November 19th, 2010 19:24:42 GMT

ECB’s Gonzalez-Paramo: Ours are little


  • ECB bond buys are small volume compared to other countries
  • Spain needs to improve communications on the reforms it plans
  • Excess liquidity in money markets reduced by 90% since summer

That last bit has been a boost to the euro as money market rates have “normalized” in recent months.

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November 19th, 2010 19:05:42 GMT

Next Wk/US: FOMC Mins/Forecasts, Existing Hms,U/Mich,Durables


By Theresa Sheehan

PRINCETON (SMRA) – All the economic data of significance is
clustered in the Tuesday-Wednesday period in the short week ahead with a
few reports moved due to the holiday schedule.

The week ahead is, of course, effectively a three-day week with the
Thanksgiving Day observance and an unofficial market holiday on Friday.
The Federal government is closed on Thursday, but not Friday. However,
outside of the retail sector, many workers take a vacation day, and
business and government staffing is minimal. The bond market will not
close early on Wednesday, but it will on Friday.

The FOMC meeting minutes were also rescheduled to Tuesday from
Wednesday to accommodate holiday calendars.

On Tuesday, the data leads off with the second estimate of third
quarter GDP at 8:30 ET. There may be an upward revision as consumer
spending was a bit stronger, net exports a bit narrower, and inventories
bit higher. However, it should not look fundamentally different from the
advance estimate.

The Richmond Fed’s Survey of Manufacturing for November will be
released at 10:00 ET on Tuesday. The New York Fed’s general activity
index in the Empire State Survey plunged back into negative territory on
weak new orders. The Philadelphia Fed’s Business Outlook and general
activity index did the opposite and turned in a solid expansionary
reading. The Richmond District has tended have stronger index readings
than most other Districts over the course of the recovery, and we expect
it to agree more with Philadelphia’s outlook.

The NAR’s report on sales of existing homes in October at 10:00 ET
on Tuesday could show another uptick in levels of resales. Mortgage
interest rates continued to reach new lows in October, supplies of homes
were plentiful, prices were moderate, and if the unemployment rate was
no better, it was also no worse. Those who can afford to buy a home will
find it a favorable time.

The BLS will release two separate labor market reports for October
at 10:00 ET on Tuesday. The data for mass layoff activity should
continue to reflect very low levels of layoffs. Employers are reluctant
to lose skilled workers, and payrolls that were deeply pared in early
2009 have yet to recover. The numbers for state and regional
unemployment will provide some detail for the data behind the national
unemployment rate of 9.6%.

On Wednesday, initial claims for the week ended November 20 will be
out at 8:30 ET. New claims are slowly heading lower, if somewhat
unevenly. Claims for continuing and extended benefits are taking
somewhat larger strides in declines, but remain elevated, as do initial
claims. If Congress extends benefits again, these decreases could wane.

New orders for durable goods in October at 8:30 ET will probably
swing on the transportation component again. Although Boeing reported a
strong 108 new orders for the month, it was down from 117 in the prior
month. Demand for new motor vehicles may make up at least some of the
difference, but probably not all.

Personal income and spending for October at 8:30 ET will likely
reflect some modest gains in income and more robust consumption
expenditures, particularly for durable goods as car sales were stronger
in October.

The final reading of the Reuters/University of Michigan Consumer
Sentiment Index is expected at 9:55 ET. The preliminary report printed a
reading of 69.3, an increase of 1.6 points from October. The index may
be revised lower due increases in some consumer items like gasoline and
foods, and market volatility associated with a more uncertain outlook.

Sales of new single-family homes in October could continue along
the same trend that has been in place since May. The level has hovered
between the high 200,000′s and low 300,000′s. This segment of the
housing market will have to continue to contend with abundant supplies
of bargain priced foreclosures and short sales on the market.

The FHFA House Price Index for September at 10:00 ET should
indicate that home prices continued to gain on a year-over-year basis,
although it is likely to be a very slender increase for the month. Home
values were much more stable as the third quarter came to a close.

US Treasury Auctions

New 2-, 5-, and 7-year notes will be auctioned Monday through
Wednesday, respectively. All will settle on November 30. There will be
no coupon offerings until the next leg of the quarterly refunding of new
3-year notes, and reopenings of the 10-year notes and 30-year bonds on
December 2.

