World economy to slow further on credit crisis: BOJ's Kamezaki

Takamatsu (Japan), December 25, 2008

The global economy could slow further as the ongoing financial turmoil is expected to increasingly affect the real economy, Bank of Japan Policy Board member Hidetoshi Kamezaki said today. While the credit crisis will bring about "strong downward pressures, every region (of the world) is likely to face a deterioration (in its economy), further slowing down the pace of growth," Kamezaki told a meeting of local business leaders in Kagawa Prefecture.

The member of the central bank's interest rate setting panel also said the Japanese economy has seen weakening exports lead to a negative spiral that has adversely impacted the nation's industrial output, employment and individual consumption. On prices, Kamezaki said the country's consumer prices, which earlier this year shot up on rising crude oil prices, will continue to slacken their upward pace.

US Dollar Slump Continues in the Aftermath of Tuesday's Aggressive Fed Rate Cut - More Losses to Come?

Wed, 17 Dec 2008 16:54:01 -0500
By Terri Belkas, Currency Strategist strategist@dailyfx.com

The US dollar index broke straight through the support we noted yesterday at the 50 percent retracement level of 71.31 - 88.40 at 79.85, and extended its losses for the sixth day in a row. The Federal Reserve’s aggressive reduction in the fed funds rate to a record low range of 0.0 percent - 0.25 percent has had a major impact on the greenback, especially as the central bank has essentially indicated that they are shifting their focus away from the economy and on to the financial markets.

Euro, Swiss Franc Surge to Record Highs Against British Pound British Pound the Only Major Currency Weaker Than the Dollar as BOE Minutes Signals More Rate Cuts Japanese Yen Intervention Risks Rise as Rally Accelerates, Commodities Brush Off OPEC Output Cut US Dollar Slump Continues in the Aftermath of Tuesday’s Aggressive Fed Rate Cut - More Losses to Come?The US dollar index broke straight through the support we noted yesterday at the 50 percent retracement level of 71.31 - 88.40 at 79.85, and extended its losses for the sixth day in a row. The Federal Reserve’s aggressive reduction in the fed funds rate to a record low range of 0.0 percent - 0.25 percent has had a major impact on the greenback, especially as the central bank has essentially indicated that they are shifting their focus away from the economy and on to the financial markets. Indeed, from a monetary policy perspective, there isn’t much more that the Fed can do for growth so they may as well direct their efforts toward providing liquidity. The Fed has already announced plans to buy “large quantities of agency debt and mortgage-backed securities” and “stands ready to expand its purchases…as conditions warrant.” The new twist though, is that the Fed is ready to evaluate the possible benefits of purchasing longer-term Treasuries, aka pursue quantitative easing. Simply put, this is a different method by which to bring down interest rates, and it is the potential of such a result that is helping to drive the greenback lower. There won’t be much in the way of key US economic data through the end of the week, and for that matter, through the next two weeks. Given the lower volumes typical of this time of year, it seems like the countdown to 2009 could be quite volatile and punctuated by extensive declines in the US dollar.

BNP Paribas may lose 350 millions euro in Madoff scandal

15 Dec 2008, 0116 hrs IST, AFP
PARIS: French bank BNP Paribas said on Sunday it could lose up to 350 million euros (470 million dollars) in the scandal surrounding New York investment manager Bernard Madoff. BNP Paribas said in a statement that it had no direct investment with Madoff's company but "it does have risk exposure to these funds through its trading business and collateralized lending to funds of hedge funds. "If, as a result of the alleged fraud, the value of the assets of these hedge funds is nil, BNP Paribas' loss could amount to around 350 million euros." Madoff is alleged to have lost up to 50 billion dollars through a pyramid trading scheme which collapsed because of the financial crisis.

Dollar hits 13-yr low vs yen as autos bailout fails

12 Dec 2008, 1013 hrs IST, REUTERS

TOKYO: The dollar hit a 13-year low against the yen on Friday after the US Senate failed to agree on a bailout for US automakers.
The US Senate failed on Thursday night to reach a last-ditch compromise to bail out US automakers, effectively killing any chance of congressional action this year. The $14 billion legislation officially died in the Senate late on Thursday after supporters failed to get enough support in a procedural vote. "It has become really severe for the prospect of the bailout plan," said Mitsuru Sahara, senior manager at Bank of Tokyo-Mitsuibishi UFJ. Traders said there were fewer market participants, making market swings larger, pushing the dollar below 89.00 yen for the first time in 13 years. The dollar fell as low as 88.40 yen, the lowest since 1995. The Eurodeclined 0.4 per cent to $1.3313.

