By Rodney Jefferson
March 1 (Bloomberg) -- While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.
Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Concern that Greece won’t be able to cut its budget deficit helped send the euro 5 percent lower against the dollar this year.
“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”
Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.
Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”
U.K. fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than 30 billion pounds ($45 billion), said in January they are buying companies that do the bulk of their business abroad.
‘Very Dire’
“When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for 560 million pounds. “I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”
The U.K.’s budget deficit is roughly the same as Greece’s, both exceeding 12 percent of economic output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.
British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record 225.1 billion pounds from the 220 billion pounds announced in April. Moody’s Investors Service said in December the U.K. may “test the Aaa boundaries.”
Brown must call an election by June and some polls signal that no party will emerge with a clear majority.
Hung Parliament
A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 percent from a previous estimate of 0.1 percent.
“There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the U.K.”
The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the U.K. cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a Feb. 24 report.
Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.
‘Devalue the Currency’
The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said. Policy maker Adam Posen said Feb. 24 the central bank may expand the 200 billion-pound asset-purchase plan should the economic recovery prove weaker than expected.
“If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”
Bathgate said he sold conventional U.K. government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.
The firm also has reduced holdings in corporate bonds because of the potential “knock-on impact” from a decline in government securities.
The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03 percent last week. The yield on Greek 10-year bonds fell 6 points to 6.39 percent. German bunds, the region’s benchmark debt, declined 18 points to 3.10 percent.
Turcan Connell, whose clients typically have at least 5 million pounds to invest, was founded in 1998 and oversees about 1 billion pounds in total. Bathgate is responsible for allocating money to different funds, and half is currently in stocks portfolios with 30 percent in hedge funds and other so- called alternative investments.
Sunday, February 28, 2010
Greece Now, U.K. Next as Scots Investors Ready for Pound Plunge
By Rodney Jefferson
March 1 (Bloomberg) -- While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.
Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Concern that Greece won’t be able to cut its budget deficit helped send the euro 5 percent lower against the dollar this year.
“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”
Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.
Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”
U.K. fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than 30 billion pounds ($45 billion), said in January they are buying companies that do the bulk of their business abroad.
‘Very Dire’
“When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for 560 million pounds. “I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”
The U.K.’s budget deficit is roughly the same as Greece’s, both exceeding 12 percent of economic output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.
British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record 225.1 billion pounds from the 220 billion pounds announced in April. Moody’s Investors Service said in December the U.K. may “test the Aaa boundaries.”
Brown must call an election by June and some polls signal that no party will emerge with a clear majority.
Hung Parliament
A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 percent from a previous estimate of 0.1 percent.
“There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the U.K.”
The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the U.K. cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a Feb. 24 report.
Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.
‘Devalue the Currency’
The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said. Policy maker Adam Posen said Feb. 24 the central bank may expand the 200 billion-pound asset-purchase plan should the economic recovery prove weaker than expected.
“If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”
Bathgate said he sold conventional U.K. government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.
The firm also has reduced holdings in corporate bonds because of the potential “knock-on impact” from a decline in government securities.
The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03 percent last week. The yield on Greek 10-year bonds fell 6 points to 6.39 percent. German bunds, the region’s benchmark debt, declined 18 points to 3.10 percent.
Turcan Connell, whose clients typically have at least 5 million pounds to invest, was founded in 1998 and oversees about 1 billion pounds in total. Bathgate is responsible for allocating money to different funds, and half is currently in stocks portfolios with 30 percent in hedge funds and other so- called alternative investments.
March 1 (Bloomberg) -- While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.
Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Concern that Greece won’t be able to cut its budget deficit helped send the euro 5 percent lower against the dollar this year.
“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”
Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.
Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”
U.K. fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than 30 billion pounds ($45 billion), said in January they are buying companies that do the bulk of their business abroad.
‘Very Dire’
“When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for 560 million pounds. “I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”
The U.K.’s budget deficit is roughly the same as Greece’s, both exceeding 12 percent of economic output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.
British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record 225.1 billion pounds from the 220 billion pounds announced in April. Moody’s Investors Service said in December the U.K. may “test the Aaa boundaries.”
Brown must call an election by June and some polls signal that no party will emerge with a clear majority.
Hung Parliament
A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 percent from a previous estimate of 0.1 percent.
“There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the U.K.”
The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the U.K. cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a Feb. 24 report.
Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.
‘Devalue the Currency’
The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said. Policy maker Adam Posen said Feb. 24 the central bank may expand the 200 billion-pound asset-purchase plan should the economic recovery prove weaker than expected.
“If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”
Bathgate said he sold conventional U.K. government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.
The firm also has reduced holdings in corporate bonds because of the potential “knock-on impact” from a decline in government securities.
The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03 percent last week. The yield on Greek 10-year bonds fell 6 points to 6.39 percent. German bunds, the region’s benchmark debt, declined 18 points to 3.10 percent.
Turcan Connell, whose clients typically have at least 5 million pounds to invest, was founded in 1998 and oversees about 1 billion pounds in total. Bathgate is responsible for allocating money to different funds, and half is currently in stocks portfolios with 30 percent in hedge funds and other so- called alternative investments.
Friday, February 26, 2010
European Economy Risks Decoupling From Global Growth Recovery
By Mark Deen
Feb. 26 (Bloomberg) -- Europe’s economy may be coming unstuck from the global recovery as governments to the south of the region struggle to reverse budget deficits and consumers in the north pull back spending.
After the 16-nation euro economy almost stagnated in the fourth quarter, data this week showed the weakness reaching into 2010. Confidence among households and companies worsened unexpectedly, French consumer spending fell and bank loans to the private sector slid for a fifth month. At the same time, Standard & Poor’s said it may soon downgrade Greece again as the country grapples with the region’s largest budget shortfall.
Signs of a flagging recovery risk extending the euro’s slide against the dollar. They are also prompting Citigroup Inc. to advise investors to favor German government bonds and UBS AG to recommend European stocks with links to the faster-growing U.S., such as Daimler AG. As they cut their growth forecasts, economists predict slower interest-rate increases from the European Central Bank, whose governing council meets next week.
“Europe is where we see the biggest risk of a double dip at the global level,” said Julian Callow, chief European economist at Barclays Capital in London. “Europe has been lagging and we’ve continued to see better numbers in Asia and now the U.S.”
The European Commission yesterday said the euro-area recovery may not gather momentum until the fourth quarter and maintained its forecast for 0.7 percent growth this year. Citigroup cut its 2010 growth prediction to 1.1 percent, while raising its projection for the U.S. to 3.2 percent.
ECB Policy
Having begun the year predicting the ECB would lift its benchmark interest rate from a record low of 1 percent in the second quarter and to 2 percent by the end of the year, economists at Bank of America Merrill Lynch now don’t expect any increase until December.
Still, ECB policy makers meeting in Frankfurt on March 4 will take decisions on a further “gradual” phasing out of emergency measures introduced to fight the financial crisis, council member George Provopoulos said in an interview on Feb. 19. After already announcing the end of its 12- and 6-month loans, President Jean-Claude Trichet has indicated the bank may return to an auction procedure in some of its refinancing operations as a next step.
Stocks Decline
The outlook for the economy is unnerving investors and taking its toll on stocks. While the S&P 500 Index in the U.S. has risen 3.8 percent this year, Europe’s Dow Jones Stoxx 50 has dropped 9.5 percent, giving up almost half of its 2009 gain.
