Forex Research

U.K. Manufacturing Sector growth slows in September, prompting manufacturers to lay off workers, against backdrop of uncertain global outlook. Eurozone manufacturing also lost momentum and output from Chinese factories continued to fall…

Powered by Guardian.co.ukThis article titled “UK manufacturing sector suffers job losses for first time in two years” was written by Julia Kollewe and Katie Allen, for theguardian.com on Thursday 1st October 2015 18.52 UTC

Tough export markets and weaker consumer spending continued to take their toll on UK factories last month, prompting the first job losses for the sector in more than two years, according to a survey that echoed signs of manufacturing weakness around the world.

The performance at UK factories was lacklustre in September, when growth slipped to a three-month low. Against the backdrop of warnings about the uncertain outlook for global growth, eurozone manufacturing also lost momentum and output from Chinese factories continued to fall.

For the UK, the first snapshot of manufacturing performance in September continued a downbeat trend. The key measure of factory activity slipped back to within a whisker of June’s two-month low, according to the Markit/CIPS manufacturing PMI report.

At 51.5 the main balance was still above the 50-mark that separates growth from contraction, but it marked a slowdown from 51.6 in August and economists said it would further convince policymakers at the Bank of England to hold off from raising interest rates from their current record low of 0.5%.

The survey reported manufacturing job losses for the first time since April 2013.

“Job cuts send a signal that manufacturers are becoming more cautious about the future, which may lead to a further scaling back of production at some firms in coming months,” said Rob Dobson, senior economist at Markit.

“The ongoing malaise of the manufacturing sector will add to broader growth worries and supports dovish calls for a first rise in interest rates to be held off until the industry returns to a firmer footing.”

The manufacturing sector has been growing for 30 months, according to the survey, but the pace has slowed since the start of the summer. While output growth improved slightly last month, growth in new orders tailed off to the weakest rate seen this year.

Manufacturing growth
Manufacturing growth in the UK. Illustration: Markit/CIPS

Manufacturing growth across the eurozone slowed to a five-month low, according to separate reports from Markit. Its factory PMI for the currency bloc slipped to 52.0 from 52.3 in August. Activity slowed in Germany and Spain, while the French factory sector is expanding again.

The slump at China’s factories also continued, but there were some signs of stabilisation. The Caixin China general manufacturing PMI found that production was still falling, forcing firms to lay off more people. The official manufacturing PMI published by the Beijing government also showed that manufacturing was still contracting, but at a slower rate.

Economists drew links between China’s downturn and the pressures on UK manufacturers already grappling with a relatively strong pound, which makes their goods more expensive to overseas buyers.

“Manufacturing continues to face headwinds from weaker demand from China and emerging markets – where the UK sends up to 15% of its exports – in addition to strength in sterling which is up 15% in effective terms compared to its February 2013 low,” said Kallum Pickering, senior UK economist at Berenberg bank.

He saw little prospect of manufacturing having boosted the wider economy in recent months but was optimistic EU and US demand would help the sector.

“For now, UK manufacturers might see export demand dwindling as the developing world struggles with slowing Chinese demand and weak commodity prices, but in the medium term rising demand from the UK’s biggest and closest trading partners should help underpin a recovery in UK manufacturing,” Pickering added.

Separate UK figures on productivity also pointed to recent weakness in the manufacturing sector. There was a 0.5% fall in factory output per hour in the second quarter, bucking the improving trend for the wider economy, according to the Office for National Statistics (ONS).

Across all sectors, productivity grew by 0.9% from the first to the second quarter on an output per hour measure. That took productivity to the highest level on record, but it was still 15% below where it would have been had pre-downturn trends continued, the ONS said.

Zach Witton, a deputy chief economist at EEF, the manufacturers’ organisation, said: “Today’s data suggests the challenging export environment and weak demand for investment goods in the oil and gas sector has started to take a toll on business confidence.”

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.