Auto bailout talks collapse over union wages

12 Dec 2008, 0903 hrs IST, AP

WASHINGTON: A $14-billion emergency bailout for US automakers collapsed in the Senate Thursday night after the United Auto Workers union refused to accede to Republican demands for swift wage cuts. Senate Majority Leader Harry Reid said he was "terribly disappointed'' about the demise of an emerging bipartisan deal to rescue the Big Three. He spoke shortly after Republicans left a closed-door meeting where they balked at giving the automakers federal aid unless their powerful union agreed to slash wages next year to bring them into line with those of Japanese carmakers. Republican Sen. George V. Voinovich, a strong bailout supporter, said the UAW was willing to make the cuts, but not until 2011. Reid was working to set a swift test vote on the measure Thursday night, but it was just a formality. The bill was virtually certain to fail to reach the 60-vote threshold it would need to clear to advance. Reid called the bill's collapse "a loss for the country,'' adding "I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight.'' The implosion followed an unprecedented marathon set of talks in Washington among labor, the auto industry and lawmakers who bargained into the night in efforts to salvage the auto bailout at a time of soaring job losses and widespread economic turmoil.

Tokyo stocks open 1.39 per cent lower

12 Dec 2008, 0854 hrs IST, AGENCIES
TOKYO: Japanese share prices opened lower Friday with the benchmark Nikkei-225 index falling 121.43 points, or 1.39 per cent, to 8,599.12 in the first minute of trading.

Nikkei down 0.2 pc after rally, US auto bailout eyed

11 Dec 2008, 0621 hrs IST, REUTERS
TOKYO: Japan's Nikkei average fell 0.2 percent on Thursday after a rally the previous day and on uncertainty over quick approval for U.S. auto rescue plans, pressuring recent gainers such as Advantest Corp.
The benchmark Nikkei slipped 17.98 points to 8,642.26, after ending up over 3 percent the previous day to book its highest close since Nov. 12. The broader Topix dipped 0.07 percent to 833.96.

Euro dips against dollar

9 Dec 2008, 1823 hrs IST, AGENCIES

LONDON: The European single currency dipped against the dollar on Tuesday as the foreign exchange market set aside an encouraging survey on German investor confidence to focus on recession worries. The yen meanwhile rose against the dollar, despite grim data showing that Japan was even deeper in recession than previously feared. In late morning London trade, the European single currency fell to $1.2875 from $ 1.2952 in New York late on Monday. Against the Japanese currency, the dollar dipped to 92.45 yen from 92.77 yen on Monday. Germany's closely-watched ZEW survey of investor confidence showed a surprise rise for December on Tuesday, even as markets fretted over how long the country's recession might last. "The latest German data have brought some respite from the recent run of terrible news, with ZEW investor sentiment recovering a little," said Capital Economics analyst Jennifer McKeown. "Unfortunately, though, the economy still looks set to deteriorate more sharply than is currently anticipated next year." The ZEW economic research institute said its investor sentiment index rose to minus 45.2 points in December from minus 53.5 points in November, coming in better than expected. Analysts had forecast a drop to minus 55 points. "What's more, the fact that the index remains deeply in negative territory shows that far more investors expect the German economy to deteriorate further over the next six months than think that conditions will improve," McKeown added. The euro had shot higher on Monday despite news of a sharp drop in German industrial output in October that raised expectations of further, hefty interest rate cuts by the European Central Bank. Traditionally, lower intrest rate make a currency less attractive to investors even though they can help to boost economic growth. Dealers said the Japanese currency was buoyed by the repatriation of overseas earnings and capital by companies and investors. Trader took in their stride official data showing Japan's economy contracted 0.5 per cent in the third quarter, more than initially thought. "The dollar will probably find it hard to gain ground versus the yen given anticipated repatriation by Japanese investors," Tetsuhisa Hayashi, head of foreign exchange dealing at Bank of Tokyo-Mitsubishi UFJ, said. In London trade on Tuesday, the euro changed hands at 1.2875 dollars against 1.2952 dollars late on Monday, at 118.95 yen (120.16), 0.8698 pounds (0.8689) and 1.5582 Swiss francs (1.5593). The dollar stood at 92.45 yen (92.77) and 1.2111 Swiss francs (1.2037). The pound was at $1.4792 (1.4902). On the London Bullion Market, the price of gold rose to $774.43 an ounce from $767.25 late on Monday.

