July 5th, 2010 21:33:42 GMT

AUD rate decision day: dealers more focussed on statement


The RBA will meet this morning and announce their rate decision later today. They are unanimously expected to leave rates on hold at 4.5% and dealers will be watching for any change in tone or language in the subsequent statement.

The AUD/USD traded in a .8375/.8470 range yesterday and I would expect the Asian market to initially respect this range although we can expect to see stop-losses being triggered on a break of either side.


July 5th, 2010 21:08:02 GMT

ForexLive Asian market open: let’s start the week all over again


With US markets on holidays overnight, the FX market hasn’t moved at all and is more or less where we opened yesterday morning. I’m short AUD/USD from yesterday, and also have smaller short AUD positions against the EUR and the JPY. I’m waiting for a return of full-blown risk aversion and I feel being short AUD is the best play. I’ve also got a small long USD/CHF position but I’m less convinced here that my timing is right. Elsewhere I think EUR/USD will drift lower over the course of the week, possibly in a 1.2350/1.2600 range, cable similarly drifting lower in a 1.4900/1.5250ish range and USD/JPY to re-test support at 87.00. (But I have been wrong before!)

The Toronto stock market fell by almost 1% overnight and Asia will take it’s initial lead from there.

Good luck today.


July 5th, 2010 18:05:32 GMT

EU Rehn: EU Bank Stress Tests Key To Shore Up Mkt Confidence


BRUSSELS (MNI) – The European Union must dispel concerns about the
fragility of its banking system and deliver on all its initiatives to
improve governance and regulation if investor confidence in the bloc is
to be restored, European Commissioner for Economic and Monetary Affairs
Olli Rehn said on Monday.

Worries about the fragile nature of the EU’s financial institutions
and about the high levels of debt and deficit in some of the bloc’s 27
member states have pressured the euro in recent months because investors
fear those factors could stymie growth and push the economy back into

“We must now indeed deliver at all fronts to reinforce confidence
in our economy,” Rehn said. “The key word is confidence.”

He said policymakers “need to maintain vigilance… since we are
certainly not out of the woods yet.”

But the Commissioner said he thought fears of a double-dip global
recession “are exaggerated,” asserting that the “underlying basic trend
in the real economy is clearly upwards.”

But he struck a more cautious note than perhaps he would have a few
months ago.

“In the spring, most of the new hard data suggested that a strong
recovery was under way, while financial market turbulence pointed to
substantial risks,” he said.

“More recently some real economy indicators have also softened,
particularly in the US, raising fears about a double dip,” Rehn added.

On the positive side, Europe’s export industries have capitalised
on the robust rebound in world trade, while unemployment is stabilizing
in the EU and an improvement in employment can be seen in some member
states, Rehn said.

“Recent data on industrial production from some hard-hit countries,
like Ireland and Spain, have also been encouraging,” he added.

On the downside, he mentioned financial market turbulence and the
health of the European banking sector, which has been in the spotlight
in recent weeks after some Spanish banks ran into difficulty.

“We need to remain vigilant, in particular with regard to the
financial markets,” Rehn said, adding that “doubts about the health of
the European banks need to be dispelled, which is why the [bank] stress
tests are so important.”

European finance ministers are set to debate at their meeting next
week how much information on the health of the banking system to reveal
and when to reveal it.

“The Commission is in favour of full transparency and advocated the
extension of bank stress tests and the publication of the results by the
end of July,” Rehn said. “This will help reduce uncertainty and restore

The best way to restore confidence is to deliver “on all fronts,”
Rehn said.

He said this included safeguarding financial stability, pursuing
growth-friendly austerity, advancing structural reforms and reinforcing
economic governance.

“We need stronger and better EU economic policy coordination. We
also need a more rigorous implementation of the rules of the EMU,” he
said, reiterating that monitoring of debt levels needs to take a more
central role.

He said the Commission’s idea for a European economic semester is a
“key tool” allowing “for prior coordination of economic policies before
final decisions on the budget for the following year are taken by member

That proposal by the EU’s executive arm is being opposed by some
member states on the grounds that their sovereignty will be infringed.
They say they won’t submit their budgets to the Commission until after
national parliaments have seen them. Rehn said the Commission proposes
to launch the European semester in January 2011 and that he expects EU
finance ministers to approve that initiative next week.

