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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: yard_man who wrote (3052)	3/29/2004 11:48:02 AM
From: mishedlo	Respond to of 116555

EU Commission Report: Mixed Signals on Eurozone Recovery Monday, March 29, 2004 10:07:00 AM -- Downside Risks Have Risen -- HICP Rise Likely After March -- Euro Rise Not Yet a Major Concern BRUSSELS (MktNews) - There are increasing risks that the eurozone recovery could falter amid weak consumer confidence and there are signs that the strength of the euro is starting to eat into the zone's external competitiveness, the European Commission said Monday. In its quarterly report on the euro-area economy, the executive said that after a gradual turnaround in economic activity in the euro-area in the summer of last year, recent economic data have sent "somewhat mixed signals" as regards the pace of the recovery in the near future. It said that business confidence has recently "marked a pause" and the appreciation of the euro "appears to increasingly weigh on external competitiveness." Indeed, it noted that national accounts data show a strong negative contribution of net trade in the fourth quarter of 2003. And euro-area exporters have been exposed to a considerable loss in price competitiveness during the past two years. But the report also stressed the effect of the euro's rise should be put in perspective. Depending on the real exchange rate concept used, the euro is currently only between 1 and 7% above its average value over the past 30 years, it said. Furthermore, the negative competitiveness impact of a stronger euro has so far been largely offset by a brisk recovery of world trade. Also, the negative contribution of exports to growth late last year has more to do with the correction of an excessive rebound in exports in the third quarter than with the negative effect of losses in competitiveness. Also, manufacturing surveys have so far continued to display strong readings in terms of export expectations. The Commission also noted that EMU exporters have squeezed their profit margins to contain losses in price competitiveness. And although changes in competitiveness matter for the export performance of euro-area companies, they tend to matter less than changes in world demand. Indeed, euro-area exporters are specialising in products which are more sensitive to changes in income than to changes in prices. The report said the slight deceleration of EMU GDP at the end of last year was surprising in the light of the strengthening of industrial activity as measured both by the industrial production index and production developments in business surveys. The slowdown was due to services and, more specifically, to the wholesale-retail, communication and transport sector and to the financial services and business activities sector. Downside risks are attached to the sustainability of the US recovery. US growth has been partly fuelled by an extraordinarily large policy impulse whose impact will fade. Another source of downside risks relates to the possibility of a further sharp appreciation of the euro that would push the external value of the currency significantly above its equilibrium value. On the domestic side, balance sheet pressures have eased off but there may still be a need for further corporate adjustment. More critically, there is still significant uncertainty as to the timing of the recovery in consumer spending. In this regard, the impact of the recent terrorist attacks in Madrid is difficult to assess at this juncture and will have to be monitored carefully in the months ahead. However, overall the report stressed that the level of business confidence remains relatively high, consumer confidence is strengthening gradually, the investment slump may have come to an end and world demand is buoyant. "The recovery remains on track but the recent softening of some indicators suggests that short-term downside risks may have increased," it said. "The persistent weakness of private consumption is a source of concern." The lacklustre performance of household spending in recent years can partly be explained by sluggish growth in disposable income and lagged adverse wealth effects. In addition, consumption appears to be weaker than what normally would be expected given the level of its main macroeconomic determinants. "Overall, recent confidence indicators point to an increase in uncertainty in the euro area which is also reflected in the most recent hard data." This could be the result of negative confidence linked to the deterioration of public finances in some member states, to the increasing awareness of the challenges posed by population ageing and to the uncertainty generated by a very slow structural reform process, the report suggested. Finally, despite the appreciation of the euro, monetary conditions are accommodating and monetary and financial conditions remain supportive of the economic recovery. Both short- term and long-term real interest rates are at historical lows, it said. The Commission's monetary conditions index (MCI) suggests that monetary conditions in the euro were tightened somewhat in the last quarter of 2003 but may have loosened a touch due to the recent dip in the value of the euro. The report said the decrease in inflation at the start of this year is largely attributable to a strong base effect in the energy component and the continued unwinding of temporarily high inflation in unprocessed food. The deceleration of inflation in these two sectors more than offset the unfavourable effects of price increases in the health sector and hikes in indirect taxes. The base effect in the energy component is estimated to have continued to exert strong downward pressure on annual inflation rates in March but is likely to fade later on in the spring, as energy price inflation last year declined rather sharply after the start of the war against Iraq. Recent developments in core inflation continue to point to some underlying stickiness, it said. "Core inflation is likely to show much less volatility and only decrease gradually in the months ahead in peak of the cycle at the end of 2000," it said. fxstreet.com

To: yard_man who wrote (3052)	3/29/2004 11:55:30 AM
From: mishedlo	Read Replies (2) \| Respond to of 116555

