October 2012 – Page 11 – InvestMacro Forex News

October 23, 2012

Japan Require Additional Stimulus To Support Growth According to Maehara

By TraderVox.com

Tradervox.com (Dublin) – Seiji Maehara, the Japanese Economy Minister, have indicated that the country needs additional stimulus and policy efforts to boost growth prior to the nations election where the opposition has gained greater public support. In an interview at Fuji Television, Maehara indicated that the government intends to inject 200billion yen in the economy. He also pointed out that the fiscal spending for the year includes 910 billion yen stimulus programs which require parliament approval, indicating that 400bilion is for the earthquake recovery. Maehara further noted that there are fiscal-easing moves around the world and Japan has fallen short on the monetary basis.

The Japanese government lowered its economic forecast for the third month straight on October 12, making this the longest stretch of declines since 2009. The Prime Minister Yoshihiko Noda ordered the cabinet to draw up a strategy on introducing stimulus by next month as the government pushes the Bank of Japan to intervene. According to Masamichi Adachi, a senior Economist in Tokyo at JPMorgan Securities, the push by the Prime Minister to instigate stimulus plan has increased speculation that the Bank of Japan will add stimulus in the coming meeting on October 31.

Adachi also noted that there is added pressure on the Bank of Japan to add stimulus. In a report to investors, Adachi indicated that the central bank will probably add 10 trillion yen. The Japanese Prime Minister met with the Liberal Democratic Party leader and the New Komeito leader as they agreed on legislation to double the 5 percent sales tax and an early election. Maehara however noted that the elections will not necessary come next year. He added that the election might be announced this year as Noda always keeps his promises. Noda seeks to add sales tax in order to reverse a decade of deflation which is projected to dampen consumption.

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October 23, 2012

Rajoy Wins Spanish Election; The Market Waits For Bailout Move

By TraderVox.com

Tradervox.com (Dublin) – Spanish Prime Minister Mariano Rajoy won the elections in region of Galicia held on October 21, extending the majority in the region. Rajoy’s party won 41 out of the 75 seats in the regional assembly as socialists relinquished almost half of their votes in the region. A New Leftist party won nine seats. Rajoy’s party could not secure enough seats in Basque Country where its support is normally weak. The Basque Nationalist Party secured 27 seats in the region allowing it to form a coalition government with other parties.

Economists are expecting Prime Minister Mariano Rajoy to decide on whether to seek bailout from the European Stability Mechanism in order to spark the bond-buying process from the European Central Bank. However, the Prime Minister had indicated last week that the country is under no pressure to seek bailout, quelling speculations that the country will request bailout soon. Rajoy’s efforts together with French President Francoise Hollande, have been met with great opposition from German Chancellor Angela Merkel who is opposed to establishing a banking union in the region. Germany and France are enjoying low benchmark yields as other peripheral nations together with Italy and Spain, the third and fourth largest economies in the euro region, have experience a high borrowing cost.

With another election to be held on November 25 in Catalonia, Prime Minister Rajoy is expected to hold his request for bailout. According to Ken Dubin, a political scientist in Madrid at IE Business School, the Prime Minister might withhold his request for some few weeks to show that they were not waiting for election. The win has been construed my many investors to mean that Spaniards are supporting Rajoy’s austerity measures. Catalan vote is expected to be held on November 25 when Rajoy’s leadership will be tested. According to Gilles Moec, a Chief Economist in London at Deutsche Bank, the Prime Minister should request for bailout before the Catalan elections as the market will react negatively to another nationalist win.

October 23, 2012

Market Review 23.10.12

Source: ForexYard

The US dollar remained within reach of a three-month high vs. the JPY during overnight trading, as expectations that the Bank of Japan will soon institute a new round of monetary easing weighed down on the yen. The EUR/USD fell close to 50 pips during the Asian session as concerns regarding when Spain will formally request a bailout package kept the common currency below its recent one-month high. Meanwhile, the price of crude oil continued to fall last night as concerns regarding a slowdown in the global economy generated supply side fears. The commodity, which is currently trading at the $88.30 level, has fallen close to $3 a barrel in the last 24 hours.