Overall, the EU’s executive arm wants to see “a wider range of
incentives and sanctions, which are used preventively and invoked at an
earlier stage,” Rehn said.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

[TOPICS: MT$$$$,M$$FX$,M$$EC$,M$X$$$,M$$CR$,MGX$$$]

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July 5th, 2010 13:55:50 GMT

ECB To Hold 1-Wk Op Tuesday To Drain E59 Bln From Bond Buys


FRANKFURT (MNI) – The European Central Bank Tuesday will reabsorb
E59 billion in cumulative purchases of government bonds via a quick
tender to collect one-week term deposits, the central bank announced

The operation, to be conducted on Tuesday at 9:30 GMT, will be in
the form of a variable-rate tender with a maximum bid rate of 1.00%, the
bank said.

The ECB intends to mop up E59 billion in liquidity, equivalent to
the amount of bonds purchased through the Securities Market Program and
settled as of last Friday, it said.

The liquidity will be held for one week at the bank as a term
deposit. These fixed-term deposits can be used as collateral for the
Eurosystem’s credit operations, the bank said.

Last week, the bank failed in its effort to mop up E55.0 billion in
bond buys, only collecting E31.87 billion. Today’s announcement means
that the net change in bonds settled under the Securities Markets
Program is +E4 billion.

The ECB said it will conduct another liquidity-absorbing operation
next week.

– Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com –

[TOPICS: MGX$$$,M$$FX$,M$X$$$,M$G$$$,M$$EC$]

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July 5th, 2010 13:35:41 GMT

Greece Finmin: Greece On Target For Deficit; No New Measures


ATHENS (MNI) – Greece is on track to meet its 2010 deficit target
and no additional austerity measures are needed for this year, finance
minister George Papaconstantinou said at a press conference on Monday.

He added however, that certain risks remain. He also said he was
“looking forward to returning for funding [the markets] in 2011.”

Papaconstantinou said GDP may contract less than the 4% that is
forecast for this year. European Commission officials have yet to
express the same optimism about a less-than-expected recession. They are
expected to visit Athens for two weeks in late July to make their final
inspections before publishing the first joint official evaluation of the
Greek budget by Commission, the IMF and the ECB.

Based on this evaluation, Greece would get the green light for
receiving the second EMU/IMF loan installment of about 9 billion euros
in September.

Papaconstantinou said that the second half of the year will be
“heavy” for Greek citizens, because austerity measures worth 2 billion
euros will be implemented, including a planned VAT increase from 21% to
23% (the second 2-point increase this year); increases in indirect taxes
on tobacco and other items; and collection of a special tax on
high-value real estate.

At the same, Greeks will suffer the consequences of sharp cuts in
expenditures on salaries, bonuses, benefits and pensions.

Speaking about the lower-than-expected government revenues, the
minister expressed optimism that the targets would be met by the end of
the year and the deficit would be reduced to 8.1% of GDP, from 13.6%
last year, as Greece has promised. He added that it is “natural for the
revenue rate to slow down given the magnitude of the recession, but
there is no black hole in revenues.”

Papaconstantinou said the rate of revenue increase in the first
half of this year stands at 7.1% y/y, compared with an 11% target. In
the next few days the ministry will issue official data for the
execution of the budget for the first six months of the year, he said.

Meanwhile, the two big public and private workers union umbrellas,
GSEE and ADEDY, announced a new 24-hour strike on Thursday, the day the
Greek parliament will vote on the controversial social security/pension
reform bill.

Although the Government enjoys a majority of 7 seats, there are a
few government MPs who appear reluctant to vote in favor of the bill.
The legislation includes harsh measures that many people consider
anti-social, and several unions have already announced they will take it
to Court and claim that certain sections are unconstitutional.

According to a written statement by the Finance Ministry, there are
six principal risks to execution of Greece’s budget plan. They are:

1. The legal process through which complex measures must be passed
on strict timetables is slow.

2. Overly bureaucratic and slow reactions in the implementation of
restructuring policies.

3. Higher than targeted state spending, especially with regard to
certain benefits.

4. Higher than targeted general government spending, especially on
hospitals and municipal elections.

5. The total public deficit and debt might be higher than targeted
because debt and operating shortfalls of public companies will be
incorporated in the state budget.

6. There is still no clear idea of how many public employees
currently work in Greece. It is therefore unclear how public sector
layoffs and hiring will affect the state budget.

