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OctaFX.Com - British Pound Looks to Spain Event Risk, US Data for Direction

 

 

 

 

 

A limited stock of noteworthy homegrown event risk leaves the British Pound at the mercy of larger market themes in the week ahead. Broadly speaking, traders remain primarily concerned with quantifying the degree of slowdown in global economic growth over the coming quarters as well as financial stability in the Eurozone.

 

On the growth front, US economic performance is in the spotlight once again. Consensus forecasts continue to suggest output growth will accelerate in the world’s top economy this year, all the while Europe sinks into recession and Asia posts a meaningful slowdown. This means investors remain focused on establishing the extent to which a firmer US recovery can offset headwinds elsewhere in formulating a reading on global growth trends.

 

Data compiled by Citigroup suggests US economic data has tended to increasingly outperform expectations over the past three weeks. With Fed stimulus speculation no longer factor after this month’s FOMC outing, similar outcomes this time around are likely to be interpreted directly in terms of their implications for global output.

 

That means positive results are likely to be supportive for risk appetite and lift the British Pound against established havens like the US Dollar and Japanese Yen. By contrast, weakness can be expected against higher-yielding and sentiment-sensitive counterparts, particularly in the commodity bloc (Australian, Canadian and New Zealand Dollars). Needless to say, softer outcomes are likely to produce the opposite scenario.

 

Turning to the Eurozone, all eyes are on Spain. The government of Prime Minister Mariano Rajoy will present its 2013 budget to Parliament on Thursday and publish stress test results for the country’s banks on Friday. The former announcement may pave the way for a formal bailout request by the Eurozone’s fourth-largest economy, a colossal undertaking in its own right that will be made all the more noteworthy in that it activate the ECB’s new bond-buying scheme. The latter will be used to gauge whether the €100 billion EU aid package to rescue Spanish lenders will prove sufficient.

 

The British Pound continues to play the role of a regional alternative to the Euro at times of sovereign stress, with a Bloomberg index of the Pound’s average value showing a significant correlation with the Spanish 10-year bond yield (a measure of funding stress). That means another flare up of sovereign risk jitters triggered by Spanish event risk is likely to send Sterling higher against the single currency, and vice versa.

 

The risk appetite implications of Euro crisis developments are likely to follow the same dynamic as when US data is the catalyst du jour.

 

 

 

 

Sep 22, 2012 01:29 AM

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OctaFX.Com -Forget Euro and Pound - What About Local Currencies?

 

 

 

 

German Chancellor Angela Merkel maybe be trying her utmost to keep Greece in the euro, but a high school teacher from Bavaria may have found a better solution and is pitching the idea to Greek politicians.

 

Economics teacher, Christian Gelleri, started a local currency in 2003 with his students in the small town of Prien am Chiemsee, around 50 miles south of Munich. The currency has performed so well that on Wednesday he was invited to travel to the Greek region of Macedonia to show local politicians how it could keep them from leaving the euro.

 

"We see complementary local currencies as an answer to balance differences between regions within a currency zone," he told CNBC.com. "We have very big differences in the euro zone when you compare a region like Munich with Thessaloniki [in Greece]."

 

His idea doesn't stop at Greece and he believes it could prevent the euro zone break up in the long run.

 

The idea is called "express money" that would be issued by governments. It would have fast circulation with a 2 percent levy for hoarding notes with a 10 percent charge for conversion into euros. A supporting document co-written by Gelleri reminds readers that doubling monetary velocity, doubles gross national product.

 

He recommends a complementary currency on a national level in Greece and even if they did break from the euro, he believes that local currencies could be used alongside the drachma to strengthen poorer areas.

 

And Gelleri has plenty of experience, the currency he created - the Chiemgauer - will celebrate its 10-year jubilee next year.

 

"With a turnover of 6 million euros last year and a growth rate of 20 percent we see a continuous and very positive development," he said.

 

The amount of local currencies across Europe has now reached 104, all of which are listed on complementarycurrency.org. This week Bristol, a city in southwest England, launched the latest of these - the Bristol Pound.

The project is backed by the Bristol Pound Community Interest Company who initially set the exchange rate which is simply one-to-one with the pound sterling.

 

A secure printing firm creates the notes, seven main outlets then issues them and 350 independently owned businesses in the region will be accepting them in the coming weeks. They hope 1000 businesses will sign up to the scheme by the end of the first year.

 

A business consultant who lives in the area, Ross Parker, isn't so keen on the idea saying it won't change people's spending habits or the amount of money they have.

"The Bristol Pound is linked to the U.K. pound, and neither the Bristol Pound, nor other local currencies would survive without such a link," he told CNBC.com. "There is no reason why people would trust their local council to stand behind any currency if they can't trust their central bank."

 

Dr Gill Seyfang, an academic from the University of East Anglia in the U.K., who lectures on sustainable consumption, has a more positive outlook for the Bristol Pound.

 

She sees it as being more professionally-organized, more useful and better marketed than previous attempts. There's a clear reason why these local currencies are appearing according to Seyfang.

 

"As people find that more of their needs are simply not met by national (and international) currencies, then naturally people look to new, innovative financial solutions," she told

 

"These initiatives always spring up in times of economic recession," she said, citing the "stamp scrip" that begun in the American state of Iowa during the 1930s Great Depression.

 

 

 

Sep 24, 2012 10:27 AM

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OctaFX.Com -Bailout fund boost to 2 trillion euros not feasible: German spokesman

 

 

 

BERLIN (Reuters) - Germany's finance ministry said on Monday that talk of the euro zone's permanent bailout fund being leveraged to 2 trillion euros via private sector involvement was not realistic, adding that any discussion of precise figures was "purely abstract".

 

Ministry spokesman Martin Kotthaus said there were talks going on in Brussels about leveraging the capacity of the European Stability Mechanism (ESM) in the same way as its predecessor, the European Financial Stability Fund (EFSF).

But, asked about a report in Spiegel magazine that the ESM's capacity could be leveraged to 2 trillion euros, he said this was "illusory".

"It is not feasible to talk about figures at present," he told reporters. "It is purely abstract."

Kotthaus said Germany's government and parliament backed the idea of boosting ESM capacity via "private capital participation in loans or other instruments for states which require them" just as they had supported such instruments for the EFSF.

 

The ESM is expected to come into force on October 8 with a firepower of 500 billion euros.

 

Kotthaus said he had no information about a separate Spiegel report on a 20 billion euro hole in Greece's state budget.

 

 

Sep 24, 2012 10:41 AM

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OctaFX.Com -Concerns Over Bailout Funds Weighs on Euro, Lifts Japanese Yen

 

 

 

 

The Japanese Yen and the US Dollar are leading the majors today as some risk-aversion has taken hold amid broadening concerns out of Europe. We note that these influences are three-fold: German business sentiment as measured by the IFO dropped further as investors remain reticent despite the European Central Bank’s ‘bazooka’ plan; the German Finance Ministry has dismissed reports suggesting that the European Stability Mechanism (ESM) would be leveraged from €500 billion to €2 trillion to accommodate the future bailouts of Italy and Spain; and media has concentrated on some disagreements between French President Francois Hollande and German Chancellor Angela Merkel in terms of a pan-European banking union.

 

With respect to the ESM, the German Finance Ministry did note that no number has yet to be agreed upon for the leverage that will be employed, so essentially it is hapless to speculate on the size of the ESM. That’s that, for now.

With respect to the disagreement between French and German leaders, Chancellor Merkel refuted President Hollande’s quip that the banking union should be completed on a timetable of “the earlier, the better.” With the ECB buying politicians time, it is off little surprise that the urgency behind implementing the necessary safeguards has died down a bit. But Chancellor Merkel is making sure leaders get this round of measures right even as financial markets “are watching Europe [and] want to see results,” saying that “[the banking union] has to be thorough, the quality has to be good and then we’ll see how long it takes,” she said.

 

Taking a look at credit, peripheral European bond yields are mixed amid the Euro’s weakness. The Italian 2-year note yield has increased to 2.231% (+11.7-bps) while the Spanish 2-year note yield has decreased to 2.973% (-2.7-bps). Likewise, the Italian 10-year note yield has increased to 5.080% (+5.2-bps) while the Spanish 10-year note yield has decreased to 5.716% (+5.1-bps); higher yields imply lower prices.

