London - The World Tax Capital
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London will become the most highly taxed financial centre in the world when the new 50 per cent income tax rate for those earning £150,000 or more comes into force next month.
Taxes will be higher than for financial workers living in the other key centres of New York, Paris, Frankfurt, Geneva, Zurich, Dubai and Hong Kong, KPMG calculated.
The findings will raise fears that Labour's levies are driving businesses and bankers overseas and threatening Britain's competitiveness
Terry Smith, chief executive of broker Tullett Prebon, warned yesterday that increasing taxes on workers and companies would only hinder the economic recovery.
He also accused Labour of 'criminal negligence' by racking up a budget deficit in the boom times rather than saving money for a rainy day. 'The UK economy is an utter disaster on any number of fronts,' Mr Smith said.
Tullett announced last December that it will help employees move abroad if they want to avoid the top rate of tax, and Mr Smith said workers are already looking at relocating.
Graeme Leach of the Institute of Directors said: 'The 50 per cent rate is a policy that should never have been announced. The indirect impact on entrepreneurial aspiration, business confidence and foreign investment is likely to be significant.
'We suspect that little or no money will be raised and we urge the next government to reverse the increase as soon as possible.' Labour's windfall tax on city bonuses has also led to anger in the City. That imposes a 50 per cent one-off charge on the banks themselves for any bonus that they pay out in excess of £25,000.
However the banks have not changed their behaviour. They are still handing out multi-million pound packages, but are forcing shareholders to pay for the levy, rather than risk annoying their top traders by taking it out of the bonus pool.
Tax minister Stephen Timms denied last week that the higher rate would harm the UK. He said: 'It affects one per cent of the population. It is right that those with the broadest shoulders bear their share of responsibility during the consolidation.'
London today ranks sixth out of the eight key financial centres, in terms of the tax burden for high earners.
But when the new rate comes into force the UK jumps to the top of the list with the most onerous tax burden for any worker earning £500,000 or more.
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Tags: London, Tax, Capital, World, Rate
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Analysis: Germany 4Q GDP
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Economic activity in Germany stagnated in the fourth quarter of 2009, as declining investment and consumption offset gains from foreign trade, the Federal Statistical Office reported on Friday, confirming its forecast from last month. In seasonally adjusted terms, GDP was unchanged on the quarter, leaving the annual growth rate at -1.7%. Adjusted for workdays, overall economic activity was down 2.4% year-over-year, according to the statistics office's preliminary estimates.
"The only positive impulses for the (real, seasonally and calendar-adjusted) quarterly change came from foreign trade: while exports expanded further, imports declined," the Stats Office said. "Consumer spending and investment fell back and weighed on economic growth."
Trade figures show that exports rose by just over 5% in 4Q, while imports fell back almost 2%.
Household spending was likely hit by the expiration of the government's car-scrapping premium, as evidenced by lower car sales, the Bundesbank has said. While retail sales rebounded in December, 4Q turnover was down 0.2% from that of 3Q, which declined 0.4%.
Falling two out of the three months in 4Q, industrial output managed only a 0.4% gain on the quarter, down notably from the 3.4% rebound in 3Q.
The marked slowdown in industry orders growth in 4Q to 0.7% from +8.8% in 3Q, due in large part to falling demand in the car industry,suggests that production may slow further in the near term.
Bundesbank President Axel Weber has also predicted a slowdown in the recovery ahead, with "subdued" GDP growth in 1Q. In an interview on Monday, Weber even suggested that economic activity could stagnate or even shrink slightly in the first quarter of this year due to weather. But it would then be stronger in 2Q.
Market players polled in the latest Centre for European Economic Research (ZEW) survey echoed the central banker's view.
"The assessment of the financial market experts suggests that we will see an economic recovery in 2010 at best, but not a clear economic upswing. The way out of the recession is burdensome and long", ZEW President Wolfgang Franz said. Other surveys have been more promising.
Manufacturers polled in the latest purchasing managers index (PMI) reported ongoing improvement in both output and orders. As a result, the PMI rose a full point to 53.7 in January, its highest level since March 2008.
"Strong new order growth was the main factor underpinning the rebound in production levels," said Markit Economics, the firm that conducts the PMI. "The latest improvement in new business volumes was the most marked for three years, which survey respondents linked to the launch of new products and improved confidence among clients."
Respondents to the Ifo institute's most recent business climate survey have also grown more optimistic. Firms were especially confident regarding the six-month outlook, suggesting that the recovery would resume this year.
