July 2012 – Page 19 – InvestMacro Forex News

July 18, 2012

Wealth Gap Investing: Nordstrom (NYSE: JWN) Staying Strong

Considering that Nordstrom (NYSE: JWN) executives are already plotting their moves well into 2018, they seem confident that their popularity isn’t going anywhere.

Most Americans believe that retailers are struggling right now. And they have good reason to think that way, with all the dismal jobs report numbers in the news.

Everyone knows that Americans without jobs means Americans without cash to burn on all of those little and not so little extras in life.

For many, it’s difficult to justify an additional bottle of soda, that bag of Oreos or a set of sirloin steaks at the grocery store without some additional cash readily available. It’s tough to throw maturity to the wind and buy a $59.99 blouse, another completely unnecessary power tool, or new kitchen cabinets when it’s a fiscal headache just balancing each month’s bills.

So it’s completely understandable if average investors feel uncomfortable putting their money into the retail sector.

But one company is showing that wealthier Americans, at least, are still shopping luxuriously – Nordstrom Inc. (NYSE: JWN).

And it’s the latest example of how investors are being rewarded for sticking to the furthest ends of the luxury-discount spectrum. (For more about “Class Warfare” investing, check out Carl Delfeld’s article from last October.)

Keep in mind that nationwide discount chains like Dollar Tree (Nasdaq: DLTR) and Dollar General Corporation (NYSE: DG) are also doing very well. Both are showing rapid growth, rising stock and continuing profits – for the precise reason that economic issues are still weighing heavily on the lower classes.

But that’s no reason to avoid retailers that cater to the crème de la crème among us. As Nordstrom shows, vanity pays… quite nicely, in fact.

Don’t Discount This High-End Retailer

A plain and simple pair of beige, low-heeled, women’s Jimmy Choo shoes for $525.00.

A single pair of men’s Todd Snyder wool trousers for $385.00.

La Mer moisturizing cream for $265.00 a bottle.

Ray-Ban sunglasses for $210.00.

It’d be the easiest thing in the world to look at Nordstrom as one of the worst possible places to park money in during tough economic times. Yet somehow and someway, the high-end, nationwide chain is one of America’s fastest-growing retailers right now.

Its spread of holdings includes Nordstrom department stores, off-price Nordstrom Rack retailers, both Jeffrey and treasure&bond boutiques, and Last Chance clearance stores, along with the shopping it offers online, of course. And apparently, the larger company knows how to manage those properties, because it keeps consumers clamoring for more…

In 2008, Nordstrom Inc. added 10 stores, and in 2009, it completed another nine. For 2010, it pulled off a whopping 12 new fully functional locations and by the end of last year, it beat that already impressive number to add 14 stores, for a total of 225 across the country.

And the vast majority of them make a great deal of money, giving the larger business an enviable bottom line…

Vanity is Paying a 2% Dividend…

Looking back over Nordstrom’s last few fiscal years, it quickly becomes apparent that the company is doing just fine despite the reoccurring waves of negativity washing over so many other retailers every few months.

In 2009, Nordstrom made a gross profit of $3.2 billion and operating income of $834 million. It raised both the following years to $3.8 billion and $1.1 billion, respectively. And for its fiscal year ending on January 27, 2012, the company proved its worth yet again with a profit of over $4.2 billion and operating income of $1.2 million.

For its first quarter this year, analysts predicted earnings of $0.75 a share. And while Nordstrom fell five cents below that, net earnings still rose 2.9% compared to the same time the previous year.

In other words, it’s still growing.

For that matter, it continued growing even in June, a month that had most other American retailers – including rival Macy’s (NYSE: M) – discounted and disheartened. Not Nordstrom though: Its same store sales grew 8.1% over the previous five-week period.

The company’s stock reflects those positive results. Since its low in 2008, it seems set on hitting a new record, climbing ever so steadily towards the $45 mark it originally breached early in 2007. It also pays a 2.1% dividend and looks to have plenty of room to increase that number with a 30% payout ratio.

