Thread: OcaFX.Com - Financial News and Analysis

OctaFX.Com -EU talks up Spanish banks package, markets skeptical








BRUSSELS (Reuters) - Euro zone ministers struggled to reassure financial markets on Tuesday that an aid package for Spain they outlined overnight will help stabilize the currency bloc - a task made all the harder by a German legal challenge to its crisis-fighting tools.


The ministers agreed early on Tuesday to grant Madrid an extra year until 2014 to reach its deficit reduction targets in exchange for further budget savings. They also set the parameters of an aid package for Spain's ailing banks.


The decisions were aimed at preventing the currency area's fourth largest economy, mired in a worsening recession, from needing a full state bailout which would stretch the limits of Europe's rescue fund and plunge it deeper into a debt crisis.
"There's no emergency here, there's a clear path towards stabilization," Luxembourg Finance Minister Luc Frieden said of the measures agreed for Spain. "The markets have to realize that the money is there, more money than is necessary."


But markets were disappointed the meeting did not offer more. The euro initially traded near a two-year trough against the dollar and hit a five-week low versus the yen, with sentiment edgy as the focus shifted to a German court hearing.
Germany's top court also will pick up the issue on Tuesday about whether Europe's new bailout fund and budget rules are compatible with national law in a process influencing not just how to tackle the euro zone crisis, but how much deeper European integration can go.


The hearing into complaints about the fund, the European Stability Mechanism (ESM), and fiscal pact may indicate how long the court will keep Europe on tenterhooks.
Anything more than a few weeks would mean a serious delay to implementing the ESM, which has already been postponed from July 1, and raise serious doubts about whether Europe will really get the extra firepower it needs to combat the crisis.
"A considerable postponement of the ESM (bailout fund) which was foreseen for July this year could cause considerable further uncertainty on markets beyond Germany and a considerable loss of trust in the euro zone's ability to make necessary decisions in an appropriate timeframe," German Finance Minister Wolfgang Schaeuble told the court/


At their meeting overnight, euro zone finance ministers did not agree a final figure for aid to ailing Spanish lenders, weighed down by bad debts due to a housing crash and recession, but the EU has set a maximum of 100 billion euros ($123 billion) and some 30 billion euros would be available by the end of July if there was an urgent need.


A final loan agreement will be signed on or around July 20, Eurogroup chairman Jean-Claude Juncker told a news conference.


Frieden, arriving for Tuesday's meeting of finance ministers from the broader 27-member European Union, said the 100 billion euros available to Spanish banks was much more than they needed.


In one key decision watched by investors, ministers agreed overnight that once a single European banking supervisor is set up next year, Spanish banks could be directly recapitalized from the euro zone rescue fund without requiring a state guarantee.


That fulfils an EU summit mandate to try to break a so-called "doom loop" of mutual dependency between weak banks and over indebted sovereigns, but represented a climbdown for hardline north European creditor countries.
"It is a very, very positive agreement," Spanish Economy Minister Luis de Guindos said on arrival for Tuesday's meeting.


KEY APPOINTMENTS


In a nine-hour marathon meeting ministers of the 17-nation euro zone also settled a series of long delayed appointments.
But they made no apparent progress on activating the bloc's rescue funds to intervene in bond markets to bring down the spiraling borrowing costs of Spain and Italy, which threaten to drive them out of the market.
The ministers reappointed Juncker as their chairman for a further term of up to 2-1/2 years, though Europe's longest-serving government leader said he intended to step down from the position at the end of this year or early in 2013.


They nominated another Luxembourger, inflation hawk Yves Mersch, to the vacant position on the European Central Bank's six-member executive board, and picked German Klaus Regling to head their permanent bailout fund, the European Stability Mechanism, due to come into force this month.


Regling had already set up and run the temporary European Financial Stability Facility which has funded rescues for Greece, Ireland and Portugal.
The Eurogroup ministers were tasked with fleshing out a bare-bones agreement reached by EU leaders at a summit last month on establishing a European banking supervisor and using the bloc's rescue funds to stabilize bond markets.
But differences persisted between north European countries such as Finland and the Netherlands and southern states led by Italy and Spain.
On Monday, ECB President Mario Draghi endured at times hostile questioning in the European Parliament, notably from German, Dutch and Finnish lawmakers concerned at the prospect of European bank bailouts using taxpayers' money.
Tuesday's meeting will formally ease a deficit reduction goal that has forced Madrid to make punishing cuts that are exacerbating a recession.


