January 24th, 2011 22:45:55 GMT

Canada Data Preview: Infl Remains Subdued in December Report

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By Akhil Shah

OTTAWA (MNI) – Canadian inflation expectations are once again
expected to remain subdued in December’s monthly consumer price report,
released Tuesday by Statistics Canada.

Inflation expectations will be led by higher energy prices, while
price in the other seven sectors in the Canadian CPI basket of goods are
expected to remain level.

The year-over-year headline number is expected to rise 2.4%
according to economists surveyed by Market News International. On a
month-over-month basis, the “all-items” number is expected to edge up
0.1%.

The core index, which strips out volatile items such as food and
energy, is expected to rise 1.6% year-over-year. On a monthly basis, it
is estimated to have dropped 0.2%, according to economists surveyed by
Market News International.

Consumer prices advanced 2.0% in November, following a 2.4% gain in
October. November’s gains were mainly attributable to a 6.7% spike in
energy prices compared with a year ago, and December they expect to
increase further.

Diana Petramala, an economist at the Toronto Dominion (TD) bank,
sees monthly inflation edging up 0.1% in December, while annual
inflation will be 2.5% higher compared to last December. Core CPI is
expected to drop 0.3% month-over-month, but nevertheless will be 1.5%
higher for the year.

“We don’t see any inflationary pressures in the Canadian economy,”
Petramala said. “Excluding the energy sector, we could see some gain in
food prices,” Petramala added.

“The manufacturing sector will be expected to be weighed down by
slow U.S. growth,”Petramala said.

“The headline number will look a good deal stronger due to energy
costs and base year effects, with our own estimate being for a rise of
some 2.6% on the year,” Peter Buchanan, a senior economist at the
Canadian Imperial Bank of Commerce (CIBC) wrote to his clients.

In December 2009, consumer prices dropped 0.3% and CIBC’s
projected 0.3% increase in consumer prices for December 2010, is
expected to push annual inflation to 2.6%. “These base-year effects will
reverse in the following month, and we should see headline inflation
drop a few ticks then,” Emanuella Enenajor, an economist at CIBC, wrote
to her clients.

** Market News International Ottawa **

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

January 24th, 2011 22:20:19 GMT

ForexLive Asian market open

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The AUD has been the big mover overnight, gaining almost 100 pips compared with yesterday. The EUR has consolidated recent gains and is trading with a bullish tone, the GBP is treading water ahead of tonights GDP data, and USD/JPY is stuck in range trading mode. I’m expecting a quiet session.
Good luck today.

January 24th, 2011 21:48:22 GMT

ForexLive US wrap: Euro rallies on fear Europe might get something right

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  • ECB buys only EUR 147 mln worth of bonds in latest week; total for program 76.5 bln
  • US think tank sees major progress toward comprehensive European sovereign debt package which would roll-up weak banks, allow ECB to withdraw much of extraordinary liquidity and raise raises by Q3
  • IMF’s Lipsky: Global growth seen a little slower than 2010’s 4.75%
  • Dallas Fed index 117.3 in November from 116.4 in October
  • Irish finance bill expected to pass this Saturday
  • Goldman sees ECB hike not until Q4
  • Spain releases details of caja restructuring plan
  • Der Spiegel: Banks could be stuck with bill for Greek restructuring
  • Suicide bomber kills 31, injures scores at Moscow airport
  • US equities rise 0.6% to 1291; yields unch at 3.41%
  • Gold closes at lowest since early November at $1334

It was all about the euro today. Hopes for higher ECB rates late this year along with a comprehensive support package for peripheral Euro zone countries sent EUR/USD soaring as high as 1.3686 before profit-taking and options protection ahead of 1.3700 barriers helped slow the advance. A steady grind as low as 1.3727 unfolded during the US afternoon before a modest bounce. We end around 1.3640.

