Month: October 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 comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

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

By Central Bank News
    India’s central bank held its benchmark repurchase rate steady at 8.0 percent but cut its Cash Reserve Ratio (CCR) by 25 basis points to 4.25 percent, and held out the promise of further policy easing in the fourth quarter of the 2012/13 year.
   The Reserve Bank of India (RBI), which also cut its CCR by 25 basis points last month, said in a statement that the reduction in CCR would inject some 175 billion rupees into the banking system, and was “intended to pre-empt a prospective tightening of liquidity conditions, thereby keeping liquidity comfortable to support growth.”
    The RBI said it expects inflation to rise further and then ease in the last quarter.
    “While risks to this trajectory remain, the baseline scenario suggests a reasonable likelihood of further policy easing in the fourth quarter of 2012-13,” it said, adding that further easing would also be “conditioned by the evolving growth-inflation dynamic.”
     The cut in the CCR – the percentage of deposits that banks keep with the central bank – was expected by many economists while some had also been looking to the RBI to cut its repo rate.

By MoneyMorning.com.au

Could Europe’s regions bring down the Eurozone?

Up until now, the biggest threats to the continued existence of the Eurozone have come from individual countries.

In June, Greece nearly elected the anti-austerity Syriza. A few weeks ago, some people thought that Germany might be prevented, by the courts, from taking part in the fund designed to bail out Spain and Italy.

These threats haven’t gone away, of course. Recent protests in Athens and Madrid show that both the Greeks and the Spanish are sick of austerity. Meanwhile, there are rumours that Berlin might take a much harder line on bail-outs once the US presidential election is out of the way.

But now an even greater fiscal threat is emerging – the danger that individual countries themselves may splinter as regions call for independence.

How much of a threat is this to the eurozone? And can you take advantage of it?

Why Breakaway Regions Matter to the Eurozone

There have always been regional tensions within several European countries. Many people in Catalonia don’t consider themselves Spanish. Similarly, the Lega Nord wants northern Italy to split from the poorer south.

The differences are partly cultural. However, the fact that many of these regions pay more in taxes than they get back in spending is a major factor.

During the good times, governments were able to hide this through deficit spending. This kept taxes low and spending high for everybody. However, austerity has thrown these processes into reverse.

Now taxes are going up and spending is going down. That makes the extent of fiscal transfers between regions much clearer.

Separatist movements have also been emboldened by the general unpopularity of incumbent parties. In Spain, the Catalan president has said that if he wins regional elections, he will demand a vote on independence.

In Italy, there have been pro-secession demonstrations in the northern city of Venice. Polls show that between 70% and 80% of Venetians want the region to break away.

In Belgium, local elections in Flanders resulted in a victory for a pro-independence party.

How Secession Could Ruin National Finances

Each of the three regions pays more in taxes than it receives in spending. An exit by Flanders would have the biggest impact, with its transfers equal to nearly a tenth of total Belgian government revenue. Venice and Catalonia transfer 3% and 4% respectively.

If these net contributors went their own ways, it would be harder for those who remained to meet budget targets. Capital Economics thinks that Spain, Italy and Belgium’s budgets would ‘suffer greatly’. In the worst case, it would even ‘increase the risk of further bail-outs of disorderly defaults’.

Of course, the chances of this happening are still relatively low. Talking about secession is not the same as doing it. As well as the legal and political hurdles, there is the practical issue as to whether any new country would automatically become an EU member, or would have to apply from scratch.

For example, the Madrid government has said that it would strongly oppose letting an independent Scotland into the Eurozone as a matter of course. That might be a warning to a potential independent Catalonia (or Venice, or Flanders), all of which would depend on good access to European markets.

Even a Halfway House Could Damage the Eurozone

So what may be more likely is that Brussels, Madrid and Rome will concede more powers to the regions, and allow them to keep a greater proportion of their revenue. Indeed, some experts think that this is what the separatist movements expect to happen.

But while this may reduce short-term political pressures, it will have a similar fiscal effect to secession, increasing the amount that has to be cut in the rest of the country.

Indeed, the fact that the partial break up of three countries is even being talked about may be enough to do significant damage. For one, it could shake confidence in the markets.

More importantly, it may also raise further doubts about the viability of fiscal burden sharing that is part of the attempt to keep the Eurozone together. Northern Europeans may feel that there is no point in subsiding nations that are splitting up on their own.

As Capital Economics puts it, ‘if Catalans, Fleming and Venetians are unwilling to support the poorer parts of their own countries, there is very little hope that German taxpayers will bear the burden’.

What this Means for Investors

We’re still happy to buy cheap stocks in the Eurozone. At current levels historically speaking, you can expect good returns from here, if you hold for the long run.

However, we can easily see the euro weakening – particularly against the [US] dollar. Why? Because the only way the Eurozone can stay together is through the euro becoming less of a ‘hard’ currency. And if the European Central Bank (ECB) ends up printing money, that’s just what will happen.

