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The Forex Trading Week Ahead - Moneyshow.com
The outcome of important central bank policy meetings in the Eurozone, the UK, and Australia will be among the primary drivers of world currency markets this week, writes Kathleen Brooks of FOREX.com.
The Eurozone crisis continued to deteriorate last week with fears about the economic effects of the crisis taking center stage. Eurozone unemployment reached 11%, the highest since the euro came into circulation, and the latest manufacturing surveys for March were weak for Europe, China, the UK, and even the US.
The severity with which investors have ditched risky assets and moved into bunds, Treasuries, and gilts suggests that the markets are now pricing in the potential for a global recession. Without official action it’s hard to see how we can break out of this cycle of risk aversion, and this week, there are three pivotal central bank meetings including the Reserve Bank of Australia (RBA), the European Central Bank (ECB), and the Bank of England (BOE).
No Fireworks from the ECB
At the end of last week, rumors that the ECB was buying Spanish sovereign debt helped to boost risk assets. EUR/USD closed the European session just below 1.24 after falling as low as 1.2280 after the non-farm payrolls (NFP) release, and Spanish bond yields closed at 6.53%, 17 basis points lower than the peak they reached earlier in the week. This highlights two important things: 1) the markets are deeply oversold, especially risky FX and European equities; and 2) if there is remedial action by the ECB or other European authorities, then there could a powerful relief rally.
This Wednesday’s ECB meeting will be the most important event in the currency bloc for the coming week, though we don’t think the ECB will be too radical.
ECB head Mario Draghi was speaking last week and reiterated that governments should do more to stem the crisis. He also added that conditions in the markets are not as stressed as they were in November prior to the Bank’s LTRO auctions. This is true to an extent.
While Spain has come under intense pressure along with Italy, the core European nations like France, Netherlands, Belgium, Austria, etc., have not seen their bond yields come under selling pressure from the markets. In fact, the French-German ten-year bond spread has actually been narrowing, suggesting that there is demand for French bonds even after the Socialist victory in the Presidential election.
The ECB is likely to say that it will offer support to Europe’s banks to prevent them from going under, but Draghi and company are likely to stop short of offering a more sustainable solution to this crisis.
Of course, the Bank could also cut interest rates, which currently stand at 1%, a record low for the currency bloc. The manufacturing sector PMI remained in deep contraction territory in May, and the unemployment rate surged to a record high of 11% in April. Added to that, the flash estimate for May CPI fell to 2.4% from 2.6% in April, which could give the ECB more room to cut rates. However, the Bundesbank is still a powerful hawkish element in the central bank, and it is likely to resist such a move until the situation deteriorates even further.
This is bad news for the periphery, which needs lower interest rates. However, the lack of action from the authorities is likely to weigh on the euro, which could benefit their export markets (if they manage to stay in the currency bloc, that is).
There were signs last week that Germany might be willing to adjust fiscal targets after an official in Berlin said that Spain is unlikely to meet next year’s 3% fiscal deficit target. But the radical action that some expect, including Eurobonds or using ESM funds to re-capitalize Spanish banks, don’t appear to have made much traction in Brussels.
If the ECB is fairly muted in its response to the crisis this week, then the baton is passed to the EU leaders when they meet at the end of June for the next EU summit. So, the markets are left waiting for political action, and Europe’s politicians don’t walk to the market’s beat. This combined with the Greek elections on June 17 are likely to keep uncertainty high and leave risk assets vulnerable to more downside.
There is a pre-election poll blackout in Greece from this weekend in the two weeks leading up to the elections, which only adds to the uncertainty and increases the chance of a selloff. Added to that, Spain issues 2014, 2016, and 2022 bonds this week. Any signs of weak demand for its debt could cause a fresh bout of risk aversion.
The euro had a dreadful May versus the dollar, having fallen 6%. It is now looking very oversold from a technical basis. However, the fundamental picture remains bleak, and the euro is still sensitive to headline risk, both positive and negative.