USD/JPY slid to 82.30 on long liquidation as the dollar slumped across the board during the US morning, We recovered lost ground in the afternoon but filed to retake 82.55 which is now resistance.

EUR/GBP rallied above its 100-day moving average and tested downtrend resistance near 0.8555 before relenting in the afternoon. We close at 85.30.

AUD/USD jumped along with AUD/USD, absorbing considerable offers between 1.0005 and 1.0015m topping out at 1.0022 before slipping back to close at 0.9972.

January 24th, 2011 20:39:20 GMT

Gotta know when to hold em, when to fold ‘em

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The hardest lesson to learn when it comes to financial markets is separating the ripples in shifting market sentiment from the tidal waves…

We had an extremely clear example of a tsunami of sentiment in the last 8 trading days. Let’s look back and trace its origins.

What was the catalyst?

The ECB meeting of January 13. In the third sentence of the opening statement, the bearish case for EUR/USD was dealt a severe blow:

Based on its regular economic and monetary analyses, the Governing Council confirmed that the current key ECB interest rates still remain appropriate. It therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 2 December 2010, we see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices, but this has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. Recent economic data are consistent with a positive underlying momentum of economic activity, while uncertainty remains elevated.

Combined with Spain’s new program to shore-up the cajas, a major inflection point has been reached. Spreads between peripheral Euro zone bonds and German bunds began to tumble, undoing the catalyst for the euro decline in the first place. Poor US employment data the week before was icing on the cake.
Major technical resistance levels at 1.3055 had already been breached before the ECB shift, so bears should have been alert for a change of trend….
Yet here we sit more than a week later with EUR bears still in denial…Luckily for them, we’ve already rallied close to the near-term upside technical objective near 1.3700/40 but it begs the question, why sit through 6 cents of pain when you can ride the winds of change?
Both the technicals and fundamentals shifted in the same direction at virtually the same time and presented a golden opportunity. Learn from it, don’t deny it. Trade the market as it is, not as you want it to be…
1-24 eur

January 24th, 2011 20:05:42 GMT

Germany’s Fin Min: European Solidarity Not A One-Way Street

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ESCHBORN, Germany (MNI) – The concept of solidarity within the
European Union must not apply only to countries with a top credit
rating, German Finance Minister Wolfgang Schaeuble argued Monday.

Rather all countries must do their part to encourage financial
stability, the minister said at the annual reception of the Deutsche
Boerse stock exchange at its headquarters outside of Frankfurt.

Germany depends on the stability of the euro, Schaeuble stressed:
“Solidarity cannot be limited to six triple-A rated countries. Rather it
applies to all 17, and it begins with the countries that cause the
problems, namely Greece, Ireland and others that won’t be named.”

These countries must pursue difficult but “essential” measures to
consolidate their public finances, he demanded. “We are decisively
dependent on the stability of this shared European currency.”

Schaeuble strongly hinted that Germany would not back an expansion
of the European Financial Stability Facility without the support of all
Eurozone countries.

“We have made it clear … that we are not prepared for an
improvement or an intensification of the standby mechanism if all
partners in the currency union do not make their contribution,” he said.

The German economy recovered much faster than expected last year
with GDP growth of 3.6%, the strongest rise since reunification,
Schaeuble noted.

After the 4.7% plunge in 2009, “we are a little bit below the
pre-crisis level,” he conceded. But there are very good chances of
returning to that level this year. Moreover, there is also a “good
chance” that unemployment will fall below three million, he said.

Given that the government ended 2010 with net new borrowing of just
over E44 billion, it must therefore do better than the official target
of E48 billion called for in this year’s budget, the minister argued,
positing E40 billion as an “upper limit”.

The country must stick to the path of budget consolidation, he
insisted.

