Friday, February 29, 2008

Citibank buying Australaia Dollars and Targeting $1 against the Us Dollar

Citibank buying Australaia Dollars and Targeting $1 against the Us Dollar
Citibank was out recommending buying AUDUSD yesterday for a move to 1,00 – Citibank keep a stop loss at 0,9285 as that will signal a end of the current move up but believe that the trade should do well mainly because the commodity markets are powering ahead and on continued USD weakness. AUDUSD is currently trading at 0,9475.

Nationwide reports 0.5% fall in house prices

Nationwide reports 0.5% fall in house prices
By Delphine Strauss
Published: February 29 2008 08:06 Last updated: February 29 2008 09:35

House prices fell for a fourth consecutive month in February despite a further cut in interest rates, taking the annual rate of house price inflation down to its lowest in two years, a survey showed on Friday. Nationwide, the mortgage lender, said house prices fell 0.5 per cent this month, lower than expected, and revised down its estimate of prices in January, taking the annual growth rate from 4.2 per cent in January to a two-year low of 2.7 per cent.

Fionnuala Earley, Nationwide’s chief economist, said the drop in annual growth could overstate the pace of cooling since it partly reflected a surge in prices in February 2007. However, prices on Nationwide’s index have now dropped 1 per cent in the last three months compared with the previous three months. Continued weakness in house prices comes as little surprise, given continued worries over credit conditions, housing affordability and a slowing economy. Recent data suggest that numbers of mortgage approvals and enquiries from new buyers remain well below levels at the start of last autumn. “It seems clear that we will not see recent rates of growth, in either the UK economy or housing market, repeated for some time,” Ms Earley said. But she noted that, unlike the situation in the US, stocks of property on UK surveyors’ books were not yet “at levels that have been consistent with systematic falls in prices in the past”.
The downbeat tone of the Nationwide report sent the euro to its highest level against the pound. Expectations of further interest rate cuts from the Bank of England helped the euro rise to Euro Pounds £0.7648 compared to £0.759 on Thursday
Nationwide is forecasting house prices will remain flat over the whole of 2008, while many economists are predicting year-on-year price falls. Kate Barker, the monetary policy committee member, recently said prices were likely to decline in the short term relative to earnings, while falls in nominal terms could not be ruled out. The weak outlook for house prices did not stop the property company Rightmove being bullish on growth prospects. The website owner argued online advertising was the most cost-effective way for estate agents to reach potential buyers in a tougher market. The number of advertisers on its site had grown by 18 per cent last year, contributing to a 77 per cent rise in pretax profits to £31.4m, Rightmove said.

The Dollar's Decline Continues To Break Records, Next Fed Cut Looking Deeper And Deeper

The dollar can’t seem to catch a break. The beleaguered currency marked yet another momentous drop against most of its liquid counterparts, chalking up its biggest three day sell off in four years. And, leading that charge was the EURO vs US Dollar, which marked a fresh record high for the third consecutive session. Feeding the insatiable desire to sell dollars was yet another round of scheduled and unscheduled disappointing fundamentals. Federal Reserve Chairman Ben Bernanke’s testimony before the House today more or less covered the same dour highlights from yesterday’s delivery to the Senate. The few notable differences between the two speeches came from the Q&A. In response to one particular question, the central banker suggested that it would be “fair” to suggest it is tougher for the Fed to respond now than it was during the last recession back in 2001. This may have been taken to mean by some that the economy is heading for another recession; but what Bernanke was actually referring to was the unwanted mix of quickly receding economic growth and the elevated level of front-line inflation. While Bernanke continued to talk up the struggling greenback, the market was also absorbing disappointing readings from the fourth quarter GDP revisions and a round of second tier employment numbers. Annualized growth shirked forecasts for annualized expansion to accelerate slightly by holding at its five-year low 0.6 percent clip. Noteworthy shifts from the sector breakdown were downward revisions to personal consumption, business investment, commercial construction and government spending.

British Pound Can't Find Its Footing As Confidence Drops To 13-Year Lows

The British pound remains one of the few currencies that hasn’t taken full advantage of the US dollar’s plunge. Following up on yesterday’s disappointing revision in fourth quarter private consumption, the GfK Consumer Confidence survey for February crossed the wires with a sharper-than-expected drop. This indicator was initially scheduled for release on Friday, which added to the surprise of a -17 reading that was the most pessimistic the report has read in 13 years. Sinking confidence in Brit’s outlook for growth and their own financial position isn’t surprising considering the worsening housing slump and steadily rising prices that have eaten into discretionary spending.

The cost of buying Euros continues to rise

The cost of buying Euros continues to rise

The Euro extended its rally against the dollar to another record high after poor jobs data and a repeat performance by the Feds Bernanke, who did little to offer any support to the dollar. The Euro gained a full 1 per cent against the greenback to hit an all time high of $1.5231. This is the third straight session in which the Euro has gained to record highs. We have seen good data posted by Germany this morning as Retail Sales rose higher than expected in January. Retail sales rose 1.6% on the month. Be aware today, as its Friday under after the rise of the Euro, it may be under some pressure from the dollar and yen as a bit of profit taking may come into play before the weekend.
29 February 2008 10:17:36

Pound is now at a record low against the Euro

Pound is now at a record low against the Euro

The pound continued to fall against the single currency as the flow of data which came out yesterday continued to be in the euros' favour. UK house prices fell by –0.5% in February, while the annual gain was the lowest since November 2005, according to the Nationwide Building Society. Investors will be watching closely the consumer lending figures which are due out at 10.30am today which are expected to show that mortgage approvals have slipped further in January. The pound is now at a record low against the Euro as the rate has hit 1.3068.

Third day of heavy losses for the US Dollar

The dollar plummeted to record lows and shares tumbled yesterday after Ben Bernanke, the Fed Chairman, spooked markets with a prediction of US bank failures and fresh warnings over a grim outlook for America’s economy. In its third day of heavy losses, the embattled dollar slumped across the board on foreign exchanges after Mr Bernanke gave what economist said was a “green light” to markets to step up their assault on the US dollar. The Fed Chairman did offer some positive comments , that most banks will bounce back from their mortgage troubles, that inflation should ease and that the US is nowhere near the stagflation scenario of the 1970’s. At present it doesn’t seem that those comments will be enough to halt the dollars slide. The dollar lost over 1 per cent against the Euro as it hit $1.5231, against the pound the dollar fell half a percent to hit $1.99.

Thursday, February 28, 2008

South African Rand seen trading sub 15.00 still

The South African Rand is trading at 14.80 and is a little firm benefiting from a weaker Pound and US Dollar. Todays US data could be the key for the Rand and support seen at 14.50

Aussie Dollar goes from strength to strength

The Australian dollar has continued to strengthen against a basket of currencies as its booming economy and housing market continues to excel. Against the pound vs dollar has gained over 2 cents. Investors are calling for an interest rate rise next month, and one more maybe in May.

Cost of buying Euros is now at at a record high

The euro hit record highs against the dollar yesterday as the $1.51 level was breached in afternoon trade. This was on the back of the US Fed’s Chairman indicated more interest rates cuts were on their way in the US. The euro climbed as high as $1.5143 after comments named worries on economic growth outweighed inflation concerns. Also, investors are getting a sense from European Central Bank officials that they don’t mind a stronger euro and may be encouraging it in the face of higher inflation rates. The single currency also gained over 1 per cent against sterling as the 0.76 level was breached, currently trading at 0.7621.

UK Economy is in the grip of a sharp downturn

Data released yesterday has compounded the view that the UK is already in the grip of a sharp downturn as figures show consumer spending has dropped to a two-year low. The UK’s exports also fell by 0.5% in Q4, although the GDP figures confirmed that overall growth in Q4 was a robust 0.6%, inline with initial estimates. The pound had a poor day yesterday as it slipped of slightly against the dollar, after taking almost 2 cents of the greenback on previous days trading, dropping over 1 cent to be trading at $1.9801. Against the euro the pound also lost ground and lost one and a half cents, from 1.3262 to 1.31 the figure.

Dollar continues to fall due to sagging economy

Dollar continues to fall due to sagging economy

The dollar continued it’s one way path yesterday as the greenback broke through record lows against the euro. The Fed’s Chairman ‘Ben Bernanke’ reported on Monterey Policy yesterday and indicated the Fed is more concerned about the sagging economy than the immediate risk of inflation. He named housing, labor and credit markets as risks to economic growth, outstripping inflation concerns. That suggests policy makers remain on track to ease interest rates again next month. The dollar dropped to as low as $1.5143 before falling back to the $1.51 level. The dollar was also within touching distance of the $2 mark against sterling. Durable goods also fell last month confounding the dollars woes.