A look at its price progression over the last two or five years shows a company that can take the hits and rise right back above them before long.

Considering that Nordstrom executives are already plotting their moves well into 2018 – particularly with a much-awaited grand opening in New York City – they seem confident that their popularity isn’t going anywhere. And neither are their profits.

Good Investing,

Jeannette Di Louie

Article by Investment U

July 18, 2012

The India Fund: Best Emerging Market GARP Play of 2012?

Article by Investment U

Emerging market stocks rallied strongly this year in the first quarter. (You can get an easy snapshot by following the iShares MSCI Emerging Market Index (NYSE: EEM). But with increasing evidence of an economic slowdown in the United States and Europe, they sold off hard in the second quarter.

That has created an attractive opportunity for global investors, especially those aware of intriguing developments in the world’s second-most-populous nation. Let me explain…

Asia, Latin America and Eastern Europe are primarily export markets. That makes them sensitive to economic softness in the developed world since these are end markets for many of their raw materials, natural resources and manufactured products.

At current levels, emerging markets represent compelling value. They’re home to the world’s fastest growing economies, but their stock markets also sport the world’s lowest valuations. For instance, the average stock in the United States currently sells for 12 times earnings. In Japan, it’s the same. In Europe, it’s 10 times earnings. But the average stock in the MSCI Emerging Markets Index sells for less than nine times earnings.

One of the most promising of these markets is India. Bear in mind, India has been growing at 7.4% a year for the last decade. And there are good reasons to believe this growth will remain strong, even if Europe and the United States start to fade.

Unlike China, India is an economy that thrives on domestic consumption. And that consumption will only rise in the years ahead. In fact, India is expected to overtake China as the world’s largest population by 2030. It also has one of the youngest populations among emerging market nations. Nearly half of its citizens are under 25.

Seventy percent of India’s population is rural. But better jobs and pay can be found in the nation’s urban areas. Economists estimate that the movement of labor from agriculture to manufacturing and services will add 1% to growth annually.

Plus, India is the world’s fifth-largest oil importer. With oil prices down more than 20% this year, this is likely to improve both Indian economic growth and profit margins.

The government in India, traditionally plagued by bureaucratic inefficiency, is taking positive steps, too. In May it cut in half long-term capital gains taxes on private equity investors while simultaneously postponing the implementation of new tax laws for at least two years. The Reserve Bank of India is poised to lower interest rates, as well.

This is one of the world’s great development stories, yet most Americans have little or no money invested here. Get invested, but skip the many opened-ended mutual funds that invest in this region and buy a good quality closed-end fund like The India Fund (NYSE: IFN) instead.

Why? For starters, the fund is currently selling at a 13% discount to its net asset value, near the high end of its range. (For example, the fund sold at just a 2% discount only a few months ago.) And the fund’s expense ratio is a reasonable 1.3%. Open-end funds like the Dreyfus India Fund (DIIAX), Goldman Sachs India Equity (GIAAX) and Wasatch Emerging India (WAINX) have average annual expenses that exceed 2%.

In short, emerging markets are poised for dramatic growth. India, in particular. The India Fund gives you broad exposure to one of the cheapest and most-promising markets in the already-cheap emerging market universe.

Good Investing,

Alex

Article by Investment U

July 18, 2012

More finance not always better – BIS paper

By Central Bank News

If credit and finance helps businesses grow, it follows that a country should encourage a vibrant and large financial sector. That, at least, was the logic behind the wave of financial deregulation that swept through advanced economies in the 1990s.

But with the repercussions of the 2008 financial crises still reverberating, economists are starting to question that belief with some concluding that finance can indeed become excessive and this has a negative effect on growth.

The latest contribution to this debate comes from the Bank for International Settlements (BIS), with a working paper that concludes that at low levels, such as in developing economies, a large financial system can spur faster growth in productivity.

