ECB's Draghi Signals Further Action
European Central Bank President Mario Draghi reiterated on Thursday that the central bank rate-setting body is unanimous in its commitment to use more tools and stands ready to take additional stimulus measures if needed. "Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconve
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BRICS anti-dollar alliance story and What to Make of It
Attachment 10832
The governor of the Russian Central Bank, Elvira Nabiullina met Vladimir Putin to report on the progress of the upcoming ruble-yuan swap deal with the People's Bank of China and the Kremlin used the meeting to let the world know about the technical details of its international anti-dollar alliance.
We've done a lot of work on the ruble-yuan swap deal in order to facilitate trade financing. I have a meeting next week in Beijing," Elvira Nabiullina said casually and then dropped the bomb: "We are discussing with China and our BRICS parters the establishment of a system of multilateral swaps that will allow to transfer resources to one or another country, if needed. A part of the currency reserves can be directed to [the new system]."
http://youtu.be/lXomHlVhvFU
5 Attachment(s)
EUR/USD Rebound Vulnerable to Strong Non-Farm Payrolls (NFP) Report
- U.S. Non-Farm Payrolls (NFP) to Expand 200+K for Tenth Time in 2014.
- Jobless Rate to Hold at 5.8% for Second Consecutive Month.
Trading the News: U.S. Non-Farm Payrolls
The U.S. Non-Farm Payrolls (NFP) report may spark a bearish reaction in EUR/USD as market participants expected another 230K rise in employment paired with an uptick in wage growth.
What’s Expected:
Attachment 11178
Why Is This Event Important:
A batch of positive developments may spark another near-term rally in the greenback especially as a growing number of Fed officials show a greater willingness to normalize monetary policy in 2015.
Expectations: Bullish Argument/Scenario
| Release |
Expected |
Actual |
| Challenger Job Cuts (YoY) (NOV) |
-- |
-20.7% |
| Durable Goods Orders (OCT) |
-0.6% |
0.4% |
| Gross Domestic Product (Annualized) (QoQ) (3Q S) |
3.3% |
3.9% |
The decline in planned job cuts along with the pickup in economic activity may generate a strong employment report, and the dollar may continue to outperform against its major counterparts over the near to medium-term amid growing bets for higher borrowing-costs in the U.S.
Risk: Bearish Argument/Scenario
| Release |
Expected |
Actual |
| ISM Non-Manufacturing Employment (NOV) |
-- |
56.7 |
| ADP Employment Change (NOV) |
222K |
208K |
| ISM Manufacturing Employment (OCT) |
-- |
54.9 |
However, the employment report may disappoint amid the ongoing slack in the labor market, and the greenback may face a larger correction over the near-term as a weaker-than-expected NFP print drags on interest rate expectations.
How To Trade This Event Risk
Bullish USD Trade: Strong Job/Wage Growth Boosts Interest Rate Expectations
- Need red, five-minute candle following the release to consider a short trade on EUR/USD
- If market reaction favors a long dollar position, sell EUR/USD with two separate position
- Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
- Move stop to entry on remaining position once initial target is hit; set reasonable limit
Bearish USD Trade: NFP Report Falls Short of Market Forecasts
- Need green, five-minute candle to favor a long EUR/USD trade
- Implement same setup as the bullish dollar trade, just in the opposite direction
Potential Price Targets For The Release
EUR/USD Daily
Attachment 11179
- Will retain the approach to sell-bounces in EUR/USD as price & RSI preserve the bearish trend.
- Interim Resistance: 1.2600 pivot to 1.2610 (61.8% expansion)
- Interim Support: 1.2280 (100% expansion) to 1.2290 (38.2% expansion)
Impact that the U.S. Non-Farm Payrolls report has had on EUR/USD during the previous month
| Period |
Data Released |
Estimate |
Actual |
Pips Change
(1 Hour post event ) |
Pips Change
(End of Day post event) |
| OCT 2014 |
11/07/2014 13:30 GMT |
235K |
214K |
+21 |
+66 |
October 2014 U.S. Non-Farm Payrolls
EURUSD M5: 83 pips pips range price movement by USD - Non-Farm Employment Change news event
Attachment 11180
GBPUSD M5: 70 pips range price movement by USD - Non-Farm Employment Change news event
Attachment 11181
USDCAD M5: 99 pips price range movement by USD - Non-Farm Employment Change news event
Attachment 11182
U.S. Non-Farm Payrolls (NFPs) increased another 214K in October following a revised 256K expansion the month prior, marking the consecutive 9th month with an employment increase over 200K. Despite the weaker-than-expected print, the unemployment rate unexpectedly slipped to an annualized 5.8% from 5.9% during the same period to mark the lowest reading since August 2008. Moreover, the report continued to highlight anemic wage growth as Average Hourly Earnings held steady at 2.0%, and the subdued outlook for inflation may encourage the Fed to retain its highly accommodative policy stance for an extended period of time in an effort to foster a stronger recovery. The greenback largely struggled to hold its ground following the mixed print as EUR/USD held above the 1.2400 handle going into the European close, with the pair ending the day at 1.2453.