With the impending holiday, Fed officials speaking in public will
be few and far between. So far the only speech scheduled next week is
that of Minneapolis Fed President Kocherlakota on Monday. The rhetoric
around the Fed’s large-scale asset purchase program has ensured that the
Fed will need to continue to communicate on its intentions in providing
economic stimulus, and reassurance that the long-term impacts and
consequences have been fully considered and prepared for.

There is one more FOMC meeting in 2010 on December 14. The one
after that is on January 25-26 and will see the next rotation of the
FOMC voters.

The FOMC meeting minutes for November 2-3 were rescheduled to 14:00
ET Tuesday from Wednesday to accommodate holiday calendars. Markets will
be looking for the direction of the arguments for and against the
large-scale asset purchase program, and what, if anything, was the
deciding factor in favor of its implementation. There may also be some
additional detail regarding the inflation communication.

** Stone & McCarthy Research Associates **


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November 19th, 2010 18:49:27 GMT

Fed continues to defend QE


The Fed has undertaken somewhat of a PR offensive to try and rehabilitate the Fed’s reputation which has been savaged in the last two-odd years.

They’ve begun to defend QE quite aggressively, from the Chairman on down.

This afternoon, an executive VP at the NY Fed, Terence Checki told the Economic Club of New York:

Regarding the external implications of the policy, several points are worth keeping in mind. One is that the goal of policy is to stimulate demand in the United States by encouraging lower real yields. To be sure, the dollar has weakened of late, but as a side effect of policy, not as a goal, and not by more than might be expected in light of our recent slowing and recent changes in interest rates and inflation expectations. And as growth strengthens, the value of the dollar should adjust accordingly.

Much of his speech is a defense of QE, and can be read here.

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November 19th, 2010 18:45:34 GMT

Analysis: Bernanke: It’s Not Only China,It’s the Int’l System


By Denny Gulino

WASHINGTON (MNI) – The surprising speech by Federal Reserve
Chairman Ben Bernanke Friday acted as a sharp edged prism, diffracting
his critics into categories that fall into less familiar combinations.

Suddenly those on Capitol Hill who want to get tough on China and
also diminish the Fed are finding Bernanke can be an ally.

And those who see the Fed as adding to stimulus instead of
concentrating only on inflation are seeing Bernanke emphasizing more
higher private and public savings and a growth-oriented and reformed
fiscal policy.

Meanwhile, less well highlighted than Bernanke’s criticism of
surplus countries was his advice to his own United States, a deficit
country, advice undoubtedly directed at the fiscal authority, Congress.

“Deficit countries need to do more over time to narrow the gap
between investment and national saving,” he said. “In the United States,
putting fiscal policy on a sustainable path is a critical step toward
increasing national saving in the longer term. Higher private saving
would also help. And resources will need to shift into the production of
export- and import-competing goods.”

Yet the first reaction in the headlines, that Bernanke was slamming
China, was evidently not exactly what the Fed chairman had in mind,
judging by his comments after the Frankfurt speech in the subsequent
panel discussion.

Commenting on global imbalances, as MNI reported, Bernanke
suggested it did not make any sense to criticize individual countries
for their surpluses or deficits. “Deficits and surpluses are generated
by many countries’ behaviour, not one single country.”

Chart No. 8 in Bernanke’s presentation showed several other
countries have constrained adjustment in their currencies and tallied up
surpluses: China, Taiwan, Hong Kong, Poland, Korea and Singapore all kept
their currencies from appreciating less than 5% in the year through
September. In fact, Taiwan and Hong Kong actually depreciated their
currencies in that period.

The same chart showed that, proportionate to their GDP, Taiwan,
Thailand, Singapore and Hong Kong accumulated more reserves than China
though China alone, he pointed out in his speech, has half of the total,
slightly more than $2.6 trillion.

What seemed to surprise even more than the concepts — most of
which Bernanke had previously talked about individually in speeches and
testimony, as had other officials — was the dominant dark tone of the

Bernanke focused not on recovery progress since the start of the
crisis but on warnings about the future, spanning an extraordinary total
of more than two dozen warning and examples of what has not improved:

1) International cooperation so evident during the early part of
the crisis was then. Now, “that sense of common purpose has waned.
Tensions among nations over economic policies have emerged and
intensified, potentially threatening our ability to find global
solutions to global problems.”