 

 

Sep 24, 2012 11:20 AM

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OctaFX.Com -Eurozone considers boosting bailout fund firepower

Germany: eurozone discussing boosting firepower of new rescue fund, but results uncertain

 

 

 

BERLIN (AP) -- Germany says eurozone officials are discussing the possibility of boosting the firepower of their new, permanent €500 billion ($650 billion) rescue fund by involving private investors.

 

Finance Ministry spokesman Martin Kotthaus said Monday that "the discussion in Brussels is not concluded" on the issue and it's not possible to say by how much a so-called leveraging of the fund, the European Stability Mechanism, might increase its power.

 

Eurozone countries agreed last year that the existing temporary rescue fund, the European Financial Stability Facility, could be leveraged, but the possibility has never been used.

 

Kotthaus said that, whatever happens, Germany's total liability of up to €190 billion won't increase and any agreement would need the German Parliament's approval. The new ESM is expected to start work next month.

 

Sep 24, 2012 01:36 PM

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OctaFX.Com - Schaeuble says no need for new Spanish program

 

 

 

 

HELSINKI (Reuters) - Spain does not need a new bailout program but simply to regain market confidence, German Finance Minister Wolfgang Schaeuble said on Tuesday.

 

Investors are watching euro zone leaders' comments on Spain and its financing needs closely for signs of any terms that may be imposed on Madrid in exchange for aid from the European Central Bank and euro zone rescue funds.

Asked if Spain needed a new bailout, Schaeuble said it did not need a "new program". The country was making progress with reforms, he added, and just needed to win the markets' confidence.

 

 

Sep 25, 2012 10:33 AM

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OctaFx -European Parliament to tackle bank union split fears

 

 

 

BRUSSELS (Reuters) - The European Parliament debates plans for a euro zone banking union on Wednesday, with members likely to raise concerns that the project designed to ease the currency bloc's crisis could sow divisions within the wider EU.

 

Earlier this month, Brussels proposed that the European Central Bank should supervise all euro zone banks as a first step towards creating the union, under which the 17 member nations would form a united front to back their lenders.

However, the plan has aroused worries in the 10 other European Union states, with their own currencies, that they will be indirectly affected.

 

They are free to join the scheme but many may not. Britain, home to Europe's biggest financial center in London, will not participate but avoids openly criticizing the project. Other governments have publicly expressed their reservations.

 

"The European Commission banking union proposal has the problem that it makes it very difficult for countries outside the euro," said Sven Giegold, a German member of the parliament.

 

"We have a big interest that countries outside have voting rights to stop a split between countries such as Poland and Germany," said Giegold, who will play a leading role in talks with European countries about the plan. "The same goes for Sweden."

 

Legally the European Parliament will have no say in writing much of the legislation to underpin a banking union. But it has powers to amend other important financial regulations and is likely to exert its influence in changing the new regime. Wednesday's debate starts at 0700 GMT.

Banking union, which aims to restore confidence in an industry that has been battered by crisis, has three major steps: the ECB takes over monitoring euro zone banks - and others that sign up - from national regulators; a fund is created to close down and settle the debts of failed banks; and a comprehensive scheme to protect savers' deposits is established.

Giegold underscored a central problem of the union - that it will drive a wedge between those countries inside the scheme and those outside, whose banks may suffer as a result.

 

Earlier this Swedish Finance Minister Anders Borg said he would not accept ECB oversight of Nordea (NDA.ST), the Nordic region's biggest bank, as long as his country remained outside the banking union. Nordea has its headquarters outside the euro zone in Stockholm but has major operations in Finland, the sole Nordic country to use the common currency.

 

While Britain will stay outside the scheme, many international banks in London have operations in the euro zone that will be affected by the ECB's new supervisory reach.

 

London is worried that the ECB, emboldened by its new powers, will demand regulation that could undermine the city's position as Europe's financial capital.

Some believe that the European Banking Authority, set up to coordinate the supervision of banks in response to the financial crisis and which is run by regulators from across the European Union, could act as a counterbalance.

The European Commission has already suggested a special voting mechanism among EU regulators as a counterweight to the power of those in the euro zone.

The close ties between some troubled governments and the banks they supervise - and on which they also rely to buy their debt - have dragged both ever deeper into crisis.

 

A banking union would break this link by making the policing of banks supranational and establishing central schemes paid into collectively to cover the costs of closing failed lenders and protecting savers' deposits.

 

 

Sep 26, 2012 12:06 AM

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OctaFX.Com -Europe worries start share selloff, Spanish yields jump

 

 

 

 

LONDON (Reuters) - World shares fell sharply and the euro hit a two-week low on Wednesday as growing opposition to measures aimed at resolving the euro zone's debt crisis unnerved investors already worried about weak global economic growth.

The selling focused on Spain, where the main share index fell 3.5 percent (.IBEX) and yields on 10-year bonds rose back to six percent, as doubts grew about Madrid's commitment to reform due to violent protests and talk of secession by the wealthy Catalonia region.

 

A general strike in Greece and signs of discord among top euro zone officials over new policies to tackle the crisis added to investor concerns, taking the gloss off recent moves by the European Central Bank to calm the markets by buying bonds.

"Markets have realized despite reducing a large number of tail risks the ECB's program is not the solution to all the problems in the euro area," Philip Shaw, economist at Investec, said.

 

Markets were also reacting to a letter from Germany, Finland and the Netherlands on Tuesday that implied that any rescue funds Spain receives for its banks will remain part of its public debt - a decision which would also affect Ireland.

"Once again, it shows that when the ball is back in the governments' court, I think there's all this room for disappointment," said Tobias Blattner, European economist for Daiwa Capital Markets.

 

The renewed concerns about the euro zone have caused a sharp rise in volatility on equity markets, and led to the biggest daily drop on the S&P 500 index on Tuesday since June and subsequent falls across Asia on Wednesday.

The MSCI world equity index <.MIWD00000PUS> was down 0.8 percent at 332.23 points and has retraced most of the gains made after the U.S. Federal Reserve announced a new round of aggressive monetary easing last week.

U.S. stocks were looking to extend their losses when Wall Street opened with stock index futures pointing to a weak open. (.N)

 

In Europe the selling was across the board with the STOXX Europe 600 index (.STOXX) down 1.4 percent, its biggest one-day fall since late July, led by declines in Spanish and Italian markets which fell more than three percent. (.IBEX) (.FTMIB)

The FTSEurofirst 300 (.FTEU3) had shed 1.5 percent to 1,103 points, having risen 0.4 percent on Tuesday. It is still up about eight percent for the September quarter.

 

SPANISH PAIN

 

Spain's growing problems, exacerbated by uncertainty over when the government might request an EU bailout, pushed the euro down 0.4 percent to $1.2850, its lowest level since September 12.

"The Spanish story does seem to be deteriorating. We are seeing Spanish bond yields pushing higher this morning and that's being echoed by a slightly lower euro," said Daragh Maher, currency strategist at HSBC.

 

Spain's benchmark 10-year bond yields rose 23 basis points to 6.00 percent, while the cost of insuring the debt against a default has also risen sharply.

But analysts cautioned that the moves came on light turnover with many investors choosing to stay out of the market given the long list of potentially negative news from Madrid this week.

 

"We've got some major event risks in Spain at the end of the week in Spain and it's not really worth having the exposure," Peter Chatwell, interest rate strategist at Credit Agricole.

In addition to a tough 2013 budget to be unveiled on Thursday, the government is due to release plans for new structural reforms in the economy and the results of stress tests on the Spanish banking sector.

 

On Friday ratings agency Moody's will publish its latest review of Spain's credit rating, possibly downgrading the country's debt to junk status.

Madrid is also facing all these challenges in an environment in which its economy is still contracting at a "significant rate", the central bank said on Wednesday

 

Economically important Catalonia's decision to hold early elections added to the pressure on Spanish Prime Minister Mariano Rajoy, who conceded in an interview with the Wall Street Journal that he would ask for a bailout if the country's borrowing costs remain too high for too long.

 

"Ahead of these elections, we will have that classical political paralysis. So I think the government in Catalonia will probably not try its hardest to meet the targets," said Daiwa's Blattner said of goals set for reducing public deficits.

"All the targets for the year as a whole for Spain I think are now under threat."