Dollar mixed before latest economic data

8 Dec 2008, 1800 hrs IST, AGENCIES

LONDON: The dollar was mixed on Monday ahead of a raft of economic data due this week that is expected to reflect a worsening recession in the United States. In morning London trade, the European single currency rose to $1.2880 from $1.2717 late in New York on Friday. The $ climbed to 93.27 yen from 92.77 yen. Upcoming US data this week will include retail sales, consumer sentiment and inflation, which together should give fresh clues on the state of US consumption that accounts for three-quarters of the economy, dealers said. The foreign exchange market meanwhile digested Friday's extremely poor US jobs report which showed the US economy shed 533,000 jobs in November, the highest monthly figure in 34 years and much worse than the 325,000 forecast to take the unemployment rate to a 15-year high of 6.7 per cent. "As traders continue to assess the implications of that huge non-farm payroll reading on Friday, currency markets remain volatile but the dollar is unsurprisingly on the back foot," said CMC Markets analyst James Hughes. "With US automakers and government sponsored stimulus packages likely to be in focus in the near term, it's arguably difficult to see where the next round of dollar support will be coming from," Hughes said. The $ has risen against major currencies in recent weeks, with the exception of the yen, because many investors see the US currency as a haven amid a worsening global economic crisis. More weak data due now could limit the dollar's rise, dealers said. "The greenback's appreciation over the last six months may have left the currency in overbought territory and these retreats aren't really that surprising at all," said Hughes of CMC Markets. "The US November jobs report which revealed the biggest decline in payrolls since 1974 helped to paint a clearer picture of just how bad the recession in the US is turning out to be and this picture looks particularly grim," said Calyon analyst Mitul Kotecha. "Given the limited reaction to the jobs data it is difficult to see markets becoming too excited with the data on tap this week. "Nonetheless, there are a few US releases towards the end of the week that could still provoke some reaction," Kotecha said. Investors were also watching developments in a possible government bailout of the crumbling US auto industry and hoping for a massive stimulus plan from President-elect Barack Obama when he takes office next month." In London trade on Monday, the euro changed hands at 1.2880 dollars against 1.2717 dollars late on Friday, at 120.25 yen (118.05), 0.8613 pounds (0.8659) and 1.5608 Swiss francs (1.5515). The dollar stood at 93.27 yen (92.77) and 1.2113 Swiss francs (1.2202). The pound was at $ 1.4970(1.4677). On the London Bullion
Market, the price of gold rose to 772.47 dollars an ounce from 749 dollars late on Friday.

US Recession Deepening, How Long Can Dollar Strength Hold Up?

Saturday, 06 December 2008 03:58:09 GMT

Written by John Kicklighter, Currency Strategist
It’s difficult to assign the US dollar a bullish fundamental bias considering the acceleration of the economy’s recession and the fact that American markets are the epicenter to a global financial crisis; but regular economics do not apply in times like these. In normal market conditions, expected returns hang in a delicate balance with a general tolerance for risk.

It’s difficult to assign the US dollar a bullish fundamental bias considering the acceleration of the economy’s recession and the fact that American markets are the epicenter to a global financial crisis; but regular economics do not apply in times like these. In normal market conditions, expected returns hang in a delicate balance with a general tolerance for risk. When yield income – valued through assets in a specific country – drops relative to its international equals, that currency depreciates against its counterparts. This sums up capital flows, carry interest and fundamental speculation in interest rates. However, the setting for the markets is clearly far from normal – just look at the advance in the US dollar last week immediately following the report of a 533,000-person drop in national payrolls. Normal market theory has been thrown out the window as investors are no longer concerned about the potential for return. With volatility holding at levels many times greater than what it was just a year or two ago and global economies sliding into a grim recession, large investors and fund managers are merely looking for a place that their accounts won’t shrink. With time we have seen that that place is US Treasuries. Surely, the market must be desperate for a safe haven with three-month T-bills yielding little more than one basis point and two-year T-notes are paying out 0.9 percent per year. In fact, the entire yield curve is at record lows.
How long can a market go against such a basic law of market theory? That depends on speculators. As long risk sentiment holds as the dominant trend across all asset classes and all markets, caution will keep capital flowing towards safe havens. However, that is not to say that the US will always be the currency that panicked traders will turn to. Massive bailout efforts, rate cuts and stimulus packages have offered a sense of stability for the world’s largest economy; but this combined endeavor cannot prevent a recession or even a natural bear market. And, when financial conditions worsen and the economy continues its slide, policy makers will find they have few options left to curb the pain on a national level. Since US officials have been the most aggressive in their efforts, they could reach their limit first; and then the sanctity of US government debt will come into question. There are other countries that are less liquid but are experiencing better stability. As the global recession and financial crisis deepen, these alternatives will grow more and more appealing.
Characteristic of a primary fundamental theme, a shift in this market driver will not change over night - but will happen gradually. The calendar for the week ahead will help steer the bigger trend. Dollar traders have no doubt already priced in a recession; but how severe and lengthy of a contraction have they accounted for? A few growth-related indicators will test this. Pending home sales will gauge the ongoing housing market recession while the trade balance will reveal how effective a cheaper dollar is at drawing less international demand. The consumer will be the more important focus with retail sales for November accounting for the build up in spending trends into the holiday season while consumer sentiment will guide speculation for it going forward. Also thematic is inflation. Though factory and import-level price gauges are usually second tier readings, an expected plunge in annual readings would spell deflation which the Fed has little to no chance at fighting. This will be important considering the FOMC will decide rates on the following Tuesday. - JK

