Euro Approaches 18-Month High Versus Dollar Before ECB Decision

Interesting how portfolio managers and speculators- the herd in general- clings to long dispelled theories.

Note the large shift away from the dollar and into commodities on QE2, which in fact did nothing of consequence apart from turning psychology.

And the idea that rate hikes support a currency has been long dispelled by extensive research, including decades of central bank research.

Euro Approaches 18-Month High Versus Dollar Before ECB Decision

By Lucy Meakin

May 4 (Bloomberg) — The euro rose against the dollar, approaching its strongest in 18 months, on speculation that European Central Bank PresidentJean-Claude Trichet will signal further rate increases after policy makers meet tomorrow.

BOE’s King Says Higher Interest Rates Would Exacerbate Debt Woes

Taking a page from the Fed’s playbook?

The BOE has seen the Fed effectively scare portfolio managers and speculators out of the dollar with QE, which they know does nothing apart from just that, and may in fact even be fundamentally supportive of the dollar.

So desirous of a weaker currency, why not make a knowingly silly statement like this and manipulate portfolio managers who don’t know any better into shedding pounds in this increasingly bizarre international display of managing expectations?

And even if I’m giving them far too much credit for cleverness, the result is the same none the less…

BOE’s King Says Higher Interest Rates Would Exacerbate Debt Woes

By Jim Brunsden

May 3 (Bloomberg) — Bank of England Governor Mervyn King said high debt levels pose “massive” economic challenges that would be exacerbated by higher interest rates.

“The economic consequences of high-level indebtedness now would become more severe if rates were to rise,” King said yesterday at a committee of the European Parliament in Brussels. “It is the main reason why interest rates are so low.”

Bank of England policy makers are split four ways over monetary policy. The central bank probably will leave the key interest rate at a record low of 0.5 percent at the next rate meeting on May 5, according to the median of 43 forecasts in a Bloomberg News survey of economists.

Last month, Andrew Sentance voted for an increase to 1 percent, Martin Weale and Spencer Dale for a quarter-percentage- point rise and Adam Posen for expansion of the bond-purchase program. The rest, including King, voted for no change.

“The problem of leverage, the sheer volume of debt in the economy, is still very large and this poses massive macro-economic challenges,” King said yesterday. “I think these macro-economic challenges will last many years.”

more on ECB funding dependence in the eurozone

Yet another substantiation of just how much the entire system is (necessarily) dependent on ECB funding/backstopping.

The ECB’s Secret Bailout Strategy

By: Hans-Werner Sinn

Excerpt:
The amount of the ECB’s “replacement lending” is shown by the so-called Target2 account, which measures the deficit or surplus of a country’s financial transactions with other countries. As the account includes international payments for both trade in goods and financial claims, a deficit in a country’s Target account indicates foreign borrowing via the ECB, whereas a surplus denotes foreign lending via the ECB.

The balance is not reported on the ECB’s balance sheet, since it is zero in the aggregate, but it does show up on the respective balance sheets of the national central banks as interest-bearing claims against, and liabilities to, the ECB system. Until mid-2007, the Target accounts were close to zero, but since then, they have grown by about €100 billion per year.

For example, the Bundesbank’s Target claims ballooned from €5 billion in 2006 to €323 billion by March 2011. The counterpart to these claims were the PIGS’ liabilities, which had grown to about €340 billion by the end of last year. Interestingly, the PIGS’ cumulative current-account deficits from 2008 through 2010 were of roughly the same order of magnitude – €365 billion, to be precise.

Had the ECB failed to finance these deficits, the PIGS would have had a hard time finding the money to pay for their net imports. If they succeeded at all, high interest rates would have induced them to tighten their belts, and their current-account deficits, which in the case of Greece and Portugal exceeded 10% of GDP, would have diminished.

Saudi oil production, Donald Trump, and President Obama

The Saudis operate by posting prices for their refiners and then filling all orders at their posted prices.

It looks like the spike in demand for Saudi crude due to Libya has pretty much passed, and Libya is not back to full production.

So look for Saudi production to fall further when Libya comes back on line.

Prices, however, will remain at whatever level the Saudis decide to post, much like Donald Trump has been proclaiming. And with Trump having the President’s ear, there’s at least an outside chance the President figures it out and lets the Saudis know he’s on to them and works out a price cut?

Japan’s new vehicle sales mark largest fall in April

All looking very weak, probably weaker than expectations, and the (modest) new spending appears to be paid for by reductions in other spending, so no fiscal response yet.

