2010/08/20 22:43*DJ Bank Of Mexico Leaves Overnight Rate Unchanged At 4.50%
2010/08/20 21:56DJ France Cuts 2011 GDP Growth Forecast To 2% From 2.5%
PARIS -French President Nicolas Sarkozy Friday downgraded the government's forecast for 2011 growth, but said cutting the public deficit to 6% of gross domestic product next year remains a major objective. The government now forecasts economic growth of 2% in 2011, compared with a previous forecast of 2.5% that was considered unrealistic by many economists. In a statement, the presidency said the new 2% forecast for 2011 is in line with the view taken by the Organization for Economic Co-operation and Development. 'The reduction of the deficit should be obtained by cutting spending as a priority. Neither income tax, nor VAT [value-added tax], nor business taxes will be raised,' the statement said. The government targets cutting the public deficit from an expected 8% of GDP in 2010 to 6% in 2011 and 4.6% in 2012, before reaching 3% in 2013. The statement follows a meeting at Sarkozy's summer residence Friday morning with key members of the government, including Finance Minister Christine Lagarde, Prime Minister Francois Fillon and Budget Minister Francois Baroin. Sarkozy reiterated previous announcements on spending-cut targets, and said that EUR10 billion of tax exemptions will be eliminated in the autumn. For 2010, Sarkozy said the government will meet its target of 1.4% GDP growth, or even beat it.
2010/08/20 21:36=DJ WORLD FOREX: Euro Falls To 1-Month Low Vs. Dollar On Dovish ECB Comments -3-
NEW YORK -The euro fell to a one-month low against the dollar Friday after an European Central Bank official suggested monetary policy should remain loose until next year, putting a spotlight on a still-nascent recovery propped by stimulus. A recent stream of weakening U.S. economic data also continued to reverberate through markets, sending currencies closely tied to the pace of global growth, such as the Australian and Canadian dollars, lower against the greenback, which investors sought for its perceived safety. 'Even though policy will remain loose globally,' in light of worries of a slowdown in the U.S. economy, 'the lack of a confirmed recovery globally will weigh on sentiment for the medium term,' said Geoffrey Yu, currency strategist at UBS in London. Along with the dollar, the safe-harbor yen and Swiss franc also benefited from investors turning their backs on riskier assets. Early Friday, the euro was at $1.2707 from $1.2820 late Thursday, according to EBS via CQG. The dollar was at Y85.34 from Y85.29, while the euro was at Y108.48 from Y109.40. The U.K. pound was at $1.5520 from $1.5606. The dollar was at CHF1.0356 from CHF1.0325. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 83.048 from 82.437. The speed of the European Central Bank's withdrawal from its anti-crisis measures will depend on the health of the euro area's banks, Deutsche Bundesbank President Axel Weber said in an interview with Bloomberg TV on Friday, according to a transcript of the interview made available to Dow Jones Newswires. Weber's comments suggest that even hawks on the ECB's governing council are still more concerned about the fragility of the euro area's banks, which investors worried could be infected by the region's sovereign-debt crisis, than they are about inflation. Weber said it would be 'wise' not to change the bank's policy of providing unlimited liquidity at its three-month refinancing tender in October, and said that 'most of the discussions about the continuation of the exit will be focused in the first quarter,' noting it was too early to say the euro zone had crawled its way from under the cloud of crisis. With the euro breaking below $1.2735, the path is now clear for a decline toward $1.2605 and perhaps down to $1.2490, according to a BNP Paribas technical analysis. The euro slumped to its lowest level since early July against the Swiss franc as investors ditched the common currency for the perceived safety of the Swiss currency, which also has attracted investors because of solid domestic economic performance. Investors are likely to push the euro down further against the franc, said Credit Suisse analysts, testing whether the Swiss central bank will intervene to stem its currency's strength, as had been the bank's recent practice. Meanwhile, talk of possible intervention also surrounded the yen, against which the dollar dropped overnight to flirt near the 15-year low of Y84.72 marked last week before rebounding in New York trading. While few dealers in Japan expect the Ministry of Finance, which has authority for any decisions on intervention, to wade into markets at current levels, they say the government could try to extract more monetary easing from the central bank. Canada Morning The Canadian dollar was weaker Friday morning after succumbing to the movement away from riskier assets and currencies. It showed little sustained reaction to news that Canadian consumer price index data for July fell short of expectations and pointed to subdued inflation that month. The U.S. dollar was trading at C$1.0481 from C$1.0388 late Thursday. It spiked briefly to a high of C$1.0509, its highest level since July 20, in choppy trading immediately after the CPI data, but was unable to maintain its break above C$1.0500. Statistics Canada reported that the core CPI actually dipped by 0.1% in July, while rising 1.6% on an annualized basis compared to the forecast of a 1.8% increase. All-items inflation rose by 1.8%, lower than the 1.9% forecast.