Expats be warned - Nothing seams to be slowing traders from Buying Euros

We are always skeptical of the ability of the market to sustain a big move like this—of course we will see a correction on profit-taking and second thoughts. But breakouts are important and must be respected, especially when they are in the same direction as the primary trend and in the absence of any convincing counter-trend Events. There is literally nothing Bernanke can say today to reverse this move. Euro Pound was trading 0.7600 and against the US Dollar 1.5140

Wednesday, February 27, 2008

Dollar Falls to Record Against Euro on Fed Rate-Cut Speculation

Dollar Falls to Record Against Euro on Fed Rate-Cut Speculation
By Kim-Mai Cutler and Ye Xie
Feb. 27 (Bloomberg) -- The dollar weakened below $1.50 per euro for the first time on speculation Federal Reserve Chairman Ben S. Bernanke will indicate the U.S. central bank is ready to cut interest rates from a three-year low. The dollar also dropped after German business confidence unexpectedly strengthened for a second month in February, prompting traders to reduce bets the European Central Bank will cut rates. The currency fell to an all-time low against the Swiss franc and to a 23-year low versus the New Zealand dollar.
``We're in a new regime for the dollar,'' said Bilal Hafeez, London-based global head of currency strategy at Deutsche Bank AG, the world's biggest foreign-exchange trader. ``The proximate cause has been European data, which has indicated that Europe hasn't suffered on the growth side as the U.S. has.''
The dollar touched $1.5088 per euro, the weakest since the European currency's debut in January 1999, before trading at $1.5052 as of 8:34 a.m. in New York, from $1.4974 yesterday. It fell to 106.32 yen from 107.28 yen, coming within 1.2 percent of a 2 1/2-year low reached in January, and dropped as low as 1.0665 francs, from 1.0756. The euro fell to 159.99 yen from 160.67. The dollar may fall to $1.55 per euro by the end of March, Hafeez predicted.
Europe's single currency remained higher against the dollar after ECB policy maker Axel Weber said investors betting on rate cuts in the region are underestimating inflation.
Bernanke will deliver his semi-annual testimony to the House Financial Services Committee at 10 a.m. in Washington. He will appear before the Senate Banking Committee tomorrow.
Rate Differentials
The New Zealand dollar rose to 82.13 U.S. cents from 81.71 cents on speculation the interest-rate differential will widen in favor of assets outside of the U.S. The Australian dollar climbed to 93.92 U.S. cents, from 93.38, reaching the strongest since November's 23-year high. New Zealand's key interest rate is 5.25 percentage points higher than the Fed's 3 percent rate. Australia's is 4 percentage points more.
A Fed trade-weighted index of the dollar against major currencies has fallen about 11 percent in the past year. The U.S. Dollar Index traded on ICE Futures in York, which tracks the currency against six major counterparts, dropped to 74.23 today, the lowest since the gauge started in 1973.
The currency also dropped to an all-time low of $1.5088 against the synthetic euro, a theoretical value that estimates the European currency's price as far back as January 1989, when Bloomberg's data on the series begin. Contrast With ECB The dollar extended losses after a government report showed orders for U.S. durable goods fell last month. Orders dropped 5.3 percent, following an increase of 4.4 percent the previous month, the Commerce Department said. The median forecast in a Bloomberg News survey was for a decline of 4 percent.
The U.S. currency has 12 percent versus the euro in the past year. It has weakened against all but one of the 16 most- active currencies as subprime-mortgage losses, the worst housing slump in 25 years and soaring credit costs spurred the Fed to cut rates five times since Sept. 18.
By contrast, the ECB has held its main lending rate at a six-year high of 4 percent since June to counter inflation pressures from surging food and oil prices. Traders increased wagers on rate cuts after ECB President Jean-Claude Trichet on Feb. 7 dropped a threat to raise borrowing costs and said uncertainty about economic growth is ``unusually high.'' Underestimating Inflation ``The consensus expectation for interest rates on the market at the moment clearly underestimates, in my opinion, the inflation risks,'' Weber said today, according to the text of a speech in Bonn. ``In 2009, inflation will not slow as markedly as supposed in the December projections, which were based on lower oil prices.'' The slump in the dollar helped push oil prices to a record above $102 today and increased the cost of buying wheat, sugar, copper, cotton, cocoa and precious metals. ``We're talking about a vicious cycle if you look at price increases in commodities,'' said Stephen Jen, Morgan Stanley's global currency economist in London. ``The dollar weakens first, then food and oil prices rise, which complicates policy-making. At this point, the dollar is hurting itself.'' All of the 10 most-active currencies in Asia outside Japan gained against the U.S. currency today. Thailand's baht advanced to the highest since August 1997 as the central bank kept its benchmark rate unchanged at 3.25 percent for a fifth straight meeting. The currency rose 0.1 percent to 30.09 per dollar. Indonesia's rupiah rose 0.3 percent against the dollar dollar and the Singapore dollar touched an 11-year high of S$1.3964. The Chinese yuan advanced 0.2 percent to 7.1420.
BOA Forecast The currency will continue to trade below $1.50 for the next few weeks, Robert Sinche, head of global currency strategy at Bank of America N.A. in New York, wrote in a research note dated today. ``It's crunch time for the dollar,'' said Yuji Saito, head of foreign-exchange sales in Tokyo at Societe Generale SA, a unit of France's second-largest bank by market value. ``Bernanke may know that monetary policy alone cannot support the slowing U.S. economy.'' New home sales dropped 0.7 percent to an annual pace of 600,000 last month, the lowest level in almost 13 years, according to median forecast in a Bloomberg News survey. The Commerce Department's report is due at 10 a.m. in Washington.
The dollar will rebound to $1.48 per euro by the end of March, according to the median forecast in a Bloomberg survey of 41 analysts. Merrill Lynch & Co., the third-biggest U.S. securities firm, is the most bearish, predicting it will fall to $1.57 per euro by the end of March.
March Cut Futures on the Chicago Board of Trade show traders see a 100 percent chance the U.S. central bank will reduce the 3 percent target rate for overnight lending between banks by at least 50 basis points at their March 18 meeting, and an 8 percent likelihood of a cut to 2.25 percent. The euro also gained as a government report showed import prices in Germany, an early indicator of inflation pressure in the region's biggest economy, rose the most in 16 months in January. The single currency got a boost yesterday after the Munich- based Ifo institute said its business climate index rose to 104.1 from 103.4 in January, exceeding the 102.9 median estimate in a Bloomberg News survey and leading traders to pare bets the ECB will lower rates.
``Yesterday U.S. consumer confidence came out at a level that implies further rate easing from the Federal Reserve while German confidence data was considerably higher than market expectations,'' said Manuel Oliveri, a currency strategist at UBS AG in Zurich.

EURUSD sets new high as ECB's Wellink says European economy can function with strong euro.

EURUSD sets new high as ECB's Wellink says European economy can function with strong euro.

