Forex News | Currency News by Forexlive

At least the Chicago-area economy did not fall off a cliff in June and for that, the market is giving thanks. The S&P is in positive territory after the data, up 0.4%.

EUR/USD is firmer in its range, but not a lot, now at 1.2262. The next focus will be the end-of-month fixing at 15:00 GMT. Early chatter is that there is USD demand across the board at that time but we hope to get more specifics as the fixing gets closer.

CHICAGO (MNI) – The following is the text supplied by Kingsbury
International, producer of the ISM-Chicago Business Survey, published
Wednesday:

General Comments from Members of the Survey Panel

—

Each month, the survey panelists have the opportunity to add
comments to clarify the reported activity of their organization. As
appropriate, the report includes comments selected for their insight. No
attempt is made to ensure that the nature of the comments represents the
survey panel as a whole.

—

1. There has been an increase in order time for products which are
purchased to make finished products. This is related to the chemical
industry and the requirements for many components used in finished
fluids for oil dispersants used in the Gulf Coast Oil spill.

2. Lead times are longer, orders are larger, customers want things
sooner!

3. Lead times other than electronics are fairly stable. Electronics
is skyrocketing.

4. Stabilizing?

5. Business stabilized, new orders are slightly increasing month to
month, only working overtime when needed.

6. We still need to push hard to get the few orders that we get.
It’s as if everybody is afraid to move.

7. Initial crop planting reports positive as compared to previous
years but it is too early to predict accurate yields. Entering the
critical summer weather season, both in the plains and in the gulf,
which could play a part in price spikes and/or final productions
numbers. Global weather is also a concern, particularly for products out
of the Asia-pacific regions.

8. Raw material suppliers doing a better job of ramping up to meet
the increased demand. Molding resin availability still tight but looser
than recent months. Careful investment in capacity increases leading to
lead-time extensions in some areas.

9. Concerns relative to a premature strengthening of the U.S.
Dollar could cause further deterioration in the jobs and market growth.

** Market News International Chicago **

[TOPICS: M$U$$$,MAUDS$]

WASHINGTON (MNI) – Chicago Federal Reserve President Charles Evans
reiterated his belief Wednesday that the economic recovery in the United
States is well established, despite some fears in the market that the
country could be hit by a double-dip recession or a severe slowdown.

He also argued that the Fed’s accommodative monetary policy is
appropriate, given the employment situation and the low risk of
inflation in the near-term.

In an extended interview on CNBC, Evans said he still expects U.S.
GDP to grow by about 3.5% in 2010. “I think what we are seeing at the
moment is the way a moderate recovery likely proceeds … but I’m
expecting growth to continue.”

“The recovery is definitely on,” Evans declared, and while it will
be moderate in nature, it is not “faltering.”

Monthly economic data tends to see-saw during a recovery, he
argued, but acknowledged the housing situation remains “very difficult.”

Employment is another area where struggles will continue, Evans
added. It is very difficult to improve the situation in the labor
market, and it will be a “number of years” before the unemployment rate
gets down to a level that can be considered acceptable.

Asked to defend the Fed’s current stance on interest rates, Evans
said the central bank is currently under-running its dual mandate of
maximum employment and price stability.

“I think a policy accommodation is called for,” he said, arguing
that inflation risks “remain far in the future.”

Evans said he expects inflation to be under his 2% guideline for
the next three years or more. It would take additional monetary stimulus
to generate higher inflation, he added.

Still, “I’m going to be looking at the circumstances and if we need
to adjust policy in either direction, I’ll be responding,” he said.

Evans said there is a lot of debate about inflation at the Fed,
will the outlook more variable than he had ever seen. “There’s an awful
lot of discussion, trying to get at the heart of what the situation is
– we are going to continue to debate that.”

Evans said the situation in the Eurozone has imposed additional
risk on the U.S. recovery. While the effects on the real economy will be
small, he warned that if there is a spillover to the financial sector,
“that would be a more challenging problem.”

For now, however, “It continues to be a headwind against a very
moderate recovery,” Evans said.

Switching back to the economy, Evans says companies right now do
not have the workforce necessary to meet future demand, so when demand
gets stronger “they will be surprised and that’s how we get employment
gains.”

“Replacement” demand is what is being seen right now, he said, not
the necessary expansionary demand. “That’s what we are going to need in
order to get out of this 3% to 3.5% growth.”

The U.S. economy should be adding about 200,000 jobs to keep up
with growth in the labor force, Evans said, but added he not as
optimistic that there will be enough progress on the jobs front as he
would like.

The Chicago Fed president also highlighted a number of issues that
continue to plague financial institutions, such as commercial real
estate. “I think it will be challenged for some time,” Evans said.

