The US PMI headline came in at 54.1, less than the expected 54.5 but in line with the global manufacturing growth. Along with a growth of 1.5% in Construction spending it send a neutral message for forex traders as the numbers were close to the expected figures with no surprises to make a case for a stronger or weaker USD.
February 1, 2012
US Price Manufacturing Index reported at 54.1
The US PMI headline came in at 54.1, less than the expected 54.5 but in line with the global manufacturing growth. Along with a growth of 1.5% in Construction spending it send a neutral message for forex traders as the numbers were close to the expected figures with no surprises to make a case for a stronger or weaker USD.
December 22, 2011
PIMCO Downgrades Global Outlook
Pacific Investment Management Company – or simply, “PIMCO” – issued a statement today warning that global growth in 2012 will be constrained by the ongoing Eurozone debt crisis and a slowing Chinese economy. Saumil Parikh, a PIMCO Managing Director, revised downwards the 2012 forecast for the global economy from 2011’s 2.5 percent expansion to a considerably weaker 1 – 1.5 percent growth for 2012.
Getting a handle on Eurozone sovereign debt will require several European governments to cut spending in a version of “forced austerity” that in itself, will lead to slower growth. This, combined with debt haircuts and potential defaults will, according to Parikh, lead to a contraction for 2012.
“The euro zone economy cannot bear a concomitant deleveraging in sovereign and banking system balance sheets, given an already weak growth outlook,” Parikh said.
This leaves no other choice but for the European Central Bank to assume the role of “lender of last resort” to Eurozone countries. This is the only way says Parikh to prevent a wide-spread sell-off of assets and a further devaluation of assets as investors scramble to cover their debts.
In addition, Parikh presented an updated assessment for China which could also have a far-reaching impact on the global economy. PIMCO downgraded the outlook for China saying that 7 percent growth for 2012 is more likely than the 8 percent predicted earlier in the year.
As a result of the revised outlook PIMCO now feels U.S. growth could slow to between 0 and 1 percent for 2012. This is a sharp decrease from the previous assessment topping out at 1.75 percent growth.
December 2, 2011
Week in FX: Europe Nov 27-Dec 2
Markets have been trying to add risk as the hangover effect from central bank actions earlier in the week remains. However, it’s a rather tenuous relationship with next weeks Euro-event risk on everyone’s radar and Friday’s NFP labor participation rate been scrutinized. Germany’s Merkel says the EU is in a marathon, stating “the lessons are very simple: Rules must be adhered to, adherence must be monitored, non-adherence must have consequences. (Leaders have to) overcome fundamental flaws in the construction of the euro area.” These fundamental flaws, if addressed and changed, will take years. Next week we get to see how serious Euro members are about been on the same ‘playing field’.
Below are some other highlights of the week:
EUROPE
- Last weekend press rumors were fast and furious: The free press was reporting positive EUR actions. Germany’s finance minister suggested that the Euro-zone could rapidly implement changes to the Lisbon Treaty, allowing for significantly greater EC fiscal oversight of Euro area member countries. In theory, this would create a “Stability Union” before a deeper treaty change in the future.
- Italy: La Stampa, suggested that that the IMF would provide a €600b financing facility for Italy, however, this was denied, deemed not credible and that there are no discussions within the G7 of a large IMF package for Italy.
- Germany: Die Welt reported that the German government and five other EZ members, with triple “A” credit ratings, are considering issuing bonds. Part of the money raised would be used to provide financial assistance, under strict conditions, for Italy and Spain.
- The EFSF issued a new issuance strategy that would have it increase precautionary funding. All the reports stop well clear of promising immediate relief.
- Moody’s: Warned that Euro area sovereign ratings are increasingly under threat. They noted that risk of multiple defaults by Euro area countries is “no longer negligible”.
- EUR: EZ M3 growth slowed to +2.6%, y/y, in October from +3% in September, weaker than the +3.4% forecasted. The market expects that signs of monetary contraction suggest a strong need for further monetary stimulus from the ECB. FI traders are pricing in a -25bp ease next week, and expect policy members to scale up its SMP program to take rates below 1% in Q1 2012.
- GBP: UK CBI reported sales falling below consensus to -19 this month from -11 in October. Expected sales in December also printed weaker at -6 from 4 in November. This would suggest further pressure on the cable.
- CHF: SNB Vice-Chairman Jordan stated that policy makers are “prepared to take new measures should economic prospects and deflationary risks make this necessary.” He gave no signal about whether the EURCHF floor, currently at 1.20, might need to rise. The market sees a case for further monetary stimulus for the Swiss economy is growing.
- EUR: European bond markets continues to send warning signs, with Italian 10-year yields again backing up ahead of Tuesday’s auction, and yields elsewhere in Europe unable to trade moderately lower.