USA 

Financial markets focused on the more downbeat indicators of construction and industrial production that some say might be a sign that the UK economy may be losing steam along with its largest trading partner the eurozone…

– >

Powered by Guardian.co.ukThis article titled “Official data points to loss of momentum in UK economy” was written by Katie Allen, for The Guardian on Friday 9th January 2015 16.30 UTC

Further evidence of a slowing British economy came on Friday as official figures showed a surprise drop in construction in November and falling industrial output as oil and gas output declined sharply.

But the data showed a bounceback in factory output that buoyed hopes for the manufacturing sector and good news on exports suggested UK companies could weather troubles in their biggest trading partner, the eurozone.

Financial markets focused on the more downbeat indicators, taking them as the latest evidence the economy lost steam in the final months of 2014. The pound lost ground against the dollar as traders bet the Bank of England would be in no hurry to raise interest rates from their record low, given the mixed signals on the economy.

“Disappointing official data are adding to survey evidence which indicate that the rate of UK economic growth slowed towards the end of last year,” said Chris Williamson, chief economist at data analysts Markit.

“Looking at all of the official statistics and survey evidence currently available, the data collectively point to the economy growing 0.5% in the fourth quarter, down from 0.7% in the third quarter,” he added.

While economists said it was too soon to say whether the slowdown at the end of the year continued into 2015, the latest figures will be unwelcome to the Conservatives as they seek to convince voters that the recovery remains on track.

“On balance, there is further evidence that UK growth is slowing as we head towards the general election,” said Simon Wells, chief UK economist at HSBC.

Among the bright spots for the economy in a clutch of reports from the Office for National Statistics was the news that manufacturing output rose by 0.7% in November, reversing October’s fall and beating economists’ expectations for growth of just 0.3%. On the year, output was up 2.7%.

But the wider industrial sector which also includes utilities, mining and oil and gas production, fell 0.1%. That drop was driven largely by a 5.5% fall in oil and gas output. The ONS said the weakness was partly down to maintenance work at two North Sea oil fields.

Respected thinktank the National Institute of Economic and Social Research said following the latest industrial production numbers it estimated growth slowed to 0.6% in the final three months of last year, after 0.7% in the three months to November 2014.

Separate official figures from the construction sector showed output fell by 2.0% on the month in November, defying economists’ forecasts for growth and contrasting with surveys of the sector.

The news on trade was more encouraging, however, as the ONS reported the narrowest trade deficit since June 2013.

The manufacturing sector is still not back to its pre-crisis strength and exports have not grown as fast as the government would have hoped. Progress has been slow in the government’s push to rebalance the economy away from overdependence on domestic demand, but some economists are predicting a strong 2015 for manufacturing.

A drop in oil prices to their lowest level in more than five years has buoyed hopes for the sector. Maeve Johnston at the thinktank Capital Economics cautioned it was far from certain oil prices will remain so low, but the fall should help “reinvigorate the recovery”.

“Indeed, if low oil prices are sustained, it should greatly reduce costs for the manufacturing sector, providing some welcome support over 2015. And sustained low oil prices would also ensure that the improvement in the trade deficit proves to be more than a flash in the pan,” she said.

The trade numbers beat expectations as the ONS reported the goods trade gap narrowed by £1bn to £8.8bn in November, as exports edged down but imports fell faster. Economists had forecast a £9.4bn gap. The less erratic figures for the three months to November showed exports grew by £2bn and imports shrank by £0.5bn.

The details showed exporters continued to benefit from targeting markets beyond the deflation-hit eurozone. Exports to countries outside the European Union increased by £2.1bn, or 6.0%, in the three months to November from the previous three months. Exports to the EU decreased by £0.1bn, or 0.3%. At the same time, the UK recorded its largest ever deficit with Germany, reflecting a decrease in exports and a slight increase in imports.

