08/08/2010
Citigroup: G20 doesn’t approve Japan’s intervention
Analysts at Citigroup Inc believe that Japan’s monetary authorities will face many problems trying to act at the currency markets. According to the specialists, Japanese difficulties will be connected with the unwillingness of G-20 countries to conduct currency manipulation.
Citigroup strategists note that although it’s widely thought that there will be an intervention when yen extends to 85 yen per dollar, the process would be very hard. The analysts underline that 14 major currencies are stronger versus the greenback than yen since June 30. As a result, Japan needs support from G-20 nations and the latter are against currency intervention.
Yen rose by 3% versus all 16 of its main competitors since the beginning of 2010 as investors increased their demand for the currency as for safer asset. The last intervention was held by the Bank of Japan on March 16, 2004.
Banks raised medium-term EUR/USD forecast
The recent advance of the single currency from the levels below $1.19 at the beginning of June to the ones above $1.30 by the end of July made the analysts at the world’s largest banks revise upwards their forecasts for the pair EUR/USD.
Strategists at UBS AG increased their next month estimate of euro’s rate be 6% from $1.20 to $1.28.
Specialists at Credit Suisse announced in late July that European currency will trade at $1.30 in 3 months and not at $1.16 as they expected before.
BNP Paribas SA economists that used to be the most bearish say now that euro will depreciate versus the greenback but to $1.10 rather than to $0.97.
All in all, the banks note that the credibility of the euro zone has significantly improved in comparison of what was in April and May and underline that euro’s summer growth turned out to be surprising for many investors.
Barclays' profit rose by 29%
Barclays Plc, Britain’s third-largest bank, announced today that its profit increased by 29% in the first half of 2010 in comparison with the previous year's level. The report showed that Barclays’ net income advanced from 1.89 billion pounds in the first two 2009 quarters to 2.43 billion pounds ($3.9 billion).
At the same time, economists surveyed by Bloomberg were looking forward to 2.26 billion- pound figure. The surge may be explained, according to the bank specialists, because the amount of provisions for bad loans reduced.
SNB currency reserves fell again in July
The Swiss National Bank’s currency holdings declined in July falling during the second consecutive month. It happened as the central bank showed intention to hold up buying foreign currencies in order to limit franc’s appreciation.
The SNB’s currency reserves were down from 224.9 billion in June 219.3 billion francs ($208.5 billion) according to the data released today. The maximal level was recorded at 238.8 billion francs in May.
Switzerland’s central bank revealed its decision to stop its currency purchases on June 17. SNB President Philipp Hildebrand noted that raising reserves leads to higher currency risk.
Swiss currency reached record maximum versus the single currency at 1.3074 on July 1 and then lost 4%.
Societe Generale: negative outlook for European economy
French bank Societe Generale whose quarterly profits have recently tripled keeps giving negative comments on the European economic recovery.
Although the bank specialists agree that double-dip recession in Europe isn’t likely, they are sure that austerity measures and progressive removal of fiscal stimulus will continue affecting the region’s economy and its banking sector.
Societe Generale analysts claim that households and small companies begin to sense the discouraging impact of budget cuts. In the next quarter provisions for bad loans will start to grow that will make lenders’ profits diminish. The bank regards Romania and Greece where the cost of risk insurance rose during the second quarter as the problem countries.
Faros Trading: Asian central banks will reduce demand for US dollars
Specialists at Faros Trading LLC believe that the greenback will lose versus European and British currencies as Asian central banks will decrease dollar share in their foreign-exchange reserves following the example of China that is the largest dollar holder outside of the United States.
US dollar declined in July by 5.1% against euro and by 4.3% versus sterling making the region’s central banks worry.
Faros Trading strategists note that Asian central banks used to buy dollars in order to prevent appreciation of their national currencies aiming to support exports and to sell US currency versus European ones to diversify their reserves.
Chinese Premier Wen Jiabao claimed that the principal investment area for the country is Europe. In addition, in May China bought 735.2 billion yen ($8.3 billion) of Japanese bonds. As a result, the amount of US Treasuries held by China fell $900.2 billion in April to $867.7 billion at the end of May.
FX Concepts: euro’s advance will stop in September
Economists at FX Concepts LLC, hedge fund managing $8 billion in assets, claim that soon investors will need to get rid of the single currency.
The specialists project that euro’s climbing by 9.7% from its 4-year minimum hit June 7 will be over in September. Such forecast may be explained by the fact that the negative impact of austerity measures conducted by euro zone countries will begin to show up affecting the region’s economic growth.
According to data released last week Spanish consumer confidence dropped to the minimal level of the year. In addition, European banks are tightening credit standards that seems to be a bad sign for the area’s economic recovery. Survey of 21 money managers performed by ICAP Inc. demonstrated that the majority of interviewees don’t expect euro to gain during the next 3 months.
Analysts bet on euro’s decline by the end of 2010
Strategists at UBS AG in Singapore aren’t sure that the recent advance of the single currency is sustainable. The economists lowered their forecast for the euro zone’s 2010 economic growth from 2% to 1.5% and expect that euro will fall to $1.15 be the end of 2010 affected by the strong downward pressure.
According to the Deutsche Bank’s estimate, Spain, Portugal and Greece will reduce spending by an average 4.3% of GDP from 2009 to 2011.
Strategists at TD Securities Inc. in Toronto regard the fiscal challenges in front of Europe as very difficult creating the need for weaker euro. In their view, be the end of the year the common currency will drop to $1.08.
Economists at A. Gary Shilling & Co. in New Jersey keep repeating since January that euro may decline to the parity with the greenback. In their opinion, the probability of defaults and restructuring in Greece, Portugal and Spain is still high.
Stiglitz claimed that US recovery is “anemic”
Joseph Stiglitz, the winner of Nobel Prize in economics, considers US economic recovery to be “anemic” and calls for another, better thought-out series of stimulus measures.
The second round of stimulus program should be devoted mainly to returns on investment, education, infrastructure and technology. Stiglitz believes that such investments will help to reduce the long-term national debt and increase future growth and says that risky actions of Obama administration don’t bring the expected outcome.
According to the famous economist, the rebound of American economy is so weak that it isn’t able even to create new jobs for those who enter the labor market citing that there are 15 million unemployed Americans.
The Labor Department data released yesterday showed that initial jobless claims had the biggest since April 19,000 gain and rose to 479,000 in the week ended July 31.
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