Hungary to meet euro terms earlier


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Note the contractionary terms highlighted below:

Hungary Pays With Growth Prospects for IMF-Led Bailout Package

By Zoltan Simon

Oct. 29 (Bloomberg) — Hungary will meet euro-adoption term faster than previously planned after securing a 20 billion-euro ($25.5 billion) aid package to stabilize its recession-bound economy.

The country should adopt the euro “the faster the better,” Economy Minister Gordon Bajnai and Andras Simor, the head of the central bank told reporters today. The aid package will “unequivocally” stem the financial crisis in local markets, Bajnai said.

Hungarian stocks, bonds and the currency plunged this month because of concern that the country may have difficult financing its budget and current account deficits.

The aid package will help Hungary with its balance of payments and increase investor confidence by more than doubling foreign-currency reserves, Simor said.


The central bank, which raised the benchmark interest rate last week to 11.5 percent, the EU’s highest, from 8.5 percent to halt the currency’s plunge, will “think it over” on the direction of monetary policy after the rescue plan, Simor said. The bank continues to aim for price stability, he said.


To reduce country’s reliance on external financing, Prime Minister Ferenc Gyurcsany plans to cut spending next year by freezing salaries and canceling bonuses for public workers and reducing pensions. Hungary today also canceled all government bond auctions through the end of the year.

The standby loan, which Hungary can draw on as needed, will more than double the country’s 17 billion euros worth of foreign currency reserves, Simor said. The loan carries an interest rate of 5 percent to 6 percent, a standby fee of 0.25 percent annually and can be repaid in three to five years. Hungary can access the funds until March 2010, Simor said.

Part of the loan will be used to provide liquidity to banks, Simor said, without elaborating. Banks in Hungary have started to curtail or suspend foreign currency lending because of the difficulty in accessing euros and Swiss francs, the most popular foreign currency loans.

Euro applicants must keep inflation, debt and budget deficits within check. Hungary expects consumer prices to rise 4.5 percent, with a budget deficit at 2.6 percent of gross domestic product and declining debt next year.


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Austria abandons bond offering


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Not looking at all promising.

Austria abandons bond offering

By David Oakley

Austria, one of Europe’s stronger economies, cancelled a bond auction yesterday in the latest sign that European governments are facing increasing problems raising debt in the deepening credit crisis.

The difficulties of Austria, which has a triple A credit rating, highlights the extent of the deterioration, which saw benchmark indicators of credit risk such as the iTraxx index hit fresh record wides yesterday.

Austria is the fourth European country to cancel a bond offering in recent weeks amid growing worries over its exposure to beleaguered eastern European economies such as Hungary.

Hungary, which has been forced to turn to the International Monetary Fund to shore up its crisis-hit economy, also scrapped an auction for short-term government bills after only attracting Ft5bn ($22.5m) in a Ft40bn offering.

Analysts said Austria had dropped plans to launch a bond next week because investors wanted bigger premiums to offset the credit worries and fears over lending by its banks to eastern Europe.

The Austrian Federal Financing Agency did not give a reason for the move.

Spain, another triple A rated country, and Belgium have cancelled bond offerings in the past month because of the turbulence, with investors demanding much higher interest rates than debt managers had bargained for.

Market conditions have steadily deteriorated in recent days with the best gauge to credit sentiment, the iTraxx investment grade index, which measures the cost to protect bonds against default in Europe, widening to more than 180 basis points, or a cost of €180,000 to insure €10m of debt over five years, yesterday.

This is a steep increase since Monday of last week, when the index closed at 142bp.

Huw Worthington, European strategist at Barclays Capital, said: “These are difficult markets. Austria did not need to raise the money, so it has decided to hold off but, if these conditions persist, it could prove a problem for some governments as their debt needs to be refinanced.”

Analysts warn that the huge pipeline of government bonds due to be issued in the fourth quarter and next year could increase problems for some countries, particularly those already carrying large amounts of debt that needs to be refinanced or rolled over.

European government bond issuance will rise to record levels of more than €1,000bn in 2009 – 30 per cent higher than 2008 – as governments seek to stimulate their economies and pay for bank recapitalisations.