Asked if more fiscal stimulus might be warranted to secure the
recovery, Evans said he is wary of how effective any additional stimulus
measures would be at this point.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]

By Yali N’Diaye

WASHINGTON (MNI) – In light of an improved economic outlook, fewer
lenders are tightening standards, and both demand and supply of credit
should increase, Federal Reserve Governor Elizabeth Duke said Wednesday.

Yet, uncertainties remain as the recent stock market decline —
biting into households’ net worth — demonstrates, she said in remarks
prepared for the Ohio Bankers Day in Columbus.

And while the banking sector continues its slow recovery, credit
demand and outstanding are still down, with “no single step that can be
taken to quickly unclog all lending markets.” And just as the reasons
behind the credit decline are complex, solutions will “take time to
fully work,” Duke warned.

In a speech titled ‘Fostering a Healthy Credit Environment,’ the
governor’s comments mostly focused on the key factors determining
credit, the strength of the economy being only one of four. So she made
only limited comments about the current state of the economy.

“In light of the improved economic outlook, fewer lenders are
tightening loan standards,” Duke said.

She added that “business spending for equipment and software
continues to improve, which should ultimately lead to more demand for
bank credit.”

She concluded, “As economic activity picks up and importantly, the
economic outlook brightens, I would expect both the supply of credit and
the demand for credit to improve.”

The road is not without bumps, however, and “Just looking at the
statistics, it is not hard to construct a scenario in which consumer
demand for credit remains sluggish for quite a while,” Duke said.

She noted that households’ net worth did somewhat rebuild from the
crisis, but “recent retrenchment in those (stock) markets demonstrates
the volatility that remains.”

Small businesses also face their difficulties in obtaining credit
from banks, Duke said, noting that “a number of indicators suggest that
demand for credit by small businesses is down.”

She added that “some potential borrowers are likely on the
sidelines waiting for a good reason to expand or build inventories.”

The Fed, however, will do “everything it can” to restore healthy
credit conditions, and to that effect, it has been meeting with small
businesses at local forums.

After gathering information at such meetings, the Fed will hold a
conference in July in Washington, where “emerging themes, best
practices, and common challenges will be presented.”

While supervisory rules and regulators should not impede lending,
Duke, stressed the importance of focusing lending only to eligible
borrowers, adding that “Too much credit leads to underwriting mistakes
and mispricing of risks, as well as an overheated economy.”

While economic strength and the financial condition of businesses
and consumers are key factors influencing credit supply and demand, the
Fed is also monitoring the banking system and the regulatory climate.

Looking at the banking system, Duke noted that “reductions in bank
lending can be seen at both the strong and weak banks.”

That said, “The banking sector continues to recover slowly,” Duke
said.

On the regulatory environment, Duke stressed ongoing uncertainties,
not only because Congress continues to draw a new framework for the
future, but because bankers “are also concerned about the stance of bank
examiners in bank examinations right now.”

She reassured that It is not “possible for regulators to urge banks
to make loans that are outside their risk tolerance or that would be
unsafe or unsound.”

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]

Thx to our friends in the market for giving us a several minute jump over the wires.

The data is as expected but given the bearishness in the market on the US economy, as expected is probably better than expected, in this environment. In other words, coulda been worse.

Chicago PMI in May was 59.7.

EUR/USD trades at 1.2260.

WASHINGTON (MNI) – The following is the second and final section of
the text of the Congressional Budget Office summary of its latest
long-term budget outlook, published Wednesday:

The budget outlook is much bleaker under the alternative fiscal
scenario, which incorporates several changes to current law that are
widely expected to occur or that would modify some provisions of law
that might be difficult to sustain for a long period. In this scenario,
CBO assumed that Medicares payment rates for physicians would gradually
increase (which would not happen under current law) and that several
policies enacted in the recent health care legislation that would
restrain growth in health care spending would not continue in effect
after 2020. In addition, under the alternative scenario, spending on
activities other than the major mandatory health care programs, Social
Security, and interest would fall below the average level of the past 40
years relative to GDP, though not as low as under the extended-baseline
scenario. More important, CBO assumed for this scenario that most of the
provisions of the 2001 and 2003 tax cuts would be extended, that the
reach of the alternative minimum tax would be kept close to its
historical extent, and that over the longer run, tax law would evolve
further so that revenues would remain at about 19 percent of GDP, near
their historical average.