The euro has fallen almost 6 percent against the dollar this year on speculation the U.S. will recover faster and concerns about Greece’s fiscal problems. That decline may continue, according to Chris Turner, head of foreign-exchange strategy at ING Financial Markets, who says the euro “will struggle” to return to $1.37 and is more likely to slip to $1.30. The currency was at $1.3499 late yesterday in London.
Investors should favor German bonds over U.S. Treasuries because the ECB will lag behind the Federal Reserve in raising rates, Citigroup said on Feb. 23. At UBS, strategist Nick Nelson says that European companies making more than a quarter of their sales in the U.S. may benefit from the dollar’s strength and the U.S. rebound.
“There are tentative signs that the U.S. economy may be pulling ahead from Europe,” Nelson said in a Feb. 23 report, which cited luxury carmaker Daimler and publisher Wolters Kluwer NV among potential winners.
‘Stalled’
The euro-area is also troubling policy makers abroad. Bank of England Governor Mervyn King said on Feb. 23 that indications the U.K.’s largest trading partner has “stalled” threatens U.K. exports.
Alcatel-Lucent SA, the world’s biggest supplier of fixed- line phone networks, this month lowered its 2010 profit-margin targets. RWE AG, Germany’s second-largest utility, yesterday reduced its earnings growth forecast because of delays in developing power plants as well as oil and gas projects.
“It will take several years for the European economy to return to the level seen in 2008,” RWE Chief Executive Officer Juergen Grossmann said.
Rising borrowing costs on the back of Greece’s mounting fiscal problems may further undermine Europe’s economy. The impact of sliding sovereign bonds could be “broader, weighing further on the recovery” by pushing up financing costs, the commission said yesterday.
Growth Brake
The drive to shrink budget deficits in Greece, Spain, Portugal and elsewhere is another potential brake. Barclays’s Callow estimates that countries representing 20 percent of the euro region’s output will have a fiscal tightening of 2 percent of gross domestic product in 2010.
“The sovereign debt crisis in Europe’s periphery reinforces drags on euro-area growth,” said Michael Saunders, an economist at Citigroup in London.
Consumers will also keep retrenching as unemployment rises from December’s 11-year high after climbing slowly last year when government aid limited firings, said Gilles Moec, an economist at Deutsche Bank AG in London. Spending may also suffer as governments cut programs used to stoke consumer demand in 2009.
“Now we’re getting the backlash,” said Moec, who predicts global and euro-zone growth of 4.1 percent and 1.1 percent, respectively, this year. “Domestic demand is feeling the lagged effects of the recession.”
Feb. 26 (Bloomberg) -- Europe’s economy may be coming unstuck from the global recovery as governments to the south of the region struggle to reverse budget deficits and consumers in the north pull back spending.
After the 16-nation euro economy almost stagnated in the fourth quarter, data this week showed the weakness reaching into 2010. Confidence among households and companies worsened unexpectedly, French consumer spending fell and bank loans to the private sector slid for a fifth month. At the same time, Standard & Poor’s said it may soon downgrade Greece again as the country grapples with the region’s largest budget shortfall.
Signs of a flagging recovery risk extending the euro’s slide against the dollar. They are also prompting Citigroup Inc. to advise investors to favor German government bonds and UBS AG to recommend European stocks with links to the faster-growing U.S., such as Daimler AG. As they cut their growth forecasts, economists predict slower interest-rate increases from the European Central Bank, whose governing council meets next week.
“Europe is where we see the biggest risk of a double dip at the global level,” said Julian Callow, chief European economist at Barclays Capital in London. “Europe has been lagging and we’ve continued to see better numbers in Asia and now the U.S.”
The European Commission yesterday said the euro-area recovery may not gather momentum until the fourth quarter and maintained its forecast for 0.7 percent growth this year. Citigroup cut its 2010 growth prediction to 1.1 percent, while raising its projection for the U.S. to 3.2 percent.
ECB Policy
Having begun the year predicting the ECB would lift its benchmark interest rate from a record low of 1 percent in the second quarter and to 2 percent by the end of the year, economists at Bank of America Merrill Lynch now don’t expect any increase until December.
Still, ECB policy makers meeting in Frankfurt on March 4 will take decisions on a further “gradual” phasing out of emergency measures introduced to fight the financial crisis, council member George Provopoulos said in an interview on Feb. 19. After already announcing the end of its 12- and 6-month loans, President Jean-Claude Trichet has indicated the bank may return to an auction procedure in some of its refinancing operations as a next step.
Stocks Decline
The outlook for the economy is unnerving investors and taking its toll on stocks. While the S&P 500 Index in the U.S. has risen 3.8 percent this year, Europe’s Dow Jones Stoxx 50 has dropped 9.5 percent, giving up almost half of its 2009 gain.
The euro has fallen almost 6 percent against the dollar this year on speculation the U.S. will recover faster and concerns about Greece’s fiscal problems. That decline may continue, according to Chris Turner, head of foreign-exchange strategy at ING Financial Markets, who says the euro “will struggle” to return to $1.37 and is more likely to slip to $1.30. The currency was at $1.3499 late yesterday in London.
Investors should favor German bonds over U.S. Treasuries because the ECB will lag behind the Federal Reserve in raising rates, Citigroup said on Feb. 23. At UBS, strategist Nick Nelson says that European companies making more than a quarter of their sales in the U.S. may benefit from the dollar’s strength and the U.S. rebound.
“There are tentative signs that the U.S. economy may be pulling ahead from Europe,” Nelson said in a Feb. 23 report, which cited luxury carmaker Daimler and publisher Wolters Kluwer NV among potential winners.
‘Stalled’
The euro-area is also troubling policy makers abroad. Bank of England Governor Mervyn King said on Feb. 23 that indications the U.K.’s largest trading partner has “stalled” threatens U.K. exports.
Alcatel-Lucent SA, the world’s biggest supplier of fixed- line phone networks, this month lowered its 2010 profit-margin targets. RWE AG, Germany’s second-largest utility, yesterday reduced its earnings growth forecast because of delays in developing power plants as well as oil and gas projects.
“It will take several years for the European economy to return to the level seen in 2008,” RWE Chief Executive Officer Juergen Grossmann said.
Rising borrowing costs on the back of Greece’s mounting fiscal problems may further undermine Europe’s economy. The impact of sliding sovereign bonds could be “broader, weighing further on the recovery” by pushing up financing costs, the commission said yesterday.
Growth Brake
The drive to shrink budget deficits in Greece, Spain, Portugal and elsewhere is another potential brake. Barclays’s Callow estimates that countries representing 20 percent of the euro region’s output will have a fiscal tightening of 2 percent of gross domestic product in 2010.
“The sovereign debt crisis in Europe’s periphery reinforces drags on euro-area growth,” said Michael Saunders, an economist at Citigroup in London.
Consumers will also keep retrenching as unemployment rises from December’s 11-year high after climbing slowly last year when government aid limited firings, said Gilles Moec, an economist at Deutsche Bank AG in London. Spending may also suffer as governments cut programs used to stoke consumer demand in 2009.
“Now we’re getting the backlash,” said Moec, who predicts global and euro-zone growth of 4.1 percent and 1.1 percent, respectively, this year. “Domestic demand is feeling the lagged effects of the recession.”
Economy in U.S. Expanded at 5.9 Percent Pace in Fourth Quarter
By Timothy R. Homan
Feb. 26 (Bloomberg) -- The economy in the U.S. expanded at a 5.9 percent annual rate in the fourth quarter, more than the government reported last month, reflecting stronger business investment and a greater contribution from inventories.
