July 15th, 2010 12:45:37 GMT

Pimco’s ElErian cast doubt over European stress tests

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They may not be the market-cleansing mechanism most hope for, he says in an essay in the FT. His conclusion:

European officials can do a lot to make the stress test credible; and they should. But, unfortunately, they cannot turn it into a catalyst for Europe’s return to financial normality. Regrettably, this is a much bigger challenge. It was long in the making and will require a more comprehensive solution whose implementation is inherently more complex and protracted.

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July 15th, 2010 12:45:15 GMT

US Jobless Claims -29,000 To 429,000 in the July 10 Wk

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–Manufacturing Layoffs Fewer Than Anticipated by the Seasonal Factors

By Ian Mckendry

WASHINGTON (MNI) – Initial claims for U.S. state unemployment
benefits decreased 29,000 to 429,000 in the July 10 week after seasonal
adjustment reflecting a lag in the usual factory layoffs this time of
year, according to data released by the U.S. Labor Department Thursday
morning.

The level was below the 445,000 level expected in a Market News
International survey of economists.

A Labor analyst said that seasonal adjustment factors expected an
increase of 17.2%, about 80,000 claims, due to typical manufacturing
shutdowns this time of year, compared with the actual outcome of a 9.6%
increase in unadjusted claims. But changing patterns of manufacturing
industry shutdowns, which the analyst said is “not just a GM thing,” are
not being anticipated by the adjustment factors based on past years. He
was referring to GM’s recalibration of seasonal layoffs.

As a level, unadjusted claims rose 44,855 to 513,347 in the July
10 week, below the 671,242 level in the comparable week a year earlier.

The initial claims seasonally adjusted 4-week average fell 11,750
to 455,250.

In the July 3 week, continuing claims increased by 247,000 to 4.681
million.

The seasonally adjusted insured unemployment rate jumped two tenths
to 3.7% in the July 3 week, and was 4.7% a year earlier.

The unemployment rate among the insured labor force is well below
that reported monthly by the Labor Department because claims are
approved for the most part only for job losers, not the job leavers and
labor force reentrants included in the monthly report.

The Labor Department said that there were 236,162 fewer unadjusted
Emergency Unemployment Compensation benefits claims in the June 26 week,
bringing that category to 3,911,389. Extended benefits claims
fell by 18,580 to 409,442 not seasonally adjusted. Congressional
leadership plans to try again for another round of extended benefits,
perhaps voting as soon as next week.

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

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

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July 15th, 2010 12:35:38 GMT

ANALYSIS:US Jun PPI -0.5%,Core +0.1%:Infln Eases,Food/Engy Dip

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–Initl Unemployment Claims -29k to 429k Jul 10 Wk, Seasonal Adj Suspect

By Joseph Plocek

WASHINGTON (MNI) – The U.S. June PPI report was benign and slightly
less than expected, printing -0.5% overall in a third monthly drop and
+0.1% (+0.0576% unrounded) in the core.

These monthly results put PPI up 2.8% over the year overall and up
1.1% in core, paces that appear to be moderating — but not falling —
from earlier in the economic recovery.

Energy printed -0.5% as all areas fell, and Food posted -2.2%
(accounting for 80% of the overall drop) on dips in fruits, vegetables,
and soft drinks. The drop in food prices was the largest since -2.9% in
April 2002. In vegetables, tomatoes, cauliflower, and eggplant had large
drops, and in fruits melons and berries fell most.

Core PPI was held down by -1% in light trucks but boosted by +1.4%
in cigarettes and +0.4% in aircraft. Footwear, soaps, toys and floor
coverings also dropped in price, as did metal cutting tools,
transformers, and computers in the capital goods sector.

Intermediate PPI at -0.9% and Crude at -2.4% on weak demand for
metals, also suggest no pipeline pressures.

The more important CPI report is released Friday, and also is
expected by private economists to be benign.

Separately, the Labor Department reported Initial Unemployment
Claims fell 29,000 to 429,000 in the July 10 week, but said this partly
reflects seasonal glitches.

No states estimated. However, the seasonal adjustment factor looked
for a 17% gain in a second week of normal increase, i.e. it expected
+80,000 due to manufacturing layoffs for vacations. But unadjusted
data showed +9.6% or +44,855 claims.

It was “not just a G.M. thing” a Labor Department economist said
at release, explaining that the move was more diverse across industries.

Claims were 476,000 in mid-June, and adding back the last two
weeks’ declines (impacted by the Independence Day holiday and seasonals
that expect routine plant closings) brings them back to about that
level. So any signal from this data set remains suspect.

Continuing claims in the July 3 week jumped 247,000 to 4.681
million, offsetting the prior week’s 203,000 drop. This series has
hovered at about the current level since March and is signaling a slow
labor market.

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

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

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July 15th, 2010 12:32:34 GMT

PPI drops sharply, down 0.5%; Jobless claims plummet

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  • Jobless claims fell sharply to 429,000 from 458,000. A seasonal adjustment factor due to a lack of seasonal auto plant shut downs may be to blame.
  • Empire State manufacturing data slid to 5 in July from 19.6 in June. 18.5 was the consensus.
  • Core PPI rose 0.1%

Soft growth and the PPI drop will raise the deflation specter which should keep US rates low for the foreseeable future.

4 Comments

July 15th, 2010 12:30:27 GMT

Options-players help spur rally

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As Gerry noted, there was huge demand this morning for overnight 1.2825/35/50 EUR calls. The demand was like from option desks with expires on the books for tomorrow and they were hedging their books. This prompted tines of spot buying to go along with the options. Keep those strikes in mind tomorrow at 14:00 GMT.

