Fall in Business Barometer

Economic activity slowed in September, according to a closely watched index that showed signs of improvement only a month earlier. The Institute for Supply Management-Chicago said Wednesday that its business barometer fell to 46.1 in September from a neutral 50.0 in August. The August barometer reading marked the fist time in almost a year that the data didn't reflect economic contraction. The September barometer was far weaker than economists expected. The Dow Jones Newswires survey predicted a 52.5 reading, which would have signaled economic expansion. ISM-Chicago gathers the monthly data by surveying Chicago-area purchasing professionals for their views on the economy. Stock market prices fell Wednesday in reaction to the disappointing data, causing Treasury yields to fall as well. It isn't unusual for the barometer to stumble during and after a recession, an ISM-Chicago news release stated. The barometer softened in the month after the 2001 recession ended, and did the same after reaching the neutral 50.0 reading after the conclusion of the recession lasting from November 1973 to March 1975. The September stumble still kept in place what appears to be a bottom established for this recession when the barometer sunk to 31.4 in March. As has been the case with other economic data, the employment sector appears to be among the weakest links on the road to recovery. ISM-Chicago's employment index was at 38.8 in September, from 38.7 in August. ISM-Chicago said the index revealed that for every three companies that reduced staff in September, only one firm was hiring employees. Significant declines in new orders and order backlogs helped drag down production, ISM-Chicago reported. The new orders index fell to 46.3 in September, from 52.5 in August. Order backlogs plunged to 36.7 in September, from 45.8 in August. The production index stood at 47.2 in September, down from 52.9 in August. Wednesday's data came on the same day that the Commerce Department said second-quarter gross domestic product - a measure of all goods and services produced in the U.S. - decreased at a 0.7% annual rate, smaller than the previous estimate of a 1% slide, and substantially better than a 6.4% drop in the first quarter. In recent days, some members of the Federal Reserve indicated they might have to implement a series of aggressive increases in the federal-funds rate if the recovery from a severe recession generates an inflation threat. Investors monitor the ISM-Chicago report for indications how purchasing managers nationwide feel about the economy. The Institute for Supply Management's manufacturing index is due Thursday at 10 a.m. EDT. Economists forecast the national ISM index will rise to 54.0 in September, from 52.9 in August. The Chicago Business Barometer is compiled for ISM-Chicago by Kingsbury International.

Buying Government Bonds

The Bank of England says that a sharp increase in bond offerings by U.K. companies this year has been driven by its policy of quantitative easing, but it's far from clear that its claims are justified. The BOE embarked on quantitative easing - buying government bonds, or gilts, with freshly created money - in March. Its aim was to boost nominal spending in the economy through a variety of channels, although it has left many confused about exactly how the program was supposed to achieve its goal. On Wednesday a member of the central bank's Monetary Policy Committee argued in a speech its impact on the corporate bond market has been a key element of the program's success. David Miles, formerly an economist at Morgan Stanley, argued that by buying GBP151.775 billion of government bonds to date, the BOE had freed up cash that has since been invested in corporate bonds, allowing companies to reduce their reliance on scarce bank credit and maintain their spending at levels that otherwise wouldn't have been possible. But while participants in the corporate bond markets don't necessarily disagree, they say Miles' argument is hard to prove conclusively. After all, demand for corporate credit has also soared in the rest of Europe without central banks there using fresh money to buy bonds. And the pickup in corporate bond sales began in February, before the BOE began its quantitative easing. One fact isn't in dispute - issuance of sterling-denominated, high-grade corporate bonds has soared this year. Other than in the summer holiday months of July and August, issuance has exceeded GBP4 billion every month this year, and topped GBP6 billion twice and GBP7 billion once, according to Dealogic. The highest monthly figure in 2008 was GBP2.819 billion. The relative cost of borrowing has also fallen sharply. Spreads over the benchmark mid-swap rate on the Markit iBoxx Non-Financial Corporate index are 230 basis points tighter than at the beginning of the year. "In the U.K., corporate bond spreads have come down, and issuance has increased," said Gary Jenkins, head of fixed-income research at Evolution Securities in London. "But if you are trying to measure the impact of QE, the same thing has happened in the U.S. and Europe. Unfortunately, this isn't a scientific experiment with a control group." According to Dealogic, bond issuance by non-financial companies in Europe as a whole already exceeds $2 trillion this year, while syndicated loan volumes have dropped to their lowest level since 1994, meaning that it isn't just U.K. borrowers who are selling bonds rather than relying on battered banks to lend them money. Investors have been happy to buy U.K. corporate bond offerings. "There has been huge demand for corporate debt," said Jenkins. "We're still seeing new issues oversubscribed and spreads tighten. As long as we have indications that the economy is stabilizing and interest rates remain low, that will continue." But bankers who find buyers for the bonds aren't convinced QE has made the difference claimed by Miles. "Demand on the new issuance hasn't been affected by quantitative easing," said one syndicate banker. Indeed, the heaviest month for supply of sterling high-grade corporate bonds this year was February, before the QE program began. Issuers sold GBP7.712 billion worth that month. The movement of money into corporate bond funds is still strong. Data from the U.K.'s Investment Management Association this week showed that sterling corporate bond funds were the most popular funds for retail investors for the 10th consecutive month, accounting for 14% of net retail sales by U.K. domiciled-funds, for example. "We've seen tremendous inflows into credit funds, so end investors must have moved out of an asset class to redeploy their money, although that is just as likely to have been equities," said Ben Bennett, credit strategist at Legal & General Investment Management in London. "I don't think anyone was explicitly able to sell gilts to buy corporate bonds in a way that wouldn't have happened without quantitative easing," he said. "One of the points of investing in gilts is that they are liquid and you can sell them when you want to, although investors probably got a better price thanks to the Bank of England buying." That's not to say that QE hasn't helped corporate borrowers. In assessing the impact of the program, credit spreads - the premium that corporate issuers pay over government bonds - are only part of the equation. "Quantitative easing has made a meaningful difference to corporate issuers in keeping government bond yields low," said Allegra Berman, vice chairman and global head of sovereign, supranational and agency debt capital markets at UBS in London. "It would have been prohibitively expensive for corporates to fund themselves if we had seen a combination of high gilt yields and wide credit spreads. QE has kept their all-in funding costs palatable," Berman said. Quantitative easing also helped reassure credit markets that the authorities were tackling the financial crisis, and in particular the collapse of liquidity in the corporate bond market that followed the collapse of Lehman Brothers.

Property Insurances to be Made for Empty and Unoccupied House

If you own a property that is currently empty and no one has lived at the premises for thirty or more days then you will most likely require an unoccupied property insurance as most home insurance providers do provide cover for premises that have been vacant for 30 or more days. Always check with your current house insurance company to see if they still will provide cover as some insurers offer full cover for up to 90 days on unoccupied properties.
Due to the nature of this type of risk the insurers level of cover, terms and conditions will vary considerably on a vacant property insurance as opposed to that of a standard home insurance policy. The risk of theft, malicious damage and vandalism increases considerably on properties that are empty. Also if the property catches fire or there is an internal water leak, this may not be picked up by the property owner for some time and as such can result in thousands of pounds worth of damage.
The level of cover available on unoccupied property varies from insurer to insurer but in general most specialist empty house insurance brokers will provide the minimum cover of what is commonly known as the ‘FLEEA’ cover. The ‘FLEEA’ cover provides protection for an unoccupied property for the following perils, Fire, Lightening, Earth, Explosion and Aircraft, hence the acronym FLEEA.
Some vacant buildings insurance companies will also provide full perils including cover for theft, malicious damage, escape of water, flood, subsidence and property owners’ liability. Usually the excess on the policy tends to be higher than that of a standard home insurance policy.
Most property owners will not want to part with any money on a property that’s vacant. However it is still an asset that should not be left unprotected. By going online and shopping around for unoccupied property insurance quotes you still should be able to find a deal that will provide adequate cover for your empty building. Also if the property has a mortgage then the mortgage provider will insist on some form of insurance cover to protect their interest.