Durable-Goods Orders in U.S. Fell More Than Forecast

Durable-Goods Orders in U.S. Fell More Than Forecast
By Bob Willis
Feb. 27 (Bloomberg) -- Orders for U.S. durable goods fell more than forecast in January as a slowing economy prompted companies to reduce spending. The 5.3 percent decrease in bookings for goods meant to last several years followed a revised 4.4 percent gain in December that was smaller than previously reported, the Commerce Department said today in Washington. Excluding transportation, demand dropped 1.6 percent, the third decline in four months.
Companies have put investment plans on hold as consumers rein in spending in the face of the biggest housing slump in a quarter century and near-record fuel costs. Federal Reserve Chairman Ben S. Bernanke, testifying before Congress today, may reiterate that policy makers are ready to keep lowering rates in a bid to avert a recession.
``Capital spending is going to slow and is probably going to decline a little bit in the first half'' of the year, said Nigel Gault, director of U.S. research at Global Insight Inc., a Lexington, Massachusetts, forecasting firm. ``If businesses see their markets and profits growing more slowly, they are going to be more cautious about spending.''
Economists forecast durable goods orders would fall 4 percent, according to the median of 72 estimates in a Bloomberg News survey. Projections ranged from declines of 0.5 percent to 7 percent.
The median forecast for bookings excluding transportation equipment called for a 1.4 percent decrease, with estimates ranging from no change to a 2.8 percent drop.
Treasury notes extended gains after the report and the dollar remained lower against the euro.
Manufacturing Downturn Other factory surveys in recent weeks have shown weakness. The Fed Bank of Philadelphia's index of business activity for February fell to the lowest level in seven years, while a New York Fed survey showed manufacturing in the region contracted for the first time in almost three years. Economists surveyed by Bloomberg in the first week of February forecast economic growth would slow to a 0.5 percent annual pace in the first quarter and said the odds of a recession occurring this year were about even.
The decline in orders was led by less demand for computers, communications equipment and aircraft. Guide to Investment Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, declined 1.4 percent, the most since October. Shipments of those items, used in calculating gross domestic product, rose 0.1 percent after a 1.7 percent gain.
Orders excluding defense equipment decreased 4.7 percent and bookings for military gear fell 20 percent. Demand for transportation equipment decreased 13 percent, the most since October 2006, as aircraft orders dropped 31 percent. Demand for automobiles fell 0.8 percent.
Chicago-based Boeing Co., the world's second-biggest airplane maker, said it received 65 aircraft orders in January, down from 287 the previous month. Twenty-one of the orders were from overseas and the origin of the rest wasn't identified.
Ford Motor Co., Chrysler LLC and most Asian automakers said U.S. sales fell in January, setting the industry on a course for its third straight year of decline, figures earlier this month showed.
The auto industry's annualized sales rate for January fell to 15.2 million cars and light trucks from 16.3 million in December. It was the lowest level since a 15.3 million pace in July.
Computers, Communications Bookings for both computers and for communications gear dropped 12 percent. Cisco Systems Inc., the biggest maker of computer- networking equipment, this month lowered its sales forecast after orders slowed in January.
``You do have business executives that are probably as cautious as I've seen them in my business career,'' Chief Executive Officer John Chambers told a press conference in Barcelona, Spain, on Feb. 11. Still, record exports are offsetting some of the slowdown in domestic demand.
Caterpillar Inc., the world's largest maker of bulldozers and excavators, will spend as much as $2.5 billion this year, nearly 50 percent more than last year, to expand production capacity, Chief Executive Officer Jim Owens said at a Bloomberg Television interview Feb. 14 in Fort Lauderdale, Florida. ``We are out of capacity and so are our suppliers,'' he said. ``What is driving it is the strength of the global mining industry, the global oil-and-gas industry and the emerging markets.''

South Africa January inflation 8.8 pct vs 8.6 pct in December

Rising food prices helped push South Africa's CPIX measure of consumer inflation closer to 9.0 pct last month, far above the maximum 6.0 percent target, the statistics agency said.Year-on-year consumer price inflation, excluding the impact of mortgage costs, rose to 8.8 percent last month, up from 8.6 percent in December, Statistics South Africa said in a statement.The headline consumer inflation rate, or Consumer Price Index (CPI), increased to 9.3 percent in January from December's 9 percent.CPIX is used by the South African Reserve Bank to fix its inflation target, presently at between 3 pct and 6 pct.The main contributors to the rate increase were prices of food, housing, transport, medical care, and fuel and power, according to the statement.The central bank has increased the prime interest rate eight times on the back of rising inflation since April 2005, to its current level of 14.5 percent.

Pound moves back towards the 2.00 Dollar barrier

Pound moves back towards the 2.00 Dollar barrier

Sterling seemed to feed on the back of a weak dollar yesterday as a move towards the $2.00 mark is back on the cards. The move came at 5.00pm last night as the dollar started to weaken against a basket of currencies and lost over 2 cents against the pound. The pound has hit $1.9940 already this morning and it won’t take much to breach the $2.00 mark. Against the euro, the pound is little changed, slightly down from yesterdays opening. There was also a warning by the deputy governor of the Bank of England that the central bank fears the largest ever peacetime liquidity crises. The BoE’s Rachel Lomax warned that the ongoing credit crunch had left the Monetary Policy Committee uncertain as to its next move as it and fellow central banks face up to the disruption to the financial

What a day for the Euro!

What a day for the Euro!

What a day for the euro! The single currency finally broke through the key $1.50 level against the dollar and so far, has kept going. The ever widening gap on interest rates between the eurozone and the US has helped the euro push through the previous key level and hit $1.5050 in Asian trading. Concerns that the US might lapse into stagflation, a condition where a recession and inflation simultaneously occur, also prodded non-Japanese investors into trimming their holdings of dollar-denominated assets. Is seems traders feel the euro has the momentum to start rising again and go above the $1,50 level in coming sessions. The single currency was also helped by better than expected data from Germany’s ifo index as it rose to 104.1 in February, above the 102.9 level expected.

Tuesday, February 26, 2008

Euro breaches 1.5000

Traders started buying euros and pushed it through 1.5000

Dollar Falls to Record Low as Home Prices, Confidence Slump

Dollar Falls to Record Low as Home Prices, Confidence Slump

By Ye Xie and Bo Nielsen

Feb. 26 (Bloomberg) -- The dollar sank to a record low against the euro as U.S. home prices and consumer confidence tumbled, bolstering bets the Federal Reserve will keep reducing interest rates. The U.S. currency declined to the weakest level since the euro began trading in 1999, and slumped against all 16 of its most-active counterparts. It reached its lowest level of the day after Fed Vice Chairman Donald Kohn said turmoil in credit markets and the possibility of slower economic growth pose a ``greater threat'' than inflation. Kohn's comment ``confirmed the Fed will keep cutting interest rates,'' said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world's biggest currency trader. ``That brought more downward pressure on the dollar.'' The dollar weakened to $1.4981 per euro at 4:32 p.m. in New York, from $1.4830 yesterday, falling past the previous historic low of $1.4967 set Nov. 23. The U.S. currency dropped to 107.24 yen from 108.07, and has lost 4 percent this year.

Boyton forecasts a dollar drop to $1.55 per euro in the next three months. He's more bearish than the consensus. The dollar will rebound to $1.48 per euro by the end of March and to $1.40 by year-end, according to the median forecast in a Bloomberg News survey of 41 analysts. The U.S. currency has lost about a quarter of its value in the past five years, according to the Fed's U.S. Trade Weighted Major Currency Dollar index, which comprises seven currencies of U.S. trading partners. The weaker dollar has made U.S. goods cheaper abroad, boosting exports to a record and shrinking the nation's trade deficit last year for the first time since 2001.

`Shifting Away'

The dollar may fall at least another 10 percent on a trade- weighted basis, said Kenneth Rogoff, an economics professor at Harvard University in Cambridge, Massachusetts, and formerly chief economist at the International Monetary Fund.

``We're seeing demand shifting away from the U.S. to Europe and Asia,'' he said.

The U.S. will expand 1.5 percent this year, compared with a 4.1 percent rate for the global economy, the Washington-based IMF said in January.

New Zealand's dollar rose to the strongest since it began trading freely in 1985, on bets the central bank will lift rates. The currency reached 81.58 U.S. cents as a Reserve Bank of New Zealand survey showed inflation is forecast to be at the top of the bank's preferred band in two years.

South Africa's rand gained against all of the 16 most- active currencies after a government report showed economic growth unexpectedly accelerated to the fastest pace in a year.

`Bleak Assessment'

The U.S. currency extended declines after Kohn, speaking in North Carolina, said ``the adverse dynamics of the financial markets and the economy have presented the greater threat'' to the U.S. economy than inflation. `Kohn painted a very bleak assessment of the U.S. economy,'' said Brian Dolan, research director at, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, which has about $250 million funds under management. ``What he indicated is that the Fed will keep providing lower interest rates regardless of inflation. It's outright dollar- negative.'' Futures on the Chicago Board of Trade show traders see a 94 percent chance the U.S. central bank will reduce the 3 percent target rate for overnight lending between banks by 50 basis points at their March 18 meeting, and a 6 percent likelihood of a quarter-point cut. The Fed has already cut rates five times since Sept. 18. The dollar's decline accelerated after it weakened beyond about $1.4910 per euro, a level where traders had pre-set orders to sell the U.S. currency, causing a ``capitulation of those hoping the dollar would rebound,'' Dolan said.


The euro rose to 160.69 yen from 160.27, reaching a six- week high, as the Munich-based Ifo institute said its business climate index rose to 104.1 in February, from 103.4 in January. The median estimate in a Bloomberg survey was for a drop to 102.9. After the report, traders pared bets the European Central Bank will lower its target from the current 4 percent level.

The German confidence report ``underscores the euro zone is holding up reasonably well in face of a U.S. slowdown,'' said Stephen Malyon, a currency strategist at Scotia Capital Inc. in Toronto.

The odds of the ECB lowering borrowing costs fell, with the implied yield on the Euribor futures contract for June rising 4 basis points to 4.16 percent. The yield averaged 0.18 percentage point more than the ECB's benchmark from 1999 until August. A basis point is 0.01 percentage point.

