Norway: Key interest rate rose to 2.25% per annum

FOREX NEWS: As it became known yesterday, the Bank of Norway decided to raise key interest rate by 25 basis points, to 2.25% per annum.
 
 

Source: Liteforex.org rss feed

Korea: Interest rate was left at the level of 3.00%

FOREX NEWS: As it became known at the end of the week, interest rate in Korea was left at the level of 3.00% per annum, despite expectations of the growth by 25 basis points.
 
 
 

Source: Liteforex.org rss feed

British Pound To Threaten 2011 Trend Should Rate Expectations Falter

Canadian Dollar: Will Slower Growth Curb Interest Rate Expectations?

RBA Raises Inflation Forecast as Traders Raise Rate Expectations

Following NFP Which Factor Wins Out - Risk Appetite or US Rate Expectations?

The US economy surprised forecasts, posting a much better than expected 244K jobs created during the month. Forecasts were calling for a 185K increase, and from other data this week expectations had build for a soft release.

With upward revisions to February’s and March’s data, this is the 3rd straight month

Australia: Interest rate was left at the previous level of 4.75%

FOREX NEWS: As it became known today, following the meeting of the Reserve Bank, interest rate in Australia was left at the level of 4.75% per annum.

 

Forex: Euro Outlook Heavily Dependent On ECB, S&P Sees BoE Rate Hike In Three-Months

The Euro maintained the narrow range carried over from the previous week despite the batch of dismal data that crossed the wires on Wednesday, and the EUR/USD may continue to trend sideways ahead of the European Central Bank interest rate decision as currency traders weigh the outlook for future policy.

GBP/USD: Trading the Bank of England Interest Rate Decision

The Bank of England is widely expected to hold the benchmark interest rate at 0.50% while maintaining its asset purchase target at GBP 200B, but currency traders may show a bearish reaction to the announcement as interest rate expectations deteriorate.

Market Focus Shifts to Key Event Risk In the Form of ECB Rate Decision

We have begun to see what could be at least a short-term shift in the construct of the markets, but all eyes are now on Mr. Trichet and company to see whether the ECB does indeed signal near term hikes...

New Zealand: Unemployment rate decreased to 6.6% in QI

FOREX NEWS: As it became known today, unemployment rate in New Zealand decreased to 6.6% in QI against the lebel of 6.8% in QIV, 2020.
 

FOREX: Euro Volatility Likely Amid Mixed Cues Ahead of ECB Rate Decision

The Euro is likely to turn volatile as the ECB delivers its interest rate decision as conflicting indicators cloud the outlook for monetary policy over the coming months.

Great Britain: bank of England left interest rate at the level of 0.50% per annum

FOREX NEWS: As expected, following today’s meeting the Bank of England left interest rate at the level of 0.50% per annum, keeping the volume of the assets purchase unchanged at the level of stg 200 billion. 
 

Eurozone: European Central Bank has kept interest rate at the level of 1.25% per annum

FOREX NEWS: As expected, European Central Bank decided to keep interest rate at the previous level of 1.25% per annum.
 

Euro Rebounds in Asia on Interest Rate Hike Speculation

Commodity linked currencies, including the common currency Euro and the Australian Dollar, rebounded in Asian trading today with the Euro rising against the U.S. Dollar to $1.4387, a gain of 0.4%.

U.S. Markets Find Some Strength on EM Interest Rate Rises, Fitch Cuts Greece

U.S. markets are happy, somehow, that emerging markets tightening to combat the effects of U.S. Fed imposed money inflows and consequent inflation will improve the appeal of domestic stock markets, and maintain the current momentum to higher levels. It is, to say the least, a very strange point of view. We wonder if it wasnt the Fed`s promise to pump money into the bond market that lifted the equity markets out of their depressive mood, and fuelled the global rally that has been going on since September. Up until Mr. Bernanke`s clarification that he would do whatever it takes to float the economy, a recession was being anticipated. The strong performance of emerging markets, the appreciation of their currencies, and the improvement in their consumption trends that ensued, was clearly the major if not the main driver of the turnaround. And now, we`re elated that emerging market demand will contract in consequence of rate rises? Where is the sense in that, and on what kind of basis do people generate such analyses?