Your Property Is Secured

With no signs of the financial crisis subsiding or the property market picking up, home sellers are finding it difficult to sell their property and in some cases having trouble even letting it out. This leaves the property unoccupied and in many cases their current insurers are unable to provide buildings insurance cover in these circumstances.

In this scenario most standard home insurance policies will not provide cover for properties that are vacant or unoccupied for more than usually thirty days. The property being one of your biggest assets, you can not afford the risk of your property being uninsured.

Properties become vacant for many reasons, some of these could include; property is to be sold, property has recently been purchased and is under renovation before the owner moves in. Other examples include; the property could possibly be the subject of a will or a probate process, you could be buy to let landlord and are finding it difficult to rent the property in the current market.
When a property has been left unoccupied over a long period of time, maintenance issues often occur. Many people are not aware of the correct temperature to leave the property in, which may cause pipes to burst due to freezing causing considerable a considerable damage to your property; rotting floor boards, damp walls, ruining carpets and furniture. Another cause of damage is caused by the lack of maintenance on the property roof where a tile may have become dislodged and as a result creating a water leak into the vacant property.
To minimise maintenance risks to your unoccupied property it is advisable that the property is visited at the minimum on a weekly rota. This can be either yourself, a neighbour or you can authorise your estate or letting agent to carry out the checks. There may be a charge levied by the letting or estate agent for this service. During the summer seasons you could drain the central heating and water systems and for the colder seasons setting the thermostats at a low temperature to avoid the pipes from freezing which could result in burst pipes and may hundreds if not thousands of pounds worth of damage and inconvenience to say the least.
Securing an unoccupied house is crucial. There are measures that you can implement to limit or avoid your property being vandalised or from squatters taking over. By investing in good standard locks for all external doors and accessible windows is paramount in securing your buildings. Most insurers that offer unoccupied buildings insurance cover will usually insist on a minimum of 5 lever mortise locks to be fitted on all external doors and that all accessible windows to have locks. Another prevention option is to have some form of an alarm system in place if budget allows it. If there is any post, ensure that this is removed on a regular basis otherwise this can alert an opportunist burglar that the property is empty and has not been visited for some time. Making the property seem like if there is someone living there will also deter any unwanted attention. You could place some curtains and have some lights going on and off using a timer switch. If you are on friendly terms with your neighbours, then perhaps you could ask them to park their vehicle on the driveway of your unoccupied property.

House Price Fell

DUBLIN (Dow Jones)--Irish house prices fell 13% on the year in August, from a drop of 12.5% in July, according to research from independent think-tank Economic & Social Research Institute and Permanent TSB bank Monday. On a monthly basis, the average house price in August was down 1.5%, versus falls of 1.1% in July, 1.5% in June and 1.3% in May, according to the monthly survey. The average price paid for a house nationally in August was EUR235,260, down from EUR261,573 at the start of the year, and down 24% from a peak of EUR311,078 in February 2007. Economists expect house prices to slip further. "The rate of decline has been more dramatic during the summer due to low activity in the market and no confidence in any recovery this side of 2010," said Permanent TSB General Manager of Business Strategy Niall O'Grady. He added that prices have started to fall faster recently in the Dublin region due to the high level of surplus stock available. The government has said it will scrap stamp duty on residential purchases in December's budget. Permanent TSB's Index of House Prices, developed in conjunction with the ESRI, is based on monthly mortgage sales in the Republic of Ireland, and is one of the most closely watched indexes of its kind. -By Quentin Fottrell, Dow Jones Newswires; +353-1-676-2189; quentin.fottrell@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=T8ZKY07wPDWtrJ1DMHaoMw%3D%3D. You can use this link on the day this article is published and the following day.

Falling Back to Trade

FXstreet.com (Barcelona) – After rising 115 pips during the European session from 2-week low at 1.4560, to test 55MA 55 level in hourly chart at 1.4675, EUR/USD has falling back to trade below 1.4650. Currently the pair is trading around 1.4635/45, 0.45% below today's opening price action at 1.4704.Valeria Bednarik, FXstreet.com collaborator, comments: “Pair remains under pressure, following lower stocks yet range bound; as expected on previous update, 1.4550 area seems strong enough to keep capping the downside and only clear confirmations under that level could trigger a more interesting downside corrective movement. Hourly indicators are slightly bullish, even 20 SMA yet with no clear signals at this point. Bigger time frames show the same picture; watch for technical levels and stocks, the main Euro driver today.

Pair remains under pressure, following lower stocks yet range bound; as expected on previous update, 1.4550 area seems strong enough to keep capping the downside and only clear confirmations under that level could trigger a more interesting downside corrective movement. Hourly indicators are slightly bullish, even 20 SMA yet with no clear signals at this point. Bigger time frames show the same picture; watch for technical levels and stocks, the main euro driver today.

Not much change also since previous update, Pound remains under strong selling pressure, and already corrected to the 1.5900 area, from where the pair retreat to current zone. Capped by 20 SMA in the hourly and with 4 hours indicators suggesting further falls, watch for the pair to break under key 1.5754 low to extend the downside rally.

Pair remains holding above 89.00 area, as Asian session low has been more a fundamental reaction than a technical movement. Hourly charts seem slightly bullish as well as 4 hours ones, pointing for an upside correction ahead. General trend remain strongly bearish as long as under 90.00.

Companies Cautiously Realistic About Their Prospects

LONDON -(Dow Jones)- Bank of England Chief Economist Spencer Dale says the U.K. economy has stabilized, but it'll be a "long haul" to full recovery.
In an interview with regional newspaper the Express and Echo, Dale said companies seemed to be cautiously realistic about their prospects, but he noted many were still facing difficulties accessing funding.
He also said employment could remain low or fall further and that the future pickup in the level of jobs would likely be relatively "slow and gradual."
"Things look like they've stabilized, and we have turned a corner, but it looks like we are in for a long haul," Dale said.
"There's still a long way to go before things are bouncing back to where they were, and it's going to take us a while to get there, but things feel quite a bit better than they did six or nine months ago," he said.
Dale noted that measures of business confidence had stopped falling.
"Many businesses, even if they haven't seen the recovery have seen the bottom, but there's still a sense of quite realistic caution," he said.
"The sense of fear that was in many businesses in the first half of this year has subsided. The risk that things could get really bad has gone away, but now it's a question of how quickly we may see a return to normality," Dale said.
One factor slowing a return to business as usual, is the continuing lack of credit availability, although there have been some signs of improvement, he said.
"We still hear stories that people are finding it hard to access funds in the way that they used to and to undertake new investment projects and expansion. I think that remains a significant issue affecting local businesses," he said.
On jobs, Dale said that because the decline in employment hasn't been so large, companies will need to use up existing slack before they take on any additional workers.
"Going forward we may well see employment levels continue to remain low, or fall further, before we start to see a pick up, so I do think the pick up in employment may well be relatively slow and gradual," he said.