If it can make its way back to 1.2510, then we may see a deeper pullback towards 1.2710. However, below 1.2350 opens the way to retest 1.2290, then 1.2150, and eventually 1.20. Without remedial action from the ECB or EU authorities, it is hard to see how this pair can resist further downward pressure.
BOE: Increased Chances for More QE
The extremely weak PMI data at the end of last week, which showed the manufacturing index plunge to its lowest level for three years along with the escalation of the Eurozone crisis, has increased the chances that the Bank of England will expand its QE program when it meets on Thursday.
We believe that the Bank will do more QE in the coming months, and the sharp deterioration in the manufacturing PMI could be enough to prod the Bank into doing more this week, which is not the market’s central scenario.
The minutes from the May meeting suggested that the decision to remain on hold was finely balanced, and even Adam Posen, who recently moved to the neutral camp after having consistently voted for more stimulus, said that his decision was tough.
The inflation report was also more dovish than some expected, with growth for 2012 revised lower. Although inflation is expected to remain higher than the 2% target this year, the Bank sets policy with a two-year time frame and expects inflation to fall below target in the coming years. Thus, with the much-worse-than-expected PMI number, it could shift some members to take action now to prevent deflation later.
The British pound (GBP) followed the euro lower last week, but managed to stage a recovery on Friday after falling below 1.5300 against the dollar. We believe that a breach of this important support zone would be a very bearish development for this cross, and may open the way to 1.50 and then potentially to the 1.45 lows from 2010. However, this pair is starting to look oversold, so any remedial action from the European authorities to sort out the sovereign debt crisis could boost sterling and negate any of the negative impact from more QE from the BOE.
Money matters could drive Florida State from ACC to Big 12 - USA Today
That is the simplest way to summarize a week spent in Kansas City.
Start first with the obvious: The Big 12 has money right now that the ACC doesn't.
Oklahoma State President Burns Hargis announced last Friday that the Big 12 agreed to distribute $19 million to eight of its members to close out the 2011-12 fiscal year. Departing members Missouri and Texas A&M did not receive payouts; neither did incoming members TCU and West Virginia.
That's $4.9 million more than Florida State received this year as a member of the ACC.
That's $4.9 million that Florida State's athletics department - heck, Florida State's entire campus - sorely needs right now.
That's raises for basketball coaches. That's a new paint job for Doak Campbell Stadium. That's restocking the cash reserves in the athletics department. That's transferring money over to FSU President Eric Barron's budget so he can save some teaching jobs or academic programs - or both.
That's a lot of money. And the Big 12 has it right now.
The pot for Big 12 teams is expected to grow next year. League officials confirmed during the Kansas City meetings that they have agreed to two separate television contracts - one with ESPN and the other with Fox Sports - that will bring in nearly $2.6 billion in total revenues.
Though there are details yet to be worked out syncing the two contracts together, the payouts next year are expected to be $20 million for Big 12 schools. (TCU and West Virginia will only be given a 50-percent share and will not receive full shares until 2016.)
Meanwhile, Florida State won't reach the $20-million mark until the back half of the ACC's deal with ESPN.
And that is why the ACC should be worried right now.
Worried, that it will fall behind in the ever-escalating arms race that rules big-time college athletics.
Worried, that it will continue to be considered a second-tier football league for years to come.
Worried, that the schools in its league that want to spend the money to compete for national championships in football may find another conference to call home.
This is a critical time for the ACC's leadership to reach out to each of its member teams and settle some nerves.
The message is simple: The ACC can catch up - it must catch up - in football.
Yes, the ACC has a chance to re-open its television contract in five years. By then, it's entirely possible Florida State will have rejoined the nation's elite and become a championship contender yet again.
That would make ACC football a more valuable product. That would bring more revenues into the league.
But the burden simply can't be placed on the shoulders of one program. The ACC's place in the pecking order of big-time football is a league problem.
Blame Florida State all you want for how its program has stumbled through the last 10 years, but do so at your own risk.