SLIPPAGE


Spanish and Italian borrowing costs eased on Tuesday, with Spain's 10-year bond dipping back below the critical 7 percent level.
Spain's de Guindos spelled out to the euro zone ministers on Monday his government's plan for a package of up to 30 billion euros over several years through spending cuts and tax hikes that are due to be announced this Wednesday.
A source close to the Spanish government said 10 billion euros of cuts would come this year and that the measures would include a hike in VAT sales tax, reduced social security payments, reduced unemployment benefits and changes to pensions calculations.
The European Commission proposed in return easing Madrid's deficit goal for this year to 6.3 percent of economic output, 4.5 percent for 2013 and 2.8 percent for 2014.
European Economic and Monetary Affairs Commissioner Olli Rehn said Spain was expected to take additional savings measures very soon to ensure it meets its new targets.


The new targets may still prove hard to reach, according to a draft recommendation from European partners, loosening Spain's goals and demanding the country be subjected to three-monthly checks.


The figures highlighted Spain's dramatic fiscal slippage due to a worsening recession. Madrid was originally meant to cut its budget shortfall to 4.4 percent this year. Prime Minister Mariano Rajoy unilaterally changed the target to 5.8 percent in March before eventually accepting an agreed goal of 5.3 percent.


Ministers sought to project confidence in Spain.


"We are confident that Spain is (doing) and will do all that is necessary to overcome this crisis," said Dutch Finance Minister Jan Kees de Jager.





Jul 10, 2012 09:31
OctaFX.Com News Updates

OctaFX.Com -Factory output drags on euro zone's economy









BRUSSELS (Reuters) - Euro zone factories unexpectedly stepped up production in May, but output fell in France and the Netherlands in a further sign that the bloc's sovereign debt crisis is also hurting its stronger economies.


Industrial production in the 17 countries sharing the euro rose 0.6 percent in May from April, the EU's statistics office Eurostat said on Thursday, beating expectations of economists polled by Reuters, who had forecast no growth in the month.
But Eurostat revised downward the reading for April to a 1.1 percent drop from a 0.8 percent decrease, the deepest fall so far this year, highlighting the crushing effect that the 2-1/2 year debt crisis has had on consumer and corporate demand.
"May's increase does not alter our view that the sector will continue to act as a drag on overall economic growth," said Ben May, a economist at Capital Economics in London.


"With the weakening business surveys pointing to more rapid rates of decline, we would not be surprised if production fell again in June," he said, forecasting a contraction in second quarter gross domestic product in the euro zone.


A fall in energy production in May for the euro zone as a whole appeared to explain the modest reading as output rose for capital goods, such as machinery to make other products.


Industrial output fell 2.1 percent in France in May, a drop second only to Slovenia's 3.2 percent slide.
Production also fell in the Netherlands, where GDP is expected to shrink 0.9 percent this year, according to the European Commission and making it the worst performing economy in the euro zone's wealthy, northern core.
"Modest annual declines in production in Germany, the Netherlands and Finland suggest that all is not well in the core countries," said Martin van Vliet at ING, adding that with no growth in industrial output in June, the sector's performance will likely knock at least a 0.1 percentage point off GDP.


FRENCH JOB LOSSES


Led by France, EU leaders agreed at a summit last month to inject 120 billion euros ($145 billion) into the European economy to counterbalance public sector layoffs and cuts in spending to bring budget deficits down to sustainable levels.
But with the euro zone crisis also weakening business confidence in China, the United States and other major economies, that plan may not be enough, especially when only 60 billion euros will be available quickly.


In another attempt to revive the economy, the European Central Bank cut interest rates to a record low of 0.75 percent this month, making it cheaper for the euro zone's hard-pressed households and firms to borrow.
The outlook is poor for France in particular, after French carmaker PSA Peugeot Citroen announced on Thursday 8,000 job cuts and the closure of an assembly plant as it struggles with mounting losses.


Germany, Europe's largest economy, has shown the most resilience to the debt crisis and the International Monetary Fund expects it to grow 1 percent this year, better than the stagnation most economists see for the euro zone as a whole.
But while German factories increased production by 1.5 percent in May, it was still not enough to compensate for a 2 percent fall in April. Italy painted a similar picture, rising 0.8 percent in May after also falling 2 percent in April.


