Forex Outlook

First, it was unexpectedly low growth of only 0.1% q/a, then the numbers were revised down to show the U.S. economy contracting. Some economists claim the drop in the U.S. Q1 GDP is a minor blip, but it’s not altogether clear how the U.S. will bounce back…

 


Powered by Guardian.co.ukThis article titled “The US GDP puzzle: is this a temporary drop or something more serious?” was written by Heidi Moore, for theguardian.com on Thursday 29th May 2014 18.13 UTC

Is the US economy on the cusp of great growth? Or is it being pulled back into a morass of recession?

That debate has been reignited today as it was revealed that the US economy, which is supposed to be growing more robust, actually contracted in the first three months of the year, according to the Commerce Department. The sharp pullback – which would equal a 1% loss to economic power if extrapolated over the year – is the first major economic contraction since 2011. Another measure, gross domestic income, also fell sharply after years of growth.

The clearest reaction that sums it all up came from Pantheon Macroeconomics founder Ian Shepherdson in a note to clients on Thursday: “Ouch”.

The discussion is a weighty one. GDP, a measure number-crunched by the Commerce Department every three months, is the economic data point that policymakers most trust to gauge the health of the US economy. It takes into account everything from goods bought and sold to business investment to trade and export.

It’s also a political football. The growth of the economy could prove an influential data point in the midterm US elections this fall, in which the White House will want to show the economy is improving in order to win more seats for Democrats. Many Democrats and partisan economists, including Paul Krugman, have argued that the batch of austerity measures passed over the past three years by the US Congress would hurt economic growth.

As a result, a scrum of economists and pundits tried to make sense of the sharp, unexpected drop in growth, offering competing narratives around what it means. Many economic experts waved away the fall in GDP away as an anomaly, but did not offer much in the way of explanation about where future growth would come from.

The most popular conclusion among economists writing on Thursday was that GDP was hit by a short-term decline in inventories stocked by businesses during the first three months of the year. Inventories rose by only $49bn in the first quarter, not $87.4bn as previously thought, when GDP numbers were first announced in early May.

Yet inventories aren’t a completely neat explanation. The Federal Reserve, analyzing the numbers last month, attributed the decline to a decrease in net exports and the effect of bad winter weather, both of which may have also played a part. Enemies of austerity may also note that local government spending also dropped, contributing to that lower economic growth number.

In fact, many experts saw the drop in GDP as a good sign – interpreting it as proof that the economy is cleaning out all the dross before bouncing back, bigger than ever, in just a few months.

“First-quarter real GDP growth was revised downward,” wrote Doug Handler, chief economist of IHS Global Insight. “However, the nature of the revisions helps build the economic case for much stronger growth in the second quarter and through the remainder of the year.”

Others took it further. Goldman Sachs economists predicted in an outlook on May 9 that the economy would grow at a whopping 3.5% in the second half of the year, due to more consumer spending, greater housing growth, more industrial activity, and a bigger labor market.

That remains to be seen. For the time being, the fall in GDP was sufficiently surprising that some economists did not seem to believe their own eyes. Deutsche Bank’s economics team argued that the statistics will be revised twice more, on June 25 and July 30, and that the result may show better news for the economy. They seemed to see the GDP numbers as a contradiction to an overall trend in growth:

“A Q1 decline in real GDP does not jibe with some key metrics of the economy. Case in point, nonfarm payrolls expanded by +190k per month in Q1. At the same time, the ISM manufacturing survey averaged just under 53, and both retail sales (+1.0%) and manufacturing industrial production (+2.1%) eked out annualized gains in the quarter. ”

Yet others don’t seem so confident that the shoddy showing in GDP is easily dismissed. Former Federal Reserve chairman Ben Bernanke has been giving speeches telling hedge-fund managers to expect lower GDP for some time to come.

The broad-based recovery that many had hoped for has no doubt taken a hit in recent months.

For instance, inventories are only one element of GDP. Other elements of GDP that measure business confidence are only “less worse” in the words of Lindsey Group chief marketing analyst Peter Boockvar. For instance, fixed investment, which measures business spending on real estate and equipment, fell only 2.3% compared to a more recent fall of 2.8% – an improvement, but still overall, dropping.

Another aspect of economic health, housing, has also been showing weak growth, with some Fed officials “caught off guard” by the turnaround. Janet Yellen, the chair of the Fed, suggested to Congress in early May that negative housing growth could hurt the economic recovery.

And the employment picture, while apparently improving with lower jobless rates, is still very weak. The majority of jobs growth has been in low-paying part-time jobs, and over 10 million people are still out of work. In addition, labor force participation – which measures what percentage of Americans are working – has been at levels not seen since the stagnant economy of the 1970s.

In addition, it seems US households just have less to spend.

“The median annual income is 7.5% lower (about $4,309) than its interim high in January 2008,” said Sentier Research.

Many still argue for growth up ahead. But, with incomes down, housing suffering, and businesses still wary of hiring, it’s not clear where that growth will come from.