The trade gap for goods and services taken together fell to its lowest since June 2013, at £1.4bn in November.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

It’s not clear what the European Central Bank can do about the problem. Mario Draghi and his colleagues are faced with a stubborn inflation which remains stuck at 0.8%, well below the central bank’s 2% target for the currency zone…

 


Powered by Guardian.co.ukThis article titled “Inflation is too low in Europe” was written by Phillip Inman, for The Guardian on Wednesday 5th March 2014 22.48 UTC

Mario Draghi is faced with a dilemma. All the signals from the eurozone show a gentle recovery is gaining momentum. Tills are ringing from Madrid to Berlin, while manufacturing in Portugal is beginning to show signs of life. Yet inflation is stuck at 0.8%, well below the 2% target for the currency zone.

The European Central Bank chief is under pressure to follow the Fed and the Bank of England by turning on the cheap money taps. Only a dose of quantitative easing (QE) will boost demand.

Draghi hinted strongly last month that low growth and low inflation reflected a form of economic stagnation he wanted to avoid. Action was necessary, maybe this month. He said: “Right now we have a level of inflation which is way below 2% … We know that the longer it stays at the current level, the higher will be the risk that it will not go back to 2% in any reasonable time and we don’t want that.”

Most likely he will ease the situation a little. Will there be a rate cut ? Probably not. And QE is out of the question. Maybe a little behind-the-scenes fiddling with ECB bond purchases to cut lenders’ costs.

It’s a nice problem to have, though. A better economic scenario would also avert a row brewing with the Germans over his OMT lifeboat scheme for bankrupt eurozone members. Portugal will exit its rescue scheme in May, and Greece seems solidly ring-fenced. Still, it’s not clear how Draghi can, by himself, create enough demand to push up inflation.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Financial policy committee ‘concerned about potential risks to financial stability’ from possible housing bubble. Bank of England policy makers agree to “closely monitor housing market indicators covering house price affordability and sustainability”…

 


Powered by Guardian.co.ukThis article titled “Bank of England committee flags up housing market concerns” was written by Jill Treanor, for theguardian.com on Tuesday 3rd December 2013 12.58 UTC

The Bank of England is continuing to closely monitor the affordability of mortgages and the lending policies of banks after taking steps last week to cool the housing market.

The record of the November meeting of the financial policy committee, set up inside Threadneedle Street to spot bubbles in the financial system, shows that concerns about the housing market had risen since their last meeting in June.

“Committee members had become more concerned about the potential risks to financial stability that might arise from developments in the UK housing market,” the record said.

After the meeting the Bank announced last week that the flagship Funding for Lending Scheme (FLS), which supplies cheaper money to banks and building societies, would end a year early for mortgages to focus on small businesses.

The record of the meeting shows that Bank of England governor Mark Carney informed the committee – made of Bank of officials and external members – that he and the Treasury had agreed to amend the FLS to focus on business lending.

“The governor informed the committee that HM Treasury and the Bank agreed that an amendment to the FLS to remove the incentive for new lending to households would be sensible … committee members welcomed this,” the record states.

The FPC, a key element of the coalition’s regulatory changes to avert another financial crisis, also discussed other options to dampen the mortgage market by forcing banks to hold more capital. This could be done “to specific types of mortgage lending, just to new lending or to the entire portfolio of loans”.

It could also take action if it was concerned about the affordability of mortgages by limiting the loan-to-value or loan-to-income ratios for mortgages.

“The committee agreed that it would closely monitor housing market indicators covering house price affordability and sustainability, indicators of indebtedness, underwriting stands, exposures of lenders to highly indebted households and the reliance of lenders on short-term wholesale funding,” the record said.

It also noted that borrowers might start to switch to fixed rate mortgages which, while helping households when interest rates rise, could cause problems for banks.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

While jobs growth and output are rising fast in the construction industry, retail offers a more mixed picture of the UK economy. Forecasting groups have modest expectations for growth in 2014: a 2% increase in GDP following 1.4% in 2013…

 


Powered by Guardian.co.ukThis article titled “Construction and retail – contrasting perspectives on UK economic recovery” was written by Larry Elliott, economics editor, for The Guardian on Tuesday 5th November 2013 00.01 UTC

Construction and retailing offer contrasting perspectives on Britain’s economic recovery. On the UK’s building sites, things are looking up . The monthly construction industry health check from CIPS/Markit showed jobs growth and output rising at their fastest for six years. Although that may be more a reflection of the deep hole the sector plunged into during the recession, sentiment has certainly improved. The Government’s Help to Buy scheme has boosted house building, but Monday’s report suggests demand for commercial property is also on the up.

