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March 10, 2011

3 Months From Now, US Fed Will Stop Buying

Filed under: Uncategorized — bigcapital @ 5:43 pm
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3 Months from now, US Fed Will Stop Buying.

Thursday, March 10, 2011 — http://marketpin.blogspot.com

== US Fed bond buys to finish, greenback and global stocks on radar ==

Fed’s Fisher warns could vote to stop bond buying

WASHINGTON (Reuters) – A senior U.S. Federal Reserve official warned on Monday that he would vote to scale back or stop the central bank’s $600 billion bond-buying program if it proves to be “demonstrably counterproductive.”

Dallas Federal Reserve Bank President Richard Fisher, who has repeatedly said he would not support any more bond buying after the program ends in June, said he was doubtful the purchases were doing much good.

“I remain doubtful enough as to its efficacy that if at any time between now and June, it should prove demonstrably counterproductive, I will vote to curtail or perhaps discontinue it,” Fisher said in remarks prepared for delivery to an Institute of International Bankers’ conference in Washington.

“The liquidity tanks are full, if not brimming over. The Fed has done its job,” he said.

The Fed launched its bond buying program in November to help an economic recovery that was struggling with high unemployment after the worst recession since the 1930s.

But since then, the economy has shown signs of strengthening with the jobless rate falling to a nearly two-year low of 8.9 percent in February.

Fed officials are due to meet March 15 to discuss the bond purchase program. In January, Fisher voted with the rest of the central bank’s policy-setting Federal Open Market Committee to continue it.

In comments to the bankers’ conference, Fisher said he did not feel that further monetary accommodation would help put more Americans back to work.

“It might well retard job creation, should it give rise to inflationary expectations,” he said, adding that perhaps the Fed’s policy has compromised the central bank by implying it is “a pliant accomplice to Congress’ and the executive branch’s fiscal misfeasance.”

== How About U.S dollar ? ==

Stretching out Treasury purchases past the end of June while reducing the monthly amount would help bond dealers adjust to the Fed’s withdrawal from the market, said Lou Crandall, chief US economist at Wrightson ICAP in Jersey City, N.J

NEW YORK – The Federal Reserve’s $US600 billion bond purchase program will be completed as planned, top Fed officials signalled, though they saw heightened economic uncertainty from unrest in the Middle East.

US central bank officials from Atlanta, Chicago and Dallas said they were keeping an eye on the risk higher oil prices could feed through into broader inflation, as well as their potential to hurt growth.

Atlanta Fed President Dennis Lockhart said he would not rule out more bond buys if the recovery dwindles. Dallas Fed President Richard Fisher said he would vote to end the program early if higher oil prices fed into broader inflation.

The program, announced in November to bolster a fragile economic recovery, is due to end in June. Since it began there have been signs the recovery is picking up steam.

Mr Lockhart, a policy centrist, said he was more concerned about the risk to growth from the oil price rise. He said he would be “very cautious” about increasing the size of the purchase program.

“Given the emergence of new risks, however, I prefer a posture of flexibility,” Mr Lockhart said.

He expected overall price pressures to remain subdued and warned it is too early to “declare a jobs recovery as firmly established”.

Mr Fisher, an inflation hawk, said he “fully expected” the $US600 billion program to “run its course.”

Mr Fisher told an international bankers’ conference he would vote to curtail or stop the program, however, if it proves to be “demonstrably counterproductive.”

The Fed meets on March 15 for its policy-setting meeting, at which it is expected to reaffirm its purchase plan. Fisher is a voter on monetary policy this year, Mr Lockhart is not.

In a CNBC interview, Chicago Fed Bank President Charles Evans said the Fed was closely watching rising oil prices, adding that they were “obviously” a headwind for growth.

Revolutions beginning in Tunisia and Egypt have spread to other countries in the region, including Libya and Bahrain. This has pushed the price of oil above $US100 a barrel, complicating the Fed’s objective of stimulating economic growth while keeping prices under control.