It's certainly true that FSU failed to compete at a championship level since Chris Weinke left town. But there was no law that prohibited Clemson, Virginia Tech, Miami, Georgia Tech or anyone else from winning national titles the last 10 years.
And that's why Florida State fans should not quickly dismiss the rumors that continue to swirl about a move to the Big 12.
One of the key reasons Florida State joined the Atlantic Coast Conference in the first place was money. Back then, basketball drove the money train in college athletics - and the ACC had the cash that other leagues didn't.
That's simply not the case any longer. Football climbed into the driver's seat in the last five years and, with a playoff system coming soon, the sport looks like it will continue to call the shots when it comes to television revenues.
The disparity in money is simply too much for FSU to completely ignore. A $4.9-million gap? In this economy? How do you not question things right now?
That's why it has to be repeated one more time: The Big 12 has money. The ACC should be worried.
And Florida State fans? Well, never say never.
Forex: GBP/CHF in 5-week lows - FXStreet.com
Global slump alert as world money contracts - Daily Telegraph
The Americans may act first. Goldman Sachs expects Federal Reserve chair Ben Bernanke to open the door for QE in testimony on Thursday.
Stock markets rallied in Madrid and Milan led by bank shares on rumours of an EU plan to recapitalise banks directly with funds from the EU bail-out machinery.
Olli Rehn, the EU economics chief, said use of the European Stability Mechanism to bail out lenders was a "serious possibility", adding that it was imperative to "break the link between banks and sovereigns".
However, there is no sign yet that Germany will be willing to drop its veto on such action, viewed by Berlin as the start of debt mutualisation. Chancellor Angela Merkel crushed talk of an instant "banking union" after meeting commission president Jose Barroso, saying their could be no quick fix. She called instead for EU banking supervision as a "mid-term goal".
Her spokesman said any options that "resemble eurobonds" are for the distant future. "It's up to national governments to decide whether they want to avail themselves of aid. That also applies to Spain," he said.
Use of the ESM for bank bail-outs would meet fierce resistance in the German, Dutch and Finnish parliaments. A senior EU official said even Germany's Social Democrats are cooling on eurobonds. "They looked at the polling data and shivered. The German people are not willing to send money into a bottomless pit," he said.
Danish forex reserves rise to new peak in May - CNBC
COPENHAGEN, June 4 (Reuters) - Denmark's foreign exchange reserves, a monetary policy tool, rose by 20.5 billion crowns in May to a record high 502.4 billion Danish crowns ($83.59 billion), the central bank said on Monday.
The median forecast in a Reuters survey of analysts had been for a rise to 512.0 billion crowns.
The Nationalbank said it intervened in the foreign exchange market in May, selling a net 29.6 billion crowns for other currencies to steady the crown in line with its mandate.
Changes in the forex reserves are a pointer to interest rate setting if they stem from central bank intervention in the market because such action by the bank tends to precede changes in interest rates.
European Union member but euro zone outsider Denmark's policy of holding the crown steady against the euro means that the central bank shifts interest rates for the sole purpose of keeping the crown around its central parity of 7.46038 per euro .
($1 = 6.0103 Danish crowns)
(Reporting by Copenhagen newsroom)
((john.acher@thomsonreuters.com)(+45 26 30 96 50)(Reuters Messaging: john.acher.thomsonreuters.com@reuters.net))
Keywords: DENMARK RESERVES/
Forex: AUD/USD still up by 0.28% after US factory orders - FXStreet.com
FOREX-Euro rallies on optimism that bloc to stay intact - Reuters UK
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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Big Money: Stuffing The Ballot Box? - NPR News
You wouldn't think politicians would have any trouble raising enough money these days. The presidential race is expected to be a billion-dollar affair, and spending records have been shattered at the congressional level.
But many candidates are being outgunned by superPACs and other outside groups with nearly unlimited funds at their disposal. Those dollars have swayed primaries in states such as Pennsylvania, Indiana, North Carolina and Ohio. More than $500,000 in superPAC cash from a 21-year-old college student helped decide the winner of a contested GOP primary last week in Kentucky.