Tuesday’s report from the British Retailers Consortium is more mixed. After a strong summer, spending growth in the high street has cooled in the last couple of months. That could be because sales of new winter fashions have been hit by unseasonally warm weather, or it could be that consumers are saving up for a big splurge at Christmas. It could be that individuals are finding it hard to make the sums add up during a prolonged period when prices have been rising more quickly than wages. In all probability, the cautious mood is a combination of all three.

Rising consumer spending is the reason economic activity picked up in the second and third quarters of the year. There was little boost from the other components of growth -– investment, exports and the state – so the expansion was the result of higher household spending. How is this possible when real earnings are falling? In part, spending has been encouraged by rising employment. In part, it has been aided by stronger consumer confidence, which has led to people running down the precautionary savings they built up when they were more pessimistic about the future.

Clearly, consumers will be unable to continue dipping into their savings to fund their spending for ever. That’s why forecasting groups such as the National Institute for Economic Research have only modest expectations for growth in 2014: a 2% increase in GDP following 1.4% in 2013. NIESR sees little prospect of stronger investment kicking in, and with the prospects for exporters decidedly mixed that means consumers will again bear the strain.

Even so, the NIESR forecast looks too low. There will be some recovery in investment in response to stronger consumer spending. More significantly, perhaps, the housing market now has real momentum and that will lead to some further drop in the savings ratio to compensate for squeezed incomes.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Bank of England governor’s move to persuade markets that interest rates will not immediately rise has provoked skepticism. His first 100 days as Bank of England governor have been a noisy medley of speeches, impeccably tailored photo-calls and pzazz…

 


Powered by Guardian.co.ukThis article titled “Is Mark Carney’s forward guidance plan a step backwards?” was written by Heather Stewart, for theguardian.com on Monday 7th October 2013 14.00 UTC

If Mark Carney was going to live up to his billing as a “rock star central banker” – and his £874,000 a year pay package – he had to arrive in Threadneedle Street on a crashing crescendo. His first 100 days as Bank of England governor have been a noisy medley of speeches, impeccably tailored photo-calls and pzazz.

From the need for more women on banknotes to his love of Everton football club, Carney has had plenty to say on a range of subjects since his appointment on 1 July this year. However, it’s the Bank’s new policy tool of forward guidance that has provoked the most interest, and a good measure of scepticism, among seasoned Bank-watchers.

Honed by Carney in Canada and adopted by the US Federal Reserve and the ECB in different forms, forward guidance is a way of signalling to the public and financial markets how the Bank will respond to shifts in the economy. In this case, the monetary policy committee has pledged to keep interest rates at their record low of 0.5% at least until the unemployment rate falls to 7%.

“Forward guidance is an attempt to persuade the markets that interest rates are not immediately going to go up,” says John Van Reenen, director of the Centre for Economic Performance at the London School of Economics. “It’s one more tool in the toolbox.”

However, as implemented by Carney and his colleagues in the UK, guidance is hedged about with three separate “knockouts” – rates would rise if inflation, financial stability or the public’s inflation expectations got out of control. Moreover, the governor has stressed that the 7% unemployment rate is not a trigger for a rate rise, but a “staging post”, which will not necessarily prompt tighter policy.

During a somewhat fraught hearing with MPs on the cross-party Treasury select committee last month, in which Carney sought to clarify the policy, chairman Andrew Tyrie expostulated that it would be a hard one to explain “down the Dog and Duck”.

