6 hours ago | November 22nd, 2014 21:33:08 GMT

What will be the best-performing currency this week?

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Last week, the overwhelming consensus voted for the US dollar and that was a good option as it was the second-best performer after the loonie.

What will be the top performing currency this week?
Euro
US dollar
Yen
Sterling
Australian dollar
Canadian dollar
New Zealand dollar

Your reasons are welcome in the comments.

7 hours ago | November 22nd, 2014 20:19:43 GMT

Will immigration action from Obama affect inflation?

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Five million illegal immigrants in the United States may be temporarily shielded from immigration under the executive action announced by Obama on Friday.

What will it mean for wage inflation?

“Business owners who offer their wages good wages benefits see the competition exploit undocumented immigrants by paying them far less,” Obama said.

Five million people — many of them making less than minimum wage — will now be entitled to Social Security cards. On the face of it, that will boost income.

But the flip side is that those people will now be competing at the minimum wage end of the ladder so that could keep wages low there.

In addition, it’s likely that only a small portion of illegal immigrants will take advantage of the program so the net effect will be minimal.

Overall, I can’t see it being a factor.

Obama immigration

13 hours ago | November 22nd, 2014 13:59:32 GMT

ICBC chief Jiang says Chinese rate cuts will erode bank profits

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Following on from Adam’s look behind yesterday rate cuts by the Peoples Bank of China we now have comments from the head of the world’s most profitable lender expressing concern as to their ultimate impact

The PBOC raised the cap on what banks can pay customers for deposits to 120% of the benchmark from 110%, as it announced a 0.4 percentage point reduction in the one-year lending rate and a 0.25 percentage point cut in the 12-month deposit rate. This will mean depositors’ returns will be unchanged if lenders raise rates to the new ceiling.

The central bank said in a statement yesterday that the increased premium banks are allowed to pay depositors is

another important measure in deposit rate liberalization

But at a forum today in Beijing Jiang Jianqing, chairman of Industrial & Commercial Bank of China Ltd., China’s biggest lender warned that  the move will

inevitably squeeze the profit margins of banks, and the narrower margin is a long-term trend

The erosion of profit margins will hurt banks’ ability to grow and capability to expand assets

Analysts have also expressed concerns, with Zhu Haibin, chief China economist at JPMorgan Chase & Co.HK saying

The asymmetric interest rate cut could put significant pressure on bank profitability.

This may raise the question whether banks will maintain the distribution of lending rates around the benchmark rates, or will choose to float up the range

Bloomberg reporting.

I’m all for trimming back bank profits but it seems that the knock-on effects of these PBOC measures may yet have consequences they weren’t hoping for.

PBOC measures will hit banks where it hurts

PBOC measures will hit banks where it hurts, but will they still boost growth?

14 hours ago | November 22nd, 2014 13:16:40 GMT

Russia’s Lavrov says the West is seeking “regime change” in Moscow

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Russian foreign minister Sergei Lavrov has today stepped up the rhetoric over sanctions currently being imposed, and the promises of more to come, by accusing Western leaders of wanting a change of regime

Tass news agency has quoted Lavrov as telling a meeting of the advisory Foreign and Defence Policy Council in Moscow.

As for the concept behind to the use of coercive measures, the West is making clear it does not want to force Russia to change policy but wants to secure regime change

He said that when international sanctions had been used against other countries such as Iran andNorth Korea , they had been designed not to harm the national economy

Now public figures in Western countries say there is a need to impose sanctions that will destroy the economy and cause public protests

Reuters has more on the Lavrov comments here

Lavrov- accuses the west of seeking regime change

Lavrov- accuses the west of seeking regime change

A timely reminder that along with everything else going on right now there is still this major geo-political risk still bubbling away, in a week when the UK has announced its largest armoured deployment in Eastern Europe in 6 years, along with NATO telling us that its warplanes were scrambled 400 times this year in response to levels of Russian air activity around Europe not seen since the Cold War.

Reuters also carries more on that here

 

15 hours ago | November 22nd, 2014 12:25:39 GMT

Here is exactly what Draghi said

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Some people like headlines but others like to hear the exact words. One day I’m going build a website that just has the exact quotes in central bankers own words.

“We will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us,” Draghi said Friday at the European Banking Congress. “If, on its current trajectory, our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering  accordingly the size, pace and composition of our purchases.”

That really isn’t anything new. A multitude of ECB governing council members have said they will do more if the outlook deteriorates.

The eurozone is a disaster and the European Central Bank is a gongshow but I don’t think that comment — on its own — warrants a 150 pips decline in the euro.

19 hours ago | November 22nd, 2014 08:02:05 GMT

Everything is bigger in Texas…including job gains

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We all know that “Everything is Bigger in Texas”.

