August 2014 ~ Forex Watcher

Sunday, August 31, 2014

Germany Leads Disharmony in Europe’s Repair

German Finance Minister Wolfgang Schaeuble said deficit-fueled growth leads to economic decline, signaling discord with Italy and France as euro-area policy makers seek ways to avoid deflation and spur growth.

Euro-area countries that pursued austerity policies in return for sovereign bailouts are “doing much better than all the others in Europe,” Schaeuble said at a town-hall event in Berlin yesterday. “That’s how it is with medicine: sometimes it tastes bitter for a while. But if it helps, that’s good.”

With France urging the European Central Bank to help spark its stagnant economy, German Chancellor Angela Merkel called ECB President Mario Draghi last week to clarify his stance on fiscal discipline after he suggested governments could spend more to promote growth, Der Spiegel reported in this week’s magazine. Hollande is due to meet with Draghi today in Paris.

Bloomberg

ECB’s Draghi Considering Large-Scale Bond Purchases

Between Mario Draghi and quantitative easing lies an obstacle course.

The European Central Bank president’s signal that he’s considering large-scale bond purchases raises the question of how to surmount hurdles from political and legal challenges to conflicts with measures announced just three months ago. For policy makers meeting in Frankfurt this week, those factors add to an already complicated debate on how to shore up a euro-area economy that’s edging closer to deflation.

Banks including Nomura International Plc and UniCredit SpA say the odds of QE have increased since Draghi warned at last month’s high-profile central banking conference in Jackson Hole, Wyoming, that the outlook for prices is worsening. Few see such drastic action right away.

Bloomberg

Asian Equities Higher after China PMI

Most Asian stocks rose, after the regional benchmark index capped its first monthly drop in four months, as investors weighed whether Chinese policy makers will add stimulus after reports showing slower manufacturing growth.

The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 148.19 as of 10:55 a.m. in Tokyo, with five shares advancing for every three that fell. The gauge dropped 0.6 percent in August, the first monthly loss since April. European Union governments agreed to impose new sanctions on Russia if the conflict in Ukraine worsens. Two gauges of China’s manufacturing industry missed estimates.

“The market seems to be treating bad news as good news,” Nader Naeimi, who helps oversee about $131 billion as Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd. “China may introduce more stimulus as economic data weakens. What’s happening in Ukraine is unfortunate but the damage to the global economy will likely be minimal.”

Bloomberg

China Manufacturing Pulls Back

China’s manufacturing expanded at a slower pace last month, joining weaker-than-anticipated credit, production and investment data in suggesting the economy is losing momentum.

The Purchasing Managers’ Index (MXAP) was at 51.1 for August, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing, missing the median 51.2 estimate in a Bloomberg News survey. The final reading of a separate manufacturing gauge issued by HSBC Holdings Plc and Markit Economics was 50.2. Both readings dropped from 51.7 in July and remain above 50, indicating expansion.

A pullback in manufacturing, coming as the property market slumps, adds pressure on the government to step up efforts to meet its expansion target of 7.5 percent this year. More stimulus measures will be announced in the next few weeks, said Lu Ting, Bank of America Corp.’s Hong Kong-based head of Greater China economics.

Bloomberg

France Asks for More ECB Action

French Prime Minister Manuel Valls called for more action from the European Central Bank to lower the value of the euro, amid concerns the 18-nation region might be headed toward deflation.

“The monetary policy has started to change,” Valls said today in a speech made at the Socialist Party’s summer school in La Rochelle, France. While he called the ECB’s package of measures taken in June a “strong signal,” he also said that “one will have to go even further.”

Valls’s comments come after ECB President Mario Draghi, who’ll meet French President Francois Hollande tomorrow in Paris, signaled this month that declining inflation (ECCPEST) expectations are pushing the central bank toward introducing quantitative easing. Policy makers will gather in Frankfurt on Sept. 4 for their monetary-policy meeting.

Bloomberg

Europe’s Recovery Has Stopped But Concerns for Worse

Until recently it was debatable whether Europe’s economy was recovering. No longer. Its recovery has stopped. The question now is whether the stagnation will tip over into something worse.

In an Aug. 22 speech, European Central Bank President Mario Draghi moved a little closer to acknowledging the danger. This aroused hopes that he would announce decisive action on Sept. 4, after the next meeting of the bank’s policy committee. For Europe’s sake, he’d better deliver.

The preliminary estimate of euro-area inflation in August from a year earlier is 0.3 percent — yet another drop. Recall that the ECB’s target is “close to, but below, 2 percent.” Outright deflation, with all the perils that brings, is an imminent threat. In the longer term, inflation expectations also seem to be slipping: The standard measure of expected inflation five years ahead has dropped to less than 2 percent.

Bloomberg

EUR/GBP Drops to 0.7910 Amid ECB Stimulus Bets

The pound posted its biggest advance in eight weeks versus the euro amid speculation the European Central Bank will add stimulus next week even as Bank of England policy makers debate raising interest rates.

Sterling ended a seven-week slide against the dollar, its longest run of declines since September 2008. The pound reached the strongest level in more than two weeks against the euro yesterday as data showed U.K. consumer confidence matched the highest since March 2005. ECB President Mario Draghi said Aug. 22 that price expectations in the euro region have declined, fueling speculation the central bank will announce new measures, including asset purchases, to stave off the threat of deflation.

“You’ve got Draghi talking about potentially delivering quantitative easing, or a variant, and of course U.K. policy is potentially going in the other direction,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. In euro-sterling “we’ve seen this big move since the beginning of the month and it really coincides with Draghi’s” comments.

Bloomberg

USD/CAD at $1.0870 on Growth

The Canadian dollar gained to the strongest level in a month versus its U.S. peer after economic growth rebounded to the fastest in almost three years in the second quarter, led by exports and spending on big-ticket items.

The currency advanced on the week as Canada’s growth has picked up along with the American economy, which expanded at a 4.2 percent annualized second-quarter pace, the Commerce Department said yesterday from Washington. Bank of Canada Governor Stephen Poloz has said it will take another two years to use up slack that built up in the world’s 11th largest economy. Policy makers meet Sept. 3.

“Even though the headline data came in stronger than the market was expecting, it wasn’t that much stronger that it’s going to cause the Canadian dollar to appreciate too much,” David Bradley, director of foreign exchange trading at Scotia Capital Inc., a unit of Bank of Nova Scotia, said by phone from Toronto. “We had a little bit of a move down to the lows we’ve seen recently” for the U.S. dollar, he said.

Bloomberg

U.S. Consumer Spending Falls

American consumers have become thriftier, trimming spending as bigger wage gains fail to materialize and using every opportunity to rebuild nest eggs. The result may lower economic growth.

Household purchases unexpectedly decreased 0.1 percent in July, the first drop in six months, after rising 0.4 percent the prior month, Commerce Department figures showed today in Washington. Incomes rose at the slowest pace of the year and savings climbed to the highest level since the end of 2012.

While an improving job market is lifting confidence, it has yet to spur the broad-based increases in pay that will boost demand at retailers such as Williams-Sonoma Inc. (WSM) and Guess? Inc. (GES) The weak start for consumer spending, which accounts for almost 70 percent of the economy, prompted some economists to cut third-quarter growth estimates even as other data showed manufacturing was strengthening.

Bloomberg

EUR/USD down to 1.3120 on U.S. Economy

The dollar reached the highest level in almost a year against the euro as signs of U.S. economic growth and tensions in Ukraine boosted demand for the currency.

The euro held losses against its 16 major peers from last month after completing a seven-week slide, the longest stretch in more than a decade. A manufacturing index today may add to the case for the European Central Bank to expand stimulus. Australia’s dollar fell as a report showed manufacturing slowed in China, its biggest trading partner. New Zealand’s dollar erased a loss after a trade index unexpectedly climbed.

“Data out of the U.S. has been pretty good,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and rates risk-management company. “One of the big reasons why euro-dollar is going down is we’ve got talk of tightening coming out of the Federal Reserve and the opposite kind of talk coming out of Europe.”

Bloomberg

Palladium up to $907.60 on Supply Fears

Palladium rose for a fourth straight session on Monday to trade near a 13-1/2 year high on fears that supply from top producer Russia could be hit due to the Ukraine crisis, while gold dipped slightly on a stronger dollar.

Palladium had climbed 0.6 percent to $904.75 an ounce by 0051 GMT, near a 13-1/2 year peak of $907 hit on Friday.

Investors fear possible Western sanctions on Russia over the Ukraine crisis could hit supply of the metal used in auto catalysts.

CNBC

Market Eyes Off ECB Meeting and Stalled Recovery

The European Central Bank meeting on Thursday is the prime event for markets seeking clarity on the bank’s response to a stalled recovery, disappearing inflation and the sluggish pace of reform in the euro zone.

Inflation in the 9.6 trillion euro economy dropped to a fresh five year low of 0.3 percent in August and as the months fly by, the bloc’s cushion against Japan-style deflation is getting smaller and smaller.

Increased geopolitical risks from the intensifying conflict in Ukraine forced Europe to impose sanctions on its third biggest trade partner Russia, a move which dented the faltering economic rebound even further.

CNBC

China Official PMI Falls to 51.1

The pace of activity in China’s vast manufacturing sector slowed in August, government data released Monday showed.

The official purchasing managers’ index (PMI) came in at 51.1 in August, a tad below expectations for a reading of 51.2 and down from a 27-month high of 51.7 in July. It remains above the 50-mark which separates expansion from contraction. The final reading of HSBC’s flash manufacturing PMI for August is due later Monday. The flash reading came in at a three-month low of 50.3.

