Thursday, May 30, 2013
Tuesday, May 28, 2013
By Luciana Lopez
NEW YORK | Sun May 26, 2013 9:28am EDT
(Reuters) - Have your summer vacation all booked? Hoping to ignore your phone for a while, feeling safe in your investments and secure in the knowledge that the world's financial authorities aren't planning any surprises just yet?
U.S. Federal Reserve Chairman Ben Bernanke made it clear in congressional testimony this week that the central bank could very well entertain a change in policy sooner than many had predicted. That would mean providing less stimulus to the economy by cutting back on its bond buying program.
The result was an unsettling bout of volatility, with Treasury yields jumping while stocks slid, as investors feared the Fed's support might start to recede.
And that means this could be a summer when investors may find the waves are not only on the beach.
While Fed-watchers are hard-pressed to see a turning point at the bank's June policy meeting, there are plenty of other spots this summer when the Fed could start to prepare markets for change.
Besides the June meeting, there is a policy meeting in July and the release of minutes from both those meetings that will follow. There are three Fridays where monthly jobs will be released, and plenty of inflation readings and other, lesser economic datapoints.
And of course, there are other potential flashpoints. Will an heir to Bernanke emerge? Will the annual monetary policy symposium in Jackson Hole, Wyoming, this August matter without Ben Bernanke?
Here's what to watch for this summer on the Fed front.
FED MEETINGS AND MINUTES
Fed policymakers meet twice more before the September 2 Labor Day holiday this year: June 18-19 and July 30-31. In addition, the minutes of those Federal Open Market Committee meetings will be released three weeks later.
The June meeting is likely "as good a target as any" for a signal from the Fed about their future plans, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C.
The Fed doesn't want to startle investors, because that would be disruptive. Expect plenty of flags, through meeting statements and minutes, before policymakers make any movements.
DATA DELUGE: JOBS VS INFLATION
The Fed's dual mandate means that both jobs and inflation data will be key. Labor data has been more encouraging of late, with the unemployment rate down to 7.5 percent. The Fed has said it wants to see the rate fall to 6.5 percent before it raises interest rates.
The data has been spotty enough that policymakers could want more consistency. Nonfarm payroll has averaged about 208,000 monthly over the past six months but has dipped below that level in some months. Chicago Fed President Charles Evans said he would like to see growth of 200,000 each month before cutting back on bond purchases, also referred to as quantitative easing.
Also far from target is inflation. The Personal Consumption Expenditures index, which is the measurement most watched by the Fed, was only at 1 percent in March. The April reading is due on May 31.
"They would be more comfortable with inflation at 2, 2.5 percent," said Wilmer Stith, co-manager of the Wilmington Broad Market Bond Fund in Baltimore.
With inflation hardly threatening, there are few price pressures to argue for ending the flood of easy money, and the data only goes to underscore the relative weakness of the economy, Stith noted.
THE NEXT FED CHAIR?
Bernanke hasn't officially bid adieu to the Fed, but he is clearly eyeballing the door. His second term ends in January, and there has been no official announcement about his future at the Fed.
"I don't think that I'm the only person in the world who can manage the exit (from quantitative easing)," he said earlier this year.
WITH OR WITHOUT BEN: JACKSON HOLE
Bernanke may be opening the way for possible successors by skipping the Jackson Hole gathering later this year due to an unspecified scheduling conflict.
While Fed Vice-Chair Janet Yellen is emerging as the favorite to hold the position next, Bernanke and company have so far been quiet.
The Fed honcho's absence could mean Jackson Hole offers little in the way of news, in which case, head to the beach and read that trashy novel you've been meaning to get through.
But maybe not.
Bernanke's absence on the schedule could open up a spot for an heir-apparent to take the spotlight instead.
If that is Yellen, "perhaps that is going to be the platform for her to gain even more recognition nationally," Stith said.
DEBT CEILING DEBATES - YES, THIS AGAIN
One thing investors and traders may not have to worry about is a debt ceiling crisis in Washington. The government probably won't breach its congressionally authorized borrowing limit until at least Labor Day.
The perfect bookend to summer, in other words.
