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Tim “Last Man Standing” Geithner said late Thursday afternoon that the US economy needs more stimulus.

Good luck getting that through Congress…About the only chance for passage could come after the mid-term elections and before the new Congress is sworn in in January, the so-called “lame duck” session.

The August jobless rate came in at 5.1%, which is slightly better than expected. Core CPI came in as expected at -1.0%.

TOKYO (MNI) – The U.S. economy is unlikely to undergo a double-dip
recession, but prices could remain sluggish for a number of years,
Donald Kohn, former vice chairman of the U.S. Federal Reserve, said in a
recent interview with the Nikkei published on Friday.

“There is concern that inflation could be much lower than many
members of the (Federal Open Market) Committee would like to see it for
several years now,” Kohn told the paper on Tuesday.

“They’re focused on the lower level of inflation,” he said.
“They’re focused on how rapidly it will rise back to where they want it
to be.”

Asked about the Fed’s purchase of Treasuries and other assets as
possible steps for additional monetary easing, Kohn suggested that
purchasing a small amount initially and then increasing it in line with
economic conditions would be effective.

“I think having smaller amounts (of asset purchases) but the
possibility of raising it could be constructive,” he said.

“If weak data come in so that people can judge that the forecast
might be revised lower, then the markets will anticipate more purchases
and they’ll put downward pressure on interest rates, anticipating those
purchases,” Kohn said.

Kohn retired from his post on Sept. 1 after working at the central
bank for 40 years, in which he served under three Fed chairmen: Paul
Volcker, Alan Greenspan and Ben Bernanke. Kohn is now a senior fellow at
the Brookings Institution.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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

The AUD has fallen quickly in the last 30 minutes and it seems others in the market are getting the same idea that I am, namely that the risky side is down. This weekend is also a long one here in Australia with a bank holiday on Monday and that may also encourage some profit taking.

Heavy stops below .9600 I’m told and the short-term charts suggest that .9670 should now be resistance so they are now the levels to watch either side.

By Steven K. Beckner

NEW YORK (MNI) – Cleveland Federal Reserve Bank President Sandra
Pianalto said Thursday evening that the Fed has options if additional
monetary accommodation is needed, but she said the Fed needs to weigh the
costs and benefits of further action and make sure it can be effective.

Pianalto, a voting member of the Fed’s policymaking Federal Open
Market Committee, did not disclose whether she thinks more monetary
stimulus is needed, but was less than ebullient about the outlook.

She said there are “some signs” the economy is “mending” but said
economic growth is apt to be too slow to bring down unemployment in
remarks prepared for delivery to the Women’s Economic Round Table in New
York. She also said she expects inflation to remain below the Fed’s
target.

Pianalto said the Fed has already “put in place a highly
accommodative monetary policy” and noted that on top of keeping the
federal funds rate near zero it has gone even further lately to prevent
its balance sheet from shrinking and causing an inadvertent tightening
of policy.

“More recently, to ensure that we are not passively removing our
policy accommodation, the Federal Reserve decided to reinvest principal
payments from our agency debt and MBS securities into longer term
Treasury securities,” she said.

“If further policy accommodation is needed to promote price
stability and the continuation of the economic recovery, we have options
available to us,” Pianalto said.

However, she said “We are in uncharted waters. History does not
provide a complete guide for the unconventional policy tools we are
using, which is why it is important that we continue to examine the
costs and benefits of these tools.”

“If additional accommodation is needed, I want to be sure that the
framework we employ is an effective one,” she continued. “I am confident
that the Federal Reserve can effectively respond to evolving economic
and financial developments.”

Pianalto prefaced her remarks on policy by saying that the economic
recovery is proving “gradual and bumpy” as she expected. She said “a lot
of people are hurting, but there has been some movement in a positive
direction.” And she said many businesses are “struggling.”

“There are some signs that the economy is beginning to mend,” she
said. “The private sector is adding jobs, and we have positive GDP
growth.”

But “while the economy is growing, and I expect that it will
continue to grow next year, the current pace of growth is not fast
enough to make much progress in lowering the unemployment rate,”
Pianalto said.

“I also expect underlying inflation to remain near its current low
level through next year, lower than the roughly 2% rate that I see as
consistent, over the long run, with the Federal Reserve’s objectives,”
she went on.

“As a Federal Reserve policymaker, I am focused on achieving our
long-term policy objectives of price stability and maximum employment,”
she added.