Main News for Today

Canadian Overnight Rate- 13:00 GMT
• The Canadian dollar has taken significant losses against the USD in recent days
• While the Bank of Canada is expected to keep interest rates at 1.00% today, any surprise moves could result in heavy volatility for the USD/CAD

Profiting From Babies With a Government Budget Surplus

By MoneyMorning.com.au

Imagine running an organisation where you decided what your expenses and revenues would be. Where all you had to do to raise another billion was vote on it or issue a decree. And your performance only mattered every three years.

Australia’s Treasurer, supposedly the world’s best, finds himself in just that situation. But you’ll never guess how he’s decided to keep his organisation profitable.

Actually, you’ll already know. It’s been all over the news. The government has cut the baby bonus from $5000 to $3000 for the second and subsequent children families have.

Wayne Swan is profiting off the back of babies. And unborn ones at that! Worst of all, he’s picking on the younger siblings.

It’s quite a clever ruse, really. Babies, especially unborn ones, don’t vote.

But it’s not just the government that can profit from this change. The editorial team here in the office was always one step ahead of the Treasurer. Knowing Australia’s fiscal position was about to become dire, several colleagues went off and multiplied.

The good news is that every newborn will make the cut-off for the $5000 baby bonus. Sadly, their parent doesn’t seem to come out for Friday afternoon drinks with their cash windfall.

If you don’t believe that this was a tactical move on the part of our clever editors, consider that three of the happy parents had, or are about to have, their second child within the cut-off date. That’s $6000 less in savings for Wayne Swan’s Budget.

We’re not sure if we’re licensed to give financial advice about making babies, but you’re certainly cutting it close if you want to outsmart Wayne Swan and his July 1st cut-off date. Good luck.

Governing at a Profit

You’re probably wondering why we’re not singing praises for the government’s commitment to responsible finances. Well, it’s not because we’re a one-sided two-faced political hack. We’re no-sided. Neither side would take us.

So we’re left with logic and reason to try and justify what we think, not just a political label which entitles us to support or ridicule. But given our support of sound money, surely we should cheer a budget surplus. So why isn’t the government’s budget surplus a good thing?

Perhaps because it’s too small? Nope, only in the minds of politicians and journalists is $1 billion too small. Imagine what you could do with your share — about $50.

Maybe the surplus is pathetic because it’s imaginary? As Wayne learned the hard way these past months, a budget surplus can disappear when it comes time to tally the numbers at the end of the year. But that’s true of any budget.

No, what’s wrong about governing at a profit is the underlying idea. There’s something wrong about telling people what they’re allowed to keep. And what they’re allowed to get. And then claiming to keep the difference on their behalf. It’s almost as bad as running up debts on their behalf.

In a world where government has these powers, do you really own anything? If the government can decree how much of your income you get to keep, do you really own that income in the first place? Or are you working and letting your ruler determine what cut you’re allowed to keep?

Do you want to live in a world where the ruler is allowed to decree policies like ‘thy second and subsequent child shalt be worth 3/5^ths the value of the first to the state’? If they can decide that, what else can the government fiddle about with?

When it comes to seemingly good ideas like the baby bonus, keep in mind the government is only giving back to parents what it takes from them in the first place in the form of taxes. With a cut skimmed off the top for bureaucratic costs of course. Not to mention bribes for foreign government officials, which are probably quite expensive.

The Only Winners from the Government Gravy Train

You have to wonder how much the cost of government could be reduced if people just had one net payment rather than paying taxes, fines, fees, and then getting grants, subsidies, baby bonuses and the rest of it.

But that would destroy thousands of paper shuffling jobs. And one heck of a voting bloc…which works for the people it’s voting for. Conflict of interest anyone?

The main reason a ‘net payment system’ will never happen is that politicians form bonds with their voting blocs based on the cash they dish out.

Parents need help.

Farmers are too important to leave to themselves.

The car industry is a crucial component of our economy.

Pretty soon everyone gets their cut of the government gravy train, not realising they’re paying for everyone else’s cut at the same time. The only ones left benefiting from the confusion and complexity are politicians and their bureaucratic armies.