There was little reaction in Asian stock markets outside of Australia. Sydney shares widened their gains to 0.5 percent, hitting a more than one-week high, while the Australian dollar barely moved. The figures follow a slew of disappointing economic data – from manufacturing to credit growth – over the past month despite a burst of government stimulus measures to support the economy.

CNBC

Merkel Unhappy with ECB Over Stimulus versus Austerity

A German news magazine reported on Sunday that Chancellor Angela Merkel is unhappy with European Central Bank chief Mario Draghi for apparently proposing a greater emphasis on fiscal stimulus over austerity in order to boost growth in Europe.

Der Spiegel reported, without citing any sources, that she and Finance Minister Wolfgang Schaeuble had both called the ECB president last week to take him to task about comments he made in a speech at Jackson Hole, Wyoming on Aug 22.

A German government spokesman contradicted Spiegel’s version of events, however, saying that “the assertion that the chancellor took President Draghi to task does not correlate to the facts in any way”. The spokesman would give no further details of the call.

CNBC

ECB Weighing QE

Europe is in the throes of a critical debate about whether it should embark on an American-style quantitative easing program and is looking to the U.S. for answers about how and if the measure would work on the Continent.

The debate heated up after European Central Bank President Mario Draghi in Jackson Hole, Wyoming, last week noted that inflation expectations have been falling, and said the ECB’s Governing Council “will acknowledge these developments” at its meeting this week and “within its mandate will use all of the available instruments needed to ensure price stability over the medium term.”

That, in turn, raised expectations for further action, if not this week, then in the months ahead. “They need to do shock and awe,” said former Fed Governor Rick Mishkin, instrumental in helping form the U.S. QE policy. “They are so far behind the curve.” Mishkin said a QE program would be seen by markets as a commitment by the central bank to reflate the economy and would have positive effects on growth and employment.

CNBC

EUR/USD down to 1.3130 as Ukraine Weighs

The euro slipped to a fresh one-year low early on Monday as the situation in Ukraine worsened, although a holiday in the United States and major central bank events later in the week will probably keep investors sidelined.

The common currency fell as far as $1.3127, from around $1.3140 late in New York on Friday, reaching lows not seen since early September 2013. It last traded at $1.3131.

Ukrainian President Petro Poroshenko warned a “full-scale war” was imminent if Russian troops continued an advance in support of pro-Moscow rebels as Europe and the United States threatened Russia with further new sanctions.

CNBC

Gold – Eases Away from Resistance Level at $1290

Gold for Monday, September 1, 2014

Over the last week Gold enjoyed a resurgence as it moved strongly higher off the support level at $1275, however it ran into a concrete wall of resistance at $1290. In the week prior, Gold had been falling lower back towards the medium term support level at $1290 however to finish out last week it fell sharply down to the previous key level at $1275. Both of these levels continue to play a role yet the overall longer term trend is still down so it is reasonable to expect the $1275 to come under pressure again soon. A couple of weeks ago Gold was meeting resistance around $1313 which saw it finally ease lower. Just prior to that it moved well away from the support level at $1290 and back up well above $1300 to a two week high above $1322 before easing lower. It had also been easing lower and placing pressure on the support level at $1300 which eventually gave way resulting in gold falling sharply back down to a six week low near $1280 a few weeks ago. Over the last month or so the $1290 level has shown some signs of support and held gold up until its recent fall. During the second half of June, gold steadily moved higher but showed numerous incidents of indecision with its multiple doji candlestick patterns on the daily chart. This happened around $1320 and $1330.

The OANDA long position ratio for Gold has eased back towards 70% as gold has moved up towards $1290. At the beginning of June, gold did very well to repair some damage and return to the key $1275 level, then it has continued the momentum pushing a higher to its recent four month high. After moving so little for an extended period, gold dropped sharply back in May from above the well established support level at $1275 as it completely shattered this level falling to a four month low around $1240. It remained around support at $1240 for several days before its strong rally higher. It pushed down towards $1280 before sling shotting back and also had an excursion above $1300 for a short period before moving quickly back to the $1293 area again. Over the last few weeks gold has eased back from around $1315 to establish its recent narrow trading range below $1295 before its recent slump.

Way back since March, the $1275 level has established itself as a level of support and on several occasions has propped up the price of gold after reasonable falls. Throughout the second half of March gold fell heavily from resistance around $1400 back down to a several week low near support at $1275. Both these levels remain relevant as $1275 continues to offer support and the $1400 level is likely to play a role again should gold move up higher. Through the first couple of months of this year, gold moved very well from a longer term support level around $1200 up towards a six month higher near $1400 before returning to its present trading levels closer to $1300.

Gold prices settled lower on Friday as stock markets wavered on both sides of the Atlantic, but the metal managed to log weekly and monthly gains. Investors remain on edge over tensions between Russia and Ukraine after Ukraine said on Thursday that Russia had moved troops into the country. However, the impact of the escalating conflict has not been enough to sustain gold price increases. U.S. gold futures for December delivery settled $3.00 lower at $1,287.40 an ounce, up 0.6 percent on the week. Meanwhile, spot gold was last down 0.3 percent at $1,286 an ounce. Prices rose 0.4 percent this month, having recovered after falling briefly to a two-month low at $1,273.06 last week. Spot prices have traded in a range of less than $50 in August, their narrowest spread in five years.

(Daily chart / 4 hourly chart below)

g_20140901 g_20140901_4hour

Gold September 1 at 00:55 GMT 1286.6 H: 1288.2 L: 1285.6

Gold Technical

1275

1240

—

1290

1330

—

During the early hours of the Asian trading session on Monday, Gold is trading just below the key $1290 level after moving up in the last few days. Current range: trading right around $1287.

Further levels in both directions:

• Below: 1275 and 1240.

• Above: 1290 and 1330.

OANDA’s Open Position Ratios

(Shows the ratio of long vs. short positions held for Gold among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The long position ratio for Gold has eased back towards 70% as gold has moved up towards $1290. The trader sentiment is strongly in favour of long positions.

Economic Releases

01:00 China NBS Manufacturing PMI (Aug)

07:55 Germany Markit Manufacturing PMI (Aug)

08:00 EU Markit Manufacturing PMI (Aug)

08:30 UK Markit Manufacturing PMI (Aug)

* All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Asian Equities Higher Before China PMI

Asian stock markets got off to a mixed start on Monday ahead of key manufacturing data from China. Beijing is due to report its official purchasing manager’s index (PMI) for August at 9am SIN/HK. Reuters sees the figure falling to 51.2 from 51.7 in July. 45 minutes later, HSBC will reveal its final PMI reading. The bank’s preliminary reading earlier this month came in at a three-month low of 50.3.

Caution ahead of key central bank meetings this week, including the widely-anticipated European Central Bank review on Thursday, also weighed on sentiment.

“Global markets are in for a big week on the central bank front, with the RBA, BoE, BoJ, BoC and ECB all set to meet. In the background will be the threat of Russia/Ukraine tension derailing the recovery. As a result, while investors will be optimistic about potential central bank action, particularly from the ECB, there is likely to be a degree of caution exercised,” said Stan Shamu, market strategist at IG, in a note.

CNBC

Australia 200 – Settles Above 5600

Australia 200 for Monday, September 1, 2014

The Australian 200 Index has spent the last week consolidating and trading in a very narrow range right around 5620 after enjoying a strong surge higher to a new six year high around 5650 a couple of weeks ago. In moving up to the multi-year high it enjoyed a solid move higher bouncing strongly off the support level at 5400. Just prior to the surge it fell sharply over a couple of weeks returning back to more familiar territory between the 5400 and 5500 levels, before the recent strong rally. In its recent fall it moved down to a three week low around 5375, however it received solid support at the 5400 level which has allowed to consolidate and rally higher. The solid move higher throughout July saw it move strongly up through both the 5500 and 5550 levels to reach a new six year high around 5620. In recent weeks it has discovered a new key level to deal with after running into a short term resistance level at 5550, which earlier last week provided some solid support. It reversed strongly several weeks ago bringing it back down to almost touch the 5400 level before rallying back higher again. At the beginning of June the Australian 200 Index fell and broke back down through the key 5500 level towards a four week low around 5400 before consolidating and resting on support there for an extended period.

The 5400 and 5500 levels have firmly established themselves as significant and any substantial break to either side will most likely be a significant move and be closely monitored. It is quite likely many are sitting on the sidelines waiting for the break before committing as they continue to watch the index move between these two levels. Back at the end of May, it moved back and forth between the two key levels of 5500 and 5550 before the recent fall. Over the last couple of months the Australia 200 Index has formed an amazing attraction to the key 5500 level as it spent a considerable amount of time trading around it. A couple of weeks ago, the index fell away heavily back down to support around 5400 before returning to the key 5500 level just as quickly, as if gravity had pulled it back. Throughout the last couple of months it has been placing ongoing pressure on the resistance level at 5500 and a few weeks ago it was finally able to move through to a three week high before easing back again to this key level. Several weeks ago it slowly but surely eased away from its multi-year high achieved near 5560 however the following week it fell reasonably sharply and started looking towards the 5400 level which is near where it currently sits. In doing so it returned to back under the key 5500 level which has provided some reasonable resistance over the last few months.