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Tags: Germany, 4Q, Economy, GDP, Analysis, Report
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Main Overnight Headlines, 28-29 Jan
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Headlines:
•The Fed maintains its current zero interest rate policy and affirmed its programme of bond purchases would finish at the end of Mar, but there was a dissenting vote for the 1st time in a year from Kansas Fed's Thomas Hoenig
•U.K. DMO's Robert Stheeman warns that the final purchases of the BoE's QE project created uncertainty in the bond markets, which can lead to rising govt yields, or interest rates because of the changing supply and demand dynamic
•U.S. President Obama says they will set aside $30bn from the TARP to help community banks finance small business loans
•Japan's retail sales unexpectedly fell 0.3% from a year earlier against a forecasted gain of 0.3% - It was the 16th straight monthly fall
•Japan may increase bond issuances in each of 3 yrs from Apr-2011, the MoF forecasts – Bloomberg
•RBNZ Governor Bollard reaffirmed he saw no need to raise rates before mid-year given tame inflation
Europe:
The threat to the economy from a sell-off in the bond markets has moved to a more dangerous phase after the BoE ended its govt debt buy-back programme. Robert Stheeman, chief executive of the Debt Management Office, warned that the final purchases of the Bank's QE project created uncertainty in the bond markets, which could lead to rising govt yields, or interest rates because of the changing supply and demand dynamic.
http://www.ft.com/cms/s/0/f77dfe4a-0b82-11df-8232-00144feabdc0.html
Banks should take advantage of the profits they make this year to bolster balance sheets rather than make pay-outs to staff or shareholders, Andrew Haldane, the BoE executive director for financial stability, has said.
http://www.ft.com/cms/s/0/cee02c8e-0b81-11df-8232-00144feabdc0.html
President Sarkozy stepped up his calls for a new Bretton Woods system to stabilise global exchange rates, promising proposals for reform of the international monetary system when France takes over the presidency of the G8 and G20 next year. He said, “We cannot preach free trade and tolerate monetary dumping. France, which will chair G20 in 2011, will place reform of the monetary system on the agenda.”
http://www.ft.com/cms/s/0/1d4c4bb6-0b71-11df-8232-00144feabdc0.html
Major central banks on Wednesday said they will stop the emergency U.S. dollar lending introduced during the financial crisis. The ECB, the BoE, the BoJ and the Swiss National Bank, as well as the central banks of Canada, Australia, New Zealand, Mexico, Brazil and Sweden said they will let their dollar "swap" arrangements with the U.S. Federal Reserve expire on Feb. 1. - Reuters
U.S & Canada:
The Fed maintained its current zero interest rate policy and affirmed its programme of bond purchases would finish at the end of March, but there was a dissenting vote for the first time in a year from Kansas Fed's Thomas Hoenig. The FOMC reiterated: “Low rates of resource utilisation, subdued inflation trends, and stable inflation expectations are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
http://www.ft.com/cms/s/0/65d2796c-0b5f-11df-8232-00144feabdc0.html
President Obama said the US would set aside $30bn from the TARP to help community banks finance small business loans in his State of the Union address. The idea is to ease access to credit for small firms that typically account for a large share of jobs growth but face difficulties accessing bank loans.
http://www.ft.com/cms/s/0/981feb38-0bbf-11df-9f03-00144feabdc0.html
President Obama declared that creating jobs would be his “number one focus” this year, also pledging to right the economy and continue pushing for healthcareand financial sector reform in State of the Union address.
http://www.ft.com/cms/s/0/d2d709ae-0b8e-11df-8232-00144feabdc0.html
Australia & New Zealand:
RBNZ governor Bollard reaffirmed he saw no need to raise rates before mid-year given tame inflation, countering speculation that a quickening growth rate may force an earlier tightening. – Bloomberg
Japan:
Japan's retail sales unexpectedly fell for a 16th month in Dec as dwindling paychecks and deteriorating job prospects weighed on consumers. Sales slid 0.3% from a year earlier against a forecasted gain of 0.3%.
Japan may increase bond issuances in each of 3 years from April 2011, the Ministry of Finance forecasts, adding to concern that the govt is struggling to contain the world's largest public debt. Sales of new bonds may climb to 51.3 trillion yen in the year starting Apr 2011, according to a ministry document. That would be a 16% increase from next fiscal year's projected 44.3 trillion yen. - Bloomberg
Asia and RoW:
China's weighted average 7-day repo rate, the key measure of short-term liquidity, soared to its highest level in more than 5 months as banks prepared funds for a major IPO and due to the ongoing impact from the central bank's recent tightening of liquidity. The weighted average 7-day repo surged to 1.8579% early, its highest level since early Aug, from the previous close of 1.5761%.