The rise in gross domestic product, which exceeded the median forecast of economists surveyed by Bloomberg News, marked the best performance in more than six years, the Commerce Department said today in Washington. Inventories added 3.88 percentage points to GDP, more than previously reported, and investment in software and equipment grew at the fastest pace in almost a decade.
Manufacturers such as Deere & Co. may continue to lead the recovery as increasing sales prompt companies to boost purchases and add to stockpiles. At the same time, consumer spending, which accounts for 70 percent of the economy, is likely to be restrained by an unemployment rate that’s forecast to average 9.8 percent this year.
“Business equipment investment will continue to make a significant contribution to growth in 2010,” Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “Consumer spending is not expected to energize the recovery in 2010, but rather plod along at relatively subdued rates.”
The economy was forecast to grow at a 5.7 percent annual pace, the same rate the government initially reported in January, according to the median estimate of 76 economists in a Bloomberg News survey. Estimates ranged from gains of 4.2 percent to 6.3 percent.
2.4% Decline
For all of 2009, the economy shrank 2.4 percent, the worst single-year performance since 1946.
The GDP report is the second for the fourth quarter and will be revised in March as more information, such as corporate profits, becomes available to the government.
Consumer spending rose at a 1.7 percent pace, compared with the 2 percent rate forecast by economists and a 2.8 percent gain in the prior quarter. Spending added 1.23 percentage points to GDP.
Third-quarter purchases received a boost from the government’s auto-incentive program that offered buyers discounts to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan expired in August.
Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.
Inventories
Increases in production last quarter stemmed the slide in inventories from earlier in the year. Stockpiles dropped at a $16.9 billion annual pace following a $139.2 billion decline the previous three months. Inventories declined at a record $160.2 billion pace in the second quarter.
Today’s report showed purchases of equipment and software increased at an 18.2 percent pace in the fourth quarter, the most since 2000. The gain helped offset a 13.9 percent drop in commercial construction, leaving total business investment up 6.2 percent during the final three months of 2009.
A report yesterday showed companies ordered more capital goods in January, driven primarily by bookings for commercial aircraft. Declines in other, less volatile industries indicate business investment may be slowing, according to yesterday’s Commerce Department figures.
The job market is one part of the economy where a recovery is slow to take hold. Payrolls fell by 20,000 last month after a 150,000 drop in December. The U.S. has lost 8.4 million since the start of the recession in December 2007, the most of any slowdown in the post-World War II era.
Unemployment
The jobless rate fell to 9.7 percent in January, the Labor Department said on Feb. 5. Unemployment is projected to end the year at 9.5 percent, according to a Bloomberg survey.
In other areas of the economy, today’s report showed a smaller trade deficit, which contributed 0.3 percentage point to fourth-quarter growth. Government spending fell at a 1.2 percent pace after a 2.6 percent increase the previous quarter.
Residential construction climbed at a 5 percent rate last quarter after expanding at a 18.9 percent pace in the previous three months.
Deere, the world’s largest maker of farm machinery, posted first-quarter profit this month that topped analysts’ estimates and raised its 2010 forecast. Chief Executive Officer Samuel Allen said Feb. 17 that full-year equipment revenue will increase as much as 8 percent.
“Positive developments based on the world’s prospects for population and economic growth hold great potential and should help our company,” he said in a statement.
Inflation stayed within the Fed’s long-term forecast range, today’s report showed. The central bank’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.6 percent annual pace following a 1.2 percent increase in the prior quarter.
The GDP price gauge climbed at a 0.4 percent pace, less than the 0.6 percent median forecast of economists surveyed.
Feb. 26 (Bloomberg) -- The economy in the U.S. expanded at a 5.9 percent annual rate in the fourth quarter, more than the government reported last month, reflecting stronger business investment and a greater contribution from inventories.
The rise in gross domestic product, which exceeded the median forecast of economists surveyed by Bloomberg News, marked the best performance in more than six years, the Commerce Department said today in Washington. Inventories added 3.88 percentage points to GDP, more than previously reported, and investment in software and equipment grew at the fastest pace in almost a decade.
Manufacturers such as Deere & Co. may continue to lead the recovery as increasing sales prompt companies to boost purchases and add to stockpiles. At the same time, consumer spending, which accounts for 70 percent of the economy, is likely to be restrained by an unemployment rate that’s forecast to average 9.8 percent this year.
“Business equipment investment will continue to make a significant contribution to growth in 2010,” Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “Consumer spending is not expected to energize the recovery in 2010, but rather plod along at relatively subdued rates.”
The economy was forecast to grow at a 5.7 percent annual pace, the same rate the government initially reported in January, according to the median estimate of 76 economists in a Bloomberg News survey. Estimates ranged from gains of 4.2 percent to 6.3 percent.
2.4% Decline
For all of 2009, the economy shrank 2.4 percent, the worst single-year performance since 1946.
The GDP report is the second for the fourth quarter and will be revised in March as more information, such as corporate profits, becomes available to the government.
Consumer spending rose at a 1.7 percent pace, compared with the 2 percent rate forecast by economists and a 2.8 percent gain in the prior quarter. Spending added 1.23 percentage points to GDP.
Third-quarter purchases received a boost from the government’s auto-incentive program that offered buyers discounts to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan expired in August.
Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.
Inventories
Increases in production last quarter stemmed the slide in inventories from earlier in the year. Stockpiles dropped at a $16.9 billion annual pace following a $139.2 billion decline the previous three months. Inventories declined at a record $160.2 billion pace in the second quarter.
Today’s report showed purchases of equipment and software increased at an 18.2 percent pace in the fourth quarter, the most since 2000. The gain helped offset a 13.9 percent drop in commercial construction, leaving total business investment up 6.2 percent during the final three months of 2009.
A report yesterday showed companies ordered more capital goods in January, driven primarily by bookings for commercial aircraft. Declines in other, less volatile industries indicate business investment may be slowing, according to yesterday’s Commerce Department figures.
The job market is one part of the economy where a recovery is slow to take hold. Payrolls fell by 20,000 last month after a 150,000 drop in December. The U.S. has lost 8.4 million since the start of the recession in December 2007, the most of any slowdown in the post-World War II era.
Unemployment
The jobless rate fell to 9.7 percent in January, the Labor Department said on Feb. 5. Unemployment is projected to end the year at 9.5 percent, according to a Bloomberg survey.
In other areas of the economy, today’s report showed a smaller trade deficit, which contributed 0.3 percentage point to fourth-quarter growth. Government spending fell at a 1.2 percent pace after a 2.6 percent increase the previous quarter.
Residential construction climbed at a 5 percent rate last quarter after expanding at a 18.9 percent pace in the previous three months.
Deere, the world’s largest maker of farm machinery, posted first-quarter profit this month that topped analysts’ estimates and raised its 2010 forecast. Chief Executive Officer Samuel Allen said Feb. 17 that full-year equipment revenue will increase as much as 8 percent.
“Positive developments based on the world’s prospects for population and economic growth hold great potential and should help our company,” he said in a statement.
Inflation stayed within the Fed’s long-term forecast range, today’s report showed. The central bank’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.6 percent annual pace following a 1.2 percent increase in the prior quarter.
The GDP price gauge climbed at a 0.4 percent pace, less than the 0.6 percent median forecast of economists surveyed.
Monday, February 15, 2010
Greece’s Goldman Sachs Swaps Spawn EU Dispute on Disclosure
By Elisa Martinuzzi and Gavin Finch
Feb. 16 (Bloomberg) -- A dispute is unfolding about how long European Union officials have known that Greece used derivatives to conceal its growing budget deficit.