–Frankfurt bureau, +49-69-720142, tbuell@marketnews.com

[TOPICS: M$X$$$,MGX$$$,MFX$$$,M$$CR$,M$G$$$,MT$$$$]

January 24th, 2011 20:05:41 GMT

Update: BOE Sentance: Fiscal Drag Not ‘Show Stopper’ For Rates

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–Updating First Version Of Report Transmitted To Wires 1940GMT

London, MNI – Bank of England Monetary Policy Committee member
Andrew Sentance said he recognized that fiscal tightening would act
as a drag on the UK economy but it should not be a “show stopper” for
the tightening of monetary policy.

In a question-and-answer session here Sentance said the MPC needed
to focus on the inflation outlook and getting it back to target. He
argued the emphasis should stay on a broad inflation measure and said
he was skeptical about core inflation measures, which strip out various
factors.

Sentance said what mattered for consumers was overall inflation
rather than any core measure. The MPC member again made the case for
tightening policy.

Asked about using core inflation measures, such as CPIY, Sentance
said “I am a little skeptical about this kind of approach. In the US
they take out food and energy but if you interviewed people in the
street they would probably say they are most concerned about food and
energy and we have to be very careful about the use of these measures.”

Sentance said he was not calling for a string of rate hikes, but a
gradual tightening of policy and he said the MPC should judge the pace
of tightening depending on the impact it was having on consumer and
business.

“The level of Bank Rate is exceptionally low… the lowest in the
whole 300-year history of the Bank. When it comes round to raising
interest rates the MPC will have to judge, as it always does, the impact
that the policy instrument is using on the economy… Certainly we’ll
need to judge the pace and extent of interest rate rises.”

Sentance noted that mortgage rates were running well above Bank
Rate, but he said he did not think increases in mortgage rates would
match Bank Rate when the latter began to rise.

Sentance, whose term on the MPC finishes at the end of May, has
consistently been the most hawkish of the committee members. He has been
isolated in calling for tighter monetary policy at recent meetings,
voting for a 25-basis-point rate hike at every MPC meeting since last
June.

Sentance was asked if inflation expectations had already got out of
control and if they could no longer be put back in the bag.

Sentance said he disagreed – “I think the MPC should take this
seriously. I don’t think it is too late to recover credibility.”

–London newsroom: 00 44 20 7 862 7492; email:
ukeditorial@marketnews.com

[TOPICS: M$B$$$,M$BDS$,M$$FI$,MT$$$$,M$$BE$]

January 24th, 2011 19:44:01 GMT

Dip getting a little deep for the bull’s comfort

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EUR/USD took the elevator up this morning and now it is slowly walking down the staircase. The slow decline keeps the bleeding manageable, but you can still bleed to death slowly, nonetheless.

Bids are eyed in the 1.3610/20 area with small stops below 1.3610. Larger stops are down below the 1.3580 area, traders say. More trailing stops are seen in the 1.3540/50 area.

We trade now at 1.3635 after being as low as 1.3627 a short while ago.

January 24th, 2011 19:26:20 GMT

US House majority leader says no federal bailout for states

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Eric Cantor, the new House majority leader says there will no no federal bailout of indebted US sates. He also says he does not back bankruptcy for states.

Looks like states will have to do what they have always done during recessions: but spending and raise taxes and fees.

Aside from Meridith Whitney and a few others, most do not see major default risks ahead for state governments. Smaller municipalities may find themselves inĀ  more trouble, however.

The dollar is generally firmer this afternoon as the market succumbs to profit in EUR/USD on the approach of 1.3700 and above 1.00 in AUD/USD.

January 24th, 2011 19:15:00 GMT

Can’t keep a good pound down…

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EUR/GBP stalled right near daily downtrend resistance at 0.8555 and has dipped back below the 100 day average of 0.8534 as the market pares back positions ahead f tomorrow’s UK GDP data.

Bad news for the UK is baked in the cake so the risk is for a EUR/GBP pullback if the data surprises to the topside as the pound recovers further. Hourly uptrend support comes in around 0.8505 on dips.

1-24 eurgbp

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