China shouldn’t buy a “large chunk” of Greek govt debt to help rescue the nation because the securities are more risky than U.S. Treasuries, said Yu Yongding, a former adviser to the Chinese central bank.
Confidence among South Korean companies rose to the highest level in at least 7 years, a Federation of Korean Industries survey showed as its business survey index for Feb rose to a seasonally adjusted 114.2, the highest since 114.6 for Sep’02.
Mexico plans to buy more U.S. dollars and end credit lines with the IMF and U.S. Fed in a sign of confidence in the country's recovery from the financial crisis. Central bank chief Agustin Carstens said his country should increase international reserves and gradually extricate itself from a $47 billion line of credit with the IMF. - Reuters
Brazil's central bank held its benchmark interest rate steady at a record low, but left the door open for a rate hike in coming months. - Reuters
China's banking regulator told lenders to step up scrutiny of property loans while pledging to satisfy “reasonable” financing needs as it seeks to control credit growth and prevent asset bubbles.
Events (London Time):
SWE 08:15 Economic Tendency Survey (Jan)
SWE 08:15 Consumer Confidence (Jan)
SWE 08:15 Manufacturing Confidence
ITA 08:30 Business Confidence (Jan) 83.0
SWE 08:30 Retail Sales (Dec)
SWE 08:30 Unemployment Rate (Dec)
DNK 08:30 Unemployment Rate - (Dec)
DEU 08:55 Unemployment Rate (Jan)
NOR 09:00 Unemployment Rate (Jan)
EMU 10:00 Business Climate Indicator (Jan)
EMU 10:00 Consumer Confidence (Jan)
EMU 10:00 Economic Confidence (Jan)
EMU 10:00 Indust Confidence (Jan)
EMU 10:00 Services Confidence (Jan)
BEL 10:15 CPI (Jan)
USA 13:30 Durable Goods Orders (Dec) 1.0%
USA 13:30 Durables Ex Transportation (Dec) 1.0%
USA 13:30 Initial Jobless Claims
NZL 21:45 Building Permits (Dec)
NZL 21:45 Trade Balance (Dec) NZD -0.172bn
JPN 23:15 Nomura/JMMA Manufacturing PMI (Jan)
JPN 23:30 Household Spending (Dec) (1.6%)
JPN 23:30 Job-To-Applicant Ratio (Dec) 0.45
JPN 23:30 Natl CPI (Dec) -0.1%(-2.0%)
JPN 23:30 Natl CPI Ex Food, Energy (Dec) -0.1%(-1.8%)
JPN 23:30 Tokyo CPI (Jan) 0.0%(-2.3%)
JPN 23:30 Tokyo CPI Ex Food, Energy (Jan) 0.0%(-1.9%)
JPN 23:30 Unemployment rate (Dec) 5.2%
JPN 23:50 Industrial Production (Dec P) 2.5%
Tags: Main, Overnight, Headlines, News, Links
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Trade Galleon Scandal: Profiles of Those Involved
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Raj Rajaratnam: Galleon co-founder Rajaratnam, 52, was arrested and charged Oct. 16 with making millions of dollars by trading on insider information. Rajaratnam, born in Sri Lanka, earned a degree from the University of Sussex, England, in 1980, and an MBA in Finance from the University of Pennsylvania's Wharton School in 1983. Rajaratnam lives in New York.
Roomy Khan: A former employee of Intel Corp., Khan, 51, was convicted of wire fraud in 2001 for passing inside sales information to Galleon. She worked for Galleon in the 1990s and tried to rejoin the firm in late 2005. She has agreed to plead guilty to charges of conspiracy and securities fraud. She is cooperating with federal authorities. She lives in Fort Lauderdale, Florida.
Deep Shah: A former analyst at Moody's Investors Service, Shah, 27, is alleged to have given insider information to Khan, including Hilton Hotels Corp.'s impending takeover by Blackstone Group LP. Federal authorities believe he is now in India.
Rajiv Goel: Goel, 51, a former Intel Capital employee, was arrested and charged Oct. 16 with passing inside tips about Clearwire Corp. and Intel earnings to Rajaratnam. He lives in Los Altos, California. He has an MBA in Finance from Wharton and is a friend of Rajaratnam.
