re some people who think even if the ECB were forced to do quantitative easing, the structural concerns in the euro zone economy doesn’t necessarily dictate quantitative easing will be successful,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut.

Hedge funds and other large speculators increased bets on declines in the euro against to the dollar to the most since July 2012. The difference in the number of wagers on a decline compared with those on a gain -- so-called net shorts -- was 138,825 on Aug. 19, compared with 126,017 on Aug. 12, according to data from the Washington-based Commodity Futures Trading Commission.
Real Drop

Brazil’s deficit in the current account, the broadest measure of trade in goods and services, widened to $6 billion from $3.3 billion a month earlier, the central bank said in a report. Foreign direct investment during the same period rose to $5.9 billion from $3.9 billion. Economists surveyed by Bloomberg forecast a gap of $5.8 billion and investment of $5.4 billion.

The real weakened 0.4 percent to 2.2775 per U.S. dollar, eroding the year-to-date gain to 3.7 percent.

Canada’s consumer price index rose 2.1 percent in July from a year ago following June’s 2.4 percent pace, Statistics Canada said today. Economists surveyed by Bloomberg Newsforecast a 2.2 percent pace, according to the median of 20 responses.

“Initially, we had a weakening in the Canadian dollar as everyone’s eyes went to CPI, which was softer than expected, so that provides some more leeway for the Bank of Canada to maintain its neutral tone,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by telephone from Toronto.
Canada Reaction

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was little changed at C$1.0943 per U.S. dollar. The currency weakened to as low as C$1.0980, approaching the low of C1.0986 reached on Aug. 6, the least since May.

“The economy has made considerable progress in recovering from the largest and most sustained loss of employment” since the Great Depression, Yellen said in a speech at the Kansas City Fed’s annual economics conference. Even so, she underscored the Federal Open Market Committee statement last month that “underutilization of labor resources still remains significant.”

Yellen’s remarks appeared in line with the message from minutes of the July FOMC meeting, which showed officials growing more aware that labor markets are approaching full employment. She has said the central bank has no “mechanical answer” for when to raise rates, and that before doing so policy makers must be certain the economy is on a solid footing.
Dollar Demand

“People are buying dollar on the fact that we’ve now passed the event risk of Yellen’s speech,” saidJoe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “It wasn’t overly hawkish, it seems status quo for now. At the same time, she didn’t try to quell early-rate-hike expectation.”

Futures traders saw about a 54 percent chance the Fed will raise its key interest rate to at least 0.5 percent by July, according to data compiled by Bloomberg. The central bank has kept itsbenchmark rate at almost zero since December 2008.

The dollar has strengthened 1.6 percent in the past month, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after Norway’s krone. The euro fell 0.3 percent and the yen declined 1.1 percent.

Thursday, August 21, 2014

Daily Report: Risk Appetite Sent S&P 500 to Record, Yellen Awaited

Unknown di 11:20 PM No comments:

Market Overview | Written by ActionForex.com | Aug 22 14 04:54 GMT

Risk appetite was strong this week as S&P 500 finally surged to close at new record high of 1992.37. DIJA also reclaimed 17000 handle and closed at 17039.49. Asian equities, though, are mixed as Nikkei pared back earlier gains and is trading in red at the time of writing. In the currency markets, dollar is consolidating this week's FOMC minutes inspired gains for the moment and is staying firm against other major currencies. Investors are awaiting Fed chairman Yellen's speech in the annual Jackson Hole symposium today. Traders are looking for some additional bullets from Yellen to boost the greenback further higher.

A key focus on Yellen's speech will be on her assessment on the health of the labor market as the topic of this year's symposium is "Re-Evaluating Labor Market Dynamics". The more hawkish than expected FOMC minutes released earlier this week boosted the greenback higher. They unveiled that policymakers had detailed discussion of the exit strategy and would probably release the detail sin September. The FOMC members acknowledged the improvement in the job market. And staff lowered the unemployment rate forecast in response to the faster decline in the unemployment rate. Eyes will be on whether Yellen's comments today would reinforce the current dollar sentiments, or rather, cool it down.

Talking about Fed, Kansas Fed George said when the economy was getting closer to full employment and stable inflation, the time has come for rate hike. And she didn't want Fed to be "behind the curve" in normalization of interest rates. She noted that data were "stronger than expected" and "some of the policy benchmarks that we looked at and have been looking at for some time are already signaling that we should be above zero interest rates." San Francisco Fed Williams, on the other hand, said that "a rate hike some time in the middle of 2015 seems reasonable" based on current economic outlook.

Elsewhere, the economic calendar is rather light today with focus mainly on Canadian data, including consumer inflation and retail sales.