Thinking selfishly, why is it that childless newsletter writers never seem to get subsidies?

Anyway, as for the recent budget changes, it’s not just unborn younger siblings the government is making money off. Some changes to the government’s biggest ruse, Superannuation, are providing ‘savings’ too.

The Australian Tax Office will be allowed to confiscate ‘inactive’ super accounts with balances less than $2,000. Part of the definition of ‘inactive’ is an account to which there has been no contributions in the last 12 months.

The previous rule only allowed the ATO to raid the money if the ‘inactive’ accounts had less than $200 and there had been no contributions for the last five years. The rule change could net the government an extra $900 million. Suddenly a billion dollars isn’t so small, right?

A little super here…a little there…and pretty soon you’re talking real free money for the government. Kris Sayce has written about the government’s ‘super theft’ for years. He’s continuing to write about it in his new free e-letter, Pursuit of Happiness.

Two weeks ago Kris said ‘super theft’ would be one of the big stories of 2013. It looks as though the big story is taking place sooner than that.

And in tomorrow’s issue of Pursuit of Happiness, Kris will cover the subject in more detail. To subscribe to his new FREE eletter, click here now…

Whether you’re saving for retirement or extensions to your family, the government is tightening the noose it has on you. It doesn’t matter if that’s for your own good, the noose shouldn’t exist in the first place. But it does. And you have to invest and run the rest of your life with that in mind.

We’ve just completed three reports on three ways you can do just that. The first makes you money. The second keeps it safe and takes advantage of a government policy in the making. And the third is about a more dramatic way to cut free altogether.

The reports should be available next week.

Nick Hubble
Editor, Money Morning

From the Port Phillip Publishing Library

Special Report:
After the Bust

Daily Reckoning:
NAB and Australian Banking is Oversized and Under Pressure

Money Morning:
Stock Market ‘Barometer’ Speaks: The Bulls Won’t Like it…

Pursuit of Happiness:
Start Your ‘One Dollar’ Saving Plan Today

Profiting From Babies With a Government Budget Surplus

October 23, 2012

Agricultural Commodities – The Best Way to Play Rising Food Prices

By MoneyMorning.com.au

I started writing about the ‘commodities supercycle’ back in 2002 or so. It was a pretty easy call at the time – prices had been in a bear market for 20 years, but the numbers coming out of China made it clear that it wasn’t going to last.

You didn’t need to know anything about mining or the mechanics of it to invest. All you needed to know was that the demand for most metals was greater than the new supply of them.

This was the age of the Chinese killer stat. Even by 2004, China was the largest consumer of zinc, tin, copper, wool and cotton. More than 20 Chinese cities were installing subway systems.

The country was in the process of building 50,000 miles of three-lane highway (about the same length as the entire US interstate network). There were a mere six cars per thousand people in China, versus 400 per thousand in the US.

By 2025, 70% of China’s population was to be urban – and they were to be living in 219 cities, each with more than a million inhabitants. And so on.

It isn’t so easy any more. You can still bandy about fantastic-sounding numbers, but with Chinese growth finally slowing, a good few predictions (such as the one that says that in 25 years Chinese demand for copper will be higher than all the copper mined in the world so far) are beginning to look more outlandish than likely.

Unofficial Numbers Tell a Tale in China

I’ve been warning of a slowdown in China for some time, but there isn’t much room for argument any more. The official figures now have growth at 7.4% and some, such as Marc Faber of the Gloom, Boom and Doom Report, suspect it may be more like 4%.

More telling are some of the non-official numbers. Komatsu’s sales of excavators to China fell by 43% year-on-year in August (marking the 16th consecutive monthly decline). If sales of excavators are falling, you can assume that activity in areas in which excavators operate is also falling. Goodbye supercycle.

But there might be one part of the sector that should be part of a long-term portfolio – soft commodities. A note from Standard Chartered points out that when Neil Armstrong looked back from the moon in 1969, he looked to three billion people. Now he’d be looking at seven billion.