Danielle Chiesi: Chiesi, 43, was a consultant at New Castle Funds LLC, a former Bear Stearns Cos. hedge fund. She was arrested and charged Oct. 16 with insider trading. Prosecutors claim she passed tips along to Rajaratnam, including advance notice of a spinoff by Advanced Micro Devices. Chiesi lives in New York.
Mark Kurland: Kurland, 60, co-founder of New Castle, was Chiesi's boss. He was arrested and charged in the insider trading case Oct. 16. Kurland lives in Mt. Kisco, New York.
Robert Moffat: A former executive with International Business Machines Corp., Moffat, 53, was arrested and charged Oct. 16. Federal officials claim he passed tips to Chiesi, including information about the Advanced Micro Devices spinoff and IBM earnings. He lives in Ridgefield, Connecticut.
Anil Kumar: A friend of Rajaratnam, Kumar, 51, is a former director at the consulting firm McKinsey & Co. He was charged with insider trading Oct. 16. Investigators claim Kumar gave Rajaratnam inside information on the impending spinoff of Advanced Micro Devices, which was a McKinsey client. He lives in Saratoga, California.
Hector Ruiz: The most prominent executive tied to the Galleon case, Ruiz, 63, is the former chief executive of Advanced Micro Devices. He is the executive prosecutors say provided insider information about the upcoming Advanced Micro Devices spinoff to Chiesi. Ruiz, who has not been charged, said he will resign as chairman of Globalfoundries Inc., the company that resulted from the spinoff, Jan. 4. He is on a leave of absence from the company.
Richard Choo-Beng Lee: Lee, 53, and Rajaratnam were colleagues at the research firm Needham & Co. almost 20 years ago. Lee and Ali Far founded Spherix Capital LLC in 2008. Lee has a degree in electrical engineering from Duke University and an MBA from the University of California, Berkeley. He pleaded guilty and is cooperating with federal authorities. He lives in San Jose, California.
Ali Far: Far, 47, is a former Galleon employee who founded Spherix Capital with Lee. He pleaded guilty and is cooperating with the government. Far lives in Saratoga, California.
Steven Fortuna: Fortuna, a co-founder and principal of the hedge fund S2 Capital in Boston, pleaded guilty and is coopering with prosecutors. Fortuna is alleged to have traded on a tip from Chiesi about Akamai Technologies Inc. earnings. Fortuna, 47, lives in Westwood, Massachusetts.
Ali Hariri: A former vice president at the semiconductor company Atheros Communications Inc., Hariri, 38, allegedly tipped Far and Lee to company earnings. He was arrested Nov. 5 and charged with conspiracy and securities fraud. Hariri lives in San Francisco.
Arthur Cutillo: Cutillo, 33, a former attorney at the law firm Ropes & Gray LLP, was arrested Nov. 5 and charged with passing insider tips on deals the firm was working on involving Hilton, Avaya Inc., 3Com Corp. and Axcan Pharma Inc. Cutillo, who is alleged to have received kickbacks for the tips, lives in New Jersey. Prosecutors say he was a key source of inside information for the ring.
Jason Goldfarb: Prosecutors claim Goldfarb, a 31-year-old New York lawyer, received tips from Cutillo and passed them on to Zvi Goffer.
Zvi Goffer: Prosecutors claim Zvi Goffer, 33, was known within the ring as “the Octopussy,” due to his reputation for having multiple sources of inside information. Goffer, the founder of Incremental Capital LLC, previously worked at Galleon and Schottenfeld Group LLC. Prosecutors say he paid Cutillo and other tipsters and gave them prepaid mobile phones to avoid detection. He was arrested and charged Nov. 5 with fraud and conspiracy. He lives in New York.
Emanuel Goffer: The brother of Zvi Goffer, Emanuel, 31, was a trader at Spectrum Trading before joining Zvi at Incremental Capital. He was arrested and charged with securities fraud and conspiracy Nov. 5. Emanuel is alleged to have traded on insider tips from Zvi.
Gautham Shankar: Shankar, 35, was a trader at Schottenfeld. He pleaded guilty to securities fraud for trading on tips from Zvi Goffer and is cooperating with the authorities. He lives in New Canaan, Connecticut.
David Plate: A trader formerly with Schottenfeld, Plate was arrested and charged Nov. 5 with securities fraud and conspiracy for trading on tips from Zvi Goffer. Prosecutors say he now works for Incremental and lives in New York.
