Thread: Forexpros Fundamental Weekly Outlook, Nov 30-Dec 4,2009

Forexpros Fundamental Weekly Outlook, Nov 30-Dec 4,2009

EU:
• Monday: Germany Retail Sales MoM (Previous -0.5%, Forecast N/A) & YoY (Previous -3.9%, Forecast N/A).
• Tuesday: Euro-Zone PMI Manufacturing (Previous 51, Forecast N/A), Unemployment Rate (Previous 9.7%, Forecast N/A). Germany PMI Manufacturing (Previous 52, Forecast N/A), Unemployment Rate (Previous 8.1%, Forecast N/A).
• Wednesday: Euro-Zone PPI MoM (Previous -0.4%, Forecast N/A) & YoY (Previous -7.7%, Forecast N/A).
• Thursday: Euro-Zone PMI Services (Previous 53.2, Forecast N/A), France Unemployment Rate (Previous 9.5%, Forecast N/A), PMI Services (Previous 60.4, Forecast N/A). Germany PMI Services (Previous 51.5, Forecast N/A). Euro-Zone Retail Sales MoM (Previous -0.7%, Forecast N/A) & YoY (Previous -3.6%, Forecast N/A). Euro-Zone GDP QoQ (Previous 0.4%, Forecast N/A) & YoY (Previous -4.1%, Forecast N/A). ECB Interest Rates (Previous 1.00%, Forecast N/A) & Trichet Monthly News Conference.

US:
• Monday: Chicago PMI (Previous 54.2, Forecast 53).
• Tuesday: ISM Manufacturing (Previous 55.7, Forecast 54.8 ) .
• Wednesday: Fed's Beige Book (Text Report).
• Thursday: Initial Jobless Claims (Previous 466k, Forecast 488k). ISM Non-Manufacturing (Previous 50.6, Forecast 51.3).
• Friday: Change in Nonfarm Payrolls (Previous -190K, Forecast -100K). Unemployment Rate (Previous 10.2%, Forecast 10.2%). Factory Orders (Previous 0.9%, Forecast 0.4%).

JP:
• Monday: Housing Starts YoY (Previous -37.0%, Forecast N/A).
• Thursday: Capital Spending (Previous -21.7%, Forecast N/A).

UK:
• Monday: GfK Consumer Confidence Survey (Previous -13, Forecast N/A). M4 Money Supply MoM (Previous 1.8%, Forecast N/A) & YoY (Previous 11.0%, Forecast N/A).
• Tuesday: Nationwide House Price Index MoM (Previous 0.4%, Forecast 0.3) & YoY (Previous 2.0%, Forecast 2.4%). PMI Manufacturing (Previous 53.7, Forecast N/A).
• Thursday: PMI Services (Previous 56.9, Forecast N/A).

AU:
• Monday: New Home Sales MoM (Previous -4.5%, Forecast N/A), Private Sector Credit (Previous 1.7%, Forecast N/A).
• Tuesday: Building Approvals MoM (Previous 2.7%, Forecast N/A) & YoY (Previous 11.7%, Forecast N/A). RBA CASH TARGET (Previous 3.50%, Forecast 3.75%).
• Thursday: Retail Sales MoM (Previous -0.2%, Forecast N/A).

CA (CAD/USD):
• Monday: GDP MoM (Previous -0.1%, Forecast N/A) & QoQ (Previous -3.4%, Forecast 1.0%).
• Friday: Unemployment Rate (Previous 8.6%, Forecast N/A), Net Change in Employment (Previous -43.2K, Forecast N/A). Ivey Purchasing Managers Index (Previous 61.2, Forecast N/A).

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Forex trading analysis by Forexpros - Written by Munther Marji

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Disclaimer
Trading Futures and Options on Futures and Cash Forex transactions involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

Dollar falls as Dubai debt fears ease
Greenback suffers on increased risk appetite. Yen also sinks as Bank of Japan continues easing monetary policy.
LONDON (Reuters) -- The yen fell broadly on Tuesday after the Bank of Japan announced more measures to ease monetary policy to help the ailing economy following an emergency meeting, while holding interest rates at 0.1%.

Despite its gains against the yen, the dollar fell against other major currencies as risk appetite improved after more clarity about the debt situation in Dubai eased some concerns about the region's stability.

The yen struggled, but pared losses as the BOJ's move to provide three-month funds at rock-bottom rates surprised some in the market who had been expecting bolder policy steps, such as expanding purchases of government bonds to push yields down.