2010/08/20 21:09DJ ECB's Weber: Exit Speed To Depend On Banking System -Bloomberg
2010/08/20 21:08DJ Japan PM: Government Can Boost Economy Without Fiscal Spending -Kyodo
TOKYO -Prime Minister Naoto Kan indicated Friday that the government could limit as much as possible its fiscal spending under the envisaged fresh stimulus package to boost the country's economy, by addressing flagging consumer and business spending as well as the stronger yen, Kyodo News reported the same day. 'Of course we have to consider fresh fiscal spending,' Kan told reporters. But he also said, 'It seems possible to boost demand or stimulate the economy without depending on fiscal spending.' He picked as an example the government's easing of its rules on issuing visas for Chinese tourists, a policy widely expected to boost retail sales in Japan.
2010/08/20 20:59DJ ECB's Weber: Exit Speed To Depend On Banking System -Bloomberg
FRANKFURT -The speed of the European Central Bank's withdrawal from its anti-crisis measures will depend on the health of the euro area's banks, Deutsche Bundesbank President Axel Weber said in an interview with Bloomberg TV Friday. A transcript of the interview was made available to Dow Jones Newswires. 'I think it's clear that we need to re-embark on a normalization procedure, phasing out the exceptional measures,' Weber said, 'But that will not be a time-dependent or an auto-pilot driven process; it will be very state-dependent on the health of the financial system and the banking system.' Weber said it would be 'wise' not to change the bank's policy of providing unlimited liquidity at its three-month refinancing tender in October, and said that 'most of the discussions about the continuation of the exit will be focussed in the first quarter.' Website: www.bloomberg.com
2010/08/20 20:33DJ Fed Call: No Operations Scheduled, Fed Funds Rate At 0.2000%
NEW YORK -The Federal Reserve has no operations scheduled Friday, according to a note by Wrightson ICAP. Around 8:25 a.m. EDT (1315 GMT), the federal-funds rate was last quoted at 0.2000%, compared with the Fed's target rate of zero to 0.25%.
2010/08/20 19:52=DJ DATA SNAP: Canada Annual Core CPI Slows In July
OTTAWA - Canada's annual core inflation rate slowed unexpectedly in July, while the headline rate accelerated on higher gas prices and changes in consumption taxes in Nova Scotia, Ontario and British Columbia. The core consumer price index fell 0.1% month-on-month, following a similar decline in June, pushing the year-on-year rate down to 1.6% from 1.7%, Statistics Canada said Friday. The core CPI strips out eight volatile components, including food and some energy prices. The headline CPI rose 0.5% on a monthly basis, after falling 0.1% previously, driving the year-on-year rate up to 1.8% from 1.0%. The market had expected annual core CPI to rise 1.8% and the headline index to rise 1.9%. The monthly core rate had been expected to rise 0.1% and the headline figure to rise 0.6%. The central bank expects core and headline consumer price inflation to stay near the 2% target through 2012, as excess capacity and slowing wage growth are offset by price pressures from a recovering economy. The Bank has forecast annual core CPI to average 1.8% in the third quarter, with the headline rate at 2.1%. In its latest quarterly Monetary Policy Report in July, the Bank said it expects to hike interest rates gradually, and that further increases will be 'weighed carefully' against domestic and global economic developments. Its next rate decision is scheduled for Sept. 8. StatsCan said gasoline prices in July rose 4.8% from a year earlier, following a 2.9% decline in the 12 months to June. Transportation costs rose 2.7% on a year-to-year basis, up from 1.0% in June, on higher prices for gasoline, passenger vehicles and passenger vehicle insurance premiums. Shelter costs rose 2.9% after increasing 1.6% previously. Prices were up for electricity, homeowner's replacement costs and natural gas. Prices for household operations, furnishings and equipment were up 2.0% from 1.2% in June, while food prices rose 1.1% from 0.7%. Clothing and footwear prices fell 2.7%. Overall, prices increased in seven of eight major components of the CPI, excluding clothing and footwear. In July, Prices rose in every province except Manitoba, with the largest increase reported in Ontario, where prices rose 2.9% after the Harmonized Sales Tax came into effect, StatsCan said. Prices rose 2.0% in British Columbia and 1.7% in Nova Scotia, the other two provinces that enacted the HST. On a seasonally-adjusted basis, headline CPI rose 0.6% month-on-month, up from 0.2% previously. The Canadian dollar fell slightly after the data were released, with the U.S. dollar moving to C$1.0491 from C$1.0481 just before the release.