2) “At a deeper level, the tensions arise from the lack of an
agreed-upon framework to ensure that national policies take appropriate
account of interdependencies across countries and the interest of the
international system as a whole.”

3) “The increase of 5 percentage points in the U.S. unemployment
rate is roughly double that seen in the euro area, the United Kingdom,
Japan or Canada.”

4) “Low rates of resource utilization in the United States are
creating disinflationary pressures.”

5) “Insufficiently supportive policies in the advanced economies
could undermine the recovery not only in those economies, but for the
world as a whole.”

6) “We cannot rules out the possibility that unemployment might
rise further in the near term.”

7) “Declines in actual and expected inflation imply both higher
realized and expected real interest rates, creating further drags on

8) “On its current economic trajectory the United States runs the
risk of seeing millions of workers unemployed or underemployed for many

9) “Differences in the cyclical position and policy stances of the
advanced and emerging market economies have intensified the challenges
for policymakers around the globe.”

10) “The exchange rate adjustment is incomplete, in part, because
the authorities in some emerging market economies have intervened in
foreign exchanges markets to prevent or slow the appreciation of their

11) “Increasingly over time, the strategy of currency
undervaluation has demonstrated important drawbacks, both for the world
system and for the countries that use that strategy.”

12) “Because a strong expansion in the emerging market economies
will ultimately depend on a recovery in the more advanced economies,
this pattern of two-speed growth might very well be resolved in favor of
slow growth for everyone.”

13) “The total holdings of foreign exchange reserve by selected
major emerging market economies … have risen sharply since the crisis
and now surpass $5 trillion — about six times their level a decade

14) “Currency undervaluation on the part of some countries has been
part of a long-term export-led strategy for growth and development.”

15) “Globally, both growth and trade are unbalanced, as reflected
in the two-speed recovery and in persistent current account surpluses
and deficits.”

16) “Large and persistent imbalances in current accounts represent
a growing financial and economic risk.”

17) “Those countries that allow substantial flexibility in their
exchange rates bearing the greatest burden.”

18) “Countries that maintain undervalued currencies may themselves
face important costs at the national level, including a reduced ability
to use independent monetary policies to stabilize their economies and
the risks associated with excessive or volatile capital inflows.”

19) “The current international monetary system is not working as
well as it should.”

20) “Currency undervaluation by surplus countries is inhibiting
needed international adjustment and creating spillover effects that
would not exist if exchange rates better reflected market fundamentals.”

21) “Differences in the degree of currency flexibility impose
unequal burdens of adjustment, penalizing countries with relatively
flexible exchange rates.”

22) “Deficit countries need to do more over time to narrow the gap
between investment and national saving.”

23) “Some emerging market economies do not have the infrastructure
to support a fully convertible, internationally traded currency and to
allow unrestricted capital flows.”

24) “Unfortunately, so long as exchange rate adjustment is
incomplete and global growth prospects are markedly uneven, the problem
of excessively strong capital inflows to emerging markets may persist.”

25) “As currently constituted, the international monetary system
has a structural flaw. It lacks a mechanisms, market based or otherwise,
to induce needed adjustments by surplus countries, which can result in
persistent imbalances.”

26) “The pursuit of export-led growth cannot ultimately succeed if
the implications of that strategy for global growth and stability are
not taken into account.”

In the context of Washington’s intense partisanship which is
sustaining itself past the election, a key question following Bernanke’s
speech is whether his views will encourage Congress to increasingly
pressure China in the year ahead.

Some would see that as rash, others overdue.

Whatever the political leaning, members of Congress have shown that
bashing China is always easier than curing deficits.

But if they are looking for the easy way out, or if the new
majority plans to block stimulus measures in the exclusive quest for
deficit reduction, they should take heed of Bernanke’s plea:

“The Federal Reserve is nonpartisan and does not make
recommendations regarding specific tax and spending programs. However,
in general terms, a fiscal program that combines near-term measures to
enhance growth with strong, confidence-inducing steps to reduce
longer-term structural deficits would be an important complement to the
policies of the Federal Reserve.”