Addressing strength in the yen, which shot to a 14-year high against the dollar last week, BOJ Governor Masaaki Shirakawa said the central bank's commitment to keeping rates low would have an effect on currencies in the long run.

"The message is that the BOJ isn't completely indifferent to currency rates, and this should at least be marginally yen-negative," said Adam Cole, global head of currency strategy at RBC in London, while acknowledging the yen's initial reaction to the comments had been limited.

Shirakawa spoke to reporters after the BOJ introduced a new operation to provide 10 trillion yen in three-month funds at a fixed rate of 0.1% in a bid to enhance monetary easing by trying to bring down longer-term rates.

The dollar traded 0.5% higher on the day at ¥86.80, having hit ¥87.54 earlier in the day.

The dollar has suffered against the yen, hitting ¥84.82 late last week for the first time since mid-1995, as dollar interbank borrowing costs have fallen below yen ones this year.

The euro rose 1% to ¥130.90, while higher-yielding currencies including the Australian and New Zealand dollar rallied as much as 2% versus the yen.

The euro rose 0.4% to $1.5065 as risk demand rose after restructuring plans by Dubai World, which has been the center of concerns about the region's debt position, eased some woes about the area's financial health.

The dollar index fell 0.5% to 74.550, while European share prices rallied roughly 2%.

"The market is keeping an eye on Dubai, but it realizes that it's likely this won't lead to a systematic decline in Dubai's financial sector, so traders are willing to take on risk," said Jane Foley, research director at Forex.com in London.
More dollar/yen weakness?

The Australian dollar rose nearly 1% on the day to $0.9230, boosted after the Reserve Bank of Australia raised interest rates by 25 basis points to 3.75 as expected on Tuesday in its third consecutive hike.

Many in the market expect the dollar to stay weak against the yen, which may seriously hamper Japan's ability to recovery from recession.

Analysts said there was little standing in the way of more yen strength against the dollar so long as U.S. interest rates also remain essentially at zero, and that the prospects of yen-weakening intervention by Japan will remain low given the dollar's overall weakness.

"(The new BOJ operation) is unlikely to either have a material impact on economic recovery or alter the downward momentum in USD/JPY," analysts at BTM said in a note.

"In fact it may even ex****bate USD weakness by further encouraging the establishment of liquidity fueled USD-funded risk trades."

Political pressure on the BOJ to avert recession has grown, but Tuesday's decision is seen as a way to avoid a return to a narrow form of quantitative easing, under which the BOJ slashed rates to zero and flooded markets with cash in 2001-2006.

Home sales contracts soar in October
National Association of Realtors index spikes 32% as buyers take advantage of first-time homebuyer tax credit.
NEW YORK (CNNMoney.com) -- Americans are inking a lot of deals to buy homes.

In October the National Association of Realtors recorded an unprecedented ninth consecutive month of increases in the number of signed contracts.

Although these are not closed sales, and some deals can fall through, signed contracts are a good indicator of where the housing market is headed.

Between September and October NAR's Pending Home Sales Index rose 3.7% to 114.1 from 110 in October. But the index is 31.8% higher than a year ago, when it was 86.6. That's the biggest year-over-year gain in the history of the index.

The PHSI is also at its highest level since March 2006, and the rise confounded expert expectations. A panel of industry analysts put together by Briefing.com had forecast a 1% drop in new contracts.

NAR's chief economist, Lawrence Yun, gives much of the credit for increased sales to the homebuyer's tax credit, which first-time homebuyers could claim to reduce their taxes by up to $8,000.

"The tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future," Yun said in a prepared statement.

The credit had been due to lapse on Dec. 1, so many October buyers may have acted to get in under the wire.

However, the credit has been extended through the middle of 2010 and expanded to include many move-up buyers. The housing industry hopes that will keep sales perking until the economy picks up and markets return to a more normal condition.

In a related story, the Census Bureau reported that private residential construction spending surged 3.9% during October.

Yun cautioned, however, that housing market indicators, such as pending sales, may weaken over the next few months.

"The expanded tax credit has only been available for the past three weeks, but the time between when buyers start looking at homes until they close on a sale can take anywhere from three to five months," he said.

"Given the lag time, we could see a temporary decline in closed existing home sales from December until early spring when we get another surge," he added. "But the weak job market remains a major concern and could slow the recovery process."

The good news is that number of homes on the market has declined, removing some of the bloat that has depressed prices. There is now a seven month supply of homes on the market at the current rate of sale. which is down from 10.2 months a year ago. Yun predicted that housing conditions could return to near normal and home prices firm up by mid-2010.

"That would mean broad wealth stabilization for the vast number of middle-class families," he said.

