Euro Drops Against Major Peers Before Spain Debt Auctions

The euro fell to less than .30 for the first time in two months as Spanish bond yields touched a 2012 high after a minister called on the European Central Bank to do more to stem debt-market turmoil.

The 17-nation currency dropped for a second day against the yen and reached the lowest since 2010 versus the pound. The yen strengthened against all of its 16 most-traded counterparts. China’s yuan weakened as the central bank widened the currency’s trading band. Higher-yielding currencies trimmed losses against the dollar after U.S. retail sales rose in March and yields on Spanish government securities pared increases.

“There’s still a hesitation with respect to trading in European bond markets,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “The U.S. data was a little bit better than expected. It’s causing a minor risk-on rally.”

The euro fell 0.3 percent to .3040 at 9:59 a.m. in New York after dropping to .2995, the weakest since Feb. 16. The shared currency weakened 0.7 percent to 105.12 yen after declining 0.8 percent on April 13. The euro slipped 0.2 percent to 82.35 U.K. pence after reaching 82.10 pence, the lowest since September 2010. The yen rose 0.4 percent to 80.58 per dollar.

Source | Forex News Paper | http://forexnewspaper.blogspot.com/2012/04/euro-drops-against-major-peers-before.html

Euro Strength Seen by Stiglitz Removing Greek Debt

Rather than a euro failure, an orderly Greek exit from the currency has Nobel laureate Joseph Stiglitz and Nomura Holdings Inc. chief strategist Jens Nordvig predicting a stronger and more stable monetary union.

While Societe Generale SA suggests that the euro might break up because of the cost of Greece’s departure, the nation accounts for just 2.3 percent of the 17-nation trading bloc’s gross domestic product. It also has 356 billion euros (0 billion), or 4.3 percent of the region’s total debt, according to data compiled by Bloomberg. The area’s trade deficit last year would have been a surplus without its weakest member, according to European Union data.

Foreign-exchange markets display little evidence of the euro being dismembered. The currency trades 53 percent above its record low of 82.30 U.S. cents in October 2000. Bond yields of Austria, Belgium, Finland, France, Germany and the Netherlands have fallen to record lows, as investor demand for their debt increases. Removing Greece from the euro would reduce the bloc’s debt-to-GDP ratio to 85.5 percent from 87.3 percent.

Source | Forex News Paper | http://forexnewspaper.blogspot.com/2012/06/euro-strength-seen-by-stiglitz-removing.html

Until debt tear us apart?

Every month I do an analysis for newspaper Público of the implementation of the budget accounts (see here in Portuguese article 25/10/2012) based on historical records for each major item of revenues and expenditures, tax elasticities, detailed analysis of the data, etc..

It is very important to be aware of the implementation of the fiscal consolidation programme to understand whether fiscal measures are leading us to the desired lowering of public deficit in order to reduce Portuguese net borrowing requirements or not.

Starting with the simplest indicator – general government balance – the answer is no. Public deficit in 2011 (in national accounts), without one-off measures was 5,8% of GDP and in 2012 my estimate is 5,9%.    

The fiscal strategy of the Portuguese Government (under pressure of ECB/EC/IMF –the troika) was a severe cut in public expenditures through two major items (cut of two subsidies of pensioners and civil servants) and other smaller items of expenditure and to raise several taxes, more through an increase in tax rates than in tax bases.  

It is now clear that this strategy is not working. If the use of instruments does not achieve the target it is because the strategy is flawed. The social situation is getting worst, unemployment is rising, bankruptcy of firms is increasing, civil servants are frustrated with wage cuts and no career prospects, and yet …public deficit is not decreasing. However, neither the government nor the troika still recognizes this.

	MF	PTP
Deficit 2012 State Budget Rectified(1)	4,5	4,5
Lower tax revenues	1,6	2,1
Budget overestimation of central governments' Wages		-0,4
Variation in Social Security Accounts	0,6	0
Other		-0,3
Total	6,7	5,9
One-off measures (PTP) or savings (MF)	-1,7	-0,9
Défice 2012 OER(2)	5	5
Source: MF -Ministry of Finance, PTP-Paulo Trigo Pereira  - own calculations
Estimates of deviations from budget target  (% of GDP). Negative deviation decreases deficit.

(see detailed explanation and further information in the Portuguese article).

Curiously Portugal will have a surplus in the primary balance in 2012 (excluding interests of the debt). With a ratio of debt to GDP approaching 120% and a recession, unless there is a sharp and quick decline on the interests of the debt or Portugal will not be able to repay the principal. The ECB should anticipate the intervention in countries with adjustment programmes (under OTR) in order to decrease the interests of the debt.   It seems the only reasonable solution.

PS The IMF just released the 5th evaulation of the Adjustment Programme. It deserves a further scrutinity here... 

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/10/until-debt-tear-us-apart.html

Yen Gains Versus Peers Before Italy Debt Sale

The yen climbed against all of its major counterparts amid concern the bailout of Spain’s banks will move Italy to the forefront of the debt crisis, spurring demand for the Japanese currency as a haven.

The 17-nation euro remained lower versus the dollar following a three-day slide before Italy auctions debt this week and Greeks vote in a general election on June 17. The euro climbed early yesterday after Spain asked European governments for as much as 100 billion euros (5 billion) to save its banking system, making it the fourth member of the currency bloc to seek a rescue.

“There is no conviction and there is no belief that things are going to get better” in the euro region, said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “This is the reason we’re seeing the U.S. dollar and yen so well bid.”

The yen climbed 0.3 percent to 98.86 per euro as of 10 a.m. in Tokyo from the close in New York yesterday. It gained 0.3 percent to 79.20 against the dollar. The euro traded at .2483 after falling 0.3 percent to .2482 yesterday.

Italy’s 10-year debt dropped yesterday as the yields climbed 26 basis points, the most since Dec. 8, to 6.03 percent. The nation is scheduled to auction securities on June 14 maturing in 2015, 2019 and 2020.
Italian banks led a decline in European stocks yesterday, with UniCredit SpA (UCG), the country’s largest lender, losing 8.8 percent and Intesa Sanpaolo SpA (ISP), the second largest, sliding 5.9 percent. The nation’s debt load is the heaviest in the euro region after Greece’s, as measured by its ratio to annual economic output, according to data compiled by Bloomberg.

Source | Forex News Paper | http://forexnewspaper.blogspot.com/2012/06/yen-gains-versus-peers-before-italy.html