Bank Of Japan Considers Its Options

By: Dr. Mike Campbell With the costs of reconstruction after the March 11th earthquake and tsunami put at $309 billion, an on-going crisis at the Fukushima nuclear power plant and rolling power cuts still hindering industrial output, the Bank of Japan has a lot to think about as it meets today.

The bank has already injected the equivalent of 10% of the nation’s GDP ($439 billion) into the financial markets since the crisis struck. The move was sufficient to restore confidence to the markets in Japan and around the world and, after an intervention from other G7 members, ward off a bull-run on the Yen. In recent days, the Yen has weakened against other major currencies and is currently trading at 121.4747 against the Euro, its weakest level since May last year.

Things to Expect Looking Forward

Given the magnitude of the problems facing Japan (and the Japanese recovery was considered fragile even before the disaster struck), the Bank cannot solve the problems on its own. Analysts suggest that the government may take steps to ensure that reconstruction efforts move ahead as swiftly as possible which would help macroeconomic conditions. The wisdom of the Bank underwriting a government bond issue to fund reconstruction activities has been questioned since it could undermine confidence in its monetary policy. It is anticipated that the Bank will announce measures to assist businesses affected by the crisis with fast-tracked, cheap credit. The Bank has also made it clear that its quantitative easing activities will continue as a a mechanism to ensure greater liquidity in Japanese financial markets.

Revised survey data shows that business sentiment has fallen from a value of plus six before the crisis, to minus two in its aftermath. 
http://www.dailyforex.com/forex-fundamental-analysis/2011/04/Bank-Of-Japan-Considers-Its-Options/7627

China Posts Rare Trade Deficit

By: Dr. Mike Campbell The world’s second largest economy has published its first quarterly trade deficit in seven years. Figures for Q1 2011 show that the trade deficit stood at $1.02 billion, according to the Chinese General Administration of Customs.

Demand in Europe and the USA, critical Chinese export markets, continues to be sluggish as the regions slowly emerge from the financial crisis. China is hoping to stimulate domestic demand and be less reliant on its exports, but it is also having to take steps to rein-in inflation and prevent a property bubble from bursting.

The consequences of the recent Japanese natural disaster are also likely to have an impact on China since Japan is China’s largest importing partner. It remains difficult to determine the knock-on effect of the Japanese earthquake in her trading partner’s economies and the picture will only emerge after the full extent of catastrophe on Japan’s own economy becomes clearer.

A Look at China's Recent Past

China was quick to emerge from the global recession and has produced spectacular growth in comparison with the world’s other leading economies. The rise of China as a major economic power has been export-led. It remains to be seen whether the Q1 figures will be just a blip, or if there has been a more fundamental readjustment of her trading balance over the shorter term.

China remains under criticism for keeping its currency artificially low. Whilst some movement has been seen over the past twelve months, the appreciation of some 4% against the US Dollar needs to be put in context. The Dollar is coming off historic lows against the Yen and has depreciated by 7.8% against the Euro since this time last year. If the effects of the sovereign debt crisis in Europe are taken into account, it becomes clear that the Yuan is being manipulated. 
http://www.dailyforex.com/forex-fundamental-analysis/2011/04/China-Posts-Rare-Trade-Deficit/7675

Unemployment Rates Fall In Europe and USA

By: Dr. Mike Campbell Re-employment always lags behind the economic recovery since businesses need to be sure that they need additional staff over the longer term once their order books begin to fill. The recent global financial recession was the deepest since the Great Depression of the inter war years. Typically, in an economic cycle following a recession, growth and re-employment are much stronger than has been the case this time, however, some good news does seem to be on the horizon.

According to Eurostat, the level of unemployment within the 17 countries which use the Euro has fallen to below 10% for the first time in more than a year. The figure for February came in just below the 10% mark at 9.9%. A closer analysis of the data shows that the unemployment picture within the Eurozone is very heterogeneous. In the Netherlands, just 4.3% of the workforce is unemployed whereas in Spain 20.5% of the population of working age are looking for work. In Germany, the powerhouse economy of the Eurozone region, unemployment stands at 6.3%. Across the Eurozone as a whole, some 15.8 million citizens are currently without work.