Cyber Monday: A lot of clicking and shopping
Report says sales rose 14% over last year and shoppers on average spent more online than they did on Black Friday.
NEW YORK (CNNMoney.com) -- Did Cyber Monday outshine Black Friday this year?

Early reports suggest that Americans shopped more enthusiastically online for holiday bargains than they did in stores on Black Friday.

Cyber Monday sales rose 14% this year compared to 2008 and consumers also bought nearly 30% more items per order versus last year, according to research firm Coremetrics.

Also, the firm said shoppers bought 10% more items per order online than they did in stores on Black Friday.

"We are seeing good online buying momentum because people are looking for the very best deals, and are going online for the most convenient way to shop," John Squire, chief strategy officer, Coremetrics, said in a report Tuesday.

Clothing and jewelry e-tailers were the most popular shopping destinations on Cyber Monday. Although department stores saw a 33% increase in traffic to their Web sites, the average order volume actually fell 10% versus last year, the report said.
Kindle top seller at Amazon.com

Cyber Monday, which is the e-tailers version of Black Friday, is the day that e-tailers furiously push big discounts, free gift cards, free shipping and any other gimmick they can think of to entice consumers to spend even more of their holiday shopping dollars online.

Amazon.com (AMZN, Fortune 500) spokesman Craig Berman said its wireless Kindle e-reader was the "best-selling item across all of Amazon's product categories on Monday."

"This November has become the biggest month for Kindle sales since we launched the product two years ago," Berman said. But he declined to disclose how many Kindle units have been sold over that period.

Also, Berman said the e-tailer sold out of its Cyber Monday deal of the day, which was an *** **** Touch for $158.

Other hot sellers Monday included the hugely popular Zhu Zhu pet hamsters, which are sold on Amazon through third party vendors.

Although the retail price of each hamster is $9.99, Berman said some of the hamsters, such as Mr. Squiggles, were selling for as much as $63 each.
4.3 million shoppers a minute

An average of 4.3 million consumers per minute visited shopping Web sites throughout the day Monday in North America, according to Internet monitoring firm Akamai, which tracks traffic trends to more than 270 e-tailers.

The firm, which monitors North American visitors to sites such as American Eagle Outfitters, Overstock.com, QVC.com and eBags.com, said traffic peaked at about 9:30 p.m. ET, reaching 5.1 million visitors per minute.

Pedro Santos, chief strategist for e-commerce with Akamai, said he expects heavy online traffic to continue on subsequent Mondays leading up to the last shipping day before Christmas.

Here's a sampling of what other sellers were serving up to customers.

Walmart.com is offering nearly 150 specials on such items as flat panel TVs, gaming systems and toys as well as 97-cent shipping on ******s, digital cameras and MP3 players.

Wal-Mart (WMT, Fortune 500) said in a statement the deals are being offered through Friday, but only while supplies last.

For book lovers, Barnesandnoble.com is chopping prices by 50% on all New York Times bestsellers and offering a $10 gift certificate for every $100 purchase.

Still, don't expect any special deal on Barnes & Noble's "Nook" eBook reader, which industry experts peg as one of the hottest products this holiday season.

A quick check on the book seller's Web site showed that if you order the Nook Monday, it won't be shipped until Jan. 4. And the "extra" incentive to Nook buyers is free shipping and a free gift certificate.

About 96.5 million Americans planned to shop online Monday, up from 85 million in 2008, according to the National Retail Federation.

Despite these expected traffic numbers and heavy discounts, Cyber Monday is still seen as more of a ceremonial start to online holiday shopping.

The busiest online shopping day tends to be later in December, and is the last day that gifts can be shipped to guarantee delivery by Christmas Day.

Gold hits $1,200 an ounce
Precious metal continues its rise on dollar weakness after Dubai debt fears ease.
NEW YORK (CNNMoney.com) -- Gold prices crossed $1,200 an ounce on Tuesday, setting record highs, as dollar weakness and easing of Dubai debt fears pushed the precious metal higher.

By 11:28 a.m., U.S. gold futures for December delivery were up $21.60 to $1,202.70 an ounce.

"Concerns about geopolitical events have been pushing investors to seek safe-haven assets," said Carlos Sanchez, analyst at CPM Group. "Gold is seen as a hedge against that volatility."

Gold prices had fallen about 5% Friday on continued concerns about the state-run investment company of Dubai requesting a postponement of $60 billion in debt.

But on Tuesday, reports said Dubai World was in talks over $26 billion of its debt, easing worries it would default on the total balance. That relief translated into a blow for the dollar, as increased risk appetite pushed the U.S. currency lower.

