Thursday, May 26, 2011

Pound Gains to a Two-Month High Against Euro; IMF May Not Give Greece Aid

By Emma Charlton - May 26, 2011 11:37 PM GMT+0800

The pound reached an 11-week high against the euro after a European Union policy maker said the International Monetary Fund may not give Greece its next portion of aid, boosting the relative appeal of the U.K. currency.

Britain’s pound appreciated to the highest in two weeks versus the dollar after a report showed the U.S. economy grew less than economists forecast. A gauge of U.K. consumer-services companies dropped to minus 23 in the three months through May from minus 11 in the quarter through February, data showed today. The Bank of England left borrowing costs at a record low of 0.5 percent this month because some policy makers said an increase in interest rates might hurt consumer confidence.

“We’re seeing these comments come out, and that’s weakening the euro against the pound,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “There is still nervousness around in the market with respect to the dollar and anything that is to do with the economic outlook.”

Sterling gained 0.4 percent to 86.26 pence per euro as of 4:36 p.m. in London, after reaching 86.11 pence, the strongest since March 11. It appreciated 0.5 percent to $1.6348, after touching $1.6377, the most since May 12. It was 0.4 percent weaker at 132.93 yen.
‘IMF Rules’

“There are specific IMF rules and one of those rules says that IMF can only take action when the refinancing guarantee is given over 12 months,” Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said today at a conference. “I don’t think that the troika will come to the conclusion that this is given,” he said, referring to the representatives from the IMF, European Central Bank and European Commission who assess Greece’s progress.

The dollar dropped against the yen and euro as data showed the U.S. economy grew at a 1.8 percent annual rate in the first quarter, less than the 2.2 percent forecast by economists in a Bloomberg survey.

The pound weakened against the euro earlier today after the consumer-services report, which showed a gauge of U.K. companies such as hotels and restaurants, fell to the lowest since November 2009.

U.K. central bank officials are locked in a debate over whether to tighten monetary policy after inflation accelerated to 4.5 percent in April, the fastest since 2008. While the European Central Bank and Sweden’s Riksbank have already started raising rates, Bank of England Governor Mervyn King says it’s too soon because the recovery remains weak. Advocates of a rate increase say the price surge risks becoming embedded in the economy unless policy makers act.

U.K. Exports

The pound strengthened against the dollar and the euro yesterday as a report showed U.K. exports helped the economy resumed growth in the first quarter, outweighing the biggest slump in consumer spending in almost two years.

Sweden’s SEB AB advised selling the pound against the euro, saying the Bank of England won’t be able to raise interest rates without harming exports that boost the economy.

“Yesterday’s gross domestic product report underlines that a hike from the BOE is impossible within a foreseeable future,” Richard Falkenhall, a Stockholm-based currency strategist, wrote in an e-mailed note today. “Higher rates would probably strengthen the pound, at least short term, and hurt the only part having a positive impact on growth -- external demand. Domestic demand is extremely weak.”

U.K. government bonds were little changed, with the yield on the 10-year gilt down one basis point to 3.32 percent and the two-year note yield at 0.93 percent.

Sunday, May 15, 2011

Obama Says U.S. Default May ‘Unravel’ Global Finances

By Roger Runningen and James Rowley - May 16, 2011 1:11 AM GMT+0800

President Barack Obama said failure to raise the U.S. debt ceiling by early August might disrupt the global financial system and plunge the nation into another recession.

If investors “around the world thought the full faith and credit of the U.S. was not being backed up, if they thought we might renege on our IOUs, it could unravel the entire financial system,” Obama said on a segment taped for today’s “Face the Nation” program on CBS. “We could have a worse recession than we’ve already had.”

Obama is reaching out to Republican and Democratic lawmakers to win approval of an increase in the debt ceiling. The government projected this month that the $14.3 trillion debt limit will be reached tomorrow. Treasury Secretary Timothy Geithner says that while he can juggle accounts for a time, he will run out of options for avoiding default by early August.