"German exports should climb again in the coming months, as we do not expect global demand to slump. That said, the German upswing has lost momentum amid the crisis in the euro zone," Ulrike Rondorf, an economist at Commerzbank, wrote in a note to clients last month on the German export outlook.
Ireland, which the euro zone is eager to hold up as a success story after Dublin took a bailout in 2010, notched up its third consecutive month of solid output gains, with industrial production rising 1.4 percent. ($1 = 0.8164 euros)


Jul 12, 2012 09:18
OctaFX.Com News Updates

OctaFX.Com -Japanese Yen Strength Persists; EURUSD Consolidates








Australian labor market data was a major disappointment in the overnight, showing that nearly all of the jobs gained in May were wiped out in June (save 0.8K). Australia, as a proxy to China, has been putting out weaker than expected data once again, raising emerging market growth concerns. In light of recent Chinese data, which has showed significantly weaker domestic demand in the world’s most important economy, the People’s Bank of China has cut its key rate twice since the first week of June. Scope for further rate cuts, not only from the People’s Bank of China but from the Reserve Bank of Australia as well, will be revealed tomorrow when the Chinese second quarter GDP report is released.


More importantly, however, is that the US Dollar is surging in the wake of the Federal Reserve’s June 20 to 21 meeting Minutes yesterday. While it’s evident that policymakers are concerned about the direction of the US economy, any further easing will be on the sidelines as long as the recovery muddles along at its current rate. One needs to look no further than commodities and highly-correlated currencies to


appreciate the US Dollar’s strength: AUDUSD and NZDUSD are both down over 1% thus far today; NYMEX WTI Crude Oil has fallen 1.13%; spot Gold is down 0.91% and spot Silver is down 1.78%; and COMEX Copper Click here to See More


Jul 12, 2012 10:55
OctaFX.Com News Updates

OctaFX.Com -Australian Dollar Gained as RBA Reports Stronger Economic Growth, Headwinds Exist






THE TAKEWAY: Minutes from July third meeting reports Australian economic strength > GDP growth is expected to continue at moderate pace while inflation figures suggest easing prices and substantial risk of spillover from European financial crisis exists > Australian Dollar gained


The Australian Dollar gained versus the U.S. Dollar after the Reserve Bank of Australia released their minutes from the July third meeting. Overall, RBA officials noted that the economy had been growing at a stronger than previously estimated rate since mid 2011 as gross domestic product registered at 4.3% over the first three months in 2012. Furthermore, the recent CPI data suggests that inflation appears to have moderated, decreasing to 1.6 percent in March 2012, year over year, from 3.1 percent in December 2011, year over year. Officials also said holding borrowing rates at 3.50% allows for “more domestic growth.”


Moreover, it was noted that there still remains a substantial risk of spillover from the European financial crisis, however recent developments from the European summit helped to boost market sentiment for the time being.


Officials also noted that China’s economy slowed at a slower rate than initially indicated and that the outlook remains uncertain.


Markets likely interpreted the data to mean that further rate cuts may not be on the horizon thus providing support for the higher yielding Aussie currency.




AUDUSD, 5 Minute Chart







Jul 17, 2012 03:25
OctaFX.Com News Updates

OctaFx -Australian Dollar Declined as Chinese Real Estate Data may Provide Support for Softening Economic Conditions




THE TAKEWAY: Chinese real estate prices ease > Data in line with the recent softening in economic conditions > Australian Dollar declines


The Australian Dollar declined in value versus the U.S. Dollar as Chinese real estate prices show signs of economic slowing. From a sample of 70 Chinese cities surveyed, prices for new residential apartments decreased in 57 cities. Moreover, 58 cities also experienced declining prices for existing residential apartments. The data fell in line with recent CPI figures which increased by 2.2 percent in June, the slowest rate of increase in 29 months.


Declining real estate prices might suggest that credit demand may also be slowing. Earlier in July the PBOC cut lending rates in an effort to provide credit-borrowing incentive, offering additional support for a possible flagging credit demand case.
Finally, softening Chinese data could have negative spillover effects to the Australian economy as China is in large demand for Aussie exports. If the Aussie economy experiences a drop in export demand, then markets may likely project a more accommodative RBA monetary stance and thus reduce expectations for rate hikes.