On no basis, naturally, since markets are driven by impulses, not commonsense. Not that commonsense would have benefited us any way, since, even that doesn`t seem to be enough to help us in the face all the strange contradictions that are popping up around the world. But as human beings, we tend to believe that being reasonable is an advantage.

A very interesting piece of news came from the North African Nation of Tunisia this year where the President in power for the past 23 years, Zine ElAbidine ben Ali has quit his office, and and finally was forced to  flee the country after massive protests proved to be too much for his regime. Dismayed by high unemployment and a very corrupt administration, Tunisians have ousted their dictator from power. It is a good sign for the world at large that another dictator has been forced to say farewell to his palaces, police, and powers, but from a more general vantage point, it is not really that clear that the recent events will prove to be constructive for the trends that the optimists expect. The loss of economic stability has damaged social accord and political harmony in many nations around the world, and as the global society transitions from its present state of disequilibrium to a new mode of existence, events of strong impact must be anticipated.

In Europe, Fitch has cut Greece`s long-term debt rating to BB+, which is a junk level , and maintained the negative outlook in place for the country. Moody’s lowered its ranking for  Greece to Ba1 on June 14 and S&P rated the country at BB+ from BBB+ on April 27. The Euro wasn`t impacted by the news, and is in fact somewhat higher on the day. Since stock markets around the world have been performing reasonably well, it seems that the currency has been supported by the general optimistic mood, apart from anything specific.

NFP Shows a Mixed Picture, Traders Focus on the Unemployment Rate

Stocks are universally higher today, and currencies like the AUD and TRY are performing well on the back of the anticipated improvement in U.S. unemployment picture, as well as the generally improved sentiment in Asia for the past weeks due to the stronger and stabler performance of the USD. Gold is also higher after rising by more than $20 yesterday.

Among today`s releases we are most attentive to the improvement in the manufacturing sector reported in the NFP release, which is fully in line with the long-term perspective of a U.S. economy that depends a lot more on manufacturing than it used to do in the past decades. The trend is in place, and will probably intensify in the coming years, since the depreciation of the USD, although slow, promises a great improvement in profitability of the sector. 

Euribor rises to 1.88%

Due to the uncertainties surrounding the future course of action of the ECB, and, to a much greater extent, the nature and scope of future bailouts, 3-month Euribor rate is higher by one basis point today, and is expected to go higher in the next months. The Euribor trend currently in place stretches all the way back to April 2010, coinciding with the beginning of the Greek crisis, and we expect it to define the Euro interbank market until a resolution is found.

The Germans and the French are experiencing some difficulties in finding a common ground over the size of planned bond buybacks, with the Germans generally opposed to greater commitment of funds, while the French support far greater flexibility in the availability of bailout cash.  Ireland and other bailout partners have been requesting less punitive interest rates, but this is opposed by the Germans who would like to see severe punishment discourage future errors.

January payrolls rise by 36,000; unemployment rate falls to 9%

U.S. NFP rose by a very modest 36,000 which is the smallest gain of the past four months, versus projections by analysts foreseeing a jump of about 146,000 for December. Construction, transportation jobs and the manufacturing sector are understood to have been badly impacted by the cold weather in the north, with some 707,000 workers reported having been prevented from going to work as a consequence, but even with this caveat the fact remains that the economy is still struggling to stage a significant improvement in the labor market. Excluding government jobs, the total rise in payrolls was 50,000.

At the same time the unemployment rate, which is calculated from a different sampling, fell to 9% against forecasts expecting it to come  between 9.2% to 9.6 percent. The household survey showed a fall of 590,000 in the number of unemployed. Revisions to the previous NFP numbers reaching back to 2006 have also been released, showing that the economy has lost around 8.75 million jobs in consequence of the recession, while adding 909,000 for 2010.