2010/08/20 18:05*DJ Japan PM Kan: Govt Can Boost Econ Without Fiscal Spending -Kyodo
2010/08/20 17:03*DJ ECB's Weber: Speed Of ECB Exit To Depend On Banking System
2010/08/20 16:37=DJ MONEY TALKS: The Joys And Pains Of A Global Paradigm Shift
NEW YORK -And now for this week's news, brought to you from what seem like two parallel universes. From Universe One, where all is rosy: -BHP Billiton Ltd. (BHP) offers a massive $38.6 billion for the Potash Corp. (POT), the Canadian miner of a critical ingredient for fertilizer. -Intel Corp. (INTC) says it will spend $7.68 billion to buy computer-security software maker McAfee Inc. (MFE). From Universe Two, where all is gray: -Initial U.S. jobless claims for the week of Aug. 14 hit 500,000, their highest level since November. -The Philadelphia Federal Reserve's August business index shows a sharp, unexpected contraction. In fact, these news items come from a single universe, one that's more in sync with itself than the otherwise contradictory headlines suggest. In a high-tech, globalized economy in which economic power is shifting from high-wage, advanced countries to low-wage developing countries, it's perfectly reasonable for companies in some sectors to see big growth opportunities while others are so squeezed that they're laying off workers. The deflation threat that's now driving Treasury yields ever lower is not just a U.S. cyclical phenomenon. It's global. That's a depressing thought if you're an American worker in a business that's outsourcing your job to India or China to protect shrinking margins. But it's good news for aspiring middle-class Indians, Chinese and Brazilians. And by default that's good news for businesses poised to tap their newfound spending power--business like Potash and McAfee. Adding tens of millions to the world's middle class drives up demand for food, and thus for fertilizer. It also fuels demand for consumer telecommunications devices and broadens the international connectivity that facilitates the entire globalization process, which in turn calls for more and better Internet security. Globalization has been going on for well over a decade, but it's now entering a challenging new phase. In part that's because developing world spending power is reaching a critical mass. It's also because the movement to emerging markets increasingly involves services as well as manufacturing, which means a bigger chunk of middle class American jobs are at stake. But it's also because the shift is happening at the worst possible moment for U.S. households. With their foreclosed homes, their soaring health costs, and their fruitless job searches, it makes U.S. consumers even less willing to spend, which puts added downward pressure on prices and feeds the global deflation spiral. One way to think about all this is what some people call the 'China price,' the idea that firms are now compelled to compete according to a new low international benchmark, one that inherently requires them to go overseas. The equilibrium market price--for both goods and wages--is now an international price. Trying to manage that is extremely difficult--nay, impossible--with the normal tools of domestic policy: monetary stimulus, tax cuts, or fiscal spending. It is really why we're in a 'jobless recovery.' Weak growth is not just payback for America's debt-funded spending binges, or a response to some vague notion of business 'uncertainty' over tax policy. It's because the 'slack' that Federal Reserve officials cite as a reason for low inflation does not merely refer to post-recession overcapacity in the U.S.; it's global slack, and lower-paid developing world workers are racing to fill it. Investors who recognize this big secular trend have two choices: They can hedge against the deflation threat, or they can tap into its growth opportunities. Buyers of Treasurys are doing the first, companies like BHP and Intel are doing the second.
2010/08/20 16:14DJ German Ministry: Government's 2010 Growth Forecast To Be Raised
BERLIN -Germany's powerful economic growth in the second quarter will prompt a considerable hike to the government's forecast for gross domestic product growth across 2010, and growth continued at the start of the third quarter, the finance ministry said Friday. The ministry said in its August monthly report that growth of 2.2% in the second quarter compared with the previous quarter shows that the economy is on track to grow far more in 2010 than the government's current official estimate of 1.4%, even if the demand for German exports that drove the record growth drops somewhat in the second half of this year. 'The foreign demand for German industrial goods is oriented firmly upward,' the ministry said. 'The recovery in Germany will once again be led by dynamic development in exports.' The government is due to update its growth forecast in October, and economics minister Rainer Bruederle has said the new target could be above 2%, in line with the predictions of many research institutes. Wolfgang Franz, a key economic advisor to the German government, told Dow Jones Newswires Tuesday that growth for 2010 could even pass 3%. While export demand could suffer in the second half of the year, the ministry said the third quarter had begun strongly. 'Monthly economic indicators signal that the German economy started the third quarter favorably,' the ministry said. Regarding tax revenues and the government's 2010 budget, the ministry said evidence is mounting that the government will have to borrow EUR15 billion less in new debt than the EUR80.2 billion penciled into the 2010 spending plan. 'The expectation that new borrowing will be undercut by at least EUR15 billion is strengthening,' the ministry said. The ministry's report showed that tax revenues were down 0.9% in July compared with the same month in 2009. Federal tax revenues were also down, by 5.7% compared with the same month a year ago.
