The Greenback Falls Before Fed Speak

“The dollar fell against the majority of its most-traded peers amid bets Federal Reserve Chairman Ben S. Bernanke will signal the central bank plans to maintain bond purchases that risk debasing the currency.

Europe’s 17-nation currency traded at almost its highest level against the dollar since February and the yen rallied before the U.S. central bank also releases revised economic forecasts. Sweden’s krona rose to a two-month high versus the dollar after the jobless rate unexpectedly fell in May and a government research institute said the central bank won’t cut its main lending rate further.

“The market is expecting Bernanke to express some discomfort with the rise in long-term interest rates and is probably looking for something relatively dovish from the press conference,” said Adam Cole, head of Group-of-10 currency strategy at Royal Bank of Canada in London. “The market is setting itself up for the big event of the day. In the long-run, I expect the yen to strengthen versus the dollar.”

The dollar fell 0.3 percent to 95.08 yen at 7:57 a.m. in New Yorkafter weakening 1.1 percent in the previous two days. Japan’s currency rose 0.2 percent to 127.39 per euro. The euro was little changed at $1.3399 after appreciating to $1.3416 yesterday, the highest since Feb. 13.

Fed News….”

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“Japan’s exports rose more than forecast in May as a weaker yen boosted the value of overseas sales, underscoring the profit boon for manufacturers from Prime Minister Shinzo Abe’s reflation campaign.

The value of shipments abroad increased 10 percent in May from a year earlier, the most since 2010 and exceeding the 6.4 percent median estimate in a Bloomberg News survey of economists, a Finance Ministry report showed in Tokyo. At the same time, export volumedropped 4.8 percent.

Today’s data reflect an almost 12 percent slide in the yen against the dollar in the past six months that stoked criticism from trade partners including South Korea that Japan’s monetary stimulus is distorting commerce. The key for Abe is that exporters from Nintendo Co. (7974) to Mazda Motor Corp. (7261) use profit gains to boost wages and investment at home.

“The yen’s exchange rate, even though it has been adjusted a bit recently, is still weaker than last year’s level and giving a lot of impetus for Japan’s export drive,” said Long Hanhua Wang, an economist at Royal Bank of Scotland Group Plc in Tokyo. “The volume of exports is still unimpressive as the economic growth of China is stagnating and Europe’s expansion remains weak.”

The nation’s 11th straight monthly trade deficit was 993.9 billion yen ($10.4 billion) as imports gained 10 percent, today’s report showed. The shortfall was the third largest on record, and the largest ever in May. The yen’s decline boosted the costs of imports, while nuclear-plant shutdowns added to energy demand…..”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Japan, Italy, Spain, France,  and Germany …

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” “Be sure your seatbelt is fastened, because nothing has really come to rest. We have entered the New Abnormal, a period in which every market assumption must be questioned and the wise investor is prepared to be surprised.”

And that’s how famed economist Nouriel Roubini and Ian Bremmer, the president of Eurasia Group, launch into an eight-screenInstitutional Investor assault on all that’s going wrong with the global economy right now and on how new crises are most certainly headed our way.

Calling it the G-Zero world — referring to a leadership void where it’s every nation for itself — the two pepper the essay with warnings about China growth, another Europe meltdown or turmoil in the Middle East, a region they definitely see as not OK. Oh, and forget about the BRICS bailing out global growth.

Fast-fowarding past all that, central banks, mostly the Fed, get the last salvo from the doomsday duo, who devote several paragraphs largely to how that easy money policy is going to land us all in trouble. What markets and economist are hoping for as that two-day Fed meeting kicks off Tuesday is a slow and steady easy out of QE. That’ll fix everything, right? Wrong; …”

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“SAN FRANCISCO (MarketWatch) — With U.S. stocks struggling to break new ground and a rise in Treasury yields upsetting the bond market, money managers are recommending a mix of proven blue-chips and exchange-traded products to weather the dicey summer months.

Investors have a dilemma about where to put money. For awhile defensive stocks were a safe place to park; that momentum has rotated into cyclicals, which gained nominal all-time highs in May.