That said, Mr Evans pointed to the improving job market and said he expected economic growth of four per cent this year and next. He called the size of the purchase program “good”.

“I continue to think the hurdle is pretty high for altering our currently announced” program, Mr Evans, seen as a monetary policy dove and one of the most outspoken proponents for quantitative easing, said. Mr Evans does not have a vote on monetary policy this year.

Mr Fisher said the question will be whether the oil price rise is sustained.

“It is really a question of how that works its way through,” he said. “We have already seen very high gasoline prices. That’s one of the ways that it most affects the consumer.”

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February 25, 2011

Fed’s Bullard says it’s time to debate completing QE2

Filed under: Uncategorized — bigcapital @ 7:52 am
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Fed’s Bullard says it’s time to debate completing QE2

Friday, February 25, 2011 – http://marketpin.blogspot.com/

BOWLING GREEN, Kentucky (Market News) – A senior U.S. Federal Reserve official said on Thursday he thinks it is time to consider tapering off or scaling back a $600 billion bond-buying program because of an improved economic outlook.

“The natural debate now is whether to complete the program or to taper off to a somewhat lower level of assets,” St. Louis Federal Reserve President James Bullard said at a Chamber of Commerce breakfast held at Western Kentucky University.

Bullard said that he expects the topic to be discussed at a Fed meeting in March. He said he would be ready to scale back the program then.

“If it was just me, I would make small changes to account for the fact that the outlook is better than it was at the time of the November decision,” he told reporters after his speech.

Bullard, an academic economist, is not a voting member this year of the panel that sets interest-rate policy. He is seen as a centrist on the spectrum of Fed officials, which ranges from opponents of aggressive actions to support growth to advocates of accommodative policies at the other.

The Fed launched its bond buying program in November to buttress a weak recovery, struggling with high unemployment after the worst recession since the Great Depression of the 1930s.

The purchases are due to end midyear, and the Fed at its most recent policy meeting showed no sign as a body of backing away, although several policymakers have questioned the need for or the efficacy of the program.

Minutes of the Fed’s January meeting showed a few officials wondering whether data showing a strong recovery would make it appropriate to consider reducing the pace or overall size of the program.

But other officials at the meeting said the outlook was unlikely to improve dramatically enough to justify any changes. There were no dissents from the Fed policy at that meeting.

Despite his confidence in the rebound, Bullard said that events in the Middle East and lingering worries about European government fiscal soundness plague the outlook.

“We’ve got plenty of concerns out there about supply developments in oil markets, and you’ve still got brewing issues in Europe with respect to their sovereign debt crisis,” he said. “But I am saying that looking at the outlook today, it’s better than it was in November.”

Bullard said that despite his rosier outlook, further easing could never be ruled out. markets-stocks

The bond purchases are the Fed’s second round of quantitative easing, dubbed QE2. Bullard said it has been an effective tool when interest rates are near zero.

“Real interest rates declined, market expectations rose, the dollar depreciated and equity prices rose,” he said.

The Fed cut short-term interest rates close to zero in December 2008.

Bullard said a jump in food and energy costs around the world could impact U.S. prices.

“Perhaps global inflation will drive U.S. prices higher or cause other problems,” he said.

U.S. inflation is near historic lows and Fed officials have until recently been worried that the U.S. economy could slip into an outright deflationary spiral. Bullard said he believes the disinflation trend has bottomed.

“Inflation expectations are higher, which I think was a success of QE2 and if we do too much and don’t pull back in time, then we can get more inflation than we intended,” he said.

Bullard said adopting an explicit inflation target would be a better way of conducting monetary policy.

Friday, February 25, 2011 – http://marketpin.blogspot.com/

February 23, 2011

Inflation Building, Fed Should Back Off: LaVorgna

Filed under: Uncategorized — bigcapital @ 12:22 am
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Inflation Building, Fed Should Back Off: LaVorgna

As government economists and Fed apologists continue to dismiss inflation pressures, the fear that easy money and commodity pressures are about to come home to roost is building.