- EUR: Italy auctioned EUR7.5b of bonds, a tad shy of the maximum 8b on offer. The issues were reasonably covered but the clearing yields were high, above +7% for all tranches.
- EUR: The cost of USD funding via EUR FX forwards continues to rise and is fast approaching the extremes seen in late 2008 despite the availability of Central bank dollar swap lines.
- Moody’s: The rating agency announced that it is reviewing ratings on subordinated and junior debt from 87 European banks for possible downgrade. They expect two-notch downgrades to subordinated debt and a one-notch downgrade on other debt. Austria, France, Italy, and Spain have the most banks under review.
- EC: Confidence surveys continue to show deterioration, with business confidence sliding to -7.3 from -6.5. The services confidence was worse than consensus at -1.7 after +0.1 last month.
- UK: Foreign investors bought +£12.5b of gilts last month (the most in 18-months), and up from +£9b in September. This suggests that concerns about systemic risk in the EZ and lack of AAA reserve alternatives will limit outright flight from GBP. However, significant deterioration in the EZ growth would likely stall a UK recovery and prompt further easing from the BoE.
- SEK: GDP grew +1.6%, q/q, in Q3, much stronger than the consensus forecast for a +0.4% rise.
- EU finance ministers: Agreed on disbursement of the next tranche of aid to Greece and endorsed Italy’s latest fiscal measures. Nailed down the details of how to leverage the remaining EUR250b of the EFSF (program may raise between EUR500-750b, below the EUR1t originally touted). Is the IMF to support Italy? It has been suggested that the ECB council is shifting towards a more active role.
- Most of the world’s major central banks (Fed, ECB, BoE, BoJ, BoC and SNB) agreed that they would take “coordinated actions to enhance their capacity to provide liquidity support to the global financial system.” Specifically the Banks have cut the price on existing temporary US dollar swap arrangements to USD OIS plus 50bp which is a cut of about 50bp from what is currently charged. It will apply this from December 5 to February 1 2013.
- CBanks: Agreed to set up bilateral liquidity swap arrangements to cover any of their own currencies should that be needed.
- GER: Unemployment rate edged lower to +6.9% from +7% as unemployment fell -20k vs. -5k. However, analysts expect further deterioration in the coming months given recent declines in leading indicators.
- NOK: Norwegian retail sales also surprised on the upside, rising +0.7%, m/m, in October, reversing the September drop. The Norges bank also announced that it will not buy FX for the Global Pension Fund this month.
- CHF: Swiss KOF leading indicator fell more than expected to 0.35 (lowest reading in two-years) and the current level is consistent with Swiss GDP growth close to zero.
- CHF: The SNB published its balance sheet as of 31 October and showed no FX intervention being carried out during the month. The market now expects the SNB would need to see “deeper risk of recession and/or deflation before it considers changing its intervention policy or raising the floor”.
- EUR: Comments from the German economics minister that the ECB “can do what it deems necessary” in a crisis and from ECB President Draghi that the next few days will be important for the euro area have helped support the news of a reduced rate on the Fed USD swap line. Draghi emphasized the limited nature of bond market interventions.
- ESP: Spain successfully auctioned EUR3.75b. worth of bonds. They again had to pay up to persuade investors to buy their product. This will most likely be the pattern for 2012. However, stronger demand pushed Spanish yields to their lowest level in two-weeks and happened to drag the EUR to a session high.
- EUR: November manufacturing PMIs fell deeper into contraction territory.The EZ and German manufacturing PMIs were left unrevised at 46.4 and 47.3 respectively. Spanish and Greek PMIs showed signs of stabilization at very weak levels. Italian PMI surprised to the upside, rising to 44 from 43.3.
- CHF: Their manufacturing PMI fell to 44.8 (weakest print in two-years) and in line with the weaker than expected KoF indicator. This suggests a bleaker picture in the coming months.
- UK: Their manufacturing PMI was a touch higher in November at 47.6 from 47.4 in October. However, employment fell to 46.2 from 48.6, suggesting likely further deterioration in the labor market condition.
- EUR: Merkel reaffirms opposition to Euro bonds
US unemployment rate drops for all the wrong reasons
North American employment reports came, we saw and they have been trying to conquer the risk trade ever since. It certainly was a mixed bag of data to end ‘this’ of all weeks on. Canada did a U-turn, and provided us with as many job losses (-18.7k) as positives (+18.6k) the market had been expecting. Unlike its southern neighbor, the unemployment rate inched higher (+7.4%). In contrast, the US hit headline expectations (+120K) and gave us some strong positive revisions. The unemployment rate firmly beat everyones expectations (+8.6%), however, the labor force participation rate eased to a 28-year low (+64%) as people dropped out in droves, either because they are retiring or simply too discouraged to continue looking for employment. It was driven by a drop of-315k in the labor force and a big-594k drop in the number of unemployed despite just +120k more people getting work.