Craig Drimal: Drimal, 53, was arrested and charged Nov. 5 with fraud and conspiracy for trading on tips from Zvi Goffer. Prosecutors say he worked in Galleon's office space without being employed by the firm.
Michael Kimelman: Kimelman, a trader with Lighthouse Financial Group, was arrested and charged Nov. 5 with fraud and conspiracy for trading on tips from Zvi Goffer.
Tags: Galleon, Scandal, People, Involved, Questioned, N...
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Forex Market Update - 29 September 2009
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Markets in limbo in Asia as Japan finance minister Fujii finds reverse fear for his comments
Australian interest rate markets taking on a more hawkish stance into year end
MAJOR HEADLINES – PREVIOUS SESSION
US Aug. Chicago Fed nat. activity Index out at -0.9 vs. revised -0.5% prior
US Dallas Fed Manuf. Activity out at -6.4% vs. -1.0% expected and -9.1% prior
NZ Aug. Building Permits out at +1.7% vs. revised +4.5% prior
JP Sep. Tokyo CPI out at -2.0% y/y vs. -1.8% expected and revised -1.7% prior
JP Aug. National CPI out at -2.2% y/y, as expected and unchanged from previously
NZ Aug. M3 Money Supply out at +3.5% y/y vs. +3.8% prior
JP Sep. Small Business Confidence out at 43.5 vs. 41.8 prior
GE Aug. Import Price Index out at +1.3% m/m, -10.9% y/y and -0.9%/-12.6% prior
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
Sweden Retail Sales (0730)
GE Retail PMI (0810)
EU Euro-zone Retail PMI (0810)
UK Final Q2 GDP (0830)
UK Current Account Bal (0830)
UK Mortgage Approvals (0830)
UK M4 Money Supply (0830)
HK Retail Sales (0830)
EU Business Climate Indicator (0900)
EU Euro-zone Consumer/Economic/Industry/Services Confidence (0900)
UK CBI Distributive Trades Survey (1000)
US S&P/CaseShiller Home Price Index (1300)
US Fed's Fisher to speak (1350)
US Consumer Confidence (1400)
Market Comments:
Dollar bulls that went home happy at the end of the Asian session yesterday were in for a surprise during the night. A strong performance by equity markets in the face of renewed M&A talk and greater optimism about prospects in the financial sector put a brake on the dollar's gains. At the same time we witnessed Japanese finance minister shifting his comments into reverse gear after appearing to give the green light to JPY bulls earlier in the day.
GBP was also helped by strong corporate demand and UK bank dividend payments while the AUD was the out-performer of the session, rising after series of more-hawkish comments from RBA Governor Stevens yesterday and cemented after noted RBA-watcher Terry McCrann forecast a series of rate hikes by the RBA in coming months. EUR took a short-term hit after ECB chief Trichet commented that having a strong dollar was “extremely important”.
The Asian session was again dominated by words from Japanese authorities. First off, finance minister Fujii continued his back-pedaling by reiterating that he never said he accepted a strong JPY and warned that currency intervention is possible under extreme circumstances. He cautioned that present currency moves are too sudden and current levels in currency markets were too one-sided. A couple of hours later he was out again saying there is no need for excessive currency market reaction, with current moves within a natural range. What's coming next?!
There were more pro-dollar comments from former top currency official Toyoo Gyohten (now an advisor to Fin Min Fujii) who was quoted as saying Japan should support the US dollar's world reserve currency status, as there was no better alternative and keeping it as stable as possible was the best option. Later, strategy minister Naoto Kan came on the wires saying that stable FX rates were desirable, and seemed to have calmed down slightly though the government will be closely monitoring the currency's impact on the economy.
While on the Japanese economy, today's data showed the risk of Japan sinking deeper into a deflationary trap was very much alive as core nationwide CPI fell at a steeper pace for the sixth consecutive month. Core inflation fell a hefty 2.4% y/y, bang in line with expectations,but at a faster pace of decline than the 2.2% seen in July. September's data for the Tokyo area also showed similar tendencies with a decline of 2.1% y/y versus 1.9% the previous month.
Needless to say, activity in JPY-related FX pairs was whippy during the Asian morning, though USDJPY seemed to stabilize around the 90 mark. The hawkish sentiment in AUD interest rate markets was given another boot this morning after the RBA's Head of Economics, Anthony Richards, warned of a house price bubble. He cautioned that it was not reasonable to expect mortgage rates to stay at the current low levels indefinidely. Meanwhile, Australian Treasurer Swan announced a record, but smaller-than-expected, budget deficit for 2008/09 at 2.3% of GDP. AUD was scraping higher to the 2009 highs reached last week.