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USA 

April 28, 2014 (ShowFX Asia) – It is no secret that trading has been gaining more and more popularity over the years, providing opportunities to generate income to anyone with analytical mind and ambition. 20 years ago, only large banks and corporations participated in the Forex market. Today daily Forex turnover is measured in billions of dollars. Countless brokers offer their services to newcomers all around the world.

As practice shows, although there are many forex investors, few are truly successful ones. It often takes months or even years to master your trade to the degree that would allow for stable income. Reading professional literature together with constant self-education and practice are indispensable steps on the way to success.

If you want to gain more knowledge of how the markets work and ask advice of renowned experts, financial exhibitions and conferences might be a good solution.

For instance, one of the well-established exhibition brands ShowFx World every year welcomes all those interested in trading at its numerous events all around the world. The company aims to increase professionalism of traders providing them with all necessary instruments, engaging a great number of speakers, participants, partners and guests. Forex and stock brokers, dealing centres, investment companies and financial experts are all gathered under one roof for you.

If Forex still sounds unfamiliar to you, it is worth attending at least one event in order to grasp the idea of what it is all about. Availability of financial trade to anyone nowadays regardless of occupation or education makes it more attractive than ever.

If you are an active trader, apparently there is nothing more valuable to you than information that might help you to make more profitable deals on the market. ShowFx World organizers thoroughly select speakers for each exhibition and conference. Previous events featured such worldwide gurus as Bert Antonik, Ray Barros, Dave Landry, Steve Ward and Gavin Holmes. All presentations are based on in-depth knowledge about financial markets, effective strategies and specific ideas for profiting in trade.

Comfortable and friendly environment serves as a great tool for communication at forex events. Experienced traders and analysts are free to answer all your questions and give advice, while traditional giveaways and prize draws among guests add a drop of entertainment to the show.

The nearest ShowFx World Conference in Asia will take place at Marina Bay Sands, Singapore on August 16, 2014. Follow the company’s website (http://www.showfxasia.com/en/singapore.html)  for updates.

Consumer spending in the United States lessened because of cold, snow and storms during the winter months according to the Federal Reserve’s ‘beige book’ report. But was the cold weather the only factor to blame for the weak economic data?

 


Powered by Guardian.co.ukThis article titled “US economy hampered by severe winter weather, Federal Reserve says” was written by Dominic Rushe in New York, for theguardian.com on Wednesday 5th March 2014 20.32 UTC

As parts of America are experiencing their worst winter in 30 years, the severe weather has taken its toll on the US’s economic recovery, the Federal Reserve said Wednesday.

While cold weather and snow gripped much of the country in January and February, consumer spending was hit across the US, according to the Fed’s latest “beige book” report on the state of the economy; manufacturing and construction were also adversely affected. Weather was also cited as a contributing factor to softer auto sales in many areas. While the unseasonable cold did the most damage in agriculture, California’s record drought has also taken its toll on the state’s economy.

The Fed said hiring had notably softened in regions of the country hit by the severe cold. But the rate at which temporary hires were being converted into permanent hires picked up, and the underlying recovery appeared to be continuing. “Many districts continued to note shortages for particular types of specialized, technical skilled labor, such as healthcare professionals and information technology workers. Atlanta and Dallas also noted shortages for freight truck drivers,” said the Fed.

In total, the report mentions “weather” 119 times and “winter” 54 times, calling it extreme, harsh and severe. “Severe” appears 35 times in the report, “cold’ 31 times, “snow” 24 times, and “storm” 15 times.

The report comes before Friday’s monthly snapshot of the US jobs market. The non-farm payroll report, one of the most influential in the economic calendar, will be especially closely watched this month as it follows two disappointing reports. The US added an average of 205,000 per month in the year to November 2013, but December’s reading was only 75,000 and January’s 113,000. Economists polled by Thomson Reuters are expecting the US to have added 150,000 new jobs in February.

The severe winter has especially affected air travel. From December 1 through February 28, 108,600 flights were canceled, almost double the average of previous winters of 57,600, according to a poll by data tracker MasFlight.

Fed chair Janet Yellen told Congress last week that it was too soon to calculate the long-term impact of the extreme weather on the US economy.

The Fed is currently paring back its massive bond-buying economic stimulus program, known as quantitative easing (QE). Currently the Fed is pumping $65bn a month into the economy via QE, but is expected to cut that by $10bn at its next meeting unless the weather proves to have had a serious impact on the recovery.

“That recent weather impacted activity across the country should be no surprise. Numerous reports have suggested weather disrupted housing and manufacturing among other things,” Dan Greenhaus, chief strategist at broker BTIG said in a note to clients. “Simply put, the Fed’s beige book indicates that weather affected nearly the entire economy across the country this winter.”