Wednesday, August 20, 2014

BOE Split, Two Members Opted to Hike Rate in August

Unknown di 8:05 PM No comments:

Special Reports | Written by ActionForex.com | Aug 20 14 11:05 GMT

Surprisingly, two MPC members voted for raising the BOE’s Bank rate to 0.75% from 0.5% earlier this month, the minutes for the August meeting showed. The dissents, Martin Weale and Ian McCafferty, indicated that 'economic circumstances were sufficient to justify an immediate rise in Bank Rate'. They were not concerned that rate hike would undermine the economic recovery. Rather, they believed that an early rise could help the central bank keep future increases smooth and gradual. The more hawkish minutes have raised speculations of a rate hike in the UK by the end of this year.

Although soft inflation had given more room for policymakers to leave the monetary policy unchanged, Weale and McCafferty voted to increase the policy rate by +25 bps due to the lagging effect of monetary policies. Both saw signs of accelerating growth that would start to drive faster growth in wages and hence inflation. According to them, the existing economic backdrop was 'sufficient to justify an immediate rise in bank rate'. Despite the slack in the labor market, as monetary policy could be 'expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank Rate in advance of them'. The members stressed that the monetary policy would remain 'extremely supportive' even after the hike.

The members also suggested that an early rise would 'facilitate the Committee’s aspiration that the rises in Bank Rate should be only gradual'. Although it cannot be ruled out that financial reaction to the first rate hike after recession would be negative, they warned that 'it was unclear that these risks would be lessened, and indeed possible they would be augmented, by delaying that increase'.

However, other members voted for leaving the policy rate unchanged. As mentioned in the minutes, 'for most members, there remained insufficient evidence of inflationary pressures to justify an immediate increase in Bank Rate'. The majority of the members were concerned that the pace of economic growth might slow while wage growth might remain weak for some time. They preferred to wait for 'firmer evidence that solid increases in pay growth were in prospect before tightening'. While the minutes turned out to be more hawkish than anticipated and the split signals that Carney’s consensus had been broken, Weale and McCafferty would continue to be the 'minority' in the coming few months.

Will BoE Dissent Change Pounds Direction?

Unknown di 8:42 AM No comments:

Daily Forex Fundamentals | Written by MarketPulse | Aug 20 14 11:25 GMT

Will BoE Dissent Change Pounds Direction?

Currently, the Central Banker remains at the 'core' for most of the forex moves. Governor Stevens at the RBA is trying hard to jawbone his own currency, the Aussie dollar, lower. While the 'chameleon' Governor Carney at the BoE seems to be confusing investors with some hawkish weekend copy, combined with dovish comments delivered last week, is complicating the pound's direction this week. Thrown into the mix an MPC dissenter or two, and if nothing else, policy makers are certainly providing investors with price movement opportunities.

Even stateside, the investor is looking to the policy maker for guidance. The FOMC will release the minutes from its last meeting later this afternoon. Expect the market to downplay the event; instead dealers prefer to look to the annual symposium on monetary policy in Jackson Hole this Friday for market direction. The FOMC minutes will certainly indicate what happened a few week's ago, while Jackson Hole will hopefully give the market some clues on any "future" Fed policy shifts. Both events will have investors looking for clues as to when the Fed will start hiking interest rates. But, the "real" look ahead for any hints as to monetary policy is Jackson Hole.

BoE discord reigns

Are the cracks finally appearing? UK data this morning indicated that two MPC officials pushed for an immediate interest rate rise in August. The MPC minutes indicated that Martin Weale and Ian McCafferty voted to increase the BoE's benchmark to +0.75% from its "three"-century low of +0.5%. Their actions officially mark for the first time dissent within Carney's ranks. The possibility of rate divergence amongst the majors will increase market interest in sterling. Today's reports will both heighten and fuel speculation that the BoE might raise rates sooner than expected. Already the market is pricing in a rate hike in Q1 2015, a week after Governor Carney threw cold water on an earlier November hike by focusing on wage and labor spare capacity. Nonetheless, will investors now revert to their earlier prediction of a BoE rate hike by year-end?

The news of the dissent has only been able to give GBP/USD a modest boost (£1.6650) and that's because the aforementioned dissenters are well known 'hawk's.' They both will find it difficult to sway the rest of Carney's rate-setters. The minority convincing the majority is not an immediate threat. If anything, sterling's strength is also been hampered by the 'big' dollars move higher across the board. Carney and his rate-voting followers will hold on to the fact that there is insufficient UK inflationary pressures from anemic wage growth to justify an immediate rate hike. If the market does buy into this theory then the pound should continue to follow along its bearish trend a little while longer.