--- Written by David Song, Currency Analyst and Shuyang Ren
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China's Zombie Factories Provide Illusion of Work and Prosperity; Rebalancing Chinese Style
Attachment 11558
The Financial Times reports China Zombie Factories Kept Open to Give Illusion of Prosperity:
In the shadow of a group of enormous smokestacks and abandoned foundries, a peeling sign welcomes visitors to the Wenxi Steel Industrial Park.
Highsee stopped paying its 10,000 employees six months ago. Local officials estimate the plant supported indirectly the livelihood of about a quarter of Wenxi county’s population of 400,000. Highsee was the biggest privately owned steel mill in Shanxi, accounting for 60 per cent of Wenxi’s tax revenues. For those reasons, the local government was reluctant to allow the company to go out of business, even though it had been in serious financial difficulties for several years.
“By 2011 Highsee was already like a dead centipede that hadn’t yet frozen stiff with rigor mortis,” says one official who asks not to be named because he was not authorised to speak to foreign reporters. “More than half the plant shut down, but it was still producing steel even though its suppliers wouldn’t deliver anything without cash up front and it was drowning in debt.”
In the past month alone Chinese media have reported on at least nine large steel mills that appeared to be suspended in limbo after halting production but which are forbidden from going formally bankrupt.
“There are large numbers of companies across China that should go bankrupt but haven’t done so,” says Han Chuanhua, a bankruptcy lawyer at Zhongzi Law Office, a Beijing legal practice. “The government doesn’t want to see bankruptcy because as soon as companies go bust, unemployment spikes and tax revenues disappear. By stopping companies from going bankrupt, officials are able to maintain the illusion of local prosperity, economic growth and stable taxes.”
The outstanding volume of non-performing loans in the Chinese banking sector has increased 50 per cent since the beginning of 2013, according to estimates from ANZ, the Australian bank, but the sector-wide NPL ratio remains extremely low, at just over 1.2 per cent.
In private, however, senior Chinese financial officials admit the real ratio is almost certainly much higher, obscured by local governments trying to prop up companies.
read more here
1 Attachment(s)
EURUSD: BNP say Greek deal unlikely by April 24, see a May deal to avoid default
Attachment 12834
BNP out with a piece on the Greek negotiations with the eurozone:
- Negotiations have ground to a halt
- The Greek government has until 20 April to present economic and fiscal reforms
- Eurogroup meeting of finance ministers on 24 April
- Recent comments by EU officials suggest an imminent deal to unlock the last tranche of Greece's bailout funds still looks unlikely
- The Eurogroup meeting on 11 May is now being touted as the date of a potential deal on Greece
- Greece facing about EUR 0.2bn in interest payments to the IMF on 1 May and a EUR 0.8bn IMF loan redemption on 12 May
- We continue to expect the Greeks to make a last-minute U-turn to secure a deal in the not-too distant future
"Greek Prime Minister Alexis Tsipras needs to strike a delicate balance between the political lines that his party, Syriza, will not cross (such as further cuts in pensions and the liberalisation of the labour market) and the demands of his European counterparts. It may be that his strategy is to reject eurozone demands until the very last minute to demonstrate to the far-left wing of his party that he did all he could, but he has to strike a deal to avoid default".
But ...
