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Euro Holds Major Trend Amid Weakening Outlook, Sterling Outperforms - International Business Times

Euro Holds Major Trend Amid Weakening Outlook, Sterling Outperforms - International Business Times

Talking Points

• Euro: Moody's Watching Spain 'Very Closely,' Greece Running Short On Time

• British Pound: Outperforms As U.K. Mortgage Approvals Rebound From 18-Month Low

• U.S. Dollar: Fed's Beige Book Saps Bet For QE3, Fed Chairman Bernanke In Focus

Euro: Moody's Watching Spain 'Very Closely,' Greece Running Short On Time
British Pound: Outperforms As U.K. Mortgage Approvals Rebound From 18-Month Low
U.S. Dollar: Fed's Beige Book Saps Bet For QE3, Fed Chairman Bernanke In Focus

The Euro fell back from an overnight high of 1.2562 as the rise in German unemployment paired with the drop in confidence heightened the threat for a prolonged recession, while Moody's Investor Services said it's watching Spain 'very closely' as the region remains at risk for further credit-rating downgrades. At the same time, Greece is certainly running out of time to nail out the details of its EUR 11.5B austerity packaged as the troika - the European Union, European Central Bank, and International Monetary Fund - is scheduled to be in Athens on September 7, while European Commission President Jose Barroso pledged to unveil the banking union proposal on September 12 as the group pushes for greater integration.

However, as the sovereign debt crisis dampens the outlook for the euro-area, we may see the governments operating under the money union continue to act in their own interest, and the EU may put increased pressure on the ECB to shore up the ailing economy as European officials struggle to meet on common ground. Although there's speculation that the ECB will lay out its bond purchase program in greater detail at the September 6 meeting, the press conference with President Mario Draghi may fail to shore up the euro as there appears to be a growing rift within the Governing Council. Indeed, there are rumors that Bundesbank President Jens Weidmann may resign as the ECB puts its independence on the line, and the ongoing turmoil Europe continues to cast a bearish outlook for the single currency as policy makers struggle to contain the debt crisis. As the EURUSD continues to carve a lower top just below the 100-Day SMA (1.2586), we should see the downward trend from 2011 get carried into September, and the euro may ultimately give back the rebound from July (1.2041) as the fundamental outlook for the region turns increasing bleak.

The British Pound climbed to 1.5873 as uptick in U.K. Mortgage Approvals raised the outlook for growth, and the sterling may continue to outperform against its major counterparts as the Bank of England sticks to its current policy. Indeed, the BoE is widely expected to keep the benchmark interest rate at 0.50% while maintaining its asset purchase program at GBP 375B, and we may see Governor Mervyn King soften his dovish tone for monetary policy as the new lending scheme is expected to strengthen the recovery. As the GBPUSD persistently closes above the 10-Day SMA (1.5800), we should see the upward trending channel from July continue to take shape, but we will be keeping a close eye on the relative strength index as it approaches overbought territory.

The greenback is trading heavy on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker:USDOLLAR) tagging a low of 9,992, and the reserve currency may continue to consolidate ahead of the holiday weekend as the Jackson Hole Economic Symposium takes center stage. Indeed, the Fed's Beige Book struck a different tone from the FOMC Minutes as the central bank saw economic activity 'gradually' picking up in July and August, and it seems as though Fed Chairman Ben Bernanke will refrain from hinting at QE3 as the economy gets on a more sustainable path. In turn, the rebound from 9,938 may pickup going into September, and the central bank head may sound more upbeat this time around as the recent batch of data coming out of the world's largest economy raises the outlook for growth.

Article Source: www.ibtimes.com

India, Iran should address trade imbalance: PM

Tehran: India and Iran should address their trade imbalance, Indian Prime Minister Manmohan Singh said here Wednesday even as the two sides stressed increasing bilateral and trilateral cooperation to develop the Chahbahar port as the gateway to Afghanistan and Central Asia.

During his talks with Iranian President Mahmoud Ahmadinejad, Manmohan Singh, who is here for the Non-Aligned Movement Summit, referred to trade imbalance and spoke of the need for Iran to import more, and particularly "resume imports of Indian wheat," an Indian government source said.