And by 2020, that number is forecast to be eight billion (75 million new mouths a year). It might even rise from there before prosperity and urbanisation stabilise things. How’s that for “one giant leap for mankind”?

Not only are we getting more people, we are getting more middle class people. I’m more pessimistic than most about the idea that China can keep GDP growth at 7-8% plus forever (or even another year), but nonetheless, the fact that factory wages are rising at 15% a year suggests protein consumption is likely to keep rising.

Then there is Africa, which as the report points out has a population that is growing five times faster than that of China. It is also “the youngest in the world”, and boasts a fast-swelling middle class.

So demand is likely to keep rising. Yet at the same time, desertification and urbanisation are cutting into current land supplies; biofuels are interrupting the supply chain; and season of nasty drought is reminding us that agriculture consumes 70% of the world’s water.

Finally, it is worth looking at agricultural prices and remembering that they have not participated in the supercycle to the same extent as hard commodity prices: adjusted for inflation, key prices have still not reached their 1981 levels.

A Bull Market in Agriculture is Coming

According to Diapason Commodities Management, corn stands at only 45% of its 1973 highs, while beans and wheat are at less than 30% of theirs. Wool prices remain at a fraction of the one-time highs, and an onion farmer in Tasmania, says Standard Chartered, still only gets half the price per kilo that he got in 1980. How does that make sense?

I wouldn’t invest directly in prices of commodities; they are just too volatile to make sense for most investors and price rises in food markets are often self-correcting (wastage falls).

There is also scope to improve global yields. There has been no real green revolution in Africa, for example, and even in China things aren’t much better.

Take pig farming. Right now, says Jonathan Fenby of Trusted Sources, 55% of the world’s pigs live in China. However, 90% live in small pens. Add a little agribusiness into the mix and – while the pigs might not fancy it much – you would find yields rising and prices falling fast.

So instead of looking to invest directly, you are probably better off with companies that are involved in improving productive capacity.

Merryn Somerset Webb
Contributing Editor, Money Morning

From the Archives…

Why this Could be the Most Important Day of the Year for the Stock Market
19-10-2012 – Kris Sayce

A Back-Door Way to Invest in the Electric Car Industry
18-10-2012 – Kris Sayce

The Stock Market is Up, What’s Next?
17-10-2012 – Murray Dawes

Debt and Government Spending Means You Should Be Wary of this Stock Market
16-10-2012 – Greg Canavan

The Secret Investment to Buy When GDP Falls
15-10-2012 – Nick Hubble

Agricultural Commodities – The Best Way to Play Rising Food Prices

October 22, 2012

Sri Lanka keeps interest rate unchanged, as expected

By Central Bank News
The Central Bank of Sri Lanka kept its benchmark repurchase rate steady at 7.75 percent, as widely expected, as the pace of export growth had slowed moderately while the inflation rate was expected to remain in mid-single digit levels in the medium term.

The central bank, which has cut rates twice this year for a total of 75 basis points, said tight monetary policy continues to pay off, with private sector credit expansion easing further and the annual inflation rate dropping to 9.1 percent in September, down from 9.5 percent in August and July’s 9.8 percent.

Private sector credit growth fell to an annual rate of 28.7 percent in August, the first time since March 2011 it was below a 30 percent growth rate, the bank said.

Reflecting the global slowdown, the bank said Sri Lanka’s exports had decelerated moderately in the last six months but demand measures from this year had led to lower imports and a better trade balance.

In August, Sri Lanka’s balance of payments surplus hit $306 million and official reserves rose to $7 billion, the equivalent of 4.3 month of imports, the bank said.

Financial markets had widely expected Sri Lanka’s central bank to remain on hold following an interview with Reuters on Monday in which the bank’s governor said it seemed appropriate to keep the rate unchanged.

Although Sri Lanka’s inflation rate has eased, the central bank acknowledged that recent revisions to administered prices and uncertain global supply conditions kept short-term pressure on inflation.

“The tight monetary policy stance is expected to prevent second round effects of supply side factors entrenching into future inflation, and thereby help maintain inflation at mid-single digit levels over the medium term” the central bank said in a statement.