For the bulk of the last few months, the Australia 200 Index has traded roughly between 5300 and 5500 therefore its return to back under 5500 was not surprising. The index has done well over the last couple of months to move steadily higher from support around 5300 up to beyond 5500, forming higher peaks and higher troughs along the way. The support level at 5300 may also be called upon should the index fall lower and will also likely play a role in providing some buffer from any decline. Since February, most of the trading activity has occurred between 5400 and 5500 therefore the former level may also be called upon to prop up prices. The index has done very well over the last couple of years moving from below 4000 to its present trading levels around 5500.

The strongest demand at Australian bond auctions in a decade reflects yields in a sweet spot: more stable than those in the U.S. and higher than those in Europe. A sale of A$500 million ($470 million) in three-year debt this month drew bids for seven times that amount, the most since 2004, government data show. A A$200 million auction of four-year inflation-linked notes was similarly oversubscribed and today’s A$500 million offering of five-month bills went to just two buyers. Australian bonds are the world’s best performers during the past three months, including currency gains. Reserve Bank of Australia Governor Glenn Stevens has said he plans to keep interest rates on hold as he protects two decades of uninterrupted economic growth. In Europe, which is facing the threat of deflation, bond yields have plunged to records, curbing demand for the securities. Federal Reserve policy makers are considering raising interest rates, fueling speculation Treasury prices will fall.

(Daily chart below)

asx_20140901

Australia 200 August 31 at 00:10 GMT 5624 H: 5624 L: 5624

Australia 200 Technical

5400

5300

5000

5650

—

During the hours of the Asian trading session on Monday, the Australia 200 Index will be looking to see if it can maintain its recent surge and continue to push higher from its recent six year high around 5650. For most of this year the Australia 200 Index has moved well from the lower support level at 5000 up to the multi-year highs above 5500 in the last month or so.

Further levels in both directions:

• Below: 5400, 5300 and 5000.

• Above: 5650.

Economic Releases

01:00 China NBS Manufacturing PMI (Aug)

07:55 Germany Markit Manufacturing PMI (Aug)

08:00 EU Markit Manufacturing PMI (Aug)

08:30 UK Markit Manufacturing PMI (Aug)

* All release times are GMT

AUD/USD – Eases From Three Week High Back To 0.9330

AUD/USD for Monday, September 1, 2014

The Australian dollar enjoyed a solid week last week moving up from below 0.9300 to a three week high around 0.9370 before easing a little lower to finish the week. For the best part of the last few weeks the Australian dollar has traded close and around the 0.93 level after spending the preceding few weeks drifting lower from near 0.95. A couple of weeks ago it fell lower to below the 0.93 level level and down towards a two month low near 0.9220, before rallying well to return to the 0.93 level. Throughout July it generally slid lower from close to 0.95 down to its present trading levels around 0.93. It has done well of late to cling onto the 0.93 level after its sharp fall which saw it move from above 0.9400 down to a seven week low below 0.9240. Several weeks ago it was easing back below both the 0.9425 and 0.9400 levels with the former providing some resistance.

The Australian dollar reached a three week high just shy of 0.9480 a month ago after it enjoyed a solid period which saw it surge higher through the resistance level at 0.9425 to the three week around 0.9480, before easing back towards that level. The Australian dollar enjoyed a solid surge higher reaching a new eight month high above 0.95 at the end of June, only to return most of its gains in very quick time to finish out that week. Since the middle of June the Australian dollar has made repeated attempts to break through the resistance level around 0.9425, however despite its best efforts it was rejected every time as the key level continued to stand tall, even though it has allowed the small excursion to above 0.95. After the Australian dollar had enjoyed a solid surge in the first couple of weeks of June which returned it to the resistance level around 0.9425, it then fell sharply away from this level back to a one week low around 0.9330 before rallying higher yet again. Its recent surge higher to the resistance level around 0.9425 was after spending a couple of weeks at the end of May trading near and finding support at 0.9220. The 0.9220 level has repeatedly reinforced its significance as it is again likely to support price should the Australia dollar retreat further.

Throughout April and into May the Australian dollar drifted lower from resistance just below 0.95 after reaching a six month high in that area and down to the recent key level at 0.93 before falling lower. During this similar period the 0.93 level has become very significant as it has provided stiff resistance for some time. The Australian dollar appeared to be well settled around 0.93 which has illustrated the strong resurgence it has experienced throughout this year. For the best part of February and March the Australian dollar did very little other than continue to trade around the 0.90 level, although at the beginning of March it crept a little lower down to a three week low below 0.89. Towards the end of March however, the Australian dollar surged higher strongly moving to the resistance level at 0.93 before consolidating for a week or so.

(Daily chart / 4 hourly chart below)

a_20140901 a_20140901_4hour

AUD/USD August 31 at 23:50 GMT 0.9332 H: 0.9340 L: 0.9320

AUD/USD Technical

0.9260

0.9220

—

0.9425

0.9500

—

During the early hours of the Asian trading session on Monday, the AUD/USD is drifting a little lower from its three week high around 0.9370. The Australian dollar was in a free-fall for a lot of last year falling close to 20 cents and it has done very well to recover slightly to well above 0.95 again. Current range: trading right around 0.9330.

Further levels in both directions:

• Below: 0.9260, and 0.9220.

• Above: 0.9425 and 0.9500.

OANDA’s Open Position Ratios

(Shows the ratio of long vs. short positions held for the AUD/USD among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The long position ratio for the AUD/USD has eased back towards 50% as the Australian dollar has crept back to a three week high above 0.9350. The trader sentiment remains slightly in favour of long positions.

Economic Releases

01:00 China NBS Manufacturing PMI (Aug)

07:55 Germany Markit Manufacturing PMI (Aug)

08:00 EU Markit Manufacturing PMI (Aug)

08:30 UK Markit Manufacturing PMI (Aug)

* All release times are GMT

Looking Ahead in Asia

China’s monthly gauges of factory activity and central bank policy decisions in Australia and Japan will be the key events in Asia this week. On Monday, Beijing will release its official manufacturing purchasing manager’s index (PMI) for August followed by a separate private reading from HSBC.

The official index is expected to fall to 51.2 from July’s 27-month high of 51.7, according to the median forecast of 13 economists in a Reuters poll. A preliminary survey released by HSBC and Markit last month showed factory activity falling to a three-month low in August on slowing output and new orders.

“We expect the official PMI to hold up much better than the flash HSBC PMI. With the money market rates back to where they were before the July spike, we expect the dip in the HSBC PMI to be transitory,” said Tim Condon, head of research, Asia, at ING Financial Markets.

CNBC

Gold Showing Little Movement After Mixed US Data

Gold is stable on Wednesday, as the pair trades at $1284.27 per ounce in the European session. It’s a quiet day on the release front, with no major releases out of the US. On Tuesday, the Russian and Ukrainian presidents met as the crisis in eastern Ukraine continues.

There are hopes for some progress in the Ukraine crisis, as Russian president Vladimir Putin met with his Ukrainian counterpart Petro Poroshenko in Minsk on Tuesday. The meeting was discussed as “positive”, but fighting between Ukrainian forces and pro-Russian militants continues. The crisis has plunged relations between Russia and the West to their lowest levels since the Cold War. Europe and the US have imposed sanctions and Moscow has been quick to retaliate. The impasse could hurt countries such as Germany, which have strong trade ties with Russia.

US durables painted a mixed picture on Tuesday. Core Durable Goods Orders, a key indicator, came in at -0.8%, its worst showing in 2014. This was nowhere near the estimate of +0.5%. At the same time, Durable Goods Orders stunned the markets with a record gain of 22.6%. The reason? A huge increase in the purchase of passenger planes in July. Meanwhile, the CB Consumer Sentiment looked sharp, pointing to strong optimism on the part of the US consumer. The indicator jumped to 92.4 points, up from 90.3 a month earlier.

There was some speculation that the financial meeting in Jackson Hole might be a market-mover, so the markets were all ears as Fed chair Janet Yellen delivered the keynote address on Friday. Any hopes for some dramatic news were dashed, however, as Yellen did not provide any clues as to the timing of a rate hike. She reiterated that the US job market still needed to improve, so employment numbers remain a crucial factor in any rate move by the Fed. There is a clear divergence in monetary stance between the ECB and the Fed, as the Fed is winding up QE, while the ECB may be forced to provide stimulus to the sagging Eurozone economy.

XAU/USD for Wednesday, August 27, 2014

XAU/USD August 27 at 11:45 GMT

XAU/USD 1286.84 H: 1290.83 L: 1275.82

XAU/USD Technical

1240

1252

1275

1300

1315

1331

XAU/USD edged higher in the Asian session. The pair is unchanged in European trading.

1300 is a weak resistance line. The next resistance level is 1315.

1275 is an immediate support line. 1252 is stronger.

Current range: 1275 to 1300.

Further levels in both directions:

Below: 1275, 1252, 1240 and 1210

Above: 1300, 1315, 1331 and 1345

OANDA’s Open Positions Ratio

XAU/USD ratio is pointing to slight gains in long positions on Wednesday, reversing the direction seen a day earlier. This is consistent with the pair’s movement, as gold has made small gains. The ratio continues to have a substantial majority of long positions, indicative of trader bias towards gold continuing to move higher.

XAU/USD Fundamentals

14:30 US Crude Oil Inventories. Estimate 1.1M.

*Key releases are highlighted in bold

*All release times are GMT

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Tokyo Stocks Drop After JPY Recovery

Stocks turned lower on the Tokyo Stock Exchange Thursday, pressured by selling against the backdrop of the yen’s appreciation against the dollar.