Jul 18, 2012 03:02
OctaFX.Com News Updates

OctaFx -Japanese Yen Strength Persists; EURUSD Consolidates




Risk-aversion is the tone across the board on Wednesday as US equity futures have declined, commodities have sold off, and the Japanese Yen is the top performer. In the wake of this, the Euro is leading losses (though quizzically, the Australian Dollar is the second best performer against the US Dollar on the day) as the German 2-year note yield fell to -0.06%, perhaps one of the best indicators that uncertainty remains high among investors.


Despite yesterday’s promising results from the Spanish bond auction, Spanish debt is back under pressure which is adding to the Euro’s woes. The Italian 2-year note yield has pulled back to 3.426% (-7.3-bps) while the Spanish 2-year note yield has risen to 4.802% (+21.0-bps). Similarly, the Italian 10-year note yield has dropped to 5.973% (-3.9-bps) while the Spanish 10-year note yield has risen to 6.767% (+5.1-bps); higher yields imply lower prices.


RELATIVE PERFORMANCE (versus USD): 10:55 GMT


JPY: +0.13%
AUD: -0.09%
CAD: -0.14%
GBP: -0.32%
CHF:-0.48%
NZD: -0.49%
EUR: -0.50%
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.19%(-0.48% past 5-days) READ MORE




Jul 18, 2012 10:59
OctaFX.Com News Updates

OctaFX.Com -Dollar rises as Bernanke gives no hint of stimulus
Dollar rises against the euro as Fed Chairman Ben Bernanke gives no hint of imminent stimulus








NEW YORK (AP) -- The dollar is rising against the euro after Federal Reserve Chairman Ben Bernanke gave no indication that the Fed was about to step in again to help the U.S. economy.


In his second day of testimony before Congress, Bernanke said Wednesday economic growth remains weak and that the Fed will contemplate additional action if unemployment stays high.
But he offered no hints that the Fed would launch another round of bond purchases. The Fed has already launched two rounds of bond purchases, most recently in August 2010. Those programs push interest rates lower and can weaken the dollar.


The euro fell to $1.2269 in afternoon trading Wednesday from $1.2289 late Tuesday. The British pound fell to $1.5650 from $1.5647.


Jul 18, 2012 17:01
OctaFX.Com News Updates

OctaFX.Com -Euro vs. Dollar: Who's the Ugliest One of All?









The euro may be winning the unpopularity contest in the markets at the moment, but the dollar is close behind, according to David Bloom, head of foreign exchange strategy at HSBC.


He described the euro (EUR), which has continued its medium-term fall against the dollar this year after rallying slightly in February and June, as "the ugliest of all" - but maintained the U.S. dollar is far from beautiful.
The Eurodollar is also becoming less effective as a benchmark as investors move away from both currencies, Bloom argued.
"Investors are abandoning the euro and the dollar. We've been focusing on the Eurodollar as the bellwether but if you look at the dollar against other currencies like the Australian dollar or the rand, it's actually weakening," he told CNBC's "Squawk Box Europe" Friday.


"You've got the ugliest of all, which is the euro, but the dollar is starting to look quite ugly as well. The Eurodollar as a benchmark isn't working - people are selling the U.S. dollar now too because we're heading towards elections and the fiscal cliff."
"We're stuck between Europe and the U.S. QE 3, 4, 5 - it's like the Rocky movies!" he said, referring to a third, fourth or even fifth round of quantitative easing.


He is far from the only currency expert to warn against the euro. In the absence of any headline-grabbing meetings or summits in the euro zone this week, markets' attention has turned elsewhere - but risks remain (click here for a slideshow on the world's most indebted nations).


"We still have plenty of event risk up ahead in the euro zone - the German constitutional court for starters - and the chance of a full-fledged (troika) program in Spain," Geoffrey Yu, currency strategist at UBS, told CNBC.


"The euro is being considered more as a funding currency and people aren't trading much off euro-specific news. Looking at our volumes in the past week, people are packing up for the summer.
Politics in the developed world are going to keep their grip on markets and currencies, according to Bloom.


"Politics is the new economics. There's no longer this laissez faire attitude to free markets,"


he said."Look at the Swiss. They have made a political decision to keep manufacturing jobs and its costing them to keep the franc low."