Depositors:not Shareholders

LONDON -(Dow Jones)- A group of U.K. lenders that are owned by their depositors rather than shareholders Sunday urged the government not to sell Northern Rock to a bank, but to return it to its mutual roots. Until 1997, Northern Rock was a building society, a type of U.K. lender that is owned by its depositors. Like many building societies during the 1990s, in that year it chose to become a bank. But in September 2007 it became the first U.K. deposit taker to experience a run in 150 years, and was finally nationalized in February 2008. The government went on to acquire a 70% stake in the Royal Bank of Scotland Group (RBS) and a 43% stake in Lloyds Banking Group PLC (LYG) after the collapse of Lehman Brothers led to an intensification of the financial crisis later that year. Leading U.K. policy makers have acknowledged there were weaknesses in the structure of the nation's banking system ahead of the financial crisis, conceding it had become dominated by a small number of large institutions, and was lacking in competition and a diversity of business plans. The Building Societies Association said returning Northern Rock to the mutual sector would help make the financial system more diverse, increase competition, and lower its risk appetite. However, it would not bring the government an immediate payment that it could use to reduce the national debt, as a sale to an existing bank would. The BSA said the benefits in terms of strengthening the financial system outweighed that negative, although a government desperate for revenue may not see it that way. "Given that remutualization would strengthen competition and create a more diversified financial sector, it could be expected to generate an advantage to the taxpayer over the long run in excess of the immediate benefit of any capital proceeds in the short run," said Adrian Coles, director-general of the Building Societies Association. The BSA's call was supported by John McFall, an influential Labour Party lawmaker who chairs the House of Commons' Treasury Committee. "If ever there was a time for an expanded mutual sector, it's now," McFall said. "We desperately need to restore faith in financial services in this country." Increased mutualization of the financial system may also find support at the Bank of England, which is responsible for ensuring the stability of the financial system as a whole, as well as setting interesting rates. In a speech earlier this month, the central bank's executive director for financial stability said shareholder ownership may not be the best governance model for deposit takers since shareholders can only lose what they have invested. "That provides a natural incentive for owners to gamble, pursuing high risk/high return strategies from which they import the return upside but export the risk downside to depositors or the public sector," Andrew Haldane said. Instead, he said the model of mutual ownership traditionally employed by the U.K.'s building societies may be better.

G-20 as Permanent Part of the Global Governance System

PITTSBURGH -(Dow Jones)- Group of 20 leaders hammered out compromises Friday on the difficult issues facing them as they emerge from crisis, including implementing exit strategies and restructuring the world economic and financial system. A little over a year after vowing a joint effort to restore growth and calm financial markets, the G-20 left its two-day Pittsburgh summit with a post-crisis plan.

While claiming that their extraordinary monetary, fiscal and financial measures had "worked," they vowed not to become complacent or prematurely withdraw. "We can't wait for a crisis to cooperate," said U.S. President Barack Obama at the close of the summit. "That's why our new framework will allow each of us to assess the others' policies, to build consensus on reform, and to ensure that global demand supports growth for all." With unemployment set to lag the return to growth, the leaders laid down job creation as a key requisite for undoing crisis measures. "We cannot rest until the global economy is restored to full health, and hard-working families the world over can find decent jobs," the communique said. Dominique Strauss-Kahn, managing director of the International Monetary Fund, urged the G-20 to keep monetary and fiscal stimulus in place, with unemployment expected to continue to rise next year. "This is a fragile recovery, even if risks appear to be receding," he said.

The leaders were also able to overcome divisions to embrace a new global economic order that envisions achieving more balanced growth and greater power for developing countries. Recognizing the increasing importance of countries such as China, India and Brazil, the G-20 supplanted the Group of Eight as the preeminent forum for international economic cooperation. "Now, with the passing of time, there are global challenges that the advanced countries cannot resolve alone," said South Korean President Lee Myung-bak, whose country is co-hosting the next G-20 leaders summit in June with Canada. Developing countries also moved closer to achieving another long-held goal - equal say at the IMF. The G-20 agreed to shift at least 5% of voting power in favor of under-represented members, mostly developing and emerging countries that currently hold about 43% of voting shares. Russian President Dmitry Medvedev called the decision "a very weighty contribution to the creation of a new international financial system," which shows a "responsible attitude" by leaders. Russia had proposed a 7% redistribution, but he acknowledged that under the agreement Western Europe will still cede power at the fund. Dutch Prime Minister Jan Peter Balkenende told Dow Jones Newswires in a phone interview that he was happy with the results of the summit, even though his country's own influence at the fund will shrink. "I think we can work with this situation. We have a better balance and that is very important," Balkenende said, adding that the Netherlands itself had argued for the IMF's role to be bolstered to help combat the financial and economic crisis.

An agreement to remove fossil fuel subsidies and combat global warming left many people dissatisfied, with environmentalists saying that the plan was too weak and oil companies saying that the plan would damage the economy. The G-20 stopped short of setting a deadline for eliminating subsidies amid opposition from the largest subsidizers, such as Russia. It also failed to be specific about how member countries would encourage investment in clean energy and renewables and provide financial support for such projects in developing countries. "It's an important step toward reducing global emissions but it's not enough," said Jennifer Haverkamp, the international climate policy manager at Environmental Defense Fund. The announcement could foreshadow difficult international talks in Copenhagen in December, when countries will meet to negotiate an international climate treaty to succeed the Kyoto Protocol, which expires in 2012. The U.S. never ratified the treaty, saying it would harm its economy. Oil companies repeated that message, saying that cutting back on subsidies would raise fuel costs and make it less attractive to drill for oil in places like the U.S., which gives tax breaks for domestic drilling.

New Experiment in Global Macroeconomic Coordination

PITTSBURGH (Dow Jones)--The Group of 20 developed and developing nations has embarked on a new experiment in global macroeconomic coordination but all the tough work still lies ahead, Australian Prime Minister Kevin Rudd said Friday. The summit represents "another important chapter in the response to the global recession...but it would be an absolute mistake to believe that our work finishes here," Rudd said. "In fact our work just begins here." Rudd said he believed the commitments made at the G-20 could pave the way for a sustained global recovery but said the journey there "will be tough, it will be bumpy, it will be long." Rudd said the G20's commitment to a framework for balanced and sustained growth would present challenges for Chinese and Japanese policy makers in particular. China and Japan have long generated large trade and current account surpluses, in part by purchasing dollars to keep their currencies weaker. Rudd said the Asian nations would need to look at "new possibilities" for generating growth in future - relying less on the debt-burdened U.S. consumer. He said that, so far, the G-20 had not explicitly discussed foreign exchange matters but hinted that may need to happen as the G-20 works to contain global imbalances. "It means that you have to resort to other strategies (for growth) including increasing your own domestic consumption," he said. Rudd welcomed the establishment of the G-20 as a "permanent part of the global governance system for the future" and said it represents a big gain for Australia. "It's important for Australia that our voice is heard in the councils of the world," he said. "This is the first time that our country has had a place at the top economic table." Rudd said the establishment of a peer review system for G20 countries to monitor each others' policies will produce real results. But he warned the containment of large imbalances won't happen quickly. "This will not occur overnight," he said. He also noted that peer review - and the possibility of criticism of some countries' economic policies - would be a "new experience" for China. Rudd said that despite some progress in Pittsburgh, achieving a climate deal at December's Copenhagen summit will be "very hard to do." He also said that completing the Doha trade round over the next year will be "critical" for restoring strong growth.

