Asia FX By Cornelius Luca - Thu 06 Dec 2012 15:55:01 CT (CME/www.lucafxta.com)
The appetite for risk shrank selectively on Thursday ahead of the US non-far payrolls and despite the lack of progress in the "fiscal cliff" negotiations. The European currencies sank after the ECB said that its regional GDP will likely decline next year. The commodity currencies ended off their highs and the yen consolidated. The US stock markets made little progress, while the gold/oil spread surged. The short-term outlook for most foreign currencies is sideways, but the European currencies have a bearish bias. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is short on all European currencies. Good luck!
Overnight
US: The jobless claims fell to 370,000 in the week ended December 1 from the previous week's revised figure of 395,000.
Canada: The Ivey Purchasing Managers Index fell to 46.4 in November from 58.3 in October.
Canada: Building permits rose 15% on a monthly basis during October after contracting 12.7% in September.
Today's economic calendar
Australia: AiG Performance of Construction Index for November
UK: RICS housing price balance for November
Japan: Coincident index /leading economic index for October
Asian Stocks Rise as Fewer American File Jobless Claims (Bloomberg)
Asian stocks gained, with the regional benchmark index extending an eight-month high, as fewer Americans filed applications for unemployment benefits and Australia’s building industry shrank at a slower pace. James Hardie Industries SE (JHX), the building materials suppliers that gets about 67 percent of sales from the U.S., climbed 1.6 percent in Sydney. Commonwealth Bank of Australia, the country’s biggest lender, climbed 1 percent. Renesas Electronics Corp. gained 1 percent in Tokyo on a report NEC Corp., Mitsubishi Electric Corp. and Hitachi Ltd. have agreed on a bailout for the ailing chipmaker. The MSCI Asia Pacific Index (MXAP) rose 0.1 percent to 125.91 as of 9:43 a.m. Tokyo time, headed for its highest close since April 3. Markets in China and Hong Kong have yet to open. The measure is heading for its third week of advance amid signs of recovery in the world’s two largest economies and optimism U.S. lawmakers will agree on a budget deal to avert the so-called fiscal cliff.
“We could see a short-term rally, driven by exporters amid signs of improving U.S. economy,” said Masahiko Ejiri, a Tokyo- based fund manager for Mizuho Asset Management Co., which oversees about $45 billion. “This rally may not be sustained. Europe’s problems are likely to persist.”
Japanese Stocks Hold Gains Ahead of U.S. Payroll Report (Bloomberg)
Japanese shares swung between gains the losses ahead of a U.S. payrolls report and as a technical indicator showed the market may be overbought after the Nikkei 225 (NKY) Stock Average rose to a seven-month high yesterday. Kansai Electric Power Co. (9503) paced gains among utilities on a Kyodo News report that the government may allow the restart of some nuclear reactors this summer. Softbank Corp. fell 1.1 percent after Nikkei newspaper reported NTT DoCoMo Inc. may start selling Apple Inc.’s iPhone to remain competitive. Sharp Corp. gained 6 percent, soaring 24 percent since announcing a capital alliance with Qualcomm Inc. on Dec. 4. The Nikkei 225 was little changed at 9543.71 as of 9:38 a.m. after rising as much as 0.2 percent. The equity gauge capped the biggest monthly gain since February last month on speculation Japan’s opposition will win the Dec. 16 election and call for more stimulus. The Topix Index rose 0.1 percent to 789.15, with about seven stocks falling for every six that gained.
“Investors are waiting for the U.S. employment data and so are finding it hard to pick a direction,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc. “We don’t think the U.S. is going to go off the fiscal cliff. We expect there to be some compromise in the end, but it’s too early for unguarded optimism.” The Relative Strength Index (NKY) on the Nikkei 225 was 70.5 today, with some traders seeing a reading above 70 as a sign the measure is overbought.