The 225-issue Nikkei average ended down 74.96 points, or 0.48 percent, at 15,459.86. On Wednesday, the key market gauge climbed 13.60 points.

The TOPIX index of all First Section issues lost 5.18 points, or 0.4 percent, to close at 1,280.74, after rising 0.91 point the previous day.

Despite the Dow Jones industrial average’s rise overnight, the Tokyo market came under selling pressure from the outset of Thursday’s trading as the yen firmed moderately against the dollar, brokers said.

The Nikkei average extended losses somewhat in early trading but moved in a confined range for the rest of the morning session amid a dearth of fresh incentives.

In the afternoon, stock prices continued fluctuating narrowly on the minus side, hurt by selling of a wide range of issues following lackluster performances of other Asian equities, brokers said.

Investors retreated to the sidelines prior to the release of a number of Japanese economic indicators on Friday morning, brokers said. Such data include industrial production and the consumer price index, both for July.

via Japan News

US Jobless Claims Steady Maintaining Recovery Trend

The number of Americans filing for unemployment benefits was little changed last week near the lowest level in seven years as employers held on to staff in an improving economy.

Claims decreased by 1,000 to 298,000 in the week ended Aug. 23 from 299,000 in the prior period, a Labor Department report showed today in Washington. The median forecast of 46 economists surveyed by Bloomberg called for an increase to 300,000.

Claims have been hovering near the lowest levels since 2007 as the labor market continues to make progress. Now, it’s up to hiring to cut slack enough to force employers to raise pay, which, in turn, could spur more household spending.

via Bloomberg

Ruble Falls as Ukraine Crisis Heats Up

The ruble slid to the lowest level in six months and stocks fell amid a growing threat of tougher sanctions on Russia as Ukraine said intensified separatist fighting was a “de facto” incursion.

The currency tumbled 1.6 percent to 36.7325 per dollar, the weakest level since March 3, when President Vladimir Putin began his intervention into Ukraine’s Crimea region. The ruble is trading within 0.8 percent of a record low. The Micex Index (INDEXCF) lost 1.9 percent to 1,420.23 by 4:38 p.m. in Moscow. Yields on Russia’s benchmark bonds climbed the most since March, while equities and currencies across eastern Europe tumbled.

The Micex erased its weekly gain after Ukrainian President Petro Poroshenko called an emergency security meeting as rebels widened their offensive. The U.S. said Russia may be directing attacks by separatists, souring investor sentiment that improved in recent weeks on optimism that Putin would take steps to ease the conflict that’s claimed more than 2,000 lives.

via Bloomberg

UK PM Says Scotland Depends on UK For Millions of Jobs

The UK is “an economy of opportunity” which supports one million Scottish jobs, David Cameron is to tell business leaders.

The prime minister will address the CBI conference later, calling the UK one of the “most successful single markets”.

The speech takes place in the final weeks of the referendum campaign.

Scottish First Minister Alex Salmond challenged Mr Cameron to name a single job-creating power certain to come after a “No” vote.

In his address to the employers’ organisation, Mr Cameron is expected to say: “This is one of the oldest and most successful single markets in the world.

“Scotland does twice as much trade with the rest of the UK than with the rest of the world put together – trade that helps to support one million Scottish jobs.”

He will add: “This success doesn’t happen by accident. It happens because of the skill of people in Scotland and the opportunities that come from being part of something bigger.

“A large domestic market, underpinned by a common currency, common taxes, common rules and regulations, with no borders, no transaction costs, no restrictions on the flow of goods, investment or people. Ours really is an economy of opportunity.”

via BBC

Scottish Independence Business Backers Present Letter

More than 200 business figures have signed an open letter backing Scottish independence.

Stagecoach chairman Sir Brian Souter and Clyde Blowers boss Jim McColl are among signatories who say independence is in Scotland’s economic interest.

It comes a day after a similar letter from 130 pro-UK business leaders said the case for independence had not been made.

The pro-independence letter has been published in The Herald newspaper.

Other signatories include Ralph Topping, retired chief executive of William Hill, Professor Nathu Puri, founder of Purico, former Scottish Enterprise chairman Sir Donald Mackay and former RBS chairman Sir George Mathewson.

The letter stated: “An independent Scotland will recognise entrepreneurs small and large as the real wealth and job creators of the nation’s economic future.

“It will encourage a culture in which innovation, endeavour and enterprise are nurtured. It will place power in the hands of Scotland’s people to channel the huge resources of our country in the interests of those who live and work here.”

via BBC

US GDP Gets Revised Upward to 4.2%

On Thursday, the Bureau of Economic Analysis released its second estimate of real gross domestic product for the second quarter of 2014 — covering April, May and June of this year. The release showed output in the U.S. increasing at an annual rate of 4.2%. This is relative to the first quarter when real GDP declined 2.1%.

The revision is up marginally from BEA’s 4% advance estimate released last month. The revision, BEA said in a release, was largely due to a larger than previously estimated increase in nonresidential fixed investment. However, the increase in private inventory investment was smaller than previously estimated. Of the revision the BEA wrote, “The general picture of economic growth remains the same” as when it released the advance estimate.

The 4.2% growth in real GDP reflected growing personal consumption, private inventory investment, exports, both residential and nonresidential fixed investment, as well as local government spending. The gains were partially offset by an increase in imports, which negatively impact GDP, and a 0.9% decline in federal government expenditures.

via Forbes

ECB Hires Blackrock as ABS Consultants

The European Central Bank has selected Blackrock Solutions to provide it with consultancy services in its preparations for a program to buy asset-backed securities (ABS), an ECB spokesman said on Wednesday.

Blackrock will provide advice on the design and implementation of a potential ABS purchase programme, but all final decisions will be taken by the ECB itself, the spokesman said.

ECB President Mario Draghi said on Friday the central bank’s preparations for outright purchases of ABS were “fast moving forward and we expect that it should contribute to further credit easing.”

via CNBC

Gold – Trying to Edge Higher from Support at $1275

Gold for Thursday, August 28, 2014

Over the last couple of days Gold has been enjoying a small rally off the support level at $1275 after spend the best part of the last week resting on support there. In the week prior, Gold had been falling lower back towards the medium term support level at $1290 however to finish out last week it fell sharply down to the previous key level at $1275. A couple of weeks ago Gold was meeting resistance around $1313 which saw it finally ease lower. Just prior to that it moved well away from the support level at $1290 and back up well above $1300 to a two week high above $1322 before easing lower. It had also been easing lower and placing pressure on the support level at $1300 which eventually gave way resulting in gold falling sharply back down to a six week low near $1280 a few weeks ago. Over the last month or so the $1290 level has shown some signs of support and held gold up until its recent fall. During the second half of June, gold steadily moved higher but showed numerous incidents of indecision with its multiple doji candlestick patterns on the daily chart. This happened around $1320 and $1330.

The OANDA long position ratio has moved back up strongly to near 75% as gold has fallen sharply back down towards $1275. At the beginning of June, gold did very well to repair some damage and return to the key $1275 level, then it has continued the momentum pushing a higher to its recent four month high. After moving so little for an extended period, gold dropped sharply back in May from above the well established support level at $1275 as it completely shattered this level falling to a four month low around $1240. It remained around support at $1240 for several days before its strong rally higher. It pushed down towards $1280 before sling shotting back and also had an excursion above $1300 for a short period before moving quickly back to the $1293 area again. Over the last few weeks gold has eased back from around $1315 to establish its recent narrow trading range below $1295 before its recent slump.

Gold futures settled lower on Wednesday, but spot prices rose as a weaker dollar and lingering geopolitical tensions helped offset selling pressure from a record rally in U.S. equities. Spot gold was up 0.2 percent at $1,283 an ounce, while U.S. gold futures for December delivery underperformed spot, falling $1.80 on the day to close at $1,283.40 an ounce. The dollar softened as traders focused on riskier assets, while speculation the European Central Bank will resort to monetary stimulus also triggered some interest in bullion, traders said. On Wednesday, Ukraine accused Russian forces of launching a new military incursion across its border, a day after the leaders of both countries agreed to work toward ending a separatist war in the east of the country. “The numerous sources of geopolitical crisis are evidently preventing the gold price from slumping,” said Eugen Weinberg, head of commodity research at Commerzbank.

(Daily chart / 4 hourly chart below)

g_20140828 g_20140828_4hour

Gold August 28 at 00:45 GMT 1284 H: 1287.6 L: 1280.1

Gold Technical

1275

1240

—

1290

1330

—

During the early hours of the Asian trading session on Thursday, Gold is trading in a narrow trading range around $1283 after remaining quite steady for the last couple of days. Current range: trading right around $1284.

Further levels in both directions:

• Below: 1275 and 1240.

• Above: 1290 and 1330.

OANDA’s Open Position Ratios

(Shows the ratio of long vs. short positions held for Gold among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The long position ratio for Gold has moved back up strongly above 70% again as gold has fallen sharply back down towards $1275. The trader sentiment is strongly in favour of long positions.