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Forecast for U.K. economic growth of 1.9% this year raised to 2.4% with IMF chief Christine Lagarde declaring ‘optimism is in the air’. IMF may also upgrade its outlook for the global economy, which in October it predicted as expanding by 3.6% this year…

 


Powered by Guardian.co.ukThis article titled “IMF upgrades UK economic growth forecasts as global economy expands” was written by Katie Allen, for theguardian.com on Monday 20th January 2014 12.14 UTC

The International Monetary Fund is widely expected to raise its outlook for the UK this week, nudging up the country’s growth forecasts by more than for any other major economy.

The Washington-based fund is due to unveil an update on Tuesday to its World Economic Outlook from last October. Back then it forecast UK national output would rise 1.9% in 2014. Now it is expected to predict growth of 2.4%, according to a Sky News report.

The IMF is also expected to upgrade its outlook for the global economy, which in October it predicted as expanding by 3.6% this year. That would reflect the cautiously optimistic tone in a New Year’s speech from its managing director, Christine Lagarde, last week.

“This crisis still lingers. Yet, optimism is in the air: the deep freeze is behind, and the horizon is brighter. My great hope is that 2014 will prove momentous … the year in which the seven weak years, economically speaking, slide into seven strong years,” she said.

If confirmed, the substantial upgrade to the UK will be a welcome boost to Chancellor George Osborne and his much repeated assertion that the coalition’s “economic plan is working”.

But in the past the IMF has echoed other economists, including experts at the UK’s own Office for Budget Responsibility, that the UK remains over-dependent on consumer spending to grow.

The latest crop of official data underscored those concerns, with weaker outturns for construction and manufacturing and a jump in Christmas retail sales.

Economists generally feel, however, that overall growth will pick up this year and the IMF is just the latest of a string of forecasters to raise the UK’s outlook.

The business group CBI has pencilled in 2014 growth of 2.4%, the British Chambers of Commerce expects 2.7% and the OBR forecasts 2.4%.

A report from EY Item Club on Monday forecast UK economic growth would pick up to 2.7% this year from 1.9% in 2013. It too warned the recovery was not built on solid foundations, however, due largely to the pressure on household incomes.

Peter Spencer, chief economic advisor to the EY ITEM Club comments: “It is hard to find another episode in time where employment has been rising and real wages falling for any significant period of time. The weakness of real earnings is proving to be the government’s Achilles heel and could prove to be the weak spot in the recovery.

“Consumers have reduced the amount they save to fund their spending sprees. But they cannot continue to drive growth for much longer without an accompanying recovery in real wages or a rise in their debt to income ratio.”

There have also been warnings that the recovery is not being felt throughout the UK, and is instead largely benefiting London and the south-east.

A study by the TUC trade unions group on Monday said the recent recovery in jobs had failed to reach the north-east, the north-west, Wales and the south-west, leaving them in the same situation or worse at providing jobs than they were 20 years ago.

The US-based IMF could not be immediately reached for comment.

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With its linked trade and innovation deficits, the UK seems as unprepared for a currency war as it was for real war in 1939. Countries are trying to export deflation somewhere else, using currency manipulation to do so…

 


Powered by Guardian.co.ukThis article titled “UK looks ill-prepared if a global currency war breaks out” was written by Larry Elliott economics editor, for The Guardian on Sunday 17th November 2013 19.41 UTC

Rumours of war are in the air. Currency war, that is. The US treasury has forged an alliance with Brussels to attack Germany’s beggar-thy-neighbour approach to the rest of the eurozone. Last week the Czech government said it would defend its economy by driving down the value of  the koruna, following the aggressively interventionist example of  Japan and Switzerland.

It’s not hard to see why the atmosphere is becoming less cordial. This is a low growth world marked by over-capacity. Wages are under downward pressure and this is leading to ever-stronger deflationary pressure. A lack of international policy co-operation means that countries are trying to export deflation somewhere else, using currency manipulation to do so.

If a full-scale currency war does break out Britain looks as ill-prepared as it was for a military fight in 1939. We like to think of ourselves as a nation of buccaneering traders but only 16% of small and medium enterprises, with a turnover of over £20m, are actually exporting. We like to think of ourselves as the nation of innovators, yet as Richard Jones, of Sheffield University, notes, the UK is a less research and development intensive country than it was 30 years ago, and it lags well behind most of its rivals. The UK has linked trade and innovation deficits.

Jones, in a paper for the Sheffield Political Economy Research Institute, examines in detail how during the past 30 years the UK’s corporate laboratories have vanished and how big R&D spenders such as ICI and GEC switched from being companies that thought about long-term investment to ones where the prevailing doctrine was to return the money spent on R&D to shareholders.

Those in charge of UK manufacturing companies became more interested in the next bid, the next deal and the next set of quarterly results than in developing new product ranges.

The consequences of decades of neglect of the country’s productive base and an over-reliance on North Sea oil and financial services are now glaringly apparent. In the past, recessions have ended with the current account broadly in balance. This recovery starts with a current account deficit of more than 3%  of national output.