Greece turned to Goldman Sachs Group Inc. in 2002, just after adopting the euro, to get $1 billion in funding through a swap on $10 billion of debt, Christoforos Sardelis, head of Greece’s Public Debt Management Agency at the time, said in an interview last week. Eurostat, the EU’s statistics office, was aware of the plan, he said. Risk Magazine also reported on the swap in July 2003.
“Eurostat was not until recently aware of this alleged currency swap transaction made by Greece,” spokesman Johan Wullt said by e-mail yesterday.
The disagreement about who knew what and when comes amid the worst crisis in the euro’s 11-year history. The existence of the swaps, which allowed Greece to delay payments and shrink its reported budget deficit, is fueling questions about whether Greece used the contracts to mask the fact it was struggling to comply with the currency’s membership criteria from the early days of its entry into the eurozone.
“Greece falsified deficit statistics, and that can’t be legal,” said Wolfgang Gerke, president of the Bavarian Center of Finance in Munich and honorary professor at the European School of Business. “Greece needs to be kicked out of the EU because otherwise there will be new copycats, and that could lead to the next catastrophe on financial markets.”
EU regulators pressed Greece yesterday to disclose details of currency swaps after an inquiry by the country’s finance ministry uncovered a series of agreements with banks that it may have used to conceal mounting debt.
Legal ‘At the Time’
One issue is whether Greece was legally obliged at the time to notify Eurostat. Finance Minister George Papaconstantinou said yesterday the use of swaps was “at the time legal.” The contracts are now no longer legal, and Greece doesn’t use them, he said during a question-and-answer session at a conference in Brussels yesterday.
Eurostat has required information about swaps since 2007, Wullt said. The watchdog doesn’t need to be notified of individual deals, he added.
“It is legitimate if the underlying exchange rates and the interest rates of such swaps are calculated from the observed market rates and this is something we will have to assess,” European Commission spokesman Amadeu Altafaj said yesterday.
EU regulators have blessed the use of derivatives contracts to let countries curb their deficits. In 2001, the Commission, the EU’s regulatory arm, approved Italy’s use of derivatives that helped to reduce its budget deficit in 1997. Italy swapped fixed payments on a three-year, yen-denominated bond in 1996, for a floating rate, allowing it to temporarily cut the amount of interest paid on the debt.
‘Lurking in the Shadows’
European politicians this week criticized New York-based Goldman Sachs for arranging the Greek swap and are pressing for more disclosure. Chancellor Angela Merkel’s Christian Democrats aim to push for new rules that will force euro-region nations and banks to disclose bond swaps that have an impact on public finances, financial affairs spokesman Michael Meister said yesterday.
“Goldman Sachs broke the spirit of the Maastricht Treaty, though it is not certain it broke the law,” Meister said in an interview yesterday. “What is certain is that we must never leave this kind of thing lurking in the shadows again.”
Joanna Carss, a London-based spokeswoman for Goldman Sachs, the most profitable securities firm in Wall Street history, declined to comment.
Luxembourg’s Jean-Claude Juncker said euro-area finance ministers discussed Goldman Sachs’s and Greece’s use of derivatives on the fringes of a meeting yesterday in Brussels.
Cross-Currency Swap
The Goldman Sachs transaction consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, Sardelis said. That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion of funding, he added. Sardelis declined to give specifics on by how much the swap reduced the country’s reported deficit or debt.
Greece, whose burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999, joined the euro in 2001. Member nations must keep deficits at less than 3 percent of gross domestic product and trim national debt to less than 60 percent of GDP under the pact.
Greek Prime Minister George Papandreou, who came to power in October, more than tripled the country’s 2009 deficit estimate to 12.7 percent, and officials last month pledged to provide more reliable statistics after the EU complained of “severe irregularities” in the nation’s economic data.
Feb. 16 (Bloomberg) -- A dispute is unfolding about how long European Union officials have known that Greece used derivatives to conceal its growing budget deficit.
Greece turned to Goldman Sachs Group Inc. in 2002, just after adopting the euro, to get $1 billion in funding through a swap on $10 billion of debt, Christoforos Sardelis, head of Greece’s Public Debt Management Agency at the time, said in an interview last week. Eurostat, the EU’s statistics office, was aware of the plan, he said. Risk Magazine also reported on the swap in July 2003.
“Eurostat was not until recently aware of this alleged currency swap transaction made by Greece,” spokesman Johan Wullt said by e-mail yesterday.
The disagreement about who knew what and when comes amid the worst crisis in the euro’s 11-year history. The existence of the swaps, which allowed Greece to delay payments and shrink its reported budget deficit, is fueling questions about whether Greece used the contracts to mask the fact it was struggling to comply with the currency’s membership criteria from the early days of its entry into the eurozone.
“Greece falsified deficit statistics, and that can’t be legal,” said Wolfgang Gerke, president of the Bavarian Center of Finance in Munich and honorary professor at the European School of Business. “Greece needs to be kicked out of the EU because otherwise there will be new copycats, and that could lead to the next catastrophe on financial markets.”
EU regulators pressed Greece yesterday to disclose details of currency swaps after an inquiry by the country’s finance ministry uncovered a series of agreements with banks that it may have used to conceal mounting debt.
Legal ‘At the Time’
One issue is whether Greece was legally obliged at the time to notify Eurostat. Finance Minister George Papaconstantinou said yesterday the use of swaps was “at the time legal.” The contracts are now no longer legal, and Greece doesn’t use them, he said during a question-and-answer session at a conference in Brussels yesterday.
Eurostat has required information about swaps since 2007, Wullt said. The watchdog doesn’t need to be notified of individual deals, he added.
“It is legitimate if the underlying exchange rates and the interest rates of such swaps are calculated from the observed market rates and this is something we will have to assess,” European Commission spokesman Amadeu Altafaj said yesterday.
EU regulators have blessed the use of derivatives contracts to let countries curb their deficits. In 2001, the Commission, the EU’s regulatory arm, approved Italy’s use of derivatives that helped to reduce its budget deficit in 1997. Italy swapped fixed payments on a three-year, yen-denominated bond in 1996, for a floating rate, allowing it to temporarily cut the amount of interest paid on the debt.
‘Lurking in the Shadows’
European politicians this week criticized New York-based Goldman Sachs for arranging the Greek swap and are pressing for more disclosure. Chancellor Angela Merkel’s Christian Democrats aim to push for new rules that will force euro-region nations and banks to disclose bond swaps that have an impact on public finances, financial affairs spokesman Michael Meister said yesterday.
“Goldman Sachs broke the spirit of the Maastricht Treaty, though it is not certain it broke the law,” Meister said in an interview yesterday. “What is certain is that we must never leave this kind of thing lurking in the shadows again.”
Joanna Carss, a London-based spokeswoman for Goldman Sachs, the most profitable securities firm in Wall Street history, declined to comment.
Luxembourg’s Jean-Claude Juncker said euro-area finance ministers discussed Goldman Sachs’s and Greece’s use of derivatives on the fringes of a meeting yesterday in Brussels.
Cross-Currency Swap
The Goldman Sachs transaction consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, Sardelis said. That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion of funding, he added. Sardelis declined to give specifics on by how much the swap reduced the country’s reported deficit or debt.
Greece, whose burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999, joined the euro in 2001. Member nations must keep deficits at less than 3 percent of gross domestic product and trim national debt to less than 60 percent of GDP under the pact.