Financial markets have also been less than convinced. The yield, or effective interest rate, on British government bonds – partly a measure of investors’ expectations of future interest rates – has risen rather than fallen since the Bank’s announcement. That is partly because the latest data suggests the economic outlook is improving, but rapidly rising bond yields can be worrying because they tend to push up borrowing costs right across the economy. Carney, though, has insisted he is not concerned.

Meanwhile the pound has risen almost 4% against the dollar since Carney took the helm – again signalling markets expect rates to rise sooner than the Bank is indicating. Last week sterling hit a nine-month high, although it came off that peak as investors began to question if the UK’s recovery could continue at its current pace.

“I don’t think in practice forward guidance is very successful,” says Jamie Dannhauser of Lombard Street Research. He believes Carney has failed to convince the City he means business, because he has failed to back up forward guidance with action, such as the promise of a fresh round of quantitative easing – the Bank scheme that has pumped £375bn of freshly minted money into the economy.

“[Forward guidance] doesn’t work if you’re not willing to take on the markets if you don’t get your way,” says Dannhauser.

David Blanchflower, a former member of the MPC, is more blunt: “He looks already, within a hundred days, to have lost control. Bond yields are rising, the pound is rising like mad, and they’ve got no response.”

He argues that the hedged nature of the new policy is likely to reflect “horse-trading” between Carney and his fellow MPC members. Unlike in Canada, where what the central bank governor says goes, decision-making on the MPC is by vote. With a recovery now under way, its various members are known to have differing views on what are the most pressing risks to the economy.

Another former MPC member said: “Had I been on the MPC I would have let him do it [forward guidance], because I don’t think it does any particular harm; but I don’t think it does much good either.”

It’s not just the Bank’s approach to monetary policy that has changed on Carney’s watch. When outgoing deputy governor Paul Tucker, who missed out on the top job, leaves for the US later this month, it will mark the latest in a number of personnel changes that are starting to make Carney’s Bank look quite different from Lord (Mervyn) King’s.

Blue-blooded banker Charlotte Hogg joined as the Bank’s new chief operating officer, a post that didn’t exist under the old regime, on the same day as Carney. Meanwhile Tucker will be replaced by former Treasury and Foreign Office apparatchik Sir Jon Cunliffe. With long-serving deputy governor Charlie Bean due to leave early in 2014, Carney will be given another opportunity to bring in a new broom.

Insiders say the atmosphere in the Bank’s Threadneedle Street headquarters has already changed. Carney is often seen eating lunch in the canteen or showing visitors around. His approach is less hierarchical than that of King, who was derided as the “Sun King”, by former chancellor Alistair Darling – though Carney is said to be no keener on intellectual dissent than his predecessor.

He will need all the allies he can get both inside and outside the Bank, if he is to deal successfully with what many analysts see as the greatest threat facing the economy: the risk that an unsustainable bubble is starting to inflate in Britain’s boom-bust housing market.

Carney and his colleagues on the Bank’s Financial Policy Committee (FPC), the group tasked with preventing future crashes which partly overlaps with the MPC, have new powers to rein in mortgage lending if they believe a bubble is emerging, and the governor has said he won’t hesitate to use them.

But the FPC is untested and largely unknown to the public, and bubbles are notoriously hard to spot. Using the FPC’s influence to choke off the supply of high loan-to-value mortgages, for example, would be hugely controversial at a time when large numbers of would-be buyers have been frozen out of the market. Meanwhile, the government’s extension of the Help to Buy scheme, with details to be laid out on Tuesday, is likely to increase the demand for property, potentially pushing up prices.

Van Reenen warns that if property prices do take off, Carney could find himself in an unenviable position. “We have this terrible problem in this country that house prices have got completely out of kilter with incomes. I would be very reluctant to see interest rates start pushing up. Using other methods, such as being tougher on Help to Buy, and trying to do things through prudential regulation is better – but the fundamental thing is lack of houses, and Carney can’t do anything about that.”

