August 11th, 2010 02:25:29 GMT

FEDERAL RESERVE STATE OF PLAY – By Steve Beckner

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Federal Reserve policymakers took the unusual, though not entirely
unexpected, step of signalling their concern about the outlook for
economic growth, employment and price stability at their customarily
tranquil August meeting. The Federal Open Market Committee went beyond
merely reviewing its options for providing additional support to the
economy, as Chairman Ben Bernanke had hinted it would in late July
Congressional testimony, and actually implemented significant new
measures in a bold, albeit, risky move which was taken by some as an
unnecessary signal of alarm about the outlook.

Until relatively recently, most of the talk had been about when the
FOMC might begin shrinking the Fed’s balance sheet and raising interest
rates. That was the main thrust of Bernanke’s comments as recently as
his July 21-22 Congressional testimonhy. He talked about the FOMC
evaluating possible new quantitative easing measures, but seemed to set
a fairly high bar for actually doing so. He spoke of such steps being
activated should the economy “worsen appreciably” or “falter.” He gave
no clear, new signals about his views in an Aug. 2 speech, beyond saying
that “we have a considerable way to go to achieve a full recovery.”

So, while it was not unanticipated, the FOMC’s announcement that it
would prevent shrinkage of the Fed’s balance sheet (and bank reserves)
raised a few eyebrows. The market reaction was less than uniformly
positive.

True, there had been some discouraging indicators, including the
second quarter slowdown in GDP growth and the decline in June-July
non-farm payrolls, but many Fed watchers questioned whether that
warranted a policy shift. And so did Kansas City Fed President Thomas
Hoenig.

After observing that “the pace of recovery in output and employment
has slowed in recent months” and after repeating its usual concerns
about the usual restraints on household spending, the Fed declared, “To
help support the economic recovery in a context of price stability, the
Committee will keep constant the Federal Reserve’s holdings of
securities at their current level by reinvesting principal payments from
agency debt and agency mortgage-backed securities in longer-term
Treasury securities.”

The Fed said it “will continue to roll over the Federal Reserve’s
holdings of Treasury securities as they mature,” but by reinvesting the
proceeds of MBS in Treasuries, the New York Fed announced it “will seek
to maintain the value of outright holdings of domestic securities at
around $2.054 trillion.”

The significance of the FOMC’s activist policy is two-fold:

1. Reinvesting proceeds of maturing MBS and agenncy debt in 2-10
year Treasury securities will prevent what would otherwise have been a
shrinkage of the balance sheet by $200 billion or more by the end of
2011, according to New York Fed estimates.

2. More importantly, the FOMC is telling the world that, beyond the
usual “extended period” of “exceptionally low” short-term interest
rates, it is prepared to maintain an even more assertively accomodative
monetary policy for as far as the eye can see.

The Fed is tacitly saying that it is concerned not just about the
strength of the recovery but about the ability of the U.S. economy to
avoid a Japan-style deflation. Some may think it alarmist — even
unjustified if you’re Kansas City Fed President Thomas Hoenig. But that,
for better or worse, is where the U.S. central bank is, as it lets its
remaining ammunition against a real negative shock dwindle.

[TOPICS: M$$BR$,MMUFE$]

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August 11th, 2010 02:01:00 GMT

China July Consumer Prices +3.3% Y/Y as expected

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  • July Industrial Output +13.4 % Y/Y expected 13.2%
  • July Producer Prices +4.8% Y/Y vs expected 5.7%
  • July Consumer Prices and Producer prices both up 0.4% M/M
  • July Retail Sales +17.9% Y/Y vs expected 18.4%
  • January – July Urban Fixed Asset Investment 24.9% Y/Y vs expected 25.2%
  • July Net New Yuan Loans  Yuan 533bn vs expected Yuan 600bn
  • July M2 Money Supply +17.6% Y/Y vs expected 18.5%
  • End july Yuan Lending + 18.4% Y/Y vs expected 18.5%

