US faces de-industrialization, joblessness

A serious warning that all is not well has come in the form of Friday s historic downgrade of its “AAA” credit rating by Standard & Poor, which was followed Monday by plunging global stock prices.

President Barack Obama said he heard the warning. “Our problems are imminently solvable. And we know what we have to do to solve them,” he said Monday, referring to the need to rein in massive US budget deficits.

He stressed his confidence in the US economy: “We continue to have the best universities, some of the most productive workers, the most innovative companies, the most adventurous entrepreneurs on Earth,” he said.
This patriotic statement, however, obscures some less pleasant details.

If, as Obama believes, investors around the globe still give the United States a “AAA” rating, the country must first retain its uncontested currency supremacy.
Supported by a domestic financial sector and the confidence of foreign central banks, the status of the dollar is virtually intact.

“The US economy has its own problems, that we highlighted with the downgrade,” said John Chambers, S&P s managing director and head of its sovereign ratings committee.

But he added that “the dollar will remain the key international reserve currency under any plausible scenario.”
Judging by its value, though, the dollar may be losing its luster. The International Monetary Fund (IMF) said in its annual report on the US economy in July that the dollar is now at its lowest level in decades against the currencies of major trading partners.

One problem the United States faces is a loss of competitiveness, something Americans encounter every day as the vast majority of the products they consume bear the words, “Made in China.”
“They re really starting to worry that America has lost its competitive edge. Jobs are going overseas,” said New York City Mayor Michael Bloomberg.

According to the World Trade Organization, the US share of world exports for goods fell by 12.1 percent in 2000 to 8.4 percent in 2010. More than 10,000 factories have closed in the United States since 2003, the trade publication “Plant Closing News” reports.

The loss of manufacturing jobs, in turn, has helped open growing income gaps between college graduates and unskilled workers, between regions and between ethnic groups.

To be sure, the US economy is still the queen of the service sector, and of finance in particular.
In an interview with The New Republic in February, US Treasury Secretary Timothy Geithner said he had no enthusiasm for

“trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world.”

IMF chief economist Simon Johnson called this a fundamental error. “It is a deeply disturbing vision, one that amounts to a huge, uninformed gamble with the future of the American economy,” he said, recalling the trials of Iceland and Ireland in their financial globalization.

Increasing the finance sector s influence is a way to mask an economy of debt, a main product of banks, say certain economists. And the financial crisis showed that credit can be harmful.

In the United States “you have a big private debt overhang, in this case households,” said economist Carmen Reinhart Saturday on the Bloomberg TV channel.

Asked what that means for the future, she said “stubborn unemployment issues” and “growth that is not on par with other recoveries.”

Pound hits 15-month high vs dollar

LONDON: Sterling hit a 15-month high against a weak dollar on Friday, but fell versus the euro as investors braced for a quicker pace of tightening by the European Central Bank than by the Bank of England.

Sterling hit a high of $1.6430 after data showed producer prices rose faster than expected in March. By mid-afternoon it was up 0.4 percent on the day at $1.6387.

The pound has risen more than 5 percent against the struggling greenback this year, and Friday’s peak was the highest since January 2010.

With the greenback under strong downward pressure — the dollar index .DXY is at its lowest since December 2009 — analysts said a 16-month high of $1.6459 was a possible target for sterling.

Producer output prices rose 5.4 percent in March, confounding forecasts for a slowdown to an annual increase of 5.

The data may add to pressure on the Bank to hike rates sooner rather than later, after it left them at a record-low 0.5 percent on Thursday.

“We had a higher-than-expected number. That’s a bit of a hawkish signal for the Bank and would possibly make a May rate hike next month slightly more likely,” said Tom Levinson, currency strategist at ING.

“If we can secure a close above $1.6400 the outlook is pretty bullish for sterling going forward.”

Investors are now fully pricing in a 25 basis point hike in August with a better than a 50 percent chance being priced in for May.

The dollar was under broad pressure on the back of a potential U.S. government shutdown.

The euro rose to a 15-month high against the dollar, staying well-supported in the wake of a euro zone rate hike.

Traders also said rumoured option barriers for sterling at $1.6400 were hit earlier in the session with Asian central banks and Middle-East buyers lining up bids at $1.63. A UK clearer was also seen buying sterling and selling the yen.