Greek Prime Minister George Papandreou, who came to power in October, more than tripled the country’s 2009 deficit estimate to 12.7 percent, and officials last month pledged to provide more reliable statistics after the EU complained of “severe irregularities” in the nation’s economic data.
Thursday, February 11, 2010
Australia’s Rate Pause May Be Short-lived Amid Employment Boom
By Jacob Greber
Feb. 12 (Bloomberg) -- The biggest Australian jobs boom in five years may make it harder for central bank Governor Glenn Stevens to extend a pause in recent interest-rate gains.
Investors doubled bets the Reserve Bank of Australia will raise the overnight cash rate target by a quarter percentage point to 4 percent next month after a report yesterday showed employers added 52,700 workers in December, more than three times the 15,000 median estimate of 21 economists surveyed by Bloomberg News.
The fifth straight month of employment increases drove the jobless rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels, and stoked gains in Australia’s currency. Rising demand from mining companies such as Chevron Corp. for skilled workers threatens to push up wages and adds to signs the $1 trillion economy is robust enough to weather higher borrowing costs.
“The sting in the tail is that the job market is tightening, potentially causing employers to bid up for staff,” said Craig James, a senior economist at Commonwealth Bank of Australia who says the odds of a rate increase next month are about even.
Traders say there is a 46 percent chance of a quarter-point increase on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 4:03 p.m. yesterday. Prior to the jobs report, the chance of a move stood at 24 percent.
Stevens will raise the central bank’s key rate to 4 percent next month, according to eight of 17 economists surveyed by Bloomberg News yesterday. All expect an increase in borrowing costs by the end of next quarter.
Stronger Currency
The Australian dollar, which has jumped 36 percent in the last 12 months, rose to 88.85 U.S. cents in Sydney yesterday from 87.72 cents just before the report was released. The S&P/ASX 200 index of stocks rose 0.9 percent to 4,554.30.
Australian employers have added 194,600 jobs since August, the biggest five-month surge since employers created 214,000 jobs between September 2004 and January 2005.
Stevens unexpectedly kept the overnight cash rate target unchanged at 3.75 percent last week, saying information about the impact on the economy of quarter-point gains every month last quarter is still limited.
Yesterday’s report means “it’s now likely that the Reserve Bank will make a further cautious adjustment” next month, said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “While the bank need not push too hard in response to this labor-market report, if employment growth sustains this pace, we’ll obviously be wrong about their gradualism,” Johnson said.
Resources Boom
Yesterday’s report reinforces the central bank’s prediction last week that Australia’s economic growth will accelerate this year as resources companies boost investment in mines and gas fields to meet rising global demand for iron ore, coal and energy.
The nation’s unemployment rate has tumbled from 5.8 percent in October, after Prime Minister Kevin Rudd’s government stoked the economy by distributing more than A$20 billion ($18 billion) in cash to consumers. Another A$22 billion is being spent on roads, railways and schools.
In contrast, the unemployment rate in the U.S. was 9.7 percent in January, and 10 percent in November among European Union countries, the highest rate in more than 11 years. New Zealand’s jobless rate climbed to 7.3 percent in the fourth quarter, the highest in more than 10 years, and Japan’s rate was 5.1 percent in December.
Faster Growth
The rebound in Australia’s economy, one of the few to skirt last year’s global recession, is being driven by a combination of the government’s stimulus package, Governor Stevens’ decision to slash interest rates to a half-century low of 3 percent in April last year, a stronger currency and the resilience of China, Treasury Secretary Ken Henry said yesterday in Canberra.
Gross domestic product will climb 3.25 percent in the three months through December 2010 from a year earlier, after gaining an annual 2 percent in the fourth quarter of 2009, the bank said in its quarterly monetary policy statement published last week.
“It now looks likely that the unemployment rate has peaked around 5.75 percent, a much better outcome than thought likely early last year,” when the government forecast the jobless rate would reach 8.5 percent in 2010, the central bank said on Feb. 5.
The number of full-time jobs gained 15,900 in January and part-time employment increased 36,900, yesterday’s report showed.
A shortage of workers may increase costs and cause delays at the nation’s liquefied natural gas projects, Fitch Ratings said on Feb. 8.
Pay Rise
The Maritime Workers Union of Australia has secured a A$50,000 pay increase over three years for workers at Total Marine Services Ltd., the Australian Broadcasting Corp. reported last week.
Marius Kloppers, chief executive officer of BHP Billiton Ltd., the world’s biggest mining company, said this week that the skills shortage in Australia’s resources industry is emerging faster than expected.
Chevron in December announced it signed an $82 billion deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction.
It is in addition to the Chevron-led Gorgon gas venture, which is forecast to create another 10,000 jobs when construction starts this year.
Still, not all analysts are convinced that yesterday’s jobs report will prompt Stevens to raise borrowing costs next month.
“Despite the strength of the employment numbers over recent months, there is a soft underbelly” to the labor market, said Stephen Roberts, an economist at Nomura Ltd. in Sydney.
The number of hours worked declined 1 percent in January from December and 1.2 percent from a year earlier, which “will ultimately affect growth in household disposable income,” Roberts said. “The next cash rate hike is likely to be in May.”
Feb. 12 (Bloomberg) -- The biggest Australian jobs boom in five years may make it harder for central bank Governor Glenn Stevens to extend a pause in recent interest-rate gains.
Investors doubled bets the Reserve Bank of Australia will raise the overnight cash rate target by a quarter percentage point to 4 percent next month after a report yesterday showed employers added 52,700 workers in December, more than three times the 15,000 median estimate of 21 economists surveyed by Bloomberg News.
The fifth straight month of employment increases drove the jobless rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels, and stoked gains in Australia’s currency. Rising demand from mining companies such as Chevron Corp. for skilled workers threatens to push up wages and adds to signs the $1 trillion economy is robust enough to weather higher borrowing costs.
“The sting in the tail is that the job market is tightening, potentially causing employers to bid up for staff,” said Craig James, a senior economist at Commonwealth Bank of Australia who says the odds of a rate increase next month are about even.
Traders say there is a 46 percent chance of a quarter-point increase on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 4:03 p.m. yesterday. Prior to the jobs report, the chance of a move stood at 24 percent.
Stevens will raise the central bank’s key rate to 4 percent next month, according to eight of 17 economists surveyed by Bloomberg News yesterday. All expect an increase in borrowing costs by the end of next quarter.
Stronger Currency
The Australian dollar, which has jumped 36 percent in the last 12 months, rose to 88.85 U.S. cents in Sydney yesterday from 87.72 cents just before the report was released. The S&P/ASX 200 index of stocks rose 0.9 percent to 4,554.30.
Australian employers have added 194,600 jobs since August, the biggest five-month surge since employers created 214,000 jobs between September 2004 and January 2005.
Stevens unexpectedly kept the overnight cash rate target unchanged at 3.75 percent last week, saying information about the impact on the economy of quarter-point gains every month last quarter is still limited.
Yesterday’s report means “it’s now likely that the Reserve Bank will make a further cautious adjustment” next month, said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “While the bank need not push too hard in response to this labor-market report, if employment growth sustains this pace, we’ll obviously be wrong about their gradualism,” Johnson said.
Resources Boom
Yesterday’s report reinforces the central bank’s prediction last week that Australia’s economic growth will accelerate this year as resources companies boost investment in mines and gas fields to meet rising global demand for iron ore, coal and energy.