- it is impossible to rule out a worst-case scenario in which a deal is not reached ... Greece does not pay the IMF and the Greek government decides to hold a referendum on the terms of an EU bailout and/or membership of currency union
- If the outcome of a referendum were positive (ie, with the majority of Greeks agreeing to the terms of a bailout deal and/or a continuation of euro membership), this could potentially help Mr Tsipras to reshape Syriza, or form a coalition with pro-European, reform-friendly parties, such as Pasok or To Potami
- This would be positive for the country's future relationship with the EU, but the implications of capital controls for sentiment and growth would be negative, at least in the short term, creating new problems, such as even greater funding needs.
the source
1 Attachment(s)
The Next Recession: Cause and Timing
We will have a recession within the next few years, which is an easy forecast. Ten years is the longest we’ve gone between one recession and another, and we’re already five years past the end of the last one.
The Federal Reserve’s unwinding of its stimulus is the most likely cause of the next recession. For a while Europe was the most troubling threat. Although risk still comes to use from Europe and the Middle East, the Fed is now the greatest concern.
In the recession and recovery, the Fed injected a tremendous amount of stimulus through its three rounds of quantitative easing, shown on the chart as the three episodes of strong growth.
Quantitative easing may have been better than nothing, but it certainly did not create a booming economy. However, it does set the stage for a possible boom-bust cycle in the coming years.
Attachment 12954
Banks in the United States are holding on to $1.6 trillion in cash and deposits at the Federal Reserve. Back in 2007 they were happy holding less than $500 billion. That extra $1.1 trillion sits idle, earning a measly 0.25 percent interest. Why don’t the banks put this money to work at a higher interest rate, by making loans to consumers and businesses? Because they don’t see enough applications from credit-worthy borrowers.
As I meet with bankers, though, I hear them say that they really would like to make more loans, and their credit standards are not tighter than historic norms. When I meet with small business owners and corporate CFOs, I hear them express caution. Consumers seem to be happy increasing their debt about in pace with their incomes, which is what they have been doing (aside from student loans).
As the economy improves, though, look for more borrowing. Businesses are feeling more optimistic and are likely to want to add capacity in the coming years. Consumers are more cheerful and may start to reach out for more loans. When demand from credit-worthy borrowers increases, the cash is ready to be lent out. Another trillion dollars of bank loans—in an $18 trillion economy—would get a boom going. As those loans are made and the borrowers start spending, more deposits will come into banks, enabling even more loans. In the jargon of economics it’s called multiple deposit expansion.
Such an increase in lending and spending would eventually be inflationary, so the Fed cannot let this go on too long. If the Fed drains stimulus out of the system, at just the right time and in just the right magnitude, then the economy will gently approach its potential output, and then grow right in pace with underlying potential. (Potential output grows with increases in the labor force and capital.)
So we have nothing to fear so long as the Fed acts at just the right time and in just the right magnitude.
the source
1 Attachment(s)
Goldman Sachs forecast: Goldman's entire outlook for markets and the economy in one slide
Markets are recovering from Friday's big selloff, with stocks in Europe and the US rallying.
Attachment 13004
West Texas Intermediate crude prices are near year-to-date highs, while gold is falling.
In a recent note, Goldman economist Jan Hatzius said he sees US economic growth bouncing back in the second quarter after a below-trend first quarter.
As for what else the rest of the year holds, Goldman's chief equity strategist David Kostin included the following slide in his US Weekly Kickstart note, summing up the firm's outlook for every major market in 2015 and beyond.
"US macroeconomic data have disappointed expectations year-to-date. Q1 growth now looks likely to be significantly below trend. However, we think that the pattern of growth in 2015 will probably mirror that of last year, with weak growth starting off the year, followed by a bounce-back beginning in Q2."
Here are the five reasons why Hatzius believes economic growth will bounce back in Q2:
- The negative impacts of severe winter weather will finally thaw. Goldman estimates that weather-related weakness will shave up to 1% off Q1 GDP.
- Consumer spending will pick up. Consumers have saved most of their savings from lower gas prices; personal savings rose just as gas prices began to fall around last October. Hatzius wrote there’s no obvious reason why consumers will be reluctant to increase their spending, especially because wages are picking up and consumer sentiment is strong.
- Household formation is picking up, despite the disappointing housing starts report for March.
- The economic drag of the oil crash will be less in the second half of the year and by 2016, the energy sector should be making a modest positive addition to GDP.
- Government spending tends to be a drag on growth in Q4 and Q1, removing as much as 0.6% from GDP on average over the last five years. And so, that seasonal effect will be absent in Q2.
the source