U.S. Stocks Rise as Apple Rebounds Amid Budget Talks (Bloomberg)
U.S. stocks rose for a second day as Apple Inc. rebounded from its biggest drop in four years and investors weighed prospects for a budget deal in Washington. Apple advanced 1.6 percent, reversing an earlier loss. Akamai (AKAM) Technologies Inc. increased 10 percent after agreeing to sell services with AT&T Inc. H&R Block Inc. (HRB), the biggest U.S. tax preparer, advanced 5.1 percent after reporting a loss that was smaller than analysts estimated. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper producer, and MetLife Inc. (MET), the biggest U.S. life insurer, declined at least 1.2 percent following analysts’ rating downgrades. The Standard & Poor’s 500 Index increased 0.3 percent to 1,413.94 at 4 p.m. New York time. The Dow Jones Industrial Average advanced 39.55 points, or 0.3 percent, to 13,074.04. More than 5.7 billion shares changed hands on U.S. exchanges, or 8.9 percent below the three-month average.
“Apple stock is taking a breather after a sharp selloff and that’s helping the overall market,” said Alan Gayle, senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion. “Most analysts continue to like their story. We’re seeing some validation of that. In addition, the jobless claims were better than expected. The data suggest the U.S. economy continues to heal and that will be the case as long as we don’t fall off the fiscal cliff.” A few dozen Republicans joined a bipartisan push to break an impasse between President Barack Obama and House Speaker John Boehner over taxes for the highest-earning Americans, signing a letter calling for openness to “all options.” Fewer Americans than projected filed applications for unemployment benefits last week as disruptions caused by superstorm Sandy waned.
European Stocks Advance to 18-Month High on U.S. Optimism (Bloomberg)
European (SXXP) stocks advanced to an 18- month high amid optimism U.S. lawmakers will agree on a new budget and avoid the so-called fiscal cliff. European Aeronautic, Defence & Space Co. jumped 8 percent after announcing a new shareholder structure and saying it will buy back shares. Daimler AG (DAI) rose 1.2 percent after selling half its remaining holding in EADS. (EAD) GDF Suez SA slid to its lowest ever after saying earnings will decline next year. The Stoxx Europe 600 Index added 0.7 percent to 278.82 at the close of trading, its highest since May 31, 2011. The gauge has surged 19 percent from this year’s low on June 4 as the European Central Bank announced a bond-buying plan, the Federal Reserve boosted stimulus measures and optimism rose that U.S. lawmakers will agree on a budget.
“Markets are moving on the expectation that however difficult things may be, there will be a U.S. budget deal,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London. “It’s almost inconceivable at this stage that the Congress will allow the fiscal cliff to happen, especially when we don’t really know the severity of the recession.” About 80 members of Congress, comprising Republicans and Democrats, signed a letter calling for an exploration of “all options” in to end a deadlock between President Barack Obama and House Speaker John Boehner over taxes for the highest- earning Americans. Congress must strike a budget deal by the end of the year to prevent more than $600 billion of automatic tax increases and spending cuts from coming into effect.
Emerging Stocks Rise Second Day as Consumer Shares Gain (Bloomberg)
Emerging-market stocks rose to a seven-month high as speculation U.S. politicians will reach a budget deal spurred risk appetite and support widened for policies allowing foreign investment in India’s retail market. Hyundai Mobis Co. (012330), which got 21 percent of third-quarter sales from America, climbed to a six-week peak in Seoul. OAO Rostelecom, Russia’s state-run telephone operator, had the biggest gain in almost two months after a court ruling allowed investor Konstantin Malofeev to keep immunity from prosecution. Absa Group Ltd. (ASA) headed for the highest close since June on Barclays Plc’s plan to increase its stake in the Johannesburg- based lender.
The MSCI Emerging Markets Index added 0.2 percent to 1,019.48 at 1 p.m. in London, heading for the highest close since May. A few dozen Republicans joined a bipartisan push to break an impasse between President Barack Obama and House Speaker John Boehner over taxes for the highest-earning Americans, signing a letter calling for openness to “all options.” The leader of India’s fourth-largest party in the parliament said she would support the government’s plan to allow foreign investment in retail. “There has been growing optimism that a solution can finally be reached to resolve the fiscal cliff problem,” said Saharat Chudsuwan, who helps oversees $5 billion at Tisco Asset Management Co. in Bangkok. The BSE India Sensitive Index, or Sensex (SENSEX), gained for a third day, adding 0.5 percent. The rupee strengthened 0.8 percent versus the dollar, the highest in a month. Russia’s Micex Index (INDEXCF) increased 0.3 percent, rising for a second day, and Brazil’s Bovespa index declined 0.5 percent.