[TOPICS: M$X$$$,M$$CR$,M$$FX$,MT$$$$,MGX$$$]

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July 5th, 2010 13:16:11 GMT

Thanks for Your Company


I am signing off and will reappear for the European session tomorrow. Sean will be back for the Asian session in a few hours. Happy trading…good luck.


July 5th, 2010 13:15:34 GMT

EU Banks Stress Test In Focus As Mkts Worry About Resilience


By Emma Charlton

BRUSSELS (MNI) – The ability of Europe’s banks to withstand market
turmoil is in focus this week as investors worry about the solidity of
the bloc’s financial system and about whether tests currently under way
are stringent enough to restore confidence.

In a bid to reassure the markets that the European Union’s
financial system won’t bend under pressure, the bloc is currently
assessing whether its largest banks have sufficient capital buffers to
withstand financial market turmoil or the onset of another recession.

Several policymakers including European Central Bank President
Jean-Claude Trichet, European Commissioner for Economic and Monetary
Affairs, Olli Rehn and European Commissioner for Internal Markets,
Michel Barnier, have argued strongly that disclosing the results would
give a much needed boost to investor confidence in the Eurozone.

Worries about the resilience of the financial system, high debt and
deficits, and the risk of a double-dip recession have pressured the
single currency in recent months, causing it to shed around 12% of its
value against the dollar since the beginning of the year. Last Friday,
however, it hit a six-week high above $1.26 and was holding strong at
above $1.25 on Monday. But that is still lower than the levels above
$1.40 seen at the start of the year.

The EU hasn’t published the results of its stress tests before, but
it is widely expected to follow the U.S., which published results of
stress tests for 19 financial institutions last year under its
Supervisory Capital Assessment Program and decreed that 10 of them
needed more capital.

Facing pressure from markets late last month, the EU agreed to
publish the details of the stress tests and to significantly raise the
number of European banks being tested from 26 to well over 100.

But it’s still unclear exactly what the testing parameters will be
and which details will be published.

The debate over how much detail to release is likely to be intense,
because some EU delegations face national banking sector lobby groups
who argue that publication of stress tests could have an adverse impact
on the very market turbulence it seeks to mollify. In Germany, the
biggest EU country, detailed results cannot be published without the
agreement of the individual banks concerned, which could present a
considerable hurdle.

“The Ecofin which takes place next week (July 13) will make the
decisions for the dates and methodology of the bank stress tests,” a
European Commission spokesperson said on Monday.

At a meeting in Southern France, French finance minister Christine
Largarde told reporters that the results would be published “around July

Support for the publication of the results is growing. Trichet has
said that making the results public is an “important element” in
restoring market confidence in the Eurozone. He and many other
policymakers have repeatedly stressed that maintaining investor
confidence is the key to the economic recovery.

The stakes are high, with many market participants beginning to
worry — even before the methodology has been released — that the tests
might not be vigorous enough. Fueling these concerns was a report in the
Financial Times today saying that tests would include a scenario of a 3%
haircut on sovereign debt — a far more benign outlook than many market
players think possible.

Critics say the tests are largely a public relations exercise and
won’t price in enough exposure to Eurozone sovereign debt — or a
potential default on Greek or Spanish or Portuguese debt — because it’s
too politically sensitive to do so.

“In our view, a proper stress test would have to go for scenarios
assuming a default on Greek sovereign bonds and a default of other
periphery countries, leading to haircuts for these securities of 50% or
so,” said Jurgen Michels, an analyst at Citigroup in London.

“Without such real stress testing, we doubt that the results of the
stress test would provide much to restore confidence,” Michels added.
Moreover, he said, “it would be important to have facilities in place to
immediately provide sufficient extra capital to banks that do not pass
the stress tests.”

So far, there are no strong signs that governments are preparing to
make such contingency capital available to their national banks. The ECB
has said that it will not do so.

The market is likely to focus on the fine print next week, when EU
finance ministers agree what information they will publish and when.

“The credibility of the stress test will depend on the underlying
assumptions and their transparency,” analysts at Nomura said in a note
to investors. “We hope regulators will publish these in detail. If the
stress scenarios are not painful enough, do not acknowledge the default
risk from some European countries, or if the transparency of the
assumptions used is poor, publishing the stress test could be
counterproductive and raise more questions about solvency.”