 

GROWTH WORRIES

 

The stronger dollar and concerns about the global economy added to the European worries to push down oil prices but gold was finding some support from this month's policy easing measures by the world's major central banks.

Brent crude oil futures were down $1.30 to $109.15 a barrel, their second drop in three days, and U.S. crude fell $1.04 to $90.33 per barrel.

 

Despite the drop, traders said oil was getting some support from the rise in tension between Iran and the West over its nuclear program, and by worries over possible risks to Middle East supply if hostilities break out in the region.

Three-month copper on the London Metal Exchange was down 1.3 percent to $8,164.25 per metric tonne, although this followed a gain of more than 1 percent on Tuesday.

 

"With worries about Europe and Spain in focus this week, and lingering anxiety over China's economic growth, we see the risk of gains in Q3 turning out to be a false dawn," said ANZ Bank's metals analyst Nicholas Trevethan.

Gold held above $1,760 an ounce on investor demand after the Fed, the ECB and the Bank of Japan all unveiled bond-buying programs this month which will provide markets with extra liquidity.

 

 

Sep 26, 2012 07:33 AM

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OctaFX.Com - Instant View: Germany sells 3.2 billion euro of 10-year bonds

 

 

 

LONDON (Reuters) - Germany sold 3.19 billion euros of 10-year government bonds on Wednesday but demand fell short of the sales target of 5 billion euros.

As at the launch of the bond on September 5, the auction was technically uncovered. Bids were worth 1.2 times the amount allotted to investors, compared with 1.1 times at the debut sale.

The average yield was 1.52 percent, above the 1.42 percent at the launch but above a 1.61 percent average at 10-year bond auctions so far this year.

LATEST COMMENTS:

LYN GRAHAM-TAYLOR, RATE STRATEGIST, RABOBANK, LONDON

"Surprisingly, a very weak auction result, technically uncovered, given the current risk off environment in which there is ongoing speculation about when Spain will be forced into a bailout and that the ESM may not deal with legacy problems with regards to recapitalizing banks."

 

EARLIER COMMENTS:

 

NICK STAMENKOVIC, BOND STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH

"Pretty sluggish. It clearly shows investors were reluctant to bid at those yield levels ... Bund yields dropped quite sharply in the past few days.

"Over the medium term, if the ECB measures begin to work and there is more movement towards a political union, yields could rise. But for the moment safe-haven flows dominate and the auction may (only) take the shine off Bunds a bit."

ANNALISA PIAZZA, MARKET ECONOMIST, NEWEDGE, LONDO

"All in all, very poor demand for the German long end of the curve. For the second straight month, bids were below total size and tail was large versus historical average.

 

"In relative value terms, the Sept-22 looked rich versus previous rolls. However, we suspect there are other factors behind today's poor demand. Dealers might see limited upside for German debt in the coming weeks, pricing in a sort of smooth-ish resolution of the EMU debt crisis."

 

MICHAEL LEISTER, STRATEGIST, COMMERZBANK, LONDON

 

"At face value it doesn't look like a good auction. Nominal bids fell short of the 5 billion target. So once again, in technical terms, it is a failed auction. Although, against the backdrop of the current environment and Bunds having rallied quite a bit over the past sessions, it's obviously not a good auction but also not a disaster.

"It's similar to what we've seen at a bill auction earlier this week where the finance agency explicitly stated that they don't make any price concession, or are not willing to make large price concessions."

 

MARKET REACTION:

 

- Bund future up 84 ticks at 140.90 vs 140.80 before auction

 

- German 10-year yield down 7.2 bps at 1.518 percent vs 1.527 percent before auction.

 

BACKGROUND:

 

- German 10-year yields have risen more than 40 basis points from euro-era lows around 1.13 percent reached in July, after ECB President Mario Draghi vowed to do whatever it took to preserve the euro, later backed by a new bond purchase scheme.

 

- However, uncertainty over when Spain will seek a bailout, necessary to activate the ECB scheme, has underpinned demand for safe-haven Bunds.

 

 

Sep 26, 2012 09:55 AM

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OctaFX.Com -Euro zone confidence falls in September, inflation expectations rise

 

 

 

 

 

 

BRUSSELS (Reuters) - Euro zone economic sentiment defied expectations of stabilization and again fell sharply in September, underlining the economic gloom brought on by the sovereign debt crisis as the euro zone sinks into a recession.

 

The European Commission's monthly economic sentiment survey showed the index for the 17 countries sharing the euro falling to 85 points this month from 86.1 in August. Economists polled by Reuters had expected a flat reading on Thursday.

"It is bad. Everything is down, we are heading towards another quarterly economic contraction," said Carsten Brzeski, economist at ING bank.

The euro zone economy stagnated in the first three months of the year quarter-on-quarter and contracted 0.2 percent in the April-June period. Economists expect another contraction in the third quarter, which would take the euro zone into recession.

 

"The data also shows that while the ECB promise of bond buying and the German court ruling (endorsing the euro zone's permanent bailout fund) did a lot to calm financial markets, there is still the big issue of non-existent growth," Brzeski said.

The European Commission's business climate indicator for the euro area, which points to the phase of the economic cycle, fell to -1.34 points in September from -1.18 in August, against market expectations of -1.19 points. The September reading was the lowest since October 2009.

The Commission survey showed euro zone sentiment in industry declined to -16.1 in September from -15.4 in August, and to -12 in the services sector from -10.8.

Sentiment among consumers fell to -25.9 from -24.6 and to -18.6 from -17.2 in retail trade. Construction was the only sector where confidence improved marginally, to -31.9 from -33.1 in August.

The data also showed that inflation expectations rose among producers, the services sector and households alike, potentially complicating any possible decision by the European Central Bank to cut interest rates and help the economy.

 

But ING's Brzeski said the results of the Commission survey on inflation expectations were more closely correlated to ongoing price developments, with opinions strongly influenced by the spike in fuel prices.

 

"It does not make life easier for the ECB, but, under (President Mario) Draghi, the ECB has become more growth oriented with inflation more a derivative of growth, so with this drop in growth, the window for another rate cut this year is still open," he added.

 

Sep 27, 2012 09:32 AM

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OctaFX.Com - Energy fuels euro inflation but ECB rate cut still on

 

 

 

 

BRUSSELS (Reuters) - Euro zone inflation accelerated in September as energy costs soared but core prices stayed low, likely leaving the European Central Bank on track to cut interest rates soon.

 

Consumer prices in the 17 countries sharing the euro rose 2.7 percent year-on-year, the European Union's statistics office Eurostat said on Friday in a first estimate that marked a rise from 2.6 percent in August.

 

Markets had expected inflation to ease to 2.5 percent.

Energy prices jumped 9.2 percent after a 8.9 percent rise the previous month.

Core inflation, excluding both energy and unprocessed foods, fell to its lowest level in a year of 1.7 percent in August, the latest month for which the data has been published.

 

Together with recent data indicating that the euro zone economy entered a recession in the third quarter, Friday's inflation reading kept intact expectations that the ECB will not wait long before delivering a growth-boosting rate cut.

"It seems highly likely that the ECB will take interest rates down from 0.75 percent to 0.50 percent in the fourth quarter," said Howard Archer, economist at IHS Global Insight.

"While the ECB could act as soon as its October meeting next Thursday, we lean towards the view that they will probably hold off to November."

Just 14 of 73 economists polled by Reuters this week expect the ECB to cut rates when it meets next Thursday but a majority expect the bank to have lopped off 25 basis points by the end of the year. (ECB/INT)

 

The ECB kept its main interest rate unchanged at a record low of 0.75 percent at its meeting earlier this month, taking another policy-easing route by agreeing to launch a new and potentially unlimited bond-buying program.

 

MUTED PRICE PRESSURES

 

Inflation fell steadily from 3 percent in November 2011 to stabilize at 2.4 percent in May, June and July, as the euro zone economy slowed sharply as a result of the sovereign debt crisis.

But it rose again for the first time in 11 months in August due to higher fuel and transport costs.

The ECB's target is to keep inflation below, but close to 2 percent, a rate it is not expected to drop back to for some time, though price pressures should ease further as the economy continues to struggle.

"Euro zone inflation should resume its downward trend before long as previous sharp increases in energy and food prices cease to boost the annual rate," said Martin Van Vliet, economist at ING bank.