“But there comes a point – one that many advanced economies passed long ago – where more banking and more credit are associated with lower growth,” wrote BIS chief economist Stephen Cecchetti, and BIS staff economist Enisse Kharroubi in “Reassessing the impact of finance on growth.”

The financial sector becomes a drag on growth when private credit exceeds a country’s total output or when more than 3.5 percent of workers are employed in the financial sector, the paper finds. Close to 5 percent of all workers were estimated to have been employed in the U.S. financial sector prior to the financial crises.

The paper also finds that faster growth in finance is bad for overall growth, a finding that leads the authors to conclude that financial booms are inherently bad for a nation’s trend growth.

The authors admit that at first, the conclusions are surprising. However, after closer scrutiny, they realize the consequences of financial booms mirror the dotcom boom of the 1990s when investors threw money at internet start-ups.

“It is only when they crash, after the bust, that we realise the extent of the overinvestment that occurred. Too many companies were formed, with too much capital invested and too many people employed. Importantly, after the fact, we can see that many of these resources should have gone elsewhere,” the paper said.

The theme of an excessive finance was also explored in the recent IMF paper “Too Much Finance?” which also suggested that finance starts having a negative effect on growth when credit to the private sector reaches 100 percent of GDP.

The understanding that a financial sector can become excessive is not only important for advanced economies but also for emerging economies that are trying to develop their own financial industry and markets.

“In their quest for optimal financialisation, the countries that are attempting further deregulation and development of financial markets would benefit from an understanding of how excess financialisation manifests itself,” said Y.V. Reddy, former governor of the Reserve Bank of India, in last month’s Per Jacobsson lecture in Basel, Switzerland.

The experience of advanced economies may thus help developing economies avoid the negative consequences of an excessively large financial sector.

“Research has associated higher growth with the development of the financial sector, but more recent evidence on trade-offs between growth in the real sector and the financial sector is equivocal,” Reddy said.

www.CentralBankNews.info

July 18, 2012

Pre-Crime Becomes the Authoritarian Reality

By Robert Folsom

The 2002 sci-fi movie Minority Report had a memorable plot: In the not-too distant future, the government has the ability to foresee acts of crime. In turn, law enforcement efforts have shifted from investigation to prevention.

If you saw the movie you probably recall that, because the cops know who the criminals will be, they arrest and convict perpetrators before they commit their crimes.

Great idea for a storyline — and for a crime-free world, if it could be so.

Yet think with me for a moment about a “what if” scenario.

Instead of omniscient foreknowledge, let’s suppose you could have the next closest thing: A system of “pre-crime” prevention that was 99.99% accurate — a tiny fraction short of perfect.

Would you want to live in that world? Or, if you were given the power to incorporate this near-perfect (.01 margin) system in society, would you do it?

Let’s take “what if” a step further. If you (or anyone) did impose the 99.99% pre-crime system on society, we can make credible estimates of what the .01 margin of error would include.

As we’ll see in a moment, a pre-crime predictive model in today’s world would seek to thwart terrorism. Governments would deploy it in transportation hubs around the globe. Millions of people would be screened each day.

If one person in every million is a terrorist, here is what our 99.99% model will do: Catch the one real terrorist in that million — and, also, arrest and convict 99 other INNOCENT individuals for that same crime.

Oops. Well, that’s .01 percent for you. Sucks to be one of them. Check my math if it’ll make you feel better.

This exercise reveals a counter-intuitive truth. But the math is simple. And it’s not exactly a stunning insight on my part. Any professional working on a big-data predictive model understands this problem. It’s known as the false positive paradox. That same professional also would be aware that to attain a 99.99% reliable forecasting model is as farfetched as the foresight depicted in Minority Report.