Rand Rally

South Africa's rand climbed 1.4 percent to 7.5581 per dollar, the biggest advance since Feb. 1, as the continent's biggest economy expanded an annualized 5.3 percent in the fourth quarter, from 4.8 percent in the previous three months. Growth was expected to slow to 4.4 percent, the median forecast in a Bloomberg News survey.

The U.S. currency began to decline earlier as a government report showed producer prices rose 1 percent in January, after a 0.3 percent decline the prior month, and more than double the median forecast in a Bloomberg survey.

``Higher inflation coupled with slower growth is not a recipe for a stronger currency,'' said John McCarthy, a director of currency trading at ING Financial Markets LLC in New York.

The S&P/Case-Shiller index of home prices in 20 U.S. metropolitan areas fell 9.1 percent in December from a year earlier, the most on record. The Conference Board's index of consumer confidence fell to 75 from 87.3 in January.

Many Ex-Pat's are caught out by the high cost of buying Euros

Over the past ten years, the number of expats buying homes overseas, whether for retirement or as a second home, has boomed. The popular destinations for many overseas home owners have been Spain, Portugal, Ireland and eastern Europe with many people taking out mortgages in these countries. However, with the Euro so strong at the moment against many other currencies this has placed an unexpected burden on your average home-owner. The poor exchange rate has added up to 15% on the cost of their mortgage and, with no end in sight, many ex-pats are waiting as long as they can before buying Euros to send overseas to pay their Spanish mortgages. For the retired ex-pats living on a pension then this situation is made worse with pension payments also being affected by the current cost of buying Euros. The situation could get even worse if countries like the UK continue to lower interest rates. The ECB has given mixed messages about the future of the interest rate in Europe but one thing is for sure, any further rises will kill the overseas property market stone dead and, for many, the dream of retiring to the sun will be further out of reach than ever.
26 February 2008 14:15:47

BoE fears largest ever peacetime liquidity crisis

BoE fears largest ever peacetime liquidity crisis
By Angela Monaghan
Last Updated: 3:30pm GMT 26/02/2008

The Bank of England's Deputy Governor today warned that the ongoing credit crunch had left the Monetary Policy Committee uncertain as to its next move as it and fellow central banks face up to what she described as the "largest ever peacetime liquidity crisis".

Rachel Lomax, the BoE deputy governor addressing the Institute of Economic Affairs, Rachel Lomax said that the credit crisis that erupted last summer was still evolving, with a new problem surfacing on a weekly basis. She said: "Each week seems to highlight some new dimension of the ensuing disruption to core financial markets. "Clearly the situation is still developing. And its impact on the wider economic outlook - global and domestic - will depend critically on what happens from now on. Here there are some major uncertainties."
Ms Lomax said that while a correction of the financial markets, after a prolonged period of "plentiful liquidity" and insufficient risk management, had been expected by the Bank, the timing and extent had not. It was, she said, impossible to predict how much the value of assets beyond sub-prime mortgages would be impaired after this particular cycle had run its course.
advertisement "Many people - including the Bank of England - foresaw that some form of correction in financial markets was highly likely, even inevitable. "But it was another matter altogether to predict the precise nature and timing of the present crisis. The extent of the reverberations across different markets was certainly not fully appreciated," she said.
She reiterated the comments Governor Mervyn King's made in the Bank's quarterly Inflation Report two weeks ago, in which he warned that rising inflation was likely to prevent the Monetary Policy Committee from slashing interest rates. The risk, she said, was that a short-term spike in inflation caused by higher energy, food and import prices, will lift inflation expectations and therefore affect the medium-term behaviour of price and wage setters.
That, in turn, would limit the Bank's ability to cut interest rates as much as it would like in order to try to restrict the downside risks to growth. Explaining the balancing act she said: "If price and wage setters do recognise that the imminent pick-up in inflation will be short-lived, then the implications of the spike for monetary policy, and for the necessary balance of demand versus supply, should be limited. "But if price and wage setters start to expect higher inflation to persist, then the Committee will need to restrain demand, and so generate some slack in the economy, in order to bring inflation expectations, and inflation itself, back down."
The dual considerations of a downturn in growth and rising inflation were echoed in the CBI's latest Distributive Trades Survey out today, which said that while high street spending had slowed gradually since last April and was "very subdued" this month, prices have risen strongly.

New Zealand Dollar 22 year high looms

Written by Kathy Lien, Chief Strategist and John Kicklighter, Currency Analyst for

Extending its impressive rise for the eighth consecutive trading day, the high flying New Zealand dollar has hit a 22 year high above 81 cents. This is the first time that we have seen the currency trade at these levels since it was freely floated in 1985 and the most bizarre part of the move is the fact that it was not driven by any economic data or news. Compared to the rest of the world, the New Zealand economy is holding up well but unlike Australia, there are chinks in the armor. A drought in much of New Zealand has spurred a dairy price boom but in the long term, droughts pinch supply which hurts the economy more than it benefits it. With no economic data released in over a week, yield, risk appetite and commodity prices have been the primary catalysts for the latest move. Can the New Zealand dollar sustain its rally beyond a 22 year high? Will the RBNZ intervene again?

British Pound: Rally Getting Tired?

Yesterday was a quiet day for the British pound with only one significant economic indicator released, BBA loans for house purchase which increased to 44288 from previous results of 42088.

Hometrack house prices also increased 1.4 percent, but this was the lowest yearly rise since April 2006. Today the UK economic calendar is light with only the CBI distributive trades survey due for release. This indicator is generally a good barometer for retail sales which means that it could cause some action in the British pound. However the rally in the currency is looking tired and it will be interesting to see if the move will continue. This week we have a lot of potentially market moving UK economic data so stay on top of the data calendar.

ECB still vigilant on Euro inflation

ECB Orphanides said yesterday that policymakers must remain vigilant against inflation and maintain well-anchored inflation expectations which are crucial for monetary policy and critical for the performance of the economy. Buiying EURO POUNDS at 0.7525

Fed chairman Greenspan - US Economy has stalled

Former Fed chairman Greenspan said last night that the US economy has stalled and may take longer to recover than normal.

Trichet is still worried about US recession and the affect on the Euro Zone

ECB Trichet- the euro area economy may not be able to solely rely on emerging markets growth to shield it from a possible US recession. Trichet said the ``key question'' is to asses how and ``to which extent a possible slowing down in some mature economies might be partially offset by stronger growth in other regions.''.

Today you could buy euros against the US Dollar at 1.4800

Pimco boss props up the Australian Dollar

PIMCO Bill Gross said Australian government debt is more attractive than Treasuries because Fed policy makers are failing to tackle inflation. US policy makers, certainly in an election year, are unwilling to accept their medicine. The Australian Dollar beneifited on the and was trading at 0.9267 against the US Dollar with a high just sub 0.9300.

Nationwide squeezes all but the most cash-laden buyers

Nationwide squeezes all but the most cash-laden buyers
by Rebecca O'Connor 26-02-08

Mortgage borrowers unable to muster a big deposit have become the latest victims of the credit crunch after Britain's biggest building society effectively shut its doors to all but the most cash-rich buyers. Nationwide has told customers wanting a loan for more than 75 per cent of a property's value that they will pay higher rates of interest to reflect the increased risks involved. It raised interest rates on deals above that threshold by 0.2 percentage points last week, blaming higher mortgage funding costs and a cooling housing market for the decision.

Experts gave warning that the move would hit cash-strapped first-time buyers the hardest and could be a sign of further tightening of mortgage lending by other banks. Nationwide's cut penalises even existing customers who want to remortgage. The average deposit in the UK, at 20 per cent, is also below the Nationwide threshold. Melanie Bien, a director of Savills Private Finance, the mortgage broker, said: “We have seen nothing on the same scale as Nationwide. You now have the scenario that someone with a 20 per cent deposit, which is quite sizeable by anyone's standards, is being penalised with a higher rate of interest.” On a £150,000 Nationwide home loan a borrower would now be forced to save £37,500 to get its most competitive rate of 5.68 per cent. Before last Friday the same borrower would have required a deposit of only £15,000, or 10 per cent, to obtain the same rate.
Jonathan Cornell, director of Hamptons International Mortgages, the broker, said: “This is silly money and a fairly unrealistic expectation of struggling first-time buyers, who have relied on mortgage deals allowing them to borrow in excess of the asking price. It comes when lenders are cutting their maximum loan to values in the light of credit crunch fears and adds further cause for concern for would-be homeowners.”
The change came as figures published yesterday by the British Bankers' Association revealed that mortgage approvals for new home purchases fell by a third in January, compared with January last year, sparking fresh fears of a housing market slowdown.
It follows a spate of similar attempts by other banks to cut risk and boost profit margins by changing their lending criteria. Abbey, the third-biggest lender, increased interest rates on two-year fixed-rate loans covering 75 per cent and 90 per cent of a property's value last month by 0.1 of a percentage point. Alliance & Leicester, West Bromwich and Britannia building societies have cut maximum lending limits in the past few weeks from 95 per cent to 90 per cent, and six banks, including Northern Rock and Alliance & Leicester, withdrew from the 100 per cent-plus mortgage market last week.
Although Nationwide will still offer loans for up to 95 per cent of a property's value, these will carry a much higher rate of interest, at 6.32percent for a two-year fix. On a £150,000 loan, the difference in cost between the Nationwide deal and the present market best-buy from Giraffe Home Loans is £708 a year.