At USD 15 billion, two-way trade between the two countries is heavily tilted in favour of Iran, which exports goods, mainly oil, worth USD 12.5 billion and imports goods worth only USD 2.5 billion.

During their hour-long talks, the two leaders reviewed their bilateral ties and emphasised on increasing their economic and trade relations.

They also welcomed the decision to hold the next meeting of the India-Iran Joint Commission at the foreign ministers' level in November in Tehran, the sources said.

On the question of India's nuclear programme, Manmohan Singh expressed hope that Iran would work within the parameters of the P5+1 dialogue and "hoped the recent negotiations would yield positive results in the interest of peace and security in the region", the source said.

The two leaders also discussed the recent developments in the region and beyond, with particular emphasis on the situation in Afghanistan, Syria and Middle East.

Much the same views were expressed during Manmohan Singh's 40-minute meeting with Ayatollah Ali Khamenei, with both leaders underlining the close, vibrant and cultural links between the two countries.

Article Source: zeenews.india.com

Sour mood in the UK service sector

Business in Britain’s service sector shrank between June and August and confidence dwindled as firms reported a lack of demand, the Confederation of British Industry (CBI) reported, suggesting that any recovery from recession will be long and arduous. Furthermore revised economic data on Friday revealed worrying underlying trends with a large drop in net trade (sharp fall in exports and strong growth in  imports) and a decline in household spending and investment.

The Greek Prime Minister, Antonis Samaras, has been seeking an extension of up to two years for the necessary austerity reforms required for further eurozone bailout funding. Despite supportive comments from German Chancellor, Angela Merkel, on Friday it has been made clear that any decision would depend on the next Troika report due in late September. The euro lost momentum with the news that no immediate support for Greece would be forthcoming.

Meanwhile, the ongoing improvement in household confidence may prop up the U.S. dollar as it dampens the Fed’s scope to expand its balance sheet further. Although the Fed minutes heightened speculation for another large-scale asset purchase program, the central bank may preserve its current policy over the medium-term as the world’s largest economy gets on a more sustainable path.

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Article Source: www.currencyuk.co.uk

Asian shares inch down, mark time before Jackson Hole

TOKYO (Reuters) - Asian shares edged down in choppy trade, while gold and oil rose on Monday, encouraged by a fresh report of a potential framework for the European Central Bank's new bond buying scheme, as well as hopes of a strong easing from the Federal Reserve.

Growing hopes for more accommodative monetary stance around the world helped gold break a key resistance last week, which had held for months. Spot gold hit a fresh 4-1/2 month high of $1,676.45 an ounce on Monday, while spot silver hit a near four-month high of $31.17 an ounce.

Oil futures gained more than $1 on supply concerns on Monday, with U.S. crude up 1.6 percent to $97.69 a barrel and Brent up 1.6 percent to $115.38. (O/R)

"Commodities which are highly sensitive to monetary policy easing are underpinned by such speculation, so it's hard to sell in markets such as gold, silver and oil where it's easier for speculative money to flow in," said Bob Takai, general manager of Sumitomo Corp's energy division.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was off 0.2 percent in choppy trade. Seoul shares (.KS11) fell 0.3 percent, dragged lower by a plunge in Samsung Electronics <005930.KS> after a U.S. jury found it had copied critical features of Apple (AAPL.O).

Australian shares rose 0.3 percent (.AXJO), supported by gains in the mining and banking sectors on stimulus hopes, while Japan's Nikkei stock average (.N225) gained 0.3 percent. (.T)

Central bank sources told Reuters on Friday that the ECB is considering setting yield band targets under the bond-buying programme to shield its strategy from speculators, but the decision would not be made before its September 6 policy meeting.

There is a dearth of major economic data in Asia on Monday, meaning the market's focus in the short-term will remain fixed on Europe, with longer-term focus on the annual U.S. Jackson Hole meeting of central bankers and economists later this week.

Fed Chairman Ben Bernanke said "there is scope for further action by the Fed to ease financial conditions" in a letter he sent to a U.S. House panel, reinforcing market's persistent views the Fed would soon implement a third round of quantitative easing, known as QE3.