Last month the central bank lowered its 2012 economic growth estimate to 6.8 percent from a previous estimate of 7.2 percent. In 2011 Sri Lanka’s economy expanded by a record 8.3 percent.

In the second quarter, Sri Lanka’s Gross Domestic Product grew by an annual rate of 6.4 percent, down from 7.9 percent in the first quarter.

www.CentralBankNews.info

October 22, 2012

EURUSD pulled back from 1.3138

Being contained by 1.3171 previous high resistance, EURUSD pulled back from 1.3138, suggesting that a cycle top has been formed on 4-hour chart, and lengthier consolidation of the uptrend from 1.2042 (Jul 24 low) is underway. Deeper decline would likely be seen, and next target would be at 1.2900 area. Key resistance remains at 1.3171, only break above this level could trigger another rise towards 1.3500.

eurusd

Forex Signals

October 22, 2012

Gold-US Dollar Link in Question & Technical Setup

By Chris Vermeulen, TheGoldAndOilGuy.com

The $1800 per ounce level continues to be a major technical resistance area for gold. After hovering near $1800 recently, gold moved sharply away from that level last week to close at $1735 an ounce.

Despite that, more fund managers and analysts continue to point to a bright long-term future for gold prices. John Hathaway of the Tocqueville Gold Fund says gold will reach new highs within a year. He based his forecast, like many others, on the fact that negative real interest rates look likely to persist as Ben Bernanke and the Federal Reserve continue to print money.

Believe it or not, some mainstream analysts are also touting gold’s potential. Merrill Lynch analysts point to the correlation (discussed in a previous article) between the price of gold and the expansion of the Federal Reserve’s balance sheet since the start of QE1 in early 2009.

Based on the current path of the Fed’s balance sheet expansion, Merrill Lynch came up with two longer-term targets for the price of gold. They project gold to hit $2,000 an ounce next summer and to hit $2,400 an ounce by the end of 2014.

Another way to look at gold and the Fed is the so-called gold coverage ratio. That is the amount of gold on deposit at the Federal Reserve versus the total money supply. According to Guggenheim Partners, the gold coverage ratio is at an all-time low of 17%. The historical average is about 40%, meaning that gold would to more than double to reach the average.

Looking at the Fed’s balance sheet is a new and interesting way to look at and forecast gold prices. In the past, the conventional wisdom was that gold was merely an anti-dollar play: U.S. dollar down, gold up and vice versa. But that seems to be changing…..

Reuters had some interesting data. The value of the U.S. dollar net short position fell to $6.43 billion for the week ended October 9. This is substantially down from the previous week’s net short position of $16.3 billion. At the same time, the “managed money” net long gold position in gold futures rose to its highest level since August 2011. That was the time when gold hit its record high of $1,920 an ounce.

So much for conventional wisdom. Both currency and gold traders are seeing this long-term relationship between gold and the U.S. dollar breaking down into a “new normal” of direct central bank intervention into financial markets. Gold seems increasingly to be turning into more of a safe haven play than an anti-dollar one. It seems that more investors are worried about all fiat currencies that are burdened by huge debt loads.

The Technical Take…

Below is a daily chart of gold futures. Looking at the price levels and analysis you can see that a bounce or bottom could form at any time now. Price of gold has pulled back in a mini five wave correction touching both our first Fibonacci retracement level of 38% and the 50 day simple moving average. This is the type of pullback that longer term investors like to add to their long gold position. While gold does have the potential to fall all the way down to $1625, in the long run it should continue to rise for the long term investor.

From a trader point of view, it may be worth a stab to get long gold with a very tight stop, but until we see a real panic selling day in gold where volume is high I don’t think the final bottom is in yet.

You can get my weekly trading analysis and trade ideas here: www.TheGoldAndOilGuy.com

Chris Vermeulen

October 22, 2012

International bank lending contracts sharply in Q2 – BIS

By Central Bank News
International bank lending fell sharply in the second quarter of 2012 as major banks continued to reduce their exposure to financial institutions in advanced economies, especially in the euro area, the United States and the UK, the Bank for International Settlements (BIS) said.