Under that combination of policy assumptions, federal debt would
grow much more rapidly than under the extended-baseline scenario. With
significantly lower revenues and higher outlays, debt would reach 87
percent of GDP by 2020, CBO projects. After that, the growing imbalance
between revenues and noninterest spending, combined with spiraling
interest payments, would swiftly push debt to unsustainable levels. Debt
as a share of GDP would exceed its historical peak of 109 percent by
2025 and would reach 185 percent in 2035.

Neither of those scenarios represents a prediction by CBO of what
policies will be in effect during the next several decades. The policies
adopted in coming years will surely differ from those assumed for the
scenarios. (And even if the assumed policies were adopted, their
economic and budgetary consequences would certainly differ from those
projected in this report.) Nevertheless, these projections, encompassing
two very different sets of policy assumptions, provide a clear
indication of the serious nature of the fiscal challenge facing the
nation.

The Impact of Growing Deficits and Debt

In fact, CBOs projections understate the severity of the long-term
budget problem because they do not incorporate the significant negative
effects that accumulating substantial amounts of additional federal debt
would have on the economy:

— Large budget deficits would reduce national saving, leading to
higher interest rates, more borrowing from abroad, and less domestic
investmentwhich in turn would lower income growth in the United States.

— Growing debt would also reduce lawmakers ability to respond to
economic downturns and other challenges.

— Over time, higher debt would increase the probability of a
fiscal crisis in which investors would lose confidence in the
governments ability to manage its budget, and the government would be
forced to pay much more to borrow money.

Keeping deficits and debt from growing to unsustainable levels
would require raising revenues as a percentage of GDP significantly
above past levels, reducing outlays sharply relative to CBOs
projections, or some combination of those approaches. Making such
changes while economic activity and employment remain well below their
potential levels would probably slow the economic recovery. However, the
sooner that long-term changes to spending and revenues are agreed on,
and the sooner they are carried out once the economic weakness ends, the
smaller will be the damage to the economy from growing federal debt.
Earlier action would require more sacrifices by earlier generations to
benefit future generations, but it would also permit smaller or more
gradual changes and would give people more time to adjust to them.

(2 of 2)

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$CR$,M$U$$$,MFU$$$,MCU$$$]

WASHINGTON (MNI) – The following is the text of the Congressional
Budget Office summary of its latest long-term budget outlook, published
Wednesday:

JUNE 2010

The Long-Term Budget Outlook

Recently, the federal government has been recording the largest
budget deficits, as a share of the economy, since the end of World War
II. As a result of those deficits, the amount of federal debt held by
the public has surged. At the end of 2008, that debt equaled 40 percent
of the nation’s annual economic output (as measured by gross domestic
product, or GDP), a little above the 40-year average of 36 percent.
Since then, large budget deficits have caused debt held by the public to
shoot upward; the Congressional Budget Office (CBO) projects that
federal debt will reach 62 percent of GDP by the end of this yearthe
highest percentage since shortly after World War II. The sharp rise in
debt stems partly from lower tax revenues and higher federal spending
related to the recent severe recession and turmoil in financial markets.

However, the growing debt also reflects an imbalance between
spending and revenues that predated those economic developments.

As the economy recovers and the policies adopted to counteract the
recession and the financial turmoil phase out, budget deficits will
probably decline markedly in the next few years. But over the long term,
the budget outlook is daunting. The retirement of the baby-boom
generation portends a significant and sustained increase in the share of
the population receiving benefits from Social Security, Medicare, and
Medicaid. Moreover, per capita spending for health care is likely to
continue rising faster than spending per person on other goods and
services for many years (although the magnitude of that gap is very
uncertain). Without significant changes in government policy, those
factors will boost federal outlays sharply relative to GDP in coming
decades under any plausible assumptions about future trends in the
economy, demographics, and health care costs.

The Outlook for Major Health Care Programs and Social Security

CBO projects that if current laws do not change, federal spending
on major mandatory health care programs will grow from roughly 5 percent
of GDP today to about 10 percent in 2035 and will continue to increase
thereafter. 1 Those projections include all of the effects of the
recently enacted health care legislation, which is expected to increase
federal spending in the next 10 years and for most of the following
decade.2 By 2030, however, that legislation will slightly reduce federal
spending for health care if all of its provisions are fully implemented,
CBO projects. That reduction in the level of spending in 2030 yields
lower projections of health care spending in the longer termeven
though, owing to the great uncertainties involved in projecting such
spending many decades in the future, enactment of the legislation did
not cause CBO to change its estimates of longer-term growth rates for
spending on the governments health care programs. Under current law,
spending on Social Security is also projected to rise over time as a
share of GDP, albeit much less dramatically. CBO projects that Social
Security spending will increase from less than 5 percent of GDP today to
about 6 percent in 2030 and then stabilize at roughly that level.