With billionaires dashing off multimillion-dollar checks to superPACs, political scientists and some politicians themselves are worried that candidates have become mere bystanders in their own campaigns.
"Those on the ballot are much more of an afterthought than they ever were before," says Jon Erpenbach, a Democratic state senator in Wisconsin. "In some cases, candidates don't even matter."
Is The System Broken?
All of this has triggered debate about whether it makes sense to have a system in which campaign finance limits apply mainly to political parties and candidates. Opinion on how best to fix the problem remains split roughly along party lines.
An increasing number of Republicans want to close what they consider the opposite of a loophole, saying it makes no sense to handcuff candidates when money is otherwise flowing so freely.
"The problem is the limits," Tennessee GOP Sen. Lamar Alexander said at a recent Rules Committee hearing. "These new superPACs exist because of the contribution limits we've placed upon parties and candidates. Get rid of the limits on contributions, and superPACs will go away."
So, You Want To Create A SuperPAC? Fill In The Blanks
Comedian Stephen Colbert got permission from the Federal Election Commission last summer to launch his super political action committee.
Comedian Stephen Colbert got permission from the Federal Election Commission last summer to launch his super political action committee.
There are 450 superPACs currently registered with the Federal Election Commission. If you want to create your own superPAC, you have to fill out two forms. And it's really, really easy.
First comes the "Statement of Organization," FEC Form 1. Every PAC must file this within 10 days of raising or spending more than $1,000 on a federal election. And crucially, it's where you provide the FEC with the name of your committee.
Choosing a name is one of the main ways you can define your superPAC's purpose. And many of these names appear to have tongue planted firmly in cheek — see comedian Stephen Colbert's superPAC, Americans for a Better Tomorrow, Tomorrow. Other names already in use: "Bears for a Bearable Tomorrow" and the "Peeps PAC," which raised more than $1,000 in a two-and-a-half month period.
At least 11 existing superPACs, in fact, use the word "tomorrow," and several use it more than once, including Colbert's group and "Cats for a Better Tomorrow, Tomorrow." Another popular word choice is "future." It's used by 18 superPACs, including the pro-Romney group, Restore Our Future. Other top choices are "action," "America" and "super." But none can measure up to the superPACs' superword: "liberty," used by 71 registered groups in all.
OK, so once you've filled out Form 1 listing the name of your superPAC, your treasurer and your custodian of records, there's only one more thing the FEC needs from you. It's a letter that officially defines your group as a superPAC and announces your intent to "raise funds in unlimited amounts" and not coordinate with a party or candidate. There's even an FEC-approved template that provides you with fill-in-the-blank spaces for your committee name, the date and the treasurer's signature.
— Padmananda Rama
Abolishing those limits would only open the door to outright influence peddling, according to those who advocate keeping the rules in place.
"To suggest that the solution to the problem is for candidates to raise the money themselves would just double down the possibilities for corruption," says Josh Orton, political director of Progressives United, a liberal political action committee that favors campaign finance limits. "Can you imagine the kind of conversations that could happen if we lifted the restrictions on corporations giving to candidates themselves?"
Newt Gingrich, who was targeted by pro-Mitt Romney superPAC ads before ending his presidential bid, says he favors a system in which individuals give directly to campaigns instead of superPACs.
"We would be better off with a system that says any American can donate any personal amount of income after personal taxes as long as they report it online that night, and they give it to the candidate," Gingrich said Thursday. "And then the candidates would have to be responsible for the advertising. You would have a cleaner, more positive, healthier system."
Individuals are limited to donations of $2,500 per candidate per election, which means they can contribute that amount for both primary and general election campaigns. Limits on gifts to parties are higher; for instance, an individual may give a national party $30,800 per year and a state party $10,000.
The limits on what outside groups can spend on campaigns have largely been eroded since the Supreme Court's Citizens United ruling in 2010. That decision has been hailed — and derided — for ushering in a new era of campaign finance law. But it was an earlier Supreme Court decision, in Buckley v. Valeo, that made it hard to make campaign finance restrictions stick.