2010/08/20 15:40DJ Tokyo Shares End Lower; Exporters Weak, Market Eyes BOJ Action -2-
TOKYO -Tokyo shares ended sharply lower Friday as exporters such as Sony and Canon lost ground on the back of a steep fall in U.S. stocks, while exporters with high European exposure were dragged down by the euro's fresh seven-week low. The market stayed weak throughout the day after disappointing U.S. employment and manufacturing data weighed on U.S. equity markets overnight, while investors concerns over the strong yen also dragged on stocks. The selling picked up after the midday break once investors saw that an emergency Bank Of Japan meeting would likely not take place Friday. The Nikkei 225 Stock Average fell 183.30 points, or 2.0%, to 9179.38. The Topix index of all the Tokyo Stock Exchange First Section issues fell 14.39 points, or 1.7%, to 829.59. Media reports said that Prime Minister Naoto Kan and BOJ Governor Masaaki Shirakawa may meet Monday to exchange views on how to deal with the yen's recent surge. 'The market probably won't go either up or down more sharply until there is some kind of action by the country's authorities,' said Hikaru Sato, senior technical analyst at Daiwa Securities Capital Markets. Sato said that the Nikkei may move between 9000-9500 depending on what kind of action, if any, the BOJ takes. September Nikkei 225 futures closed down 200 points, or 2.1%, at 9160 on the Osaka Securities Exchange. Exporters were weak, with Sony dropping 2.5% to Y2,538, Canon falling 2.2% to Y3,600 and Toyota Motor shedding 1.8% to Y3,030. The dollar was hovering near 85.30 during Asian trading hours after dropping to Y84.89 overnight, near its 15-year low of Y84.72 marked last week. Nippon Sheet Glass, which has relatively high exposure to Europe, lost 6.5% to Y203 due to the weak euro, which fell to as low as Y109.02. 'Falling LCD output in China is (also) souring sentiment in the stock,' said a fund manager at a Japanese asset management firm. A Nikkei report saying that Sharp plans to cut LCD panel production for 1-2 months, starting later in August, also weighed on the stock. Sharp shed 2.7% to Y853. Meanwhile, Trend Micro bucked the overall market weakness, rising 4.5% to Y2,281, after Intel agreed to buy security software provider McAfee for $7.68 billion, a surprise deal at a 60% premium. Traders said that the deal raises hopes that demand for security software may rise, and Trend Micro is one of the few Japanese companies specializing in this area.
2010/08/20 15:29DJ JGBs Up; Yen's Sharp Gains Raise Expectations For More BOJ Easing
TOKYO -Japanese government bonds ended higher across the curve Friday as the yen's sharp rise overnight heightened expectations for more monetary easing by the Bank of Japan. Government bonds are expected to keep getting a boost from concerns about a slowing global economy and the reactions by overseas markets to this view. "JGB moves will likely rest on overseas factors such as the performance of U.S. Treasurys, while many players have factored in the possibility of additional (BOJ) monetary easing," said RBS Securities chief rates strategist Akito Fukunaga. Fukunaga expects the benchmark 10-year cash JGB yield to trade in a 0.870%-0.950% range next week with a downward bias if persistent uncertainty over the global economy drags down U.S. Treasury yields. The 10-year JGB yield was down 0.5 basis point at 0.925%, as of 0600 GMT. On Friday, the policy-sensitive five-year JGB yield also fell as low as 0.245%, the lowest since June 2003. Shorter-dated JGB yields will likely remain at "the current depressed levels for now," even if the BOJ doesn't hold an emergency policy meeting, said Chotaro Morita, chief strategist at Barclays Capital. The BOJ will stay under pressure to do something at some point anyway to ease the impact of the recent yen's surge on the domestic economy, he said. Morita expects corporate earnings at the end of September to "take a hit" if the dollar remains around Y85. If the government and the BOJ want "a big announcement effect" to push down the yen, the central bank could take easing action at the same time the government compiles an additional economic stimulus package, he added. The greenback fell to Y84.89 overnight, near the 15-year-low of Y84.72 it visited last week. At 0600 GMT, the dollar was at Y85.33. Meanwhile, some analysts expect superlong JGBs to be capped early next week due to caution ahead of Tuesday's 20-year JGB sale. Japan's Ministry of Finance is slated to sell Y1.1 trillion of 20-year bonds Tuesday.