8 Comments

July 15th, 2010 12:15:48 GMT

Big data morning; probably won’t matter

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Lots of US data this morning, including industrial production, but it probably won’t matter today as the horse has the bit in its teeth. Momentum is a powerful thing and is not to be toyed with. Be long, or be square EUR/USD. Don’t fade the trade…

1 Comment

July 15th, 2010 12:15:11 GMT

UK Osborne: Drop In Gilt Yield Provides Powerful Econ Stimulus

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LONDON (MNI) – UK Chancellor of the Exchequer George Osborne said
today the fall in Gilt yields since the announcement of government
austerity measures had provided significant monetary stimulus to the
British economy.

Osborne told the Treasury Select Committee that the UK’s credit
standing in the financial markets looked ‘favorable’ post-budget and
also noted the positive reaction to the June 22 emergency budget from
the ratings agencies.

“I think it is worth drawing the committee’s attention to what has
happened to market interest rates for the United Kingdom in the last six
to nine weeks. Ours have decreased by half a percent, Spain’s have
increased by half a percent, which provides significant monetary
stimulus to the economy which has helped deal with the tail risk”.

Since the June 22 budget the yields on 10-year Gilts have fallen
15bp to 3.43%. Gilts have also outperformed bunds with the spread
dropping to 74bps from 92bps.

Turning to the banking sector, Osborne said he wanted to encourage
more competition in the UK banking sector and that he hoped to see new
entrants into the industry.

“The banking sector was consolidated and has become a hell of a lot
more consolidated in the last two years, we need new entrants. We should
be encouraging new entrants.”

The chancellor also said he wanted to limit UK banks to pay for the
implied insurance they now receive from tax-payers.

“We need a tax on wholesale funding, we don’t want banks that are
over-exposed to wholesale funding markets.”

In other answers to the committee, the chancellor said he had no
plans to propose any changes to the Quantitative Easing decision-making
process.

–London Bureau; Tel: +442078627492; email: wwilkes@marketnews.com

[TOPICS: MABDS$,M$B$$$,MT$$$$]

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July 15th, 2010 11:57:54 GMT

ForexLive European Wrap: Very lively morning

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Lively old morning.

EUR/USD started around 1.2740. Dipped slightly in early trade before taking off to the races.  Things began to hot up when BIS came in buying around 1.2715/25 and talk circulated that EUR/USD overnight call options with 1.2835 strike were being scooped up with gay abandon.

Two European funds then added fuel to the fire by buying aggresively in the 1.2730/40 area.  At the same time reports were coming in that there was a further surge in buying of overnight call options with 1.2825, 1.2835 and 1.2850 strikes and we headed quickly toward well-documented 1.2800 barrier option interest. 

The barrier interest gave out without too much trouble.  Having reached 1.2803 we dipped back just below 1.2800 before an Asian central bank stepped  in and helped send the pairing on it’s way to session high 1.2834. We’re presently at 1.2822. 

A successful Spanish bond auction, upbeat comments re Italian bank stress tests, better than expected JPM earnings ,the Slovakia government approving euro zone’s EFSF safety net were among some of the factors lending the euro support.

Cable up at 1.5350 from early 1.5270, the rally accelerating when trendline resistance at 1.5310 gave out and well documented stops just above were tripped.  Potential  positive M&A flows will have helped underpin cable.

USD/JPY at 88.10 little changed from early 88.20. Inbetween though we did see sell-off to session low 87.86,  but the BOJ Governor’s comments (see above) will have given the USD/JPY bears pause for thought.

AUD/USD at .8820 little changed from early .8810. Inbetween though we went as low as .8755 with stops tripped below .8800, as traders reacted to disappointing Chinese GDP data released overnight.  Big German seen buying aggressively around lows and the subsequent rally back was as sharp as the earlier sell-off.

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July 15th, 2010 10:45:14 GMT

Update: BOE Miles: Not Yet Time To Tighten Monetary Policy

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LONDON (MNI) – Bank of England Monetary Policy Committee Member
David Miles said today that the time is not yet right to tighten
monetary policy as economic conditions in the UK are not yet ‘normal’.

“I look forward to the day when it will be appropriate to tighten
monetary policy since a return to more normal levels of interest rates
would be a welcome sign that economic conditions were also more normal.
But I do not think that is where we are today.”

Miles said he does not believe that the current above-target
inflation rate is sustainable, given that underlying inflation pressures
are not strong. Miles went on to say that above target inflation would
be unsustainable without a pickup in wages, which he regarded as
unlikely.

“Without a pick up in wage inflation I find it hard to think it at
all likely that inflation being significantly above target is
sustainable. Of course wage pressures may build significantly over the
next year or so, though I do not believe this is the most likely
outcome.”

Miles also said that risks of an extended period of low growth –
which would further weaken those pressures – remain “real”.

Whilst conceding that above-target inflation made setting monetary
policy difficult, Miles said he thought it essential to look beyond
“temporary and potentially transitory factors” influencing inflation
when attempting to balance the risks of inflation.

“Reacting to today’s inflation rate (which reflects where the level
of prices is now relative to 12 months ago), rather than where inflation
will be looking ahead, is not the right thing to do.”

Miles also said he believes that UK banks need higher capital
requirements in order to help stabilize the economy.

“I believe that moving capital requirements on banks is a very
useful tool to work alongside monetary policy in achieving a stable
economic environment,”

“That would have a relatively low impact on the overall cost of
debt in the economy but a big impact on the robustness of the banking
system.”

–London Bureau; Tel: +442078627492; email: wwilkes@marketnews.com

[TOPICS: M$B$$$,M$$BE$]

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