Aussie Set for Weekly Gain Before Chinese Production, Sales Data (Bloomberg)
Australia’s dollar was set for a five-day advance before Chinese data next week that may show the world’s second-largest economy is picking up. The so-called Aussie was near a two-month high after a private report showed the nation’s construction industry contracted at a slower pace. Demand for the currency was also supported after the statistics bureau reported a smaller-than- estimated trade deficit. “Chinese economic data are improving after concern about a slowdown,” said Teppei Ino, a Tokyo-based analyst at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “That’s providing some support for the Australian and New Zealand dollars.” Australia’s currency traded at $1.0484 as of 11:47 a.m. in Sydney after rising 0.3 percent to $1.0486 in New York when it reached $1.0516, the highest since Sept. 21. The New Zealand dollar, nicknamed the kiwi, bought 83.24 U.S. cents from 83.27. The Aussie has risen 0.5 percent this week, while the kiwi has advanced 1.5 percent.
China’s industrial production probably rose 9.8 percent in November from a year earlier, the fastest pace since March, according to the median estimate of economists surveyed by Bloomberg News. Retail sales are forecast to have increased 14.6 percent last month, compared with a 14.5 percent gain in October. The National Bureau of Statistics is due to release the figures on Dec. 9.
Euro Holds Drop on Slowdown Signs; Aussie Lower (Bloomberg)
The euro remained lower against the dollar after posting the biggest drop in a month on concern Europe’s debt crisis is weighing on growth. The shared currency headed for weekly declines against most of its 16 major peers before data forecast to show German industrial production stagnated. The European Central Bank yesterday cut its growth forecasts, leaving the door open to interest-rate reduction. Australia’s dollar fell from a two- month high before reports which may show the trade deficit widened. Demand for the yen was limited amid speculation the Bank of Japan will ease policy to boost economic growth. “Europe is in recession and with no prospects of it getting better any time soon,” said Kikuko Takeda, senior currency economist in London at Bank of Tokyo-Mitsubishi UFJ Ltd. “The euro will continue to be sold.”
The euro was little changed at $1.2969 per dollar as of 8:37 a.m. in Tokyo from yesterday, when it dropped 0.8 percent, the biggest decline since Nov. 2. The common currency traded at 106.85 yen from yesterday, when it lost 0.9 percent to 106.84. For the week, the euro is set for a 0.1 percent slide against the greenback and a 0.2 percent decline versus the yen. The Japanese currency traded at 82.39 to the dollar from 82.40 yesterday, and is up about 0.1 percent on the week. Australia’s dollar slipped 0.1 percent to $1.0477 from yesterday, when it touched $1.0516, the highest since Sept. 21.
Consumer Comfort in U.S. Holds Near Highest Since April (Bloomberg)
Consumer confidence held close to a seven-month high last week as the holiday-shopping season put more Americans in the mood to spend, and claims for unemployment benefits declined. The Bloomberg Consumer Comfort Index eased to minus 33.8 in the period ended Dec. 2 from minus 33. The reading, within the margin of error of 3 percentage points, was the 11th straight above minus 40, a point associated with recessions and their aftermath. Jobless claims decreased by 25,000 to 370,000 in the week ended Dec. 1, the Labor Department said. Holiday shoppers are taking advantage of discounting, expanded store hours and Internet deals, explaining why a gauge of the buying climate climbed to a five-year high. While confidence is getting a lift from cheaper gasoline and an improving job market, failure by lawmakers to prevent automatic tax increases threatens to throttle the household spending that accounts for 70 percent of the economy.