2010/08/20 15:17=DJ UPDATE: Japan Finance Minister Maintains Calm Tone On Yen
TOKYO -Japan's finance minister maintained the tone of his comments on the currency markets Friday after the yen surged overnight to a near 15-year high against the dollar, suggesting Tokyo is still some way from taking action to arrest the yen's rise.'I am watching the foreign exchange markets with great interest, and will keep following (the yen's movement) very carefully,' Yoshihiko Noda said at a regular press conference.The minister declined to comment on the possibility of intervention, but the unchanged tone of his comments suggests Japanese officials are still monitoring the forex markets, with direct action to stem the rising yen still some steps away.Other members of the government voiced concerns Friday about the impact of the stronger yen--Economy Minister Satoshi Arai said that recent moves in the Japanese unit were 'a little too excessive'--but investors pay most attention to comments from Finance Minister Noda as he ultimately gives the cue for any market intervention.The dollar slid to Y84.89 in New York Thursday after the release of gloomy U.S. economic data, near its 15-year low of Y84.72 on EBS marked on Aug. 11. At 0451 GMT, the greenback had recovered to Y85.29.Speculation is growing that Japan's prime minister Naoto Kan may meet with Bank of Japan Gov. Masaaki Shirakawa on Monday to discuss the impact of the yen's rise on Japan's export-reliant economy, possibly leading to further easing of the BOJ's already-loose monetary policy.However, speculation that BOJ policy board members would hold an emergency meeting Friday to discuss looser monetary conditions in advance of any top-level meeting on Monday appeared to be misguided.Noda said he 'does not know' whether Kan and Shirakawa will meet next week, but said he wants the government and the central bank to cooperate closely to help the economy.To prop up growth, the government recently expressed its willingness to compile a fresh package of economic stimulus measures. Noda said he will give his analysis of economic conditions, including the yen's impact on the economy, to the prime minister next week.Earlier this week, the Cabinet Office reported that the country's gross domestic product slumped in the April-June period to an annualized pace of 0.4% from 4.4% in the previous quarter.
2010/08/20 14:59DJ Forex Options: Dollar/Yen Options Up On View Spot May Breach Y85
TOKYO -Dollar/yen currency options rose in Asia Friday due to mounting expectations that the underlying exchange rate could fall below the key Y85.00 level in the near term, fueling demand for downside protection. But further gains in volatilities aren't likely as long as the spot stays in the recent range of Y85.00 to Y86.00, said an options dealer at a major Tokyo brokerage. As of 0440 GMT, the dollar stood at Y85.31, compared with Y85.29 overnight. Benchmark one-month at-the-money volatilities climbed to 10.70%/11.40%, compared with 10.55%/11.25% in New York Thursday. Traders are paying close attention to the possibility that Japan's central bank may take action to curb the yen's recent appreciation, the dealer said. Local media have reported that Bank of Japan Governor Masaaki Shirakawaa and Prime Minister Naoto Kan may meet to discuss possible steps to curb the yen, or to stimulate the economy, and that the BOJ may convene an emergency meeting. However, it isn't certain whether such meetings will actually take place. While no major deals were struck in Tokyo, some players were interested in buying dollar-call/yen-put contracts with Y86.00 and Y86.50 strike prices, which expire in two weeks, the dealer added.
2010/08/20 14:25=DJ WORLD FOREX: Euro Hits 7-Week Low Vs Yen As Equities Slump -3-
TOKYO -The euro fell to a fresh seven-week low against the yen in Asia Friday as slumping share prices prompted hedge funds and other short-term investors to sell the risk-sensitive common currency. The dollar also gave up earlier gains against the yen after Japanese government officials indicated they aren't increasing pressure for now on the central bank to take further steps to temper the country's recently strong currency. The euro and dollar could fall further against the safe-haven Japanese currency later in the global day if European and U.S. share markets are also weak, dealers said. Further gains in the yen look increasingly likely with speculation receding over possible moves by Japanese authorities to curb the unit's strength. Such speculation had mounted Friday morning in Tokyo after the dollar dropped to Y84.89, near the 15-year low of Y84.72 marked last week. While few dealers in Japan expect the Ministry of Finance, which has authority for any decisions on intervention, to wade into markets at current levels, they say the government could try to extract more monetary easing from the central bank. But Japan's economy minister Satoshi Arai said in Tokyo that although the government needs to cooperate closely with the Bank of Japan, it had nothing specific to ask the central bank for now. Finance Minister Yoshihiko Noda said he didn't know if Prime Minister Naoto Kan would meet BOJ Gov. Masaaki Shirakawa next week, despite local media reports such a meeting could be held Monday. Economy minister Arai also said that he and Prime Minister Kan had not discussed any specific additional economic stimulus measures. Dealers say any such measures, if enacted, could eat into demand for the safe-haven yen. 'No concrete details or announcement has come out (from the BOJ) and the government hasn't said when it might implement economic stimulus steps,' said Hirotsugu Inoue, a senior trader at UBS. If share markets in Europe and the U.S. also slump later, the dollar could drop to Y84.50 by the end of the day, said Satoshi Okagawa, a senior dealer at Sumitomo Mitsui Banking Corporation. The euro could fall to Y109.00, other dealers said. Japan's benchmark Nikkei Stock Average was down 1.76% in afternoon trade, leading falls in other Asian bourses. At 0450 GMT, the dollar stood at Y85.29, unchanged from its level late Thursday in New York. The euro traded hands at Y109.17, down from Y109.40. Meanwhile, the common currency was at $1.2801 from $1.2820. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies including the euro, was at 82.538 compared with 82.437.