The nation’s unemployment rate has tumbled from 5.8 percent in October, after Prime Minister Kevin Rudd’s government stoked the economy by distributing more than A$20 billion ($18 billion) in cash to consumers. Another A$22 billion is being spent on roads, railways and schools.
In contrast, the unemployment rate in the U.S. was 9.7 percent in January, and 10 percent in November among European Union countries, the highest rate in more than 11 years. New Zealand’s jobless rate climbed to 7.3 percent in the fourth quarter, the highest in more than 10 years, and Japan’s rate was 5.1 percent in December.
Faster Growth
The rebound in Australia’s economy, one of the few to skirt last year’s global recession, is being driven by a combination of the government’s stimulus package, Governor Stevens’ decision to slash interest rates to a half-century low of 3 percent in April last year, a stronger currency and the resilience of China, Treasury Secretary Ken Henry said yesterday in Canberra.
Gross domestic product will climb 3.25 percent in the three months through December 2010 from a year earlier, after gaining an annual 2 percent in the fourth quarter of 2009, the bank said in its quarterly monetary policy statement published last week.
“It now looks likely that the unemployment rate has peaked around 5.75 percent, a much better outcome than thought likely early last year,” when the government forecast the jobless rate would reach 8.5 percent in 2010, the central bank said on Feb. 5.
The number of full-time jobs gained 15,900 in January and part-time employment increased 36,900, yesterday’s report showed.
A shortage of workers may increase costs and cause delays at the nation’s liquefied natural gas projects, Fitch Ratings said on Feb. 8.
Pay Rise
The Maritime Workers Union of Australia has secured a A$50,000 pay increase over three years for workers at Total Marine Services Ltd., the Australian Broadcasting Corp. reported last week.
Marius Kloppers, chief executive officer of BHP Billiton Ltd., the world’s biggest mining company, said this week that the skills shortage in Australia’s resources industry is emerging faster than expected.
Chevron in December announced it signed an $82 billion deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction.
It is in addition to the Chevron-led Gorgon gas venture, which is forecast to create another 10,000 jobs when construction starts this year.
Still, not all analysts are convinced that yesterday’s jobs report will prompt Stevens to raise borrowing costs next month.
“Despite the strength of the employment numbers over recent months, there is a soft underbelly” to the labor market, said Stephen Roberts, an economist at Nomura Ltd. in Sydney.
The number of hours worked declined 1 percent in January from December and 1.2 percent from a year earlier, which “will ultimately affect growth in household disposable income,” Roberts said. “The next cash rate hike is likely to be in May.”
Euro Falls as EU’s Greece Agreement Offers Limited Measures
By Ben Levisohn
Feb. 11 (Bloomberg) -- The euro tumbled against all of its most-traded counterparts after the European Union offered few details of an agreement it brokered to help Greece weather its debt crisis.
The 16-nation common currency slid as a statement issued by European leaders left open how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits. Australia’s dollar surged after the country’s jobless rate unexpectedly fell last month and Chinese bank lending increased
“The situation in Europe is not likely to change in the short term,” said Meg Browne, a vice president of foreign exchange research at Brown Brothers Harriman & Co. in New York. “The crisis concept is still in play.”
The euro dropped 0.4 percent to $1.3685 at 4:10 p.m. in New York, from $1.3737 yesterday. It slid 0.6 percent to 122.77 yen from 123.56 yesterday. The greenback declined 0.3 percent to 89.72 yen from 89.94 yesterday.
The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, called for closer monitoring of the Greek economy and stopped short of offering concrete steps to help Greece handle a debt load exceeding annual economic output. The deal was announced at a European Union summit today.
‘Structural Convergences’
Royal Bank of Scotland cut its end-of-year forecast for the euro to $1.28 from $1.35, saying that any bailout will be little more than a short-term fix.
“Lingering concerns about failed long-term structural convergences are likely to act as a deadweight on euro-dollar’s upside, encouraging selling at $1.40 and above,” Alan Ruskin, head of currency strategy at RBS Securities in Stamford, Connecticut, wrote in a report.
The common currency fell 5 percent against the dollar this year on concern that nations with the biggest debt burdens may struggle to meet their obligations. Papandreou’s drive to bring his country’s budget deficit under control was yesterday challenged in the streets as labor unions closed schools, hospitals and airports.
Greece, representing 2.7 percent of the bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, more than four times the bloc’s 3 percent limit. Herman Van Rompuy, the EU president, called today on the country to reduce the gap by 4 percentage points by the end of 2010.
‘Halved By the Crisis’
“The strains in Europe could delay an exit from easy money policy,” said Todd Elmer, currency strategist at Citigroup Inc. in New York. “It exacerbates the widening spreads in favor of the U.S. The cyclical underperformance of the euro area will pull the currency down.”
The euro slid against the greenback after Bundesbank President Axel Weber said he can’t rule out that the German economy will contract in the first quarter, Reuters reported, citing an interview. He also said that current interest rate levels are “appropriate.”
European Commission President Jose Barroso said in a presentation released by his office that reduced bank lending is holding back economic recovery in Europe and that the region’s growth potential has been “halved by the crisis.”
Australia’s dollar rose to a one-week high against the yen after a report showed employers added three times as many jobs as economists forecast, increasing pressure on the central bank to raise interest rates for a fourth time, and China reported lower-than-expected inflation. The Reserve Bank of Australia unexpectedly kept its benchmark rate at 3.75 percent on Feb. 2 after three straight increases.
‘True Risk Seeking’
The number of people employed in Australia climbed by 52,700 in January, the statistics bureau said. Analysts predicted an increase of 15,000. The jobless rate fell to 5.3 percent from 5.5 percent.
China’s inflation rate fell to 1.5 percent last month from 1.9 percent in December, a report showed, less than the 2.1 percent median estimate in a Bloomberg News survey. Slowing inflation damped speculation Chinese authorities would take more steps to curb growth in the world’s third-largest economy.
“We’re seeing better growth in Asia lifting risk appetite,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “True risk seeking is focused on the Australian dollar.”
The Aussie advanced 1.5 percent to 79.91 yen and rose 1.7 percent to 89.06 U.S. cents. New Zealand’s currency appreciated 1 percent to 62.92 yen and rallied 1.3 percent to 70.15 cents.
Feb. 11 (Bloomberg) -- The euro tumbled against all of its most-traded counterparts after the European Union offered few details of an agreement it brokered to help Greece weather its debt crisis.
The 16-nation common currency slid as a statement issued by European leaders left open how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits. Australia’s dollar surged after the country’s jobless rate unexpectedly fell last month and Chinese bank lending increased
“The situation in Europe is not likely to change in the short term,” said Meg Browne, a vice president of foreign exchange research at Brown Brothers Harriman & Co. in New York. “The crisis concept is still in play.”
The euro dropped 0.4 percent to $1.3685 at 4:10 p.m. in New York, from $1.3737 yesterday. It slid 0.6 percent to 122.77 yen from 123.56 yesterday. The greenback declined 0.3 percent to 89.72 yen from 89.94 yesterday.
The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, called for closer monitoring of the Greek economy and stopped short of offering concrete steps to help Greece handle a debt load exceeding annual economic output. The deal was announced at a European Union summit today.
‘Structural Convergences’
Royal Bank of Scotland cut its end-of-year forecast for the euro to $1.28 from $1.35, saying that any bailout will be little more than a short-term fix.
“Lingering concerns about failed long-term structural convergences are likely to act as a deadweight on euro-dollar’s upside, encouraging selling at $1.40 and above,” Alan Ruskin, head of currency strategy at RBS Securities in Stamford, Connecticut, wrote in a report.