Below are some other highlights of the week:
Americas
- USD: The long-term foreign and local currency issuer default ratings of AAA were affirmed by Fitch. However, the outlook on the long-term rating was revised to negative from stable.
- CAD: Current account improved to CAD-12.13b in Q3 after CAD-16.14b in Q2.
- USD: Consumer confidence climbed this month (56 vs. 40.9) by the most in more than eight-years as Americans grew more upbeat about employment and income prospects.
- USD: US home prices eased in September from a month earlier, the first decline after five straight monthly increases according to S&P’s Case-Shiller.
- Most of the world’s major central banks (Fed, ECB, BoE, BoJ, BoC and SNB) agreed that they would take “coordinated actions to enhance their capacity to provide liquidity support to the global financial system.” Specifically the Banks have cut the price on existing temporary US dollar swap arrangements to USD OIS plus 50bp which is a cut of about 50bp from what is currently charged. It will apply this from December 5 to February 1 2013.
- CBanks: Agreed to set up bilateral liquidity swap arrangements to cover any of their own currencies should that be needed.
- US fundamentals are again doing their bit. The ADP employment report suggested that jobs rose +206k last month, a hefty +76k above consensus. Pending home sales surged +10.4% in October and the Chicago PMI rose to 62.6 from 58.4.
- CAD: Q3 GDP annualized +3.5% vs. market expectations of +3%. Q2 revised to -0.5% from -0.4%. September GDP +0.2% from August.
- USD: New jobless claims rise to +402k, largest level in more than a month. This suggests that labor markets are healing but very slowly.
- USD: ISM November manufacturing PMI rises to 52.7 vs. Octobers 50.8. However, the employment index fell to 51.8 vs. Octobers 53.5.
- CAD: November full-time jobs +34.6k, part-time -53.3k giving us a monthly loss of -18.7k. The participation rate at +66.6% eased a tad from +66.7% while the unemployment edged higher to +7.4% vs. +7.3%.
- USD: NFP headline print was up +120k, private up +140k. The prior month revisions were significantly positive with September +52k to +210k and October +20k to +100k. The unemployment rate eased a whopping-4 ticks to +8.6% (the lowest level in two-years). Does this take QE3 off the table? However, the labor force participation rate eased from +64.2% to +64%-lowest level in 28-years. It seems that people dropped out of the workforce in droves, either because they are retiring or simply too discouraged to continue looking for employment. Monthly paychecks also slipped as average hourly wages fell-0.1% (second negative in three-months).
ASIA is doing its bit too
The BoJ and PBoC did their bit and helped take some heat off a burdened Euro financial system. Japan took part directly in coordinated actions to provide liquidity support to the global financial system. China, she took the internal route and cut its domestic banks reserve ratio. The PBoC actions is supposed to provide support for global growth expectations and growth sensitive assets. Looking at Friday’s price action, capital markets fear that Europe is on the verge of imploding again. In reality, very few want to own risk ahead of next weeks Central Bank rate announcements and the now highly anticipated Euro summit.
Below are some other highlights of the week:
ASIA
- NZD: NBNZ activity outlook index rose to 28.8 this month from 26.1.
- PHP: Q3 GDP rose +3.2%, y/y, less than the +4.1% consensus forecasted. The Q2 growth number was revised down-0.3pts to +3.1%. The weak export and manufacturing sector continues to be a drag on growth.
- THB: IP collapsed in October. Manufacturing production fell -35.8%, y/y, much more than the -15% drop consensus had forecasted. The collapse was due to the extreme flooding in much of central Thailand. Capacity utilization dropped from +65.5% in September to +46.4% in October. Immediate term, problems are to persist.
- JPY: Retail sales rose +1.4%, m/m, in October, up from a contraction of -1.5% the prior month and stronger than the consensus forecast for a +0.6% rise. However, the October unemployment rate rose to +4.5% from +4.1% in September.
- JPY: BoJ Governor Shirakawa told Japan’s parliament that he viewed yen strength as being due to credit stress in Europe and hoped that their efforts to lower long-term Japanese yields would weaken the yen.
- KWN: Current account surplus was +$4.2b in October, down from +$5.1b in October 2010. The trade surplus of +$3.6b is expected to rise if oil prices soften further.
- INR: The RBI has warned banks not to use “their open position allowances to run speculative long USDINR positions lest the RBI change regulations”.
- MYR: The government announced that foreign direct investment into Malaysia rose +42% in the first three-quarters of 2011 to +$8.3b.