2010/08/20 12:17DJ Japan Economy Minister: No Talk With PM On Concrete Stimulus Steps
TOKYO -Japan's economy minister Satoshi Arai said Friday there had been no talk of concrete economic stimulus steps during his one-on-one meeting with Prime Minister Naoto Kan. 'I exchanged views on current economic conditions with the prime minister and we talked about what is needed to protect the seeds of an autonomous recovery. But we didn't talk about concrete steps today,' Arai told a regular a press conference. Arai met privately with the prime minister prior to the press conference, as part of a series of meetings Kan is holding with economy-related ministers about economic stimulus steps expected to be introduced soon.
2010/08/20 11:30DJ Japan Finance Minister: Watching Forex With Great Interest
TOKYO -Japan's finance minister Yoshihiko Noda said Friday that he is watching the currency market closely, reiterating his recent comments even after the yen neared a 15-year high overnight, suggesting the government is not considering imminent action to stem the surge. 'I am watching the foreign exchange market with great interest, and will to keep following (the yen's movement) very carefully,' he said at a regular press conference. At 0320 GMT, the dollar stood at Y85.49, higher than the Y84.89 it touched on Thursday
2010/08/20 09:12=DJ FOREX VIEW: Canada Braces For Outsize Headline CPI
TORONTO -With Canada's consumer price index due Friday, analysts are bracing themselves for a shocker. The headline figure is likely to show a considerable jump because of a new sales tax structure in place in Ontario and British Columbia, Under the change, a broader range of goods and services have become subject to sales tax. There is a chance that, in the initial flushes after the data are released, investors could rush to buy the Canadian dollar, believing that the outsize rise in the inflation rate would nudge the Bank of Canada further down its path of monetary tightening. Higher Canadian interest rates make the Canadian dollar more attractive to investors from abroad. Expectations of future rate increases have been particularly volatile in recent weeks, in part because markets know the bank is sensitive to both external and domestic developments. 'There might be a nervous initial reaction to the jump in the headline number,' said Paul Ferley, assistant chief economist at RBC Financial Group in Toronto. But the knee-jerk reaction will be quickly followed by various reports explaining the jump in the year-over-year rate just reflects the tax increase and wouldn't signal a general deterioration in inflation, Ferley said. Ahead of the monthly data, BMO Capital Markets is estimating that the recent tax changes will add 0.7 of a percentage point to the overall price level for July. When factored together with an increase in underlying prices, BMO is calling for an overall inflation rate of 2.1% for July, from 1% in June. It will be important to look past the headline CPI number, and focus on the core inflation rate, which strips out the tax effect, analysts caution. CPI is an important piece of the economic puzzle, watched closely by economists and central banks. 'For policy purposes, the bank would view [the headline CPI figure] as a one-time adjustment to the price level,' Ferley said. 'It shouldn't affect the underlying inflation rate.' Canada's central bank has raised its key overnight target interest rate by 50 basis points since June, and remains the only central bank among the Group of Seven leading nations to embark on monetary tightening since the onset of the global financial market crisis in 2008. Since beginning tightening, the bank has emphasized the cautious and context-sensitive nature of the cycle. On Thursday, the overnight-indexed swaps market, considered the most accurate measure of market expectation, was pricing in just less than a 50% chance of a rate increase when the Bank of Canada meets on Sept. 8. That is a retreat from near certainty earlier this month. The decline also reflects some weak Canadian and U.S. data in the intervening period. Core and total consumer price index inflation have been expected to stay near the 2% target through 2012 as price pressures stemming from a recovering economy are balanced by excess capacity and slowing wage growth. The bank has said the impact of lower energy prices on total CPI would be partly offset by a weaker Canadian dollar. Even if the core CPI is out of whack, it might not resonate much through the markets anyway, given the more prominent factors current at play. 'It seems to me, the market is much more focused on the U.S. economic outlook and the risks of the U.S. economy sinking again,' said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto.