This is despite a fall of 20% in the value of the pound between 2007 and 2013, which in theory should have boosted exports. In reality, exports grew by 0.4% a year between early 2009 and the start of 2013, compared with 1% a year in the previous decade.

Ministers have a pat answer when quizzed about the poor performance of exports. It is, they say, the result of geography. More than 40% of UK exports go to the eurozone, where growth is weak and demand for imports has collapsed. So the impact of sterling’s depreciation has been blunted.

This view is not shared by the Bank of England. While admitting that the global recovery is patchy, the bank noted in its February inflation report that “the relative weakness of UK exports does not reflect particular weakness in its major trading partners”. It concluded that some other explanation was needed “to explain the disappointing performance of UK exports”, and found it in a sharp drop in exports of financial services and the tendency of UK firms to use a cheaper pound to boost profits rather than increase market share. The decline in exports from the City since the crash highlights the risks for Britain of the “eggs in one basket” approach.

As Ken Coutts and Bob Rowthorn note in a paper on the prospects for the balance of payments, the UK has gone from being a country that had a 10% of GDP surplus in trade in manufactures in 1950 to running a 4% of GDP deficit by 2011. North Sea oil and gas were in decline, so energy added to the deficit by 1.3% of GDP. Food and government transfers to overseas bodies such as the EU, World Bank and UN were the other big debits.

On the other side of the ledger there were three sources of surpluses: financial services and insurance (3.1% of GDP); other knowledge-intensive services, which include law, consultancy and IT (2.5% of GDP); and investment income (1.1% of GDP). Once all the debits and credits were totted up Britain had a current account deficit of 1.9% of national income. This rose to 4% of GDP in 2012.

The recession has taken a heavy toll on two of the surplus sectors. Investment income has turned negative, and global demand for financial services has fallen. This has affected the UK more than the other big global providers of financial services, the US and EU.

According to the Bank of England, “This could reflect lower demand for UK financial services in general, or a particularly sharp fall in demand for those financial products in which the UK specialised prior to the crisis.” This is a polite way of saying that no one any longer wants what Lord Turner once dubbed the City’s “socially useless” products.

Coutts and Rowthorn model what happens to the current account using assumptions for growth in the UK domestic economy and world trade, the level of UK competitiveness, oil prices, North Sea oil and gas production, and returns on financial assets.

The baseline projection is that the current account is 3% of GDP in 2022. Using a slightly more pessimistic assumption, the deficit swells to 5% of GDP. As the authors note: “A deficit of this magnitude would be a cause for serious alarm.”

It certainly would be. The outgoing trade and investment minister, Lord Green, told a conference in the City to mark export week that there was no guarantee the rest of the world would be prepared to finance deficits of this size for ever. The government has a target for raising exports to £1tn a year by 2020 – which will require them to grow by 9% a year. (The average since 2012 has been 5%.)

We have heard the “export or die” message many times in the past, to little effect it has to be said. It is not impossible to improve Britain’s export performance, though doing so with the current economic model is a pipe dream. It will require nurturing manufacturing, knowledge-based services and those bits of the financial services sector for which there is long-term demand.

Britain, Jones says, “needs to build a new developmental state, a state that once again takes responsibility for large-scale technological innovation as the basis for sustainable growth and prosperity”. Amen to that. If a currency war is brewing, we need the can-do spirit of 1940, not the head-in-the-sands approach of 1938.

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In May, the US treasury was able to employ some “extraordinary measures” to keep borrowing. These measures run out on 17 October. If the USS America goes down, little HMAS Australia will find it tough not to get sucked into the vortex…

 


Powered by Guardian.co.ukThis article titled “Why Australia should fear a US government default” was written by Greg Jericho, for theguardian.com on Monday 7th October 2013 07.34 UTC

The current US government shutdown has little impact on Australia, but if the US hits the debt ceiling Australia will feel the consequences of a bitterly partisan US political system.

One of the more ironic aspects of the US government shutdown is that if it goes on for much longer, the government won’t be able to calculate its economic impact because it won’t be able to collect the data.

Last Friday was supposed to be the most recent release of US jobs figures, and yet those logging on to the BLS website would have seen this:

During the shutdown the BLS won’t be able to collect the data to calculate the employment figures. Similarly the Bureau of Economic Analysis is also shut down, which rather makes collating data for the GDP figures a tad tricky.

But for Australians the big issue is not so much the shutdown. Costly as it is to the American economy – wiping about 0.1% of GDP growth each week – it does not have a great direct impact outside its borders. After all there are not many Australians employed by the US government or about to go to a US national park this weekend. The real bitter pill for the rest of the world (and US) comes in a couple weeks when the US reaches its debt ceiling.

The debt ceiling is often lazily referred to as the US government’s credit card limit, but it is not about giving the US government the right to spend more, but the ability to borrow to pay off spending it has already undertaken.

The debt ceiling is currently at $US16.699tn, and was actually reached in May but the US treasury was able to employ some “extraordinary measures” to keep borrowing. These measures will run out on 17 October.