Not that any of this has deterred the Department of Homeland Security, which today is developing what it calls the “Predictive Screening Project.” According to its website, the program

“aims to derive observable behaviors that precede a suicide bombing attack and develop extraction algorithms to identify and alert personnel to indicators of suicide bombing behavior. The potential operational benefit is the increased ability to interdict Improvised Explosives Device (IED) threats further from the checkpoint with fewer resources.”

So if Homeland Security is not deterred by the false positives, the question becomes: Why not?

For starters, they know just how far law enforcement has already gone in recent years, in the shift from investigation to prevention — which is to say, a pre-crime mindset is already in place…

… As are pre-crime practices by law enforcement. The NYPD’s stop and frisk policy I described in the May 8 Social Mood Watch is all about prevention, as Police Commissioner Raymond Kelly has said repeatedly. To be clear, cops on the street don’t arrest (much less convict) every individual they stop and frisk. But the NYPD does accept an extraordinarily high number of false positives in order to apprehend a comparatively low number of lawbreakers.

Would Homeland Security’s big-data model be any different?

This pre-crime orientation is the perfect field of battle for the authoritarian and anti-authoritarian trends now unfolding in a time of negative social mood.

Other examples of the shift toward “pre-crime,” you ask? There are so many that in coming weeks I’ll be writing from a literal list (next up: The Supremes on Strip Search). Stay tuned.

Alan Hall’s landmark Authoritarianism article from the April 2010 Socionomist is still available online, and you can follow this link to read it absolutely free.

Andrea Dibben contributed research.

If you would like to receive the best of Social Mood Watch and other free socionomics content each week, sign up here.

This article is syndicated by The Socionomist, a publication of the Socionomics Institute, and was originally published under the headline Pre-Crime Becomes the Authoritarian Reality. The Socionomist is designed to help readers understand and anticipate waves of social mood. Copyright © 2012 Socionomics Institute.

July 18, 2012

Jeremy Grantham’s Top 5 Dividend Stocks

By The Sizemore Letter

If you don’t know who Jeremy Grantham is, you should. In fact, once you finish reading this article, you should drop whatever else you are doing, go to his website, and read his latest quarterly letter. Make it a habit to read every quarterly letter as they come out; you’ll be a better investor for it. (While you’re at it, make it a habit to read his colleague James Montier’s work as well; Montier’s writing on behavioral investing is some of the most insightful I’ve ever seen.)

Grantham is the chief investment strategist of Grantham Mayo Van Otterloo (GMO), an investments firm with more than $100 billion under management. He’s also one of those rare managers who is not afraid to be a voice in the wilderness. Virtually alone among large money managers, Grantham steadfastly refused to get caught up in the 1990s tech bubble. His principled stand lost him nearly half his assets under management due to client defections, but those that stuck with him did well in the bear market that followed.

A decade later, he voiced concerns again about bubbles forming in the real estate and financial sectors…and we all know how those turned out.

But lest anyone accuse him of being a “perma bear,” Grantham was pounding his fist on the table immediately after the 2008 meltdown telling investors to buy when everyone else was too terrified to move.

Suffice it to say, this is a guy who has had a good grasp on the market conditions of the past several years. He’s someone you ought to listen to.

With that said, let’s take a look at Mr. Grantham’s top five stock holdings as of his firm’s SEC filings, as reported by GuruFocus.

Stock	Ticker	Current Price	Dividend Yield
Microsoft	MSFT	$30.21	2.7%
Johnson & Johnson	JNJ	$69.03	3.6%
Philip Morris International	PM	$88.99	3.4%
Pfizer	PFE	$23.60	3.8%
Coca-Cola	KO	$76.91	2.7%

As a demanding value investor, it is not at all surprising to see that all five of Grantham’s top holdings pay dividends far in excess of the market average of approximately 2%.

It’s also not at all surprising to see that his holdings are serial dividend growers. After all, for long-term investors, the dividend today is far less important than the dividend 5 years from now.