Monday, February 25, 2008

Stronger mortgage data props up pound vs dollar

Stronger mortgage data props up pound vs dollar
Mon Feb 25, 2008 3:44pm GMT
LONDON (Reuters) - Sterling steadied versus the dollar on Monday as news of growing mortgage approvals eased concerns about a potentially sharp slowdown in the housing market.
Mortgage approvals -- seen as a forward looking indicator -- picked up from near record lows in January, according to data from the British Bankers' Association.
Coupled with much better-than-expected retail sales figures the previous week the data backed the view that the Bank of England would not need to cut rates aggressively to boost growth.
Bank of England policymaker Kate Barker said in an interview with a regional newspaper that a recession remains unlikely.
"The last few weeks' data has been pretty upbeat and the BBA lending as well was quite strong," said Peter Frank, currency strategist at Societe Generale.
"The market is no longer thinking that the Bank of England is falling behind the curve and modest rate cuts seem to be the way forward rather than anything too dramatic. Obviously sterling is beginning to gain ground on that."
He added that the relatively high level of speculative short bets on the pound -- totalling a net 12,157 contracts in the week to February 19 according to the latest data from the Commodity Futures Trading Commission -- also left the currency open to a correction higher.
By 3:19 p.m. the euro was down 0.2 percent 75.26 pence. The pound was steady at $1.9674.
However, there were some signs that not all is rosy with the economy.
Housing market research company Hometrack said house prices fell by 0.2 percent this month -- their fifth monthly fall. That pushed annual inflation down to a 22-month low of 1.4 percent from January's 2.3 percent.
"We expect sterling to remain under pressure over the medium term... Indeed, any further near-term gains into the $1.98/$1.99 area would be considered for re-establishing bearish strategies," BNP Paribas said in a research note.
(Reporting by Toni Vorobyova)

Dollar - Dropping to New Lows?

US Dollar - Dropping to New Lows?

The US Dollar declined for the second week in a row as the economic data produced nothing but drab news. CPI continued to press higher with core readings reaching 2.5% while headline prices clocked in at 4.3% as rise in commodities showed that inflation is very much alive. But price stability is not a concern for the Fed at the moment. US monetary policy is solely focused on reviving growth. This week horrendous reading in the Philly Fed index which reached a 7 year low, was a loud and clear signal that demand is contracting rapidly. Add to that the fact the weekly jobless claims have averaged well above 350K for the past four weeks and it becomes easy to see that markets now expect another 50bp cut in March.

British Pound: Can the Gains be Sustained?

British Pound: Can the Gains be Sustained?

After yesterday’s strong retail sales number and blockbuster recovery in the British pound, the currency continued to see a broad based recovery.

The outlook for the British pound has become extremely uncertain with a hawkish Quarterly Inflation report, strong retail sales and an upside surprise in employment conflicting with the dovish minutes from the most recent Bank of England meeting. That is why this week’s UK GDP, housing numbers and GfK consumer confidence will be very important because they provide more information on the recent health of the UK economy.

Lloyds accesses European Central Bank funding

Lloyds accesses European Central Bank funding
By Jonathan Sibun and Philip Aldrick
Last Updated: 12:38am GMT 25/02/2008

Investment banks are secretly profiting from emergency European Central Bank funding by acting as brokers to funnel billions of euros of much needed liquidity to Britain's banks and building societies. Bankers said that UK lenders were having to access the ECB through the back door UK lenders with no operations in Europe are particularly at risk of funding problems because they have been struggling to access central bank money.

While the ECB has pumped more than $500bn (£254bn) into the wholesale funding markets, dropped its penal rate and widened the collateral it accepts as security, the Bank of England has injected just £20bn. In what one executive said was a way of "levelling the playing field" for those without access to eurozone funding, investment banks are acting as go-betweens to provide smaller UK lenders with ECB access.

Lloyds TSB chief executive Eric Daniels last week confirmed the bank, which has a European presence, had used the ECB to "fund at the best rate we can". Other UK banks such as Barclays, Royal Bank of Scotland and HBOS are thought to have made similar moves.

For those without a European presence, the funding works in two stages. First, the UK domestic lender parcels up assets and pledges them to investment banks in return for liquidity. Those investment banks can then pledge the assets on to the ECB, which becomes the ultimate funding source.

The investment banks make their money by charging a higher rate of interest than the ECB.
Alliance & Leicester demonstrated the scale of the opportunity last week, revealing it paid £150m to secure funding through to 2009 in what finance director Chris Rhodes labelled "the cost of the credit crunch". A&L has securitised £17bn of its mortgage assets in two vehicles, pledging "a material proportion" as collateral against new facilities. It is not clear if the investment banks have exchanged the pledges for funds at the ECB but it is understood that A&L's collateral would be acceptable once restructured.

Building societies are also likely to be using the facility. One banker said: "If you were a UK lender and you had assets against which you could draw down funds, why wouldn't you do it?"
Bankers said the fact that UK lenders were having to access the ECB through the back door exposed failures at the Bank of England.

South African Rand firmer this morning, though looks like more selling is on the cards

The South African Rand opened firmer today as it takes advantage of a weaker US Dollar and is trading 15.12 against the Pound this morning. There is no South African data due today but a plethora out later this week that will ensure more volatile market moves for the beleaguered rand.

Overall, fundamentals are looking increasingly gloomy and no reason to buy South African Rand and it looks like it should side further.

Foreign Currency-Today Rates

Foreign Currency-Today Rates
EURGBP Euro - Pound 0.7468
GBPEUR Sterling - Euro 1.3105
GBPUSD Sterling - US Dollar 1.9426
EURUSD Euro – US Dollar 1.4645
GBPAUD Sterling - Australian Dollar 2.1006
GBPNZD Sterling - New Zealand Dollar 2.4015
GBPCAD Sterling - Canadian Dollar 1.9635
GBPZAR Sterling - South African Rand 14.9230
EURSEK Euro - Swedish Krona 9.2983
EURDKK Euro - Danish Krone 7.4532
EURNOK Euro - Norwegian Krone 7.8644
GBPSEK Sterling - Swedish Krona 12.3275
GBPDKK Sterling - Danish Krone 9.8890
GBPNOK Sterling - Norwegian Krone 10.4264
GBPJPY Sterling – Japanese Yen 210.92


UK Base Lending 5.50
USA Base Lending 3.00
EUROPE Base Lending 4.00
Annual Euribor 4.75
Monthly Euribor 4.29
3 Month Euro Libor 4.78
6 Month Euribor 4.79
IRPH 5.56

Friday, February 22, 2008

Australian Property Rents Sky High as Prices continue to Increase

Give renters a break, landlords warned

By Chelsea Mes February 22, 2008 12:12pm

Australian Property Prices Landlords warned not to take advantage of struggling tenants!

Cost of replacing decent tenants may outweigh rental gains!