(1. Mandatory programs are ones that do not require annual
appropriations by the Congress; the major mandatory health programs
consist of Medicare, Medicaid, the Childrens Health Insurance Program,
and health insurance subsidies that will be provided through the
exchanges established by the recently enacted health care legislation.)

(2. For details, see Congressional Budget Office, letter to the
Honorable Nancy Pelosi about the budgetary effects of H.R. 4872, the
Reconciliation Act of 2010 (March 20, 2010.)

If all of its provisions are carried out, the legislation will also
increase federal revenues and reduce budget deficits over the 20102019
period and in subsequent years, according to estimates by CBO and the
staff of the Joint Committee on Taxation.)

All told, CBO projects, the aging of the population and the rising
cost of health care will cause spending on the major mandatory health
care programs and Social Security to grow from roughly 10 percent of GDP
today to about 16 percent of GDP 25 years from now if current laws are
not changed. (By comparison, spending on all of the federal governments
programs and activities, excluding interest payments on debt, has
averaged 18.5 percent of GDP over the past 40 years.) To put U.S. fiscal
policy on a sustainable path, lawmakers would have to substantially
reduce the growth in outlays for those programs relative to the amounts
that CBO is projectingor else match that growth with equivalent
declines in other federal spending, corresponding increases in federal
revenues, or some combination of the two.

Alternative Long-Term Scenarios

In this report, CBO presents the long-term budget picture under two
scenarios that embody different assumptions about future policies
governing federal revenues and spending. Budget projections grow
increasingly uncertain as they extend farther into the future, so this
report focuses largely on the next 25 years. However, because
considerable interest exists in the longer-term outlook, figures showing
projections through 2080 and associated data are available in Appendix A
of the report, and associated data are available on CBOs Web site
(www.cbo.gov).

The first long-term budget scenario used in this analysis, the
extended-baseline scenario, adheres closely to current law. It
incorporates CBOs current estimate of the impact of the recently
enacted health care legislation on revenues and mandatory spending.
(That estimate is unchanged from the one that CBO and the staff of the
Joint Committee on Taxation published in March, when the legislation was
being considered.) Under this scenario, the expiration of most of the
tax cuts enacted in 2001 and 2003, the growing reach of the alternative
minimum tax, and the way in which the tax system interacts with economic
growth would result in steadily higher average tax rates. Those rising
rates, combined with the tax provisions of the recent health care
legislation, would push total revenues to 23 percent of GDP by 2035much
higher than has typically been seen in recent decades — and to larger
percentages thereafter. At the same time, government spending on
everything other than the major mandatory health care programs, Social
Security, and interest on federal debtactivities such as national
defense and a wide variety of domestic programswould decline to the
lowest percentage of GDP since before World War II.

That significant increase in revenues and decrease in the relative
importance of other spending would offset much — though not all — of
the rise in spending on health care programs and Social Security. As a
result, debt would increase from its already high levels relative to
GDP, as would the required interest payments on that debt. Federal debt
held by the public would grow from an estimated 62 percent of GDP this
year to about 80 percent by 2035. Interest payments, which absorb
federal resources that could otherwise be used to pay for government
services, currently amount to more than 1 percent of GDP; under this
scenario, they would rise to 4 percent of GDP (or one-sixth of federal
revenues) by 2035.

-more- (1 of 2)

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$CR$,M$U$$$,MFU$$$,MCU$$$]

In about 20 minutes we get the Chicago PMI report…

Given the soft regional Fed survey data for June, I’ll go out on a limb and say PMI will be weak. Last time I did that, it blew up in my face like a cigar, so be forewarned.

The market expects a modest drop to 59.0 from 59.7.

EUR/USD is somewhat softer after ADP took the steam out of the euro recovery. Risk aversion in in the air…It trades at 1.2242.

• Bank loans fell an estimated 7.75% in April and May
• Return to pre-crisis levels of credit lagging all other cycles but 1990-91
• Consumer demand for credit likely to remain sluggish for a while

Sounds double-dippy to me…

Joel Prakken, the head of Macroeconomic Advisers, the firm that compiles the ADP employment data, also says there is no way to characterize the ADP number other than disappointing.

UPDATE: Prakken says the case is building for lowering H2 GDP growth forecasts.

The overnight rally in US equity futures has stalled after the data. S&P futures are up 2.5 points. They were up over 6 points before the data…

With month-end ahead and the downside momentum for the euro broken, today is probably a good day for short-term traders to stick to the sidelines. Month-end and quarter-end markets are too choppy and unpredictable to be worthwhile trading, in my view. Tomorrow is another day.

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