Everything is bigger in Texas

Everything is bigger in Texas

Squirrels are so big you can ride them. Trucks are big. Catfish are big,  Boots are big. The State Fair is big. Texas is bigger than Germany and then some.

Everything is bigger in Texas.

The same is true for job gains.

The change for the month of October

The change for the month of October

In the most recent month (see chart above), Texas added 35.2 thousand jobs. This was the second largest gain behind California.

Of course with size and population, comes more jobs but Texas has been doing much better than the bigger, more populated US states – in good times and in bad.

The jobs lost during the 2008-2010 jobs recesssion

The jobs lost during the 2008-2010 jobs recesssion

Looking at the chart above, it shows the jobs lost during the last job recession (from February 2008 to February 2010). California shed a whooping 1.26 million jobs,Florida lost 765K, Ohio lost 428K,  Illinois lost 406K, New York 293K and Texas lost 322 K. That is a significant number but relatively, it was not that bad.

How about during the jobs recovery? How and where have the jobs been created since the jobs recession ended in March 2010?

The chart below shows the distribution of jobs added by state. Texas and California, are leading the way . Of course, both states are the most populated states. California has an estimated population of 38.2M and  Texas has 26.4M.   NY, in contrast has 19.6M people, but they only added 543.7K jobs.  Florida with 19.5K population was respectable at 726.1K,  Illinois with 12.8K people added 268.5 and Ohio with 11.6K added 308.4K.

California and Texas are running neck and neck in jobs created since the job recession ended.

California and Texas are running neck and neck in jobs created since the job recession ended.

What is the net effect since the jobs recession started?

This is where Texas shines. Since February 2008 when the jobs recession started, the net job gain has been 1,145M jobs. This far outpaces, the next highest state – New York at 250.7K. California has added only 186K and Florida has not recovered all the jobs lost. They are still short by -38.9K.

Overall, 24 US states are still in the negative with Illinois still shy by -138.2K.  Twenty seven states (including the Washington, DC) have net gains since 2008, but only 6 have added more than 100K including Colorado (+108K), Massachusetts (+106K), North Dakota (+107.6K – oil driven), California (+186K), New York (+251K) and Texas (1.145M).

If you live in Texas everything is bigger especially when it resolves around job gains.  No wonder Dallas Fed President, Richard Fisher is such a hawk.   He is the Bundesbank President in the United States.

The net change in jobs by state since February 2008

The net change in jobs by state since February 2008

November 21st, 2014 21:40:48 GMT

Forex news for November 21, 2014: Inflation wasn’t so ‘temporary’ in Canada

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Forex news for November 21, 2014:

The big news on the day came with most US traders fast asleep. China cut interest rates and Draghi talked about the ECB doing more.

In US trading, the dollar was bid throughout most of the session as stocks made a move.

FX ticker

FX ticker

Have a great weekend!

November 21st, 2014 20:54:11 GMT

The chart told the story in EUR/JPY yesterday

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On Friday, EUR/JPY fell the most in a year.

At the end of the day on Thursday, I pointed out (and here) the potential star pattern on the daily chart and that proved to be the warning sign. With a doji reversal like that you can never be totally sure but it played out like a textbook reversal today.

EURJPY daily chart

EUR/JPY daily

The thing is, a reversal like that with the bearish engulfing reversal can continue for a number of days. It’s painfully tough to sell EUR/JPY after a 250 pip fall but the technicals say it’s the right thing to do at the moment (or maybe on a pop in early trading next week).

November 21st, 2014 20:37:16 GMT

CFTC Commitments of Traders: Sterling and yen shorts pile in

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Forex futures market speculative positioning data from the CFTC Commitments of Traders report as of the close on Tuesday Nov 18, 2014:

  • EUR net short 169K vs short 164K prior
  • JPY net short 92K vs 83K short prior
  • GBP net short 23K vs short 13K prior
  • AUD net short 38K vs short 38K prior
  • CAD net short 20K vs short 22K prior
  • CHF net short 22K vs short 23K prior
  • NZD net short 1k vs short 1k prior

Finally a decent-sized move into yen shorts after it seemed like specs missed out on the big yen rally forever. Cable traders are starting to get the feeling that Carney isn’t going to hike any time soon, plus the UKIP worries.

November 21st, 2014 20:29:33 GMT

All hail the mighty loonie

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The Canadian dollar was the top performer this week while the languishing yen did its usual thing.

FX performance versus USD

FX performance versus USD

The gains are still riding the coattails of incredible Canadian jobs report early in the month. That was followed by better manufacturing numbers yesterday and a high CPI reading today.

I implore my Canadian brethren to use the currency strength to escape this frozen wasteland before it’s locked up like Buffalo.

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