Steven's gets his second wind

Governor Stevens at the RBA is getting a lot of practice to jawbone his currency lower. He seems to be using every opportunity to talk his currency down despite some mixed fundamental messages. Overnight, he mentioned the possibility of Central Bank intervention to weaken the AUD ($0.9290) and that the chance of a "significant drop in the Aussie dollars value remains under appreciated." Steven's has been very vocal on how an expensive AUD is hurting their exports, especially manufacturing. The RBA has the option to use direct intervention, it's a part of their "toolkit" and it's an option that is on the "table" and one that requires to be telegraphed to the financial community to improve its effectiveness.

In an environment handcuffed by CB's "low rate" policies, the AUD has benefitted from the go to "carry" trade, mostly financed with investor's borrowing in EUR's (low financing cost) and buying the higher yielding currency - the AUD. Nevertheless, the moment that the Fed indicates a change in their monetary policy, these "long" AUD/carry positions should come under some severe pressure, mostly because it's a very "crowded" trade. The AUD continues to trade well north of the psychological $0.9000 cent level despite sharp falls in key commodity prices and the RBA cutting its estimates for growth and inflation. Obviously, most of the Aussie's strength has come from foreign capital flows. Australia issues approximately AUD$55b new debt each month and with foreign investors strong demand for yield will continue to support the AUD on pullbacks.

The 'real' AUD direction is being fought by rate differentials. There is only so much policy "talking" that can weaken the currency. A weaker AUD requires a change in monetary policy to have a greater impact.

Tuesday, August 19, 2014

UK inflation fall to 1.6% lessens likelihood of interest rate rise

Unknown di 6:11 AM No comments:

Angela Monaghan
theguardian.com, Tuesday 19 August 2014 10.20 BST

CPI fall surprises forecasters who expected smaller dip as clothes discounting and drops in alcohol prices and bank charges fuel decrease

Food prices have fallen, helping to cut CPI inflation in July to 1.6%. Photograph: Alamy

The UK's annual inflation rate fell more sharply than expected in July, dimming the prospects of an interest rate rise in 2014.

The consumer prices index fell to 1.6% from 1.9% in June, marking the seventh month in a row that annual inflation has registered below the Bank of England's 2% target, according to Office for National Statistics data.

Economists had expected a smaller fall to 1.8%.

The larger-than-expected drop was driven mainly by greater summer price discounting among clothing retailers than is usual at this time of year. Clothing and footwear prices fell by 5.7% between June and July, compared with a smaller fall of 3.2% during the same period last year. Prices were slashed on a wide range of items, including trousers, coats and jumpers.

Alcohol prices, the cost of some financial services including bank overdraft charges, and food also contributed to the fall.

A Treasury spokesman gave credit for the fall in inflation to the government. "The government's long-term economic plan is working, with today marking the seventh consecutive month that inflation has been below the Bank of England's two per cent target.

"But the effects of the great recession are still being felt and so we have taken continued action to help with the cost of living, including cutting income tax, freezing fuel duty and reducing the costs of childcare. The job is not yet done so the government will go on making the realistic assessment of what needs to be done to deliver a brighter economic future."

The news was not all good for consumers, who face average rail fare rises of 3.5% in 2015. The July inflation rate on the retail prices index (RPI) measure is used to calculate rail fare rises, and dropped to 2.5% last month from 2.6% in June. Increases are traditionally capped at RPI+1% – although train operators may raise fares on some routes by an extra 2%. That means some rail fares could increase by up to 5.5%.

Mark Carney, the Bank of England governor, has given mixed messages in recent weeks on the likely timing of a first increase in interest rates, which have left been on hold at 0.5% since March 2009. Economists said lack of inflationary pressure in the UK, coupled with weak wage growth, made a rate hike in 2014 less likely.

James Knightley, economist at ING, said: "On the face of it this supports an on-hold stance from the Bank of England. The combination of sterling strength (making imported goods cheaper), along with weak wage growth and lower energy prices, which are limiting business cost growth, means inflation looks set to remain contained for now.

"This further eases the pressure on the Bank of England to consider near-term interest rate rises and pushes the balance more in favour of a delay to rate hikes versus our current November official view for the first policy tightening move."

Despite below target inflation, household budgets remain under pressure because wage growth has lagged behind the inflation rate for the vast majority over the past six years.

Pay growth including bonuses fell by 0.2% between April and June compared with a year earlier. Stripping out bonuses, pay was 0.6% – less than a third of June's 1.9% inflation rate.

Cathy Jamieson, Labour's shadow Treasury minister, said: "While this fall in the rate of inflation is welcome, the squeeze on working people continues."

The pound fell against the dollar and the euro after the July data was published, as investors interpreted it as a sign that rates would stay on hold into 2015.

The pound fell to $1.6634, its lowest in more than eight months, while the euro rose 0.4% to 80.25p.

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