Meanwhile, globally-active banks continued to extend credit to borrowers in the Asia-Pacific region and Latin America. Second quarter lending to Asia-Pacific rose by $25 billion and by $5 billion to Latin America. However, loans to Africa and emerging Europe declined by a total of $26 billion from the first quarter.

Preliminary data for international bank lending showed that total cross-border claims of major banks reporting to the Basel-based BIS fell by $596 billion, or 1.9 percent, to $29.4 trillion, a sharp contrast to the first quarter when international lending rebounded after a plunge in the fourth quarter of 2011.

But while credit to financial institutions, including those in offshore centers, dropped by $609 billion in the second quarter – the fifth largest quarterly fall ever recorded by the BIS – banks continued to extend credit to non-banks with claims up by $27 billion in advanced economies and up by $2 billion to emerging economies.

Figures that exclude inter-office lending and risk transfers also show a continued decline in the exposure of banks to other banks, especially in the euro area, BIS said.

The total exposure of major banks worldwide to euro area banks fell by $76 billion in the second quarter to $1.6 trillion while the exposure to non-banks was relatively stable.

The large public sector debt in some southern European countries is leading to a two-way split in lending, with euro-area banks continuing to cut their exposure to Greece, Ireland, Italy, Portugal and Spain, while increasing their exposure to Germany and France, BIS said.

The exposure of euro area banks to the five debt-plagued countries fell by $16 billion, or 7 percent, to $201 billion, while the exposure to Germany and France rose, pushing the exposure to euro area sovereigns of all banks reporting to the BIS to some $1.7 trillion, above the $1.45 trillion exposure to the U.S. government.

Final data for second quarter lending will be published by the BIS in its December quarterly review.

www.CentralBankNews.info

October 22, 2012

Major Forex Events This Week

By TraderVox.com

Tradervox.com (Dublin) – The risk-off mood returned to the market as the expected solutions from the EU Summit did not materialize. Greece is still asking for more cash as Spain plays around with the bailout request. After losing most of the week, the yen and the dollar gained at the close of the week as commodity related currencies dropped as the risk appetite waned. Here is a brief overview of the major events to look out for this week.

Tuesday 23

The first major event will be on Tuesday and it will be in Canada. The Canadian rate decision will be announced at 1300hrs GMT and the market is expecting the Bank of Canada to keep the current interest rate of one percent, extending it for the 16^th month in a row. Mark Carney, the BOC Governor has indicated that the next statement will concentrate on the slow global economic recovery, dampening speculations of rate hike.

Wednesday 24

There are five major events across the markets on this day. The first major event will be the Euro Zone German Ifo Business Climate report which will be released at 0800hrs GMT. The September reading declined to 101.4 from the previous level of 102.3, making it the fifth month of decline in a row. The market is expecting a small increase to 101.9 this time round. The other event, still from euro zone will be the Mario Draghi speech which will be made at 1200hrs GMT. The ECB president is expected to touch on the bond buying program as well as speak about Spain and Greece.

From the US, the US New Home Sales data will be released at 1400hrs GMT and the market is expecting an increase to 386k sales. The sales were up by 27.7 percent last month to 374k. The other report from the US will be the US FOMC Statement which will be released at 1815hrs GMT. The market is expecting a deal to be announced in the last moments as the fiscal cliff takes its toll. Lastly, the New Zealand rate decision will be made at 2000hrs GMT on the same day. The market does not expect any change in the monetary policy as well as interest rate.

Thursday 25

At 0830hrs GMT, the UK GDP data will be released. With a contraction in the second quarter of 0.4 percent, the market is expecting the GDP to grow by 0.6 percent in the third quarter as the effects of the Olympics are felt. The US Core durable goods orders report will be released at 1230hrs GMT where an increase of 0.7 percent is expected. The other major report will be the US Unemployment Claims data which is expected to decline to 366k after rising to 388k last week from 342k the previous week. The US Pending Home Sales will be released at 1400hrs and an increase of 2.1 percent is expected.

On Friday, the US Advance GDP will be the major event and the report will be released at 1230hrs GMT. The US GDP is expected to have grown by 1.8 percent in the third quarter.