Sterling pared some of its losses against the euro after the inflation numbers, but eased back again and was last down 0.6 percent on the day at 88.10 pence.

Markets are close to pricing in a further rate hike in the ECB’s main refinancing rate in June and it is more than fully priced by July. The ECB raised rates on Thursday by 25 basis points to 1.25 percent and signalled there was more tightening to come. AGENCIES

Asian stock markets rise after Fed’s stimulus plan

Asian stock markets climbed Friday as investors took heart from the Federal Reserve’s plan to buy $600 billion in government bonds in an effort to inject life into the faltering US economy.

Japan’s benchmark Nikkei 225 stock index jumped 204.94 points, or 2.2 percent, to 9,364.92 despite pressure on exporters as the dollar fell below the 81 yen level.

South Korea’s Kospi added 0.3 percent to 1,942.08 and Australia’s S&P/ASX 200 was up 0.4 percent at 4,815.00. Hong Kong’s Hang Seng index climbed 0.9 percent to 24,363.54. China’s Shanghai Composite Index rose 0.6 percent to 3,047.78.

Elsewhere, markets in Malaysia, Singapore and Taiwan advanced while New Zealand’s index fell.

Asian stock markets rise after Fed’s stimulus plan

Asian stock markets climbed Friday as investors took heart from the Federal Reserve’s plan to buy $600 billion in government bonds in an effort to inject life into the faltering US economy.
Japan’s benchmark Nikkei 225 stock index jumped 204.94 points, or 2.2 percent, to 9,364.92 despite pressure on exporters as the dollar fell below the 81 yen level.
South Korea’s Kospi added 0.3 percent to 1,942.08 and Australia’s S&P/ASX 200 was up 0.4 percent at 4,815.00. Hong Kong’s Hang Seng index climbed 0.9 percent to 24,363.54. China’s Shanghai Composite Index rose 0.6 percent to 3,047.78.
Elsewhere, markets in Malaysia, Singapore and Taiwan advanced while New Zealand’s index fell.

G20 vows to reduce imbalances, avoids hard targets

GYEONGJU: The Group of 20 advanced and emerging economies agreed on Saturday to move towards market-determined exchange rates and to pursue the full range of policies needed to reduce excessive external imbalances.

A statement issued after two days of talks contained no numerical targets for current account surpluses or deficits, an idea advocated by the United States.

Instead, the group said that persistently large imbalances to be assessed against indicative guidelines yet to be agreed, would warrant an assessment by the International Monetary Fund.

In a nod to the concern of China and others that lax U.S. policies risk undermining the dollar, the communique said advanced economies would be vigilant against excess volatility and disorderly movements in exchange rates.

The G20 also agreed to a doubling of IMF quotas, or membership subscriptions, as

Most Asian Markets end lower

Most Asian stocks retreated on Tuesday as the already battered Japanese exporters stocks were pressured by a strong yen, but Chinese markets rallied aided by automakers and commodities plays.
Yuan slipped against the dollar as the People’s Bank of China fixed a weaker mid-point, with a rebound in the US dollar taking some steam out of the recently appreciating yuan.
Japans Nikkei, which opened after a three day holiday weekend, slumped 2.1%, Australias ASX plunged 1.6%, Hong Kongs Hang Seng slipped 0.4% and Indias Sensex lost 0.7%. However, Chinas Shanghai Composite jumped 1.2%.

Asian markets end mixed

Asian stock markets mostly posted modest gains Tuesday with Japan’s benchmark jumping 1.5 percent during an otherwise lackluster session in Asia.
Tokyo’s Nikkei 225 stock average rose out of negative territory after the Bank of Japan cut its key interest rate to a range of zero to 0.1 percent. The index closed up 137.70 points, or 1.5 percent, at 9,518.76.
Hong Kong’s Hang Seng index added 0.1 percent to 22,639.14 and South Korea’s Kospi was fractionally lower at 1,878.94. Australia’s S&P/ASX 200 shed 0.4 percent to 4,606.90, reducing losses after the country’s central bank left its main interest rate unchanged.
In currencies, the dollar fell to 83.32 yen from 83.59 yen late Monday in New York. The euro rose to $1.3777 from $1.3665.