2010/08/20 08:27DJ Fed's Bullard: Economy, Core Inflation Lower But 'Manageable'
The U.S. economy's outlook has weakened and core inflation is lower, but both are in manageable situations, according to Federal Reserve Bank of St. Louis President James Bullard, who warned Thursday against the Federal Reserve rushing into more monetary stimulus.Bullard, who made waves last month with a paper calling on the Fed to focus on new asset purchase instead of interest rate policy as way to avoid a Japan-like deflation trap, suggested that the modest moves the Fed made last week in that direction are enough for now.Speaking at a conference in Rogers, Ark., Bullard said any additional quantitative easing undertaken by the FOMC should be a disciplined reaction to further disinflation risks, beyond the currently 'manageable' low-inflation environment.'Large, sudden purchases rarely are optimal,' he said, according to a press release summarizing the main points of his remarks. ''Shock and awe' is almost never a good way to proceed.' His comments come one week after the Fed announced a modest shift in monetary policy in which it pledged to use the proceeds from expiring mortgages in its securities portfolio to buy additional Treasury securities and, in this way, keep its balance sheet constant at $2.05 trillion. It also comes amid fresh negative economic news Thursday, with the Labor Department reporting that initial jobless claims spiked to 500,000 in the latest week, its highest level since November, and the Philadelphia Fed's business activity survey showing an unexpected contraction in August. Bullard, who is currently a voting member of the Fed's policy-setting Open Market Committee, suggested that the shift was enough and that the Fed should wait before doing something more dramatic that would actually increase the size of its balance sheet. Nonetheless, he urged his colleagues to focus intently on avoiding a situation in which U.S. inflation trends start to look like the deflation trap that the Japanese economy is in. 'Policy actions should be commensurate with the risks that the economy faces. A series of smaller policy actions can add up to a large action, but only if incoming data suggest that as the appropriate course,' he said. 'Purchase size should be in proportion to the size of any deterioration in the outlook.'***********The St. Louis Fed press release added, 'A key goal of the program should be to keep core inflation in the U.S. from falling close to levels observed in Japan.'Bullard also highlighted the sovereign debt crisis in Europe, noting that it 'has abated somewhat but remains a factor in the global economic mix.
2010/08/20 07:34DJ Fed's Bullard: Lower Interest Paid On Reserves A Dead-End Policy
ROGERS, Ark. -St. Louis Federal Reserve Bank President James Bullard said Thursday that lowering the interest rate on excess reserves kept at the central bank is 'a dead-end policy' that wouldn't be effective. Federal Reserve Chairman Ben Bernanke has said lowering the rate on excess reserves was one option for boosting the economy. Reducing the rate would encourage member banks to withdraw the reserves from the central bank, and instead loan the money to businesses and households. Bullard has been a leading proponent of another option--reviving quantitative easing, which includes the purchasing of U.S. Treasurys. The Fed took a modest step in that direction Aug. 10, announcing it would reinvest proceeds from maturing mortgage-backed securities into Treasury bonds. Bullard said on Thursday that no further purchases were needed at this time, but reiterated that the Fed should signal its willingness to do so if necessary. Bullard, who has also expressed concern about the Fed's promise to keep its target for the fed funds rate near zero for an 'extended period,' arguing it could encourage Japan-style deflation. A voting member of the interest-rate setting Federal Open Market Committee, Bullard said that it was better practice to persuade his colleagues rather than dissenting in FOMC votes. 'The tradition is you argue vociferously, then rally around the chairman.' Bullard said he had no initial reaction to two fresh pieces of economic news released Thursday. The Labor Department reported that initial jobless claims spiked to 500,000 in the latest week, the highest level since November, and the Philadelphia Fed's business activity survey showed an unexpected contraction in August.
2010/08/20 07:28DJ BOJ Still Assessing Economic Impact Of Stronger Yen - Report
TOKYO -The Bank of Japan is still assessing the economic effect of the yen's rise to a 15-year high, Bloomberg News reported Friday, citing three people familiar with the matter. Data released since the central bank kept policy unchanged on Aug. 9-10 don't suggest that economic conditions have suddenly deteriorated, Bloomberg cited one of the people as saying. One of the people indicated that holding an emergency meeting wouldn't be as effective as it was in December, when the yen's surge to the highest level since 1995 caused business sentiment to worsen rapidly and investors were concerned about the risk of a double-dip recession.
2010/08/20 06:03DJ US Fed Total Discount Window Borrowings Wed $61.92 Bln
WASHINGTON -The Federal Reserve's balance sheet shrunk slightly in the latest week as higher U.S. Treasury holdings were offset by lower holdings of mortgage-backed securities.The U.S. central bank said in data released Thursday that its asset holdings in the week ended Aug. 18 fell to $2.317 trillion from $2.331 trillion a week earlier.Facing a slowing economy, central bank officials last week decided to reinvest the proceeds of maturing mortgage-backed securities the Fed held into U.S. Treasurys so as to keep its portfolio stable and avoid any tightening of financial conditions.Holdings of U.S. Treasurys rose to $779.55 billion as of Aug. 18 from $777.01 billion as of Aug. 11. Mortgage-backed securities holdings dropped to $1.113 trillion from the previous week's $1.119 trillion level.The report also showed that commercial bank borrowing from the Fed's discount window remained low, rising to $57 million as of Wednesday from just $1 million a week earlier. Total discount window borrowing was broadly unchanged at $61.92 billion from $62.23 billion.Meanwhile, U.S. government securities held in custody on behalf of foreign official accounts rose to $3.189 trillion from $3.174 trillion in the previous week.U.S. Treasurys held in custody on behalf of foreign official accounts as of Wednesday rose to $2.366 trillion from $2.342 trillion in the previous week.Holdings of agency securities dropped to $823.08 billion from the prior week's $832.74 billion.Further data on the Fed's balance sheet, including a breakdown of district-by-district discount window borrowing, can be found at http://federalreserve.gov/releases/h41/current/h41.pdf.
