Between The Lines; Morning Roll Call

Jul 18 • Forex Trading Articles • 2853 Views • Comments Off on Between The Lines; Morning Roll Call

Has Greece Got Its Sums Wrong? Rumours Hit The Market That Its Ten Billion Euros Short...


boYou'd need a heart of stone not to feel for the Greek government's panel who (once the government's latest austerity vote on Wednesday evening is positive) will then have to sacrifice themselves on the alter of the high priests of capitalism – The Troika, in order for them to review the next tranche of bailout money, for the Greek economy to then continue its inevitable death march to the next milestone.

The logic and irony that Greece needs to be lent more money, so it can pay back some of its original obligations, to those who previously lent it money at hiked rates because it was deemed a bad risk, still provides headaches to anyone who has even the most basic grasp of mathematics. Now we learn, (rather inevitably and predictably given the austere conditions attached to the rescue) that there may be a new hole developing in the latest Greek figures, with The European Commission moving quickly too deny the reports that Greece faces a €10bn funding shortfall. However, they have conceded that there is a 'small' gap in the numbers…

Süddeutsche Zeitung, the German newspaper, stated that the EU must address a new funding gap in the Greek bailout this autumn. It quoted an unnamed EU official warning that the rest of the eurozone must decide, by the end of September, how to find more money for Greece, with up to €10bn needed. The EC moved swiftly to deny the report, with spokesman Simon O'Connor telling reporters that:

"The programme for Greece is fully funded for the coming 12 months, so there is no financing gap for the coming 12 months. Beyond on that, the existence of a relatively small financing gap in the final months of the EFSF-funded programme is not new. The existence of a relatively small gap has been known."

Ben Bernake; day one of two hearings

On first inspection Ben Bernanke's prepared speech to Congress appeared to hold few surprises, the narrative was consistent with the message he's stuck to over recent weeks as the 'to taper, or not to taper' drama has enveloped the markets.

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Bernanke repeated the line about how the US will need "highly accommodative" monetary policy for a while;

"With unemployment still high and declining only gradually, and with inflation running below the Committee's longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future."

Bernanke also stated that the Fed expects to start tapering its bond purchase scheme, but only in line with the Fed's stated policy; economic conditions have to continue to improve;

"I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course. On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly.

On the other hand, if the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions–which have tightened recently–were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer.

Indeed, if needed, the Committee would be prepared to employ all of its tools, including an increase the pace of purchases for a time, to promote a return to maximum employment in a context of price stability."

UK's unemployment levels and the OBR warning

The UK's ONS published what appeared to be positive numbers on the employment situation in the UK, however, looking under the hood of this misfiring economy's workforce revealed some alarming stats…

The UK has a 17 year high of individuals who have been out of work for over a year, whilst youth unemployment once again is beginning to nudge the one million mark. The economically inactive figure also grew to reach nine million, as more UK citizens simply gave up looking for work. With average pay rises at 0.9% and the cost of living rising at 2.9%, the reality is that those in work are being squeezed. There was some other bad news for the UK on Wednesday as the OBR, the Office For Budget Responsibility, dealt a hammer blow to the UK chancellor's financial projections, a particularly embarrassing state of affairs given that Osborne set up the OBR.

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Future governments will have to cut spending, or increase taxes by £19bn in 2018, on top of the current £153bn squeeze, if they are to reduce the long-term level of national debt to 40% of GDP, the figure widely considered by economists to be "sustainable". The £19bn requirement is equivalent to 1.2% of GDP, or more than 4p on the basic rate of income tax. So more cuts it is then, as this Tory led coalition will not raise taxes, particularly in the run up to the 2015 election, now only twenty months away and counting. 

Market Overview

The overall impact of Bernanke's (first) testimony today could be best described as neutral, which (as a 'result') would have undoubtedly be the one he'd have wished for. The DJIA closed up 0.12% at 15470, the NASDAQ closed up 0.32% at 3610. European bourses experienced positive fortunes;

  • The FTSE 100 closed up 15.58 points or 0.24% at 6571.93
  • Germany's Dax closed 0.65% higher at 8254
  • France's Cac climbed 0.55% to 3872
  • Italy's FTSE MIB ended 1.06% higher at 15,695
  • Spain's Ibex added 0.19% to 7812
  • Athens market rose 1.72% to 832

Gold suffered a slump in Wednesday's sessions; Comex gold closed down 1.34% on the day at 1274. Silver slumped by a considerable 3.46% to close at 19.24. WTI oil on the ICE exchange closed up 0.49% $106.52 per barrel, NYMEX nat gas closed down 1.74% at $3.61 per therm.

Forex Focus

The pound rose by 0.6 percent to 86.30 pence per euro as London closed after touching 87.11 pence, the weakest level witnessed since March 13th. The pound was little changed at $1.5181 after rising as much as 0.7 percent earlier in the day to $1.5268. The pound rallied versus the euro after minutes of the Bank of England’s latest meeting showed policy makers voted unanimously against expanding their stimulus program that  debases the currency.

The pound has strengthened 2.2 percent in the past three months, according to the Bloomberg Correlation-Weighted Index, as data showed the U.K. economy returned to growth in the first quarter. Measures of services, manufacturing and construction all rose in June. The dollar rose 2.6 percent and the euro gained 3.2 percent, the indexes, which track 10 developed-nation currencies show.

The loonie, (the Canadian dollar), fell 0.4 percent to C$1.0405 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 96.11 U.S. cents. The Canadian dollar fell due to the Bank of Canada Governor Stephen Poloz stating that the nation’s economy has significant slack and inflation remains muted, pushing back any potential for an interest-rate increase and making a base rate cut more likely.

Fundamental policy and news events, ranking as high impact, that could affect sentiment on July 18th

The UK's retail sales will be published in the London morning session, the expectation is for a 0.2% rise versus 2.2% the previous month. It's too early for the UK summer heat wave to impact sales negatively or positively but it may be used, by retailers and the government  apparatus, as an excuse if the numbers are weak.

Approaching the New York session the latest unemployment claims are anticipated to show a slight fall from 360K to 344K. The Philly Fed Manufacturing data is also published in the afternoon session, the previous print was a surprising 12.5, the prediction is for a fall to 8.5. Anything above the zero line is considered growth.

Ben Bernanke conducts his second hearing in the afternoon, he'll testify on the Semiannual Monetary Policy Report before the Senate Banking Committee, in Washington DC. Once again the market will be analysis the narrative for any subtle changes to his previous statements.

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