Now, well into the stock market’s weakest half of the year and the looming specter of the Federal Reserve tapering its quantitative easing program, the strength of both the Dow Jones Industrial AverageDJIA +0.65%  and the Standard & Poor’s 500 Index SPX +0.51%  is being questioned.

Meanwhile, market volatility, which has been fairly docile, is climbing. The CBOE Volatility Index VIX -0.83% , or so-called fear index, is still below multi-year averages, but the increased activity typically signals a change in market leadership.

With this in mind, MarketWatch polled some seasoned investors for ideas on how to navigate the summer months if the market bears come out of hibernation.

As international economies weaken, think local….”

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“The Swiss are not giving up bank secrecy without a fight.

The lower house of parliament voted Tuesday against a draft law that would have allowed the country’s banks to start sharing secret offshore account information with U.S. tax authorities.

The move keeps Switzerland’s famous bank secrecy rules intact for the foreseeable future, but creates a problem for hundreds of Swiss banks that are being barred, by law, from sharing account information.

The banks could face U.S. legal action if they continue withholding information and there is evidence proving they are helping Americans evade taxes via offshore accounts.

Switzerland is home to the world’s largest offshore banking industry with $2.2 trillion in deposits. Many account holders were attracted to its banks by the prospect of being able to hide their assets and avoid taxes in their home countries….”

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“Scrappy online startups were among the first to realize that renting computing power from cloud providers like Amazon Web Services was an excellent deal. For some, it was the only way they’d get off the ground. What investor would pay millions to build a data center for a new game or service that might not take off?

Now, enterprises are following the little guys’ lead and embracing cloud computing. But because of security concerns, custom requirements, and in some cases, sheer scale, a number of big organizations are doing it with a twist: They’re creating their own private clouds….”

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“Having a higher education won’t help you anymore in your job, writes New York Times columnist Paul Krugman.

Conventional thought holds that technology eliminates jobs for less-skilled workers, but increases demand for more highly educated workers and eventually increases living standards.

But now, highly educated workers are just as likely as are less-educated workers to be displaced. “And pushing for more education may create as many problems as it solves,” Krugman notes.

He points to a recent report from The McKinsey Global Institute that lists a dozen major new technologies that may be “disruptive” for workers and their industries.

“Even a quick scan of the report’s list,” Krugman says, “suggests that some of the victims of disruption will be workers who are currently considered highly skilled, and who invested a lot of time and money in acquiring those skills.”

For instance, watch out for “automation of knowledge work,” he states, where software will do work once done by college graduates, and robots will handle more manufacturing and could also replace some medical professionals.

“Education, then, is no longer the answer to rising inequality, if it ever was (which I doubt).”

We could be facing another industrial revolution, a time when many workers lost their jobs to machines…”

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“While the overall labor participation rate has slid in recent years, senior citizens are increasingly returning to the labor force, thanks to losses in their investment portfolios and financial uncertainty, says economist and author Mark Skousen.

The labor force participation rate for those 65 and older rose to 24.4 percent in May from 21.6 percent in June 2008, government statistics show.

“Retirees that used to be the idol class, if you will, are now the new working class,” Skousen tells Newsmax TV in an exclusive interview. “They’re continuing to work.”

Watch our exclusive video…”

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“The FX and precious metals markets are swinging wildly around this morning (amid no news) as US equities remain anchored to hope (and VWAP) ahead of the FOMC tomorrow. Copper is also sliding quickly but WTI is back above $98 as the USD gets back to unchanged on the week. Treasury yields spiked early but have reverted to unchanged now. Credit markets have done nothing but widen (worsen) from the open this morning – also ignoring equity’s stability – but hedgers are active as VIX remains higher on the day…”

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Market Update

[youtube://http://www.youtube.com/watch?v=8WQVb_nuKvs 450 300]

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“(Reuters) – Hormel Foods Corp, which makes Spam lunch meat, cut its full-year earnings outlook on Tuesday, citing weakness in its pork business, softer sales of its refrigerated foods and higher meat costs, and its shares fell nearly 5 percent.

Hormel, which is also a turkey and pork processor, said it expectedearnings of $1.88 to $1.96 a share for the year ending in October, down from its prior forecast of $1.93 to $2.03.