Monday, May 27, 2013
Sunday, May 26, 2013
Germany's economy barely grew in the first quarter of 2013 as exports and investment shrank, figures show.
Consumption, not exports, helped support the German economy
But higher domestic consumption - thanks to rising wages - helped offset the declines in foreign trade and capital investment, raising hopes it will help drive a sustained recovery.
Gross domestic product rose 0.1% from the previous quarter, but contracted 1.4% compared with a year earlier.
The figure showed the economy narrowly avoided falling into a recession.
In the previous quarter, Germany's annual economic output shrank by 0.7%. A recession is defined as two consecutive quarters of economic contraction.
In the latest GDP data, which confirmed a preliminary estimate, only household spending was positive, growing 0.8%. Imports fell by 2.1% and exports dropped 1.8%,
"Germany's consumers ride to the rescue," said Christian Schulz, senior economist at Berenberg Bank.'Normal' effect
"In 2013, Germany will have to rely largely on domestic demand for growth. With consumption showing signs of strength and some bounce-back in investment after the long winter, the outlook for domestic demand is brightening," he said.
"Strong fundamentals such as low unemployment, rising wages and low inflation are starting to have their 'normal' effect. And more growth is in store,"
A separate survey of 2,000 households by market research group GfK showed consumer sentiment rose for the sixth month in a row.
GfK pointed to "the favourable and stable framework conditions in Germany. The high level of employment, favourable wage agreements and slowing inflation are buoying sentiment."
Business sentiment also showed a surprise rebound this month after two consecutive months of declines, according to the closely-watched Ifo business climate index released on Friday.
But some analysts still warned that the recovery was fragile.
Germany's economy lost steam last year as the eurozone crisis and weakness in China hit exports.
"The data also hold an inconvenient truth," said Carsten Brzeski, senior economist at ING.
"Without its exports, the German economy is currently only like a sports car without sixth gear."
Thursday, May 23, 2013
By William Schomberg and David Milliken
LONDON | Wed May 22, 2013 12:08pm BST
(Reuters) - The International Monetary Fund called on Britain's government on Wednesday to do more to speed up slow economic recovery, hinting that the country might be able to afford to borrow more to fund investment.
The report is unlikely to spur Chancellor George Osborne to deviate from his flagship austerity programme, and does not directly urge him to defer planned spending cuts.
The IMF expressed concern that a new government programme to boost the housing sector might simply push up prices and called for a "clear strategy" on returning state-controlled Royal Bank of Scotland (RBS.L) and Lloyds Banking Group (LLOY.L) to private ownership.
In an annual review of Britain's economic policies, the Fund said Britain had shown "welcome flexibility" in its push to fix one of the biggest budget deficits in the European Union and noted "encouraging" signs that the economy was on the mend.
"The UK is, however, still a long way from a strong and sustainable recovery. Per capita income remains 6 percent below its pre-crisis peak, making this the weakest recovery in recent history," it said.
It said "planned fiscal tightening will be a drag on growth" and called for several measures to bring about a speedier recovery that would help fix the deficit, urging Britain to take advantage of low borrowing costs to fund more investment.
"Given the tepid recovery, policy should capitalize on nascent signs of recovery to bolster growth, notably by pursuing measures that address supply-side constraints and also provide near-term support for the economy," the IMF said in a statement.
"In the current context in which labor is under-utilized and funding costs are cheap, the net returns from such measures are likely to be particularly favorable."
Osborne has long said that making a conscious choice to borrow more than planned - rather than just reacting to a weaker economic environment - would damage Britain's credibility with the financial markets that fund Britain's debt.
On Tuesday, a spokesman for Prime Minister David Cameron said the government was on track to return the economy to health, and Osborne has previously said he would not take on board IMF recommendations that he disagreed with.
(Editing by Catherine Evans)
Tuesday, May 21, 2013
LONDON | Tue May 21, 2013 9:47am BST
(Reuters) - British consumer price inflation fell last month for the first time since September, giving incoming Bank of England governor Mark Carney more leeway to support the economy should the recovery weaken.