 

"But with commodity prices remaining high and volatile, and further VAT hikes in the pipeline (e.g. in the Netherlands next month and in Finland in January), it is probably going to be a very gradual descent," he said.

Headline inflation might stay above 2 percent well into next year.

"The bottom line, however, is that underlying inflation pressures remain muted in most parts of the euro zone economy. This gives the ECB scope to ease monetary policy further," he said.

 

In September, Eurostat for the first time provided year-on-year prices changes in the index's components - food, alcohol and tobacco, energy, non-energy industrial goods and services.

 

It publishes a more detailed breakdown for September as well as monthly inflation figures on October 16.

 

Sep 28, 2012 10:59 AM

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OctaFX.Com -Spain's Popular resists state aid with 2.5 billion euro share issue

 

 

 

 

MADRID (Reuters) - Spanish bank Popular (POP.MC) said on Monday it aims for a 2.5 billion euro ($3.22 billion) share issue by mid-November and will scrap its October dividend to shore up capital and avoid taking funds from a euro zone bailout for the country's banks.

 

Popular, Spain's sixth biggest bank by assets, was flagged on Friday in an audit of the country's banking sector as needing an extra 3 billion euros in capital in case of a serious economic downturn.

 

Popular shares sank 9 percent after it said it would not take rescue funds, but other Spanish banking stocks rose on Monday after the publication of the audit removed uncertainty from the sector.

The stress test by consulting firm Oliver Wyman put the extra capital needs of 14 Spanish banks tested at 59.3 billion euros, below the 100 million euro credit line Spain agreed with the euro zone in July to clean up the banking sector.

Many Spanish banks became saddled with repossessed property after a building bubble burst in 2007 but there has also been a steep rise in bad loans from other sectors of the economy which is in a deep recession.

 

Spain has said it would need 40 billion euros of the euro zone aid since some banks could meet part of the extra capital needs themselves.

 

"We expect to launch the share increase in the next five weeks, probably by mid-November," Popular's Chief Financial Officer Jacobo Gonzalez-Robatto told a conference call with analysts on Monday after announcing the capital raising plan.

Popular needs to reduce its capital shortfall to around 2 billion euros by December if wants to avoid a public capital injection in the short term.

 

The Wyman report said Popular's estimated capital needs were based on an adverse scenario in which the economy contracts more sharply than economists currently forecast.

 

Popular, one of seven banks that failed the stress tests, is not planning to merge or acquire another bank in the near future, Gonzalez-Robatto said.

Of the seven banks that need capital, four of them have already been taken over by the state. Bankia (BKIA.MC), Spain's biggest failed bank, was seen needing almost 25 billion euros of capital in a stressed scenario.

 

Banco Mare Nostrum, which the audit showed needing 2 billion euros in capital, said on Friday it would sell assets to reduce needs by 1 billion euros. Banco Mare Nostrum and Popular had been in talks for a merger, but the government said on Friday it would not promote tie-ups between weaker banks.

 

Another bank with capital needs, a three way merger known as Liberbank-Ibercaja-Caja3, said it would put soured assets into a "bad bank" the government is setting up as part of the conditions for receiving European aid for the banks.

Popular said it would form its own asset management company to handle toxic assets left over from Spain's property market crash four years ago.

 

Popular said it would not pay its October dividend, but hoped to maintain plans for a 50 percent payout in 2013.

 

The bank's shares were suspended on Monday morning after the share issue announcement. When they began trading again they fell 9.11 percent to 1.547 euros per share.

 

Oct 1, 2012 10:39 AM

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Dollar stronger across the board, hits 11-mth high vs yen

 

 

Talking Points

 

• Euro: Jobless Rate Hits Record-High, ECB Overstepping Mandate
  
• British Pound: Fitch Continues To Fire Warning Shots, Larger Correction Underway
  
• U.S. Dollar: ISM Manufacturing, Construction Spending On Tap- All Eyes On Bernanke
  

 

Euro: Jobless Rate Hits Record-High, ECB Overstepping Mandate

Although the EURUSD bounced back from an overnight low of 1.2802, the economic docket continued to instill a weakening outlook for the euro-area as the jobless rate climbed to a record high of 11.4% in August.

 

As the debt crisis continues to raise the threat for a prolonged recession, European Central Bank board member Joerg Asmussen warned ‘there could be additional need for external financing’ in Greece, while there’s talk that the periphery country may receive a portion of its next bailout payment as the region continues to request more time in meeting its budget target.

 

As the governments operating under the single currency become increasingly reliant on monetary support, former ECB board members Juergen Stark and Otmar Issing argued that the unlimited bond purchasing program goes beyond the mandate to ensure price stability, and the Governing Council may come under increased scrutiny as President Mario Draghi puts the central bank’s credibility on the line to buy more time.

 

Indeed, the negative headlines coming out of Europe instills a weakening outlook for the region as policy makers struggle to restore investor confidence, and the rebound off of trendline support is likely to be short-lived as the EU maintains a reactionary approach in addressing the debt crisis. In turn, we should see the EURUSD come under additional pressure over the coming days, and we will be keeping a close eye on the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the pair searches for support.

British Pound: Fitch Continues To Fire Warning Shots, Larger Correction Underway

 

The British Pound slipped to 1.6107 as manufacturing in the U.K. contracted more-than-expected to September, while private sector credit in Britain remained stagnant as mortgage approvals increased an annualized 47.7K in August amid forecasts for a 49.2K print.

Meanwhile, Fitch continued to fire warning shots against the U.K., with the rating agency warning that the government is now ‘standing still in terms of deficit reduction,’ and the growing threat for a credit-rating downgrade may continue to dampen the appeal of the sterling as the fundamental outlook for the region remains clouded with high uncertainty.

 

As the GBPUSD carves out a near-term top coming into October, the pullback from 1.6308 should turn into a larger correction, and we may see the pound-dollar threaten the ascending channel from earlier this year as the relative strength index fails to maintain the bullish trend carried over from June.

U.S. Dollar: ISM Manufacturing, Construction Spending On Tap- All Eyes On Bernanke

 

The greenback is struggling to hold its ground ahead of the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) giving back the advance to 9,891, but we may see the reserve currency regain its footing as the economic docket is expected to reinforce an improved outlook for growth.

 

Indeed, the ISM Manufacturing report is anticipated to show an expansion in business outputs, while building activity is projected to rebound in August as the recovery gradually gathers pace. However, as Fed Chairman Ben Bernanke is scheduled to speak on monetary policy later today, market participants may show a muted reaction to the data, and the fresh batch of central bank rhetoric may set the tone for the first trading week of October as market participants weigh the prospects for future policy.

 

Oct 1, 2012 12:50 PM

News Updates

 

[OctaFX_Farid]

 

OctaFX.Com - Are the Glory Days of Currency Trading Over?

 

 

 

 

Once upon a time, the foreign exchange (FX) markets enjoyed a clear framework for trading and were seen as a reflection of the health of global economies. But as central bank programs of quantitative easing have been introduced, currency market trades are not so clear cut, according to analysts at HSBC.

 

The latest report from HSBC's global research department heralds "a new era for FX" as currency carry trading, a popular strategy of currency trading that exploits global interest rate differentials, struggles in an era of central bank intervention and low interest rates.

 

"In the glory days of carry, the FX market had the luxury of a clear framework for understanding and trading currencies," the report, led by David Bloom Global Head of FX Strategy at HSBC (London Stock Exchange: HSBA-LN), begins.

 

"Life for FX market was simple. Get your interest rate calls correct, and you could both understand and trade the FX markets....In the low inflation environment, higher short rates meant a stronger currency and vice-versa...FX was beautiful."

 

"It was clear, liquid and transparent," the report surmises.

Fast forward through five years of global economic crisis and central banks ranging from the Federal Reserve to the Bank of Japan have introduced near-zero interest rates and quantitative easing (explain this) in an attempt to stimulate economic growth creating "a problem for markets," the report says.

 

Indeed, central bank intervention has made the currency trading world a risk on - risk-off place, according to HSBC's report. Investors are now flocking to emerging market currencies and safe havens alike, which makes currency trading much more volatile and harder for investors to interpret.

 

"Today carry's hold on FX has waned as global rates gravitate towards zero, forcing the FX market to react instead to the far more ambiguous implication of quantitative easing," the report states.