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

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$A$$$,MI$$$$,M$Q$$$,MN$FX$]

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November 19th, 2010 18:41:14 GMT

USD/JPY taking lower yields in stride today


USD/JPY trades with a firm tone, supported by buying from US real money accounts today, traders report. The buck is paying less attention than normal to US yields today despite them drifting modestly lower on the session. 10-year notes are down about 3 bp in yield to 2.87% today.

Resistance from the top of the Ichimoku cloud comes in at 83.68 today. We stalled at 83.72 yesterday. USD/JPY trades very quietly around 83.55.

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November 19th, 2010 18:16:29 GMT

Asset markets mixed in early afternoon


Not much to report from the trenches this afternoon with markets fairly quiet. Traders seen suitably confused after the EUR/USD’s decent rally overnight, only to watch it give up all its gains.

Few are looking to take fresh risk on ahead of the weekend, this much we know.

Bottom line: The market will be vulnerable to any bits of stray business from corporate or real money accounts pushing the market in one direction or another with nothing more to explain the move than supply and demand…

We’re getting conflicting signals from the related markets. Stocks have recouped early losses and now are flat on the day though commodities are near their lows, based on the CRB index.

Looks like indecision all around…


November 19th, 2010 18:06:10 GMT

Budget Recap:Clashing Pleas For Costly Tax Cuts,Budge Balance


–As Lame-Duck Session Opens, Lawmakers Jostle Over Bush Tax Cuts
–Senate Majority Leader Pledges Votes On Different Tax Extension Plans
–Republican Leaders Push For $4 Trillion Tax Cut Extension Plan
–Meanwhile, Deficit Reduction Panels Work To Overhaul Federal Budget

By John Shaw

WASHINGTON (MNI) – On this week, more than most others, Capitol
Hill has been a place of parallel universes.

In one universe, returning lawmakers have been fervently discussing
how many of the Bush era tax cuts should be extended and for how long.

The main debate is if more than $3 trillion should be borrowed over
a decade to renew most of the Bush tax cuts (the Democratic view) or $4
trillion should be borrowed to extend all of them for a decade (the
Republican position.)

In the other universe, a presidentially appointed task force,
working out of the Senate Budget Committee hearing room, has been
meeting almost daily to debate a plan that would secure $4 trillion of
budget savings over a decade to bring the federal budget closer to
balance. Achieving this would require overhauling all major spending
programs and rewriting the federal tax code.

To make the situation even more surreal, a number of lawmakers are
active participants in both sets of discussions.

Senate Majority Leader Harry Reid said Thursday that he expects the
Senate to hold “some votes” on alternative tax cut packages when
Congress reconvenes after Thanksgiving.

Reid said Senate Democrats continue to support extending the Bush
era tax cuts for those individuals making $200,000 or less and couples
making $250,000 or less. He said he is not certain if the Democratic
plan would try to extend these tax cuts permanently or for a shorter

Reid said he would be “happy” to allow a Senate vote on a
Republican alternative that would extend all the Bush era tax cuts,
including those for higher income people. Reid said the Senate
Republican plan would cost $4 trillion over a decade. Analysts have
noted the Senate Democratic plan would cost about $3.2 trillion over the
same period.

Both incoming House Speaker John Boehner and Senate Minority Leader
Mitch McConnell said repeatedly this week that all Bush era tax cuts
should be extended.

In what appeared to be a tactical move to put pressure on President
Obama and congressional Democrats, Boehner and McConnell declined to
attend a Thursday meeting Obama called for with congressional leaders
to discuss tax cuts and other matters. That meeting will not take place
until the week of Nov. 29–just about a month before the tax cuts are
set to expire.

Meanwhile, the National Commission on Fiscal Responsibility and
Reform has spent hours this week in private meetings debating a sweeping
plan to cut the budget deficit that was drafted by the two leaders of
the commission, former senator Alan Simpson and former White House chief
of staff, Erskine Bowles.

“We’ve made enormous progress in the last several weeks,” Bowles
told reporters Thursday. But he added: “Who knows if we will get to the
Promised Land.”

Bowles said that he and Simpson are willing to rework their
chairman’s mark, but added that “you won’t see a weaker plan.”

President Obama created the commission on Feb. 18 by executive
order after an attempt by lawmakers to create a panel by statute failed
in the Senate.