A weaker greenback tends to boost gold, as it and other commodities are priced in dollars around the world.

The dollar also pared gains against the yen after the Bank of Japan said it will inject more liquidity into the financial system while holding rates at 0.1%.

The dollar's recent weakness has provided enough of a floor under gold prices that investors continue to buy the metal despite its high prices, said Sanchez.

But prices will likely cool soon and trade in a tight range before moving higher than $1,200, he added, noting that it took about one week for gold to move from $1,100 to $1,160 an ounce.

"I think a lot of market participants who are more short-term oriented are looking for specific levels, like $1,200," Sanchez said. "Prices could consolidate around current levels for a while, but we'll [end above] that threshold by the end of the year."

November 2009 was a golden month. Gold prices have risen more than 34% in 2009 so far. The metal was $890 an ounce on Jan. 2, and it fell to $818.90 on Jan. 15.

The next month saw a rapid rise, and gold prices closed at $1,004.70 per ounce by Feb. 23. But prices sank to $878.90 on April 7 and did not cross the $1,000 level again until Sept. 14.

Gold prices have marched upward since that time, despite brief dips in September and October. Since the start of November, prices have risen steadily.

Redefining 'emerging markets'
One strategist says countries like India, Korea, and Brazil deserve a new category and some props for their newfound stability.
NEW YORK (Fortune) -- The news that Dubai World may default on $60 billion in loans has reawakened investors' suspicion towards emerging markets.

But experts say certain Latin American and East Asian countries have proven their economic mettle during this global recession and are unlikely to catch Dubai's contagion.

That's why Barclays strategists say they deserve a new label: Advanced emerging markets.

FTSE Group, which creates stock indices, has already given that title to six countries with high national income levels or developed market infrastructures: Brazil, Hungary, Mexico, Poland, South Africa, and Taiwan.

Barclays strategist Eduardo Levy-Yeyati would add countries such as India, Korea, Singapore, and Chile to the list, and leave out the United Arab Emirates, which he says lacks the "financial depth and policy track record." China, he says, is in a different asset class altogether because of its sheer size.

Financial advisors usually tell investors to keep a minority of their stock portfolio in international equities and a fraction of that amount in emerging markets. About 15% of the MSCI All Country World Index -- which tracks stocks from 45 countries -- comes from emerging markets.

Levy-Yeyati expects that to expand over the next few years. "The weights in the benchmark don't fully represent the economic upside of emerging markets," he says.

Some investors are apprehensive of emerging markets, according to Levy-Yeyati, because they fear a reprisal of the catastrophic episodes that occurred in the 80's and 90's, like Brazil's bout with epidemic inflation.

"Skeptics used to say the next crisis would show that [emerging markets] were no different from how they were before," he says. "But this time, they showed: 'We're different.'"

While the Brazilian and Indian stock markets fell further than the S&P 500 in 2008 -- and rebounded higher -- those countries' economies were hardly shattered by the global recession. In fact, the IMF estimates that all will post GDP growth topping 3% next year, while the U.S. is expected to achieve growth of just 1.5% (the IMF's projections are conservative by most analysts' estimates).

In a recent note to investors, Levy-Yeyati and his team marveled at advanced emerging markets' ability to reduce risk while maintaining growth. The analyst attributes the phenomenon to structural changes, many of which he says were implemented after the economic crises of the 90's.

Local governments, he says, have become more stable, using liquidity gained in boom times to build war chests, or reserves. "Fiscal consolidation and monetary credibility are here to stay."

Because of those fundamental changes, advanced emerging markets were able to cut interest rates and implement government stimulus over the last year without causing currency runs or credit sell-offs. While there was once a contagion effect -- if one market crashed, the others recoiled -- emerging market credit barely reacted when Ecuador defaulted last year. Following the Dubai incident, emerging market stocks and bonds faltered slightly, but are already bouncing back.

"Ultimately, these structural changes gave many E.M. countries the ability to enact countercyclical policies in bad times for the first time since the creation of the E.M. label," Levy-Yeyati wrote.

So what's keeping advanced emerging markets from becoming fully developed? "There are three aspects in which they're lagging," he says. "Currency convertibility -- many already have that -- income distribution, and institutional progress. For example, there's more uncertainty about the length and cost of investments and bureaucratic processes in these countries."

Levy-Yeyati says the second factor, income distribution, could take the longest to achieve. But now that these markets have achieved "macroeconomic stability," he says, they're closer to that goal.