Headlines:

Japan’s new vehicle sales mark largest fall in April
Japan’s Wages Fall, Highlighting Risks to Economic Recovery
Japan Passes Y4tln Emergency Budget, But Political Standoff Not Over
Domestic Auto Sales Fall 51% In April

Japan’s new vehicle sales mark largest fall in April

Workers give the final checkup on the cars of Honda Accord Tourer at Honda Motor Co.’s Saitama Factory in Sayama, north of Tokyo, Monday, April 18, 2011.(AP Photo/Shizuo Kambayashi)TOKYO (Kyodo) — Sales of new vehicles including minivehicles in Japan marked the largest fall of 47.3 percent in April from a year earlier to 185,673 units in the wake of the devastating March 11 earthquake and tsunami in the country’s northeastern region, industry bodies said Monday.

The sales volume was also the record monthly low, which was smaller than the previous low of 198,693 units marked in January 1968, according to the Japan Automobile Dealers Association and the Japan Mini Vehicles Association.

The rate of decline beat the previous record fall of 40.7 percent in May 1974 as disruptions in supply chains triggered by the disaster forced automakers to significantly curtail output.

Sales of vehicles, excluding minivehicles with engines of up to 660 cc, plunged 51.0 percent to a record low of 108,824 units, falling for the eighth straight month and registering the sharpest percentage fall.

Minivehicle sales dropped 41.1 percent to 76,849 units, also marking the largest percentage fall.

Japan’s Wages Fall, Highlighting Risks to Economic Recovery

May 2 (Bloomberg) — Japan’s wages slid for the first time in 13 months in March, underscoring the risk that slumping consumer spending may undermine the recovery from an earthquake that left more than 25,000 people dead or missing.

Monthly pay including overtime and bonuses dropped 0.4 percent from a year earlier to 274,886 yen ($3,383), the Labor Ministry said today in Tokyo. Overtime work hours fell 2 percent to 10.1 hours, the data showed.

The wage data highlight the economic damage from the March 11 disaster, which caused a record decline in factory output and decreases in retail sales, household spending and consumer confidence. Japan’s parliament passed today a 4 trillion yen ($49 billion) extra budget put together by Prime Minister Naoto Kan to pay for reconstruction in the northeast area.

“The impact of the earthquake on wages will materialize in coming months,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “Corporate earnings are worsening, which could prompt companies to start cutting salaries,” and that “will likely weigh on personal consumption.”

The Nikkei 225 Stock Average rose 1.6 percent to close at 10004.20 today after U.S. companies reported better-than- expected earnings and President Barack Obama said al-Qaeda leader Osama bin Laden was killed. The yen weakened 0.3 percent to 81.47 against the dollar at 4:16 p.m. in Tokyo.

Nomura’s Income

Nomura Holdings Inc., Japan’s largest brokerage, said last week its net income fell 35 percent to 11.9 billion yen in the three months ended March 11, as income from investment banking and trading declined.

Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan’s three biggest carmakers, say domestic output plunged in March. Toyota may lose output of 300,000 vehicles in Japan and 100,000 overseas through the end of April due to quake-related shutdowns, Executive Vice President Atsushi Niimi said last month.

Sales of cars, trucks and buses, excluding minicars, fell 51 percent in Japan from a year earlier to a record-low 108,824 vehicles in April, the Japan Automobile Dealers Association said in a statement today.

Japan’s industrial production plunged 15.3 percent in March from February, the largest drop since data began in 1953, government data showed last week. Household spending slid 8.5 percent from a year earlier in March, while consumer confidence fell the most on record, data last month showed.

‘Severe’ Outlook

The Bank of Japan last week cut its growth estimate for the nation for the year ending March 2012 to 0.6 percent from a January prediction of 1.6 percent, with Governor Masaaki Shirakawa saying the economic outlook is “severe.”

Consumer spending may decrease in both the first and second quarters and rebound in the third quarter at the earliest, BNP Paribas’ Kato said. Such outlays make up about 60 percent of Japan’s gross domestic product.

Kan’s extra budget, which the prime minister says will be one of several financing packages for rebuilding, may create around 200,000 jobs and support some 1.5 million workers, the government estimated last week.

The government projected in March that damage from the disaster may reach 25 trillion yen.

Seven & I Holdings Co., the owner of the 7-Eleven convenience-store brand, said last month its full-year profit may decline 22 percent. Aeon Co., which may surpass Seven & I to become the country’s biggest retailer in terms of revenue this fiscal year, said net income may decline 33 percent.