Inflation eased to 2.4 percent in April from 2.8 percent in March, official data showed on Tuesday, a better reading that the 2.6 percent rate economists had forecast.
The main downward thrust came from petrol and diesel, which accounted for almost half the drop in the annual rate.
Inflation has been above the Bank of England's 2 percent target since the end of 2009 but the recent weakness in commodity prices has made policymakers more confident it will ease over the next two years.
Core inflation, which strips out volatile food and energy components, dropped to 2.0 percent in April, the lowest since November 2009.
Separate data on producer prices mirrored the picture of easing price pressures. Annual factory gate inflation slowed to 1.1 percent in April from 1.9 percent in March, a much bigger drop than analysts had forecast.
Carney, currently head of Canada's central bank, replaces Mervyn King at the helm of the Bank of England in July. He has a reputation for monetary activism and has previously said he wants Britain's recovery to achieve "escape velocity".
(Reporting by Olesya Dmitracova and Christina Fincher)
Monday, May 20, 2013
Swedish Finance Minister Anders Borg
Friday, May 17, 2013
By John O'Donnell
BRUSSELS | Fri May 17, 2013 2:12am EDT
(Reuters) - The European Central Bank could use its new supervisory role from next year to single out weak banks and make it harder for them to get its financial support, people familiar with the matter say.
Such a hardening of approach would keep ECB funding flowing to Europe's most important lenders but compel laggards to beef up their capital buffers, prod national central banks to take on the problem or even force some banks to go to the wall.
The thinking denotes a growing concern at the ECB, which bankrolls much of the financial , about the risks of backing banks with often only weak collateral as security.
It follows an unprecedented public threat by the euro zone's central bank to cut emergency financing to Cypriot banks, in the middle of the Mediterranean island's crisis which led to the closure of one as part of a stringent bailout.
"Central banks provide liquidity against collateral. But what do you do for addicted banks?" said one person familiar with ECB thinking.
"If a bank returns continuously to get liquidity, (the ECB) will make it more difficult. You will have to pay a higher price. You will have to change the rules for provision of liquidity."
The ECB declined to comment. It gave 1 trillion euros of cheap three-year loans to banks last year and has offered further unlimited support since.
The possible use of such tactics is also a response to the constraints the ECB may face when it takes on bank supervision next year. German opposition could mean there is no separate agency to close problem banks although it is unclear if the ECB would accept this and take on supervision nonetheless.
Currently, the ECB relies on national regulators for information about banks that borrow from it but that will change when it takes over as overarching regulator next year.
Once it has this power, the ECB could use its knowledge to identify banks with threadbare capital, demand they beef up this cushion or face expulsion from its financing operations, said another person familiar with the new supervision .
Such a move could effectively close a bank, putting a question mark over the notion that there will be a strict division between ECB's role as supervisor and as guardian of monetary policy.
"The supervisor can say this bank's collateral is not of the required standard and that it needs more capital," said that person, adding that a bank could be disqualified from ECB finance if it did not recapitalize within months.
Such a step would not erode wider support for the banking sector but would mark a shift to a more targeted approach, focusing help on those strong enough to thrive.
"Being supervisor allows the ECB to discriminate between zombie banks and those that are sound and make sure that its lending targets those banks that lend to the economy - not to the zombies," said Daniel Gros of think tank, the Centre for European Policy Studies.
Many at the ECB are concerned about the problems lurking in banks, which have piled up billions of euros of bad loans during years of runaway lending.
And yet the necessity to support the sector has led to a loosening of collateral rules which means that banks are often allowed to borrow with second-rate security - sometimes as little as a car loan.
This leaves the ECB with threadbare cover should any sizeable chunk of the almost 850 billion euros it has lent not be repaid.
As it stands, any euro zone bank that has the collateral required qualifies to borrow from the ECB. But this could change if it were to penalize certain banks, by charging them more.
The move would reinforce the ECB's stamp of authority as supervisor, the first step to creating a banking union or system for policing, controlling and supporting banks in the euro zone.
In its new role, the ECB may have to slug it out with national regulators over whether troubled banks should be kept alive. By choking off liquidity, it can avoid a protracted political tangle and shut the bank or force national central banks to shoulder the burden of financing it.