The recent stabilization of emerging markets doesn't mean that they have decoupled from the G8 economies -- economic indicators still show a strong correlation between developing countries and the rest of the world. But that correlation, says Levy-Yeyati, has skewed heavily towards China, which is why many advanced emerging markets have rebounded.

"Empirically, it's very simple," he says. "China is increasingly the most important global factor."

Because China has become the main trading partner of Latin American and East Asian countries -- where most advanced emerging markets are based -- the country now drives their business cycles, he says. Eastern Europe and Mexico are still exceptions, yoked respectively to Europe and the United States.

Given many analysts' optimistic forecasts for China, it isn't surprising, then, that Levy-Yeyati expects advanced emerging markets to surpass expectations. "Indeed, because of the backward-looking nature of financial markets, the structural improvements ... have been only partially reflected in asset prices," he wrote. "The performance of a new group of Advanced Emerging Markets will likely look better in five years than what past data suggests."

As a result, he says, if investors take an overweight position in emerging markets now, they'll be ahead of the curve.

The domestic drilling backlash
From New York to Texas, energy companies have come under fire as natural gas drilling gets close to big cities.
NEW YORK (CNNMoney.com) -- "Drill baby drill" is so 2008.

More than a year after Republicans rallied around the now-famous call, a growing number of Americans are saying not-in-my-backyard when it comes to more oil and natural gas drilling.

At a recent drilling hearing in New York City the crowd was certainly riled up, but not in a way that might please Sarah Palin.

"We don't want more hearings, we want a total statewide ban," exclaimed one protestor, jumping on stage at the hearing's start before being escorted away by uniformed officers. The standing-room-only crowd, many carrying protest signs, erupted in applause.

Most Americans still support increased oil and gas drilling. But opposition is growing, especially when that drilling nears more populated urban areas. Currently there are natural gas booms happening around New York City, Dallas-Fort Worth, Western Colorado, the Midwest, and elsewhere. Opponents fear this new drilling will ruin the drinking water for millions of people, among other concerns.

And energy companies, accustomed to dealing with rural populations familiar with drilling and eager for jobs and lease royalties, are increasingly finding themselves at odds with a more educated and wealthy populace wary of energy development.

This is especially true outside New York City.

Just north of America's largest metropolis lies one of the country's most promising new sources of energy: The Marcellus Shale.

Running much of the length of the Appalachian Mountain rage, the Marcellus is thought to hold up to 500 trillion cubic feet of natural gas - more than twice the nation's current total reserves.

In the age of global warming, natural gas as an energy source is gaining favor. Burned to generate electricity, it emits about half as much pollution as coal.

It can also be used to power cars, and some, including the oil billionaire T. Boone Pickens, are pushing this idea as a way of weaning the country off foreign oil.
Growing fear about contaminated water

New horizontal drilling technologies have made the gas in the Marcellus shale and other shales across the country more accessible. But extracting it requires breaking the shale rock with a mixture of chemicals, water and sand, blasted down the well hole. While the process, known as hydraulic fracturing, has been around for decades, it's never been done on this scale, and so close to major population centers.

The shale lies thousands of feet below the water line, and both energy company officials and state regulators across the country say the chemicals used in the fracturing process have never resulted in ground water contamination.

But across the country a few high profile mishaps have occurred, resulting in contaminated drinking wells, flammable tap water, and even houses exploding. Radiation, often naturally occurring in rocks, has also been found in drinking water.

Regulators from various states said the contamination is not due to chemical fracturing but to drilling or surface spills. And while acknowledging they are unfortunate, state officials note these incidents make up only a fraction of the hundreds of thousands of wells drilled nationwide.

The federal Environmental Protection Agency has just begun looking into the issue. EPA had been largely sidelined from regulating this practice thanks to a 2005 law exempting the drilling from the Clean Water Act and declaring the chemicals trade secrets not subject to disclosure.

"EPA is reviewing available information to determine whether hydraulic fracturing fluids have contaminated drinking water," the agency said in a statement to CNNMoney.com.

That's of little consolation to many New Yorkers.

"I consider it a grave threat to our resources," said Joe Lavine, an architect from Brooklyn with a weekend house near the drilling. "Nobody knows if [the chemicals] are migrating."

So Levine helped organize a group called Damascus Citizens for Sustainability. Named after a nearby town, its members are calling for stricter drilling regulations.

Unlike many grassroots opposition groups that are often initially unfamiliar with the nuts-and-bolts of an issue, this one has plenty of technical expertise. It includes a former head of New York City's water system and a Columbia-trained geophysicist.
8 weird ways to save the Earth

"We've had a great handle on this from the beginning," said Levine.