Coca-Cola ($KO) is the second-largest holding of my favorite ETF, the Vanguard Dividend Appreciation ETF ($VIG), and Microsoft ($MSFT) and Philip Morris International ($PM) will likely be holdings as well once they meet the time requirements. (In order to be included in the ETF’s underlying index, a stock must have a minimum of ten consecutive years of dividend increases. Microsoft started paying a dividend in 2003, and Philip Morris International was spun off from parent Altria less than four years ago.)

The real king of dividend growers is Johnson & Johnson ($JNJ), however. This iconic maker of Band-Aids, Tylenol, Listerine, and too many other health and pharmaceutical products to list has raised its dividend for an astonishing 49 consecutive years.

The last year in which Johnson & Johnson failed to raise its dividend, John F. Kennedy was the President of the United States. Stop and think about that for a minute.

The only stock in Grantham’s top five that has cut its dividend in recent years is Big Pharma giant Pfizer ($PFE), which has been hard hit by the patent expirations and competitive forces that have affected its rivals.

Big Pharma has done quite nicely in 2012, however, and Pfizer currently trades near its 52-week highs.

There are no guarantees that owning a basket of Mr. Grantham’s largest stock holdings will beat the market, of course. There are plenty of years in which his portfolios underperform the market by a wide margin, particularly “risk on” years in which investors throw risk tolerance to the wind.

Still, if you are looking for a portfolio of solid dividend payers for steady, consistent returns, Mr. Grantham’s stocks are worth a good look.

Disclosures: Sizemore Capital is long MSFT, JNJ and VIG. Sizemore Capital recently sold its holdings of PM.

July 18, 2012

Midweek Market Outlook

By TraderVox.com

Tradervox.com (Dublin) – The dollar has declined against major currencies as weak US data continued to be published during the first few days of the week. Today, US building permits and the UK MPC Meeting minutes are the main reports awaiting the market.

However, the Fed Chairman Ben Bernanke continues with his testimony before a Senate Banking Committee in Washington. This will be a closely monitored event as investors and analysts look for any indication on future possible measures to stimulate the US economy. Still staying in the US, the market will be given the US building Permits report, which is expected to show a decline of 0.2M from the 0.76M registered previously. However, some good news will be in the Housing Starts report which is expected to show a rise of 0.3 M. Another eagerly awaited report will be the US Beige Book which is used by the FOMC to make interest rate decisions. The US crude oil inventories will be another report that will affect the market today. The report is expected to show a figure of negative 4.7M which is similar to last month’s figure.

Investors and analysts will also be looking at Canada where some reports are expected to catch the markets’ attention. First, the Bank of Canada monetary policy report will be released; this is expected to provide insights on the banks stand on inflation and monetary policy. After this, the BOC press conference will be another important event for the market participants.

There will also be an eye on Great Britain where the Claimant Count Change report will be released. There is an expectation of reduction in this figure to 7,400 from 8,100 registered last month. The eagerly awaited monetary policy committee meeting minutes are expected to show how economic conditions influenced on BOE’s interest rate decisions. Remaining in Great Britain, the Unemployment Rate data will be released where a figure of 8.2 percent is expected; this is the same as the last three months. Finally, the average earnings Index is expected to remain at 1.4 percent.

Disclaimer
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July 18, 2012

Central Bank News Link List – July 18, 2012

By Central Bank News

Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list is updated during the day with the latest news about central banks so readers don’t miss any important developments.

BOJ opens door to negative rates by ending yield floor (Bloomberg)
Japanese, Korean banks face scrutiny over interest rates (Bloomberg)
Fed likely to ease by September: Goldman (CNBC)
Bank of England mulled 75 bn pound boost for UK economy (The Telegraph)
Minutes of BoE meeting held 4 & 5 July 2012 (Bank of England)
Tunisia assembly to back out sting of central bank governor:sources (Reuters)
Policy rate alone not responsible for slow growth:Subbarao (Indolink)
Poland shouldn’t rush to lower interest rates, Kasmierczak says (Bloomberg)
www.CentralBankNews.info

July 18, 2012

Gold “Saddled with Uncertainty” Over QE, Bernanke Tells Lawmakers to “Deal with Fiscal Issues”

London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 18 July 2012, 07:30 EDT

WHOLESALE MARKET gold prices ticked lower Wednesday morning in London, dropping below $1580 an ounce, while stock markets and commodities were broadly flat and US Treasuries gained, as markets continued to digest yesterday’s testimony to Congress by Federal Reserve chairman Ben Bernanke.