On the data front, into Europe we will see final Q2 UK GDP numbers and German, Euro-zone retail PMI together with Euro-zone confidence indicators. The US sees Case Shiller house prices and consumer confidence
Tags: Forex, Market, Headlines, Updates
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G20 Ministers and Governers Meeting Minutes
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LONDON (MNI) - The Finance Ministers and Central bank governors from the G20 economies met in London; following is a full text of their communique:
1. We, the G20 Finance Ministers and Central Bank Governors, met ahead of the Pittsburgh Summit to assess our progress in delivering the Global Plan for Recovery and Reform and agree further actions to ensure sustainable growth and build a stronger international financial system. We reiterated the need for swift and full implementation of all the commitments made at the Washington and London Summits and have agreed the further necessary steps to strengthen the financial system, as set out in the accompanying declaration.
2. Our unprecedented, decisive and concerted policy action has helped to arrest the decline and boost global demand. Financial markets are stabilising and the global economy is improving, but we remain cautious about the outlook for growth and jobs, and are particularly concerned about the impact on many low income countries. We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies, consistent with price stability and long-term fiscal sustainability, until recovery is secured.
3. We must build on what we have already achieved and tackle the significant challenges that lie ahead. It is vital for growth that we act to support lending, including dealing with impaired assets and conducting robust stress tests where necessary. We must promote employment through structural policies, active labour market policies, and training and education. We will work to address excessive commodity price volatility by improving the functioning and transparency of physical and financial markets and promoting a closer dialogue between producer and consumer countries. We welcome the swift implementation of the $250 billion trade finance initiative and reaffirm our commitment to fight all forms of protectionism and to reach an ambitious and balanced conclusion to the Doha Development Round.
4. We agreed the need for a transparent and credible process for withdrawing our extraordinary fiscal, monetary and financial sector support as recovery becomes firmly secured. Working with the IMF and the FSB we will develop cooperative and coordinated exit strategies, recognising that the scale, timing and sequencing of actions will vary across countries and across the types of policy measures.
5. We will work to achieve high, stable and sustainable growth, which will require orderly rebalancing in global demand, removal of domestic barriers and promotion of the efficient functioning of global markets. The need to combat climate change is urgent, and we will work towards a successful outcome in Copenhagen.
6. We have made significant progress in strengthening the IFIs, but more needs to be done. We are close to completing the delivery of $850 billion of additional resources agreed in April, including an expanded, more flexible New Arrangement to Borrow; and $50 billion to support social protection and safety nets, boost trade and safeguard development in low income countries. We welcome the overhaul of the IMF's lending facilities. We encourage the Multilateral Development Banks to make full use of their balance sheets and reaffirm our commitment to ensure they have appropriate capital, recognising that they are fully on track to deliver $100 billion of additional lending. In the period ahead we need to focus on providing resources to low income countries to support structural reforms and infrastructure development.
7. We look forward to prompt implementation of the 2008 IFI governance reforms, and will complete World Bank reforms by Spring 2010 and the next IMF quota review by January 2011. We recognise that the IMF should remain a quota-based organisation; and as part of the reforms, the voice and representation of emerging and developing economies, including the poorest, must be significantly increased to reflect changes in the world economy. To achieve this we look forward to substantial progress in Pittsburgh. We also reaffirm our commitment to increase acountability, strengthen the involvement of Fund Governors in strategic oversight, and agree to move to an open, transparent and merit-based selection of IFI management. To improve the role and effectiveness of the Fund in supporting stronger cooperation and ensuring a more sustainable global economy and international financial system, candid, even-handed, and independent surveillance will be vital. We call on the IMF, working with other international institutions, to coninue assessing our actions to secure a sustainable recovery.
Tags: Meeting, Finance, Ministers, Central Bank, Govern...
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Currency Briefing - 28 August
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EUR-USD: Everything had been looking so good for the greenback yesterday. Better than expected economic data from the US combined with losses on the stock markets had caused EUR-USD to aim for the 1.42 mark. But then everything changed. Within less than half an hour the dollar lost 1.2 cent against the euro (or 0.85%) with the euro peaking at 1.4406.