They've networked among other grass roots groups in New York State, traveling to Ithaca, Binghamton, and other towns dealing with increased drilling.

Levine said there are now some 50 groups in New York State alone that receive emails and get their members out to sign petitions or turn up at public hearings.

This activism likely played a part in a recent decision by Chesapeake Energy (CHK, Fortune 500), one of the country's largest natural gas companies, to not drill on any of the land it has leased in the New York City watershed.

In a press release, the company said "the concern for drilling in the watershed has become a needless distraction from the larger issues of how we can safely and effectively develop" other gas fields in New York. Chesapeake noted the watershed leases are just a tiny part of their overall holdings in the state, and that they were the only company holding leases in the watershed.

It seems clear that calls from activists seeking a complete state-wide ban are making energy companies nervous.
Beyond New York

The activism in New York is firing-up concerned citizens in other parts of the country.

In Fort Worth, Texas, hardly an area known for anti-drilling sentiment, Don Young said the number of people on his email list has gone from 200 to 400 in the last few months.

Young, a stained-glass artist who lives right across from a natural gas well situated next to a public park, started the blog FWCanDo five years ago. It acts as a sort of clearing house for information on natural gas drilling.

He said many people are now singing up from the New York area, but he's also getting inquiries from Michigan, Arkansas, Ohio and elsewhere.

In Fort Worth where the Barnett Shale is located, natural gas drilling and hydraulic fracturing has been going on literally right under the city for roughly a decade. Opposition here is getting a bit hotter, he said.

"The crowds are greater, and the hard questions are a little more frequent," said Young, "At first it was all about the money, but now it's about health, safety and the environment too."
Global warming's grand bargain

In Western Colorado, public awareness of drilling and the potential dangers has increased as wealthy people from nearby resort towns have become interested in the cause, said Theo Colborn, president of the Endocrine Disruption Exchange, a group studying the effects of drilling chemicals on humans.

Colborn recounted the story of a nearby town where the local officials were considering allowing more drilling. Soon after, residents had their cars leafleted with pamphlets describing the associated dangers. Turns out, a local resident had hired a public relations agency to come in and run the campaign.

"A lot of wealthy people have been affected, and they can afford the lawyers or PR firms to come in and do stuff like this," she said.

Nationwide, few expect rising public concern to put a stop to new natural gas development.

"On balance, future regulation will likely attempt to accommodate industry in order to preserve the energy security and climate change policy benefits of expanded domestic gas production," Robert Johnston, director of Energy & Natural Resources at the political consultancy Eurasia Group, wrote in a recent research note.

But the days of this industry operating in relative obscurity and with little federal oversight are likely numbered.

Credit card rates: Nowhere to go but up
New law will rein in many practices long decried by consumer activists. What it won't do is keep interest rates, now at a low point, from rising.
WASHINGTON (CNNMoney.com) -- For millions of credit card customers, here's the good news: As of Feb. 22, a new law will bar banks from a host of practices that consumer advocates have long blasted as unfair.

No more rate hikes based on, say, the late payment of a cell phone bill. No more increases on existing balances. And consumers will know how long it takes to pay off their balance when they make minimum payments.

But here's what the new law won't do: It won't prevent interest rates from going up for the vast majority of customers.

Even after Feb. 22, holders of so-called variable-rate cards can expect to see increases. Variable rates are based on the prime rate and meant to follow the rise and fall of that index.

The problem for consumers is that the prime rate is at 3.25%, an historic low. It will almost certainly go up, experts say. And so will credit card rates, which currently average 14.9%, according to the Federal Reserve.

"It does leave a lot of room for growth and prices will go up," said Joshua Frank, a senior analyst for the Center for Responsible Lending.

While most credit card holders already have variable-rate cards, banks have been busy these past few months making sure nearly all customers have those kinds of cards. In addition, some banks are setting a floor on certain accounts to prevent rates from sinking below a minimum level, according to a Pew Charitable Trusts study.

"The credit card reforms outlawed some seriously abusive practices, but the cards will still be loaded with other tricks and traps," said Harvard University professor Elizabeth Warren, an advocate for consumer financial protections.

Indeed, the expectation that interest rates will tick higher exemplifies the difficulty lawmakers faced when crafting the new rules: They wanted to protect consumers without killing credit availability at a time when bank loans are already choked.

Congressional aides and banking lobbyists say it's fair to allow rate hikes that aren't under the control of the bank but influenced by market pressures.