Like gold, silver prices also eased, falling as low as $27.04 an ounce in Wednesday morning’s London trading.

A day earlier, gold prices fell 1% in an hour on Tuesday after Bernanke began his testimony. Although the Fed chairman said monetary policy is “still on a loosening cycle”, there was no clear mention of a third round of asset purchases, known as quantitative easing.

“The bull camp in gold wanted to see more quantitative easing,” says a note from CME Group.

“[But] seeing the US economy hold together might keep broad based risk-off deflationary selling interest from resurfacing in the near term.”

“We suspect that the short-term outlook for the precious group will be somewhat lower from here,” adds INTL FCStone analyst Ed Meir.

“While easing may be expected, investors are still saddled with the uncertainty of not knowing exactly when such an order will be given.”

“Monetary policy is kind of at its end right now,” Bernanke told US lawmakers yesterday.
“What will be needed to make it more effective is that fiscal issues need to be dealt with.”

The Fed chairman said that the so-called “fiscal cliff” – the combination of tax hikes and spending cuts currently due to come into effect at the start of 2013 – risks “negative effects likely to result from public uncertainty about how these matters will be resolved”.

“The recent downshift in economic data,” says a note from Swiss refiner MKS, “may suggest that there will be steady pressure on the Fed to provide additional monetary accommodation.”

Bernanke also said that in 2008 the New York Fed “informed all the relevant authorities” in the US and UK about suspicions it had that the interbank interest rate Libor was being manipulated. Bank of England governor Mervyn King however told UK lawmakers Tuesday that he first heard about alleged wrongdoing two weeks ago.

Bernanke is due to give further testimony to Congress today when he appears before the House Financial Services Committee. This will be the last chance Ron Paul has to quiz the Fed chairman, with the Texas Congressman due to retire from Congress in December.

Here in London, the Bank of England’s Monetary Policy Committee voted seven-to-two in favor of the decision to increase quantitative easing by £50 billion to £375 billion, minutes from this month’s MPC meeting published Wednesday show.

The minutes also show the MPC discussed cutting the Bank’s main policy interest rate below its historic low of 0.5%, where it has been since March 2009. MPC members, the minutes say, will review this idea once the impact of the new Funding for Lending scheme – valued at around £80 billion – has had time to be assessed.

UK unemployment meantime fell to a nine month low of 8.1% in the three months to May, according to the International Labour Organization figure published Wednesday.

“Unemployment has been limited in recent months by an increase in people working part-time, more people becoming self-employed and restrained earnings growth,” says Howard Archer, economist at consultancy IHS Global Insight.

“The big question is can the labor market remain resilient given the economy’s ongoing weakness.”
Over in China, the Shanghai Gold Exchange has drawn up a draft proposal that would see precious metals trading expanded to include the country’s interbank market, Dow Jones Newswires reports.

The move would enable banks to trade gold and silver contracts over-the-counter through market makers rather than through exchange pricing on the SGE.

“A market-maker system and more new products in gold will help increase liquidity, which is badly needed in China’s gold market these days,” says an unnamed head of precious metals trading quoted by Dow Jones.

China has overtaken India in recent months as the world’s largest source of gold bullion demand.
In the UK, CME Group has said it plans to offer a clearing service for OTC silver bullion forward contracts traded in London.

The gold mining industry meantime is failing to make sufficient new discoveries of gold to keep pace with production, consultancy Metal Economics Group reports.