“I don’t expect that consumers will hold back during the holidays,” said Dean Maki, chief U.S. economist at Barclays Plc in New York. “I think the bigger risk is that as we move into the first quarter, if there’s not a resolution on the fiscal cliff,” Americans would cut back as their after-tax incomes decline, he said. The drop in claims was the third straight. The mid-Atlantic region, which employs about 14 percent of U.S. workers, is recovering after Sandy. Apart from the storm-related damage -- which may also be reflected in the November payrolls report tomorrow -- employers will probably curb hiring until the risks from the global slowdown and looming fiscal tightening dissipate.
Jobless Claims in U.S. Decline as Sandy Effect Wanes (Bloomberg)
Fewer Americans than projected filed applications for unemployment benefits last week as disruptions caused by superstorm Sandy waned. Jobless claims decreased by 25,000 to 370,000 in the week ended Dec. 1, Labor Department figures showed today in Washington. The median forecast of 52 economists surveyed by Bloomberg called for a drop to 380,000. A Labor Department spokesman said there was nothing unusual in last week’s data. The mid-Atlantic region, which employs about 14 percent of U.S. workers, is recovering after Sandy. Apart from the storm- related damage -- which may also be reflected in the November payrolls report tomorrow -- employers will probably curb hiring until the risks from the global slowdown and looming U.S. fiscal tightening dissipate.
“Sandy pushed up claims temporarily, and with this number we are pretty much back to where we were before the hurricane,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, who accurately projected the drop in claims. “Layoffs are lingering at the same pace. Hiring remains relatively anemic.” Stock-index futures fell after European Central Bank President Mario Draghi said policy makers cut growth forecasts for the region and continued to see ‘downside risks.” The contract on the Standard & Poor’s 500 Index maturing this month fell 0.2 percent to 1,405.7 at 8:48 a.m. in New York.
Greenspan Says Painless Solution to U.S. Debt is Fantasy (Bloomberg)
Reducing U.S. long-term deficits will inevitably cause economic pain, former Federal Reserve Chairman Alan Greenspan said. “The presumption that we’re going to have a painless solution to this, I think, is fantasy,” Greenspan said today during a “Bloomberg Surveillance” television interview with Tom Keene and Sara Eisen. “There are a lot of risks out there but the one thing I can be reasonably certain of is we won’t get through this whole issue without some pain.” The U.S. faces twin fiscal challenges with more than $600 billion of spending cuts and tax increases scheduled to hit at the beginning of next year, threatening to send the economy into an austerity-induced recession, even as rising long-run deficits may prove unsustainable.
Greenspan, 86, who preceded Ben S. Bernanke as chairman of the central bank, blamed U.S. deficits on growth in spending and blamed both political parties, saying “strangely enough, and ironically, the spending surge which is creating the problem here is fundamentally both Republicans and Democrats.” Bernanke has also spoken of the need to control U.S. deficits. In a Nov. 20 speech in New York, he said Congress and the president should reach a plan to close deficits in the long term without harming the economy in the near term. “A credible framework to set federal fiscal policy on a stable path -- for example, one on which the ratio of federal debt to GDP eventually stabilizes or declines -- is thus urgently needed to ensure longer-term economic growth and stability,” Bernanke said last month in New York.
Household Net Worth in U.S. Increases by $1.72 Trillion (Bloomberg)
Household wealth in the U.S. climbed in the third quarter, reflecting increases in stock values and home prices that are helping boost consumer confidence. Net worth for households and non-profit groups increased by $1.72 trillion from July through September, or 2.7 percent from the previous three months, to $64.8 trillion, the Federal Reserve said today from Washington in its flow of funds report. A recovery in household wealth, which plunged in the wake of the recession, may put more Americans in the mood to spend during the holiday-shopping season and give the world’s largest economy a lift. Net worth is still below its pre-recession peak, one reason the Federal Reserve is considering additional actions to spur expansion.