Economic Releases

23:30 (Wed) UK GfK Consumer Confidence (Aug)

23:30 (Wed) JP CPI Core (Nation) & (Tokyo) (Jul)

23:30 (Wed) JP Real Household Spending (Jul)

23:30 (Wed) JP Unemployment (Jul)

23:50 (Wed) JP Industrial Production (Prelim.) (Jul)

23:50 (Wed) JP Large Retailers Sales (Jul)

23:50 (Wed) JP Retail Sales (Jul)

01:30 AU Capital Expenditure (Q2)

08:00 EU M3 Money Supply (Jul)

09:00 EU Business Climate Index (Aug)

09:00 EU Consumer Sentiment (Aug)

09:00 EU Economic Sentiment (Aug)

09:00 EU Industrial Sentiment (Aug)

12:30 CA Current Account (Q2)

12:30 US Core PCE Price Index (2nd Est.) (Q2)

12:30 US GDP Annualised (2nd Est.) (Q2)

12:30 US GDP Price Index (2nd Est.) (Q2)

12:30 US Initial Claims

14:00 US Pending Home Sales (Jul)

EU General Affairs Ministers Hold Meeting in Italy (to 29th)

*All release times are GMT

Ukraine PM Says Russia Plans to Block Nat Gas Flow

Europe faces the increasing threat of a disruption to gas supplies from its main provider Russia this winter due to the crisis in Ukraine, through which almost half of supplies flow.

Ukrainian Prime Minister Arseny Yatseniuk said on Wednesday Kiev knew of Russian plans to halt gas flows this winter to Europe.

“The situation in (Ukraine’s) energy sector is difficult. We know of Russia’s plans to block (gas) transit even to European Union countries this winter, and that’s why their (EU’s) companies were given an order to pump gas into storage in Europe as fully as possible,” he told a government meeting, without disclosing how he knew about the Russian plans.

The warning came less than 24 hours after a meeting between Russian President Vladimir Putin and his Ukrainian counterpart Petro Poroshenko as well as Europe’s main energy diplomat Guenther Oettinger, which included talks to secure Russian gas flows during the peak demand winter.

via CNBC

This Week’s Economic Data To Put Pressure on BOJ

A deluge of Japanese economic data on Friday is set to influence expectations on whether the Bank of Japan (BOJ) will top up its stimulus program.

Data are expected to show the world’s third-largest economy remained in a soft patch in July following the April consumption tax hike to 8 percent from 5 percent.

The nationwide core consumer price index will be the key focus. The index, which excludes volatile prices of fresh food, is forecast to rise 3.3 percent on year in July – or 1.3 percent excluding the impact of the tax increase – far below BOJ’s 2 percent inflation target.

via CNBC

Gold is Resilient at $1,270 Eyeing Ukraine and ECB

Gold was little changed above a two-month low in New York as investors weighed signs of increased physical demand against gains in the dollar and equities.

The metal dropped to $1,273.40 an ounce on Aug. 21, the lowest since June 18, on speculation the Federal Reserve will raise borrowing costs sooner than expected. In China, the world’s largest gold buyer, volumes for the benchmark spot contract on the Shanghai Gold Exchange rose to a four-week high today, the latest data show.

Gold futures rose as much as 1 percent yesterday, even as the dollar strengthened amid expectations for higher U.S. interest rates and global equities gained. Fighting in eastern Ukraine persisted even as Russian President Vladimir Putin said talks with his Ukrainian counterpart over a separatist conflict that’s killed more than 2,000 people were “positive” as the parties began discussions on a political resolution.

“There’s been some scattered bargain hunting by physical buyers,” Bernard Sin, the head of currency and metal trading at MKS (Switzerland) SA, a Geneva-based refiner, said today by phone. While geopolitical tension is helping prices, advances in the dollar and equities are limiting gains for gold, he said.

Gold for December delivery was little changed at $1,285.70 by 7:41 a.m. on the Comex in New York. Bullion for immediate delivery added 0.3 percent to $1,284.99 in London, according to Bloomberg generic pricing.

via Bloomberg

AUD/USD – Improving Aussie Brushes Off Weak Construction Data

AUD/USD has gained ground on Wednesday, continuing the upward move which started a day earlier. In the North American session, the pair is trading in the mid-0.93 range. On the release front, Australian Construction Work Done disappointed with a decline of 1.2%, well below expectations. In the US, today’s sole event is Crude Oil Inventories.

The Aussie has shown some life, as it trades at its highest levels in almost three weeks. The currency shrugged off a disappointing construction reading, as Construction Work Done, released each quarter, came in at -1.2% for Q2, well of the estimate of -0.4%. This weak release could point to some weakness in GDP, which will be released next week. We’ll get a look at Australian Private Capital Expenditure, the key event of the week, on Thursday. The markets are expecting a third straight decline, so the Aussie could reverse its climb if the markets are unhappy with the reading.

US durables painted a mixed picture on Tuesday. Core Durable Goods Orders, a key indicator, came in at -0.8%, its worst showing in 2014. This was nowhere near the estimate of +0.5%. At the same time, Durable Goods Orders stunned the markets with a record gain of 22.6%. The reason? A huge increase in the purchase of passenger planes in July. The sharp jump did not have much effect on the dollar, and the indicator is expected to return to normal levels next month.

There was some speculation that the recent economic meeting in Jackson Hole might be a market-mover, so the markets were all ears as Fed chair Janet Yellen delivered the keynote address on Friday. Any hopes for some dramatic news were dashed, however, as Yellen did not provide any clues as to the timing of a rate hike. She reiterated that the US job market still needed to improve, so employment numbers remain a crucial factor in any rate move by the Fed. There is divergence in monetary stance between the ECB and the BOJ on the one hand and the Federal Reserve on the other. The Fed is close to winding up QE, while the ECB and BOJ may step in and provide stimulus to bolster the Eurozone and Japanese economies.

AUD/USD for Wednesday, August 27, 2014

AUD/USD August 27 at 13:20 GMT

AUD/USD 0.9343 H: 0.9352 0.9310

AUD/USD Technical

0.9020

0.9119

0.9229

0.9361

0.9446

0.9617

AUD/USD has posted gains in the Asian and European sessions, as the US dollar remains under pressure early in North American trade.

0.9229 is providing strong support.

0.9361 is under pressure as the Australian dollar continues to post gains. 0.9446 is stronger.

Current range: 0.9229 to 0.9361

Further levels in both directions:

Below: 0.9229, 0.9119, 0.9020 and 0.8916

Above: 0.9361, 0.9446, 0.9617 and 0.9757

OANDA’s Open Positions Ratio

AUD/USD ratio is almost unchanged on Wednesday, continuing the trend which has marked the ratio all week. This is not consistent with the movement of the pair, as the Australian dollar continues to post gains. The ratio has a majority of long positions, indicative of trader bias towards the Australian dollar continuing to push higher against the greenback.

AUD/USD Fundamentals

1:30 Australian Construction Work Done. Estimate -0.4%. Actual -1.2%.

14:30 US Crude Oil Inventories. Estimate 1.1M.

* Key releases are highlighted in bold

*All release times are GMT

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EUR/USD – Little Movement as German Consumer Climate Softens

It continues to be a quiet week for EUR/USD, which is trading in the high-1.31 range in Wednesday’s European session. On the release front, there are no major releases out of the Eurozone or the US. There was more weak data out of Germany, as GfK German Consumer Climate came in at 8.6 points, marking a three-month low.

Germany is supposed to be the Eurozone’s reliable locomotive, but the region’s largest economy is showing signs of weakness. On Wednesday, GfK Consumer Climate came in at 8.6 points, short of the estimate of 8.9. It was a disappointing result compared to the June reading of 9.0 points. Earlier in the week, German Ifo Business Climate dropped to 106.3 points, its lowest reading since June 2013. This follows the Services and Manufacturing PMIs, both of which softened in July. The markets are bracing for more bad news, with a weak release expected from German Preliminary CPI on Thursday.

US durables painted a mixed picture on Tuesday. Core Durable Goods Orders, a key indicator, came in at -0.8%, its worst showing in 2014. This was nowhere near the estimate of +0.5%. At the same time, Durable Goods Orders stunned the markets with a record gain of 22.6%. The reason? A huge increase in the purchase of passenger planes in July. Meanwhile, the CB Consumer Sentiment jumped to 92.4 points, up from 90.3 a month earlier.

Financial leaders and central bankers met at Jackson Hole for a conference late last week, and the markets were all ears as Fed chair Janet Yellen delivered the keynote address on Friday. Any hopes for some dramatic news were dashed, as Yellen did not provide any clues as to the timing of a rate hike. She reiterated that the US job market still needed to improve, so employment numbers remain a crucial factor in any rate move by the Fed. There is a divergence in monetary stance between the ECB and the Fed, as the Fed is winding up QE, while the ECB may be forced to provide stimulus to the prop up the sagging Eurozone economy.

EUR/USD for Wednesday, August 27, 2014

EUR/USD August 27 at 11:05 GMT

EUR/USD 1.3182 H: 1.3289 L: 1.3153

EUR/USD Technical

1.2984

1.3104

1.3175

1.3295

1.3346

1.3487

EUR/USD edged upwards late in the Asian session. The pair is unchanged in the European session.

On the downside, 1.3175 is under strong pressure. Will the pair break through this barrier? 1.3104 is providing stronger support.

1.3295 is a strong resistance line.

Current range: 1.3175 to 1.3295

Further levels in both directions:

Below: 1.3175, 1.3104, 1.2984 and 1.2904

Above: 1.3295, 1.3346, 1.3487 and 1.3585

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions in Wednesday trade. This is not consistent with the lack of movement displayed by the pair. The ratio has a majority of long positions, indicative of trader bias towards the euro breaking out and heading to higher ground.