At that point the US will no longer be able to borrow money to pay its bills. In the short run that is OK, because the US government gets enough cash from tax revenue to cover its expenses. But on 1 November it gets a bill for US$67bn for social security, medicare and veterans benefits. By 15 November the US government will be short about US$108bn. And that means defaulting on its payments.

No one really knows what will happen if the debt ceiling is not raised. Views range from, it’ll be fine, to it’ll be Armageddon. The US Treasury for its part has put out a paper that paints a pretty scary picture.

After looking at what has occurred in 2011 when the US nearly reached the debt limit, it concluded that a debt default “could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth”.

It also noted that “many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression”.

And just in case you are a glass-half-full kind of person and you still have some optimism, the report ends on this less than upbeat note: “Considering the experience of countries around that world that have defaulted on their debt… [the] consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation.”

Cheery.

Thus far the markets have been rather sanguine. The US Treasury 10-year bond yields are lower now than they were a month ago – suggesting investors are not too spooked about the long-term US economy. There is also a sense that investors are a bit jaded – the debt ceiling fight is now becoming an annual event.

But in the past few days, investors have become very worried about holding US treasury bonds which mature in the next month.

The spread of the six-month to one-month treasury bonds fell off a cliff, to the point where investors are now demanding a higher return for buying a one-month US treasury bond than for a six-month.

Should the default actually occur you could expect those jaded investors would suddenly get very alert. A US government default would put the world economy into uncharted waters. Around 87 % of all foreign exchange transactions involve US dollars. If the US government can no longer guarantee it will pay its bills (even for a short time), that rather upsets the integrity of the entire system.

In 2011 when the debt ceiling was almost breached, the US’s credit rating was downgraded to AA. It hurt US confidence, put a big hand brake on economic growth, and the turmoil on financial markets reduced American household wealth by around US$2.4tn.

For Australia, in 2011 our dollar at the time soared to US$1.10 as the American currency lost value. With the value of our dollar already rising the last thing our manufacturing sector needs is for the dollar to be given a boost.

For the moment most expect congress to back down and raise the debt ceiling (or perhaps even suspend it for a few more months like they did last year).

But Australians should hope that the US gets its act in order soon. While it is nice to think that we are now bound to China, a look over the past 20 years shows that aside from extraordinary circumstances – such as the dotcom bubble and September 11 attack, and our mining boom in 2006 – Australia and the US’s GDP growth is quite closely linked.

Our economy is like a dinghy in the ocean of the international economy. If the US scuttles itself though political intransigence, without another mining boom, little HMAS Australia would find it tough not to get sucked into the vortex as USS America goes down.

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Sept. 29, 2013 (Allthingsforex.com) – The direction of the European Central Bank’s monetary policy and the state of the U.S. labor market will be the main themes of the week ahead as traders determine the odds of a taper announcement at the Fed’s October 29-30 meeting.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    JPY- Japan Tankan Index, a Bank of Japan quarterly survey of large and small businesses considered as the main indicator of economic conditions in Japan, Mon., Sept. 30, 7:50 pm, ET.

Since last December, the Tankan survey has been one of the reports representing gradual improvement in economic conditions by moving from negative into positive territory. The index is forecast to continue this trend with a larger expansion and a reading of 7 in Q2 2013 compared with 4 in the previous quarter. The report could keep the JPY well bid on reduced chances for additional easing by the Bank of Japan.

2.    AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., Oct. 1, 12:30 am, ET.

Even though there is still room for rate cuts, if needed in the future, the Reserve Bank of Australia already reduced the benchmark rate by 25 bps in August and will not be in a rush to cut rates again in October and possibly for the rest of the year. The Aussie dollar has fallen significantly in recent months and could stay under pressure on risk aversion or if the central bank decides to keep the door open to further monetary policy easing.

3.    EUR- Euro-zone Unemployment Rate, the main measure of labor market conditions, Tues., Oct. 1, 5:00 am, ET.

No end in sight is expected for the euro-zone economy’s record-high unemployment with forecasts pointing to a reading of 12.1% in September, same as the previous month. The report could serve as a reminder that although the recessionary period has come to an end, unemployment is still a big hurdle for the 17-nation economy.

4.    USD- U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Tues., Oct. 1, 10:00 am, ET.

Manufacturing activity in the U.S. has regained traction after the index unexpectedly dropped in contraction territory with a reading of 49.0 in May, but we could see a small monthly pullback to 55.3 in September from 55.7 in August.

5.    EUR- European Central Bank Interest Rate Announcement, Wed., Oct. 2, 7:45 am, ET.

Although activity in the euro-area has been picking up, ending the prolonged recession and the chronic contraction in euro-zone’s manufacturing and services sectors, the 17-nation economy is still struggling with record high unemployment. The European Central Bank will not tighten monetary policy anytime soon in this environment and will probably echo the message that policy will remain accommodative “for the foreseeable future”. The USD should be able to regain its strength against the EUR if the labor market data improves and the Fed gets ready to take the first step towards monetary policy tightening while the European Central Bank remains stuck in an easing mode.