The commission is charged to issue a report by Dec. 1 that would
cut the deficit to about 3% of gross domestic product by fiscal year
2015 and begin slowing the growth of debt over the long term. In order
for the panel to issue recommendations, 14 of the 18 members need to
reach an agreement.

The commission will meet in a public session on Nov. 30.

The draft budget plan Simpson and Bowles released last week calls
for more than $4 trillion in budget savings over a decade.

Their draft plan would bring the federal budget deficit down to
2.2% of gross domestic product by 2015. It would reduce the nation’s
debt to 60% of GDP by 2024 and to 40% of GDP by 2037.

The plan would secure deep savings out of every corner of the
federal budget, including defense and Social Security.

The Bowles-Simpson plan would put in place discretionary spending
caps that would help achieve about $1.4 trillion in savings. It calls
for $733 billion in entitlement savings and $751 billion in savings from
overhauling tax expenditures over a decade.

The plan calls for fiscal changes that would bring federal spending
down to about 21% of GDP and boost revenues to bring them up to 21% of
GDP. The plan would balance the federal budget by 2037.

Also this week, former Senate Budget Committee Chairman Pete
Domenici and former White House budget director Alice Rivlin released a
fiscal overhaul plan that would secure nearly $6 trillion of budget
savings by 2020.

The plan by Domenici and Rivlin would restructure major spending
programs such as Social Security and Medicare, place a multiyear freeze
on many domestic and defense programs and fundamentally overhaul the
U.S. tax system.

Domenici and Rivlin are co-chairs of a budget project sponsored by
the Bipartisan Policy Center. They have been working on this report for
nearly a year.

In their report, Domenici and Rivlin call for a one year payroll
tax holiday in 2011 which would suspend Social Security payroll taxes
for employers and employees. This is an effort to boost the economy in
the short-term. They said it would be effectively a $650 billion tax cut
that would stabilize and strengthen the American economy.

The bulk of their report focuses on driving down the deficit.
Between 2012 and 2020, it outlines $2.7 trillion in spending savings,
$1.9 trillion in tax expenditure savings, $435 billion in new revenues
and $877 billion in debt service savings.

Domenici and Rivlin said their plan would stabilize the federal
debt below 60% of GDP by 2020. It would reduce federal spending from 26%
of GDP to 23% by 2020. Under their plan, revenues would reach 21.4% of
GDP by 2020.

Domenici and Rivlin said one of the centerpieces of their report is
a plan to “dramatically” overhaul the tax system, creating individual
rates of 15% and 27%, down from the current high of 35% and cutting the
corporate tax rate from 35% to 27%.

They call for a 6.5% debt reduction sales tax which would raise
about $3 trillion over a decade.

Domenici and Rivlin back broad Social Security reform, including
raising the amount of wages subject to a payroll tax, reducing benefits
for wealth recipients of Social Security and changing the cost of living

Domenici and Rivlin call for Medicare reform and capping and then
phasing out the tax exclusion for employer provided health care

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

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

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November 19th, 2010 16:52:09 GMT

1.3650 acts as resistance, first time up


The bounce from 1.3630 New York lows stalled at the 1.3650 level, an area where EUR/USD found support for most of the morning. If we hold below 1.3650, look for 1.3610/1.3650 range-trade over the balance of the afternoon. If we break back above it, 1.3685 should be resistance in the near-term.


November 19th, 2010 16:16:17 GMT

EUR/USD slips as EUR/CHF rally stalls


EUR/USD has pulled back to the 1.3640 level as EUR/CHF quickly sheds the gains that accompanied the 16:00 GMT fixing. From highs of 1.3675 we’ve pumped down to 1.3615.

Next support for EUR/USD are Asian lows of 1.3608/10.


November 19th, 2010 15:51:15 GMT

EUR/USD continues to find buyers in 1.3650 area


Try as we might this morning, 1.3650 continues to attract buyers. We’ve bounced back toward the 1.3675 level and it looks as though the reports of EUR/CHF buying are at least partially true…

That cross is at session highs of 1.3670 with 10-minutes to go before the fixing.

Risk-aversion is lessening as well, with stocks and commodities both well above early-session lows. S&P -0.2% and CRB down 0.7% versus -1.1% earlier.

1 Comment

1 11,371 11,372 11,373 11,374 11,375 11,376 11,377 11,378 11,379 11,380 11,381 15,575

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