While Michael Pento at Euro Pacific Capital and a handful of others have been pounding the table about inflation ever since the Federal Reserve began quantitative easing, the sentiment is beginning to spread.

The latest on board is Joe LaVorgna, chief US economist at Deutsche Bank, who warns in a note sent to clients Friday that “inflation pressures are inflating.”

The threat is two-pronged: On one hand this week’s producer and consumer price numbers show pressures are building in the crude, or initial, price pipeline that will spread to intermediate and finished products in the months ahead.

On the other hand is “energy inflation contagion,” in which surging prices in that space “have shown a significant capacity to breed inflation contagion among related categories and have destabilized inflation expectations.”

Taking both threats into consideration, LaVorgna posits that the Fed should reconsider completing the entire $600 billion of Treasury buys it has planned for the second leg of QE.

Unless the brakes are put on, LaVorgna argues that core finished PPI prices will increase at an annualized 4 percent rate, and he concedes that if his calculations are wrong they are on the low side.

Finally, he warns against the pervasive mindset that commodity price increases will not cause so-called “pass-through” costs into the broader economy. The rise in CPI and PPI comes as manufacturing activity and capacity are rising, as opposed to the last bout of commodity-induced inflation when the economy was shrinking.

An excerpt from the LaVorgna note:

“We believe the rise in commodity prices is significant, because it is occurring alongside robust factory activity and a general strengthening in underlying domestic demand—a crucial difference from the 2008 run-up in commodities, when the factory sector was shrinking and demand was slowing. Therefore, monetary policymakers should be cognizant of the pipeline pressure brewing in the PPI.

“The risk is that an overstay of aggressively accommodative monetary policy could lead to even larger gains in retail goods prices down the road—the Catch 22 of Fed folks worried that higher commodities will crimp demand. Rather it is ample demand that is pushing commodities higher. Consequently, as long as monetary policy remains extraordinarily accommodative, thereby further boosting demand, we expect these trends to persist if not become more durable.”

.

Dollar May Appreciate to 1.0067 Swiss Francs

Dollar May Appreciate to 1.0067 Swiss Francs: Technical Analysis

The dollar may reverse last week’s decline and rally 6 percent to its December high against the Swiss franc, Commerzbank AG said, citing technical indicators.

“Longer-term, we target 1.0067” Swiss francs per dollar, Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank in London, wrote in a report today. The exchange rate reached that level on Dec. 1.

The dollar strengthened 0.3 percent to 94.78 Swiss centimes at 12:30 p.m. today in London. The greenback slumped almost 3 percent against the franc last week and sank to 94.25 earlier today, the weakest level since Feb. 3, Bloomberg data show.

“We would allow the slide to continue to 0.9425, from where we would favor recovery,” Jones wrote. That’s the 78.6 percent Fibonacci retracement of the rally seen in February, Jones wrote.

The dollar may test resistance at around 97.74 centimes, she said. Those levels represent the 61.8 percent Fibonacci retracement of the move down from December and the high from Jan. 11, according to data compiled by Bloomberg.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Resistance and support levels are areas on a chart where technical analysts anticipate orders to sell or buy, respectively, a currency and its related instruments

Fed’s Fisher Says More Stimulus Unnecessary

Fed’s Fisher Says More Stimulus Unnecessary

(RTTNews) – A top Federal Reserve official declared on Thursday that we would not back more monetary easing when the Fed’s $600 billion quantitative easing program winds to a close.

Richard Fisher, President of the Federal Reserve Bank of Dallas, was quoted as saying that he could not foresee any circumstances that would warrant more stimulus and suggested that the central bank should turn its attention to unwinding support.