If the market judges the stress test too lenient, it could punish
the very securities the EU is trying to protect.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

[TOPICS: MT$$$$,M$$FX$,M$$EC$,M$X$$$,M$$CR$,MGX$$$]

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July 5th, 2010 12:56:46 GMT

ForexLive European Session Wrap – Modest Moves, Holiday Mood


The holiday maybe in the USA but Europe largely took advantage to join in, letting a few crossplays ‘pass the parcel’; we may have a couple more quiet sessions ahead as the next move will probablybe US equity market-led.

All in all a quiet day with mostly narrow ranges; the market essentially ignored the economic data which largely showed the continuing story of slowing growth in europe; even the encouraging Sentix Investor confidence and the good Swiss Retail Sales numbers were ignored.

It just wasn’t the day to take notice.

The story of slowing economic growth and the potential for a double dip are the buzz words in all commentary.


EUR/USD 1.2417/63 with several hours in a narrower band !

EUR/JPY 109.71/110.42  EUR/GBP 82.53/86  EUR/CHF 1.3308/67

CABLE 1.5117/99   USD/JPY 87.64/88.00

AUD/USD 0.8378/0.8468 AUD/JPY 73.47/74.15

USD/CHF 1.0619/63

GOLD 1207/1214.75  OIL Brent 71.46/72.33

European Equity markets remained similarly quiet qith the FTSE down just 0.1%, the DAX and CAC at evens.

BP stock rose 5.5% on the hope that the plugging of the well maybe only a month away and amid talk of taking on a strategic investor.

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July 5th, 2010 11:45:07 GMT

Update 3: NIESR’s Weale Replaces Barker On MPC At Aug Meeting


–Adds Detail To Version Transmitted At 11:17 GMT
–Weale Recently Told MNI Doubts Inflation Expectations Key CPI Driver

LONDON (MNI) – Martin Weale, director at the National Institute of
Economic and Social Research, will replace Kate Barker on the Monetary
Policy Committee, and will start at the August meeting, the Treasury
announced Monday

Barker left at the end of May which means the MPC will still only
have eight members at the July meeting.

The NIESR has been more downbeat over UK growth prospects than the
Bank of England or the Office for Budget Responsibility.

Weale expressed skepticism last week about the view of MPC
Member Adam Posen that a rise in inflation expectations was a key
factor in higher UK inflation outturns.

He told Market News the decline in sterling was, instead, a more
likely suspect.

Weale said if the rise in inflation expectations was feeding
through to actual inflation outturns then the most likely route would be
through higher wages.

“Wage increases have been pretty modest,” he said.

If higher inflation expectations are not feeding through in wages
then the other option is they are feeding through in prices. Weale said
that while there is a hefty academic literature on sticky prices, he has
not found it particularly convincing.

Weale is skeptical of the idea of retailers raising current prices
in anticipation of further inflation down the line.

“Prices are much more flexible than wages,” he told Market News.

Asked about the likely impact of sterling on CPI Weale said it was
impossible to give a precise figure.

BOE Executive Director Markets Paul Fisher said in recent remarks
the impact of sterling’s fall on current CPI could be anywhere between
1 percentage and 2.5 percentage points.

With CPI at 3.4% in May, down from 3.7% in April, Weale said the
upper end of Fisher’s range was implausible. As value added tax is also
having a substantial up effect on inflation, this would imply there was
no inflation elsewhere, which he doubted.

Weale, who spent almost two decades in academic posts at Cambridge
University before joining NIESR, has also served as an adviser on
the UK’s official statistics.

His public comments shows no easily classifiable stance as hawk or
dove, or adherence to any of the broad camps of economic theory.

David Kern, chief economist at the British Chambers of Commerce,
said “It’s very difficult to classify him as a dove or a hawk… I don’t
think he’s likely to be more one or the other but I think he’s more
likely to make a surprising decision, in both directions…”

The NIESR has been downbeat about UK growth prospects.

In its April forecast round it predicted UK growth would be just 1%
this year and 2.0% next, with trade contributing 1.1 percentage points
of the 2% growth. It then said, in response to the fiscal tightening in
the June 22 budget, that this would reduce growth further.

NIESR said the fiscal consolidation plans would reduce GDP growth
by 0.2 percentage point in 2010 and 0.4 of a point in 2011.

–London bureau: +4420 7862 7491; email: drobinson@marketnews.com

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

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