EUR/USD Fundamentals

6:00 GfK German Consumer Climate. Estimate 8.9 points. Actual 8.6 points.

6:00 German Import Prices. Estimate -0.1%. Actual -0.4%.

14:30 US Crude Oil Inventories. Estimate 1.1M.

*Key releases are highlighted in bold

*All release times are GMT

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short-term volatility

To Boost Consumption Japan Looks in to Inheritance Tax Hike

As Japanese families gathered earlier this month for the traditional “Obon” festival honoring ancestors, some elderly parents broached an awkward but increasingly critical topic: planning for inheritance.

Japan’s government will increase the inheritance tax rate in January, while tax relief measures on gifting will be expanded, in moves aimed at encouraging wealthy, older Japanese to either spend or pass on their savings before they die.

In years to come, the change would release billions of dollars languishing in savings accounts into the hands of a younger generation and promote investments in stocks and property, giving the economy an extra push as it emerges from nearly two decades of deflation.

via CNBC

Japan Inflation Rises But Short of BOJ Target

Japan released a flurry of data Friday which showed a spotty economic recovery, as the consumption tax hike in April continued to weigh on growth.

Household spending fell 5.9 percent in July from the year-ago period, much larger than the 3 percent drop forecast in a Reuters poll, and after falling 3 percent in June.

Retail sales showed a slight improvement, rising 0.5 percent on year in July, above expectations for a 0.1 percent rise in a Reuters poll, and recovering from the 0.6 percent drop in June.

Nationwide core consumer price index rose 3.3 percent in July, in line with forecasts, but when excluding the effect of the April tax hike core inflation stood at 1.3 percent in July, below the inflation target that the Bank of Japan (BOJ) pledged to meet sometime next year.

“The inflation that you’re getting is just a rise in price levels associated with that tax increase so this is not really the desirable inflation that you want,” said Paul Sheard, chief global economist at Standard & Poor’s. “In fact, it’s kind of counter-productive [in the sense that] it just eats into real purchasing power and creates a bit of a headwind for the recovery.”

via CNBC

Oil Rises After Positive US Economic Data

West Texas Intermediate crude headed for the first weekly gain in more than a month on speculation an improving U.S. economy will boost fuel demand.

Prices rose for a fourth day after touching a seven-month low on Aug. 25. U.S. economy expanded more than previously forecast in the second quarter, the Commerce Department said yesterday. Demand for gasoline rose 3.7 percent last week, latest Energy Information Administration data showed. Brent gained on escalating tensions between Ukraine and Russia.

“Economic numbers continue to point to a slowly improving economic picture, and it means better fuel demand,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market kind of overextended itself when it slid to the seven-month low. We do have new concern surrounding the fighting going on in Ukraine.”

WTI for October delivery advanced 64 cents, or 0.7 percent, to $95.19 a barrel at 9:02 a.m. on the New York Mercantile Exchange. Prices are up 1.6 percent this week. The volume of all futures traded was about 7.3 percent above the 100-day average. Prices have declined 3 percent in August, a second consecutive monthly loss.

Brent for October settlement rose 39 cents, or 0.4 percent, to $102.85 a barrel on the London-based ICE Futures Europe exchange. Volume was 9.6 percent above the 100-day average. The European benchmark crude traded at a $7.67 premium to WTI, compared with $7.91 yesterday.

via Bloomberg

Indian Government Reduces Gold and Silver Import Tariffs

The government today reduced the import tariff value on gold and silver to $420 per 10 grams and $645 per kg, respectively, taking cues from firm global prices.

For the first fortnight of this month, the tariff value on imported gold stands at $426 per 10 grams, while that for silver at $650 per kg.

The import tariff value is the base price at which customs duty is determined to prevent under-invoicing. It is revised on a fortnightly basis considering volatile global prices.

The tariff value on imported gold and silver has been notified by the Central Board of Excise and Customs, an official statement said.

Gold in Singapore, which normally sets price trend on the domestic front, traded tad higher at $1,290.22 an ounce from $1,289.65 yesterday. Silver also advanced 0.3 per cent to $19.57 an ounce.

Similarly in domestic market, the extending gains for the second day, gold prices moved up by another Rs. 70 to Rs. 28,300 per 10 grams in the national capital today on increased buying by jewellers and retailers, driven by festive season demand coupled with firming global trend.

Silver also rose by Rs. 150 to Rs. 43,000 per kg on steady inflow of buying by industrial units and coin makers.

Gold is the second largest import item for India after petroleum. The government has imposed several restrictions to curb imports to contain current account deficit (CAD).

via Hindu Business Line

Russia Issues Reminder About Low Ukrainian Gas Stock

Russia says there is a risk that gas shortages this winter could force Ukraine to siphon off supplies of Russian gas meant for EU customers.

Ukraine’s gas reserves have reached a “critical” state, Russian Energy Minister Alexander Novak said.

He was speaking after talks in Moscow with EU Energy Commissioner Guenther Oettinger. The EU is anxious to ensure secure gas supplies for the winter.

Ukraine needs to store much more gas underground, Mr Novak said.

He estimated at 10bn cubic metres (353bn cu ft) the amount of extra gas that Ukraine would need to pump into underground storage tanks to avoid having to siphon off gas from the transit pipelines.

In winter, he warned, “there will be big risks, above all the possibility of Ukraine taking gas to meet its own needs, instead of those supplies going to European customers”.

via BBC

Eurozone Inflation Falls in August to Five Year Low

The eurozone inflation rate has fallen to 0.3% in August, near a five-year low, adding to fears of a deflationary spiral, according to Eurostat figures.

That compares with a rate of 0.4% in July.

The drop, driven by lower food and energy prices, will add to pressure on the European Central Bank (ECB) to take action to stimulate the economy.

Separate figures showed the unemployment rate remained near a record high at 11.5% in July.

The ECB meets next Thursday to decide on interest rates.

Most analysts are not expecting any action yet, but speculation is growing that in the coming months it may inject money into the system, a practice called quantitative easing, in the hope of stimulating growth and pushing up prices.

Mario Draghi, head of the ECB, has previously described inflation at below 1% to be in a “danger zone”.

via BBC

India Growth Hits 5.7% Strongest in Two Years

India’s economy expanded at a 5.7% annual rate in the second three months of 2014, busting a long streak of quarters when growth failed to impress.

This is the strongest quarterly growth in over two years and it comes as the first 100 days of Narendra Modi’s term as prime minister come to a close.

Modi has eagerly attacked the myriad of challenges facing Asia’s third biggest economy, whose annual growth failed to top 5% last year.
Meanwhile, investors have been optimistic that Modi’s efforts to pull India out of its malaise will succeed.

The Indian rupee has strengthened by more than 2% so far this year versus the U.S. dollar. The benchmark Mumbai Sensex index has increased by 26% over the same period.

In India, structural reforms have run afoul of political gridlock. Analysts say India needs to simplify its tax code, encourage foreign investment and streamline agricultural production.

via CNN

EU Council Presidency Between Poland and Denmark Candidates

The contest for the final remaining top EU job has become a two-person race between the leaders of Poland and Denmark, pitting a center-right man supported by newer member states in the east against a center-left woman backed by many of Europe’s fiscally prudent north.
The narrowing of a six-person field for European Council president to Donald Tusk, the Polish premier who many say is now the frontrunner, and Helle Thorning-Schmidt, the multilingual Dane who was initially championed by Berlin and London, came during a series of phone calls between leaders ahead of a summit on Saturday.

Officials directly involved in the negotiations said both candidates face obstacles. Mr Tusk is not fluent in either French or English, prompting many to fear he would not be able to form the needed consensus among the EU’s 28 leaders in contentious debates, the Council president’s primary role.

Read MoreFull scope of Europe’s bank stress tests revealed

However, he has the strong backing of central and eastern European capitals that feel they deserve one of the top jobs after being shut out since the EU expanded to the former Communist east in 2004.

Ms Thorning-Schmidt, who is fluent in both English and French and would be the first woman to hold either of the EU’s presidencies, was an early favorite of David Cameron, UK prime minister, and Angela Merkel, the German chancellor.
But she has seen her candidacy suffer from the growing consensus that another center-left woman, Italian foreign minister Federica Mogherini, will become the EU’s new foreign policy chief. The chance of the EU’s social democrats securing both jobs to be decided on Saturday remains slim.

via CNBC

Germany Wants To Beat UK to Becoming a Yuan Trading Hub

Use of the Chinese yuan in Germany and the U.K. has more than doubled over the last year, as London and Frankfurt fight to become the go-to place for trading the currency in Europe.

Yuan payments in the U.K. and Germany surged 123.6 percent and 116.0 percent respectively in the year to July 2014, according to new data from Swift, a financial messaging service.

“Over the past year, Chinese authorities and financial institutions announced new partnerships with European countries, making them official clearing centres for the renminbi (RMB). These announcements have boosted the RMB trading activities in these countries,” said Michael Moon, head of payments and RMB for Asia Pacific at Swift, in a press release.

Renminbi is the official name of the Chinese currency. Yuan is the name of one unit of the renminbi currency.

China is working hard to establish the yuan as a key currency for international trade, while keeping it under relatively tight control. In recent years, the government has struck major foreign-exchange swap deals—agreements to exchange one currency for another at a set rate at a certain time in the future—including with the euro zone, the U.K. and latterly, Switzerland.