“Households have gotten themselves into much, much better financial shape,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “The ability of consumers to weather a shock is higher because buying power has increased. There’s no question that rising home prices are really helping to underpin buying power.” The value of financial assets owned by American households, including stocks and pension fund holdings, increased by $1.3 trillion in the third quarter, today’s Fed report showed.
Short Sales of Homes Surge as Tax Break to Expire: Mortgages (Bloomberg)
Homeowners and banks are accelerating sales of properties for less than the amount owed as a U.S. law that gives them a tax break expires at the end of the year. The transactions, known as short sales, increased by 35 percent in the third quarter from a year earlier, while sales of bank-owned homes dropped 20 percent, according to a report today by mortgage data seller Renwood RealtyTrac LLC. Together, they accounted for 41.5 percent of home purchases in the quarter. Short sales have accounted for as many as 1.1 million transactions since 2009, helping to reduce the inventory of homes owned by banks that can blight neighborhoods and flood the market. Barring a last-minute extension of the 2007 Mortgage Forgiveness Debt Relief Act, homeowners will be taxed on the forgiven principal. With Congress focused on the so-called fiscal cliff, federal spending cuts and tax-rate hikes set to kick in on Jan. 1, the law may not be extended, leading to a drop in short sales and a rise in foreclosures.
“If you’re struggling to pay your mortgage, it’s not likely you can afford an extra $25,000 or $35,000 tax bill to avoid foreclosure,” said Edward Mills, a financial policy analyst at FBR Capital Markets in Arlington, Virginia. “Mortgage forgiveness has become part of fiscal cliff politics.” The Internal Revenue Service typically taxes forgiven debt as income to the debtor. For short sales, the average price tag was $94,896 below the mortgage on the property, according to the RealtyTrac report. Tacking that onto borrowers’ income would not only raise the amount of taxes due -- it could push them into a more expensive tax bracket.
China State-Driven Rebound at Risk as Small Firms Suffer (Bloomberg)
China’s growth rebound, forecast to have gathered pace in November, is bypassing smaller businesses in a sign the government may need to step up policy support to secure a more broad-based recovery. Industrial production growth probably accelerated for a third month to 9.8 percent from a year earlier, while retail sales probably rose 14.6 percent, the most since March, according to median estimates in Bloomberg News surveys before data due Dec. 9. At the same time, 80 percent of small businesses polled by a state-run association said they hadn’t seen any “obvious benefits” from government policies. China’s rebound from a seven-quarter slowdown is being driven by state-funded transport projects, boosting the shares of railcar makers such as China CNR Corp. even as the benchmark stock index dropped. The focus on infrastructure and the lack of a more widespread pickup may threaten the sustainability of the economic recovery.
“The recovery is uneven as the recent rebound is mainly driven by government-sponsored investment projects,” said Ding Shuang, a Hong Kong-based economist with Citigroup Inc. “Since the policy easing this time is more measured than previous rounds, the rebound is likely to be mild and may not persist. More support is needed for smaller firms to sustain growth and jobs.” China’s economy is stabilizing and positive factors are increasing, the ruling Communist Party’s top decision-making body said this week in its first public assessment of the economy under new leader Xi Jinping. Authorities will put “enhancing quality and efficiency of economic growth at the center” in 2013, the official Xinhua News Agency cited the Politburo as saying.
Draghi’s Go-to ECB Seen Risking Credibility Through Overload (Bloomberg)
Mario Draghi isn’t just battling to save Europe’s monetary union, he’s being asked to run it. The European Central Bank president is taking on more and more responsibility to keep the currency bloc afloat, from propping up bond markets to monitoring fiscal policies and assuming supervision of the region’s 6,000 banks. Economists, academics and officials past and present say the ECB is at risk of becoming overloaded, which could erode the credibility it needs to achieve its primary goal of price stability. “The ECB saved the euro,” says Andrew Bosomworth, managing director at Pacific Investment Management Co. in Munich. “But the extra responsibilities, in particular its supervisory role, put additional burdens and risks onto its mandate.”