 

"We now live in a world dominated by risk-on/risk-off, and prospects for unconventional monetary easing have become the key element of [that] dynamic."

 

HSBC notes that not all easing has had negative effects for currencies. Indeed, in the euro zone it has been positive as "non-conventional easing" European Central Bank easing has lowered "the possibility of euro (EUR=X) default and disintegration" and has attracted investors.

 

In sum though, central bank policies have created an uncertain environment for currency traders as it becomes harder to identify economic trends. As global economic data points to an uncertain future in the euro zone and events such as the U.S. fiscal cliff approach, the world of FX becomes opaque, HSBC states.

 

"This lack of clarity is creating a puzzling outlook for many currencies...The world of FX has become one of perception rather than concrete links," HSBC says.

Read More:What is the "Fiscal Cliff"?

 

In the U.S., for instance, easing has been dollar (.DXY) negative as "the resultant 'risk on' mood takes us to higher yielding more risky currencies." This was indeed exemplified by the dollar falling to a four-month low after the Fed announced "QE3" in September that led to emerging market governments such as Brazil fearing a new era of "currency wars".

HSBC's view on currency market volatility is reflected by other FX strategists too.

Sebastien Galy, Senior Currency Strategist at Societe Generale told CNBC on Wednesday that the robust Australian dollar was an example of how investors flocking to a safe-haven asset had inflated a currency that should "be massively lower".

 

"It should be massively lower...in a normal environment. But everyone is looking for yields which leads to over-shoot," Galy said, "that overshoot has been happening for years."

 

Indeed, HSBC concludes, as the carry trade dies a bit of the currency market could go with it.

"The demise of carry has brought "onion skin" layers of uncertainty into the FX market, tears and all."

 

 

Oct 3, 2012 10:55 AM

OctaFX.Com News Updates

 

[OctaFX_Farid]

 

OctaFX.Com - Are the Glory Days of Currency Trading Over?

 

 

 

 

Once upon a time, the foreign exchange (FX) markets enjoyed a clear framework for trading and were seen as a reflection of the health of global economies. But as central bank programs of quantitative easing have been introduced, currency market trades are not so clear cut, according to analysts at HSBC.

 

The latest report from HSBC's global research department heralds "a new era for FX" as currency carry trading, a popular strategy of currency trading that exploits global interest rate differentials, struggles in an era of central bank intervention and low interest rates.

 

"In the glory days of carry, the FX market had the luxury of a clear framework for understanding and trading currencies," the report, led by David Bloom Global Head of FX Strategy at HSBC (London Stock Exchange: HSBA-LN), begins.

 

"Life for FX market was simple. Get your interest rate calls correct, and you could both understand and trade the FX markets....In the low inflation environment, higher short rates meant a stronger currency and vice-versa...FX was beautiful."

 

"It was clear, liquid and transparent," the report surmises.

Fast forward through five years of global economic crisis and central banks ranging from the Federal Reserve to the Bank of Japan have introduced near-zero interest rates and quantitative easing (explain this) in an attempt to stimulate economic growth creating "a problem for markets," the report says.

 

Indeed, central bank intervention has made the currency trading world a risk on - risk-off place, according to HSBC's report. Investors are now flocking to emerging market currencies and safe havens alike, which makes currency trading much more volatile and harder for investors to interpret.

 

"Today carry's hold on FX has waned as global rates gravitate towards zero, forcing the FX market to react instead to the far more ambiguous implication of quantitative easing," the report states.

 

"We now live in a world dominated by risk-on/risk-off, and prospects for unconventional monetary easing have become the key element of [that] dynamic."

 

HSBC notes that not all easing has had negative effects for currencies. Indeed, in the euro zone it has been positive as "non-conventional easing" European Central Bank easing has lowered "the possibility of euro (EUR=X) default and disintegration" and has attracted investors.

 

In sum though, central bank policies have created an uncertain environment for currency traders as it becomes harder to identify economic trends. As global economic data points to an uncertain future in the euro zone and events such as the U.S. fiscal cliff approach, the world of FX becomes opaque, HSBC states.

 

"This lack of clarity is creating a puzzling outlook for many currencies...The world of FX has become one of perception rather than concrete links," HSBC says.

Read More:What is the "Fiscal Cliff"?

 

In the U.S., for instance, easing has been dollar (.DXY) negative as "the resultant 'risk on' mood takes us to higher yielding more risky currencies." This was indeed exemplified by the dollar falling to a four-month low after the Fed announced "QE3" in September that led to emerging market governments such as Brazil fearing a new era of "currency wars".

HSBC's view on currency market volatility is reflected by other FX strategists too.

Sebastien Galy, Senior Currency Strategist at Societe Generale told CNBC on Wednesday that the robust Australian dollar was an example of how investors flocking to a safe-haven asset had inflated a currency that should "be massively lower".

 

"It should be massively lower...in a normal environment. But everyone is looking for yields which leads to over-shoot," Galy said, "that overshoot has been happening for years."

 

Indeed, HSBC concludes, as the carry trade dies a bit of the currency market could go with it.

"The demise of carry has brought "onion skin" layers of uncertainty into the FX market, tears and all."

 

 

Oct 3, 2012 10:55 AM

OctaFX.Com News Updates

 

[OctaFX_Farid]

 

OctaFX.Com -Euro Mixed After ECB Holds Rates; All Eyes on Draghi Press Conference

 

 

 

THE TAKEAWAY: EUR European Central Bank Rate Decision > Key Rate on Hold at 0.75% as expected > EURUSD NEUTRAL

 

The European Central Bank has announced its key interest rate for the coming weeks, where it is on hold at 0.75%, as expected according to a Bloomberg News survey. The ECB also announced that it would be leaving its marginal lending rate unchanged at 1.50% and its deposit facility rate unchanged at 0.00%.

 

ECB President Mario Draghi is now scheduled to speak at 08:30 EDT / 12:30 GMT.

 

 

 

 

EURUSD 1-minute Chart: October 4, 2012

 

 

Charts Created using Marketscope – Prepared by Christopher Vecchio

Following the rate decision, the EURUSD perked up more from its pre-release gains, trading as high as 1.2967, before falling back to 1.2951 at the time this report was written. The pair remains near session highs set post-release with the session low coming in at 1.2900.

 

 

Oct 4, 2012 12:18 PM

OctaFX.Com News Updates

 

 

 

[OctaFX_Farid]

 

OctaFX.Com - Dollar, Yen Aim Higher as All Eyes Turn to Eurozone FinMin Summit

 

 

 

The safe-haven US Dollar and Japanese Yen rose overnight amid risk aversion before a Eurozone finance ministers’ summit. More of the same appears likely ahead.

 

Talking Points

 

• US Dollar, Japanese Yen Rise as Risk Aversion Grips Asian Stock Markets
  
• Canadian Dollar Well-Supported in the Wake of US Employment Report
  
• Eurozone FinMin Summit in Focus for Greece Funding, Spain Bailout Cues
  
• IMF Likely to Downgrade Global Economic Outlook in Updated Data Set
  
• Germany’s Trade Surplus Set to Narrow, Industrial Production to Decline
  
• 
  

 

 

 

The US Dollar and Japanese Yen advanced against most of their major counterparts as Asian stocks declined, boosting demand for the go-to haven currencies. Regional bourses (excluding Japan, where markets are closed for a holiday) slumped 0.9 percent on average. The Canadian Dollar was likewise well-supported in the wake of Friday’s better-than-expected US jobs report as traders wagered that a firming recovery in the world’s top economy will boost cross-border demand for its northern neighbor.

 

From here, all eyes turn to the Luxembourg, where Eurozone finance ministers are due to begin a two-day meeting to discuss debt management efforts. Traders will be interested in any moves to mend disagreements between the Greek government and troika monitors that open the door for disbursement of the latest batch of bailout funding. Any clues about the timing of a Spanish request for a full-on rescue package are also sought, particularly after borrowing costs rose at a bond auction last week.

 

Against this backdrop, the IMF is due to release an updated set of global economic performance expectations, with downgrades widely expected. This suggests that absent concrete positive cues from Luxembourg, the risk-off mood is likely to carry forward. On the data front, Germany’s Trade Balance surplus is expected to narrow to €15.2 billion – the lowest in four months – while Industrial Production is forecast to have fallen 0.6% percent in August.