Analysts on average had forecast a profit of $1.99 a share, according to Thomson Reuters I/B/E/S.

Hormel was squeezed by higher costs for chicken, pork and beef, a spokesman said….”

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“CHARLOTTE, N.C. (AP) — Duke Energy’s chief financial officer will take over for retiring CEO Jim Rogers at the end of the month.

Lynn Good, 54, has been CFO since 2009. She will also take a seat on the company board.

Rogers will retain his board chairman seat until he steps down at the end of the year.

The board plans to name one of its independent directors as chair-elect in the coming weeks. That person will become chairman when Rogers departs….”

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“SHANGHAI—China’s money-market rates remained stubbornly high Tuesday, suggesting a standoff between the country’s central bank and lenders that is causing stress to the financial system is set to continue.

An interbank benchmark for funding costs called the seven-day repo rate was at 6.82% Tuesday, close to the 6.89% rate at Monday’s close and a record 6.90% on Friday. It had averaged around 3.30% this year before the liquidity crunch began at the end of last month.

In a sign that China’s central bank isn’t going to relax the pressure soon, the People’s Bank of China refrained from adding cash to the financial system Tuesday. It normally conducts so-called open market operations on Tuesdays and Thursdays by adjusting short-term loans to commercial lenders, which controls the supply of credit.

Since they first soared on May 31, interbank lending rates have taken a toll on other financial markets and vexed investors. The benchmark Shanghai Composite Index has fallen 7.1%, while short-dated bond yields have risen more than 40 basis points. The yuan has been flat during the same period as global investors have pulled out money and lowered expectations for further gains.

The tight conditions suggest China’s financial markets will remain under pressure even though some big banks are calling for the central bank to inject more cash into the market by lowering the share of deposits that banks are required to set aside against financial trouble.

Analysts say Beijing may even be taking advantage of the market turmoil to test banks’ capacity for risks. The higher funding costs stress the ability of banks to raise cash and may reveal which lenders have taken on too much risk should they get into trouble…..”

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“Do you have a computer? Good. Now you can be a quant trader.

For years, complex algorithmic trading has been a major profit generator for Wall Street banks and hedge funds.

It has also been a source of employment for programming prodigies — and a source of stress for regulators.

But thanks to the new Manhattan-based startup EquaMetrics, average Joes can now quant trade from the comfort of their own homes.

CNN Money reports…”

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“There’s a Warren Buffett quote that’s something akin to: When the tide goes out, you can see who’s been swimming naked.

That’s the theme of a note this morning from SocGen analyst Kit Juckes, who says that as rates are rising, and tapering talk picks up, it’s beginning to be clear where the unsustainable bubbles have been built up.

No surprise: He says the bubbles were found in emergingg markets, which have been crumbling lately.

Each of the three significant financial bubbles of the last 30 years has been fuelled by the Fed keeping policy rates below the nominal growth rate of the economy for far too long. The chart below highlights two conflicting issues. It highlights two conflicting issues, one supporting my core view, the other challenging it. The first is that current policy is creating market and economic distortions just as past periods did. The reaction to taper talk in EM, commodities and volatility shows where bubbles have been inflated. This is the most powerful argument in favour of the Fed taking the first baby-steps on the path away from super-easy policy. The second issue is that nominal GDP growth is slowing – 3.4% y/y in Q1 2013 after a post-crisis peak at 4.5% a year ago. SG economic forecasts look for a re-acceleration from here. The Fed may not need evidence of a return to ‘old normal’ growth or signs of a re-acceleration in CPI or wage inflation to justify tapering. But nominal growth does need to turn a bit higher….”

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The U.S. used to be the leader of many lists. Unfortunately, over the past 30+ years we have declined on most of those lists. Now we find the U.S. is seriously lagging the world in the creating entrepreneurs…

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“Ben Bernanke is likely to signal that the U.S. Federal Reserve is close to tapering down its $85 billion-a-month in asset purchases when he holds a press conference on Wednesday, but balance that by saying subsequent moves depend on what happens to the economy.