LANDLORDS keen to make the most of the tight rental market are being warned against raising rents, as they risk losing quality long-term tenants.Property insurance brokers Terri Scheer said landlords should not take tenants for granted in the midst of the rental squeeze. Marketing and Operations Manager Carolyn Majda said unreasonably high rent increases could cause angry departures of reliable, long-term tenants. Ms Majda said it took an average of four to six weeks to relet a rental property, during which time the landlord is unlikely to be receiving a rental income. She said the lure of higher rental returns needed to be balanced against the "importance of keeping good tenants". Although landlords would want to take advantage of low vacancy rates, Ms Majda said there had to be a point when struggling tenants reached breaking point. “It’s a fine line,” she said. “Sure cover your costs, but don’t take advantage of things like rate rises to raise the rents higher than really is needed,” she told The reminder comes after rents hit record highs around the country, and startling figures showing renting battlers are doing it tougher than ever. Housing assistance not helping A report from the Australian Institute of Health and Welfare released today found federal and state governments spent more than $4 billion on housing assistance a year. "The stresses are showing up even after assistance has been provided," institute spokesman David Wilson said. More than a quarter of low-income renters sometimes go without food and 42 per cent of low-income renters cannot afford school excursions, a report released yesterday by the Australian Property Market and Urban Research Unit found. The Housing Industry Association’s national housing outlook yesterday said more than half a million rental households paid more than 30 per cent of their income on rent. Help on the way HIA said low and lower middle income rental households were under increasing financial strain and stress, fuelled by a shortage of investment in rental properties. “High government costs on new home building, the high cost of land, and the excessive regulatory burden … make investing in new residential property an unappealing option,” the report said. The HIA said the Federal Government’s proposed National Affordability Rental Scheme, which aims to build 50,000 new rental properties across the country, would ease the strain facing renters. Rents at record highs Australian Property Monitors data for the September quarter painted a bleak picture for renters across the country. In Sydney, where the housing affordability crisis is at its worst, rents for three-bedroom houses hit $400 a week, up 14 per cent over the year. Rents for units were up 12 per cent to $380 a week. Elsewhere, conditions for renters have deteriorated. Median rents for houses jumped 23 per cent in Perth over the year to September, 18 per cent in Canberra, 16 per cent in Melbourne, 10 per cent in Brisbane and 8 per cent in Darwin, Adelaide and Hobart.

Rescues for Homeowners in Debt Weighed

Rescues for Homeowners in Debt Weighed
WASHINGTON — Prodded in part by some of the nation’s biggest banks, the Bush administration and Congress are considering costly new proposals for the government to rescue hundreds of thousands of homeowners whose mortgages are higher than the value of their houses.
Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody’s
Administration officials say they still oppose any taxpayer bailout for either people who borrowed more than they could afford or banks that made foolish loans during the height of the speculative bubble in housing.
But with the current efforts to arrest the housing collapse so far bearing little fruit, Washington is being forced to explore new ideas, among them the idea of a federal mortgage guarantee for troubled borrowers.
And policy makers are listening to proposals from industry and community groups to use government funds to purchase and refinance billions of dollars in mortgages now in danger of default.
Many owners are only gradually becoming aware that their homes would sell for less than the debt against them — a phenomenon, said Richard T. Curtin, director of the Reuters/University of Michigan Surveys of Consumers, that is “beginning to weigh on people, making them uncertain and nervous about the future.”
That nervousness is evident across the country, particularly in places like Memphis, a city of nearly 1.3 million people where falling home prices and negative equity are new experiences.
The housing slumps of the mid-1970s and late 1980s were confined to the coasts. The current bust, while leaving some cities relatively unscathed, has cut a far wider path and it comes just when home debt is at its highest level since World War II.
For Stuart B. Breakstone, the problem hit home when he was forced to come to the closing on the sale of his eight-year-old custom-built house with a check for $65,000. The money, out of his own pocket, was to pay the difference between what he still owed on the mortgage for his home and the lower selling price.
Mr. Breakstone, a 42-year-old lawyer, and his wife, Lori, chief of customs agents at Memphis International Airport — who together earn more than $250,000 a year — managed to extricate themselves by paying off the mortgage. But millions of others are trapped in their homes. They have jobs, make their mortgage payments on time, but cannot raise enough cash to cover the shortfall.
Some eventually default, surrendering to foreclosure. But the vast majority — embedded in their communities, their children in public schools, their reputations at stake — wait nervously in hope that prices will bottom and rise once again, eliminating their negative equity and restoring their freedom to sell or refinance.
“People can’t believe this is happening to them,” said Robert Moulton, president of the Americana Mortgage Group in Manhasset, N.Y.
In Washington, it will be difficult to engineer a bailout similar to the one for savings and loan companies in the early 1990s, because Democrats and Republicans alike cringe at the very word bailout and fear a backlash by people who never became overextended.
But with millions of homeowners already underwater and the prospect that millions more may face the same situation, Democrats and Republicans alike are scrambling for ideas to keep people from simply walking away from their homes and to help those struggling to pay their bills.
Bank of America, which is in the process of acquiring Countrywide Financial and has potentially huge exposure, has circulated a proposal to create a new federal agency that would buy vast quantities of delinquent mortgages at a deep discount and replace them with fixed-rate federally guaranteed loans.
The bank warned that tightening credit conditions were leading to “escalating levels of delinquency and default among borrowers” and “an unprecedented number” of homes that would enter foreclosure.
Administration officials have given the Bank of America plan a cold reception. But the idea is similar to one proposed by Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate Banking Committee.
The Federal Housing Administration, meanwhile, is examining ways to expand its new insurance program, known as FHA Secure, to help people replace their costly subprime mortgages with federally guaranteed fixed-rate mortgages.
Mortgage industry executives have complained that the F.H.A.’s eligibility requirements are so restrictive that the new program has helped only a trickle.
Credit Suisse executives said they have held lengthy meetings with F.H.A. officials and have urged the agency to relax rules that currently disqualify many borrowers.
One idea, company officials said, was to allow borrowers who had simply made six payments during the course of their mortgage to qualify.
Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, has ordered his staff to come up with options for a broader rescue bill. An aide to Mr. Frank said his bill would, among other things, allow the government to buy up at least some troubled mortgages.
A more modest plan is being developed by John M. Reich, director of the Office of Thrift Supervision, the agency that regulates savings and loan companies. His plan, still in rough form, would create a voluntary system under which mortgage lenders would reduce debt and monthly payments to reflect the diminished sales value of a home.
It would take the remainder of the mortgage as a “negative amortization certificate,” a lien that the investor could recoup if the house were later sold for its original mortgage value or higher.
In an interview, Mr. Reich said he hoped that most of the old mortgages would be replaced by cheaper mortgages insured through the F.H.A.
“It isn’t a bailout,” Mr. Reich said. “It is a market-driven solution.”
For Americans caught in a mortgage trap and owing more on a home than it would sell for, consumer spending and confidence are the most immediate casualties, Mr. Curtin reports. But the damage goes deeper.
People cannot move easily to jobs in other cities if they have to sell their homes at a loss. The $168 billion federal stimulus package is likely to be less effective than intended because many homeowners may simply use their government checks to pay down their debts.
Housing prices in Memphis fell by 2.5 percent last year, only the second decline since records began to be kept in 1968, and by far the largest dip, according to Chandler Reports, which gathers this data for Greater Memphis.
The Memphis metropolitan area highlights the larger national trend, with the average first-mortgage debt, at $153,764, edging above the average home price, $152,815, for the first time. And that does not count refinancing and home equity loans, as well as closing costs.
Collie Tuttle, in her early 60s, is caught in this bind. Four years ago, she purchased a newly built four-bedroom three-bathroom house in the Memphis outer suburb of Olive Branch, Miss., for $270,000. She put nothing down, relying on her six-figure income from selling furniture to pay down the mortgage, reducing it to $248,000.
But then she lost her job, and in her next one — also selling furniture, but at lower pay — she is being forced to choose between her home and the rest of her life.
“It was a big mistake on my part to buy this house,” she said. Divorced, with two grown sons, she rattles around in it alone. She had thought the house would add to her wealth.
But now, to sell it for the $269,000 a potential buyer was recently willing to pay, “I would have to come up with $6,000 from my pocket,” Ms. Tuttle said, explaining that she cannot afford to invade her meager retirement account. “All I’m asking is for enough so that I come out even.”
Her house payments and utilities come to nearly $2,400 a month. That is affordable, she said, on her present income. But very little is left over to replace her 11-year-old car, to travel, to pay down her credit card debt, or even to buy new clothes.
“I’m stuck,” she said. “I’ve tried everything and I can’t get rid of this house.”
The reluctance to sell at a loss helps to explain why the number of homes listed for sale in the Memphis area has climbed to more than 13,000 from 9,000 a year ago.
Jane and Kevin Naus, in their mid-40s, have had their home on the market since last May; their attempts to sell for a price that covers their debts are skewing their lives.
Mr. Naus took a job in Greenville, N.C., last March, at a local bank. His wife stayed behind, putting their house up for sale, just a month before prices began to unravel.
But there were no offers at the $239,000 the couple asked for their four-bedroom brick house on a one-acre corner lot, so they gradually cut the price to $220,000, barely enough to cover the $192,000 in mortgage debt and an additional $22,000 in closing costs and broker’s fees. It still did not sell.
Mr. Naus says prices are under downward pressure because of competition from the auctioning of foreclosed homes at bargain prices. There were 5,714 foreclosures in Memphis in 2007. “In our neighborhood alone,” Mr. Naus said, “five houses were sold last September and October, and four of the five were foreclosures.”
Mrs. Naus joined her husband in Greenville in December but he lost his job in January, when his division was shut down. The couple decided to stay in Greenville, to be near the family of Mrs. Naus, who has multiple sclerosis and no longer works.
Her $1,800-a-month in disability pay, however, falls short of the $1,400 in monthly mortgage payments on the Memphis house and the $700 in rent for an apartment in Greenville. The Nauses make up the difference with his severance pay, and occasional dips into their savings, which have fallen below $100,000.
“We don’t want to lose the house or cut the price,” Mrs. Naus said, “and end up owing money.”
“Basically,” she added, “we are praying that the house sells before my husband’s severance runs out.”
The Breakstones are similarly in danger of sinking, despite their high income. After forking over $65,000 on the house they just sold, they are struggling with $670,000 in debt on their present, larger home — perhaps more than the house itself is worth.
The Breakstones, each previously divorced, married in 2006, bringing three children to their union. They needed a bigger house than the one Mr. Breakstone had built.
Mr. Breakstone thought that he could sell his other home quickly, but it sat on the market for 17 months and finally brought only $170,000. He covered the shortfall by borrowing against his present home — bringing it closer to being underwater, too.
Now the Breakstones are saddled with $4,000 a month in house payments, and $14,000 more in fixed outlays, including child support, car leases, taxes, consumer debt and utilities, using up the bulk of their income.
“I used to think,” Mr. Breakstone said, “that I would pay the piper later and enjoy life now. I’ve totally reversed that view.”