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Greece ‘backsliding in democracy’ in face of joblessness, social unrest, corruption and disillusion with politicians, says thinktank. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc…

 


Powered by Guardian.co.ukThis article titled “Greece’s democracy in danger, warns Demos, as Greek reservists call for coup” was written by Helena Smith in Athens, for The Guardian on Thursday 26th September 2013 19.27 UTC

No country has displayed more of a “backslide in democracy” than Greece, the British thinktank Demos has said in a study highlighting the crisis-plagued country’s slide into economic, social and political disarray.

Released on the same day that judicial authorities ordered an investigation into a blog posting by an elite reservist group linked to Greece’s armed forces calling for a coup d’etat, the study singled out Greece and Hungary for being “the most significant democratic backsliders” in the EU.

“Researchers found Greece overwhelmed by high unemployment, social unrest, endemic corruption and a severe disillusionment with the political establishment,” it said. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc and voiced fears over the rise of far-right extremism in the country.

The report was released as the fragile two-party coalition of the prime minister, Antonis Samaras, admitted it was worried by a call for a military coup posted overnight on Wednesday on the website of the Special Forces Reserve Union. “It must worry us,” said a government spokesman, Simos Kedikoglou. “The overwhelming majority in the armed forces are devoted to our democracy,” he said. “The few who are not will face the consequences.”

With tension running high after a crackdown on the neo-Nazi Golden Dawn party, a supreme court public prosecutor demanded an immediate inquiry into who may have written the post, which called for an interim government under “the guarantee of the armed forces”.

The special forces reservist unit who issued the social media call – whose members appeared in uniform to protest against a visit to Athens by the German chancellor, Angela Merkel – said Greece should renege on the conditions attached to an international bailout and set up special courts to prosecute those responsible for its worst financial crisis in modern times. Assets belonging to German companies, individuals or the state should be seized to pay off war reparations amassed during the Nazi occupation.

Underscoring the social upheaval that has followed economic meltdown, the blog post argued that the government had violated the constitution by failing to provide adequate health, education, justice and security.

Insiders said the mysterious post once again highlighted the infiltration of the armed forces by the extreme right. This week revelations emerged of Golden Dawn hit squads being trained by special forces commandos.

Fears are growing that instead of reining in the extremist organisation, the crackdown on the group may ultimately create a backlash. The party, whose leaders publicly admire Adolf Hitler and have adopted an emblem resembling the swastika, have held their ground in opinion polls despite a wave of public outrage over the murder of a Greek rap musician, Pavlos Fyssas, by one of its members. Golden Dawn, which won nearly 7% of the vote in elections last year and has 18 MPs in Athens’ 300-member parliament, has capitalised more than any other political force on Greece’s economic crisis. “Much will depend on how well it will withstand the pressure and they are tough guys who seem to be withstanding it well,” said Giorgos Kyrtos, a political commentator.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Polls point to grand coalition between Angela Merkel’s CDU, Bavarian sister party the CSU and the Social Democrats. One of Europe’s most important elections in years will be likely to go to the wire as the closeness of the contest becomes clear…

 


Powered by Guardian.co.ukThis article titled “German election goes to the wire with no clear winner in sight” was written by Kate Connolly in Berlin, for theguardian.com on Wednesday 18th September 2013 11.21 UTC

The final stretch of the German general election is turning into a nail-biting race between the main parties, with latest polls showing that neither Angela Merkel‘s conservatives together with her liberal coalition partner, the FDP, nor a leftwing-Green party alliance is set to obtain an overall majority.

The opinion polls indicate that one of Europe’s most important elections in years will go to the wire, with the most likely outcome to be a so-called grand coalition between the Christian Democratic Union (CDU) and its Bavarian sister party, the CSU, together with the Social Democrats (SPD).

The poll by the Forsa Institute put the CDU on 39%, the SPD on 25%, and the liberal Free Democrats on 5%, the threshold needed for it to get into parliament.

The Left (Linke) is on 10%, and the Green party on 9%.

Arithmetically the possibilities would be a grand coalition or a conservative-Green union, though the latter is unlikely, having more or less been ruled out by those involved.