“Announced in July, the bilateral currency swap agreement between the People’s Bank of China and the Swiss National Bank could put Switzerland in line to become a new RMB hub in Europe,” said Moon.

via CNBC

Gold Rises as Ukraine Heightens Safe Haven Demand

Gold prices are higher in early U.S. trading Thursday, on safe-haven buying interest, short covering and perceived bargain hunting. Geopolitics is back on the front burner of the market place as a three-day U.S. holiday weekend approaches. December Comex gold was last up $11.00 at $1,294.40 an ounce. Spot gold was last quoted up $10.90 at $1,294.00. December Comex silver last traded up $0.32 at $19.795 an ounce.

It’s a “risk-off” day in the market place Thursday following reports the Ukrainian president said the Russian military has invaded his country and is occupying eastern Ukraine towns and villages. There is reportedly ongoing fighting between the Russian and Ukraine armies. A Russian official denied that Russian troops are in eastern Ukraine.
Gold, U.S. Treasuries and the U.S. dollar index are all supported on safe-haven demand amid this news. Meantime, world stock markets are seeing selling pressure from the keener risk aversion in the market place Thursday.

It had been a subdued trading week, on this unofficial last week of summer, heading into the three-day U.S. Labor Day holiday weekend. Now, with geopolitical tensions rising, the three-day weekend and all that could happen in world hotspots during that time, many traders and investors will take action the next two trading sessions to reduce their risk exposure in the market place.

via Kitco

French Unemployed Rise in July To New Record High

The number of people looking for work in France rose 0.8% in July to a new record of 3,424,400.

The sharp rise confirms a longer term trend with the number of jobless rising 4.3% over the last year.

President Francois Hollande has promised to kick start growth and create jobs.

But the economy has floundered, prompting a revolt against austerity by three left-wing ministers. Mr Hollande replaced them and named a new cabinet.

Prime Minister Manuel Valls had already warned that the latest figures for jobseekers would not look good.

However, he reached out to French business on Wednesday with a promise to speed up reform.

“France needs you,” he told the country’s main employers’ union, Medef. “I love companies!”

via BBC

US Sugar Import Duties to Increase after Lobby Win

The United States is set to slap import duties as high as 17 percent on Mexican sugar in a victory for the powerful U.S. sugar industry but a blow to U.S. candy and soft drink makers who face paying more for the sweetener.

Mexican producers urged a deal to end the spat while the government hinted at retaliation, highlighting the potential for Tuesday’s Department of Commerce ruling to increase tensions in a months-long trade dispute over claims cheap subsidized sugar is flooding the heavily protected U.S. market.

The duties mean companies like sweets and food makers Hershey Co, Mondelez International Inc, General Mills Inc and drinks makers such as Coca Cola Co will have to pay up to 5 cents per pound extra for imported Mexican sugar, based on current prices.

The United States is a net importer of sugar and Mexico is one of its largest suppliers. Mexican imports are estimated at 2.1 million short tons for the 2013/14 crop year that runs through Sept. 30.

The preliminary decision could still be overturned but is only the first stage of a case which could lead to a further round of levies. It underscores the influence that U.S. cane and beet growers, a relatively small but politically engaged sector in U.S. farming, have over domestic farm and trade policy.

Out of a total 2.2 million U.S. farms, less than 4,700 grow cane and beet, according to data from the Washington-based Heritage Foundation, a conservative think tank.

via Reuters

Week in FX Americas – BoC To Remain With Neutral Stance

Canadian growth quickens

BoC to be pleased, but not impressed

Poloz to remain with neutral stance next week

Friday’s data revealed that the Canadian economy accelerated at the fastest pace in nearly three-years in Q2. The usual culprits supported the annualized +3.1% gain between April and June: exports, consumer spending and business investments (an area that Canada is falling well behind in to its largest trading partner, the US). This was in stark contrast to the downwardly revised +0.9% advance print in Q1. Canada’s Q2 gain continues to lag that of the US’s where GDP rebounded aggressively, posting +4.2% annualized after contracting in Q1.

Will the BoC be happy?

The mix should please, but not necessarily, impress Governor Poloz at the BoC. The variation to an export and investment driven growth strategy is beginning to pay off. However, it’s worth noting that consumer spending continues to outpace disposable-income growth, and that Canadian saving’s ratio has dropped to +3.9% (a four-year low). This would suggest that the next obvious question would be about sustainability. Highlighting exports, it certainly has rebounded, but that came after weather related disruptions in Q1, a similar impeding factor for US growth.

The BoC meet next Wednesday and they are not expected to sway from their ‘neutral’ stance. In July, Governor Poloz said he expected the Canadian economy to reach full capacity about three-months later than originally thought, making that about mid-2016. The usual excuses were put forward; some softer US data and global growth would continue to weigh on Canadian exports and the domestic economy. They are plausible enough reasons for a BoC’s ‘neutral’ bias. On the plus side, Canadian Q2 growth did beat the BoC’s +2.5% forecast. Poloz is expected to hold steady the benchmark overnight rate at +1% next week.

The loonie is closing out the week on a softer note ($1.0865), and this after earlier printing a one-month low on the back of month-end demand and Q2 GDP report ($1.0823). Excluding any potential M&A activity or month-end balancing, there seems to be a healthy demand for USD/CAD on dips. Even geopolitical and event risk will favor the ‘mighty’ dollar.

What to expect next week

It’s a North American holiday on Monday. Despite the uptick in geopolitical tension – Russia vs. the rest of the world – CBanks monetary policy rate decisions and North American employment data will be taking center stage.

The RBA kicks the week off with its rate decision on Tuesday, followed by Aussie GDP and Retail Sales later in the week. The BoJ, the highly anticipated ECB (ABS details expected), and BoE will dominate Thursday’s action. The neutral BoC appears on Wednesday, while Friday’s Canadian jobs and NFP round off what should be an action packed week.

WEEK AHEAD

* GBP BOE Inflation Report
* AUD Reserve Bank of Australia Rate Decision
* USD ISM Manufacturing
* AUD Gross Domestic Product
* EUR Euro-Zone Gross Domestic Product
* CAD Bank of Canada Rate Decision
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* USD Change in Non-farm Payrolls
* USD Unemployment Rate

Week in FX Asia – Yields and Geopolitical Tensions Hit Asian Markets

USD/JPY Trades close to 104 After Strong US Data

Japanese consumer inflation stays put

India growth surprises boosts Modi’s credibility

Japan’s consumer inflation was steady at 3.3% with a real 1.3% figure which is below the Bank of Japan and Prime Minister Shinzo Abe’s target but overall positive given the two decades of Japanese deflation. The government faces a tough balancing act. How to spur inflation after two decades, while at the same time have a way to slow it down and avoid falling prey to hyperinflation.

Geopolitical and macroeconomic events from Europe and America have further complicated the follow through of Abenomics. The USD/JPY will have a positive August given the strong US Economic data and optimism about a rate hike probably next year. The Yen started the month at 102.90 versus the dollar but managed to break through both the 103 and 104 price levels. Safe haven flows have limited the upside of the currency. A weaker JPY has boosted the local stock market as it gives corporates higher revenues from their exports.

Indian gross domestic product rose 5.7% in the second quarter. The first quarter the economy had risen 4.6%. This has given new Prime Minister Modi’s government a boost of confidence. After a disappointing budget where more reforms and a bolder direction were missing, Indian growth seems to be on track to break away from the 4.4% range it has been stuck for the last couple of years.

Those results are not the work of his government as he only took office in May, but it leaves a positive foundation of what he can build going forward. India is looking like the best of the BRICs after Brazil has just entered a recession, Russia is immersed in a potential armed conflict and China had a disappointing manufacturing release.

The USD/INR depreciated with the positive Indian economic releases and is now trading below 61.00 which is far from the 58 price levels that it had reached at the end of May following the elections. Given current geopolitical tensions around the world and the expectation of central bank action in both sides of the Atlantic, the Rupee has been resilient but is is till exposed to outside forces.

Next Week For Asia:
Western central banks are on deck next week and given the current state of macro economic affairs the European Central Bank will face pressure to act to prevent further stagnation. In Asia the Reserve Bank of Australia will issue its decision rate with no changes expected to its benchmark 2.5% interest rate. Australia’s GDP will be released on Wednesday with an expectation of lower growth than in the first quarter (3.5%) with Q2 coming in at 3% given the employment headwinds the Australian economy is facing.

The release of Japan’s Capital spending figures will show how much is corporate Japan really pitching in towards recovery with longer term investments.
The China services PMI for August will validate the Flash PMI numbers which point to a slowdown of Chinese manufacturing.

European bond yields dictated the agenda this week. A commitment from the ECB has driven bond prices higher as yields have hit rock bottom. This has made investors seek higher yields elsewhere affecting forex currency flows. Next week the spotlight will shift to central banks as the Reserve Bank of Australia, the Bank of England, the Bank of Canada and the European Central Bank will issue rate decisions. The ECB is expected to come up with something more substantial than the latest rhetoric, but this week’s European inflation numbers might have given them a reprieve.

ECB President Mario Draghi cannot turn the EU ship alone and needs the help form individual nations, and in particular highly influential ones like Germany. That is the point where traders are uncertain. France is rejecting austerity while Germany continues to embrace it pointing at Greece as an example it works.

To finish the week the US Non-farm payrolls figures will be released on Friday. The US employment recovery has given the market clear expectations of a rate hike sooner rather than later. How soon is the million dollar question. The Fed’s QE program will end this fall and this Friday’s NFP numbers could give clarity on a potential timeline for the US first interest rate hike.