When analysing the situation observers will have difficulty finding a specific reason for the sudden correction, as neither data nor any particular news were published. Almost as a reflex news agencies referred to stock markets turning positive as well as rising oil prices. Stock markets had started turning positive two hours earlier though with the uptrend starting three hours beforehand. The development of the oil price is similarly unsuited to explaining the strong EUR-USD move. It is correct that the oil price rose first, appreciating by approx. 2.5 dollars per barrel to above 72. This would suggest that the oil price affected EUR-USD. On the other hand we have repeatedly seen similar changes in the oil price (in both directions) over the past weeks, which either caused no strong move in EUR-USD (as was the case on Tuesday) or the move in EUR-USD and oil was simultaneous. Moreover a lead of a few minutes of the oil price over EUR-USD would be difficult to explain logically.
Traders are referring to low liquidity during the summer months, which sometimes leads to strong price changes on the FX markets. Moreover it is worth remembering that last night's move of approx. 120 pips in EUR-USD might seem strong against the background of the calm markets recently, historically it is not extraordinary though. The chart below demonstrates that the average intraday fluctuation in EUR-USD even before the start of the financial crisis was approx. 130 pips before rising strongly during the crisis. Fluctuations then peaked at more than 500 pips. Yesterday's move totalling 180 pips therefore no longer seems unusual. This leaves the speed of the development in the evening, which points towards low liquidity (the USD depreciation ended as abruptly as it had started and in the meantime EUR-USD is trading 50 pips lower). Yesterday's depreciation should therefore not be seen as a sign of dollar weakness.
JPY: This morning's Japanese inflation data reconfirms concerns about deepening deflation risks. In particular the decline in the yoy core inflation rate to -0.9% - the lowest level since July 2004 - confirm our view that the BoJ will be the last G10 central bank to reverse policy. Weak household spending and a sharp rise in the July unemployment rate to a record high of 5. 7% support this assessment. In this respect it is worth highlighting that the JPY's carry within the G10 grid has already fallen to -90bp from -56bp at the start of March. Judging from the close long-term relation between the carry and the trade-weighted JPY we remain convinced that further JPY weakness is on the cards; once the USD downward trend peters out, this leaves significant upside risks to USD-JPY. It goes without saying, that ahead of Sunday's election, these fundamentals arguments will catch limited attention.
CAD: In mid-week the remarks by Bank of Canada Deputy Governor Timothy Lane already weighed on the CAD and led to a reversal in USD-CAD. Although Lane did not really say anything new and did not use the word "intervention", his comments - to the effect that the persistent strength of the Canadian dollar potentially represents a downside risk for the economy and might delay the reaching of the inflation target - were enough to remind the market that the BOC would not like to see the CAD rise too rapidly and could resort to using unconventional monetary policy instruments. And now the next dark cloud threatens from the fundamental side: the publication of the current account data for the second quarter. In the course of the global crisis and the slump in exports, for the fourth quarter of 2008 Canada had reported its first current account deficit in almost ten years. As a result of the weak exports in the second quarter of this year, the current account shortfall has probably widened further. Added to this is the fact that commodity prices remain low compared to a year ago. The 1.10 mark in USD-CAD was severely tested yesterday. Now, there is strong resistance in the 1.1000-20 area, which is unlikely to be breached ahead of the weekend. A break of this level would open scope towards 1.1120-30.
Emerging Market Currencies
PLN: Polish Q2 GDP due for publication today will remind markets once again that Poland will be one of the few countries whose economic output is not going to shrink in 2009. The central bank maintained its easing bias on Wednesday, this is however likely to be due to the fact that the MPC is split into two camps; and we do not expect to see a further rate cut. Today's GDP data might help markets to come round to this view (in particular in case of a positive surprise) supporting the zloty. This does not change the fact that global factors will continue to have the upper hand.
MXN: As the week brought little new data, the Mexican peso was mainly driven by external factors. Yesterday the peso eased due to the weak start on the stock markets and falling commodity prices. As it is likely to become increasingly clear over the following weeks that also the Mexican economy is on the path towards recovery, this week's peso depreciation is likely to have been a temporary correction. Next week will bring the PMI (Thursday) and consumer confidence (Friday). Both are likely to have risen again in August. From the US, Mexico's most important trade partner, we are expecting the ISM index as well as industry order intake. These are expected to point towards a further recovery of the US production. The peso is likely to benefit from stronger economic data from both countries.