Dollar Crumbled as Philly Fed Drops to 6 Year Lows

The US dollar crumbled today as it lost value against all of the other major currencies due to a decline in the Philadelphia Fed manufacturing release, and increased speculation that the Fed will resort to a 50bp rate cut in March. All of the commodity currencies posted major gains as the US economy continued to weaken, while the Euro hit a two week high against the fading dollar. The Swiss Franc and the British pound took the biggest bite out of the US dollar. The Pound was driven up as retail sales unexpectedly surged to 5.6 percent for the year indicating that consumer spending to be holding up amid lowered growth prospects.

Pound Positioning Reaches Parity As Pair Advances, A Flip Could Signal A Break

The Pound Positioning Reaches Parity As Pair Advances, A Flip Could Signal A Break

Positioning is nearly evenly split for the GBPUSD as the pair tests the top of a technical trend channel. The ratio of long to short positions stands at 1.01 with nearly 50% of traders long. The pair has hovered near this parity level since flipping back to its positive reading at the beginning of the month. Just last week, 55% of open positions were long with the ratio at 1.24. Also notable in with the tempering in the ratio, short positions grew 14.8% from yesterday and are 69.7% stronger from a week ago. Long positions are only 6.6% fewer than yesterday and 4.9% strong than a week ago. Open interest is only 3.0% stronger from Wednesday, but overall it is 26.2% above its monthly average. Being a contrarian indicator, the GBPUSD signal still calls for further losses, but only until it flips.

Foreign Currency Today

Foreign Currency Today

EURGBP Euro Pound 0.7446
GBPEUR Pound Euro 1.3120
GBPUSD Sterling - US Dollar 1.9445
EURUSD Euro – US Dollar 1.4640
GBPAUD Sterling - Australian Dollar 2.1112
GBPNZD Sterling - New Zealand Dollar 2.4274
GBPCAD Sterling - Canadian Dollar 1.9670
GBPZAR Sterling - South African Rand 15.1490
EURSEK Euro - Swedish Krona 9.3082
EURDKK Euro - Danish Krone 7.4529
EURNOK Euro - Norwegian Krone 7.8811
GBPSEK Sterling - Swedish Krona 12.3593
GBPDKK Sterling - Danish Krone 9.8960
GBPNOK Sterling - Norwegian Krone 10.4636
GBPJPY Sterling – Japanese Yen 210.67


UK Base Lending 5.50
USA Base Lending 3.00
EUROPE Base Lending 4.00
Annual Euribor 4.75
Monthly Euribor 4.29
3 Month Euro Libor 4.78
6 Month Euribor4.79
IRPH 5.56

Thursday, February 21, 2008

In the world of currency today the only word associated with the Euro or Pound was Buy Buy Buy!

In the world of currency today the only word associated with the Euro or Pound was Buy Buy Buy!

Traders spent today Buying Euros, Buying Pound, Buying Australian Dollars and Buying anything else that wasn’t the US Dollar, as poor US Data suggested that Subprime and Housing Market are pushing the US into a recession. GBPUSD was back above 1-9600, EURUSD 1.4800 and the Australian Dollar 0-9195.

UK Retail Sales Much Stronger than Expected

Traders today had reason to Buy Pound and Sell Euros - positive economic news! The UK Retail Sales figures surprised with a 0.8% rise instead of of the 0.3% expected. Although retailers had to cut rates to boost sales.

UK Housing Market is about to implode

Britain's housing market is a "house of cards" that is set to implode after years of reckless mortgage lending, chronic oversupply of new flats and widespread fraud, a leading analyst says, the Times reports. "We believe it is payback time for years of speculation and sharp practice," Alastair Stewart, of Dresdner Kleinwort Wasserstein, said in a note to clients issued at the start of British housebuilders' results season. The warning came amid rising fears of endemic fraud in the housing market, the paper says.

Euro continues to hold steady against other currencies

The euro continued to be the steady ship in choppy seas yesterday as it gained slightly against sterling and continued to be range bound against the greenback. The single currency gained half a cent against the pound as BoE minutes revealed at least one member voted for a 50 basis point cut. Against the dollar we are still range bound, but if the $1.50 level is breached, the euro may have some way to go.

ECB continues to focus on inflation worries

The minutes from the Bank of England revealed that the split to cut rates was 8-1 in favour of the 25 basis point reduction. Only one member voted for a 50 basis point cut. Sterling had a pretty weak day yesterday as it dropped half a cent against the euro to be very close to breaking through the 1.32 level, and against the greenback the pound fell a full cent from yesterdays opening price but it did recover most by close of business. It is now trading at $1.9455. It’s hard to see where any support will come from for the pound, as aggressive rate reductions in the US don’t seem to be giving sterling any help, and the ECB’s continued approach to focus on inflation worries rather than the bigger global picture don’t seem to be helping on the euro.

Fed minutes reveal downside risk to the economy

The minutes from the last Fed policy meeting revealed that there was still downside risk to the economy even in the wake of a massive reduction in interest rates. What was very interesting was the revelation that some officials said a “rapid reversal” of recent policy easing might be needed once the economy stabilises. That suggests that the Fed’s aggressive stance on interest rate movements will be twosided, both when rates are falling and when they eventually rise. CPI data rose last month which will make the Fed think about inflation worries, but it doesn’t look like it will be enough to halt their aggressive stance of rate cuts as yet. Home construction in January also rose but only slightly. The dollar had a slight rally against the pound but fell back to where it had been before the release of the data. Against the euro it is still range bound between $1.4710—$1.4750.

Wednesday, February 20, 2008

DJ Fed Sees Slower US Econ Growth

DJ Fed Sees Slower US Econ Growth, Rising Price Pressure In '08
2008-02-20 14:04 (New York)Maya Jackson Randall of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--U.S. Federal Reserve officials in their latest forecast recognize an unwelcome mix of slower economic growth and rising price pressures in 2008.

Members of the Federal Open Market Committee, in a forecast released Wednesday, lowered their forecast for gross domestic product this year to 1.3% to 2.0%. In October, they had forecast a range of 1.8% to 2.5%. At the same time, the central tendency for core inflation was revised up, with officials now expecting core inflation in 2008 to range between 2.0% and 2.2%. Officials had predicted a range of 1.7 to 1.9% in October. Similarly, PCE inflation was revised up to 2.1% to 2.4% from a range of 1.8% to 2.1%. Fed officials said inflation could tick even higher if energy and commodity prices were to weigh on consumers more heavily than expected. They also recognized a risk that elevated rates of inflation could persist for longer than anticipated or that the central bank's easing campaign would be misinterpreted to reflect "less resolve among committee members to maintain low and stable inflation." Officials also revised higher the unemployment rate. They now see it ranging from 5.2% to 5.3% after projecting a range of 4.8% to 4.9% in October.