“The amount of gold available for production in the near term is likely far less than has been found [in recent years],” says MEG, citing factors such as political instability, declining ore grades and rising costs.

Ben Traynor
BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

July 18, 2012

Aussie Up on Bernanke Testimony as Kiwi Drops on Whole Milk Prices

By TraderVox.com

Tradervox.com (Dublin) – The Australian dollar increased to its highest level in two weeks after Federal Reserve Chairman Ben S. Bernanke indicated that the central bank is prepared to take measures to stimulate the US economy, raising speculation the Fed will add stimulus. The Aussie also continued with its three-day advance against the greenback after the Nation’s leading economic indicator jumped to the highest level last seen in August. However, the New Zealand dollar halted its two day advance after report from Fonterra Cooperative Group Ltd indicated that the prices of whole milk dropped in a second straight auction.

According to Mike Jones, a Currency Strategist in Wellington at Bank of New Zealand, the continued speculation about the third round of quantitative easing has sparked a demand for the Australian and New Zealand dollar even though for the short term. These speculations, which were sparked by Bernanke’s comment as he responded to questions from the Senate Banking Committee, have led to riskier asset demand. Bernanke is expected to continue with his testimony today where more information about stimulus measures might be revealed.

According to a report released by the Westpac Banking Corp and Melbourne Institute today, the Australian leading economic index rose to the highest level in almost a year. The index, which measures future economic growth, showed an advance of 0.8 percent in May to record a reading of 282.5 points. The statement from Bill Evans, who is the Chief Economist at WBC indicated that growth in the second half of the 2012 and that of 2013 will have a improving tempo. He also stated that the monetary authority might keep the current policies for few months following the strong growth registered in the first quarter.

After the publishing of the statement, the Australian dollar rose to $1.0326, which is the strongest it has been since July 5. It had climbed by 0.7 percent yesterday to trade at $1.0316.

On the other South Pacific country, bad news from Fonterra Cooperative Group Ltd led to a decline in the demand for the New Zealand dollar. The kiwi slid against the greenback by 0.2 percent to trade at 79.67 US cents.

July 18, 2012

Delayed Ruling in Germany may Weaken Effects of ECB Measures

By TraderVox.com

Tradervox.com (Dublin) – Germany’s Federal Constitutional Court in Karlsruhe is set to rule of bids to stop Germany from participating in the permanent bailout fund in eight weeks according to an email statement released yesterday. Investors and analysts have indicated that this might have a detrimental effect on the region despite the efforts by the ECB to lower interest rates. The European Stability Mechanism, which is the permanent bailout fund for the euro zone has been the center of debate and some countries other than Germany have expressed their discontentment with the decision which was made by the EU Summit.

According to the Government Spokesman Steffen Seibert, the Federal Constitutional Court held comprehensive hearing on the matter and will need some time to make a decision. However, Finance Minister Wolfgang Schaeuble had warned against a long delay in making a decision saying that it could lead to worsening of the debt crisis in the region. But Germany’s Chancellor Angela Merkel has reiterated that Germany will not agree with joint debt suggestions proposed by French President Francoise Hollande. In an Interview on Monday, Merkel did not give any grounds for her demands for centralized control over the euro members. However, she said that efforts to bring on solidarity without supervision will not succeed.

The euro has remained down against major currencies as the situation in euro zone continues to take more victims. Investors have continued to seek safe haven currencies hence reducing Germans two-year bond yields to a record of negative 0.052 percent. The decision by the FCC has come a day before the German lawmakers return to Berlin to vote of disbursement of loans to Spain amounting to 100 billion Euros. Efforts to bailout Spanish banks and the sovereign took a new turn after Spanish Prime Minister announced 65 billion euros in tax increases and welfare cuts to help shield the country. Angela Merkel has said that the loans will not be given without condition hence there is expectations of delays in the disbursement and utilization of such loans.