The eurozone countries will raise €925bn ($1,200bn) in 2009, according to Barclays Capital. The UK, which is expected to increase its bond issuance from the current €137.5bn in the 2008-09 financial year, will take the figure above €1,000bn.

Italy, with a debt-to-gross domestic product ratio of 104 per cent, is most exposed to continuing difficulties in the credit markets. Analysts forecast that it will need to raise €220bn in 2009.


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Updates on Fed swap lines


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Still don’t have totals for Fed USD swap lines extended to Foreign CBs.

Some info here from last week:

ECB Lending, Liabilities Surge to Records Amid Crisis (Update 1)

By Simon Kennedy

Oct. 21 (Bloomberg) — The European Central Bank’s lending to banks and its exposure to possible collateral losses jumped to records last week as the battle against the credit crisis forced policy makers to shoulder more risk.

The Frankfurt-based ECB said it loaned banks 773.2 billion euros ($1.02 trillion) through monetary operations, up from 739.4 billion euros a week earlier and a 68 percent surge from the first week of September. Its liabilities to financial institutions rose to 470.3 billion euros, an increase of 4.4 percent from the previous week and up 123 percent since the start of last month.

While I’m less concerned over the ECB’s increased Euro lending it nonetheless indicates problems have not subsided.

The ECB is following the Federal Reserve and other central banks in combating the credit crunch by expanding its balance sheet as it injects more cash into the banking system. The downsides include taking on more risk as it accepts weaker collateral when lending.

“The urgency of the situation means that drastic measures need to be taken,” said David Mackie, chief European economist at JPMorgan Chase & Co. “Up until a month ago the balance sheet wasn’t growing. Now the bank is creating more and more money.”

The ECB became more aggressive after the collapse of Lehman Brothers Holdings Inc. on Sept. 15 prompted banks to hoard cash worldwide. To spur lending, the central bank has loaned money for longer timeframes and offered banks unlimited amounts of dollars and euros. It last week loosened rules on the collateral it will accept when making loans to include lower-rated securities, certificates of deposit and subordinated debt.

Demand for Cash

The ECB today said it loaned banks 305 billion euros in its regular weekly auction at a fixed rate of 3.75 percent. It also provided $101.93 billion in a 28-day dollar tender at a fixed rate of 2.11 percent, and an additional $22.6 billion, also for 28 days, via a currency swap against euros.

Don’t know what the total USD advances outstanding are.

With the financial crisis spilling over into the economy, demand for banknotes has also jumped. The value of notes in circulation rose to 721.8 billion euros, an increase of 9.7 billion euros from the previous week and 5.4 percent from the start of last month, today’s ECB data showed.

The eurozone is facing a ‘bank run’ as depositors flee to actual cash. This puts the banking system at risk with their current institutional structure.

When Lehman Brothers sought bankruptcy protection, its Frankfurt division owed between 8 billon euros and 9 billion euros to the ECB, the Wall Street Journal reported Oct. 7, without saying where it obtained the information.

ECB President Jean-Claude Trichet has said that while the bank is assuming more risk, it is doing so because of the greater threat of financial meltdown. “We have made decisions which are increasing our risks,” Trichet said in an Oct. 19 interview with France’s RTL Radio. “We are facing a systemic liquidity problem of first importance.”

The ECB’s risk-taking may be paying off. The cost of borrowing euros for three months fell to the lowest level today since Lehman filed for bankruptcy. The London interbank offered rate, or Libor, that banks charge each other for such loans dropped 3 basis points to 4.96 percent today, the British Bankers’ Association said. That’s the lowest level since Sept. 12. The overnight dollar rate slid 23 basis points to 1.28 percent, below the Federal Reserve’s target for the first time since Oct. 3.

This would be near my last choice of ways to get term rates down!


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Zero rate!


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Yes, but, of course, for the wrong reasons!

They all still act and forecast as if lower rates are expansionary.

This still has no support in theory or practice.

Outstanding government debt means the private (non-government) sectors are net savers.

Households remain net savers.

Lower rates directly cuts personal income.

And lowers costs for businesses including costs of investments that reduce costs.

I do favor a permanent zero interest rate policy.