(Additional reporting by Paul Carrel and Annika Breidthardt. Editing by Mike Peacock)
Inflation in both the 17-strong eurozone bloc and the US has fallen to its lowest level in years.
Prices rises are weak in both the US and Europe thanks to low oil prices and weak employment growth
The eurozone figure, for April fell to 1.2% - a three-year low. US inflation was running at 1.1% - a two-year low. Both countries target inflation at 2%.
In both cases the prime cause of the fall was a lower oil price, which is down from just less than $120 a barrel in March to about $93 a barrel now.
Weak demand across both economies was also a factor.
The sharp fall in the cost of fuel caused the US monthly inflation rate to fall at its sharpest pace since December 2008.
The US economy is growing more strongly than most of Europe, but remains patchy, while high unemployment has put downward pressure on wages, making it harder for retailers and other firms to raise prices.Deflation
Figures on Wednesday showed that the eurozone was still in recession, as weak growth in some parts was offset by budget cuts and unemployment in others.
Inflation fell in France, which was reported to have slipped back into recession this year, and in Germany, which grew by an anaemic 0.1% in the first three months of this year.
Greece saw overall deflation - on average, prices were actually lower than previously - instead of what is seen in normal economic conditions, in which some prices rise and some fall.
Earlier this month, the European Central Bank (ECB) cut interest rates to a record 0.5%, a move designed to spark growth.
Low interest rates can also unleash inflation, but when economic growth is very weak, authorities worry more about deflation. This can depress economic activity, as consumers hold off buying goods in the expectation they will become cheaper in coming months.
There are few signs that inflation is likely to be a threat in the near future, it is well below the ECB's target rate of 2% in any case.
The highest price rises were found in Romania, Estonia and the Netherlands.
Thursday, May 16, 2013
The Australian government is forecasting a deficit for its current financial year, despite promising a surplus a year ago.
Australian Treasurer Wayne Swan presented his sixth annual budget
Unveiling his budget, Treasurer Wayne Swan said the deficit would be 19.4bn Australian dollars (£12.6bn; $19.2bn).
Much of the shortfall is due to a slowdown in the mining boom, which has sustained the economy in recent years.
Mr Swan also announced increased spending on defence and foreign aid.
The budget predicted a smaller deficit next year and a return to surplus in 2015.
Australia's central bank predicted economic growth of 2.5% for 2013.Slower cuts
A year ago Mr Swan had predicted a A$1.5bn surplus for the current financial year.
Addressing the Australian parliament in the capital Canberra, he defended his government's decision not to take the path of serious austerity in an effort to balance the nation's books sooner.
"To those who would take us down the European road of savage austerity, I say the social destruction that comes with cutting too much, too hard, too fast is not the Australian way," he said.
"Cutting to the bone puts Australian jobs and our economy at risk, something this Labour government will never accept."
Demand for the country's raw materials has kept the economy buoyant in recent years. But analysts expect the mining boom to peak this year and the prices of several commodities are already falling.
A 30% tax on iron ore and coal miners' profits above a certain level was supposed to raise A$3bn this year. The latest estimate shows that the tax will only feed A$200m into the nation's coffers this year and A$700m next year.
Government spending in Australia has been increasing since 2009, with an initial flurry at the height of the financial crisis which was aimed at keeping the country out of recession.
Defence spending is growing, despite the fact that Australian troops are being withdrawn from Afghanistan, East Timor and the Solomon Islands.
Defence spending over the next four years is now planned to be A$113bn. A year ago that figure was A$103bn.
Australia will also increase its foreign aid spending by 9.6% from the current year to A$5.7bn next year.
Nonetheless, ratings agency Moody's was unperturbed by the further delay in returning to surplus and kept the country on the top-notch triple-A rating with a stable outlook.
"Although the government budget is now forecast to remain in deficit through the 2014-15 fiscal year, the projected deficits are relatively small as a percentage of GDP," said Steven Hess, senior vice president at Moody's.
The budget is predicted to be the last by the centre-left Labour Party government, which is expected to lose elections in September.