 

 

 

 

 

 

 

Oct 8, 2012 05:40 AM

OctaFX.Com News Updates

 

[OctaFX_Farid]

 

OctaFX.Com - Spain doesn't need help, euro zone ministers say

 

 

 

LUXEMBOURG (Reuters) - Euro zone finance ministers delivered a united defense of Spain on Monday, saying the country was taking steps to overhaul its economy, funding itself successfully in the financial markets and did not need a bailout, at least for now.

 

Arriving at a meeting in Luxembourg to discuss Greece and Spain and to inaugurate the euro zone's permanent bailout mechanism, the ESM, German Finance Minister Wolfgang Schaeuble said Madrid had made clear it wanted no help.

 

"Spain needs no aid program. Spain is doing everything necessary, in fiscal policy, in structural reforms," he told reporters as he arrived for a gathering that will also discuss plans to establish a single supervisor for euro zone banks.

 

"Spain has a problem with its banks as a consequence of the real estate bubble of the past years," he said. "That's why Spain is getting (EU) help with banking recapitalization."

 

Luxembourg Finance Minister Luc Frieden took the same line but added that if Spain were to make a request for aid beyond the 100 billion euros already earmarked to recapitalize its banks, it would be examined.

 

"I think we should deal with such a request when it comes, but so far the Spanish government is undertaking reforms which go in the right direction," he said.

 

Finance ministers agreed in June to provide up to 100 billion euros for Spain's banks, many of which are weighed down with bad property loans and need to be recapitalized.

 

An independent audit has shown the banks need around 40 billion euros, less than originally expected, a result Austria's finance minister, Maria Fekter, said was positive.

 

"We have the banking application from Spain," Fekter said. "We are likely to hear today that this 100 billion euros is not all needed, that Spain needs significantly less."

 

Many in the financial markets are convinced Spain will not be able to meet its sovereign funding needs at an affordable cost without euro zone and European Central Bank support, especially with several of its regions requiring a bailout from Madrid.

 

A euro zone source said ministers may also discuss Spain's 2013 budget, outlined last month, which the International Monetary Fund and the European Commission both believe is based on an over-optimistic forecast of a 0.5 percent economic contraction next year. The IMF forecast of a 1.2 percent recession may be revised further downwards on Tuesday.

 

NO MOVES ON GREECE

 

As well as Spain, ministers will discuss the situation in Greece, where intense negotiations continue between the government and the 'troika' of inspectors from the Commission, the ECB and the IMF over budget cuts for 2013-2014.

But Jean-Claude Juncker, the chairman of the Eurogroup, said no developments on Greece, which has fallen behind on its second bailout program, were likely at least until the troika finishes a report on the country's debt situation. That report is now expected in early November.

 

"I don't think that we will have any major decisions on Greece," Juncker said. Asked whether a decision on Greece could be expected soon, he replied: "Hope never dies."

 

Monday's meeting will also discuss plans for the ECB to be given responsibility for supervising all eurozone banks and the idea of creating a single budget for eurozone countries, issues that will be discussed further by eurozone and EU leaders at a summit in Brussels on October 18-19.

 

But little formal progress is expected, with questions unresolved about how many of the eurozone's 6,000 banks the ECB will be charged with overseeing and whether it will be able to start its new role from January next year.

 

Instead, the only firm action taken on Monday was the unveiling of the European Stability Mechanism (ESM), a 500 billion euro, rescue mechanism for the 17 euro zone countries.

 

The ESM, which replaces the temporary EFSF, will be used to lend to distressed euro zone sovereigns in return for strict fiscal and structural reforms that aim to put economies that have lost investor trust back on track.

 

"The start of the ESM marks a historic milestone in shaping the future of the European monetary union," the fund's chief executive, Klaus Regling, told reporters

 

"The euro area now is equipped with a permanent and effective firewall, which of course is a crucial component in our strategy to ensure financial stability in the euro zone."

 

The fund's lending capacity will be based on 80 billion euros of paid-in capital and 620 billion of callable capital, against which the ESM will borrow money on the market to lend it on to governments cut off from sustainable market funding.

 

From Monday it has a capacity of 200 billion euros and it will reach its full capacity gradually by 2014.

 

 

 

 

 

 

Oct 8, 2012 01:30 PM

OctaFX.Com News Updates

 

[OctaFX_Farid]

 

OctaFX.Com - German regulator: "no euro zone bank watchdog until 2014"

 

 

FRANKFURT (Reuters) - Plans to establish a euro zone bank regulator by January 1, 2013, may be delayed by a year, Germany's markets regulator said on Tuesday, a potential setback to efforts to help distressed euro zone countries and their banks.

 

European leaders agreed at the end of June to set up a single supervisor to oversee 6,000 banks in Europe, but Elke Koenig, head of Germany's markets regulator BaFin, said the original deadline to start such supervision was unrealistic.

 

"I could imagine that we get there in January 2014. That's a guess," she told German television station ARD on Tuesday, adding this was her personal view.

 

Koenig argued that efforts to centralize supervision should proceed with caution, a view at odds with several euro zone policymakers, but in line with German Finance Minister Wolfgang Schaeuble, who last month objected to giving the ECB sweeping powers.

 

The speedy establishment of common banking supervision is necessary to pave the way for the direct recapitalization of lenders via the European Stability Mechanism (ESM), a euro zone bailout fund which came into force on Monday.

 

Propping up weak banks is seen as a way to break the vicious circle linking indebted governments and their troubled lenders. Doubts over the solidity of Spain's finances, for example, are inextricably linked to its weak banking sector.

 

The Dutch Central Bank said on Tuesday that policymakers should quickly give the European Central Bank the tools to supervise major lenders and to enable the ESM to directly recapitalize troubled banks if shareholders or national governments proved unable.

 

Germany, the euro zone's economic heavyweight, has criticized efforts to allow the ECB to supervise all euro zone lenders, claiming the ECB will be overstretched.

 

In reality, the ECB will not be in day-to-day charge of supervision, which will still lie with national and local regulators. But the ECB is expected to leave national supervisors with less wiggle room to adopt special rules designed to protect their home market.

 

Germany's landesbanken, for example, are currently allowed to keep using a special form of non-voting capital as a way to meet tougher rules on capital safeguards.

 

The ECB's president Mario Draghi commented on the timetable for creating a new supervisor on Tuesday.

 

"The ECB is not supposed to take over supervision in three months' time and do it. There is a phase-in time. We foresee that one year will be needed to adapt all the structures," Draghi told the European parliament.

 

As a first step, the ECB is set to take responsibility for supervising banks which have received state aid beginning 2013. From mid-2013 the ECB will add systemically relevant institutions, before finally overseeing all euro zone banks by 2014.

 

Upon being asked whether a January deadline for Euro zone bank supervision was realistic, The Bank of France, the Bank of Spain and the Bank of Italy declined to comment.

 

Gerard Rameix, head of the French markets watchdog AMF, said he had heard nothing to suggest there would be a change to the timeframe. "I think they are playing on words a bit. If they are talking about the utmost end of the process, then they are maybe not wrong," Rameix said.

 

Late on Monday Koenig said that although she supported the idea of common supervision in principle, she hasn't understood how the transition from national to pan-European supervision will work in practice.

 

"I support the idea of a strong European regulator. But I have not seen a roadmap of how we get there," she said.

 

"The last thing we can afford is to have an interregnum between those who are no longer responsible (for supervision) and those who are not yet in a position to act," Koenig said.

 

Earlier this month ECB policymaker Joerg Asmussen warned that tapping the ESM for direct bank recapitalization will only be possible once supervision has been set up.

 

And last month, Germany, the Netherlands and Finland insisted that the ESM should not be used to solve "legacy issues", essentially saying that highly indebted banks in Spain, Ireland and Greece will remain the responsibility of those countries' governments.

 

The Basel Committee on Banking Supervision said last week the EU was failing to apply the Basel III capital requirement rules for banks because it softened up a definition of what qualifies as core capital.

 

Basel III says it must be common equity capital while Germany has pushed hard to include what some regulators see as less proven financial instruments which are widely used in the German public sector banking arm of Landesbanks.

 

 

Oct 9, 2012 12:54 PM

OctaFX.Com News Updates

 

[OctaFX_Farid]

 

 

OctaFX.Com -Eleven euro states back financial transaction tax

 

 

 

LUXEMBOURG/ATHENS (Reuters) - Eleven euro zone countries agreed on Tuesday to press ahead with a disputed tax on financial transactions designed to help pay for the cost of fixing a crisis that has rocked the single currency area.