The ECB has been the euro area’s go-to institution during the sovereign debt crisis, filling the void as governments procrastinate and squabble over how to fight the turmoil. Unencumbered by the need to win votes, the ECB’s ability to act quickly has seen it steadily accrue new roles and made its president at least as powerful as Europe’s elected leaders. Draghi yesterday left interest rates at a record low and said the ECB stands ready to intervene in bond markets if governments sign up to fiscal and economic reforms.
Draghi Leaves Rate-Cut Door Ajar as ECB Reduces Forecasts (Bloomberg)
The European Central Bank cut its growth and inflation forecasts and President Mario Draghi said the euro area won’t start to shake off its slump until the second half of 2013, leaving the door ajar for further interest- rate reductions. “Weak activity is expected to extend into next year,” Draghi said today at a press conference in Frankfurt after policy makers left the benchmark rate at a record low of 0.75 percent. “By the second part of the next year, we should see the beginning of a recovery” as global demand strengthens and the ECB’s low rates feed through to the economy, he said. While Draghi’s pledge to buy government bonds has reduced borrowing costs in countries such as Spain and Italy and soothed concerns about the euro’s survival, the 17-nation currency bloc fell back into recession in the third quarter. The ECB’s latest forecasts paint a picture of economic stagnation and inflation falling well below its 2 percent limit. The euro dropped almost a cent to $1.2977 at 4:15 p.m. in Frankfurt.
The new projections “firmly support the case for lower interest rates,” said Howard Archer, chief European economist at IHS Global Insight in London. “The ECB appears to have the door open for an interest-rate cut, and we expect it to step through early in 2013.”
BOE Keeps Stimulus on Hold as Osborne Extends Fiscal Squeeze (Bloomberg)
Bank of England officials left their bond-buying program on hold as they assessed the need for more stimulus a day after Chancellor of the Exchequer George Osborne committed the country to five more years of austerity. Governor Mervyn King and the Monetary Policy Committee kept their quantitative-easing target at 375 billion pounds ($604 billion), a move predicted by all 36 economists in a Bloomberg News survey. Still, they have indicated the door is open to more purchases if needed, and Osborne said yesterday his “credible” fiscal plan “allows for supportive monetary policy.” The Bank of England is struggling to stoke a recovery amid a squeeze on consumers, cooling global growth and headwinds from Europe’s debt crisis. It introduced its Funding for Lending Scheme this year to boost credit, and Osborne’s affirmation of his fiscal strategy confirmed the central bank’s role as the key source of stimulus for the economy.
“The scope for easier fiscal policy is pretty limited in the U.K.,” Kevin Daly, an economist at Goldman Sachs Group Inc. in London, said in an interview with Guy Johnson on Bloomberg Television today. “The slack needs to be closed through much easier monetary policy and specifically credit policy.” The Bank of England also left its key interest rate at a record low of 0.5 percent.
ECB Keeps Benchmark Rate at 0.75% as Yields Decline (Bloomberg)
The European Central Bank kept interest rates on hold after its pledge to buy government bonds lowered borrowing costs and boosted confidence that the euro area can emerge from recession next year. Policy makers meeting in Frankfurt today left the benchmark rate at a record low of 0.75 percent, as predicted by 56 of 61 economists in a Bloomberg News survey. They also left the deposit rate at zero. ECB President Mario Draghi will hold a press conference at 2:30 p.m. to brief reporters on the decision and reveal new economic forecasts, including a first projection for 2014. Italian and Spanish bond yields have plummeted since Draghi promised to do whatever it takes to save the euro and announced an unlimited bond-purchase program. That’s helping to ease the strain on the euro region’s third- and fourth-largest economies and fueling optimism that the sovereign debt crisis can be contained, even after the 17-nation currency bloc slipped into recession.
“I expect solid growth for the euro area next year and no change in interest rates,” said Ulrich Kater, chief economist at DekaBank Deutsche Girozentrale in Frankfurt. “Only if the economy doesn’t grow might the ECB have to come up with a Plan B and lower interest rates.”