Japan: Intervention Policy Will Continue TOKYO (Reuters) - Japan's Ministry of Finance (MOF) said on Monday it would continue its foreign exchange intervention, shrugging off a British newspaper report that Tokyo would stop its massive forays into the currency market. Japan has been intervening in accordance with a Group of Seven (G7) statement issued last month that said excessive volatility was undesirable, and that policy remains unchanged, a senior MOF official told Reuters. "We have been intervening all along based on the Boca Raton statement -- that excessive volatility and disorderly movements are undesirable -- and we will continue to do so if necessary," the official said. Japan has conducted more than 30 trillion yen ($285 billion) of yen-selling intervention since the start of last year in a bid to rein in the buoyant yen. The yen rose to 3-1/2-year highs near 105.10 to the dollar last month, up more than 10 percent from lows near 120 set last August. Earlier on Monday, the yen rose sharply to come within a whisker of last month's highs on a report on the Web site of the Times newspaper that quoted Bank of Japan officials as saying Japan was "confident the Japanese recovery no longer depends on export strength... the interventions have served their purpose." The yen has since pulled back sharply but the MOF official declined to confirm whether the ministry intervened on Monday. The official noted it was the ministry that controlled Japan's foreign exchange policy, not the central bank. "Intervention policy is set by the Ministry of Finance. I don't know what the BOJ is saying (in the Times report) but people should ask us (about currency policy)," the official said. Japan's intervention funds come from the MOF's foreign exchange special account. When intervention takes place, the ministry places orders with the BOJ, which then makes the transactions in the market as an agent bank. The MOF official also played down speculation that the ministry may no longer feel a need to keep the yen down once the March 31 book-closings for most Japanese corporations are over. "There seems to be a lot of talk about a policy change in March or April, but there is no change in our intervention policy," he said. ($1=105.28 yen) reuters.com

To: yard_man who wrote (3052)	3/29/2004 11:57:38 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Australia's Bonds Slump; Yields Rise Their Most in Five Months March 29 (Bloomberg) -- Australian government bonds fell, driving yields to their biggest increase in five months, on speculation a U.S. report this week will show quickening jobs growth and fuel rising interest rates across the world. The Fed has kept rates at a 45-year low of 1 percent since June, citing slow jobs growth. Australian government bonds rallied after a weaker-than-expected gain in U.S. employment last month, with yields on 10-year debt falling 33 basis points in the week after the figures were released on Friday, March 5. ``The market is now looking at the risk that the payrolls number on Friday will show there is finally some employment growth in the U.S.,'' said Warren Hogan, chief economist and head of bond strategy at Credit Suisse First Boston in Sydney. ``The Reserve Bank of Australia is in a tightening cycle, so if U.S. data improves and Australian data remains strong, it raises the chances the bank will raise rates'' in Australia, pushing bonds lower. The 6.5 percent bond maturing May 2013 fell 1.227, or A$12.27 per A$1,000 face amount, as of 12:33 p.m. in Sydney, to 107.253. The yield rose 16 basis points to 5.48 percent, the highest in almost three weeks and the biggest one-day gain since October. A basis point is 0.01 percentage point. Australia's 10-year government bonds yield 1.63 percentage points more than U.S. Treasury notes with a similar maturity, compared with 1.48 percentage points on Friday. The U.S. Labor Department will Friday say the economy added 115,000 jobs in March, the most since December 2000, according to the median forecast of 56 economists surveyed by Bloomberg News. The last monthly employment report on March 5 showed the economy added 21,000 jobs, less than the 130,000 median forecast. Australian Dollar The number of U.S. citizens filing initial claims for jobless benefits totaled 339,000 in the week ended March 20, close to a three-year low, a government report showed on Friday. Australia's dollar bought 74.54 U.S. cents from 74.65 cents in late New York trading Friday. The currency fell after some investors speculated its 1 percent rally Friday, gaining the most among 16 major currencies tracked by Bloomberg data, dimmed prospects for a further rise. ``It was a solid session Friday night'' as investors returned to riskier assets such as higher-yielding currencies, said Michael Jansen, a foreign-exchange strategist at National Australia Bank Ltd. Now ``everyone is turning from being investors to traders.'' Three-quarters of the 69 investors, traders and strategists surveyed from Tokyo to New York Friday advised selling or holding the Australian dollar against the U.S. currency this week. Trade Deficit The currency may gain on speculation a report tomorrow will show Australia's trade deficit narrowed in February, signaling global economic growth is fueling demand for the country's exports, such as steel, coal and iron ore. The trade deficit in February was probably A$1.5 billion (S1.12 billion), the narrowest in 11 months, from A$1.96 billion in January, according to the median forecast of 19 economists surveyed by Bloomberg News. Greater demand for Australian goods may drive up the currency used to buy them. ``If it does narrow more than expected, it will probably be due to the export side, which is more positive for the Australian dollar,'' said Greg Gibbs, a Sydney-based senior currency strategist at RBC Capital Markets.

To: yard_man who wrote (3052)	3/29/2004 1:53:36 PM
From: mishedlo	Respond to of 116555

outsourcing joins the MBA curriculum Elissa Dvorak and 20 other MBA students from Indiana University 's Kelley School of Business decided to spend spring break this year travelling around India . But the trip was not meant to be a vacation. Under the auspices of the MBA programme, Dvorak and her classmates spent 10 days learning about outsourcing from local and global firms in cities like Bangalore , New Delhi , Mumbai. timesofindia.indiatimes.com