General News

The Euro Remains Under Pressure The Euro moved higher, during the week as US yields began to ease and become a safe haven. Geo-political unrest has created a drop in US 10 year yields from the recent highs above 3.70%. The currency was able to hold up despite fourth quarter 2010 GDP figures were slightly disappointing coming in at 0.3% rather than 0.4% consensus, but the adverse impact of the weather and the stronger PMI readings this year encouraged the market to look past these figures. Peripheral spreads are modestly wider on the day, with Portugal 10-year yield above 7% for the 10th straight day. News that demand for overnight loans from the ECB jumped to the highest in 20 months, indicate that stresses remain in the banking sector. Inflation Ticks Up in the US The markets needed to absorb news of higher than expected inflation during the week. The Producer Price Index (PPI), rose a seasonally adjusted 0.8% in January from December,...

The currency markets ended the week consolidating. The euro is showing resilience in the face of higher yields on European bonds. Peripheral spreads are mostly wider on the day; with Portugal 10-year yield above 7% for the 11th straight day and so that should help the dollar continue to recoup some of its losses. Sterling is being underpinned by strong UK retail sales data. UK Retail sales came in with an increase of 1.9% compared to the .6% expected by economists. The direction the BOE might take with regards to policy will become clearer with the release next week of the minutes from the February meeting, with markets looking to see if any other MPC members joined Sentance and Weale in voting to hike rates. Weale’s vote to hike in January was a surprise, and the first time in this policy cycle that another member joined hawk Sentence in voting to tighten. As the UK growth and inflation outlook has shifted,...

The Pound ran into resistance at 1.62 after pushing higher for most of today's trading session. Position comments from BOE policy makers increased yields in the UK, adding momentum to the Sterling. Bank of England policy maker Andrew Sentance said the BOE should could consider raising interest rates to boost the value of pound. His theory is that a higher Pound would decrease import prices and calm inflation. Sentance has long been the most hawkish on the MPC. Market expectations for BOE tightening have crept up steadily, with 1 year OIS moving from less than 10 basis points in October to a high of 87.5 basis points on Tuesday. The Pound closed above the 1.6170 level and is poised to test resistance at the 1.63 level. The Sterling is creating a reverse head and shoulder pattern and a break of 1.63, should lead to upside toward 1.70. China State Administration of Foreign Exchange (SAFE) estimated that $35.5 billion of “hot money” flowed...

Regular readers may be accustomed to my designating the relationship between our financial industry and the political crowd as “Wall Street-Washington incest”. The technical term for this relationship is regulatory capture as defined by our Investing primer, …the process by which regulatory agencies eventually come to be dominated by the very industries they were charged with regulating. Regulatory capture happens when a regulatory agency, formed to act in the public’s interest, eventually acts in ways that benefit the industry it is supposed to be regulating, rather than the public. Bingo!! That’s the incestuous relationship we’re talking about. Is the game really on the up and up? How does this regulatory capture work? Who are the financial cops really protecting? Thank you to the number of readers who brought an amazing expose of this regulatory capture written by Matt Taibbi in Rolling Stone. Taibbi provides extensive detail in writing, Why Isn’t Wall Street in Jail? This article is a must read. Is Wall Street’s regulatory capture a...

“It is time to declare economic sovereignty from the multinational banks that are responsible for much of our current economic crisis. Every year we ship over a billion dollars in Oregon taxpayer dollars to out-of-state and multinational banks in the form of deposits, only to see that money invested elsewhere. It’s time to put our money to work for Oregonians.” —Bill Bradbury, former Oregon Senate President and Secretary of State, quoted in The Nation  Responding to an unfilled need for credit for local government, local businesses and consumers, three states in the last month have introduced bills for state-owned banks — Oregon, Washington and Maryland – joining Illinois, Virginia, Massachusetts and Hawaii to bring the total number to seven. While Wall Street is reporting record profits, local banks are floundering, credit for small businesses and consumers remains tight, and local governments are teetering on bankruptcy. There is even talk of allowing state governments to file for bankruptcy, something current legislation forbids. The federal...

The release of the recent Fed's meeting minutes did not come away of what has been seen of pledges of keeping its quantitive easing policy for spurring growth and demand for jobs expecting the recent rising of oil and commodities prices to have benign effect on the inflation which is expected to be well-contained over the long term by the Fed unable to cause a major change of its stimulating policy for supporting the growth which has not stored durable confidence in the housing and labor markets until now but the Fed's upgrading of its growth expectation of this year from 3% to 3.6% to 3.4% to 3.9%came to the market as a new reason to have more risks pushing the US stocks up. While the British pound came under pressure again after King's comments which brought down in the interest rate outlook in UK which has been up by the release of Jan UK CPI which reached 4% moving the...

The dollar consolidated against the Yen after moving higher during 10 of the last 11 trading sessions. Higher rates in the US based on stronger inflation figures and better than expected economic data, has dollar bulls salivating. The US, Japanese interest rate differentials have been driving the currency pair. Today the markets needed to absorb news of higher than expected Wholesale Price inflation. The Producer Price Index (PPI), rose a seasonally adjusted 0.8% in January from December, according to the Labor Department. The majority of the rise was in energy prices. Core PPI, which excludes food and energy, increased 0.5% last month. Economists expecting a 0.9% increase in overall producer prices and a 0.2% increase in the core index. This follows a greater than expected increase in import prices yesterday. Higher inflation leads to higher yields in the long end of the interest rate curve, which has pushed the US - Japanese 10 year yield spread to 100 basis points. Additionally in...

As if there was not enough mess in Washington, with the latest budget battles, plus all the usual wrangling, our capital will host one more event on Friday. The Group of 20 finance ministers meet there for a conference to discuss the latest global developments. It will be interesting to see what they have to say about “progress” achieved since the meeting in Pittsburgh in 2009, when they agreed to “rebalancing of global demand”. That means that countries like China were supposed to boost consumer spending and import more goods, while the USA was expected to reduce its trade deficit by exporting more. We know that changes in those areas have been at best symbolic, if any, but it will be interesting to read the official version. The conference might produce announcements throughout the day which could an impact on currencies, although it should not be anything major. As a matter of fact Asian trading session, just getting under way, could me more eventful....

The conditions in UK continue to be the source of surprise for investors and policy makers alike! With the rise in sterling and recent appreciation to hover around its fair average for now around $1.60 trade still found good support. The trade deficit in February unexpectedly contracted on record surge in exports on the month which helped ease some of the woes surrounding the outlook for growth in the United Kingdom.  The Visible Trade Deficit declined to 6776 million pounds from an upside revised previous of 7789 million pounds from the reported 7057 million. The data were stronger than expected and opposed the expected widening in the deficit to 8000 million pounds.  The trade deficit with Non-EU nations fell sharply to 2849 million pounds from a revised 4210 million from 4173 million and also opposed to the expected widening to 4900 million. In result the total trade deficit shrunk to 2443 million pounds from a revised 3858 million from 2950 million and the...