German Manufacturing Orders Surge in Sign of Resilience (Bloomberg)
German factory orders surged almost four times as much as economists forecast in October, driven by foreign demand. Orders, adjusted for seasonal swings and inflation, jumped 3.9 percent from September, the Economy Ministry in Berlin said today. It revised September’s drop to 2.4 percent from 3.3 percent. The increase in October is the biggest since January 2011 and exceeds the median forecast for a 1 percent gain in a Bloomberg News survey of 42 economists. From a year earlier, orders fell 2.4 percent when adjusted for work days. German business confidence unexpectedly rose in November after growth slowed less than economists predicted in the third quarter. At the same time, the euro area, Germany’s largest export market, slipped into recession. The Bundesbank has warned that the economic slowdown could continue in the fourth quarter as the region’s debt crisis and weaker global growth damp demand.
“The music is playing outside the euro region, where the label ‘Made in Germany’ is enjoying everlasting popularity,” said Mario Gruppe, an economist at NordLB in Hanover. “That’s good news for the economic outlook. We’re in for a cold winter but not a recession - everything speaks for an economic dent.” The euro rose after the report and was trading unchanged at $1.3068 at 12:40 p.m. in Frankfurt. The benchmark DAX index rose 1 percent today to 7526.30.
King Seen Maintaining QE as Osborne Extends Fiscal Squeeze (Bloomberg)
Bank of England officials may today leave their bond-buying program on hold as they assess the need for more stimulus a day after Chancellor of the Exchequer George Osborne committed the country to five more years of austerity. Governor Mervyn King and the Monetary Policy Committee will probably leave their quantitative-easing target at 375 billion pounds ($604 billion), according to a Bloomberg News survey of economists. Still, they have left the door open to more purchases if needed, and Osborne said yesterday his “credible” fiscal plan “allows for supportive monetary policy.” The central bank is struggling to stoke a recovery amid a squeeze on consumers and headwinds from Europe’s debt crisis. Bank of Canada Governor Mark Carney was appointed last month to lead that effort from July, and Osborne’s affirmation yesterday of his fiscal strategy confirmed the BOE’s role as the key source of stimulus for the economy.
“There’s no prospect of any unwinding of any quantitative easing before Mervyn leaves, or a rate increase,” said David Tinsley, an economist at BNP Paribas SA and a former central bank official. “In fact the risks lately have shifted a bit to doing more QE because the data haven’t been so good.” All 36 economists in the Bloomberg poll see no increase in gilt purchases today, while the median forecast in a separate survey is that the benchmark interest rate will remain at a record-low 0.5 percent. The central bank will announce the decisions at noon in London. The pound rose 0.1 percent against the dollar today and was trading at $1.6114 as of 9:58 a.m. in London. The yield on the 10-year gilt rose 2 basis points to 1.8 percent.
Osborne Targets Welfare and the Rich as Fiscal Targets Slip (Bloomberg)
Chancellor of the Exchequer George Osborne took aim at welfare spending and the pensions of the rich after an ailing economy blew his deficit-cutting strategy off course. Osborne announced a broadly neutral fiscal plan for the next four years with a package of measures for companies, while telling the House of Commons in his autumn statement yesterday he no longer expects to meet his debt target and will have to extend austerity well beyond the 2015 general election. With the economy forecast to shrink by 0.1 percent this year and expand little more than 1 percent in 2013, Osborne is finding it increasingly difficult to stick to the plans on which he staked his political reputation two years ago. He now expects to balance the budget in 2018 instead of 2015, as originally planned, after announcing a 5 billion-pound ($8 billion) spending squeeze from 2017.
“The plan’s still there but it’s going to be the next government implementing it,” said Neville Hill, head of European Economics at Credit Suisse Group AG (CSGN) in London and a former U.K. Treasury official. “It’s pushing austerity back by almost Greek proportions. It’s a case of kicking the can down the road, which the government can afford to do.” Osborne told lawmakers that his fiscal watchdog, the Office for Budget Responsibility, believes he will miss his target to begin cutting the burden of government debt in 2015-16. Instead, debt as a share of gross domestic product will peak at 79.9 percent in that year, and then start to decline in following years, he said.