edit….China CPI mainly pushed up by low base last year contributing 2% – per stats bureau

and Nat Bureau of Stats official says that the July CPI rebound is seasonal

7 Comments

August 11th, 2010 01:25:34 GMT

Japan July Corporate Goods Prices -0.1%, 1st Y/Y Drop In 3 Mo

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– Japan June CGPI Revised Down To +0.4% From +0.5%
– Japan July CGPI -0.1% M/M Vs June Unrevised -0.4%
– Japan July CGPI Posts 2nd Straight M/M Drop

TOKYO (MNI) – Japan’s corporate goods price index fell 0.1% from a
year earlier in July, marking the first y/y drop in 3 months, after
rising a revised 0.4% in June (preliminary +0.5%), data released by the
Bank of Japan on Wednesday showed.

The drop in the July headline index was slightly weaker than the
consensus call of being unchanged. It was the first drop since a revised
0.2% fall in April.

The year-on-year drop in July was led by a 3.0% fall in prices of
transportation equipment (vs. -3.1% in June), which pushed down the
headline CGPI by 0.39 percentage point, a BOJ official told reporters.

Prices of information and communications equipment fell 6.7% y/y in
July (vs. -7.1% in June), depressing the CGPI by 0.20 percentage point.

In May, the CGPI gained a revised 0.4%, marking the first y/y gain
since December 2008, when the index was up 0.9% from a year earlier.

The index has been recovering steadily from the record 8.5% drop
marked in August and July 2009, which was the largest year-on-year drop
since the BOJ began compiling the data in 1960.

On a month-over-month basis, the CGPI was down 0.1% from the
previous month in July, compared with an unrevised -0.4% in June,
showing the second consecutive m/m drop.

The slower pace of year-on-year rises in prices of petroleum and
coal products, scrap and waste, nonferrous metals as well as a
year-on-year drop in agriculture, forestry and fishery product prices
contributed to the m/m drop in July.

Prices of petroleum and coal products rose 10.0% on year, slowing
from a revised +22.4% in June, while those of non-ferrous metals rose
10.8% on year in July (vs. revised +14.1% in June).

Prices of scrap and waste gained 13.7% on year in July, slowing
from a revised 29.1% in June.

The BOJ official said that the on-month drop of CGPI was influenced
by concern about a slowdown of the U.S. and European economies.

He added that inventory adjustments of iron and steel in China and
the yen’s rise against the dollar, which lowers Japan’s import costs,
are also behind the weak CGPI in July.

The number of items whose prices fell from a year earlier totaled
405 (vs. 428 in June), or 47.4% of the basket (50.1% in June), while the
number of items whose prices rose came to 261, or 30.5%, up from 244, or
28.5%, in June, the BOJ official said.

In its semi-annual Outlook Report released on Apr. 30, the BOJ
said, “the domestic corporate goods price index (CGPI) is expected to be
positive on a year-on-year basis from fiscal 2010 onward due mainly to
the improvement in the aggregate supply and demand balance and to
developments in commodity prices.”

CGPI generally lags about six months after changes in the country’s
output gap, which was estimated by the Cabinet Office to have shrunk to
a negative 4.7% (about Y25 trillion) in the first quarter of 2010.

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

[TOPICS: M$A$$$,M$J$$$,MAJDS$,MMJBJ$,MT$$$$]

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August 11th, 2010 00:45:43 GMT

Japan June Core Machinery Orders +1.6%, 1st M/M Rise In 2 Mo

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– Japan Q3 Core Machine Orders Seen +0.8% Q/Q Vs Q2 +0.3%
– Japan Q3 Rise In Core Orders Would Be 4th Straight Q/Q Gain
– Japan Govt Repeats View: Machine Orders Picking Up
– Japan June Core Machinery Orders -2.2% Y/Y Vs May +4.3%
– Japan June Core Machinery Orders Post 1st Y/Y Drop In 4 Mths

TOKYO (MNI) – Japan’s core private-sector machinery orders
rebounded a seasonally adjusted 1.6% in June from the previous
month, posting the first rise in two months after slumping 9.1% in May,
the Cabinet Office said on Wednesday.