Fisher’s comments contrast with those made by the Chicago Fed President Charles Evans, who backed the Fed’s extremely loose monetary policy and assured that it had the tools to tighten quickly if needed should inflation rise faster than expected

February 14, 2011

U.K Inflation fears lead investors to bet on rate rises

Filed under: Uncategorized — bigcapital @ 8:36 am
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U.K Inflation fears lead investors to bet on rate rises

http://marketpin.blogspot.com/

Published: February 13 2011 18:54 | Last updated: February 13 2011 18:54 – The Financial Times

LONDON – Hundreds of billions of dollars have exchanged hands this year in bets on when the next interest rate rises will be in the UK and eurozone, as volumes have surged in these markets because of the growing threat of inflation.

Financial markets are betting that the UK will be the first to raise rates in June, followed by the European Central Bank in September and finally the US Federal Reserve in December.

Rising food and commodity prices have prompted markets to bring forward expectations of rate rises, sparking the jump in volumes as inflation has become one of the biggest concerns for businesses, consumers and investors.

The increasing focus on inflation has also triggered a debate over the accuracy of these predictions, with opinions divided over how much faith investors should place in them.

Don Smith, economist at Icap, said: “The market forecasts are as good a guide as you will get. They are in a sense multibillion-dollar predictions because of the vast amount of money behind the trades that set them.”

Some strategists also argue that rate forecasts can be self-fulfilling, as central banks do not like to surprise markets.

However, John Wraith, fixed-income strategist at BofA Merrill Lynch, said: “Market rate expectations are useful indicators, but they only tell you the consensus market view at any given point in time. Circumstances change and so do they.”

Mr Wraith thinks rates in the UK, for example, may be delayed beyond June, as policymakers are more concerned about weak growth in spite of rising inflation, which at 3.7 per cent is nearly double the Bank of England’s inflation target. There is also a view that rises in fixed-interest mortgage rates and some company loan costs are in effect tightening monetary policy for the Bank of England, which means that rates may not have to be increased as early as the market expects.

However, most strategists say the markets are more accurate today than they were in the past, as the contracts – known as overnight index swaps in the UK and eurozone and Fed funds futures in the US – used to make the predictions are more widely traded with hundreds of banks and investment funds making bets.

Brokers say rough estimates show daily turnover has risen to about $200bn in Fed funds futures and to about $20bn in each of the UK and eurozone overnight index swap markets

February 8, 2011

Sterling Jumps on Improved Sentiment

Filed under: Uncategorized — bigcapital @ 9:38 am
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Sterling Jumps on Improved Sentiment

Tuesday, February 8, 2011
http://marketpin.blogspot.com/

The Pound has made gains today across the majority of the most actively traded currencies. Gains can be attributed to improved sentiment driving the market. For the last couple of weeks the pound has suffered from negative sentiment caused by very poor Q4 GDP figures for 2010. The reversal has however been driven by last week’s better than expected UK manufacturing and services sector news. Markets are also guessing that interest rates in the UK could rise sooner than previously expected with potentially three incremental rises in 2011.

The Pound has consolidated its gains in trade this afternoon as investors become coy ahead of the BoE rate announcement. Markets widely accept that it is unlikely that the Bank of England will make any adjustments to current monetary policy. If this is the case, traders focus will then shift to the minutes at the end of the month to help second guess when we might see the first interest rate hike of the year. Most analysts predict that the Bank of England will adopt a ‘wait and see’ approach and wait until May for the Q1 GDP figures for 2011.

Inflation in the UK remains a risk and is the reason for heightened interest rate expectations. Inflation is expected to continue to rise in the short term and could pose a significant threat to the UK economy if not dealt with properly by the Bank of England. The problem is however that any rise in interest rates could put the stoppers on the UK economic recovery and trigger another recession. The Bank of England therefore faces a very difficult task in balancing the risks to economic growth with inflationary pressures.