CURRENCY MARKET REPORT

Dated 4th Dec 2008, Madan Sharma,

Summary: - Mr. Obama’s selection of an economic team reflects in some ways what might be expected to come. Most in the team are strong dollar policy supporters. The team is very experienced and qualified to handle the recession at hand. Two situations happening in different times are never an exact repeat and the second time around more tools are always available for handling the crisis. In my opinion with the new initiatives proposed or being considered will comfortably stir the US economy back to a growth path, however the time frame cannot be guessed. Technically speaking I see no sign of a USD reversal for now. USD will remain strong for now. With new measures being proposed other then only fiscal measures, I am once again optimistic on the US economy.

Many parallels are being drawn between 1929 and now, and also between the recession in Japan in the 1990’s & now. However these are not identical situations and tools are available to handle the current recession
With the new measures proposed like to embark on an ambitious infrastructure and reconstruction plan is a very good sign and will considerably boost the economy.
Tomorrow being the first Friday of the month we have unemployment and Non Farm Payrolls data. First inflationary data of the month.

Today’s BOE meeting is expected to cut UK interest rates further. The ECB is also expected to bring interest rates lower. Hence the USD is likely to remain strong.
Gold: Gold is holding pretty well. It’s still around its highs of 2008. Gold remains bullish.
Oil: Will drop further and is likely to come down to 30 USD a barrel.
GBP: - Is the weakest among all currencies and is likely to drop to 1.4 and then to 1.3 against the USD. If some concrete measures are not announced to revive the economy we might even see the GBP going lower then 1.3
JPY: - remains strong but one need to be careful once it reaches 90 levels as it might bounce to around 95.
USD/PLN: Likely to go to 3.20/3.30 for now.

Yen rises on economic worries, ECB and BoE eyed

4 Dec 2008, 0706 hrs IST, REUTERS

TOKYO: The yen and the dollar rose against other major currencies on Thursday, recovering from losses made after a late rally in U.S. stocks the
previous day. Worries about a steeper global economic downturn remained strong after a slew of dismal data around the world, and kept demand intact for the low-yielding yen and the safe-haven greenback, traders said. The Euro and the British pound stayed vulnerable before interest rate decisions by the central banks in the euro zone and Britain later in the day. Expectations are high that they will ease monetary policy aggressively to boost deteriorating economies and counter the threat of deflation. "Having seen weak economic numbers coming one after another, it's difficult for market sentiment to improve dramatically," a senior trader at a major Japanese bank said. Japanese capital spending fell in the third quarter from a year earlier, pointing to a downward revision in the country's third-quarter growth numbers due next week. The euro was down 0.2 percent from late New York trade at $1.2690. The European Central Bank is seeing cutting rates on Thursday by at least 50 basis points to 2.75 percent, but many economists are expecting a 75 basis point cut. Sterling edged down 0.1 percent to $1.4770, having pared some losses made after data showing that Britain's service sector shrank faster than expected in November. The news boosted expectations that the Bank of England may slash rates by at least a full percentage point from 3.0 percent later in the day to shore up the domestic economy. Traders said the euro and the pound could fall after expected large interest rate cuts due to their diminishing higher-yielding appeal. But they may rebound quickly soon after because investors now reward currencies of countries that have been acting proactively to save the economy from a deep recession, traders said. The dollar edged down 0.1 percent to 93.17 yen, above a five-week low of 92.53 yen hit the previous session. The New Zealand dollar was steady after the country's central bank cut interest rates by a record 150 basis points to 5.0 percent, as expected. The kiwi was nearly flat at $0.5328, having trimming losses made after the rate decision.