"These rates are tied to an objective index that is not controlled by the credit card company," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, a bank lobbying group. "Any future rate changes are driven by changes in that objective index and not the industry."
The new world of credit cards

The law's provisions tying variable-rate cards to the prime rate has prompted banks, including the two largest U.S. credit card issuers - Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) - to make sure most of their customers have credit cards with variable rates.

Industrywide, variable-credit cards accounted for 94% of all new credit cards offered between July and September, up from 67% of the same period in 2007, according to Mintel, a market research firm.

The banks acknowledge that the moves are in response to the new law, which will make it harder to raise interest rates on customers who fall behind.

"Pending regulations will limit our ability to price for risk and also limit our ability to make rate adjustments based on market fluctuations," said Gail Hurdis, spokeswoman for JPMorgan Chase. "As a result, it is necessary for us to move accounts ... to a variable rate now in order to mitigate against future losses and to properly reflect future changes in Chase's funding costs."

Bank of America has also moved some customers into variable rate cards, said Anne Pace, a Bank of America spokeswoman. She noted that these customers haven't seen rate hikes, since the prime rate hasn't changed in recent months.
Keeping rates high?

Along with switching customers into variable-rate credit cards, some banks are setting floors to prevent rates from sinking below a certain level.

A recent Pew Charitable Trusts study found that more than a third of the largest card issuers had instituted minimum interest rates. In December 2008, only 10% of banks had such a floor.

The industry considers these minimum interest rates a way of accounting for the inherent risk in credit card lending.

But consumer groups say minimum interest rates undermine the law's intention to tie rates to the prime rate.

"They add these footnotes that your rate will never be less than 13.25%, that's where I see the problem as unfair," said Nick Bourke, co-author of the Pew Charitable Trusts credit card study. "Truly variable rates should go up and down with the market."

Pew is among several consumer groups and at least one key lawmaker that have taken their case to the Federal Reserve. The Fed is in charge of interpreting the new credit card laws and issuing rules that determine how the laws should be implemented.

The consumer advocates argue that banks should lose the law's provision allowing them to tie variable-card rates to prime.

"In my view, as one of the authors of the [new credit card laws], this type of interest rate does not and should not qualify under the exemption for variable interest rates," wrote Sen. Carl Levin, D-Mich., in a letter to the Fed.

The Fed has received the comments but hasn't given any indication of which way its leaning, advocates say.

House committee passes new bank rules
Financial Services panel passes regulatory reform plan in a 31-27 vote. The Senate? Not so fast.
WASHINGTON (CNNMoney.com) -- A key House committee, culminating months of debate over how to reform bank rules, voted Wednesday in favor of legislation that aims to prevent firms from growing too big and threatening the financial system.

The House Financial Services Committee passed the bill by a vote by a margin of 31-27 along strict party lines, with all Democrats voting in favor and all Republicans voting against. The bill, which proponents consider key to preventing the kinds of problems that caused last year's crisis, will now move to the full House of Representatives for debate and a vote.

Rep. Barney Frank, D-Mass., chairman of the committee, said Wednesday that he believes the full House will consider and vote on the package next week.

The bill would impose stronger supervision of Wall Street and impose tougher capital requirements for banks, while proposing a new way to take over big firms such as American International Group (AIG, Fortune 500). It also includes legislation to regulate derivatives and create a consumer financial protection agency.
Understand the rescues - CNNMoney's Bailout Tracker

But on the Senate side of Capitol Hill, the bill is moving much more slowly and final passage is likely months away.

Most observers, including those in the financial industry, agree that government officials didn't have the right tools to properly manage the failures of insurer AIG and investment bank Lehman Brothers.

The House bill creates a new kind of unwinding process for big firms, and forces them adhere to stronger supervision mostly by the Federal Reserve working with an oversight council.

The bill would also tax big banks to create a $10 billion fund to pay for government takeovers.

One of the most controversial parts of the House bill is a provision to allow the Government Accountability Office to audit Fed activities. Some fear the proposal would interfere with the central bank's ability to carry out independent monetary policy.

Fed Chairman Ben Bernanke, in an opinion piece in the Washington Post, decried the proposal and one in the Senate bill that aims to strip the Fed of its regulatory powers over banks.

"These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States," Bernanke wrote.

House Republicans have generally opposed the "too big to fail" package, because they say it gives government too much power. They would prefer that Congress establish a special bankruptcy process to allow big firms to be liquidated through the court system.
Senate moving slower

The Senate, led by Banking Committee Chairman Chris Dodd, D-Conn, lags the House in trying to reform financial regulation.