As the closeness of the contest became clear, all parties were scrambling on Wednesday to try to garner the support of the large number of undecideds, estimated to be up to a third of voters.

The CDU was keen to warn its voters that splitting their two votes – a “local” vote for a constituency MP, and a second for the party list – would risk huge losses for the CDU.

The party had its fingers burned at a regional poll in Lower Saxony in January when so many second votes were given to the FDP that the CDU was narrowly defeated.

The FDP, meanwhile, whose survival in parliament is in grave doubt after it failed by a considerable margin to enter the Bavarian assembly in last Sunday’s election, was canvassing CDU voters to “lend” their second vote to the FDP to ensure a continuation of the conservative-FDP alliance. It was also trying to rally its core supporters by wheeling out its former star and foreign minister Hans-Dietrich Genscher.

The SPD, buoyed by a solid if not spectacular result in Bavaria, was also trying desperately to motivate its core voters, particularly as experience shows the higher the voter turnout is, the better its prospects have been. The SPD’s leadership has been gathering in recent days to discuss its position in a grand coalition, as its chances of re-entering government loomed ever larger.

An unknown quantity remains the Alternative für Deutschland, a new Eurosceptic party. Although polls show it is expected to get just 3%, analysts say the party should not be underestimated, not least because of the 1 million clicks its YouTube campaign video has received, and the €430,000 of donations it collected just last weekend. The party could yet benefit from the high number of undecided voters, and the growing number of “closet” anti-Europeans.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Tony Abbott and Joe Hockey settle in to trappings of power and a former US Treasury secretary causes some ripples in the markets. What’s behind the recent roller coaster ride of the Australian dollar and will its rally be sustainable?…

 


Powered by Guardian.co.ukThis article titled “Dollar gyrations: a week is a long time in exchange rates” was written by Greg Jericho, for theguardian.com on Thursday 19th September 2013 01.15 UTC

If Tony Abbott and Joe Hockey were in any doubt that being “in charge” of the Australian economy is often more like riding a bucking horse of which you have little control, this week served to give them a quick reminder.

The general consensus is that the biggest problem for the non-mining sector in Australia is the value of our dollar. Since the float in December 1983, the dollar has averaged US$0.75 cents; in the past three years it has averaged US$1.01.

The simple equation is that the higher the dollar the harder it is for industries which rely on exports. So for the past three years manufacturing and other industries – such as tourism – have been crying out for help and hoping for the dollar to fall.

And then in May, on the back of the budget and reductions in the cash rate by the Reserve Bank, the dollar fell in the space of three months from US$1.05 to US$0.90. And yet, despite a few blips since the start of July, it has remained stubbornly around the US$0.90 mark.

And then this week, while Tony Abbott was getting used to his new digs at the AFP college and while Joe Hockey was reading a few incoming government briefs from his department, the dollar rose more than 1% in a day.

The reason for the jump was news from the US that former Treasury secretary under Bill Clinton, Larry Summers, was withdrawing his name from consideration to be the next chair of the US Federal Reserve once the current chair, Ben Bernanke, steps down in January 2014.

Summers was considered President Obama’s likely pick, so his withdrawal was big news in financial circles.

But why did our dollar rise?

Currently the Federal Reserve is engaged in some pretty extraordinary monetary policy – not just low interest rates (effectively zero) but also ongoing “quantitative easing” (which is a weasel word way of saying they are trying to stimulate the US economy by putting $85bn a month into the economy through buying Treasury bonds). This policy not only keeps interest rates in the US low, it also lowers the value of the American dollar, and as a result increases the value of other currencies – such as our little Aussie battler.

The Federal Reserve is now debating when to start winding back (or “taper”) this stimulus. The quicker it winds it back, the stronger the US dollar will be compared with other currencies.

Larry Summers was known to be a critic of the quantitative easing and so, were he to become chair of the Fed, markets were expecting it to be wound back more quickly than if someone else were in charge.