2010/08/20 05:56=DJ WORLD FOREX: Dollar Up Vs Higher-Yielding Rivals As US Stocks Tank
NEW YORK -The dollar gained against the euro and most other higher-yielding currencies Thursday after deepening fears about the country's slow pace of recovery sent investors to traditional safe harbors. Disappointing U.S. employment and manufacturing data weighed on U.S. equity markets and led to losses for currencies closely tied to global growth, such as the Australian, New Zealand and Canadian dollars. 'In general, there's a lack of conviction' in currency markets, as poor U.S. data has investors wondering whether further deterioration in the U.S. economy is ahead, said Alvise Marino, foreign exchange strategist at Credit Suisse in New York. 'Investors are unwilling to pile into positions, until they see where the economy is going,' he said. Low summer trading volumes may have exacerbated intraday currency movements, analysts said. Late Thursday, the euro was at $1.2820 from $1.2860 late Wednesday, according to EBS via CQG. The dollar was at Y85.29 from Y85.43 after falling as low as Y84.89. The euro was at Y109.40 from Y109.87. The U.K. pound was at $1.5606 from $1.5605. The dollar was at CHF1.0325 from CHF1.0420. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.437 from 82.259. To see the euro's performance against the dollar, please see: http://dowjoneswebservices.com/chart/view/4458 The Philadelphia Fed index fell to -7.7 in August compared to 5.1 in July, and economists' expectations of a 7.0 reading. U.S. initial unemployment claims also disappointed, rising by 12,000 to 500,000 in the week ended Aug. 14. It was the highest level since Nov. 14, and further stoked fears about the country's already weak labor market. The rise in claims was particularly troubling because, with no seasonal factors affecting the week's results, economists had expected to see a decline. In previous weeks, analysts said data were likely distorted by seasonal adjustment factors tied to factory shutdowns by car makers and the hiring and firing of temporary workers for the 2010 Census. The Canadian, Australian and New Zealand dollars all fell following the release of the data. Regional factors such as weak wholesale sales in Canada, rising input prices in New Zealand and the news that Fitch Ratings and Standard and Poor's placed mining giant BHP Billiton's A+ rating on watch also weighed on the commodity-backed dollar bloc. The greenback's losses against the yen after the U.S. data were likely limited by talk of possible intervention by Japan to stop the appreciation of the yen that is causing alarm among Japanese exporters, said Hidetoshi Yanagihara, currency strategist at Mizuho Corporate Bank in New York. 'Everybody will think about the possibility of the intervention,' he said, noting there has been no clear signal from Japanese authorities on future action. Still, speculation continues that the Bank of Japan may intervene in currency markets or ease monetary policy should the yen rise further or government pressure increase. Separately, the Malaysian ringgit surged to a near 13-year high and may scale new heights in the next few months after the country's central bank eased foreign exchange rules further by allowing companies to use the currency to settle international trade, dealers said. Adding fresh impetus to the currency's move, China started trading the Malaysian ringgit against the yuan on its domestic interbank foreign exchange market Thursday, as part of its efforts to internationalize the Chinese currency and boost cross-border trade. With the ICE Dollar Index strengthening, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was down 0.19% from late Wednesday, while its PowerShares U.S. Dollar Index Bullish was up 0.21%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE's Dollar Index.
2010/08/20 03:22=DJ Fed's Bullard: No Tax Increase Now; Labor Reallocation Is Key
ROGERS, Ark. -St. Louis Federal Reserve chairman James Bullard said Thursday that labor reallocation is a key challenge to lowering the U.S. unemployment rate, as workers displaced by collapse of the housing market struggle to find new work.In a lunch question-and-answer session Rogers, Ark., Bullard said he would not assert that the U.S. should get used to a higher unemployment rate for the long term.But he said there were too many workers in the housing sector when home prices tumbled, and that matching employers' need with employees' skills has been a challenge."That's not solved through the normal business cycle," he said.Bullard also said he does not support a tax increase, saying it could harm the economic recovery. He acknowledged that while an increase may be on the agenda for some policy markets, "I wouldn't do it right now."The comments came after a double dose of negative economic news Thursday morning. The Labor Department reported that initial jobless claims unexpectedly spiked to 500,000 in the latest week, its highest level since November, and the Philadelphia Fed's business activity survey showing an unexpected contraction in August.His comments come one week after the Fed announced a modest shift in monetary policy in which it pledged to use the proceeds from expiring mortgages in its securities portfolio to buy additional Treasury securities and, in this way, keep its balance sheet constant at $2.05 trillion.Bullard has become a leading proponent of this "qualitative easing," but said no further purchases are needed at the moment."I don't think we need to do anything right now, but we should be ready," he said.