The report allows both the bulls and the bears enough room for revising and reforming their viewpoints, confirming that the labor market remains  very weak, but at the same time providing a more positive reading if one focuses on the household survey. On the whole, the report is unlikely to change anyone`s analysis to a great extent, especially because we know through Bernanke`s statements that the Fed is committed to maintaining its program for now. PIMCO`s Bill Gross is reported as saying that the Fed is unlikely to raise rates for the next 12 months, and we agree with this viewpoint, seeing a slim chance of any rate rise provided that the Fed is not forced to move in that direction by the bond market.

Stocks, currencies fell, as markets anticipated Chinese rate rises

Events Friday appeared to be dominated by the release of Q3 Chinese GDP data, which came at 9.8, above the expectation of 9.4-9.6 current in the market. Inflation is reported to have eased to 4.6% in December, but that will provide no change to the government`s assessment of the current situation, and the need for rate increases, since price pressures in the commodity market, and the domestic sector leave very little room for any delay of the necessary action. We should recall that the government`s inflation target is just 3%, way below the 4.6% just mentioned.

The expectation of Chinese tightening has battered gold prices, which were lower to as much as $1345 per ounce during the last day of the week, as oil was similarly sold, losing around 2.65% off its value in Friday`s trading. We expect the difficulties in the commodity market to continue for the first half as the Chinese need to tighten is very real. In any case, prices of some commodities like silver and oil are probably already out-of-synch with their fundamental and technical trends, so a reversal of course will not be surprising. Still, we don`t expect the Chinese to be too aggressive with their tightening, and since the Fed will keep undermining the dollar, commodity trends will survive in the longer term, barring a major catastrophe such as a disorderly breakup of the Eurozone.

In separate developments, in a speech today Hu Jintao, the Chinese President, emphasized the necessity of "U.S. respecting Chinese sovereignty over Tibet and Taiwan", warning that acting in the opposite direction would create tensions in the Asia-Pacific region. He was rather frank in his words, saying that the history of bilateral relations shows the potential for steady growth if the countries respect each other`s points of sensitivity, concluding that "otherwise our relations will suffer constant trouble or even tension".

China`s concerns about about Tibet and Taiwan are well-known, of course. The Tibet issue  is probably the easier one, since, apart from the well-publicized protests of the Dalai Lama, and the occasional censure of various international bodies and U.S. Congress, there is not the remotest possibility that the Tibetans will be able to throw away the yoke imposed on them, or that the Chinese will face any significant security risks. India, which is the only  relevant  Asian backer of the Dalai Lama, has been trying to improve relations with the Chinese recently, and another conflict over the Aksai Chin or any Tibet-related issue seems extremely unlikely.

The Taiwan problem is an altogether different matter. We believe that the Chinese are make a mistake by playing their cards so openly, and leaving no room for doubt in their relations with the Americans. Arguably, this is born of their desire to maintain stability through an effective diplomatic deterrent, in that, if their partners and rivals are aware of what they will not be tolerating, the risk of a conflagration should be expected to be lessened. This approach makes sense from a Chinese point of view, since they see themselves as the righteous aggressors over the Taiwan issue, defending Chinese honor and power against the  humiliation of the past centuries. It also means that the Chinese do not expect the Americans to make a first move, such as inciting the Taiwanese to some declaration of independence, or an equivalent action that would force them to take action in terms defined by the U.S. It is unclear how much of a risk this poses for China over the longer term.