The Swiss National Bank is buying bonds in an effort to keep the Swiss franc (CHF) at a level which will not put companies off investing in jobs in the country.
New safe havens are emerging from the mire, with Nordic currencies like the Swedish krona (SEK), which recently hit a 10 year high against the euro, performing well.
"We're trying to find beauty in this world of ugly. Sweden has turned the corner. It's the rose amongst the thorns," Bloom said.


"The market has switched on to this change already, but we think that it's right to continue buying it."


There are some who believe that the krona has already come too far and now is the time to sell, including analysts at Nomura, who issued a sell note on the currency earlier this week.


The Australian dollar (Exchange:euraud=) has also strengthened, but is more vulnerable than most global currencies to any slowdown in China because of the Australian economy's dependence on commodities.


"A lot of clients are finding the Aussie difficult to sell right now," Yu said.


"If the money does flow in Australia's direction (from China), it'll be hard to fight. If clients want a commodity-linked currency, the Aussie seems the best place to go."


Jul 20, 2012 09:14
OctaFX.Com News Updates

OctaFx -ECB's Coeure warns against betting on euro collapse




MEXICO CITY (Reuters) - The euro zone political commitment to the euro should not be underestimated, European Central Bank Executive Board member Benoit Coeure said on Friday in a warning to those doubting the single currency's survival.


In a speech in Mexico City, Coeure said there was a lack of understanding about the euro zone's approach to tackling the debt crisis and that he disagreed with those who said the bloc did not have the right tools to fix the situation.


"I would caution those who have doubts about the euro, that they underestimate the political commitment to it at their own risk," Coeure said.
"The ambition to provide long-term foundations for EMU in less than a decade is a historical step of great significance," he added.


He added that the euro zone would remain a cornerstone of the international economy and that euro zone leaders had "clearly understood that the time of partial solutions and piecemeal reform is over".


He underscored the bloc's decision to give the ESM permanent bailout fund the ability to capitalize banks directly, a move he described as "crucial to break the vicious circle between banks and sovereigns that is at the heart of the crisis".
In addition he said short-term measures were clearly needed to help growth and soften the blow from austerity.




Jul 20, 2012 15:03
OctaFX.Com News Updates

OctaFx -Oil prices rise as ECB head vows to save euro
Oil prices rise as ECB head pledges to do what's necessary to protect euro




The price of oil rose after the head of the European Central Bank vowed to protect the currency used by 17 countries in the financially strapped region.


Europe's worsening debt crisis has raised speculation that the central bank will act to promote economic growth. A stronger economy would boost demand for oil and other energy products.


Demand for oil in Europe has dropped as some countries have fallen into recession. Earlier this month, the International Energy Agency estimated oil demand in Europe this year at 14.6 million barrels a day, down from 15 million last year. The European Union accounts for about 16 percent of global oil use.
At an investment conference in London, ECB President Mario Draghi pledged Thursday to do "whatever it takes to preserve the euro." He also suggested that the bank could act to lower escalating borrowing rates for financially troubled countries like Spain and Italy.


Benchmark oil rose 39 cents to $89.36 per barrel in New York after earlier topping $90 per barrel. Brent crude, which is used to price international varieties of crude, gained 46 cents to $104.84 per barrel in London after earlier hitting $106.18 per barrel.


U.S. stocks and gold also surged.


Concerns have intensified that Spain may need a financial bailout package, similar to those given to Greece, Ireland and Portugal because its borrowing rates are high. That would strain Europe's finances because Spain's economy is the fourth largest among the countries that use the euro.
Draghi's comments marked a reversal from his position over the past few months. He had been insisting that it was up to the governments to restore confidence in the euro.


Price Futures Group Phil Flynn speculated that oil prices couldn't hold the earlier gains because of a lack of specifics in Draghi's remarks. "Once again...the market is moving on what we think we know but we really don't know," Flynn said. "What does he mean by that statement that we'll do 'everything it takes?'"
In other trading, natural gas prices were flat at $3.05 per 1,000 cubic feet after the government said the nation's supply expanded last week. Natural gas inventories were 15.8 percent more than the five-year average as of July 20.
Heating oil rose 2 cents to $2.87 per gallon and gasoline futures gained 3 cents to $2.74 per gallon.


At the pump, the national average for gasoline rose less than a penny overnight to $3.49 per gallon, according to AAA, Wright Express and the Oil Price Information Service. That's about 5 cents more than a week ago but still 20 cents lower than last year at this time




Jul 26, 2012 15:23
OctaFX.Com News Updates