Europe - Economic Data & News 01 (May 08 - Oct 08)

[Chiron]

News related to the 1987 DOW crash.

http://www.bloomberg.com/apps/news?pid= ... xmvHTtLx18

Fed, ECB Risk 1987 Rerun With Policy Drift: Michael R. Sesit

June 13 (Bloomberg) -- Ask any central banker what his most treasured asset is, and odds are he will say his credibility.

You wouldn't know it watching U.S. officials attempt to boost the dollar and the European Central Bank try to curb inflation during the past two weeks. Not only did their communication skills leave much to be desired, their policy coordination would have done the Keystone Cops proud.

Especially scary is the possibility that markets are setting themselves up for a rerun of 1987. In case you are too young to remember, that's when on Oct. 19, the U.S. stock market crashed and the Dow Jones Industrial Average plunged 23 percent.

Here's a quick history lesson: Meeting at New York's Plaza Hotel on Sept. 22, 1985, finance ministers and central bankers from the then Group of Five -- the U.S., Japan, Germany, U.K. and France -- agreed that ``some further orderly appreciation of the main non-dollar currencies against the dollar is desirable'' and that the G-5 ``stand ready to cooperate more closely to encourage this.''

They were so successful -- the greenback plummeted 36 percent against the deutsche mark over the next 17 months -- that in the so-called Louvre Accord in late February 1987, the G-5 agreed to jointly arrest the dollar's decline.

Then while the U.S. was trying to prop up the dollar, the Bundesbank, West Germany's central bank, was raising interest rates to combat inflation. Result: The Dow suffered its biggest one-day percentage drop in U.S. stock-market history, and markets around the world cascaded lower.

Strong Dollar

Fast forward. On June 3, Federal Reserve Chairman Ben Bernanke said the central bank was working with the Treasury to carefully monitor foreign-exchange market developments.

``We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations,'' he said. The Fed's commitment to price stability and maximum employment ``will be key factors ensuring that the dollar remains a strong and stable currency.''

The dollar rallied against the euro, British pound and yen.

Two days later, it was ECB President Jean-Claude Trichet's turn. Citing rising inflationary pressures, he said an official interest-rate increase in July was a possibility. Sure enough, the dollar gave up all its gains against the euro and then some.

A day later, June 6, Wall Street hit a wall. The Dow and the Standard & Poor's 500 Index each tumbled 3.1 percent; the Nasdaq Composite Index dropped 3 percent.

Trichet's Words

Sound familiar? Oil for future delivery rose more than 8 percent to a record $139.12 in New York trading on June 6, and the dollar sank almost 2 cents to settle at $1.5778 to the euro. In early Asian trading on June 9, the following Monday, it fell further to $1.5843 to the euro, within spitting distance of its record level of $1.6019.

``Trichet shot a strong-dollar-accord notion in the head and drove a stake through the heart of coordinated global monetary policy,'' says David Gilmore, a partner at Foreign Exchange Analytics in Essex, Connecticut. ``Trichet and the ECB showed that, despite an unprecedented need for a global monetary-policy response, a simple rule -- an inflation target -- trumps everything.''

On June 9, officials in Washington and Frankfurt seemed to go into damage control, suggesting that over the weekend somebody had picked up the telephone. Treasury Secretary Henry Paulson said he would never rule out currency intervention to buoy the U.S. currency, while Federal Reserve Bank of New York President Timothy Geithner said the Fed was ``paying very close attention'' to the dollar. ``Nobody at the Fed wants to countenance inflation,'' said Dallas Fed President Richard Fisher.

`Strongly Resist'

A day later, Bernanke weighed in, saying policy makers will ``strongly resist'' any surge in inflation expectations, his clearest suggestion yet that the Fed was finished cutting rates.

For his part, Trichet stuck to his inflation-fighting line, albeit with a gentler tone. ECB interest rates ``could increase by a small amount'' in July to 4.25 percent from 4 percent, he said, repeating that higher rates were possible, although not certain.