Fore more market moving events visit the MarketPulse Economic Calendar

WEEK AHEAD

Week in FX Europe – ECB not influenced by flash CPI

Geopolitical tension on the rise

Euro flash CPI has not changed ECB consensus

Italian job numbers break trend

Month-end portfolio demand, geopolitical and event risk are all taking a stab at making an impact on forex prices. So far, and not unfamiliar, investors continue to wade through the same contrived trading ranges, but this time the EUR bear must be feeling a tad stronger in their convictions.

It was only natural that investors would adopt a cautious tone early Friday, ahead of Euro inflation numbers. A stable or slightly declining inflation reading would be expected to definitely reduce some pressure on the ECB to take immediate policy action at next weeks policy meet. Nevertheless, the Eurozone’s CPI Flash Estimate reading of +0.3%, y/y (expected +0.4%), the lowest in five-years, seems unclear if it’s enough for ECB to act again so soon based on the EUR’s initial price response of limited movement (€1.3179).

Europe floundering

The German economy – Europe’s backbone – seems to be stalling, and this despite a healthy employment front, as both exports and business confidence is being clouted by the uptick in tensions with Russia. The obvious knock on effect should be having a negative impact on German Q3 GDP numbers. Euro investors are closing this week out by adopting a cautious trading strategy. The German DAX (9,452.88 -0.10%) is trading small in the red, after rebounding tentatively from yesterday’s sudden resurgence in geopolitical risk (-1.1%). With North America entering a “long” holiday weekend, event risk positioning should dominate late day trading during their session. Surprisingly, the DAX trades close to breakeven on the day despite German retail sales figures for July posting the biggest monthly fall (-1.4%, m/m, real, calendar and seasonally adjusted) in two-years.

Obviously, Euro flash CPI estimate was the highlight of the session, and for many, was perhaps the final piece of the puzzle for the ECB policy outlook. Nonetheless, there were no surprises and has still left the debate open for the ECB whether it would take on fresh measures or continue to pause and watch the effects from its historic June move. Draghi last week hinted that the ECB could be preparing further stimulus and even raised the prospect of QE being employed. Those very hints have allowed global equities a free pass to higher territory while applying further pressure on the EUR.

ECB’s next step

In reality, rational minds have concluded that the ECB is most likely to want to gauge the impact of its June measures and to assess the take up of the targeted longer-term refinancing operation (TLTRO) before taking further action. Draghi expects +€1T to be snatched up and policy makers will want to gauge the effectiveness of channeling money back into the “real economy” before becoming too trigger-happy. The ECB is definitely looking at a program to buy asset-backed securities and further details could be announced next week on structure and execution.

On the flipside, there are a few who believe that the ECB will be expected to cut refi and deposit rates by -10bps on September 4. They feel that the failure to act will only intensify the fall in Eurozone inflation expectations. The consensus believes that the ABS program is not yet ready, hence why the EUR dove is leaning heavily on why lower rates is the most likely course. A cut in rates will also help boost demand for the first TLTRO scheduled for September 18.

Euro peripheries make a decision harder

This morning’s Italian July unemployment headline broke its recent improving trend and was not too far from the record high level set back in January. The country’s official jobless rate advanced to +12.6% in July from +12.3%, m/m. Some -31k jobs for men have been lost, while -4k positions for woman have been shed. The youth unemployment rate – the future 15-24 year olds – fell to +42.9% – a -0.8% fall m/m, but a +2.9% increases, y/y.

The EUR/USD outright has managed to hold above its 11-month low of €1. 3153 set earlier in the week, but interestingly has not been able to climb back above the psychological €1.32 handle after the CPI data.

What to expect next week

WEEK AHEAD

NATO Says Russia Has Over 1,000 Troops in Ukraine

Russia has “well over 1,000 troops” operating inside Ukraine, Nato warned on Thursday, as Moscow faced an intensifying backlash over growing evidence of its direct military involvement in the former Soviet country’s uprising in the east.

Dutch Brigadier General Nico Tak, commander of Nato’s crisis operations centre said that the Russian military was transferring air defence systems, artillery, tanks and armoured personnel carriers to separatists in eastern Ukraine. Nato satellite images seen by the FT appeared to corroborate this.

“There’s a severe escalation,” he said. “The satellite imagery released today presents additional evidence Russian combat soldiers equipped with heavy weapons are operating inside Ukraine.”

Gen Tak said Moscow’s moves were an attempt to prevent a defeat of the pro-Russian separatists, adding that the estimate of troops inside Ukraine was a conservative one. He said there were about 20,000 Russian troops amassed at the border with Ukraine and that the troops were “far more capable than what we saw in March...an offensive army”.

via CNBC

US Stocks Slightly Up Ahead of Holiday Weekend

U.S. stock index futures pointed to modest gains at the open on Friday, indicating the market’s recent upswing was intact with major indexes on track for their fourth straight week of gains.

Stocks have been strong of late, with investors taking any opportunity to buy on dips. However, this week’s trading volume has been among the lightest of the year, and that is likely to be more pronounced on Friday, ahead of the Labor Day holiday in the United States for which markets will be closed on Monday.

In the latest economic data, consumer spending unexpectedly fell in July as savings rose to their highest level in more than 1-1/2 years, a sign that households remain cautious despite an acceleration in economic and jobs growth.

After the market opens, the MNI Chicago Purchasing Manager’s Index and the Thomson Reuters/University of Michigan Surveys of Consumers will be released. Both are seen rising modestly.

S&P 500 e-mini futures ESc1 rose 2.5 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average e-mini futures 1YMc1 rose 15 points and Nasdaq 100 e-mini futures NQc1 rose 7.25 points.

via Reuters

US Consumer Spending Fell in July

U.S. consumer spending unexpectedly fell in July as savings rose to their highest level in more than 1-1/2 years, indicating that households remain cautious despite an acceleration in economic growth.

The Commerce Department said on Friday consumer spending dipped 0.1 percent last month, the first decline since January, after an unrevised 0.4 percent gain in June.

Economists had expected consumer spending, which accounts for more than two-thirds of U.S. economic activity, to increase 0.2 percent in July. When adjusted for inflation, it slipped 0.2 percent after gaining 0.2 percent in June.

The weakness in consumer spending at the start of the third quarter will probably do little to change perceptions that the economy has retained much of its second-quarter momentum.

Other sectors of the economy such as housing, business spending, exports and government activity are accelerating. In addition, labor market conditions are strengthening.

The dollar fell against a basket of currencies after the data. U.S. stock index futures were trading higher.

via Reuters

European Survey Shows Stock Allocation Reduced in August

European asset managers cut their exposure to stocks in August as expectations of rate hikes in the United States pushed many to book profits while shares remained near record highs, a monthly poll shows.

A Reuters survey of 11 European chief investment officers and fund managers found the average recommended allocation to equities in balanced portfolios dropped to 45.7 percent from 49 percent a month earlier – the lowest since September 2013.

The pullback in equities benefited alternative investments, such as hedge funds, private equity and commodities. They rose to 7.2 percent from 5.6 percent. Property allocations rose to 1.7 percent from 0.5 percent.

“We decided last week, with equities actually not too far off their highs for the year, was a better time to lower our still constructive stance on equities,” said Steven Steyaert, a portfolio specialist at ING Investment Management.

Steyaert said a combination of geopolitical threats, such as the conflict in Ukraine, and mounting speculation the U.S. Federal Reserve will soon tighten monetary policy had prompted ING’s new stance on stocks.

via Reuters

European Stocks Drop After EZ Inflation Drop Moderate

The euro lifted off lows and European shares sagged on Friday as a new five-year low in euro zone inflation was viewed as not extreme enough to drive the European Central Bank back into its increasingly bare policy cupboard.

Wall Street was expected to edge back up towards all-time highs though, suggesting the market’s recent upswing remained intact following this week’s strong run of U.S. data and the view that likely future action from central banks like the ECB will keep markets well oiled.

Consumer prices in the 18 countries using the euro rose by just 0.3 percent year-on-year in August, the lowest since October 2009 and well below the ECB’s preferred level of just under 2 percent, data showed on Friday.

But it was also right in line with economists’ expectations and helped cool speculation that the ECB, which meets on Thursday, would cut rates on its way towards U.S.-style quantitative easing — printing money by buying bonds — following strongly-worded comments from ECB President Mario Draghi last week.

The euro rose to the day’s high of $1.3195 EUR= against the dollar, and yields on core euro zone bonds inched away from record lows DE10YT=TWEB as the region’s share markets .FTEU3 also gave back their early gains.

via Reuters

Japan Household Spending Still Weak After Tax Hike

Japanese household spending fell much more than expected and factory output remained weak in July after plunging in June, government data showed, suggesting that soft exports and a sales tax hike in April may drag on the economy longer than expected.

While the Bank of Japan is in no mood to expand monetary stimulus any time soon, the data undermines the BOJ’s rosy economic forecasts and will keep it under pressure to act if the economy fails to gather momentum, analysts say.

The soft readings may also fuel speculation that the government could delay a second sales tax increase scheduled for next year, or try to compile another fiscal stimulus package, which would further worsen Japan’s debt burden.

“Production and consumption are both stagnating, and the economy is clearly undershooting projections of the government and the BOJ,” said Taro Saito, senior economist at NLI Research Institute.

“The BOJ will be forced to cut its economic view sooner or later, although it is unlikely to move anytime soon as it argues for rising inflation.”

via Reuters

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