The common currency fell 5 percent against the dollar this year on concern that nations with the biggest debt burdens may struggle to meet their obligations. Papandreou’s drive to bring his country’s budget deficit under control was yesterday challenged in the streets as labor unions closed schools, hospitals and airports.
Greece, representing 2.7 percent of the bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, more than four times the bloc’s 3 percent limit. Herman Van Rompuy, the EU president, called today on the country to reduce the gap by 4 percentage points by the end of 2010.
‘Halved By the Crisis’
“The strains in Europe could delay an exit from easy money policy,” said Todd Elmer, currency strategist at Citigroup Inc. in New York. “It exacerbates the widening spreads in favor of the U.S. The cyclical underperformance of the euro area will pull the currency down.”
The euro slid against the greenback after Bundesbank President Axel Weber said he can’t rule out that the German economy will contract in the first quarter, Reuters reported, citing an interview. He also said that current interest rate levels are “appropriate.”
European Commission President Jose Barroso said in a presentation released by his office that reduced bank lending is holding back economic recovery in Europe and that the region’s growth potential has been “halved by the crisis.”
Australia’s dollar rose to a one-week high against the yen after a report showed employers added three times as many jobs as economists forecast, increasing pressure on the central bank to raise interest rates for a fourth time, and China reported lower-than-expected inflation. The Reserve Bank of Australia unexpectedly kept its benchmark rate at 3.75 percent on Feb. 2 after three straight increases.
‘True Risk Seeking’
The number of people employed in Australia climbed by 52,700 in January, the statistics bureau said. Analysts predicted an increase of 15,000. The jobless rate fell to 5.3 percent from 5.5 percent.
China’s inflation rate fell to 1.5 percent last month from 1.9 percent in December, a report showed, less than the 2.1 percent median estimate in a Bloomberg News survey. Slowing inflation damped speculation Chinese authorities would take more steps to curb growth in the world’s third-largest economy.
“We’re seeing better growth in Asia lifting risk appetite,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “True risk seeking is focused on the Australian dollar.”
The Aussie advanced 1.5 percent to 79.91 yen and rose 1.7 percent to 89.06 U.S. cents. New Zealand’s currency appreciated 1 percent to 62.92 yen and rallied 1.3 percent to 70.15 cents.
Tuesday, February 9, 2010
Canada’s Dollar Rises Most in Month on Prospect of Greece Aid
By Allison Bennett and Chris Fournier
Feb. 9 (Bloomberg) -- Canada’s dollar advanced the most in a month versus its U.S. counterpart as the European Union held out the prospect of aiding Greece, spurring appetite for currencies tied to economic growth.
“Clearly it’s having an impact on the euro and will cause some of the U.S. dollar longs to run for cover,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “That in itself has the potential to drive some left-sided price action in USD-CAD.” A long is a bet a currency will appreciate.
Government 10-year bond yields rose from a one-week low on reduced demand for relative safety as stocks and crude oil rallied. The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, trailed the dollars of Australia and New Zealand, rival exporters of raw materials.
The Canadian currency climbed 0.8 percent to C$1.0677 per U.S. dollar at 4:03 p.m. in Toronto, from C$1.0758 yesterday, the weakest close since Nov. 2. It appreciated earlier as much as 1.1 percent, the biggest intraday increase since Jan. 4. One Canadian dollar buys 93.65 U.S. cents.
The currency advanced as Olli Rehn, who takes over as European economic affairs commissioner tomorrow, said in an interview in Strasbourg, France, today that Greece may get support “in the broad sense of the word” in return for progress by the nation in reducing its budget deficit.
Outlook for Bailout
“The FX markets are trading as if they believe that some sort of bailout will be announced over the near term,” said George Davis, chief technical analyst at Royal Bank of Canada in Toronto, in an e-mailed response to a reporter’s query. “This is limiting U.S. dollar gains across the board for the time being.”
Germany said no decision has been made on financial assistance to Greece. A government spokesman, Ulrich Wilhelm, rejected in a prepared statement reports that a decision has “virtually been taken.”
Crude oil for March delivery rose as much as 3.1 percent to $74.15 a barrel on the New York Mercantile Exchange. The Standard & Poor’s 500 Index climbed 1.3 percent. The S&P/TSX Composite Index rose 1.5 percent.
“No more slippage in commodities and a boost to equities should see the loonie perform better short-term,” said Dean Popplewell, an analyst in Toronto at the online currency-trading firm Oanda Corp. “That’s probably a good opportunity to short it again.” Shorting a currency means betting it will fall.
The Canadian dollar tends to track swings in stocks and commodity prices. The 30-day correlation for the loonie and crude oil is 0.58, while the figure for the S&P 500 Index is 0.78. Readings of 1 would indicate they move in lockstep.
Loonie Versus Aussie
The Canadian currency decreased 0.8 percent to 1.0667 Australian dollars and lost 0.6 percent to 1.3525 New Zealand dollars.
Canada’s government bonds fell, pushing the 10-year security’s yield up three basis points, or 0.03 percentage points, to 3.38 percent. The price of the 3.75 percent security maturing in June 2019 decreased 28 cents to C$102.90. The yield earlier touched 3.34 percent, the lowest level since Jan. 29.
The nation’s government debt has returned 1.7 percent this year, according to Bank of America Merrill Lynch’s Canadian Governments Index.
Feb. 9 (Bloomberg) -- Canada’s dollar advanced the most in a month versus its U.S. counterpart as the European Union held out the prospect of aiding Greece, spurring appetite for currencies tied to economic growth.
“Clearly it’s having an impact on the euro and will cause some of the U.S. dollar longs to run for cover,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “That in itself has the potential to drive some left-sided price action in USD-CAD.” A long is a bet a currency will appreciate.
Government 10-year bond yields rose from a one-week low on reduced demand for relative safety as stocks and crude oil rallied. The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, trailed the dollars of Australia and New Zealand, rival exporters of raw materials.
The Canadian currency climbed 0.8 percent to C$1.0677 per U.S. dollar at 4:03 p.m. in Toronto, from C$1.0758 yesterday, the weakest close since Nov. 2. It appreciated earlier as much as 1.1 percent, the biggest intraday increase since Jan. 4. One Canadian dollar buys 93.65 U.S. cents.
The currency advanced as Olli Rehn, who takes over as European economic affairs commissioner tomorrow, said in an interview in Strasbourg, France, today that Greece may get support “in the broad sense of the word” in return for progress by the nation in reducing its budget deficit.
Outlook for Bailout
“The FX markets are trading as if they believe that some sort of bailout will be announced over the near term,” said George Davis, chief technical analyst at Royal Bank of Canada in Toronto, in an e-mailed response to a reporter’s query. “This is limiting U.S. dollar gains across the board for the time being.”
Germany said no decision has been made on financial assistance to Greece. A government spokesman, Ulrich Wilhelm, rejected in a prepared statement reports that a decision has “virtually been taken.”
Crude oil for March delivery rose as much as 3.1 percent to $74.15 a barrel on the New York Mercantile Exchange. The Standard & Poor’s 500 Index climbed 1.3 percent. The S&P/TSX Composite Index rose 1.5 percent.
“No more slippage in commodities and a boost to equities should see the loonie perform better short-term,” said Dean Popplewell, an analyst in Toronto at the online currency-trading firm Oanda Corp. “That’s probably a good opportunity to short it again.” Shorting a currency means betting it will fall.