That case found that money in politics is protected as equivalent to free speech. Ever since the 1976 Buckley decision, money has been like water, finding its way into the political system through new means, regardless of what restrictions have been enacted.
Here Today, But Maybe Not Tomorrow
"Right now, you have the worst of all worlds — unlimited contributions to third-party entities, with some, but certainly not instant, disclosure," says Trey Grayson, a former Republican secretary of state from Kentucky who now directs the Harvard University Institute of Politics.
Grayson says he'd rather see money put in the hands of candidates and parties, who are more accountable to voters than campaign committees that may disappear after the election.
Currently, messages from candidates themselves in a contested race are likely to make up only a "small sliver" of total campaign advertising, says Ed Goeas, a Republican consultant who favors lifting limits while requiring disclosure of donors.
Great Moments In Campaign Finance
2012: SuperPACs become a primary feature of presidential campaigns in both the Republican primary and general election.
2010: The Supreme Court strikes down the ban on direct corporate spending in campaigns in Citizens United v. Federal Election Commission, while the D.C. Circuit Court of Appeals rules that contribution limits for independent groups violate the Constitution.
2002: Congress enacts the Bipartisan Campaign Reform Act, known as McCain-Feingold, which bans so-called soft money fundraising by political parties and federal officeholders and candidates.
1996: Soft money, unlimited funds raised by parties for voter turnout and education efforts, emerges as a major component of the year's presidential race.
1976: In Buckley v. Valeo, the Supreme Court upholds limits on contributions but strikes down limits on campaign spending.
1974: After Watergate, the Federal Election Campaign Act is amended to limit spending and contributions to campaigns. The law also creates the Federal Election Commission.
— Alan Greenblatt
"Money is now at the end that's furthest away from the candidates and furthest away from the parties," Goeas says. "The money is with these other groups that are having more impact on the campaign than the campaign itself."
SuperPACs are not supposed to coordinate their messages or strategies with candidates, but many campaign finance advocates concede the line often gets blurry.
Still, they say erasing the line entirely would do great damage to the political system. Having politicians directly receive large or unlimited funds from entities they might regulate would be a surefire recipe for corruption, they say.
"We're in pretty bad shape right now, but there are still some lines," says Meredith McGehee, policy director for the Campaign Legal Center. "By funneling large amounts of money to politicians, what you would actually have is just more candidates elected who are beholden to a small elite."
Genie May Be Out Of The Bottle
Supporters of such limits point to possible models to stem the tide of money. Public financing systems in Maine and Arizona, as well as one being bandied about in New York State, for example, give politicians incentive to raise small amounts of money from constituents.
Earlier this month, Connecticut's Legislature passed a bill that would require corporations to be more transparent about their election spending. It's not clear whether Democratic Gov. Dannel Malloy will sign it, due to concerns about its constitutionality.
And next month, the Supreme Court may decide to take up a Montana case that would determine whether corporations can be banned from contributing to state-level campaigns. But unless there's a change in the court's voting makeup or proclivities, it's unlikely any restrictions will remain in place to prevent large funds from pouring into campaigns in one form or another.
In a speech Wednesday, former Justice John Paul Stevens, who dissented in the Citizens United case, suggested the court would at some point have to revisit the logic of the 2010 decision. The court concluded that corporate donations amount to protected free speech but did not address whether the same holds true for foreign corporations. "It will be necessary to explain why the First Amendment provides greater protection of some nonvoters than to that of other nonvoters," Stevens said.
Even those who would seek to level the playing field by allowing candidates and parties to raise more money directly believe that the genie may already be out of the bottle. Many rich donors have come to like superPACs, which allow them to control their own messages.
"I do think the current system will get worse until we have significant reforms," says Nick Nyhart, president of the Public Campaign Action Fund, which favors fundraising limits.
"As bad as things are in 2012, they will continue to get worse in 2014 and 2016 unless we have some change," Nyhart says. "The current system cannot hold.
MONEY MARKETS-Funding cost rises on Europe worries - Reuters UK
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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