The Fed and ECB ought to be singing from the same hymnal. At 3.6 percent in May, consumer inflation in the 15-nation euro area is at a 16-year peak, while German wholesale prices surged 8.1 percent from a year earlier, the fastest pace in 26 years. Meanwhile, U.S. consumer inflation stands at 3.9 percent, almost double the 2 percent benchmark-lending rate. What's more, a stronger dollar is in the interest of both central banks.

Doomed to Failure

Still, U.S. officials have to choose their words carefully. Intervention to boost the dollar is doomed to failure as long as the ECB is bent on fighting inflation with higher rates.

``There is nothing like unsuccessful intervention to turn an orderly FX market into one that smacks of crisis,'' says Alan Ruskin, chief international strategist at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.

It's obvious that we're at a turning point in U.S. and European monetary and foreign-exchange policy. It's critical that the world's two main central banks are clear in their messages and coordinated in their actions.

Otherwise, history may repeat. And that's something no one wants.

(Michael R. Sesit is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Michael R. Sesit in Paris at at [email protected]

[kennynah]

bascially, we should be prepared for some big time screw up by their actions, no matter how well intended they may be..

Chiron : thanks for posting this info...

[millionairemind]

maybe the Fengshui master is zhun zhun?? haha

He said July we will see Financial Epidemic... wah liao...

If he kena this time, next year I go see him...

[kennynah]

16 Jun 2008 10:55 GMT
IW institute raises German 2008 GDP growth forecast to 2.5 percent from 1.7

COLOGNE (Thomson Financial) - German economic institute IW said it raised its 2008 GDP forecast for domestic growth to 2.5 percent from its previous estimate of 1.7 percent.

In 2009, the institute sees growth slowing to 1.3 percent, down from to its previous estimate of 1.4 percent.

The more optimistic 2008 forecast is mainly based on the strong growth at the beginning of the year, which was driven by robust investments, IW said.

In the full year, it sees investments in plants and machinery up 5.6 percent.

Meanwhile, IW forecasts private consumption rising only 1.0 percent due to the strong inflation and also expects exports to be less of a growth drives in the course of the year.

IW, based in the city of Cologne, is one of Germany's four leading economic-research institutes, which compile joint growth forecasts for the government twice a year.


16 Jun 2008 10:57 GMT
EU says 3.7 pct May inflation rise 'not a good figure'; due to oil, food prices

BRUSSELS (Thomson Financial) - The European Commission said the 3.7 percent rise in euro zone inflation in May is "not a good figure" and again warned of a wage inflation spiral.

"It's not a good figure -- you know that inflation is our main concern regarding the economy at the moment," said Amelia Torres, spokeswoman for EU economic and monetary affairs Joaquin Almunia.

She said the rise was mainly driven by fuel for transport, which rose 15.2 percent year-on-year, and heating oil, which soared 47.5 percent over the same period.

The price of milk, eggs and cheese increased nearly 14 percent over the year, she added.

"We have to remain extremely careful in order to avoid a wage and inflation spiral which would not be in the interests of anyone, especially the workers of Europe," Torres said.

Asked whether the commission would revise its inflation forecast of 3.2 percent for the year upwards, Torres said it was too early to tell.

"In April we already knew there was a risk of prices going up ... it's a little bit early to know whether we need to revise upwards our forecasts for this year," she said, adding the "we have to wait for the end of quarter to see whether, during the second half of the year, we'll see the inflation rate reduce as we initially expected".


16 Jun 2008 11:09 GMT
German May semiconductor sales down 19 percent year-on-year - ZVEI

FRANKFURT (Thomson Financial) - German semiconductor sales in May were down 19 percent year-on-year, the Electronics Industry Association (ZVEI) said.

In April and March, sales were down 16 percent year-on-year, respectively, ZVEI said.