24-hours Strike in October

The Rail, Maritime and Transport union (RMT) has announced today (25 September) that workers on London Underground’s Victoria Line are to hold a 24-hour strike in October.
RMT union members will go on strike from 9.30pm on 5 October in a dispute over new rosters and increased workloads. The union voted overwhelmingly for the strike action.
The main disagreement between management and Tube staff is the sudden enforcement of more return journeys to be undertaken per day.
According to the RMT, an agreement to reduce the number of return journeys has been in place since 2003 due to the lack of air cooling in the tunnels. Upon the opening of the new Brixton Depot, the agreement had been rescinded with management arguing that the air cooling system in place was now adequate.
Workers on the Victoria Line have now been instructed to perform five rostered return journeys on weekdays.
The union members also plan to refuse to drive more than four round trips on the Victoria Line from one minute past midnight on Wednesday 30 September.
Bob Crow, RMT General Secretary, said: “The underhand attempt to extract an extra 20% from the working day out of our members has provoked this action on the Victoria Line and we would urge the management side to re-open serious negotiations to resolve this issue.”

New Vodafone:Unite Customer Contacts

Vodafone has launched its new suite of services – Vodafone 360 – which it says will give customers a “truly integrated mobile internet experience”.
Vodafone 360 will replace Vodafone Live! and will unite customer contacts with information from social networks and address books. It will work across a range of mobile phones – including those specially commissioned by Samsung – and synchs automatically with a PC.
The address book, Vodafone People, will automatically synch all contacts from a customer’s phone, Facebook, Windows Live Messenger and Google Talk, and will soon also include Twitter, Hyves and studiVZ.
The hotly-anticipated suite of internet services will aim to raise the bar in mobile technology and hope to provide a solid competitor to Apple’s iPhone. A wide range of apps, games, music and mapping services will be accessible.
However, the services will be launched in just eight European countries initially, in time for Christmas, including Germany, Greece, Spain and the UK. Vodafone will then expand the offering in 2010 to a number of other countries including France, New Zealand and South Africa.
Pieter Knook, Director of Internet Services at Vodafone Group, commented on the ease of its latest innovation: “The beauty of Vodafone 360 is that all the services work together and they are easy to use. Vodafone 360 enables customers’ digital lives.
“Customers can stay in touch and share experiences through social networks, instant messaging, email, apps, maps, music and buying digital content on their mobile bill, with the personalised address book at its heart.”
Ian Fogg of Forrester Research, blogging on The Forrester Blog, commented that this latest move for Vodafone is part of a major strategic play. He said: “This is such a major initiative with wide ranging scope.”
At the end of June 2009, Vodafone estimated a customer base of more than 315 million people.

Economic Growth

FRANKFURT (Dow Jones)--The German Ifo institute's business confidence data improved in September, confirming a pick-up in economic growth in the third quarter, but economists warned against over-optimism as potential headwinds remain for Europe's largest economy. Though the index rose to 91.3 in September from 90.5 in August, the sixth straight improvement, it missed expectations for a rise to 92.0, and there are many reasons to think the German economy will struggle in the months ahead, said IHS Global Insight senior analyst Timo Klein. "Still-difficult credit conditions, anticipated further labor market deterioration and the wearing off of some of the fiscal and monetary policy stimulus measures - all of which will dampen private consumption - argue for a setback in early 2010," said Klein. A sustained and more broad-based economic recovery should only be expected after mid-2010, he added. "This is a reminder not to get too carried away about the strength of the recovery," said Jennifer McKeown, an economist at Capital Economics. However, the figures were strong enough to raise further hopes of reasonable economic growth in the current quarter. Commerzbank AG analyst Simon Junker anticipates GDP growth of 0.8% in the third quarter over the second, while BNP Paribas SA's Dominic Bryant expects a 1.0% quarterly increase. The euro weakened slightly after the release of the data, to $1.4736 from $1.4759 beforehand. German government bonds moved higher amid signs the domestic recovery will be slow and bumpy. "There's now nearly a balance between pessimists and optimists" with regard to the six-month business outlook, said Hans-Werner Sinn, president of the Ifo institute. In light of the "catastrophic developments" of the past 12 months, "this is good news," he said. However, while the business situation and outlook have improved, by far the greater number of firms still assess the business situation as being poor, Sinn added. All recent indicators point to a further pick-up in economic activity in Germany, but caution is still warranted, analysts said. "Next year, when all exogenous stimulus is gone, the economy could easily be left with its export sector as the sole growth driver," said Carsten Brzeski, analyst at ING Bank.

Time to Repair Banks....How Long???

LONDON (Dow Jones)--Bank of England Governor Mervyn King said in a newspaper interview that U.K. output has stabilized, but that it is important not to get carried away by signs of growth. In the interview with regional newspaper the Newcastle Journal, published Thursday, King reiterated that it will take a long time to repair banks' balance sheets, adding that "radical" change is needed in that sector. He also said the weakening in sterling will support a necessary rebalancing of the U.K. economy. "Output has stabilized. There are some signs that growth may be beginning to pick up. But we shouldn't get too carried away by this. This is clearly very small growth after a very large fall, and unemployment has risen, so it's a difficult challenge ahead," King is quoted as saying. He added that the most important thing is that policymakers have managed to stem sharp declines in output. "I think the U.K. is pretty well set for a recovery, but the banking sector is not in good shape and it will take a long time before the balance sheets of the banks are fully repaired and the ability to provide credit to the economy to finance expansion will be returned to normal," he is quoted as saying. King said there needs to be radical change in the banking sector, but that it is more important to consider why people felt able to take such large risks leading up to the crisis, rather than whether the activities they engage in are socially useful. In a speech Tuesday, Financial Services Authority Chairman Adair Turner said the watchdog will increasingly question whether financial services firms are delivering their vital services in an efficient and risk-controlled fashion. "The fundamental question we have to ask is why is it that taxpayer- guaranteed funding to banks is being used to finance risky transactions?" King said. "You don't have to make judgments about whether something is useful or not, you can recognize that it doesn't make sense to provide guarantees for people to take big risks." King said global imbalances have been one of the underlying causes of the financial crisis, and stressed the need for China and other Asian countries to reduce their surpluses and the U.K. to reduce its deficits. "That rebalancing of the U.K. economy that I have been talking about for about 10 years, is very necessary. I think the fall in the exchange rate that we have seen will be helpful to that process, but there's no doubt that what we need to see now is a shift of resources into net exports, whether directly or in producing things that compete with imports that help to reduce the trade deficit," he is quoted as saying. A separate article in the Northern Echo newspaper reported King as reiterating that the government needs a credible plan to return the U.K. to fiscal sustainability, but that the timing will depend on the pace at which the economy recovers. "What we need is a credible plan for how the budget deficit will be reduced," King was quoted as saying in response to audience questions during his visit to the north of England.

Rise and Fall in Forex

FXstreet.com (Buenos Aires) – Pair fell again to the 90.40 area, where buyers halt the downside rally; back above 90.60 resistance zone, pair is attempting to recover the 91.00 level, as hourly indicators seem to have bottomed and turned slightly bullish at this point. Above mentioned 91.00, next resistance come at 91.35 and 91.60 area, while back under 90.50 will send the pair to retest the lows between 90.20/40. EUR/JPY turned to the downside, hovering now around the daily 100 SMA around 134.00; daily close under this level will put the pair under pressure, as also daily indicators are turning down. Immediate resistance comes at the strong 134.40 area, ahead of 135.00, daily descendant trend line.