The Canadian dollar tends to track swings in stocks and commodity prices. The 30-day correlation for the loonie and crude oil is 0.58, while the figure for the S&P 500 Index is 0.78. Readings of 1 would indicate they move in lockstep.
Loonie Versus Aussie
The Canadian currency decreased 0.8 percent to 1.0667 Australian dollars and lost 0.6 percent to 1.3525 New Zealand dollars.
Canada’s government bonds fell, pushing the 10-year security’s yield up three basis points, or 0.03 percentage points, to 3.38 percent. The price of the 3.75 percent security maturing in June 2019 decreased 28 cents to C$102.90. The yield earlier touched 3.34 percent, the lowest level since Jan. 29.
The nation’s government debt has returned 1.7 percent this year, according to Bank of America Merrill Lynch’s Canadian Governments Index.
Thursday, February 4, 2010
Bank of Canada sees thaw, warns of possible trouble
OTTAWA (Reuters) - Bank of Canada Governor Mark Carney said on Thursday the Canadian economy was looking up and should recover lost ground this year, but he warned of possible storms if China and the United States did not take tough decisions.
"My message is relatively straightforward: the thaw is coming," he said in the prepared text of a speech he was giving in Winnipeg. "The recovery has begun. After a brutal economic winter, spring is within sight."
Canada's labor market appears to have stopped bleeding, businesses expect to make modest fixed investments this year, real output should reach pre-crisis levels by the third quarter, and the private sector should be the sole contributor to Canada's domestic demand growth next year. But he still saw few signs of autonomous private demand in most advanced economies.
He said sustained growth required major fiscal consolidation in the United States and elsewhere, higher U.S. household savings, policy-induced domestic demand in China and other nations, and higher exchange rates in countries with big surpluses.
If these steps were not taken, a return to unsustainable current account imbalances or sharp disinflationary pressures at a global level could not be discounted, Carney said. (Reporting by Randall Palmer; editing by David Ljunggren)
"My message is relatively straightforward: the thaw is coming," he said in the prepared text of a speech he was giving in Winnipeg. "The recovery has begun. After a brutal economic winter, spring is within sight."
Canada's labor market appears to have stopped bleeding, businesses expect to make modest fixed investments this year, real output should reach pre-crisis levels by the third quarter, and the private sector should be the sole contributor to Canada's domestic demand growth next year. But he still saw few signs of autonomous private demand in most advanced economies.
He said sustained growth required major fiscal consolidation in the United States and elsewhere, higher U.S. household savings, policy-induced domestic demand in China and other nations, and higher exchange rates in countries with big surpluses.
If these steps were not taken, a return to unsustainable current account imbalances or sharp disinflationary pressures at a global level could not be discounted, Carney said. (Reporting by Randall Palmer; editing by David Ljunggren)
Monday, February 1, 2010
Australian Business Confidence Falls to Six-Month Low (Update1)
By Jacob Greber
Feb. 2 (Bloomberg) -- Australian business confidence fell in December to the lowest level in six months, a sign the central bank’s record round of interest-rate increases is damping sentiment.
The confidence index dropped 11 points to 8, according to a National Australia Bank Ltd. survey of more than 400 companies released in Sydney today. A figure above zero shows optimists outnumber pessimists.
The drop in business optimism may give central bank Governor Glenn Stevens scope to pause in coming months after a series of interest-rate gains that all 20 economists surveyed by Bloomberg expect will be continued today. Retailers and transport companies reported the biggest declines in confidence, today’s report showed.
The survey “suggests that Reserve Bank actions and the high Australian dollar are starting to moderate expectations,” said Alan Oster, chief economist at National Australia in Melbourne. The currency has gained more than 40 percent in the past year, eroding earnings for exporters.
While Oster said the Reserve Bank of Australia will increase its benchmark lending rate by a quarter percentage point today to 4 percent, adding to similar moves in October, November and December, “the bank appears to be close to pausing.”
“The central bank is clearly keen to rest for a while to assess the impact of what it has already done,” he said.
Rate Bets
The Australian dollar traded at 89.16 U.S. cents at 11:33 a.m. in Sydney from 89.10 cents just before the report was released. The two-year government bond yield was unchanged at 4.24 percent.
Traders are betting there is a 72 percent chance of a move at 2:30 p.m. in Sydney today, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:29 a.m.
Stevens was the only policy maker in the world to raise borrowing costs three times in 2009, after he slashed the overnight cash rate target to a half-century low of 3 percent in April to cushion the economy against the global recession.
The rate increases followed signs economic growth will strengthen this year, helped by the biggest jobs boom in more than three years and the largest increase in annual house prices since 2007.
‘Still Strong’
“Of course it bears repeating that current levels of confidence remain strong -- and are indeed still above long-term average rates,” Oster said.
Oster said the survey has prompted National Australia Bank to increase its forecast for economic growth this year to 3 percent from a previous prediction of 2.75 percent. The economy will expand 3.75 percent in 2011, he said.
National Australia’s business conditions gauge, a measure of hiring, sales and profits, was unchanged at 10 points.
Today’s December results are based on a survey conducted between Jan. 11 and Jan. 15. National Australia Bank normally conducts its survey in the final week of every month excluding December. The January report is due to be published Feb. 16.
Feb. 2 (Bloomberg) -- Australian business confidence fell in December to the lowest level in six months, a sign the central bank’s record round of interest-rate increases is damping sentiment.
The confidence index dropped 11 points to 8, according to a National Australia Bank Ltd. survey of more than 400 companies released in Sydney today. A figure above zero shows optimists outnumber pessimists.
The drop in business optimism may give central bank Governor Glenn Stevens scope to pause in coming months after a series of interest-rate gains that all 20 economists surveyed by Bloomberg expect will be continued today. Retailers and transport companies reported the biggest declines in confidence, today’s report showed.
The survey “suggests that Reserve Bank actions and the high Australian dollar are starting to moderate expectations,” said Alan Oster, chief economist at National Australia in Melbourne. The currency has gained more than 40 percent in the past year, eroding earnings for exporters.
While Oster said the Reserve Bank of Australia will increase its benchmark lending rate by a quarter percentage point today to 4 percent, adding to similar moves in October, November and December, “the bank appears to be close to pausing.”
“The central bank is clearly keen to rest for a while to assess the impact of what it has already done,” he said.
Rate Bets
The Australian dollar traded at 89.16 U.S. cents at 11:33 a.m. in Sydney from 89.10 cents just before the report was released. The two-year government bond yield was unchanged at 4.24 percent.
Traders are betting there is a 72 percent chance of a move at 2:30 p.m. in Sydney today, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:29 a.m.
Stevens was the only policy maker in the world to raise borrowing costs three times in 2009, after he slashed the overnight cash rate target to a half-century low of 3 percent in April to cushion the economy against the global recession.
The rate increases followed signs economic growth will strengthen this year, helped by the biggest jobs boom in more than three years and the largest increase in annual house prices since 2007.
‘Still Strong’
“Of course it bears repeating that current levels of confidence remain strong -- and are indeed still above long-term average rates,” Oster said.
Oster said the survey has prompted National Australia Bank to increase its forecast for economic growth this year to 3 percent from a previous prediction of 2.75 percent. The economy will expand 3.75 percent in 2011, he said.
National Australia’s business conditions gauge, a measure of hiring, sales and profits, was unchanged at 10 points.
Today’s December results are based on a survey conducted between Jan. 11 and Jan. 15. National Australia Bank normally conducts its survey in the final week of every month excluding December. The January report is due to be published Feb. 16.
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