The preliminary book-to-bill ratio in May was 1.01, compared with 0.94 in April.

A book-to-bill ratio above 1.0 shows growth in business and a figure below 1.0 indicates shrinking business volumes.

[LenaHuat]

EU's inflation rate is only 3.7%
China's 7+%
Vietnam 25+%
Singapore's 6%

Sometimes, it's good to be s--l--o--w

[kennynah]

oh yes L...indeed small comparatively... they shd thank their lucky stars for having a strong Euro...

when this news broke, Eur/Usd moved up some 130pips from last close...but again, saudi's statement about increasing another 200K barrels soon help to mitigate the move upwards somewhat...so, it was reported.... but as u know, this kinda of things...it's all about "he says, she says, and they all say"

[millionairemind]

Companies & markets
Crunch time for battered banks
Simon Duke, Daily Mail
30 May 2008, 8:20am

Royal Bank of Scotland's £12bn emergency fund raising looks increasingly likely to end in tears amid warnings that the credit crunch is far from over for British banks.

The share prices of Britain's big banks have plummeted to depths not seen for many years.

RBS shares plunged to depths not visited in eight years yesterday, making it more likely that investors will shun its record rights issue. With a £300m cash call from mortgage group Bradford & Bingley looking more unpalatable by the day, talk that the banking sector has reached a turning point appears very premature.

That's the message of a gloomy report from credit rating agency Moody's, which warned that the outlook has turned 'negative' for UK banks.

A prolonged downturn in the economy will increase the number of homeowners who fall behind in their repayments. With house prices likely to slide 10% this year, new lending will plummet, hitting profits across the sector.

Meanwhile the credit crisis could also lead to further 'significant writedowns for some larger UK banks' and further 'funding stresses' for smaller lenders.

The growing gloom could force Moody's to cut its ratings on British banks, which would increase their already high borrowing costs and intensify the mortgage drought.

Given that credit markets show little sign of thawing, Moody's said it would be 'no surprise' if more banks have to ask shareholders for a bail-out.

However, that may not be a realistic option if banks remain the pariah of the stock market, which wiped billions off the sector's value in an ugly sell-off yesterday.

RBS shares plunged as much as 14½p to 223&gfrac12;p, before settling down 6¼p to 231¾p, after China's Ping An pulled out of the £7bn sale of the Edinburgh's group's insurance arm.

The shares are now trading perilously close to the 200p mark, where investors have the right to buy 11 new shares for each 18 they own.

If RBS shares move much lower between now and the June 6 deadline-many investors won't subscribe.

It means the underwriters at Goldman Sachs, UBS and Merrill Lynch, who will earn £246m from the rights issue, could be left with billions of pounds of unwanted stock. That would be another severe embarrassment for under-fire RBS boss Sir Fred Goodwin and could leave a stain on the company for years to come.

A fund raising from struggling mortgage bank Bradford & Bingley is looking even shakier. Its shares tumbled 6¾p or 7% to 90½p, leaving them only one nervy day's trading away from the 80p entry point for its rights issue

[millionairemind]

MM comments - Just be careful going into June/Jul...make sure you have a strong line of cash to pick up bargains should this occur... if they so zhun, I am putting all my money on leverage when this happens Take everything with a big pinch of salt.

RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 7:40am BST 18/06/2008

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

RBS warning: Be prepared for a 'nasty' period
Such a slide on world bourses would amount to one of the worst bear markets over the last century.

RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets.

"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names."Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.

RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.

"Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.

US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit.

The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.

"The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.

Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates.

"The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.

Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.

[millionairemind]

mm - Don't mean to post so many -ve news in a row, but tot this would provide a balance of views from those who says the worst is over. We all have to draw our own conclusions.

Morgan Stanley warns of 'catastrophic event' as ECB fights Federal Reserve
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 1:29am BST 17/06/2008

The clash between the European Central Bank and the US Federal Reserve over monetary strategy is causing serious strains in the global financial system and could lead to a replay of Europe's exchange rate crisis in the 1990s, a team of bankers has warned.