From the point of view of investors in Eurozone shares, if the ECB does print money, we’d expect the resultant boost to stocks to outweigh the impact of a falling currency. So we’re not overly concerned about the threat of a falling Euro when it comes to buying stocks.

Matthew Partridge
Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in MoneyWeek

From the Archives…

Does Excessive Government Spending Make You the World’s Best Treasurer?
26-10-2012 – Kris Sayce

Why a Return to the Gold Standard Could Actually Be Bad
25-10-2012 – Kris Sayce

A Safer Than Super Investment?
24-10-2012 – Nick Hubble

Agricultural Commodities – The Best Way to Play Rising Food Prices
23-10-2012 – Merryn Somerset Webb

Stock Market ‘Barometer’ Speaks: The Bulls Won’t Like it…
22-10-2012 – Kris Sayce

The New Threat to the Eurozone – Disintegrating Nations

GBPUSD failed to break above the resistance of the downward trend line from 1.6309 to 1.6178 and pulled back from 1.6143. However, one more rise to re-test the trend line resistance would likely be seen, a break above the trend line resistance will indicate that the fall from 1.6309 had completed at 1.5913 already, then further rise towards 1.6309 previous high could be seen. On the downside, the fall from 1.6143 would possibly be resumption of the downtrend from 1.6309, a breakdown below 1.5913 support could trigger another fall to 1.5800 area.

Forex Forecast

By Central Bank News

By Central Bank News
    The central bank of Israel cut its policy interest rate by 25 basis points to 2.0 percent, its third rate cut this year, to bolster economic growth while inflation has eased to the midpoint of the bank’s target.
    But to restrain the growth in housing credit, the Bank of Israel (BoI) limited the loan-to-value ratios to keep home prices from raising too fast.
    The BoI, which has cut rates by a total of 75 basis points this year, said Europe’s debt crises continues to be the main risk to the global economy and recent data showed that growth in Israel’s economy had moderated to a rate of around 3 percent, in line with the bank’s forecast from last month of Gross Domestic Product growth of 3.3 percent this year and 3.0 percent in 2013.
    “Against the background of the debt crisis in Europe, the level of economic risk from around the world remains high, and with it the concerns over negative effects on the local economy,” the BoI said in a statement.
    In the second quarter, Israel’s economy expanded by 3.10 percent annual rate while the September annual inflation rate rose to 2.1 percent from 1.9 percent. The BoI targets inflation of 1-3 percent.
    www.CentralBankNews.info

By Central Bank News
    The central bank of Angola kept its base rate unchanged at 10.25 percent, saying the exchange rate and interest rates have been stable in the last month.
    Angola’s annual inflation rate eased to 9.65 percent in September, the lowest level so far this year, from 9.87 percent in August.  The decline of inflation to a single-digit level has been an aim of Banco Nacional de Angola for many years.
    The central bank last cut its interest rate by 25 basis points in January, but earlier this month the bank’s governor said in a speech that a sudden cut in the bank rate would not improve credit to the economy, nor help contain inflation.

    The bank said credit extended to the economy increased by 2.6 percent in September for an increase of 17.19 percent since the beginning of this year. Interest rates were also stable last month with overnight LUIBOR at 5.40 percent annually, the bank said.

    The average exchange rate of the kwanza currency against the U.S. dollar was 95.42 at the end of September “reflecting the stability observed since the beginning of the year,” the bank added.
    www.CentralBankNews.info
   

By TraderVox.com

Tradervov.com (Dublin) – The 17-nation currency has declined to near three-week low against the US dollar as Mariano Rajoy, the Spanish Prime Minister and the Mario Monti the Italian Premier prepare to meet as euro-zone economic outlook worsens. The US currency and the Japanese yen rose against the euro as data from euro region boosted the demand for safety in the market. The euro declined as a report from Spain showed that retail sales fell by 11 percent last month from a year earlier. Yen increased to two weeks high after German Finance Minister Wolfgang Schaeuble opposed Greece’s debt restructuring proposal.

According to Sebastien Galy, a senior strategist in New York at Societe General SA, the market is on a risk-off mood and most traders are bidding the dollar across the market. He added that this is an effect of market paring down, suggesting that it might continue like this as the market assesses the real impact of Hurricane Sandy. The euro dropped against most major currencies after the German Finance Minister’s speech. He was talking at an interview before European policy makers receives a report about Greece progress in achieving the agreed targets. The report was compiled by the European Commission, European Central Bank, and International Monetary Fund.