But with his withdrawal the current vice-chair, Janet Yellen, becomes the presumptive favourite. She is known to be a strong supporter of the current policy, and thus markets quickly changed their views of what would happen in 2014.

And so our dollar rose from US$0.924 to $US0.938 in a few hours, before falling back to US$0.93.

All because of something that didn’t happen in the US.

And then on Tuesday the Reserve Bank of Australia released the minutes of its monthly monetary policy meeting. Not surprisingly, it restated its desire for the value of the Australian dollar to stay low, noting, “Some further decline in the exchange rate would be helpful in achieving such an outcome.”

Now this might signal that the RBA would set monetary policy to achieve this aim, but there is a big “but” involved with our current interest rates – the housing market.

It is hard to avoid reading or hearing about the housing boom – which is at this stage more anticipation than reality. Prices have certainly risen but they were coming off a pretty low trough in 2011-12. At the moment, the boom seems concentrated in Sydney where analysts suggest prices could increase by as much as 20% next year, and to a lesser extent in Perth.

While the RBA is not too concerned yet, noting that “households continued to show prudence in managing their finances”, it did express some concern regarding “self-managed superannuation funds” investing in the housing market. The RBA noted that SMSFs were “one area identified where households could be starting to take some risk with their finances” and the RBA indicated it would “closely monitor” the situation.

And so, notwithstanding the RBA’s desire for a low value of the dollar, our currency rose as traders took the view that this meant interest rates were more likely to rise than fall.

Then last night the US Federal Reserve announced it would continue its quantitative easing a bit longer – and so our dollar went up again to US$0.95.

Thus, in the time between the Coalition winning the election and being sworn into government, the dollar has risen by more than 4%. I hope Mr Abbott and Mr Hockey enjoy the ride.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Organization for Economic Co-operation and Development gives vote of confidence in the United Kingdom’s economy, revising growth forecast from 0.8% to 1.5% after a “string of positive indicators from the UK”…

 


Powered by Guardian.co.ukThis article titled “UK economy upgraded by OECD” was written by Heather Stewart, for theguardian.com on Tuesday 3rd September 2013 09.52 UTC

Paris-based thinktank the Organisation for Economic Co-operation and Development has lifted its forecast for UK growth in 2013, in the latest vote of confidence for the fledgling recovery.

In May, when it last released projections for the world’s major economies, the OECD was expecting 0.8% growth in the UK for 2013. On Tuesday, it said recent survey evidence suggested GDP would expand by 1.5%, grouping the UK with the US and Japan as economies where, “activity is expanding at encouraging rates”.

The upgrade from the OECD comes after a string of positive indicators for the UK, including stronger-than-expected growth of 0.7% in the second quarter, falling unemployment, and survey evidence suggesting the strongest growth in manufacturing output for almost two decades.

Alongside revising up its forecast for the UK, the OECD used its interim economic assessment to warn that while a moderate recovery is underway in many major economies, global growth remains sluggish, and there are still risks to the upturn.

The OECD’s economists single out the impact of the Federal Reserve’s plans to phase out its massive programme of quantitative easing as creating particular problems for some economies.

“In many emerging economies, loss of domestic activity momentum together with the shift in expectations about the course of monetary policy in the United States and the ensuing rise in global bond yields have led to significant market instability, rising financing costs, capital outflows and currency depreciations,” it said.

Countries including India, Indonesia, Brazil and Turkey have been battling to control a potentially destabilising decline in their currencies since the Fed chairman, Ben Bernanke, announced his plans to “taper” QE in May.

The OECD’s experts warn that the slowdown in emerging economies – which have been major drivers of world growth in recent years – would offset the improvement in advanced economies, so that the global recovery would continue to be, “sluggish”.

In the US, the OECD expects growth to be 1.7% in 2013, slightly down on its May estimate of 1.9%. It also warns that the crisis in the eurozone is far from over, saying: “The euro area remains vulnerable to renewed financial, banking and sovereign debt tensions. Many euro area banks are insufficiently capitalised and weighed down by bad loans.”

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.