Republicans including House Speaker John Boehner of Ohio and Senate Minority Leader Mitch McConnell of Kentucky are seeking trillions of dollars of spending cuts and no tax increases in exchange for supporting a higher debt limit. Obama on April 13 proposed a long-term deficit-reduction package of about $4 trillion over 12 years. It includes $2 trillion in spending cuts, $1 trillion in tax increases and $1 trillion in reduced interest payments.
‘Totally Irresponsible’

Boehner, who in a May 9 speech demanded spending cuts greater than the amount of any debt-ceiling increase, said today that he understood “what the president was saying about jeopardizing the full faith and credit of the United States.”

“Our obligation is to raise the debt ceiling,” he said on CBS’s “Face the Nation.” “But to raise the debt ceiling without dealing with the underlying problem is totally irresponsible.”

Obama appointed Vice President Joe Biden to lead negotiations with congressional leaders to try to strike a deal on reducing debt and deficits. The small group of negotiators has met three times with Biden. The president held separate talks with Senate Republicans and Democrats May 11 and May 12.

“I’ve said, ‘Get them in a room, hammer out a deal, and make sure that we don’t even get close’” to defaulting on the nation’s debt, Obama said.

Debt reduction must be “balanced” and include tax increases, Obama said.
‘Shared’ Burden

“Are we going to make sure no single group -- not seniors, not poor folks, not any single group -- is carrying the whole burden? Let’s make sure the burden is shared,” Obama said on the CBS program, which was taped May 11 in Washington for broadcast today.

Obama said he would resist cuts in such areas as medical research; infrastructure such as roads, bridges or railroads; or college loans for needy students.

“My hope is that Congress is going to say, ‘This is so serious, we can’t play politics with it,’” Obama said. “Have faith that usually after trying everything else, we end up doing the right thing.”

Obama’s statement “makes me think he is really not serious about tackling the big problems that face our country,” Boehner said. “He’s talking about it, but I am not seeing real action yet.”

Still, Boehner said he was optimistic that the talks led by Biden would yield an agreement on legislation to cut spending and extend the government’s borrowing authority.
‘Opportunity to Act’

“We don’t have to wait to the eleventh hour” like Congress did last month to extend federal spending and avoid a government shutdown, Boehner said. “But I am not going to walk away from this moment” of “opportunity to act” to make serious spending cuts, he said.

“At the end of this process, it’s going to have to come to that,” Boehner said of extending the government’s borrowing authority.

The speaker said that “for quite a while” he has privately discussed with Obama his idea for making drastic spending cuts and changes in entitlements like Medicare and other programs in tandem with raising the debt ceiling.

Boehner said he told Obama, “‘Let’s lock arms and jump out of the boat together.’ I am serious about dealing with this. And I hope he is just as serious.”

One of Boehner’s predecessors as House speaker, Republican presidential candidate Newt Gingrich, said on NBC’s “Meet the Press” that Congress should “avoid default if you possibly can” but that the president shouldn’t get “a blank check.”

McConnell, appearing today on CNN’s “State of the Union,” said he wants extension of the debt limit coupled with broad- reaching fiscal reforms.

“We need to do something significant,” he said. “We need to impress the markets, impress foreign countries that we’re going to get our act together, and astonish the American people that the adults are in charge in Washington and are actually going to deal with this issue.”

Thursday, May 5, 2011

Australia Prepares to Tighten Fiscal Policy in Hit to Consumers

By Gemma Daley - May 5, 2011 10:01 PM GMT+0800

Australia’s government next week will unveil spending cuts aimed at assuring a return to a budget surplus, helping the nation’s central bank contain inflation at the expense of growth in the economy’s 20th year of expansion.

Treasurer Wayne Swan is scheduled to detail on May 10 the programs to be trimmed even after Australia’s costliest natural disasters and a currency appreciation that may undermine export competitiveness. The steps are designed to strengthen the fiscal position of a country reliant on Chinese demand for its minerals that has left what officials call a “patchwork” economy.

The plans would leave the government’s fiscal stance supporting monetary policy in the developed nation with the highest borrowing costs. Prime Minister Julia Gillard may be trying to head off rate rises that would add to challenges for an administration with a 15-year-low public approval rating.

“Officials are worried they will be blamed for rate hikes,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. “This surplus promise is a political imperative and it’s the one promise they don’t want to break.”