The 17-nation currency has fallen by 1.7 percent in the last six months, making it the second worst performer after the Swiss franc. The Japanese currency has against by 2.3 percent while the US dollar has added 1.4 percent. The euro has gained 0.3 percent against the dollar this month. After the retail report from Spain and Wolfgang comments, the euro dropped by 0.3 percent against the dollar to trade at $1.2899 at the start of trading in New York. It had earlier touched $1.2887; the currency had dropped to its lowest since October 11 of $1.2883 on October 26. The common currency fell by 0.3 percent against the yen to exchange at 102.70 yen. It had earlier dropped to 102.52, the least it has been since October 16.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

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London Gold Market Report
from Ben Traynor
BullionVault
Monday 29 October 2012, 06:30 EDT

U.S. DOLLAR gold prices dropped below $1710 an ounce Monday morning in London, below where they ended last week, after failing to hold onto gains made in Asian trading.

Silver prices dropped below $31.80 an ounce, also down from Friday’s close, as European equities also fell. US stock markets will be closed today as a result of Hurricane Sandy – the first unscheduled US market closure since September 11 2001, and the first to be caused by weather since 1985.

On the commodities markets, oil and copper ticked lower, while gasoline futures rose. The US Dollar also gained, along with major economy government bond prices.

“Gold has been trading lower as it follows the US Dollar appreciation,” says Bayram Dincer, analyst at LGT Capital Management in Switzerland.

“Gold is still range-bound, lacking any upside drivers above $1725 an ounce. The lower range of $1700 is perceived as a good support.”

“Market focus switches to this week’s US non-farm payrolls data [on Friday],” says a note from Barclays Capital, which cites $1698 as a support level for gold prices.

US core personal consumption expenditure data for September, a key inflation measure followed by the Federal Reserve, were published this morning, showing a slight rise in PCE inflation to 1.7%.

Over in India, traditionally the world’s biggest source of private gold demand, the Rupee fell to a five-week low against the Dollar Monday, pushing up the local price of gold.

“[There are] a few stray deals are there in the market,” one Mumbai importer told newswire Reuters, “[but] we haven’t seen big volumes yet compared to last week.”

The Reserve Bank of India raised its wholesale price inflation forecast for 2012-13 to 7.7% Monday, up from 7.3%. The central bank also cut its projection for India’s growth rate from 6.5% to 5.7%.

India’s finance minister P. Chidambaram meantime set a target of 3% for the government budget deficit by 2017 as part of a five-year plan of economic reforms announce Monday.

“[Chidambaram’s timing] suggests growing political pressure on the RBI to cut [interest] rates,” says a note from Nomura.

Here in Europe, Greece’s public sector creditors, which include the European Central Bank, should take losses on their holdings of Greek government debt, according to a draft report from the so-called ‘troika’ of lenders – the ECB, European Commission and International Monetary Fund – reported by German magazine Der Spiegel.

A restructuring of Greek debt back in February saw losses imposed on private sector bondholders. The ECB said it would forego any profits on maturing bonds bought below par in the market, but did not take losses as part of that deal.

“For the ECB, forgiving debt isn’t possible because it would be equivalent to indirect state financing,” ECB Governing Council member and Austrian central bank governor Ewald Nowotny said today.

German finance minister Wolfgang Schaeuble rejected the idea Sunday, describing it as unrealistic. Schaeuble has proposed creating a so-called ‘currency commissioner’ by extending the powers of the European Commissioner for Economic and Monetary Affairs to include a veto over national budgets.

“I explicitly support this proposal,” ECB president Mario Draghi said in an interview published by Der Spiegel Sunday.

“If we want to restore confidence in the Eurozone, countries will have to transfer part of their sovereignty to the European level.”

In Madrid meantime Spanish prime minister Mariano Rajoy met with Italian prime minister Mario Monti Monday, three days after Monti told reporters that a Spanish bailout request “would make market speculation less aggressive”.

A formal bailout is a precondition of the ECB’s Outright Monetary Transactions program unveiled last month, which would see the central bank buy distressed sovereign debt on the secondary market.

“Rajoy is very much following his own route now,” says Gilles Moec, London-based co-chief European economist at Deutsche Bank.

“Rajoy was probably pressed by Monti in August to accept a pre-emptive [bailout]…it would have made things so much smoother in Europe and for Italy as well.”

Italy sold €8 billion of six-month Treasury bills Monday, at a yield of 1.347% – down from 1.503% last month, and the lowest since March.

In the UK, mortgage approvals rose to a four-month high in September, according to figures published by the Bank of England this morning.

Over in the US, the difference between number of bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex – known as the speculative net long – continued to fall in the week to Tuesday, weekly data published by the Commodity Futures Trading Commission Friday show.

“The liquidations are unsurprising,” says Standard Bank research strategist Marc Ground.

“However, we expect some stability going forward for two reasons. First, net speculative length as a percentage of open interest has come off considerably…second, we believe the key $1700 support level should hold, mostly due to renewed physical demand at this price level.”

Elsewhere in the US, President Obama has called off a presidential campaign trip to Florida while his opponent Mitt Romney has cancelled appearances in Virginia and New Hampshire as a result of Hurricane Sandy.

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. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

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