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Forex News All Around

The U.S. dollar was lower versus most rivals Thursday, maintaining a weak tone a day after the Federal Reserve upgraded its assessment for the economy but indicated that interest rates were unlikely to rise any time soon. Strategists at Brown Brothers Harriman said the dollar saw added pressure versus the Japanese yen in Asian trading on talk of potential yen repatriation following the Japanese holiday. The dollar fell to 90.70 yen versus the Japanese unit, down from 91.13 yen in North American trade late Wednesday. The dollar index (DXY), which measures the U.S. unit against a basket of six major currencies, recently stood at 76.251, down from 76.377 in late New York trade Wednesday. The euro rose to $1.4770, up from $1.4734. The euro posted little reaction to a continued but weaker-than-expected rise in the Ifo Institute's German business climate index. The index rose to 91.3 in September from 90.5 in August, coming in below forecasts for a stronger jump to 92.0. Economists said the data still pointed to third quarter growth for the German economy. The British pound, meanwhile, tumbled on a combination of news reports focused on the currency's ongoing weakness. Sterling traded at $1.6196 versus the dollar, down from $1.6343 late Wednesday. The euro jumped 1.3% to 91.15 pence. Remarks by Bank of England Governor Mervyn King to a regional newspaper published Thursday underscored the central bank's lack of concern about weakness in the pound, strategists said. King, in an interview with the Newcastle Journal, said the pound's tumble had aided a rebalancing of the U.K. economy. The pound had regained some ground Wednesday after minutes of the BOE's September policy meeting showed policy makers were content for now with the size of the bank's quantitative easing program. "But the bounce only lasted 24 hours as Mr. King once again demonstrated to the market that the BOE is perfectly content with a lower currency exchange rate and is unlikely to initiate any type of tightening into its monetary policy for the foreseeable future," said Boris Schlossberg, head of currency research at GFT. Also, the Daily Telegraph reported that the Bank of England was set to meet with London-based economists in what the newspaper termed a "crisis" meeting designed to stem alarm and confusion over the quantitative-easing program and the weakness of the pound. Some analysts downplayed the significance of the meeting, but noted that overall sentiment toward the pound remains bearish. "Indeed, although there is nothing unusual in the BOE calling a meeting with economists to clarify policy, as looks to be the case, the sterling-negative sentiment continues to build, especially as the BOE appears unconcerned by the currency weakness at this stage," wrote strategists at BNP Paribas. In a statement after its widely expected decision on rates Wednesday, the Fed said that economic activity has "picked up" and noted improved conditions in financial markets. It also extended through March the timeframe for its $1.25-trillion program to buy mortgage-backed securities and its $200 billion program to buy agency debt. The programs, aimed at keeping rates low to support the U.S. housing market, were originally set to expire in December. The dollar will likely remain under pressure ahead of the two-day meeting of Group of 20 leaders in Pittsburgh on Thursday. At the G20 meeting, the U.S. is widely expected to make a call for the global economy to be rebalanced via increased spending from countries, such as China, that sport a trade surplus.

Majors Sets to Gain Against Greenback

Early Asia, majors are set to extend gains against greenback, despite markets in Japan, Indonesia, and Pakistan remain closed; local share markets likely to rise following positive day in Wall Street. Data published less than an hour ago show a much better than expected GDP for NZD sending the currency to a fresh yearly high against dollar, dragging again the American currency down across the board. Majors gains however, will likely remain limited ahead of FOMC meeting result to be release tomorrow in the American afternoon. Despite FED is widely expect to keep rates unchanged, statement will be closely study searching for any possible policy change or economic outlook. EUR/USD quotes around 1.4800, with immediate resistances at 1.4822, yesterday’s high, and 1.4866, past September 2008 high; GBP/USD needs to move above 1.6400, 61.8% retracement of the 1.6567/1.6135 rally to extend gains to 1.6460 area, and stronger 1.6520; however, pair likely to remain quiet in Asia, waiting for the Minutes of last BOE’s meeting to be release early in Europe.

Released Economic Data

With little economic data released at the start of the week, the focus in the currency market has shifted to Central Bank rhetoric, with the key highlights attributed to commentary from Fed Chairman Ben Bernanke and ECB President Jean-Claude Trichet. Speaking from the Fed’s annual symposium in Jackson Hole, Wyoming, Bernanke offered an optimistic assessment over the economic outlook saying, “economic activity appears to be leveling out, both in the US and abroad, and the prospects for a return to growth in the near-term appear good”. His upbeat outlook spurred on gains in the equity and commodities markets, while pushing the dollar slightly lower against the majors.Meanwhile, ECB President Trichet sounded a cautious tone over the economic outlook for the Eurozone, suggesting that interest rates will likely remain low for a protracted length of time. He said, “We see signs confirming that the real economy is starting to get out of the period of freefall”, yet it “does not mean at all that we do not have a very bump road ahead of us”. Nonetheless, the major currency pairs continue to drift in a lackluster manner as the summer doldrums have confined foreign exchange to rangebound trading. We remain biased for further dollar weakness in the coming weeks as economic data from the US continue to gradually improve and support the equity markets.

Is Pounds Sterling KING?

The greenback was higher against the pound, rising to 1.64-figure and pushing the euro back towards the 1.46-level. Several key US economic reports were released this morning, including retail sales, producer price index and the New York Fed manufacturing survey. Retail sales in August were sharply higher than expected, with the headline figure jumping by 2.7% versus a revised 0.2% decline in July and the excluding automobiles retail sales report increasing by 1.1% compared with a revised 0.5% decline in the previous month. The September NY Fed manufacturing survey was also sharply better than forecast, rising to 18.88, beating calls for an improvement to 14.0 from 12.08 a month prior.
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The British pound plunged by over 200-pips in early Tuesday trading, slammed by commentary from Bank of England Governor Mervyn King. In King’s Parliamentary testimony, he hinted at further cutting the bank deposit rate, suggesting that the BoE was mulling over “reducing the remuneration” of bank reserves and that it would be a “useful supplement” to stimulate the ailing UK economy. While King expressed optimism that the sharp deterioration in economic fundamentals may have passed, he also added, “the strength and sustainability of the recovery is highly uncertain and the balance of risks to inflation around the 2% target remains on the downside”. Economic data released from the UK overnight reaffirmed BoE Governor King’s outlook on inflation, with August CPI relatively tame, up 0.4% on a monthly basis and up 1.6% on an annualized basis. Meanwhile, the retail price index for August increased by 0.5% versus a flat reading in the previous month and posting a 1.3% decline versus a 1.4% drop a year earlier.

The Dollar Edged Higher

The dollar edged higher against the majors at the start of the week, pushing the euro to 1.4612 and the British pound to 1.6136. With the FOMC meeting this week, traders will closely scrutinize the Fed’s assessment of the economy in the accompanying policy statement. While interest rates are widely expected to remain on hold at 0.0%-0.25%, it will be interesting to note whether the Fed will provide clues on when markets can expect quantitative tightening to commence. The Fed will announce the results of its policy deliberation on Wednesday at 2:15 PM.The economic calendar for Monday was light, with only the August leading economic indictors released. The figure fell short of expectations for an improvement to 0.7% and held steady from the previous month at 0.6%. The Tuesday session will see the September Richmond Fed survey and July home prices.The US equity market was mixed with the Dow Jones and S&P 500 both drifting slightly lower, down by 0.4% and 0.3%, respectively, while the Nasdaq was up by 0.2%. Meanwhile, crude oil eased beneath the $70 per barrel level to $69.70 and spot gold held steady just above $1,000 per ounce.