The severity of the housing downturn, tightening in the credit markets and
sky-high oil prices were all factors leading to the cloudier outlook, officials
said in the quarterly economic summary in the minutes of the central bank's
January meeting.

Still, officials expect a turnaround in the US Property Market and lower interest rates to buoy economic growth after 2008.

South African Rand - Budget Sumary

These are some of the highlights, in no particular order:

The corporate tax rate has been reduced from 29% to 28%. This means that company (and CC) profits will be taxed at the new lower rate.

There have been some significant reductions in foreign exchange controls. Institutional constraints have been removed completely and are replaced by a system of what are called “prudent controls”. I don’t have details on this yet, as the details have not been provided in Manuel’s speech but will send a follow up mail on this.

The government is allocating R60 billion to Eskom. This is a huge number (about 10% of the entire budget revenue). This will be paid over the next 5 years. Don’t think any of us will complain about this one.

Companies will now only have to register for VAT when their turnovers are over South African Rand 1 million. Previously this was R300 000.

The government is reducing the retirement age (in steps over the next 5 years) from 65 to 60 in 2010. This is preposterous given that the vast majority of South Africans can’t afford to retire and we have a massive skills shortage. I really don’t understand the reasoning behind this.

The monthly monetary caps for tax-free contributions to medical schemes will rise from R530 to R570 for the first two family members, and from R320 to R345 for each additional beneficiary.

The first R19 000 of interest you earn per annum is now exempt from tax (was R18 000) if you’re under 65 and R27000 if your over 65 (was R26000)

Donations tax remains unchanged.

Transfers duty also remains unchanged.

The first R16 000 of any capital gain you make is now exempt from tax (was R15 000).

Fuel will have an additional levy of 6c per litre.

There will also be a new levy on electricity generation of 2c per KWh. Am not sure what this really means for us, but presume it means we will all pay more for electricity, which I suppose we all already knew.

Tax on retirement funds (pension, provident, RAs, preservers) remains exempt at 0%

Quite a lot more is being spent on healthcare and education, much of which is going to higher education institutions. Small businesses are also receiving significant tax cuts.

The once-off offshore allowance per individual was not mentioned and presumably also remains unchanged at R2 million.

Adjustments to the personal income tax schedules will provide direct relief of R7.2 billion, fully compensating for the effects of inflation. About one-third of the benefit goes to those whose taxable income is below R150 000 a year, and 28 per cent benefits those in the R150 000 to R250 000 income bracket. No income tax will be payable by those who earn less than R46 000 a year, and the tax threshold for people over the age of 65 rises to R74 000 a year.

All in all, no real surprises here. Foreign Exchange control regulations were bound to be relaxed at some point and Eskom certainly does need the help.’

South African Rand News - Exchange Controls Relaxed

The government has just unveiled the 2008/09 budget and while we have had little time to go through the details, the two stand-out headlines for the Foreign Exchange market are that Eskom will receive ZAR 60bn (USD7.6bn) of funding from the government over the next five years, and that exchange controls on financial institutions'
ability to invest overseas have been relaxed. The Eskom news is positive insofar as the government has shown its commitment to plugging the energy gaps that have recently caused mine closures and other major disruptions. Eskom is reportedly to spend ZAR343bn on power projects over the next five years.
This is
positive news. However, the rand has reacted quite negatively to the news that exchange controls will be relaxed, falling over 1% since the announcement, taking the rand to a fresh 16-month low against the dollar. The limit on overseas investment has been raised from 40% of regulatory capital (imposed in 2005) to 40% of liabilities. Liabilities can exceed capital by 10 times.
However, while this news seems to be quite rand-negative, we would caution that this knee-jerk reaction may be overdone. The existing limits on overseas investment are not nearly being used, and so there is no reason (in theory) that the new limits will trigger an exodus of capital from S. Arica.

S. Africa eases bank restrictions .. USDZAR jumps up after Budget statement

SOUTH AFRICA TO GIVE ESKOM 60 BILLION RAND OVER 5 YEARS SA eases exchanges controls for financial institutions to invest more overseas - see BBG story SA GDP growth seen 4.0% this year

Why European governments dare not let banks fail.

Why European governments dare not let banks fail
Tue Feb 19, 2008 10:07am GMT
By Andrew Hurst, European Banking Correspondent

ZURICH (Reuters) - Whatever their political hue, no European government has dared let a bank go bust since the outbreak of the subprime crisis.
That appears to be one of the lessons after Britain decided at the weekend to nationalise ailing mortgage lender Northern Rock (NRK.L: Quote, Profile, Research) and Germany drew up plans for a fresh bailout of stricken bank IKB (IKBG.DE: Quote, Profile, Research).
Two factors have weighed heavily on governments and regulators in Britain and Germany -- the growing importance of financial services in a post-industrial economy and fear that a bank failure at the height of a global credit crisis could set off a cataclysmic chain reaction.
"When push comes to shove governments will intervene and support banks in a very major way," said Simon Adamson at CreditSights in London. "Banks cannot be allowed to fail especially when markets are in a fragile state."
The collapse of subprime mortgages set off a global credit crisis as banks around the world were forced to write down the value of their investments in complex securities whose value was wiped out as borrowers defaulted on their loans.
The credit crunch has hit banks in different ways, threatening IKB with collapse in July, as the value of its subprime investments wilted, and triggering the first run in 140 years on a British bank as customers besieged Northern Rock.
Switzerland's UBS (UBS.VX: Quote, Profile, Research) has been the biggest casualty among Europe's global banks, taking more than $18 billion (9 billion pounds) in writedowns on its subprime exposures in 2007, but has been able to line up a capital injection from Singapore and the Middle East without seeking help from the authorities.
"Although UBS's writedowns dwarf those of other banks, it can absorb them. It was not in the desperate situation of the Germans or Northern Rock," said Adamson

Australian Dollar rockets as Reserve Bank warns of double interest rate rise

Australian CONSUMERS have been warned there will be no escaping an interest rate hike next month - and it could be a double whammy.Explosive documents released yesterday showed the Reserve Bank Board almost went for the shock treatment earlier this month as it battles to control inflation. Leading economists said yesterday there was a big chance the central bank would push up rates by half of a percentage point next month – double the usual increase. This would ramp up monthly repayments on a $300,000 home loan by $100. It will also lift standard variable rates on home loans to almost 10 per cent and add to the misery of many homebuyers. The Australian Dollar was trading 2.1250 against the pound and 1.6050 against the Euro

full story in

Bank of England Minutes Could Save the British Pound

Bank of England Minutes Could Save the British Pound
by FX Daily
There was no data released from the UK yesterday and as we expected, the Northern Rock story continued to weigh on the British pound.

Nationalization is never good news for a developed country and the credibility of the UK government which has already been dealt a serious blow will come under more fire in the coming weeks. In the meantime, there could be a potential for a British pound recovery today. The Bank of England will be releasing the minutes from their latest monetary policy meeting this morning, along with money supply figures and the CBI Industrial Trends Survey. Although the Bank of England cut interest rates by 25bp earlier this month, the accompanying statement and Quarterly Inflation Report released last week was not extremely dovish. Even though BoE Governor King recognized the downside risks to growth in the Quarterly report, he raised the bank’s inflation forecast and warned that near term inflation will continue to breach their 2 percent goal while running the risk of breaching the government’s 3 percent limit. If inflation rises beyond 3 percent, King would be obligated to write a letter of explanation to Alistair Darling, the Chancellor of the Exchequer. With this even being a remote possibility, it will be difficult for King to justify another rate cut.
EURGBP Euro Pound 0.7462
GBPEUR Sterling - Euro 1.3060
GBPUSD Sterling - US Dollar 1.9275
EURUSD Euro – US Dollar 1.4514
GBPAUD Sterling - Australian Dollar 2.1020
GBPNZD Sterling - New Zealand Dollar 2.4210
GBPCAD Sterling - Canadian Dollar 1.9540
GBPZAR Sterling - South African Rand 15.012
EURSEK Euro - Swedish Krona 9.3274
EURDKK Euro - Danish Krone 7.4516
EURNOK Euro - Norwegian Krone 7.879
GBPSEK Sterling - Swedish Krona 12.3493
GBPDKK Sterling - Danish Krone 9.8657
GBPNOK Sterling - Norwegian Krone 10.4341
GBPJPY Sterling – Japanese Yen 209.46


UK Base Lending 5.50
USA Base Lending 3.00
EUROPE Base Lending 4.00
Annual Euribor 4.75
Monthly Euribor 4.29
3 Month Euro Libor 4.78
6 Month Euribor 4.79
IRPH 5.56