The Fed chairman has a double communications problem. Markets seem reluctant to acknowledge the improvement that is leading the Fed towards a taper of QE3. But they also appear to be assuming, incorrectly, that any taper means the Fed has become less willing to support the economy’s recovery.

Mr Bernanke is likely to push against both misperceptions, combining an upbeat message on how the strength of the economy will soon justify a taper, with a signal that further tapering depends on further improvement in the economy and in no way brings forward an interest rate rise….”

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“U.S. housing starts rose less than expected in May, likely reflecting labor and material constraints, but the overall trend remained consistent with strength in the housing market.

Meanwhile, U.S. consumer prices rose in May and a gauge of underlying price pressures showed signs of stabilizing after a long decline, a potential comfort to Federal Reserve policymakers who would like to see stronger inflation.

Though permits for future home construction fell, that followed a surge in April, which hoisted them above the 1 million-unit mark. The pullback last month reflected a drop in the volatile multi-family sector, but permits for single-family construction touched their highest level in five years.

The Commerce Department said on Tuesday housing starts rose 6.8 percent to a seasonally adjusted annual rate of 914,000 units. April’s starts were revised up to show a 856,000-unit pace instead of the previously reported 853,000 units.

Economists polled by Reuters had expected groundbreaking to rise to a 950,000-unit rate last month.

Builders, who are ramping up construction to meet demand for housing against the backdrop very low inventory, have been complaining about labor shortages and increased material costs.

Sentiment among single-family home builders hit a seven-year high in June, a report showed on Monday, amid optimism over current and future home sales.

Lean inventories are pushing up home prices, which are in turn boosting consumer confidence and spurring consumption, helping soften the blow on the economy from tighter fiscal policy and slowing global demand….”

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“WASHINGTON (Reuters) – President Barack Obama hinted in an interview aired on Monday that he may be looking for a new chief of the U.S. Federal Reserve Bank, saying Ben Bernanke has stayed a lot longer than the current chairman had originally planned.

Obama, speaking to Charlie Rose, host of a PBS interview program, compared Bernanke to longtime FBI Director Robert Mueller, who agreed to stay two years longer than he had planned and is to leave in the coming months.

“Well, I think Ben Bernanke’s done an outstanding job. Ben Bernanke’s a little bit like Bob Mueller, the head of the FBI – where he’s already stayed a lot longer than he wanted or he was supposed to,” Obama said.

Asked whether he would reappoint Bernanke if he wanted to keep the job, Obama did not answer directly.

“He has been an outstanding partner, along with the White House, in helping us recover much stronger than, for example, our European partners, from what could have been an economic crisis of epic proportions,” Obama said.

Bernanke, who has tried to nurse along the ailing U.S. economy through the 2008 financial crisis, is widely expected to step down when his second term as chairman expires at the end of January.

Expanding on Obama’s remarks, a White House official said Obama’s remarks were reflecting his admiration for the length and depth of Bernanke’s commitment to serve as Fed chair in a difficult period and at a significant personal sacrifice….”

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“WASHINGTON (AP) — U.S. consumer prices rose slightly in May as higher energy costs were partly offset by cheaper food. The small increase comes after two straight declines, underscoring that American consumers are benefiting from mild inflation.

The consumer price index ticked up a seasonally adjusted 0.1 percent last month, only the second increase in seven months, the Labor Department said Tuesday. Consumer prices fell 0.4 percent in April, the largest decline in four years. In the past 12 months, prices have increased just 1.4 percent. That’s up from a 1.1 percent annual pace in April, which was the smallest in 2 ½ years.

Slow economic growth and high unemployment have kept wages from rising quickly. That’s made it harder for retailers and other firms to raise prices.

Still, tame inflation has helped consumers increase spending this year, despite slow income growth and higher Social Security taxes. It also makes it easier for the Federal Reserve to continue its extraordinary efforts to boost the economy.

And while inflation is low, economists say it isn’t low enough to alarm Fed policymakers. Tuesday’s report “won’t prevent the Fed from beginning to reduce its monthly asset purchases, probably beginning in September,” said Paul Ashworth, an economist at Capital Economics….”

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