New Zealand Dollar Rallied

The New Zealand dollar rallied against the greenback for the tenth consecutive week, with the NZD/USD advancing to a fresh yearly high of 0.7161 however, the higher-yielding currency looks to be losing its footing as the economic docket for the following week is anticipated to show a 0.2% contraction in 2Q GDP. However, as investors ramp up long-term expectations for higher borrowing costs and speculate the Reserve Bank of New Zealand to tighten policy in the following year, the rise in the interest rate outlook may continue to support the rally from March as market sentiment improves. Credit Suisse overnight index swaps are up 126bp in September, which is the highest reading for the year, and investors may increase bets for a rate hike over the next 12 months as the RBNZ maintains a neutral policy stance. The NZD/USD bounced back after slipping to a low of 0.6964 earlier in the week, and continued to trade above the 10-Day moving average (0.7037) as market participants moved into higher risk/reward investments. However, as the relative strength index remains elevated and holds above 60 for the second consecutive week, we may see the pair fall back in the coming week as the RSI approaches overbought territory. At the same time, the economic docket is anticipated to show a drop in the growth rate, with economists forecasting 2Q GDP to fall 0.2% from the first three-months of the year, while the annualized rate is projected to contract 2.6% after falling 2.7% in the first quarter, and the data could stoke increased selling pressures on the New Zealand dollar as investors weigh the prospects for a sustainable recovery. Moreover, the current account deficit is expected to widen in the second quarter as trade conditions remain weak, while the trade deficit is projected to increase to NZ$329M in August from NZ$163M in the previous month as foreign demands falter. As the outlook for global trade remains weak, the data could weigh on the growth forecast for the $128B economy as the appreciation in the exchange rate hampers the competitiveness of New Zealand exports, and the central bank may see an increased risk for a slower recovery over the coming months as the rise in risk appetite continues to support the rally in the kiwi-dollar higher. - DS

The Australian Dollar:Yearly High

The Australian dollar set a fresh yearly high of 0.8778 against the greenback during the past week before the release of the RBA minutes tempered interest rate expectations. Policy makers stated that “members were conscious of the need to balance the task of controlling inflation over the medium term with that of supporting economic recovery.” The central bank is widely expected to be the first of the major economies to begin tightening making the already high yielder more attractive in the current environment of risk appetite. Indeed, the Australian economy emerged from the recent downturn with the least amount of scars and is poised to take advantage of global growth and the ensuing demand for raw materials. The Westpac leading index which is a gauge that attempts to forecast the economy’s performance over the next three to nine months rose by 1.1% to its highest level in seven months. Looking at the breakdown we see the bullish outlook is derived from expected positive contributions from real money supply and dwelling approvals which would suffer if the central bank started to cut rates. Furthermore, the second quarter dwelling starts report showed an unexpected decline of 3.7% against economists forecast of a 2.0% gain. It would mark the fourth straight quarterly decline and a clear signal that higher interest rates could start to increase downside risks. Nevertheless, the central bank stated that the Australian financial system remains strong and that the country is benefitting from exposure to China and the global economy on a sustained growth path. However, Governor Stevens recognized that there are still some warnings signs such as weak business credit conditions. Therefore, we may see policy makers reluctant to take any actions that may deter lending following the recent credit crisis until inflation risks become obvious. Markets are still pricing in 174 bps of rate hikes over the next twelve months which should keep the Aussie well supported. Yet, we have seen it slip from a high of 199 bps on September 7th, which may signal some near-term weakness for the currency. The DEWR skilled vacancies report is due for release and softness in the labor market could give traders an excuse to take profits, but another sign of growth could add to bullish momentum. The RBA financial stability review and quarterly wage agreements are also on the horizon and could potentially impact price action. However, traders should take their cues from commodity markets and risk trends as they continue to be the dominant drivers of price action for the pair. The next level of resistance may be found at 0.8816-the 8/22/08 high where we could see the current rally stall. Conversely, we could see the pair retrace back to the 20-Day SMA at 0.8513 before another push higher. - JR

Canadian Dollar against US namesake

The Canadian Dollar finished the week modestly higher against its US namesake, but the currency’s inability to close near year-to-date highs leaves short-term momentum to the downside leading into the coming weeks’ trade. The USDCAD currency pair dropped for three consecutive trading days and briefly breached the psychologically significant C$1.0600 mark. Yet it serves to note that oil prices likewise failed to hold near fresh highs, and there is clear risk for near-term pullback. Domestic economic data proved largely better than expected but had relatively little influence on price. Instead, the USDCAD continues to track Crude Oil prices and broader risk market sentiment. Continued strength in financial market risk barometers would bode well for the Canadian Dollar, but the threat of near-term reversal looms large for the recently high-flying currency. The Canadian Dollar has ridden the wave of renewed optimism across financial markets, rising in tandem with similarly buoyant Crude Oil prices. Yet Crude Oil itself remains stuck in a consolidative range, and its inability to break higher on several successive attempts leaves clear risk of near-term pullback. A relatively quiet week of Canadian economic event risk suggests that the domestic currency will trade almost-solely on developments in other markets. Potential exceptions include early-week International Securities Transactions and Canadian Retail Sales reports. The former is expected to show that foreigners invested a net C$9.5 Billion into Canadian Securities in July. Said number would represent a modest pullback from impressive May and June results, but an at-consensus print would nonetheless underline solid foreign demand for Canadian securities. The subsequent Retail Sales release is likewise expected to show robust consumer demand, but a recently impressive Wholesale Sales result means that only the most surprising of outcomes will elicit strong reactions out of the USDCAD. Canadian Dollar traders should keep a close eye on developments in global financial markets—especially commodity prices and Crude Oil futures. If any of these key asset classes break their recent price ranges, the Canadian Dollar may follow suit. - DR

Swiss Franc in Recent Month

The standby counter-question to anyone seeking to forecast the direction of the Swiss Franc in recent months has been “against what?” In trade-weighted terms, the currency has been confined to a narrow range since March, when the Swiss National Bank intervened into the markets to drive down the exchange rate and pledged to keep a lid on further appreciation as a bulwark against deflation (a stronger currency boosts purchasing power, effectively reducing prices). Markets in the Euro Zone account for close to 60% of Swiss export demand, so in practical terms, reining in the Franc in trade-weighted terms has essentially meant controlling the EURCHF rate (which the SNB has openly discussed). Elsewhere, the Swissie has slipped against the commodity currencies and the Pound but has managed to advance against the US Dollar and the Yen. This is a reflection of the interest rate environment. The Australian and New Zealand Dollars, where 3-month Libor rates have stayed steadily above those of the Franc, have outperformed. The Pound and the Canadian Dollar have seen fewer gains because, while still in their favor, the yield gap has narrowed considerably since the beginning of the year. Finally, the Yen sold off as a rapidly shrinking rate spread erased any advantage the otherwise markedly cheaper Japanese unit had over the Franc, while the US Dollar fared worst of all as its 3-month Libor tumbled to sink below that which is paid on the Swiss currency.
What does this mean for the week ahead? If carry flows are the primary catalyst behind recent price action, currency traders ought to have their eye on the trajectory of risk sentiment, meaning global stock and commodity prices. We have long argued that the markets have done too, much too fast since risky assets began to rally in March with global equities trading at levels unseen since 2003 relative to earnings. The world economy grew nearly 3% in real terms that year, whereas virtually every credible forecast calls for the first post-WWII contraction in real growth in 2009, pointing to lackluster revenues and overextended asset prices. Further, trading volumes have steadily declined for the bulk of the equity rally (the past 5 out of 6 months). While some of this may be chalked up to a seasonal slowdown that is typical for the summer, it may also be hinting at waning conviction behind the up move and a forthcoming reversal as traders return from holiday and volumes pick up into the Fall. While timing this reversal has proven elusive, we can say that when it does occur, the accompanying liquidation in carry trade positions will likely push the Franc higher against the Antipodeans and (to a lesser extent) the Pound and the Canadian Dollar. Meanwhile, a surge in demand for safety will likely boost the US Dollar as well as the Japanese Yen, eroding the Franc’s recent gains against those currencies.
Turning to the economic calendar, the August trade balance report will be of interest: exports look set to decline considering last week’s dismal industrial production data, but the appetite for imported goods is proving difficult to gauge. Indeed, domestic demand may have recovered a bit considering the recent moderation in retail sales figures, but the trend in receipts is undeniably pointing lower while unemployment rises and consumer confidence continues to set record lows. The release of updated economic forecasts from the government’s State Secretariat for Economic Affairs (SECO) will be notable in terms of how it compares to last week’s upward revisions to the growth and inflation outlook of the SNB.