"We see striking similarities between the transatlantic tensions that built up in the early 1990s and those that are accumulating again today. The outcome of the 1992 deadlock was a major currency crisis and a recession in Europe," said a report by Morgan Stanley's European experts.

Jean-Claude Trichet is taking a hard line on rates. Just as then, Washington has slashed rates to bail out the banks and prevent an economic hard-landing, while Frankfurt has stuck to its hawkish line - ignoring angry protests from politicians and squeals of pain from Europe's export industry.

Indeed, the ECB has let the de facto interest rate - Euribor - rise by over 100 basis points since the credit crisis began.

Just as then, the dollar has plummeted far enough to cause worldwide alarm. In August 1992 it fell to 1.35 against the Deutsche Mark: this time it has fallen even further to the equivalent of 1.25. It is potentially worse for Europe this time because the yen and yuan have also fallen to near record lows. So has sterling.


ECB in no mood to rescue us from debT. Morgan Stanley doubts that Europe's monetary union will break up under pressure, but it warns that corked pressures will have to find release one way or another.

This will most likely occur through property slumps and banking purges in the vulnerable countries of the Club Med region and the euro-satellite states of Eastern Europe.

"The tensions will not disappear into thin air. They will find fault lines on the periphery of Europe. Painful macro adjustments are likely to take place. Pegs to the euro could be questioned," said the report, written by Eric Chaney, Carlos Caceres, and Pasquale Diana.

The point of maximum stress could occur in coming months if the ECB carries out the threat this month by Jean-Claude Trichet to raise rates. It will be worse yet - for Europe - if the Fed backs away from expected tightening. "This could trigger another 'catastrophic' event," warned Morgan Stanley.

The markets have priced in two US rates rises later this year following a series of "hawkish" comments by Fed chief Ben Bernanke and other US officials, but this may have been a misjudgment.

An article in the Washington Post by veteran columnist Robert Novak suggested that Mr Bernanke is concerned that runaway oil costs will cause a slump in growth, viewing inflation as the lesser threat. He is irked by the ECB's talk of further monetary tightening at such a dangerous juncture.


Ben Bernanke is reported to be irked by the ECB's approach
The contrasting approaches in Washington and Frankfurt make some sense. America's flexible structure allows it to adjust quickly to shocks. Europe's more rigid system leaves it with "sticky" prices that take longer to fall back as growth slows.

Morgan Stanley says the current account deficits of Spain (10.5pc of GDP), Portugal (10.5pc), and Greece (14pc) would never have been able to reach such extreme levels before the launch of the euro.

EMU has shielded them from punishment by the markets, but this has allowed them to store up serious trouble. By contrast, Germany now has a huge surplus of 7.7pc of GDP.

The imbalances appear to be getting worse. The latest food and oil spike has pushed eurozone inflation to a record 3.7pc, with big variations by country. Spanish inflation is rising at 4.7pc even though the country is now in the grip of a full-blown property crash. It is still falling further behind Germany. The squeeze required to claw back lost competitiveness will be "politically unpalatable".

Morgan Stanley said the biggest risk lies in the arc of countries from the Baltics to the Black Sea where credit growth has been roaring at 40pc to 50pc a year. Current account deficits have reached 23pc of GDP in Latvia, and 22pc in Bulgaria. In Hungary and Romania, over 55pc of household debt is in euros or Swiss francs.

Swedish, Austrian, Greek and Italian banks have provided much of the funding for the credit booms. A crunch is looming in 2009 when a wave of maturities fall due. "Could the funding dry up? We think it could," said the bank.

[blid2def]

So much fear... good; means market going to rally soon, based on my Irrational Decisions Maker Ver 2.03a.

Speaking of irrationality, saw this while googling for a pic for "irrational decisions":