Dodd's bill, only recently unveiled, includes several far-reaching proposals, such as the creation of a super-regulator for all banks -- a move the Fed opposes.

Dodd had also said he wants the Senate Banking committee to start working on his bill next week. But myriad objections to the legislation, coming from both Republicans and fellow Democrats on his committee, has pushed the bill into closed-door negotiations that could last a few weeks.

"Barney Frank will get a bill out of committee and through the House, and it will look pretty similar to what he's been proposing," said Brookings Institution economist Douglas Elliott, a former J.P. Morgan investment banker. "The bigger wild card is the Senate. It's not clear whether Sen. Dodd has sufficient level of his support for his ideas."

Additionally, the creation of a consumer financial protection agency, already passed by the House committee, could be a deal-breaker for Senate Republicans. The proposed agency would be charged with ensuring that personal financial products, such as mortgages and credit cards, are fair to consumers.

While the new consumer agency is a White House priority, ranking Republicans in the Senate really don't like it and could filibuster to prevent it from coming to the floor if their demands aren't met, Elliott said.

Dollar steady ahead of jobs data
November employment report from ADP is expected to show 155,000 jobs lost in November.
LONDON (Reuters) -- The yen weakened broadly on Wednesday as traders took Japan's new monetary policy measures unveiled the previous day as a cue to sell, while mixed signals from stocks and commodities kept the dollar in check.

Receding fears over Dubai's debt problems and the prospect of U.S. interest rates staying low for some time weighed on the dollar, but talk of Asian central banks buying and the greenback's gains against the yen offered broad support.

The dollar has been widely considered the funding currency of choice in recent months as investors have sold the low-yielding unit for other currencies and assets. But the Bank of Japan's new measures have put that spotlight back on the yen.

Its new liquidity measures to combat deflation and keep short-term rates down prompted position squaring and profit taking from investors betting on a stronger yen.

The euro was well supported ahead of the European Central Bank's policy meeting on Thursday. The bank is expected to announce details on how and when it will remove liquidity from the system, and could upgrade its growth forecasts.

"We had very strong yen appreciation (recently), and now there's some retracement. Risk appetite is a little bit stronger than it was last week when we had the Dubai news, so investors are taking profits," said Marcus Hettinger, FX strategist at Credit Suisse in Zurich.

"The BOJ didn't really do anything (major), but the risk is higher now of intervention," he said, adding the dollar could rise to ¥90 if stocks make further gains.

The dollar stood at ¥87.30, up 0.7%. Traders said a break above ¥87.50 would trigger pre-placed buy orders and herald a stronger push higher.

The euro was up almost 1% at ¥131.90 and up 0.1% against the dollar at $1.5105, after gaining 1% and 0.5% respectively the previous day.

The single currency was near a recent 16-month high of $1.5145 set on trading platform EBS, with strong trendline support seen at $1.4900 and then at $1.4860.

The dollar index, a measure of its strength against a basket of six currencies, was flat on the day at 74.39, not far above last week's 16-month low of 74.17. Asian stocks closed higher but U.S. futures were mixed. There was also some divergence in the commodities sphere, with gold hitting new highs at $1,216.75 an ounce but oil down 0.7%.
Japan disappoints?

The BOJ said after an emergency meeting on Tuesday it would provide 10 trillion yen ($115 billion) in three-month funds at a fixed rate of 0.1%, relieving government pressure to act against deflation and avert another recession..

The dollar hit a 14-year low of ¥84.82 last week as concerns over debt problems in Dubai saw investors unwind risk trades funded by the yen, pushing the Japanese currency up.

Tuesday's decision was seen as a way to avoid a return to a narrow form of quantitative easing, under which the BOJ slashed rates to zero and flooded markets with cash in 2001-06.

Prime Minister Yukio Hatoyama was quoted as saying on Tuesday the yen's rise could not be left "as is," Nikkei said, but a spokesman later said Hatoyama was not talking about currency intervention.

"The measures yesterday are a disappointment. It's more of a monetary policy tool, but if in the process it weakens the yen it will be a good thing" for some in Japan, said Neil Jones, head of FX hedge fund sales at Mizuho in London.

"The big selling flows in dollar/yen and cross/yen last week are drying up somewhat," Jones said, noting good Japanese importer demand for dollars and other currencies and Japanese retail investors buying higher-yielding foreign assets.

Markets will be watching U.S. data later, ahead of monthly jobs numbers due on Friday. A November employment report by Automatic Data Processing (ADP, Fortune 500) at 8:15 a.m. ET is expected to show 155,000 jobs lost in the month after 203,000 lost in October.