Japan Passes Y4tln Emergency Budget, But Political Standoff Not Over

(Dow Jones) Japan’s parliament passed a Y4 trillion disaster relief budget on Monday. The extra budget, which totals Y4.015 trillion and is the first of a planned series of spending packages to deal with the aftermath of the disaster, does not involve additional government borrowing as it will be financed by funds previously earmarked for other spending. The government will now shift its focus to drafting a broad after-quake reconstruction plan as well as a long-term blueprint to overhaul Japan’s tax and social security systems by the end of June. The government will then compile a second extra budget to fund other quake-related measures, Prime Minister Kan and Finance Minister Yoshihiko Noda have indicated.

Domestic Auto Sales Fall 51% In April

(Dow Jones) Japan’s domestic sales of new cars, trucks and buses dropped 51.0% from a year earlier in April, as supply chain problems after the massive earthquake and tsunami on March 11 reduced supplies of new vehicles to customers. Sales totaled 108,824 vehicles in April. The sales drop in April came after a 37% on-year decline in March. Sales of Toyota Motor Corp. vehicles dropped 68.7% to 35,557 vehicles in April, with those of its luxury brand Lexus down 44.7% at 1,656. Nissan Motor Co. vehicle sales tumbled 37.2% to 17,413 in the month, while Honda Motor Co.’s sales sagged 48.5% to 18,923. Auto sales are the first consumer spending numbers released each month. The figures don’t include sales of mini cars and trucks.

John Donne remembered

For Whom Bell Tolls

“No man is an island, entire of itself; every man is a piece of the continent, a part of the main. If a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friend’s or of thine own were:
any man’s death diminishes me, because I am involved in mankind, and therefore never send to know for whom the bells tolls; it tolls for thee.”

John Donne
Devotions upon
Emergent Occasions, no. 17
(Meditation)
1624 (published)

BOJ Shirakawa Warns Japan Economic Outlook ‘Very Severe’

After all these years they are still threatening to use policy tools that have no effect on the real economy, and little if any effect on finance.

And with the rest of world seemingly thinking the same way as well risks of a global double dip are increasing.

BOJ Shirakawa Warns Japan Economic Outlook ‘Very Severe’

By Leika Kihara

April 30 (Reuters) — Bank of Japan Governor Masaaki Shirakawa said on Saturday that the country’s economic outlook was very severe and that the central bank would take appropriate action to support the economy.
But he offered few clues on whether and when the BOJ would expand its asset-buying scheme, only saying that its next policy step would depend on economic conditions at the time.

“The BOJ sees the outlook for Japan’s economy as very severe,” Shirakawa told a financial committee meeting in the lower house of parliament. “We’d like to take appropriate policy steps as needed while monitoring the economy and prices, taking into account that uncertainty over the outlook is high,” he said.

Asked by a lawmaker whether the BOJ would consider buying more government bonds to support the economy, Shirakawa said only: “We’d like to consider in earnest what would be the desirable step to take.”

The BOJ kept monetary policy unchanged on Thursday even as it lowered its growth forecast for the current fiscal year, which began in April, and warned of uncertainties over the extent of damage that last month’s devastating earthquake would inflict on the economy.

Shirakawa reiterated that having just expanded its asset purchasing scheme days after the March 11 quake, the BOJ preferred to spend more time examining the impact the step would have on the economy.

But he also left open the possibility of easing monetary policy further if damage from the quake proved bigger than expected, stressing that the central bank was focusing on downside risks to growth for the time being.

In a sign some in the BOJ were more cautious about the economic outlook than Shirakawa, Deputy Governor Kiyohiko Nishimura proposed on Thursday expanding the central bank’s asset buying scheme by 5 trillion yen ($62 billion).

While the proposal was outvoted by the board, some market players said it may be a sign the BOJ may loosen policy as early as next month.

Japan is facing its worst crisis since World War Two after the 9.0 magnitude earthquake and subsequent tsunami devastated its northeast coast last month.

Reflecting the economic impact, factory output fell at a record monthly pace in March, household spending declined at a record annual rate and another private survey showed manufacturing activity languishing at a two-year low.

The BOJ eased policy days after the quake by doubling to 10 trillion yen the funds it sets aside for purchases of a range of financial assets, such as government bonds and corporate debt.

If the central bank were to next ease policy, the most likely step would be to expand the scheme again, sources familiar with the BOJ’s thinking say.

Aside from the government bonds it purchases under the asset buying scheme, the central bank buys 21.6 trillion yen worth of long-term government bonds from the market each year.

Some lawmakers have called on the BOJ to buy more government bonds from the market, or even underwrite them directly, to help the government fund the huge costs for reconstruction.