Global: The Case Against the ECB ---Stephen Roach (from Antibes, France)
Well... since there is a "case against the ECB".. look at what happened in England just recently...
June 8, 3:00 PM: EUR/$..0.85128 $/JPY..120.839 GBP/$..1.3780 $/CHF..1.7920
Sterling Sinks, Yen Drops by Ashraf Laidi
The British pound sank further in its decade and a half abyss against the dollar, after the Labor Party clawed its second landslide election victory, securing a new 5-year term in power. Labor's road to EMU was further concretized by the resignation of William Hague, the head of the opposition Conservative Party, a staunch opponent of Britain's moves into EMU. Sterling underwent fresh damage right after Hague's resignation announcement in early European trading, hitting $1.3773, while falling to fresh 3-week lows against the euro at 61.70 pence. Despite Treasury Chief Gordon Brown's reiteration that the EMU decision will be based on his usual 5 economic tests (economic convergence with the EU, flexibility to single monetary policy, impact of investment, the City, and employment), markets remained convinced that Labor' victory brings them closer to Europe than ever, thus delivering the necessary pounding to the pound.
Although sterling fell nearly 4% against the euro so far this month, it has yet to lose another 10% to make membership an attractive project to British exporters. This translates to an approximate rate of 67 pence in EUR/GBP and $1.28 in GBP/USD. Current support levels are seen at 1.3750 and 1.3710.
The yen accumulated further losses across the board (even against the pound) as Japanese officials expressed concern with the economic outlook. Five out of Japan's six leading economic research institutes downgraded their Q1 GDP estimates following this week's release of the MoF's corporate survey showing capital spending growing by 2.5% y/y, a sharp decline from the previous quarter's 7.1% rise. The think tanks unanimously expect capital spending to drop by 0.2% to 1.8% from the prior quarter. The institutes foresee demand falling as a result of lower exports to the slowing US economy, but project an increase in public works spending. They differ, however, on the level of consumer spending, with some seeing it edging up slightly, while other expect a decline. Should the institutes' forecasts be correct, Japan's economic growth may undershoot the government's GDP target of 1.2%. Japan's preliminary Q1 GDP is due for release on Sunday, June 10 at 7:50 PM EST. $/JPY rose by nearly a full yen, pushing through the 120.80 resistance to 120.97, and falling just short of the 20-day moving average.
After falling on weaker than expected German manufacturing output and dismal Q1 GDP figures +2% from 2.7%, the euro gained over half to just above the 85-cent level, propped by losses in US stocks, partly impacted by a disruption in the NYSE. A cautionary reminder from ECB Chief Duisenberg stressing vocal unity from ECB and European Finance ministers regarding policy had no impact on the currency. The euro also shrugged Ireland's no vote in a referendum rejecting the ratification of the Nice Treaty, which stipulates enlargement of the 15-nation European Union by more than 10 nations starting from 2004. The "no" vote could be explained by fears from some member nations share the Union with less advanced economies. Tax harmonization is also another deterrent, as it would hurt low-tax countries. Nations expected to be in the early group of new members include Czech Republic, Hungary, Poland, Slovenia, Cyprus and Estonia. Bulgaria, Romania, Latvia, Lithuania and Malta are also amid the nations joining the accession talks. A "no" voted, however, is unlikely to have much impact on the euro as the single currency is currently subject to much more immediate matters such as deteriorating growth and inflation.
Cautionary comments from Philadelphia Chief Anthony Santomero on the US economy kept the door wide open for a 25-bp rate cut later this month, the probability of which is highly expected by the futures markets. Santomero stated that further downside risks to the US economy were still apparent, and that Q2 growth will be lower than Q1. He also warned on the impending risks to price stability and strayed from guessing on the policy action of this months FOMC action. Chances of a 50-bp rate cut have not completely disappeared as markets have yet to expect further loosening in the labor markets, especially amid the latest release of weekly jobless claims, which were reported yesterday to have risen by their highest level since 1992 last week. In addition to the broad sluggishness in labor markets, the manufacturing sector remains in recession territory, with orders, inventories and employment all pointing to weakness.
Earnings warnings from technology companies and software problems in the NYSE rattled markets, sending the Dow down 113 pts to 10977 and NASDAQ off 48 pts to 2215.
Next week's data will be dominated by Japan's Q1 GDP, US May retail sales, May CPI and industrial production. |