Traders will be seeking clues from Bernanke's speech at the Jackson Hole, Wyoming, gathering ahead of the Fed's September 12-13 policy meeting. Bernanke has used the Jackson Hole event the previous two years to flag the Fed's intention on more easing.

Bernanke is due to speak on Friday and ECB President Mario Draghi will take the podium on Saturday.

"We expect Bernanke to clearly signal that Q3 is in the pipeline and our expectation remains that this will be delivered at the 12-13 September FOMC," Societe Generale said in a note.

"A dovish tone from Bernanke should bring some re-assurance to markets," it said, adding that the ECB will not help shore up sentiment much. "While the ECB has answered the question of how more risk sharing can take shape, they are not writing any blank checks. Conditionality is here to stay, and with it so too is sovereign risk until the conditionality is fulfilled," it said.

ECB MOVE LESS POWERFUL

Analysts have said the ECB's plans to buy government debt to reduce borrowing costs of stricken euro zone states will help soothe market jitters, but it does not resolve the fundamental issue of strengthening the fiscal foundation of the euro zone.

Greece remains a risk trigger for reversing the current moderately improved sentiment towards Europe.

German Chancellor Angela Merkel has said Germany would await a report by global lenders assessing the country's performance on its reform targets next month.

Merkel reiterated that she and French leader Francois Hollande wanted Greece to remain in the euro zone but that it must meet its reform targets, while Germany's finance minister reaffirmed on Saturday his opposition to giving Athens more time to carry out promised reforms.

With the euro zone's fiscal woes taking a deeper toll on the global economy, Chinese premier Wen Jiabao said on Saturday that China will implement new measures aimed at stabilizing export growth in the third quarter.

Data from the Commodity Futures Trading Commission on Friday showed that money managers, including hedge funds and other large speculators, boosted their bullish bets in U.S. gold futures and options to the largest amount since early May.

Gold posted its biggest weekly gain since January on Friday.

Investors also kept paring positions betting on the euro's fall last week, while positions in favor of the U.S. dollar declined further to the lowest in nearly a year, the CFTC said.

The euro steadied at $1.2513, off Friday's low of $1.2481.

(This version of the story has been corrected to clarify that gold resistance was broken last week)

(Editing by Michael Perry)

Article Source: finance.yahoo.com

Analysis - Politics the priority for China as economy slows

BEIJING (Reuters) - China's policy chiefs have about two weeks left to decide about giving the economy a proper stimulative prod, or risk parading a new Communist Party leadership to the world just as growth falls below target for the first time in nearly four years.

Factory activity is already at a nine-month low, according to the latest manufacturing sector survey from HSBC, signalling that the official August numbers for industrial production and trade published in a fortnight will foreshadow third quarter economic growth falling below the government's 7.5 percent goal.

That is a deeply unappealing prospect for the Party's top brass as GDP data is likely to be unveiled at roughly the same time as the new leadership in a once-a-decade power transition.

The only real option to deliver a growth spurt in the narrow time window open to policymakers is a boost to infrastructure spending. Indeed, verbal intervention may be the only answer.

"They are sending out the message that they want to stimulate the economy, but in reality that is not going to happen," influential independent China economist, Andy Xie, told Reuters. "About the only tool left to them now is propaganda."

The leadership change should come against a backdrop of prosperity and stability - thereby justifying the Party's grip on power - which means politics are more important than usual to policy decisions in China's carefully choreographed economy.

But further stimulus risks exacerbating China's main policy bind - how to respond now even though it has not reversed the speculative consequences of the 4 trillion yuan (401 billion pounds) stimulus during the global financial crisis of 2008-09, while still cleaning up bad debts run up by local governments.

There are concerns that even more fixed-asset investment - already worth about 50 percent of GDP and at a level that worries the International Monetary Fund - would simply add to China's existing stock of inefficient economic capacity.

Added to that is a standoff among the Party's intellectual elite over whether stimulus would further widen the already chasm-like gap between China's urban rich and rural poor.