The Euro has suffered in the last week with the S&P downgrading Ireland’s credit rating. This has fuelled ongoing concerns of Sovereign Debt contagion throughout Europe. The GBP/EUR pair has jumped from a low of 1.1531 on the 26th January to 1.1920 in trade today. This 3.5% move is a significant recovery and could see a subsequent upward move with sufficient momentum through the psychological 1.20 level.

Factory orders in Germany weakened for the first time in three months today. Demand slipped 3.4% in December almost 2% worse than expected. A slowdown in Germany will drag on the Euro exchange rate as investors see this powerhouse as part of the Euro’s core strength.

The Dollar has seen mixed price action today, most traders expect the market to consolidate yet remain above the psychological 1.60 level. Similar to the expectation on GBP/EUR we would expect GBP/USD to rally if we see an indication that the Bank of England will normalise monetary policy with a series of interest rate hikes this year.

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February 3, 2011

Euro Is Still Not Out Of Dangers Zone

Filed under: Uncategorized — bigcapital @ 5:43 am
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Euro Is Still Not Out Of Dangers Zone

February 02, 2011 – http://marketpin.blogspot.com/

 

NEW YORK (Market News)– The European Central Bank has become more political since its decision to buy euro-zone government bonds last year, and is therefore unlikely to raise interest rates early even if inflation surges, according to Commerzbank chief economist Joerg Kraemer. “Even if inflation moves towards 3%, the ECB is still unlikely to raise rates until the fourth quarter [of this year]” Kraemer says

EUR/USD is “teetering” lower on profit-taking, strong U.S. data and concerns about further turmoil in Egypt, says HiFX senior trader Stuart Ive. “The markets are still preoccupied with Egypt to a degree especially after (Egypt’s President) Mubarak supporters protested after his speech yesterday.”

The euro fell from the near three-month high against the dollar it reached earlier Wednesday, as social unrest in Egypt combined with the euro zone’s ongoing debt crisis to inject some caution into bullish traders.

Boiling instability in Egypt tempered a revival in an appetite for riskier investments, as violence erupted between antigovernment forces and supporters of embattled President Hosni Mubarak. Nervous investors bought dollars as a haven, pulling the U.S. currency up from its weakest level against the euro since early November.

Developments in Europe’s debt crisis also doused some of the market’s enthusiasm for the euro, reminding traders that the euro zone’s woes have not disappeared.

German Deputy Finance Minister Joerg Asmussen rejected the idea of creating a euro-zone bond, reiterating that any revisions to the existing euro-zone fiscal rescue facility will likely require fiscal concessions from euro-zone governments. Elsewhere, ratings agency Standard & Poor’s lowered its assessment of six Irish banks and placed them on watch for further downgrades.

“People are watching with one eye what’s going on in the streets in Cairo, and it’s causing second thoughts about” taking the euro higher, said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J.

Risk aversion coalesced with fears that the process for resolving Europe’s debt issues could turn “sloppy,” Dolan added. “There’s a question of some further [euro] weakness as the move-up stalls and some people head for the exits.”

The euro slipped to new U.S. session lows underneath $1.3780, below its offshore trading high at $1.3862. Against the yen, the euro purchased Y112.72, slightly higher on the day. Meanwhile, the dollar bought Y81.80, up slightly from Tuesday.

Source: http://marketpin.blogspot.com/

February 02, 2011

January 8, 2011

VAT rise could push UK economy into double dip

VAT rise could push UK economy into double dip, says leading economist

Chancellor George Osborne, in a recent interview, has dashed any hopes of the impending VAT rate rise being revoked as soon as the economy picks back up, saying that it is a ‘structural’ change to the tax system.

The interview is reproduced in part here on The Spectator blog , Coffee House and it immediately provoked a response from the investment community.

John commenting on The Daily Mail’s site says: “Well you heard it from the horses mouth. Vat, the only tax that affects ALL students, pensioners and families will stay up, but the 50p tax that only affects the wealthiest will come down…as soon as the government coffers are fuller. Translated from Tory speak: “you all have too much money, unless you are loaded and then you don`t have enough”

Double Dip trigger?