The initiative, pushed hard by Germany and France but strongly opposed by Britain, Sweden and other free-marketers, gained critical mass at a European Union finance ministers' meeting in Luxembourg, when more than the required nine states agreed to use a treaty provision to launch the tax.

 

The so-called "Tobin tax", first proposed by Nobel-prize winning U.S. economist James Tobin in the 1972 as a way of reducing financial market volatility, has become a political symbol of a widespread desire to make banks, hedge funds and high-frequency traders pay a price for the crisis.

 

"This is a small step for 11 countries but a giant leap for Europe,"

Austria Deputy Finance Minister Andreas Schieder said.

"The way is now clear for a just contribution from the banking and financial sector for financing the burdens of the crisis."

 

The agreement raised the prospect of a pioneer group of European states for the first time launching a joint tax without the unanimous backing of the 27-nation bloc, a move that may fragment the single market for financial services.

 

EU Tax Commissioner Algirdas Semeta told the meeting the number of states backing the initiative had passed the quorum for so-called "enhanced cooperation", provided some countries turn their oral backing into written commitment.

 

"I proposed this tax as a source of new revenue from an under-taxed sector, and a means of encouraging more responsible trading,"

Semeta said.

"It would also prevent a patchwork of national bank taxes from creating difficulties for businesses in the Single Market."

 

However, critics say it could distort that market by giving banks and other traders incentives to shift their trading activities to European financial centers where the tax is not levied, or away from Europe altogether.

 

"People will arbitrage it. People will find a way around it," said David Stewart, CEO of London-based hedge fund firm Odey Asset Management, which runs around $6.5 billion.

 

"If someone really wants to buy a company that's good, I'm sure they'll keep on buying it. But if it's a synthetic derivative then they may go somewhere else ... More volume will go through London."

 

Britain, home to the region's biggest trading centre, will not join the scheme.

 

Austrian Finance Minister Maria Fekter said the 11 countries would present a model for how the tax would work by the end of the year, and it was realistic to expect the tax to be implemented by 2014.

 

Semeta said the countries aiming to launch the tax did not yet agree on where the proceeds should go or on what they should be spent.

 

"Some of them would like to spend it individually. Some of them prefer to use part of the proceeds to finance the EU budget. It is premature to say what will be the final outcome," he said.

 

The breakthrough was a surprise to many EU diplomats who had thought Germany might fail to convince sufficient countries to join the plan, which has been in the works for two years.

 

After heavy diplomatic pressure from Berlin overnight, Spain and Italy agreed to support the measure. Slovakia and Estonia said they would throw their weight behind it too.

 

The European Commission has said a tax on stocks, bonds and derivatives trades from 2014 could raise up to 57 billion euros a year if applied across all countries.

 

SCANT PROGRESS ELSEWHERE

 

The agreement was a victory for German Chancellor Angela Merkel on the day she travelled to Athens, epicenter of Europe's debt crisis, to express her support for near-bankrupt Greece staying in the euro zone.

 

Greek police fired teargas and stun grenades to hold back protesters who accuse Merkel of imposing devastating austerity on their country in exchange for two EU/IMF bailouts that have so far failed to turn the shattered economy around.

"A lot has been accomplished," Merkel said after talks with Prime Minister Antonis Samaras, adding that the tough path Greece is on will pay off if Greeks stay the course.

 

The financial tax deal masked a distinct lack of progress among finance ministers on other pressing issues facing the euro zone, including whether and when to provide a rescue package for Spain, and what to do about Greece's off-course program.

 

The 17 euro zone ministers finally inaugurated their 500 billion euro permanent rescue fund on Monday, but danced around the question of how soon it might have to be used.

 

Ministers insisted Spain was taking the right actions to restore its public finances and did not need a bailout for now, even though many in the financial markets are convinced Madrid will need help within weeks rather than months.

 

The International Monetary Fund doused several euro zone countries' budget plans, including those of Spain and France, by revising down its 2013 growth forecasts for their economies.

 

Euro zone peers told Spanish Economy Minister Luis de Guindos that his country's budget cuts should take into account the weakness in the economy as regional policymakers debated whether to let Madrid slacken the pace of its austerity drive.

 

"The only thing I can say (about the IMF's forecasts for Spain) is to try to avoid that they happen," de Guindos said.

 

"Logically, we are working on the basis that such negative forecasts are not met," he said.

 

The ministers also had a "robust" discussion with the IMF about the long-term sustainability of Greece's debt mountain -- a key factor in whether international lenders release an urgently needed next tranche of aid to Athens.

An IMF director told a Dutch newspaper that European countries should consider restructuring the Greek debt they hold if the country's financial burden proves unsustainable.

 

Diplomats say euro zone governments would prefer to find ways to give Athens more time to meet its fiscal targets and postpone any consideration of official debt restructuring until after next September's German general election.

 

European Central Bank chief Mario Draghi told the European Parliament the euro zone economy faced a long, uphill road to recovery and the bloc was still suffering a crisis of confidence.

 

But he said there was no alternative to continued budget cuts.

 

 

Oct 9, 2012 02:22 PM

OctaFX.Com News Updates

 

[OctaFX_Farid]

 

 

OctaFX.Com -Strong September NIESR GDP Estimate Fails to Impress British Pound

 

UPDATE: GBP NIESR Gross Domestic Product Estimate (MoM) (SEP) > +0.8% from +0.1% prior (revised from +0.2%) > GBPUSD NEUTRAL

 

One European economy is growing at an increasing rate: the United Kingdom. At least, that’s what the National Institute of Economic and Social Research’s September growth estimate showed today, which ticked up to +0.8% quarter-over-quarter from +0.1% q/q in August (quarterly here denotes trailing three-months ending in reporting month; this report estimated growth for July-August-September). For context, this is the single highest NIESR GDP estimate seen since July 2010 (+1.2% q/q). For a calendar quarter, this is the highest reading since the third quarter of 2007.

 

However, while the headline reading looks great, it is important to consider some one-off occurrences that took place in the middle of the year: the Queen’s Jubilee celebration as well as the London Olympics. These events undoubtedly provided a boost to growth: Bloomberg News suggests that a better guess for growth would be +0.2% or +0.3% q/q.

 

GBPUSD 1-minute Chart: October 9, 2012

 

 

Accordingly, reaction to the release can be described as tepid at best, with the GBPUSD inching high for a few pips before falling back. The GBPUSD traded at 1.6010 before the release, and was at 1.6014 at the time this report was written.

 

 

Oct 9, 2012 02:32 PM

OctaFX.Com News Updates

 

[OctaFX_Farid]

 

 

OctaFX.Com -EU summit to back idea of separate euro zone budget-draft conclusions

 

 

BRUSSELS (Reuters) - The euro zone should have its own budget, which would be separate from the long-term budget of the wider European Union, draft conclusions of an EU summit to take place next week said.

 

"For the euro area, the objective is to move towards an integrated budgetary framework," said the draft conclusions, obtained by Reuters.

 

"In that context, mechanisms to prevent unsustainable budgetary developments, as well as mechanisms for fiscal solidarity, e.g. via an appropriate fiscal capacity, should be explored," the draft said.

 

"Such mechanisms would be specific to the euro area and therefore not be covered by the Multiannual Financial Framework," the draft said.

 

The Multiannual Financial Framework is the European Union's long-term budget which amounts to around 1 percent of the gross domestic product of the 27-nation bloc.

 

It is used to support the EU's agriculture policy as well as investment in the EU's poorer countries and regions, among others.

 

The idea of a separate euro zone budget is supported by Germany, but many non-euro zone countries, which now benefit from the funds of the EU-wide budget, are concerned that its creation would diminish the amount of money available to them.

 

The conclusions also showed that EU leaders would support the idea of euro zone countries entering into contractual agreements with EU institutions to implement reforms.

 

"The smooth functioning of EMU (the euro zone) for stronger and sustainable economic growth, employment and social cohesion requires stronger coordination, convergence and enforcement of economic policy," the draft conclusions said.

 

"In this respect, the idea for the euro area Member States to enter into individual arrangements of a contractual nature at the European level on the reforms they commit to undertake and on their implementation should be explored," they said.