Existing monetary easing measures have not yet fully filtered through the economy and with only weeks to go before the end of the third quarter, there may not be enough time to significantly affect the outcome with another policy push.

Further limiting what policymakers can achieve is the fact that the big drag on China's export-oriented economy lies well beyond Beijing's borders in debt-ridden, recessionary Europe.

VERBAL INTERVENTION

Talking up the economy could be the most expeditious option.

About a dozen local governments in the last month have been reported by Chinese media as unveiling multi-year investment plans worth trillions of yuan - mostly unfunded and likely to be simple restatements of blueprints in official five-year plans.

They have, nevertheless, fed market talk that Beijing is set to spend big to fight the worst economic downturn since 2009, with growth on course to hit a 13-year low of 8 percent in 2012.

Premier Wen Jiabao has begun to exhort the virtue of having confidence in the economy in tough times, after pledging since autumn 2011 to stabilise it with proactive, pro-growth policies.

He did so again on Saturday on a visit to the export hub of Guangdong, where he pledged to step up support for the economy and improve business confidence.

While Wen's words so far have heralded two interest rate cuts, freed about 1.2 trillion yuan for new lending from bank reserves, given tax breaks to small firms and accelerated some infrastructure spending, they have yet to bring stability.

China's economy has been sliding for six straight quarters and analysts fear it will do so for a seventh, pushing back their expectations of a growth rebound into the fourth quarter from the third quarter - far behind earlier predictions of a bottoming out in the first quarter of this year.

Many economists though see politics as the ultimate insurance policy, with preventative action to underpin growth in the second half of the year guaranteed the worse the data gets.

"This is no longer pre-emptive. They are already behind the curve," said Qu Hongbin, chief China economist at HSBC, sponsor of the factory activity survey that triggered the latest wave of worry about the world's No.2 economy.

"But we're not talking about the Fed here, so it's very difficult to pinpoint what exactly they are doing, or when exactly they will do it," he added.

NARROW WINDOW

Qu says infrastructure spending is the surest way to get the economy quickly back on track.

Rising infrastructure investment and an average annual 20.7 percent increase in fixed-asset spending each month so far in 2012 as other data points to growth slipping suggests it might already be happening.

"Most important is loan supply and whether more will be given to local governments for their investment projects," Zhang Zhiwei, chief China economist at Nomura in Hong Kong, said.

"If the data continues to surprise on the downside, local governments will get more bargaining power and their requests to the central government will become stronger," Zhang said.

A jump in new lending would signal to investors that capital is being channelled into infrastructure spending. The total value of new lending so far this year implies it will hit 8 trillion yuan - expansionary versus 2011's 7.5 trillion yuan.

Money supply analysis by MES Advisers' Paul Markowski, a long-time consultant to China's monetary authorities, indicates an imminent turn in GDP and negates arguments for doing more - especially as the data also signals rising inflation.

That's a red flag for policymakers anxious to stop price hikes gnawing at workers' spending power and only a surge in unemployment would override it.

HSBC's Qu says jobs are already at risk.

"You don't have to wait until millions of people are thrown out of the factory doors before you act," Qu said. "The bottom line is that this should be a wake-up call for them to do more."

China's 2008-09 stimulus came as at least 20 million Chinese jobs were axed in a matter of months as world trade ground to a halt in the depths of the global financial crisis.

But while the IMF's 3.5 percent 2012 forecast for global growth is hardly perky, the world is in better shape than late 2008 when Wall Street banks toppled over and trade finance froze.

That makes Tim Condon, head of Asian economic research at ING in Singapore, question calls for tactical action ahead of the transition. He says something more strategic may be at play.

"A bad year is not the end of the world for the Party. The new leaders come in, turn things around in 2013 and look like heroes," Condon said, adding that aggressive stimulus would thwart policies to fight speculation and rebalance the economy.

"What they seem to be saying is that they are not going to take the easy way and double down on the command and control policies, but stay on the course of market-oriented reform," Condon said. "That's a really positive story - if it's true."

(Editing by Neil Fullick)

Article Source: uk.news.yahoo.com

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