Data released in the USA last week shows that unemployment there has fallen for the second consecutive month. The figure is the best seen in America for two years and reveals that 8.8% of the workforce is currently unemployed (March data). The figure has eased from 8.9% in February and has improved by more than one percent over the last four month period. The private sector was responsible for the creation of most of the new jobs, a situation which is likely to continue as America tries to reduce its deficit.



http://www.dailyforex.com/forex-fundamental-analysis/2011/04/Unemployment-Rates-Fall-In-Europe-and-USA/7616

Icelandic Referendum Invites Dutch and British Court Action

By: Dr. Mike Campbell Iceland was hard hit by the financial crisis. The Icelandic banks had cumulative debts totalling six times the nation’s GDP in the autumn of 2008 and, in the gathering financial storm, no means of refinancing the debt. The three major Icelandic banks collapsed within days of one another in October 2008 and the ensuing political crisis brought down the government.

The Icelandic authorities were unable to guarantee the investments of British and Dutch savers and so the British and Dutch governments stepped in to underwrite the debt, totalling some €4 billion, when the Icesave bank went bust. Icesave was the foreign arm of the Lansbanki bank and had attracted 400000 savers in the Netherlands and Britain. Whilst the British and Dutch governments stepped in to the breech, it was always understood that the Icelandic authorities would pick up the pieces.

Possible Options

A deal to repay the funds was put together by parliament, but was vetoed by the Icelandic president, triggering a referendum that the government lost. A second deal was put together, but again, the Icelandic people have rejected it (this weekend) on the grounds that they should not be asked to pay for a private bank’s debts. The margin was 61% to 49% and it is highly unlikely that it will be put to the people a third time.

This leaves the British and Dutch governments with little option other than taking Iceland to court to recover the money. Iceland is keen to join the EU and both Britain and the Netherlands have the power to veto accession. Iceland will need to resolve the matter before it is able to fully access financial markets to fund its borrowing needs – the will of the people notwithstanding.
http://www.dailyforex.com/forex-fundamental-analysis/2011/04/Icelandic-Referendum-Invites-Dutch-and-British-Court-Action/7663

Portugal Asks For An EU Bailout

By: Dr. Mike Campbell In a move that has come as a shock to nobody, the Portuguese caretaker prime minister, Jose Socrates, approached the EU yesterday with a request for discussions about financial assistance. The out-going prime minister had done all in his power to pass a fourth austerity budget which might have avoided the need for Portugal to ask for help, but the bill was defeated and the PM resigned, calling elections for June.

The Portuguese needed to raise money to service its existing debts, coming to the market to raise €1 billion. However, although the bond issue was successful, Portugal had to pay higher interest following the decision last week by ratings agency Moody’s to downgrade the nation’s credit rating from A3 to Baa1. The lower the rating of a bond (or nation) the greater the perceived risk of a default on the debt in question; consequently, investors demand greater interest rate to compensate them for the higher risk associated with the bond issue. Before the downgrade, last month, Portugal had to pay interest of 3% and 4% to borrow money for six and 12 months, but these rates had increased to 5.1% and 5.9% in yesterday’s bond auction respectively.

European Commission President, Jose Manuel Barosso, promised that the Portuguese request would be dealt with as swiftly as possible. There has been little reaction to the Portuguese request on the currency markets although the Euro is marginally lower against the other majors, because the bailout request was seen as being inevitable and has already been priced in. The size of the Portuguese bailout request has not yet been announced, but there is speculation that it will be of the order of €80 billion.
http://www.dailyforex.com/forex-fundamental-analysis/2011/04/Portugal-Asks-For-An-EU-Bailout/7633

Forex Week in Review

By: Dr. Mike Campbell All of the major markets managed to close higher last week and, with the exception of the Nikkei, have recovered the losses made in the wake of the Japanese earthquake and tsunami. In Europe over the course of the week, the FTSE made 1.9%, closing at 6009.9; the Dax gained 3.4% to close at 7179.81; the CAC put on 2.1% to end the session at 4054.76.

The Dow ended the week stronger to the tune of 1.3%, finishing the trading session at 12376.7 The Nasdaq ended the week higher by 1.7% to close at 2789.6.

The Nikkei restored a further 1.9% of its value to end the trading session at 9718.9.

Currency Markets Review

On the currency markets last week, the Euro had the best of the trading. The Dollar was stronger against Sterling, making 0.24% and closing at 1.6042 to the Pound. The Greenback lost ground against the Euro last week, shedding 0.18% to close at 1.4141. The Dollar was substantially stronger against the Japanese currency, closing at 83.8413 to the Yen, a gain of 3.3%.