 

 

Oct 9, 2012 04:24 PM

OctaFX.Com News Updates

 

[OctaFX_Farid]

 

OctaFX.Com -Euro Rises Following ECB Bulletin Remarks on OMT Bond Purchases

 

THE TAKEAWAY: Euro-zone growth is expected to remain weak according to ECB bulletin -> OMT comments reflect Draghi -> Euro trading slightly higher

 

The European Central Bank said growth in the Euro-area is expected to remain weak, as tensions in certain markets keeps confidence and sentiment down, according to the monthly bulletin from their October meeting. The ECB continued to say that economic indicators confirm the continuation of a weak economy in the third quarter.

 

The ECB quoted rising energy prices,increases in indirect taxes, and the resulting higher inflation as the reason that the central bank kept rates unchanged in their October meeting. The ECB predicted that inflation will remain above 2% for the rest of 2012, but will drop below 2% in 2013.

 

The ECB said the decision regarding the OMT has helped relieve certain tensions, but the governments must continue to implement necessary steps. The bulletin stressed the importance of the conditionality of OMT purchases, thereby reflecting Draghi’s statements at the European parliament.

 

Finally, the ECB supported efforts to implement a single supervisory mechanism for Euro-area banks. The ECB has already begun preparatory work so as to be ready to implement the joint banking supervision.

 

The Euro rose slightly following the release of the bulleting, possibly on optimism over the implementation of the OMT program. Euro investors may be hoping to see Spain agree to the ECB’s conditions for bond purchases, which could be a step in the direction of a recovery from the debt crisis.

 

EURUSD is currently trading closer to the key 1.2900 line, where resistance could be found by the 23.6% retracement of the rally that began at the end of July. Support could be provided by the month-long low at 1.2803.

 

EURUSD 15-minute: October 11, 2012

 

 

 

 

Oct 11, 2012 08:48 AM

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[OctaFX_Farid]

 

OctaFX.Com - Japanese Yen and US Dollar Weaker as Chinese Data Bucks Worries

 

 

 

News was light over the weekend, although data out of Asia proved to be materially important for global investor sentiment. Headed into the weekend, there were two concerns for the week ahead: what will the swath of Chinese data bring; and what will happen in Europe this week with respect to the Spanish bailout?

 

The first answers regarding China began to trickle in the past few days, with Chinese September trade data showing that Exports increased by more than expected while Imports held steady, allowing for a wider surplus despite forecasts for a narrower one. Alongside headline inflation pressures that continue to trend lower, in both the Consumer and Producer Price Indexes for September, the view that China is headed for a ‘hard landing’ is indeed softening. With the third quarter GDP on tap for this Thursday, we expect Chinese-linked currencies (the Australian and New Zealand Dollars and the Japanese Yen) to see a bit more action in the coming days.

 

In Europe, it appears that there’s a growing consensus for “more time” for Greece, with reports indicating that Greek Prime Minister Antonis Samaras will agree to new austerity measures with international lenders by this week’s Euro-zone Summit, slated for October 18 to 19. Greek bond yields sank today, so perhaps there is some credibility to these reports.

 

Also out of Europe has been the ceremonial pre-Summit jawboning from various leaders and institutions, but the outlook is surprisingly dull. In fact, taking a look at bank research this morning, expectations for the Summit this week are “quite low to begin with,” says Deutsche Bank, while JPMorgan’s European political analyst Alex White wrote over the weekend that no significant progress should be expected on Greece or Spain.

 

 

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Oct 15, 2012 11:08 AM

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[OctaFX_Farid]

 

OctaFX.Com - Norway's Housing Boom Could Turn to Bust

 

 

 

Norway, which chose to remain outside the EU and the euro currency, enjoys an enviably stable economy and a booming housing market - but it could be going down the perilous route taken by Spain and Ireland, according to economists and recent analysis.

 

According to a report by Bank of New York (BNY) Mellon, Norway's housing sector, which has seen prices jump by almost 30 percent since 2006 - could end up replicating a pattern of housing booms and busts seen across the globe, from the U.S. to Japan to Spain and Ireland.

Indeed, Norway's house price rise has been so dramatic that the San Francisco Federal Reserve wrote a paper on the subject in June that made parallels between the lead up to the U.S. housing crisis and the "irrationally exuberant bubble" of Norway's present boom.

 

Written by an advisor to Norway's central bank (Norges Bank) Marius Jurgilas and San Francisco Fed's senior economist Kevin Lansing, the paper stated that Norwegian property prices are currently 125 percent of the historic price-to-income ratio and around 170 percent of the historic price-to-rent ratio - a full 50 percent above their last major peak 20 years ago.

 

Home prices continue to rise sharply with the Association of Norwegian Real Estate Brokers (NEF) reporting an 8.1 percent annual increase in August.

Has Anyone in Norway Noticed?

Though the Norwegian Central Bank has warned about long-term risks to the economy from rising housing prices, it has kept interest rates steady at 1.5 percent and suggested that it will keep them at these levels until Spring 2013. It declined to comment on the housing market.

 

Neil Mellor from BNY Mellon said that Norway's central bank, has neglected its housing market's indomitable price rise by focusing on a monetary policy of low and stable inflation.

 

"In focussing solely on indices for goods and services, Norges Bank is failing to address some unnerving trends in a sector whose stability is vital to that of the economy as a whole."

 

"Low interest rates, stable consumer price inflation and booming asset prices combine to form conditions whereby debt is accumulated at a growing rate to levels that contravene conventional rules of thumb pertaining to stability."

Mellor added that as house prices rise, household debt in Norway is also rising.

"In the case of Norway, the ratio of household debt-to-income has risen dramatically over the past decade and currently stands at around 210 percent - well above that seen in the U.S. before its own bust in 2007 (with debt/income at 130 percent)."

 

The Central Bank of Norway declined to comment, but Mellor insisted that the unrelenting accretion of debt must not be played down or dismissed as an accounting matter.

"The asset price bubbles formed over the past decade were, in essence, down to policy makers suffering from the same illusion of price stability, albeit an illusion formalized by inflation targeting."

Norway's Dangerous Success Story

 

Robert Shiller, Professor of Economics at Yale University and co-creator of the S&P/Case-Shiller home-price index said that the Norwegian government "should start worrying now".

"This is a reason to expect an unpleasant end to this bubble in Norway. That is what I told them then," Shiller told CNBC on Tuesday, alluding to a presentation he made in the Scandinavian capitals of Oslo, Copenhagen and Stockholm in January in which he warned of the impending housing bust.

Rather than learning from its European neighbor Spain - where a real estate bubble saw home prices rise 44 percent from 2004 to 2008 before the bubble burst, leaving not only eerily empty properties and Spanish ghost towns but domestic banks with billions of bad loans - Norway is letting its economic success go to its head, Shiller said.

 

"My suspicions are Norwegians are infected with a success story for their own country that makes high home price increases seem plausible to them," a success only aggrandized when compared to its economically ailing euro zone neighbors.

"They feel smug in their superiority with regard to the European crisis. They didn't even join the EU, let alone the euro. They don't have to bail out any irresponsible southern countries. They have North Sea oil. They have low unemployment. [in short] they are doing everything right, and lots of people want to come to Norway."

 

However, Shiller notes that there is a paradox in the Norwegian success story.

"Norway is just about the last country to expect a housing bubble to appear, at least not a rational bubble, since it has so much empty land."

"If home prices get elevated, there should be a prompt supply response, new houses will be built, bringing prices down, unless there is some kind of political or zoning problem. Even such political problems tend not to last forever. "

Indeed, there have been some calls to raise lending rates and tighten policy.

In August, as household credit grew at an annual rate of some 7.2 percent - the highest rate since February - Norway's Finance Minister Signjoern Johnsen called for lending standards to be tightened, and the NEF called for higher interest rates.

Mellor states that "[Past crises] have taught us that formulating policy on the basis of a narrow range of prices is a recipe for potential instability, and history tells us that it is never "different this time"."

 

Mellor concludes with a quote from the San Francisco Fed paper on Norway: "History tells us that episodes of sustained rapid credit expansion combined with booming asset prices are almost always followed by periods of financial stress ... Time will tell whether things turn out differently for the Norwegian housing market."

 

 

 

 

 

Oct 17, 2012 09:36 AM

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