Fall In British Pound

The British pound was easily the weakest of the majors last week as the currency fell more than 3 percent against the euro, Swiss franc, and Canadian dollar. Likewise, the British pound slumped 2.4 percent against the US dollar and 1.7 percent versus the Japanese yen. While some indicators from the nation have shown signs of improvement, such as the RICS house price index, fiscal data has done nothing but deteriorate, adding pressure on the British pound. In fact, public sector net borrowing in the UK jumped a whopping 16.1 billion pounds during August as income tax receipts fell 13 percent from a year ago. Even worse, the deficit reached 127 billion pounds in August from a year ago, and the steady rise suggests that the shortfall may breach Chancellor of the Exchequer Alistair Darling’s full-year forecasts for a deficit of 175 billion pounds.
According to the Financial Times, the corrosion of the UK’s fiscal state has “been a result more of a collapse in revenues - total tax receipts have fallen by 11.4 percent so far this financial year compared with a year earlier - than of a jump in spending” of just 5.3 percent this year. Going forward, the further the UK’s fiscal state deteriorates, the greater the risk will grow that ratings agencies will question if the nation deserves the golden AAA credit rating, especially after Standard & Poor’s downgraded the UK’s credit outlook to “negative” from “stable” because of their budget woes back in May. Nevertheless, Standard & Poor’s has also said that they would reserve any judgment on potential downgrades until the next general election, which may be held in May or early-June 2010. On the downside, this leaves a long period of time open for speculation on the prospects for the UK’s credit rating to reign supreme, which may make the already-volatile British pound even choppier.
In more immediate event risk, the minutes from the BOE’s September meeting will be released on Wednesday at 8:30 ET. However, they may not expose new information as the BOE’s Quarterly Inflation Report has already revealed dour outlooks by the Monetary Policy Committee. That said, following the latest UK CPI results, which were stronger than anticipated, Credit Suisse overnight index swaps have shifted to price in 78 basis points worth of hikes by the BOE over the next 12 months, up from 66.7 basis points on Tuesday. As a result, if the minutes highlight a clearly dovish bias by the BOE, the market's focus may shift back toward the central bank's liberal stance on quantitative easing, and the British pound could fall sharply. – TB

Japanese Yen Growing Up

The Japanese Yen finished the week lower against all but the British Pound and the US Dollar, as impressive rallies in the US S&P 500 and broader financial market risk sentiment pushed the safe-haven currency sharply lower against major counterparts. A mediocre week of economic data hardly helped matters, and hawkish rhetoric from the Ministry of Finance pushed the Yen even lower. Vice Finance Minister Yasutake Tango stated that the administration was watching currency moves closely—implying that forex market intervention was a distinct possibility. Indeed, the Japanese Ministry of Finance has historically been an active participant in the Japanese Yen exchange rate and has repeatedly intervened in instances of excessive Yen strength. The very fact that the US Dollar/Japanese Yen exchange rate reached the psychologically significant 90 mark was enough reason to fear MoF intervention, and Tango’s comments were enough to fuel a rapid USDJPY pullback. Later commentary from newly-appointed Finance Minister Hirohisa Fujii quickly dispelled the short-term threat to JPY stability, but the damage had been done and the Japanese Yen remained on offer through the week’s close.
The legitimate threat of MoF FX intervention served as a clear warning to JPY bulls, but recent rhetoric suggests that there will be little in the way of further Yen strength. This leaves the currency to trade purely off of financial market risk sentiment. The fact that the S&P 500 recently registered fresh 2009 highs hardly bodes well for the risk-linked currency, but no market can rally indefinitely. Given the overwhelmingly bearish trend in the USDJPY (bullish trend for the JPY), it seems momentum is plainly in the Yen’s favor. Yet it remains critical to watch any and all moves in key financial market risk barometers.
We previously claimed that the “September Effect” could lead the S&P 500 lower and the Japanese Yen higher. Recent weeks have produced impressive equity market strength yet the JPY has remained relatively stable. We believe that the Yen stands to gain on any subsequent pullbacks in stocks, and recent experience shows that it can hold its own despite major S&P strength. Thus we would argue that risks remain fairly bullish for the Yen. If stocks continue their seemingly interminable rally, the JPY could pull back slightly. If stocks fall, the Yen will in all likelihood continue its previous ascent. Things are never quite this simple in currency markets, but we believe JPY risks favor near-term rallies.
The wild card will come on Wednesday’s Trade Balance report. The export-dependent Japanese economy has taken a massive hit on the sharp drop in foreign demand for its own production. Any signs of continued exporter duress will once again raise political pressure on the Ministry of Finance to counteract Japanese Yen strength. Though we clearly believe that risks of intervention are remote, a truly shocking trade balance result could rekindle market speculation on MoF intervention.
The coming week may prove significant in determining more medium-term direction in the Yen. If nothing else, markets will definitely watch for signs that the USDJPY may finally break below the psychologically significant 90 mark. – DR

Power House of EURUSD.

Is the euro the fundamental powerhouse that the EURUSD would suggest or is the euro merely playing the compliment to the rest of the market. If we were to look at the world’s most liquid currency pair alone, we see a six month trend, recent rally and the highest overall level for the exchange rate in nearly a year. However, the easy read on the major is clouded when we look at the crosses. Against the pound, the euro was set in its biggest rally since March (a move that was mirrored in most of those pairs denominated in sterling). Elsewhere, EURJPY was stuck in a contracting range; EURCHF was virtually unchanged in its 100-point range; and the commodity group consolidated within bigger trends. It seems the case that the market is influencing the euro rather than the euro influencing the market. And, while there are fundamental concerns building beneath the surface, this relationship isn’t likely to change much in the coming week.Few would argue that risk appetite (and its influence in currencies through carry interest) is a primary driver for the market at large; but what does that mean for the euro? To gauge any currency or asset’s response to sentiment, you need to determine where it stands in the scale of risk. High interest rates, strong growth prospects and progressive policy are a few factors that build a positive correlation to a rising demand for yield. Naturally, the opposite considerations count as traits for a safe haven or funding currency. On either side of this spectrum, we have an asset that is sensitive to the underlying fundamental currency. However, the euro fits comfortably in the middle of the range. The benchmark lending rate in the Euro Zone is relatively high; but the outlook for hawkish progress is reserved. Growth is colored not only by the positive turn from Germany and France; but there have also been downgrades for Italy and Spain. Overall, despite the confidence of politicians and some policy officials, the economy is on the same playing field as the US, Japan and many others. Until the ECB turns up the heat on the target rate or financial troubles (like the ability for some Eastern European economies to repay their debt), this will remain the case.Outside the vagaries of sentiment, there are a few notable economic events on the docket to supply short-term volatility and perhaps a moderate shift on the bearing for growth forecasts. Top event risk is the series of service and manufacturing sector PMI data. While this series covers specifically the business sector of growth, it is inclusive and timely enough to act as a meaningful leader for growth speculation. Being the September round of data (the ‘Advanced’ or first measure), this will round out the forecast for third quarter activity. All of the regional, German and French numbers are expected to produce month-over-month improvement and most are seen offering ‘expansionary’ readings. This would support the central banks and government’s outlook for growth; but it still does not paint a clear picture for a return to a true expansionary trend. Other indicators like the Euro Zone industrial new orders and German factory inflation gauge threaten little more than a meager shift; but the IFO business sentiment gauge could generate some fundamental interest. Sensitive to economic health, consumer spending, access to credit, export demand, optimism among German firms acts as its own unique report on the general health of the economy. The headline and expectations readings have been most prized recently; but a closer eye should be kept on the difference between expectations and current conditions. The outlook after a financial crisis and steep recession will certainly improve quickly; but actual health in the economy and markets will be more measured. One will have to give way to the other sooner or later. – JKWritten by: John Kicklighter, Currency Strategist for DailyFX.comQuestions? Comments? Send them to John at jkicklighter@dailyfx.com.