Bank of Japan dumps Yen

Bank of Japan dumps Yen in first intervention in six years. Japan’s central bank sold its own currency to stem its rapid rise against the U.S. dollar. It is the first such market intervention in six years pushed the dollar up sharply.
Rising value of yen was hurting the profit of Japanese companies; a strong yen hurts Japanese exports at a time when its economic recovery is stalling. Japan has in the past guarded its competitiveness by intervening in the currency market. Asian stock markets jumped after the news of intervention.
The Nikkei average jumped almost three percent on the news, with shares of large exporters Sony, Kyocera and Toyota rising.
The Bank of Japan did not reveal how many dollars the bank bought, but said it will continue to pump ample liquidity into the financial market.

Asian stocks tumble as dollar hits new 15-year low

HONG KONG: Asian stocks tumbled on Wednesday after Wall Street was spooked by fresh concerns over European banks while Japan’s exporters fell as the dollar slipped to another 15-year low against the yen.

Tokyo plunged 2.18%, or 201.40, to 9,024.60 as the yen hit 83.33 to the dollar.

Sydney shed 0.79%, or 36 points, to close at 4,537.2 and Shanghai slipped 0.64%. Hong Kong fell 1.43% by the break.

Stocks took their cue from a 1.03% fall on the Dow in New York, where investors returned from the Labor Day holiday to reports that Europe’s banks may not be as strong as first thought.

The Wall Street Journal reported on Tuesday that stress tests in July to measure the strength of Europe’s banks showed they held more potentially risky government debt than believed.

The results of the tests showed that all but seven of 91 lenders were strong enough

Oil rises to near $79, gains 4.35 percent in July

NEW YORK: U.S. crude oil futures turned positive to end the month higher on Friday, shrugging off earlier concerns about the pace of economic growth amid mixed data and lifted by a late rally in refined products futures as August contracts expired.

Front-month crude futures prices ended July up $3.29 or 4.35 percent from the end of June, though for the week the ended six cents or 0.07 percent lower.

U.S. crude for September delivery rose 59 cents to settle at $78.95 a barrel, trading from $76.83 to $79.05.

ICE Brent also rose 59 cents to settle at $78.18 a barrel, having traded from $76.20 to $78.31.

Crude futures slumped early on Friday after data showed economic growth in the United States slowed in the second quarter.

Gross domestic product expanded at a 2.4 percent annual rate, just under expectations, after a revised 3.7 percent growth pace in the first quarter.

U.S. consumer sentiment slumped in July to the lowest level since November also provided pressure on oil, although there was a slim improvement in late July from early July, according to a survey of consumers.

Also supportive was a report of positive business activity in the U.S. Midwest and another showing a leading indicator index that was stronger helped pull oil prices off their lows.

“While today”s seemingly disappointing GDP report slapped the market down toward yesterday”s lows early…, the complex was again able to rebound … with the help of improved consumer confidence figures as well as an optimistic report regarding Chicago business activity,” said Jim Ritterbusch, president at Ritterbusch Associates in Galena, Illinois.

Sources said end-of-month trading was also a factor in the volatility and that crude prices also gained momentum after an early slump failed to move below the 50-day moving average and support around $76.50 a barrel.

Signs of tepid economic recovery and oil demand growth, along with the rising oil inventories have helped keep oil prices in check as they recovered from a low under $65 in late May.

U.S. stock indexes ended mixed, but the SP 500 index, closely watched by oil traders, closed higher as stocks wrapped up their best month in a year as strong corporate earnings results offset the impact of poor economic data.

While the euro weakened against the dollar, the greenback hit multi-month lows against the Japanese yen and the dollar index also weakened.

A weak dollar often supports prices for dollar-denominated oil, making it cheaper for buyers using other currencies and lowering the value of the dollars producers receive.

Also supportive to oil were two tropical weather systems in the Atlantic Basin, still being given low chances of strengthening into tropical depressions over the next 48 hours by the U.S. National Hurricane Center.

“There is always a reluctance to be too short and then come back after the weekend and there is a real storm threat,” said Phil Flynn, analyst at PFGBest Research in Chicago.

Next week, along with the key U.S. July non-farm payrolls report on Friday, traders will be eyeing U.S. oil inventory reports for impact of the supply disruptions caused by Tropical Storm Bonnie.

Wednesday”s report from the U.S. Energy Information Administration showed crude stocks soared unexpectedly last week.

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