6.    USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Wed., Oct. 2, 8:15 am, ET.

The anticipated small increase to 177K in September from 176K in August might fall short of instilling confidence in the ability of the private sector to create enough jobs to persuade the Fed that it’s time to start tapering of monthly asset purchases in October.

7.    USD- U.S. Jobless Claims, an important gauge of labor market conditions measuring first-time claims for unemployment benefits, Thurs., Oct. 3, 8:30 am, ET.

Jobless claims are forecast to stay close to their four-year lows with a reading of 315K from 305K in the week before. The trend of declining claims for unemployment benefits is a good leading indicator of future improvement in the U.S. labor market and if this is coupled with stronger jobs creation in the months ahead, the USD should benefit.

8.    USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Thurs., Oct. 3, 10:00 am, ET.

The ISM services index is forecast to retreat from the August high of 58.6 with a reading of 57.2 in September.

9.    JPY- Bank of Japan Interest Rate Announcement, Fri., Oct. 4, around 12:00 am, ET.

With the prospect of a corporate tax cut to offset the hike in the consumption tax currently off the table, come April 2014, the Bank of Japan might be asked to pick up the slack with additional easing. But for the time being, economic conditions have improved and inflationary pressures have risen, creating an environment in which the Bank of Japan wouldn’t need to get more aggressive. The central bank will be likely to reaffirm its commitment to open-ended QE until the 2% inflation target is in sight. As the monetary policies of the Fed and the Bank of Japan diverge in the months ahead, the U.S. dollar should be able to resume its bullish trend against the yen.

10.    USD- U.S. Non-Farm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., Oct. 4, 8:30 am, ET.

Another disappointing nonfarm payrolls report will pretty much eliminate the odds of a Fed taper in 2013 and would contribute to what could become a miserable for the USD month of October. Weaker-than-expected readings and downward revisions for previous months have become a trend in the jobs data throughout the summer. Although we wouldn’t “bet the farm on it”, we could see a bit stronger job creation in September with the economy forecast to add up to 180K jobs compared with 169K in the previous month, while the unemployment rate stays at 7.3%. Should the NFP report surprise to the upside, the USD will regain its footing on expectations that there is still a chance that tapering of monthly asset purchases may be announced by the Fed at the October 29-30 meeting.

Sept. 22, 2013 (Allthingsforex.com) – Following the Fed’s decision to abstain from reducing the size of monthly asset purchases, in the week ahead traders will shift their focus from the U.S. dollar to the euro as the outcome of the German elections and economic data from the euro-zone offer more insights on the future policies of the leader of the union and the state of the 17-nation economy.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    EUR- Germany Federal Elections, Sun., Sept. 22, all day event.

At the time of writing of this article, the latest polls pointed to a clear win for Chancellor Angela Merkel- the country’s first female chancellor and only the fourth chancellor since World War II to win a third term. Ms. Merkel’s Christian Democratic bloc is set to take about 42.5% of the vote and that would give her a one-seat majority in the lower house of the Bundestag, just enough to govern without trying to find a coalition partner (although a coalition to assure more significant majority would likely be formed in upcoming weeks). A third term for Chancellor Merkel should be euro-positive as German policies remain unchanged. Germany is the biggest contributor in the 496 billion euro bailout fund and the current programs of austerity in exchange for financial aid will probably continue to be the blueprint of choice for German participation in future bailouts. The euro could extend its recent rally towards the 2013 high around $1.37.

2.    EUR- Euro-zone Manufacturing and Services PMI- Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the manufacturing and services sectors, Mon., Sept. 23, 4:00 am, ET.

The chronic contraction in the euro-zone’s manufacturing and services sectors finally ended a couple of months ago and both indexes are expected to continue to improve. The Manufacturing PMI is forecast to register another positive month with a reading of 51.8 in September from 51.4 in August, while the Services PMI also heads higher with a preliminary estimate of 51.1 in September from 50.7 in the previous month. Solid PMI reports should keep the EUR supported.

3.    EUR- Germany IFO Business Climate Index, a leading indicator of economic conditions measuring the outlook of businesses, Tues., Sept. 24, 4:00 am, ET.

This could be yet another report that might give the euro a boost next week. The business outlook in the euro-zone’s largest economy is forecast to be more optimistic with the Ifo index forecast to rise to 108.4 in September from 107.5 in August.

4.    USD- U.S. Consumer Confidence, a measure of consumers’ outlook on the economy, Tues., Sept. 24, 10:00 am, ET.

In contrast to the euro-zone data, the outlook of U.S. consumers is expected to deteriorate with the consumer confidence index forecast to decline to 79.9 in August from 81.5 in the previous month.

5.    USD- U.S. New Home Sales, an important gauge of housing market conditions measuring sales of newly-constructed homes, Wed., Sept. 25, 10:00 am, ET.