Tags: Corrency, Briefing, News, Summary, August
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Forex Market Update, Monday 24th August
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Strong US data confirms the risk appetite trend after the Euro-zone PMIs
But currencies fail to break out of recent ranges. Which will give this week?
MAJOR HEADLINES – PREVIOUS SESSION
US Jul. Existing Homes Sales out at +7.2% m/m vs. +2.1% expected and +3.6% prior
US Jul. Existing Home sales out at 5.24 mln vs. 5.0 mln expected and 4.89 mln prior
AU Jul. New Motor Vehicle Sales out at -6.9% m/m, -10.4% y/y vs. revised +5.8%/-7.1% prior respectively
JP Jul. Supermarket sales out at -4.8% y/y vs. -4.4% prior
SI Jul. CPI out at +1.1% m/m, -0.5% y/y vs. +0.3%/-0.6% expected and -0.5%/-0.5% prior respectively
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
Denmark Consumer Confidence Indicator (0730)
EU Industrial New Orders (0900)
US Chicago Fed Activity Index (1230)
CA Retail Sales (1230)
Market Comments:
Hot on the heels of the stellar German and Euro-zone PMI data, particularly in the services index, US existing home sales data provided the further catalyst for another upswing in risk appetite. Coming in at +7.2% m/m, sales registered their biggest bounce on record and gave Wall St a strong boost into the weekend.
Yet, despite all the good news, currency markets failed to deliver a dramatic move outside recent ranges. EUR failed to move past the 1.44 mark and 1.45 certainly seemed elusive while USDJPY was firmly capped below the 95.0 mark. It was suggested that the USD was able to stage a mild rebound because, while the headline numbers looked convincing, the rising mortgage delinquency rates (notably now spreading to prime mortgages rather than sub-prime) and lower average prices may imply that a large number of transactions are still distressed sales. It looks like we will have to wait for Wednesday's new home sales data for confirmation of a possible base in the housing slide.
In the latter part of the US session, Fed Chief Bernanke delivered his speech at the Jackson Hole central bankers’ retreat. His mood was cautiously optimistic, stating that prospects for a return to growth appear “good” though any rebound was likely to be sluggish. In addition, any rebound in the unemployment situation would be very gradual. Others adopted the same cautious approach – ECB's Nowotny said he did not see the prospect of a double-dip recession becoming a reality but warned central bankers about launching exit strategies too soon and noted that a sustained recovery in the Euro-zone was not likely to surface until the start of 2010. His colleague Trichet was of the same opinion but defended criticism that the ECB had been behind the curve in cutting rates, saying that a more gradualist approach was the better antidote to the threat of price stability.
In contrast to ECB's Nowotny, noted economist Noriel Roubini wrote in the FT and warned that there was still a “big risk” of a double-dip recession. He expects the global economy to bottom out in the second half of the year but expected the US and Europe to experience “anemic” and below-trend growth for at least a couple of years. He also highlighted that commodity prices were rising faster than fundamentals warrant.
The start of the week was a relatively calm affair in Asia. Stock markets recovered their losses from Friday and matched gains of Wall St with most posting gains of 2-3%. Shanghai was again a slightly contrarian affair, opening in the red and certainly lagging the rest of Asia during the session. Currency markets were steady but the “risk” currencies were seen testing higher resistance levels. At these levels there were reports of some heavy offers and these served to put an effective cap on activity and range-trading into Europe was the name of the game.
The only data release was second-tier Australian new vehicle sales, but these may have given a minor indicator of things to come. While Australia has not had an equivalent to “cash-for-clunkers” program, it certainly has been dishing out cash as part of its stimulus programs. The surprise reversal in new vehicle sales in July, down 6.9% m/m and 10.4% y/y, was the first monthly decline in four months and could be an indication that the stimulus effects of fiscal handouts and tax breaks may be wearing out. With the US’ “cash-for-clunkers” program finishing today, will we see a similar effect in US numbers?
Data releases for today include Euro-zone industrial new orders, US Chicago Fed Activity and Canada retail sales. Looking ahead to the rest of the week, US consumer confidence on Tues, durable goods orders and new home sales orders on Weds and US Q2 GDP data on Thurs will attract attention. The latter will be all the more pertinent given the above-forecast results from the Euro-zone recently. What about the UK? Advance estimates for Q2 disappointed in July but will the provisional data due on Thursday see an upward tilt? That would certainly remove one of the bearish pressures on the pound and restore the positive vibes that the worst is behind us, globally.
Tags: Forex, Market, Markets, Events, Moneytree, Moneyt...
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