- CNY: China’s repo rate fell to a 5-day low of +3.66% midweek. The recent increase in fiscal spending is adding more liquidity to China’s financial system than the PBoC has sterilized with bill issuance.
- AUD: Aussie was able to breach parity midweek after Fitch upheld its long-term foreign currency rating. It was upgraded to AAA from AA+, citing low government debt levels and a flexible policy framework. Also aiding was the OECD forecasting that Australia would be the one of the fastest growing economies in the world in 2012.
- CNY: PBoC announced it would lower its required reserves ration by-50bp to +21.5% (first easing in three-years) and should provide support for global growth expectations and growth sensitive assets. Bigger picture, alone not enough to offset the acute danger to financial market stability stemming from the euro sovereign crisis for long.
- Most of the world’s major central banks (Fed, ECB, BoE, BoJ, BoC and SNB) agreed that they would take “coordinated actions to enhance their capacity to provide liquidity support to the global financial system.” Specifically the Banks have cut the price on existing temporary US dollar swap arrangements to USD OIS plus 50bp which is a cut of about 50bp from what is currently charged. It will apply this from December 5 to February 1 2013.
- CBanks: Agreed to set up bilateral liquidity swap arrangements to cover any of their own currencies should that be needed.
- JPY: IP grew +2.4%, m/m, in October, which was stronger than expected and reversed the -3.3% fall in the prior month. However, the level of production is still lower than that in August by -0.9%.
- JPY: The MOF confirmed that October intervention totaled JPY9.1t . Most of this is believed to have occurred in a single day, which would mark a new record for intervention.
- AUD: Capital expenditure rose a strong +12.3%, q/q, in Q3, much higher than the consensus forecast for +8.0%. Futures traders continue to expect the RBA to normalize rates, with another-25bp rate cut at this months meeting as inflation projections allow it.
- NZD: Building permits rose +11.2%, m/m, last month. This reversed much of the drop in permits from the previous month, pushing the rise in permits since June to +22.1%.
- IDN: Headline GDP for Q3 was in line, but with weak details. GDP growth slowed to +6.9%, y/y, in Q3 from +7.7% in Q2.
- KRW: IP fell -0.7%, m/m, largely reversing the +1.2% rise in September.
- CNY: China’s PMI fell-1.4pts to 49.0 in November, below the consensus forecast of 49.8. Details were soft with new orders and new export orders falling sharply and supports the PBoC’s decision to cut the commercial banks’ reserve requirement ratio this week.
- AUD: Building approvals and retail sales disappointed. Building approvals fell -10.7%, m/m, in October and follows the -14.2% drop in September. Retail sales rose a smaller than expected +0.2%, m/m, vs the consensus forecast for +0.4%.
November 10, 2011
EU Warns of Possible Recession
The European Union slashed its earlier growth forecast for the 17-member Eurozone today to just 0.5 percent for the year. This is a significant reduction from the 1.8 percent projection made earlier this year.
The EU also warned that the region could fall into a “deep and prolonged” recession with no end in sight for the ongoing debt crisis. A recession in Europe will also impact other economies and could be the starting point for another global recession.
Greece Names Former Central Banker as New PM
After a couple of false starts and a whole lot of unnecessary uncertainty, Greece has finally named the interim Prime Minister that will replace George Papandreou. Lucas Papademos, who has served as both the Greek Central Bank governor and a Vice President with the European Central Bank President, Papademos will face the task of keeping Greece in the Eurozone.
“He’s a leader who can temporarily see Greece through troubled times but keep in mind that he has no political base,” Spyros Economides, a senior lecturer at the London School of Economics, said in a phone interview. “A cross-party coalition will put up with him for a defined, temporary period only.”
Source: Bloomberg
October 13, 2011
Dollar (USD) Strength In Near-Term!
Despite the recent decline in the US dollar and the increased risk appetite in teh marketplace, there is still major risk to the global economyemanating from Europe and the US, and now we can add China to the mix. Weaker export growth in China shos that their economy is slowing and this is not a good thing for the global economic recovery as China has been the main driver of activity.
Looking at this chart of USD/CHF, the dollar vs. the Swiss franc we can see that a double bottom was put in at 89.20 as the risk emanating form the Euro zone takes focus. As both currencies are “safe-havens”, it is interesting to note that money flows are moving toward the Dollar and out of the Swissie!
SNB intervention could be the worry, though more likely this is an indcitment of Europe in general. Stay tuned!
Meeting Minutes Show Bank of Japan Considering More Easing
Minutes of the September 6-7 Bank of Japan meeting show that several board members believe more monetary easing could be necessary. There is a growing worry that should the global economy continue to deteriorate, Japan’s economy will suffer due to weaker export sales.