The Dollar

The dollar was able to relieve the pressure of suffering its worst trend on recent record by clawing out the first bullish close in eleven consecutive trading days; but that does not mean the burdened currency is necessarily primed for a true reversal. While this currency is arguably oversold on a fundamental basis; the same drivers that ushered it to its yearly low last week are still in play. The pace of the economic recovery, growing financial concerns and a Fed struggling to keep pace are all prominent concerns when gauging the long-term health of the dollar; but all of that is overshadowed by the immediate and market-wide preoccupation of risk appetite.Last week, a Bloomberg survey of investors found the market was the most bearish on the dollar in 18 months. Where does this speculative grade come from? The economy is still dealing with an economic recovery and government deficits are a genuine concern; but most of the world’s largest economies are suffering with the same dilemma. The real weight on the dollar is the steady revival of risk appetite over the past six months. Following the necessary period of consolidation after the worst of the financial crisis, capital started to slowly work its way back into the speculative arena. Initially, interest was from early adopters; but the draw of capital gains was strong enough to start the flow from deeper pools of wealth in “risk free” areas. Where do these funds go? It certainly finds its way to US equities and other relatively-risky assets; but when it comes to the yield bearing instruments, the American products can’t compete. The benchmark, 3-month Libor rate dropped to a new record low (0.28948 percent) this past week and subsequently was depreciated to a discount against its Japanese (0.34875 percent) and Swiss (0.29667 percent) counterparts. Does the dollar realistically make the ideal funding currency? No. The Fed will certainly turn to a hawkish policy stance well before the other two, it has the potential to take a more consistent hawkish path, deficits are a problem amongst all three and the foundation for a true recovery is most stable in the US. As soon as US rates recover, risk-seeking capital will once again flow into the world’s financial center.In the meantime, we may see a shift in sentiment that could benefit the dollar’s safe haven status. The broader markets have rallied consistently for months – despite a fundamental picture that has changed pace little since the initial reversal. Naturally, a wave of profit taking is highly probable. And, considering the advance to this point has been heavily dependent on steady capital gains, a correction could be sharp and aggressive. There are many different potential catalysts for such a turn; but in the end, the shift in optimism will likely develop naturally. Nonetheless, we should keep an eye on a few specific developments. Reports suggest that lending to consumers has dropped at its fastest pace since the Great Depression; yet leverage has returned to levels last seen since before the 2007 meltdown. This is an imbalance that will lead to problems later down the line if not corrected. Also, the Federal Reserve and White House have both voiced concern over the commercial real estate debt market. The former is looking into major banks’ exposure to this asset class; but the term ‘stress test’ is not being used.Though it is vital to keep abreast of the health of risk appetite; we shouldn’t ignore the influences of data and growth forecasts. The economic docket is light next week; but durable goods orders and housing data (existing sales, new home sales) can supply short-term volatility. It is the FOMC that tops the list – not with a possible change in the benchmark, but commentary that can move up the time table for a hike. Data aside, the US/China trade spat hints at a growing concern with protectionism which may come under scrutiny at the September 24/25 G20 Meeting. Exit strategies, financial regulation, banking compensation are all on the topic list; but not currencies. – JK

Are You Unemployed???

According to the latest figures, the number of jobless people in the UK has risen to 2.47 million in the three months to July, taking the rate of unemployment to 7.9%.
Recent data from the Office for National Statistics (ONS) shows that during the last quarter, 210,000 people nationwide fell into unemployment. The level of unemployment is at its highest level since May 1995.
The number of people in employment at the end of the July 2009 was 28.89 million, a drop of 600,000 over the year.
Most sectors showed a fall in the number of positions with the largest drops occurring in the business, finance and construction industries.
At 7.9%, the unemployment rate has not been greater since November 1996 and is 2.3% higher than last year.
Claims for Jobseeker’s Allowance have also risen significantly in recent months with the number of claimants reaching 1.61 million in August 2009.
The number of job vacancies in the UK has also fallen to 434,000 in the three months to August, down 12,000 over the previous quarter and down 174,000 over the year.
Despite the consistent drops in unemployment, average earnings increased by 1.7% in the three months to July. The increase is however smaller than the previous month.

Entertainment Weekly

US magazine Entertainment Weekly has launched the first video advert embedded into print, under the direction of the broadcaster CBS and drinks maker Pepsi.
In this week’s issue of the popular magazine, readers in Los Angeles and New York will discover characters from US television programmes speaking to them from a wafer-thin video screen built into the page.
It is in fact a marketing experiment from CBS and Pepsi and is suggestive of the fantasy newspaper “The Daily Prophet” in Harry Potter, working much like a singing greetings card, with the video starting once a reader turns the appropriate page.
President of CBS’s marketing group, George Schweitzer, said: “This is the first way we can get video samples into the hands of entertainment enthusiasts off the television screen.”
The video advert plays on a screen similar to that of mobile telephones, and is built into a cardboard insert which also features in-built speakers, so the viewer can hear the advert too.
Chip technology is used to store the video, and has been developed by Americhip, a company which specialises in multi-sensory marketing. With rechargeable batteries, the chips are technically re-usable, with each one able to hold up to 40 minutes of video.
CBS and Pepsi won’t say how much this limited commercial trial is costing, but Americhip told BBC News that a multi-thousand print run with built-in screens would cost in the region of US $20 (around £13) for each magazine.
It is not quite the first time that this sort of technology has been used in printed publications. Last year Esquire, the men’s lifestyle magazine, used e-ink technology to create a changing cover for its 75th anniversary issue.
Whether video embedded in print is just another expensive advertising gimmick or here to stay will only emerge in time. Some readers may find the automatic playing of video intrusive, yet others are likely to delight in such a seemingly advanced piece of technology. Let us know what you think.

Budget Management of The University of Memphis

The University of Memphis is adjusting its budget to accommodate for an expected $6 million loss in state appropriations, said President Shirley Raines.

“It will be a difficult time for us,” Raines told faculty during their Tuesday senate meeting. “But thankfully we did have an enrollment increase, and we did have revenue increases that came from student tuition, and we will be dealing with the American Recovery and Reinvestment Act funds.”
Administrators estimate this fall’s enrollment has jumped 7 percent to 21,700 students.
Tennessee Board of Regents Vice Chancellor for Business and Finance Dale Sims sent an e-mail Friday to higher education officials notifying them to anticipate a 6 percent recurring budget reduction next fiscal year for state universities, community colleges and technical centers under the Board of Regents.
The Tennessee Higher Education Commission has not yet determined how the potential cut in state funds would be distributed among institutions.
“This e-mail was to give notice that it is coming and (administrators) should have it in their minds as they plan for the future,” said Board of Regents spokeswoman Mary Morgan.
The U of M submits a tentative budget to the Board of Regents in July and a revised budget in October based on revenue and fall semester enrollment.