That would mean the same amount of government spending needs less in taxes to support it (larger deficit).

Ex-Fed Gov. Meyer Makes a Case for a Zero Fed-Funds Rate

By Brian Blackstone

With the U.S. unemployment rate now expected to climb well above 7%, former Federal Reserve governor Laurence Meyer projects that Fed policymakers may have to lower the target federal-funds rate all the way to zero next year.

“However, the expected rise in the unemployment rate, paired with the rising threat of deflation, presents a risk that the FOMC will have to ease even further, perhaps all the way to a zero federal funds rate,” Meyer and Sack wrote in a research note.

Meyer and Sack said they think the jobless rate will rise to as high as 7.5% from 6.1% now. They also expect a significant gross domestic product contraction of 2.8%, at an annual rate, in the fourth quarter, after a projected 0.7% decline in the third. They also expect GDP to fall in the first quarter of next year.

Meyer and Sack expect the Fed’s preferred inflation rate gauge — the price index for personal consumption expenditures excluding food and energy — to moderate to just 1% growth, at an annual rate, by the end of 2010.

“Plugging our interim forecast into our backward-looking policy rule suggests that the federal funds rate should be cut to zero by the middle of next year,” Meyer and Sack wrote.

“Our forward-looking policy rule…gives similar results if we plug in our updated forecast, as it calls for a funds rate of about zero by early 2010,” they wrote.


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Energy issues have not gone away yet


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It’s too early to say for sure the Mike Master’s sell off has run its course.

I looked at the announced OPEC supply cut as evidence they think it has.

Net supply issues remain and at least so far demand destruction has only meant a slowing growth of consumption.

Crude Oil Rises on Surge in Global Equities, Possible Fed Cut

By Alexander Kwiatkowski

Supply Declines

Global crude-oil output is falling faster than expected, leaving producers struggling to meet demand without extra investment, the Financial Times said, citing a draft of an International Energy Agency report.

Annual production is set to drop by 9.1 percent in the absence of additional investment, according to the draft of the agency’s World Energy Outlook obtained by the newspaper, the FT reported. Even with investment, output will slide by 6.4 percent a year, it said.

The shortfall will become more acute as prices fall and investment decisions are delayed, the newspaper said. The IEA forecasts that the rising consumption of China, India and other developing nations requires investments of $360 billion a year until 2030, it said.

OPEC Considers Meeting

The Organization of Petroleum Exporting Countries’ decision last week to trim production for the first time in almost two years failed to stop prices falling yesterday.

“If circumstances dictate we have another meeting, of course we will meet,” OPEC Secretary-General Abdalla el-Badri said at the Oil & Money conference in London. He said he expects a market response to last week’s output cut after about a week.

Shokri Ghanem, chairman of Libya’s National Oil Corp., echoed el-Badri’s comments, saying he’s watching the market to see whether it’s deteriorating or stabilizing.


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2008-10-29 USER


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MBA Mortgage Applications (Oct 24)

Survey n/a
Actual 16.8%
Prior -16.6%
Revised n/a

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MBA Purchasing Applications (Oct 24)

Survey n/a
Actual 303.10
Prior 279.30
Revised n/a

 
A small bounce to what are still very low levels.

But no sign of a collapse

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MBA Refinancing Applications (Oct 24)

Survey n/a
Actual 1489.40
Prior 1158.80
Revised n/a

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MBA TABLE 1 (Oct 24)

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MBA TABLE 2 (Oct 24)

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MBA TABLE 3 (Oct 24)

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MBA TABLE 4 (Oct 24)

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Durable Goods Orders MoM (Sep)

Survey n/a
Actual 0.8%
Prior -5.5%
Revised n/a

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Durable Goods Orders YoY (Sep)

Survey n/a
Actual -2.4%
Prior -8.9%
Revised n/a

 
A volatile series. Up some but the overall trend is still looking lower.

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Durables Ex Transportation MoM (Sep)

Survey n/a
Actual -1.1%
Prior -4.1%
Revised n/a

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Durables Ex Defense MoM (Sep)

Survey n/a
Actual -0.6%
Prior -6.0%
Revised n/a

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Durable Goods ALLX (Sep)


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