Mimicking the jump in existing home sales, new home purchases in the U.S. are also forecast to increase to 422K in August from 394K in July.

6.    GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Sept. 26, 4:30 am, ET.

In the first quarter of the year, the U.K. economy managed to avoid an unprecedented triple-dip recession and expanded by 0.3% q/q. The economy grew at an even faster pace by 0.7% q/q in the second quarter and this number is expected to be confirmed as the final Q2 2013 reading. The report could serve as a reminder that the U.K. recovery is on the right track and could keep the GBP rally intact.

7.     USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Thurs., Sept. 26, 8:30 am, ET.

There might be another upward revision on the horizon with the final Q2 GDP reading forecast to show the economy growing faster by 2.7% q/a in the second quarter, compared with the previous estimate of 2.5% q/a. The USD could benefit from accelerating U.S. economic growth which could raise the odds that, despite of the decision to sit on the sidelines in September, the Fed might announce the tapering of asset purchases before the end of the year.

8.    USD- U.S. Pending Home Sales, a leading indicator of housing market activity measuring pending home sale contracts, Thurs., Sept. 26, 10:00 am, ET.

Pending home sales in the United States are expected to register a smaller decline of 0.9% m/m in August, compared with the unexpected 1.3% m/m drop in July as a result of higher mortgage rates.

9.    JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Sept. 26, 7:30 pm, ET.

Inflationary pressures in Japan have been on the rise in recent months and could stay that way with the National core inflation gauge forecast to remain at 0.7% y/y in August, same as the reading in July. With the index exiting deflation territory and heading towards the Bank of Japan’s 2% inflation target, the report could reduce expectations that the Japanese central bank will need to step up its QE campaign, which could mean less pressure on the yen.

10.     USD- U.S. Consumer Sentiment, the University of Michigan’s monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Sept. 27, 9:55 am, ET.

After the disappointing drop in the preliminary estimate, the U.S. consumer sentiment index is forecast to be revised slightly higher to 78.2 in September, but still down from 82.1 in the previous month. The USD will continue to feel the pressure if the U.S. economic data weakens and eliminates the chance of a Fed taper in 2013.

Larry Elliott: It is hard to see how the Fed can start to scale back its quantitative easing program this year. Nobody is sure any longer what the Fed is really up to. What will it take for the Fed to start winding down the stimulus?…

 


Powered by Guardian.co.ukThis article titled “Federal Reserve tapering decision has baffled the markets” was written by Larry Elliott, economics editor, for The Guardian on Thursday 19th September 2013 17.19 UTC

The dust was still settling on Thursday after the Federal Reserve delivered one of the biggest surprises to financial markets in many a year. This was a return to the central banking practices of the past when policymakers liked to keep people guessing about their intentions. These days central bankers pride themselves on their transparency.

But nobody is sure any longer what the Fed is really up to. Clearly it got cold feet about announcing even the most modest reduction in the amount of stimulus provided to the US economy through its long-term asset purchase programme, but both the decision and the way it was announced raised more questions than they answered.

Why was there no warning to the markets that the Fed was worried about the slowdown in growth? Why, in the absence of such a warning, did it not go ahead with a tokenist reduction in the stimulus, of say $5bn (£3.17bn) a month, that would have made good the commitment to start tapering but had no material impact on growth? What will it now take for the Fed to start winding down the stimulus?

But although the Fed’s communications strategy now lies in tatters, some conclusions can be drawn from the postponement of the taper. Firstly, policy is going to remain loose for longer than the markets envisaged. It is hard to see how the Fed can start to scale back its quantitative easing programme this year, and the prospect of the process being completed in 2014 – as originally envisaged – is as good as dead.

Secondly, the Fed is even more doveish than the markets thought. When Ben Bernanke first floated the idea of the taper back in May, the notion was that the trigger for the taper would be falling unemployment. But despite a continued moderate improvement in the labour market, the Fed still feels the time is not ripe to act. It took fright when speculation about the taper led to rising bond yields, making mortgages more expensive. It looked askance when share prices fell. And it is worried about the possible consequences of the looming budget showdown between Democrats and Republicans in Washington. So when the time came to act, it blinked.

Thirdly, the Fed has provided a respite – albeit probably temporary – to emerging markets that had seen their currencies fall against the dollar in anticipation of a gradual withdrawal of the stimulus.

Finally, the muted second day reaction to the decision was the reaction to one final unanswered question: does the Fed have the remotest idea how to unwind the stimulus? As Stephen Lewis of Monument Securities put it: Bernanke has given the “impression of being astride a tiger he dare not dismount.”

