Overnight, Japan announced a $100 billion facility that is intended to help small and medium-sized businesses in Japan deal with the economic impact of a rising Yen. This is in startk contrast to the intervention they have been warning about, and the market is becoming less convinced that they may take action. While this announcement does not rule out intervention, it begs the question why this would even be necessary if the BOJ planned to try to weaken the Yen.
Look for the market to test the limits of how high the Yen can go!
For those hoping that the economy is merely going through a “soft patch” right now, the weight of evidence suggests something more serious. Two years after the Great Recession ended, the economic expansion has slowed to an annual rate of 1.8 percent in the first quarter of 2011 versus 3.1 percent in the final quarter of 2010. Why is the rebound so tepid? Here are three key indicators, which historically help boost recoveries, but stand in the way this time:
Source: The Christian Science Monitor
A survey of economists shows most observers believe the European Central Bank will implement further interest rate hikes in addition to yesterday’s quarter-point increase to 1.25 percent. The survey also indicates that the ECB is expected to increase rates every quarter through 2012 to bring the benchmark rate to 2.75 percent by the end of next year.
“Trichet may have said that they haven’t made that decision, but he always says that,” said Nick Kounis, chief European economist at ABN Amro Bank NV in Amsterdam, who expects the next move in July. “They will continue to raise rates and it’s just a combination of factors that will drive it — the inflation outlook, the economic outlook and their desire to normalize policy.”
Source: Bloomberg
The International Monetary Fund (IMF) released its semi-annual Global Financial Stability Report earlier today. The report highlighted the ongoing debt crisis in Europe and housing issues in the US as the two most dangerous threats to global financial stability.
“The global financial system is still in a period of significant uncertainty and remains the Achilles’ heel of the economic recovery”, noted the report. “The recent turmoil in sovereign debt markets in Europe highlighted increased vulnerabilities of bank and sovereign balance sheets arising from the crisis.”
Source: Reuters
Retail sales for the eurozone region rose slightly in July, gaining 0.1 percent after a 0.2 percent gain in June. Several of the smaller member nations recorded more significant gains including a 3.0 percent increase in Portugal and a 2.9 percent increase in Malta. Germany, the economic powerhouse of the region, managed a slight gain of 0.3 percent.
Source: AFP News
Oil prices were off slightly as investors digested the latest US Employment Report, falling by 35 cents at $74.67 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, oil gained $1.11 to $75.02 a barrel.
Oil prices have traded between $70 and $80 for most of the past year as the global economy recovered from last year’s recession, but developed countries struggled to regain strong growth. U.S. crude and fuel inventories have remained high, suggesting the demand for fuel remains sluggish.
Source: Associated Press
Yesterday’s gains in North American stocks could be in jeopardy in light of the 1.2 percent decline is US Retail Sales. This is the largest single-month decline in eight months casting doubt on the strength of the economic recovery.
According to the Commerce Department, with the exception of the auto industry, most sectors experienced a pullback in May.
Hedge fund manager James Chanos has been a long-time critic of what he claims is an unsustainable property bubble fueling China’s economy. According to Chanos, up to sixty percent of China’s Gross Domestic Product is based solely on construction and he warns that by late 2010, or early 2011, the bubble could burst.
China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”
Source: Bloomberg
Oil fell by more than a dollar a barrel after gaining a dollar yesterday on news that US inventory levels of crude oil could exceed expectations. Investors also returned to the perceived safety of the US dollar to avoid more volatile commodity assets.
“The strength of the dollar is probably the most important factor driving commodities in general and oil in particular,” said Commerzbank commodities analyst Eugen Weinberg. “Equity markets are down in Asia and Europe and there is a feeling that recent price increases may have been overdone, that despite the economic recovery, the current oil supply and demand situation probably does not justify the recent rise in prices.”
Reuters
Oil fell by more than a dollar a barrel after gaining a dollar yesterday on news that US inventory levels of crude oil could exceed expectations. Investors also returned to the perceived safety of the US dollar to avoid more volatile commodity assets.
“The strength of the dollar is probably the most important factor driving commodities in general and oil in particular,” said Commerzbank commodities analyst Eugen Weinberg. “Equity markets are down in Asia and Europe and there is a feeling that recent price increases may have been overdone, that despite the economic recovery, the current oil supply and demand situation probably does not justify the recent rise in prices.”
Reuters