JPMorgan says the government may toughen rules for 800,000 people on the disability pension, scrap or reduce welfare payments, cut family-tax incentives, stop higher-paid workers from receiving a private health-insurance incentive and pare back medical-testing payments.
Consumption Drag

Such steps would add to a drag on consumer spending after households boosted savings rates in the aftermath of the global financial crisis. Retail sales fell in March for the first time in five months, sending shares lower for Myer Holdings Ltd. (MYR), David Jones Ltd. (DJS) and Woolworths Ltd. (WOW) Yesterday’s retail report spurred some economists to predict a first-quarter contraction.

“The main impact of the budget on the economy will be quite contractionary in terms of growth,” said Brian Redican, senior economist in Sydney at Macquarie Group Ltd., Australia’s biggest investment bank. “The imposition of a flood levy is going to ensure that consumers stay in their holes.”

Swan has described it as a “tough” budget as the government tries to deliver a surplus in the year ending June 30, 2013, to improve its reputation for fiscal stewardship. Flooding across Australia, Tropical Cyclone Yasi, bushfires, an 18 percent gain in the local dollar from a year ago against the U.S. currency and slower consumer spending have seen revenue fall by A$6.5 billion ($6.9 billion) since a November budget forecast.
Levy for Recovery

The flood levy, applying a range of increases in income taxes, is forecast to raise about A$1.8 billion. Deloitte Access Economics forecasts the budget gap will shrink to A$21.7 billion in the 2011-12 fiscal year, from A$51.4 billion deficit this year.

Standard & Poor’s and Moody’s Investors Service, which have awarded the nation their top investment grade, have said the government could delay the budget surplus and not affect ratings.

The bonds have lured Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co. He said May 3 investors should prefer Australian and Canadian government debt and shun U.S. Treasuries.

Australia will tighten fiscal policy by 3.7 percentage points of gross domestic product in the two years through 2012, the second-steepest reduction in deficits in the world, the International Monetary Fund predicted last month. GDP rose 0.7 percent in the fourth quarter, accelerating from 0.1 percent in the previous three months.

Rate Increases

The tightening would add to a monetary brake on the economy that has amounted to a 175 basis point cumulative increase in the benchmark interest rate from October 2009 to November last year. The Reserve Bank of Australia has kept the cash rate target unchanged at 4.75 percent since then.

“Interest rates have to go up, but that will have enormous damage on some sectors of the economy that aren’t doing so well,” said Gerry Harvey, executive chairman of No. 1 furniture and electrical retailer Harvey Norman Ltd.

Harvey said consumers of his items had “never had it so good” with a stronger dollar making imported electronics cheaper. By contrast, industries such as manufacturing and tourism are hurting under the currency gains, Treasurer Swan has said.

All told, a tighter fiscal stance is appropriate given job gains and strength in commodity exports, according to Art Woo, director of Asia sovereign ratings at Fitch Ratings. “Australia probably needs a combination of tightening to take place in both fiscal and monetary policy,” he said.

Worst Since ‘96

Separate efforts by the Gillard administration to impose a tax on mining companies’ profits and charge companies for their pollution to reduce greenhouse emissions have proven unpopular. Those who would choose the Labor Party as their first pick in an election fell to 31 percent, the lowest since May 1996, according to a Nielsen opinion survey of 1,400 people published in the Age newspaper on April 18.

“Voters are turned off by the carbon tax, the mining tax and the flood tax,” said Nick Economou, political analyst at Melbourne’s Monash University. “The government is drowning and because of its tenuous hold on power, this budget won’t save it,” he predicted.

Japan Monetary Base Jumps 23.9% In April

by RTT Staff Writer 5/5/2011 7:58 PM ET


(RTTNews) - The monetary base in Japan climbed 23.9 percent on year in April, the Bank of Japan said on Friday, standing at 121.893 trillion yen. That follows a 16.9 percent annual expansion in March.

Banknotes in circulation added 3.7 percent on year, while coins in circulation rose just 0.1 percent. The current account balances surged 123.4 percent on year, including a 109.3 percent annual spike in reserve balances.

The adjusted monetary base climbed a seasonally adjusted 119.5 percent annualized to 119.740 trillion yen.