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After years of the Fed pumping $85bn a month into financial markets, the strength of the American recovery will be tested. The Federal Reserve chairman is expected to make the symbolic gesture this week of announcing the beginning of the end of QE…

 


Powered by Guardian.co.ukThis article titled “Bernanke set to begin Fed’s tapering of QE – but is the US economy ready?” was written by Heather Stewart and Katie Allen, for The Guardian on Sunday 15th September 2013 20.25 UTC

As Barack Obama gears up to announce Ben Bernanke’s successor, the Federal Reserve chairman is expected to make the deeply symbolic gesture this week of announcing the beginning of the end of quantitative easing – the drastic depression-busting policy that has led the Fed to pump an extraordinary $85bn (£54bn) a month into financial markets.

It will signal the Fed’s belief that the US economy is on the mend, but it could also frighten the markets and hit interest rates. So what exactly is Bernanke doing, why now – and how might it affect the UK and other countries?

What will the Federal Reserve do?

After on Tuesday and Wednesday’s regular policy meeting, the Fed is widely expected to announce that it will start to “taper” its $85bn-a-month quantitative easing (QE) programme, perhaps cutting its monthly purchases of assets such as government bonds by $10bn or $15bn.

Is that good news?

It should be: it means the governors of the Fed, led by the chairman, Bernanke, believe the US economy is strong enough to stand on its own, without support from a constant flow of cheap, electronically created money – though they still have no plans to raise base interest rates from the record low of 0.25%, and they expect to stop adding to QE over a period of up to a year. “We really want to see a situation where central banks should not be pumping money into markets. It’s not a healthy thing to be doing,” says Chris Williamson, chief economist at data provider Markit.

Why are they doing it now?

Economic data is pointing to a modest but steady recovery. House prices have turned, rising by 12% in the year to June. Unemployment has fallen to 7.3%, its lowest level since the end of 2008, albeit partly because many women and retirees have left the workforce.

Since QE on such a huge scale carries its own risks – it can distort financial markets, for example – the Fed is keen to withdraw it once it thinks an upturn is well underway. However, some recent data, including worse-than-expected retail sales figures on Friday, have raised doubts about the health of the upturn.

There’s another reason too: Bernanke’s term as governor ends in January next year, and he may feel that at least making a start on the process of tapering – marking the beginning of the end of the policy emergency that started more than five years ago – would be a fitting end to his tenure.

How will the markets react?

With a shrug, the Fed hopes, since it has carefully communicated its intentions. Scotiabank’s Alan Clarke said: “I think it’s pretty much priced in … Speculation began months ago, the market has already moved and we are still seeing some very robust data. The foot is on the accelerator pedal just a bit more lightly.”

However, a larger-than-expected move could still cause ripples – and a decision not to taper at all would be a shock, though some analysts believe it remains a possibility. Paul Ashworth, US economist at Capital Economics, said: “I don’t think they’ve actually decided on this ahead of time.”

What will investors be looking for?

First, the scale of the reduction in asset purchases. No taper at all might suggest Bernanke and his colleagues have lingering concerns about the health of the economy; a reduction of $20bn a month or more would come as a shock. The tone of the statement, and the chairman’s subsequent press conference, will also be scrutinised, with markets hoping for reassurance that even once tapering is underway, there is no immediate plan to raise interest rates: Bernanke has previously said he doesn’t expect this to take place until unemployment has fallen to 6.5% or below. Williamson said: “I think they will accompany the announcement with a very dovish statement designed not to scare people that the economy is too weak but to reassure stimulus won’t be taken away too quickly.”

What does it mean for the UK?

Long-term interest rates in UK markets have risen sharply since the early summer, at least in part because of the Fed’s announcement on tapering, and that shift, which has a knock-on effect on some mortgage and other loan rates, is likely to continue as the stimulus is progressively withdrawn.

If tapering occurs without setting off a market crash or choking off recovery, it may help to reassure policymakers in the UK that they can tighten policy once the recovery gets firmly under way, without sparking a renewed crisis. David Kern, economic adviser to the British Chamber of Commerce, said: “it will strengthen for me the argument against doing more QE in the UK.”

How will the eurozone be affected?

It could cut both ways: a strengthening US economy is a welcome market for Europe’s exporters, and if the value of the dollar increases against the euro on the prospect of higher interest rates, that will make eurozone goods cheaper.

However, the prospect of an end to QE in the US has also caused bond yields in all major markets to rise, pushing up borrowing costs – including for many governments. That could make life harder for countries such as Spain and Italy that are already in a fiscal tight spot.

What about emerging markets?

Back in May, Bernanke merely had to moot the idea of ending QE to send emerging markets reeling. A side-effect of the unprecedented flood of cheap money under QE has been that banks and other investors have used the cash to make riskier investments in emerging markets. The prospect of that tap being turned off has already seen capital pouring out of emerging markets and currencies, potentially exposing underlying weaknesses in economies that have been flourishing on a ready supply of cheap credit.

“It has triggered all sorts of significant movements around the world out of emerging markets. It’s had big ramifications for India and other parts of Asia,” said Clarke.

Central banks in Brazil and India have been forced to take action to shore up their currencies; Turkey and Indonesia also look vulnerable. Many of these markets have looked calmer in recent weeks, but the concrete fact of tapering could set off a fresh panic.

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