The June core figure came in weaker than the consensus forecast of
a 6.1% m/m rise.

Core orders are forecast by the Cabinet Office to post a fourth
straight quarter-on-quarter increase, up 0.8% in July-September, after
rising 0.3% in April-June and gaining 2.9% in January-March.

From a year earlier, core private machinery orders showed the first
drop in four months, down 2.2% in June after +4.3% in May and +9.4% in
April. In March it rose 1.2%, the first y/y gain in 21 months. They have
recovered from the record 39.5% plunge marked in January 2009.

Looking at the longer-term trend, the Cabinet Office repeated is
assessment adopted in June, saying, “there are signs of a pickup” in
machinery orders.

In June when reporting April figures, it upgraded its view for the
second month in a row.

Core private-sector machinery orders, which exclude volatile demand
from electric utilities and for ships, are viewed as a leading indicator
of corporate capital spending.

In June, the core orders in the private manufacturing sector marked
the first m/m gain in three months, rebounding 9.9% from the previous
month to Y281.6 billion after slumping 13.5% in May. In April it fell
5.5%, the first month-on-month drop in five months.

The increase in the sector was led by stronger orders from the
petroleum and coal sector and non-metallic mineral sector (both
showing sharp gains after large drops in the previous month), food and
beverages, iron and steel as well as information and communication
electronics equipment.

Orders from the non-manufacturing sector excluding shipping lines
and power firms were weak again, down 3.9% m/m at Y419.2 billion in
June, posting the second straight m/m drop after falling 6.0% in May.

The fall in non-manufacturing demand was led by softer orders from
information services, wholesale and retail trade as well as finance and
insurance.

In February 2010, core orders for the non-manufacturing sector fell
to a recent low of Y393.5 billion, close to the lowest level of orders
from non-manufacturers at Y369.0 billion recorded in May 1987.

The total non-manufacturing sector, including shipping lines and
power firms, rebounded by 6.3% m/m, posting the first gain in two months
after slumping 9.5% in May.

The key to a rise in total core domestic private-sector orders is
a recovery of demand from non-manufacturers, including telecom carriers
and transportation firms, because the total demand from
non-manufacturers is much higher than that from manufacturers.

The telecommunications industry has been hit by stiff price
competition among mobile carriers, posting the second month-on-month
fall in orders in four months, down 6.4% m/m vs. a 2.2% rise in May.

Orders from finance and insurance, whose capital expenditure for
merging computer network systems has run its course, have shown
signs of a pickup, but in June they fell 8.6% m/m, the second drop in
four months after rising 3.9% in May.

Outside the core domestic private sector, machinery orders from
overseas showed the second consecutive m/m gain, up 2.4% in June at
Y779.2 billion after rising 2.7% in May. In April orders from other
countries fell 3.7%, the first drop in five months.

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

[TOPICS: M$J$$$,M$A$$$,MAJDS$,MT$$$$]

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August 11th, 2010 00:45:39 GMT

Nikkei down 2% sees cross selling

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AUD/JPY selling has taken out buyers in AUD/USD at 0.9100, the market ignoring the WestPac Consumer Sentiment Indicator

AUD/JPY low 77.40 EUR/JPY low 111.71

Cable been sold down to 1.5768 after taking some stops out below 1.5800

2 Comments

August 11th, 2010 00:34:25 GMT

FinMin Noda on the wires

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  • excessive, disorderly forex moves would hurt economy
  • watching forex moves carefully
  • fx market moves a little one-sided after Fed’s FOMC statement

I believe I was just saying something about soft rhetoric !

6 Comments

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