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

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

“The Big Short” was definitely my favourite book of the year (and I do read a lot) and his recent Vanity Fair article on Greece was extremely entertaining. Now he’s a columnist on Bloomberg and here’s his latest aricle entitled “The Mystery of Disappearing Prop Traders“.

If anything moves today, I have a feeling it might be the AUD/USD and I’m going to play from the short side.

• The .9725 level which I’ve been closely watching has held now on two separate occasions
• It’s Friday and it’s October which is traditional risk-aversion time
• There will almost certainly be further slanging matches between China and the US re the Yuan
• Data from the futures market suggests that the market is quite long
• Pairs like cable are showing signs of tiredness, therefore we might see some sort of USD rebound over the next few days
• The RBA won’t hike next week; or at least more people are starting to think they won’t
• Finally, large stops below .9600 might get triggered

(With so many bearish reasons it probably goes straight up!!)

Cable rallied above 1.5900 in the early European rush to sell EUR/GBP but the sharp fall since doesn’t bode well for the short term bulls. I personally have exited most of my long position and will look to reinstate towards 1.5500.

GBP/CHF once again halted at the major 1.5360 low but the bears seem to be reasserting themselves there and a break below could see more heavy GBP selling.

All in all, the risk reward for sitting long GBP isn’t looking too flash so as its Friday (and a long weekend here in Australia), I’ll book some profits and see what happens.

I’m sure that a lot of traders will have a hangover this morning from the massive turnover yesterday which really got going in early London. Month-end flows mainly affected EUR/GBP but all pairs were extremely volatile.

By the way, it’s the first Friday in October so it’s risk-aversion cubed; be careful out there.

Good luck today and TGIF.

• Irish central bank: No need for outside financial assistance from EU
• US GDP revised to +1.7% in Q2, slightly stronger than forecast
• Canadian GDP falls 0.1% in July; market feared larger fall
• US weekly jobless claims fall to 453,000; better than expected
• Chicago PMI rises sharply; 60.4 from 56.7
• Portugal says new austerity measures will help avoid needing stability funds from EU
• Housing prices to keep RBA sidelined? SMH asks
• BOC’s Carney: Growth seen more modest in second half, economy slowed more than expected
• US 10-year note yields rise 1 bp to 2.51%. Month-end demand for long maturities offset the strong US economic data. 2.58% was the intraday high yield
• S&P 500 falls 0.3% to 1141; oil rises to $80, up $2.00; gold recovers intraday losses, ends at $1308 as dollar eases late in session

It was one of the wilder month-ends in recent memory with rumor and counter-rumor making the rounds combined with strong flows and flows that failed to materialize. All of this led to volatile markets and a confused participants.

EUR/GBP was the most active pairing of the morning, swinging violently amid reports of a large EUR sell order for the annual EU farm subsidy rebate to the UK. The orders was rumored at around EUR 3.5 bln. It looks as though the market got ahead of the order and sold well in excess of 3.5 bln EUR and had to scramble to get them back. Exacerbating the squeeze was the usual month-end demand for EUR/GBP by the Bundesbank. EUR/GBP rocket from early London lows of 0.8560 to a high of 0.8685 and it ends near its highs.

The components each gyrated as well. EUR/USD rallied as high as 1.3684, a fresh trend high in the wake of the ECB fixing before sliding late in the European session as the 15:00 GMT fixing was replete with EUR/USD sellers despite reams of research predicting dollar sales at month-end…We fell as low as 1.3575 before Asian and Mid-East central banks broke the euro’s fall. We close the session at 1.3635, keeping the EUR uptrend quite intact.

GBP/USD was sold for much of the US session, particularly at the 15:00 GMT fixing which pushed the pound down from 1.5775 to 1.5670 before it stabilized.

AUD/USD was sold heavily at month-end, triggering stops below 0.9660/65 support. We slipped as low as 0.9625 intraday. An article in the Sydney Morning Herald suggest that a dip in Australian home prices may dissuade the RBA from tightening further in the near-term. We end at 0.9670.

USD/CAD was choppy. It dropped sharply after GDP fell only 0.1%. The finance minister tipped a weak report yesterday so traders were relieved it was not much less negative. Rallying crude oil helped offset dovish comments from BOC Governor Carney. We fell from 1.03 to 1.0235 on the GDP report before rallying to 1.0325 on upbeat Chicago PMI data which lessens the need for the Fed to ease quantitatively if the strong data is born out in the ISM report tomorrow.

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