The Euro closed higher against the Yen ending at 118.56, making 3.5% over the course of the week. The Euro strengthened against Sterling over the course of the week by 0.42%. The close saw one £ buying 1.1344.

Commodities Market Review

On the commodities market, the price for Brent crude ended higher due to continuing volatility in the markets caused by the situation in Libya, closing at $118.7 per barrel (for May delivery); a gain of 2.7% over the course of the week’s trading. The value of gold slipped last week, closing at 1418 per ounce; representing a loss of 1.3% over last week’s value.
http://www.dailyforex.com/forex-fundamental-analysis/2011/04/Forex-Week-in-Review-April-4-2011/7603

Forex Week in Review

By: Dr. Mike Campbell Last week was a mixed affair for the world’s major stock exchanges. In Europe over the course of the week, the FTSE made 0.76%, closing at 6055.8; the Dax gained 0.52% to close at 7217.02; the CAC put on 0.18% to end the session at 4061.91.

The Dow ended the week essentially unchanged, gaining 0.03%, finishing the trading session at 12380. The Nasdaq ended the week down by 0.33% to close at 2780.4.

The Nikkei regained a further 0.51% of its value to end the trading session at 9768.1.

Currency Markets Review

On the currency markets last week, the Euro again had the best of the trading; despite the Portuguese bailout. The Dollar was weaker against Sterling, losing 1.7% and closing at 1.6347 to the Pound. The Greenback lost ground against the Euro last week, shedding 1.8% to close at 1.4401. The Dollar was stronger against the Japanese currency, closing at 85.2719 to the Yen, a gain of 1.7%.

The Euro closed higher against the Yen ending at 122.8, making 3.6% over the course of the week. The Euro strengthened marginally against Sterling over the course of the week by 0.06%. The close saw one £ buying 1.1351.

Commodities Market Review

On the commodities market, the price for Brent crude ended higher due to continuing volatility in the markets caused by the situation in Libya, closing at $126.7 per barrel (for May delivery); a gain of 6.7% over the course of the week’s trading. The value of gold recovered last week, closing at 1469.5 per ounce; representing a gain of 3.6% over last week’s value.
http://www.dailyforex.com/forex-fundamental-analysis/2011/04/Forex-Week-in-Review-April-11-2011/7657

US Government Narrowly Avoids a Shutdown

By: Saxo Bank The dollar continued to slide on Friday though a last minute deal on the U.S. budget preventing a U.S. government shutdown slowed the fall. Earlier, EURUSD was encouraged through 1.44 as Spain’s economics minister said a bailout was out of the question, while ECB’s Bonello commented that last Thursday’s rate hike would not make a great difference to Portugal. There was also talk that higher crude prices were leading to some petro-states recycling some of their USD income into EURs. GBP firmed as U.K. PPI came in dramatically above forecast (not what the Bank of England wants to hear) but gains were curtailed as a U.K. bank scaled back rate hike expectations.

For the North American session, eyes were all on budget negotiations and data releases were only second tier so relative yields played a large part in cementing direction. For the record, U.S. wholesale inventories came in as expected, up 1.0% and unchanged from a revised previous figure. Wall St finished the week on a soft note resulting in an almost flat performance on the week. Canada’s employment data was mixed with a drop in unemployment mostly as a result of a fall in the participation rate while headline employment change looked on the soft side but masked a strong increase in full-time jobs.

It is a slow start to the week on the data front in Asia and the session was spent consolidating the gains made against the U.S. dollar on Friday. News that the U.S. government narrowly avoided a shutdown had little noticeable effect. In weekend events, we have seen an escalation in tensions in the Middle East with protestors killed in Yemen, Syria and Egypt but the only impact was felt in oil markets.

China released trade data for March during the weekend and printed a small trade surplus, +$0.14 bln, which was a big surprise considering consensus was for a deficit of $3.35 bln. While March data shows a strong rebound from February’s $7.3 bln deficit, it still meant that in Q1 China recorded its first quarterly deficit in 7 years (-$1.02 bln). Has it helped global imbalances?

The European session is also relatively mundane on the data front with CPI data from Denmark and Norway and industrial production from France and Italy featured. There are no data releases for North America but we have speeches from the Federal Reserve’s Dudley and Yellen and the European Central Bank’s Weber.
http://www.dailyforex.com/forex-fundamental-analysis/2011/04/US-Government-Narrowly-Avoids-a-Shutdown/7656