Apart from the propaganda value of such a stance, it is hard to see what strategic benefit the PRC gains from its current stance on the Taiwan issue. The U.S. can at any moment trigger a highly predictable Chinese response by encouraging the Taiwanese leadership to be more aggressive about the independence issue, potentially creating a crisis situation in which the Chinese have little opportunity to adapt to the emerging situation. The PRC leadership is, undoubtedly very well aware of this risk, and its very buildup of forces in the region, strong concentration of naval and air forces is probably directed at giving a clear sign of how powerful its response will be in case that a Taiwan crisis emerges. President Hu`s recent comments in the U.S. emphasizing this point, are to be understood in this context, and not a sign of belligerence or hostility, in our opinion.

On  the CNY issue in Washington, Democratic Representative Sander Levin of Michigan is reported to be planning to introduce a legislation as early as Monday next week, which will be reproducing the language of a similar bill passed by the House in September 2010. Hu`s response, while being questioned on it by senators, was that the problem is that "we, the China are more productive", and "have lower labor costs", according to Senator John McCain. Not very constructive, but one cannot expect Hu to say much else either. We are surprised that he was so candid with his answer.

In short, Friday was not a good day for stocks, commodities, or risky currencies, with the dollar, yen, and bonds generally being the better performers. We don`t expect this to change much in the near term, with the trigger point being signalled by Chinese rate rises, and their end marking the reinception of the previous bull trend. On U.S.-China relations, the main concern remains the currency issue, since, as both political parties are deeply out of touch with voters, it is but a matter of time that the politically lucrative, and low-cost USDCNY issue becomes too enticing a target for exploitation.  In the meantime, smiles will be maintained, since big business has as big a stake in seeing the status quo continue just as the Chinese leadership does, and with so much cash to spread around, it seems that the resolution can be delayed for quite a while.

U.S. Markets Find Some Strength on EM Interest Rate Rises, Fitch Cuts Greece

U.S. markets are happy, somehow, that emerging markets tightening to combat the effects of U.S. Fed imposed money inflows and consequent inflation will improve the appeal of domestic stock markets, and maintain the current momentum to higher levels. It is, to say the least, a very strange point of view. We wonder if it wasnt the Fed`s promise to pump money into the bond market that lifted the equity markets out of their depressive mood, and fuelled the global rally that has been going on since September. Up until Mr. Bernanke`s clarification that he would do whatever it takes to float the economy, a recession was being anticipated. The strong performance of emerging markets, the appreciation of their currencies, and the improvement in their consumption trends that ensued, was clearly the major if not the main driver of the turnaround. And now, we`re elated that emerging market demand will contract in consequence of rate rises? Where is the sense in that, and on what kind of basis do people generate such analyses?

On no basis, naturally, since markets are driven by impulses, not commonsense. Not that commonsense would have benefited us any way, since, even that doesn`t seem to be enough to help us in the face all the strange contradictions that are popping up around the world. But as human beings, we tend to believe that being reasonable is an advantage.

A very interesting piece of news came from the North African Nation of Tunisia this year where the President in power for the past 23 years, Zine ElAbidine ben Ali has quit his office, and and finally was forced to  flee the country after massive protests proved to be too much for his regime. Dismayed by high unemployment and a very corrupt administration, Tunisians have ousted their dictator from power. It is a good sign for the world at large that another dictator has been forced to say farewell to his palaces, police, and powers, but from a more general vantage point, it is not really that clear that the recent events will prove to be constructive for the trends that the optimists expect. The loss of economic stability has damaged social accord and political harmony in many nations around the world, and as the global society transitions from its present state of disequilibrium to a new mode of existence, events of strong impact must be anticipated.

In Europe, Fitch has cut Greece`s long-term debt rating to BB+, which is a junk level , and maintained the negative outlook in place for the country. Moody’s lowered its ranking for  Greece to Ba1 on June 14 and S&P rated the country at BB+ from BBB+ on April 27. The Euro wasn`t impacted by the news, and is in fact somewhat higher on the day. Since stock markets around the world have been performing reasonably well, it seems that the currency has been supported by the general optimistic mood, apart from anything specific.

EURUSD: Euro US Dollar Exchange Rate Forecast