The VAT rate rise has been controversial ever since it was announced. Back in October Simon Ward, chief economist at Henderson Global Investors warned that raising the VAT rate in January could push the UK economy into a double dip recession. We reported that here .

Only time will tell whether the government should have heeded his warning to postpone the rate rise.

Why is VAT going up?

The reasons behind the rate hike are simple. The Office of Budget Responsibility has revealed that the VAT rise due to come into force in January is intnded to reduce the UK’s gross domestic product by 0.3% in 2011-12.

As Tom Clougherty, executive Director of the Adam Smith Institute, writing in The Yorkshire Post puts it: “In plain English, that means raising VAT from 17.5% to 20% will destroy some £5 billion of economic activity in the next tax year. The reason for this is simple: raising VAT will dent consumer confidence and discourage spending; fewer goods will be sold and lower profits will be recorded.”

What the rise will mean to consumers

A report from data management firm Acxiom has found the increase will cost the average household £225 a year – soaring to £448 for more well-off families, as reported here on Beatthatquote.com.

DennisCooper commenting on the BMW 5 Series owners forum is sanguine about the rate hike: “The VAT increase is a measure which will help the UK slowly recover from it’s massive hangover from the crazy borrow more & spend more days.

“On a national level, that’s what the last government did, and on a banking and businesses level it was done and of course by individual consumers as well.

“Everyone in reality, who spends more than they bring in will eventually be brought back down to earth with a bump. You have to pay back what you borrow!”

Effects on business ?

For businesses, the response has been mixed. According to an Institute of Chartered Accountants in England and Wales (ICAEW) poll, businesses are split about how they will deal with the increase in VAT. It found that six out of every 10 businesses believe that the VAT hike will affect their organisation’s cash flow to some extent.

Nearly one tenth think cash flow will be affected to a significant degree, as reported to Bytestart.co.uk , a site for small business owners.

The British Retail Consortium has calculated that the VAT rate rise will cost 30,000 jobs next year, and a total of 163,000 jobs by the end of 2014.

David B Smith, a visiting professor at the University of Derby, has also run the VAT rise through his Beacon Economic Forecasting model, and found that the 20% rate will increase the number of people claiming unemployment benefits by 236,000 over the next 10 years.

As the Adam Smith Institute’s Clougherty, says: “That’s bad enough on its own to raise questions about the Government’s plans. Does it really make sense to be willfully damaging the private sector economy, when the recovery is still so fragile?

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Surprise jobs surge boosts U.S economic outlook 2011

Filed under: Uncategorized — bigcapital @ 2:17 am
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Surprise jobs surge boosts U.S economic outlook 2011

(Reuters) – A surprise surge in private-sector employment last month to its highest level on record provided the most bullish signal in months that the U.S. economy is on the mend.

Private employers added 297,000 jobs in December, triple the median estimate by economists and up from the gain of 92,000 in November, an ADP Employer Services report, whose data goes back to 2000, showed on Wednesday.

The report undercut the prices of the U.S. Treasury securities, and helped the U.S. dollar gain against the yen and the euro. U.S. stocks opened lower though they did pare losses after the jobs news.

“Sometimes numbers come as bolts from the blue; this is one of them,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

“Nothing in any other indicators of the state of the labor market last month — jobless claims, help wanted, surveys — suggested anything like this was remotely likely.”

ISM’s index on the services sector also came in better than analysts expected, though the index’s employment component was a touch weak. Read about ISM services index.

“The data today still leaves an impression that a U.S. upside growth surprise in 2011 needs fresh assessment,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.

Macroeconomic Advisers Chairman Joel Prakken noted seasonal factors may have boosted the December numbers but said growth in employment was “comfortably into positive territory and seems to be accelerating.”

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