Tag Archives: Dollar

World’s Top Currency Trader Sees Dollar Judgment Day With Jobs

Bloomberg, May 5, 2016

usdollar_stack

* Greenback has scope for losses, Citigroup’s Englander says
* Economists predict payrolls swelled by 200,000 in April

A day of reckoning looms for the dollar, according to Citigroup Inc., the biggest trader in the $5.3 trillion-a-day currency market.

The greenback gained a second day Wednesday, paring a recent selloff that saw the currency touch a one-year low. Traders are girding for a payrolls report that may dictate whether the Federal Reserve raises interest rates in June, according to Steven Englander, Citigroup’s global head of Group-of-10 currency strategy. A private report showed U.S. employers added fewer workers last month than forecast, muddying the outlook for benchmark borrowing costs.

The Fed is scrutinizing data before its June meeting for signs the U.S. economy is able to withstand tighter policy after the central bank lifted rates from near zero in December. As U.S. policy makers have reiterated that an interest-rate increase at their June meeting is “a real option,” the spotlight has swung to economic data. The Labor Department report due May 6 is forecast to show the third straight month with payroll gains of 200,000 or greater.

“This is like judgment day for the Fed, with respect to whether they really think there’s a chance that June is live,” New York-based Englander said by phone. “That makes the dollar very sensitive.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, rose 0.5 percent on Wednesday in New York, after reaching an almost one-year low on Tuesday. The gauge was little changed as of 7:55 a.m. in Singapore. The U.S. currency retreated 0.1 percent to 106.94 yen and was at $1.1490 per euro.

The greenback’s retreat in 2016 has eroded more than half its 9 percent surge last year, roiling global markets and complicating the task of central banks around the world that need weaker currencies to boost their economies. The dollar fell for a third straight month in April, the longest stretch since before it embarked on a 20 percent rally in July 2014.

Jobs Watch

Figures from the ADP Research Institute on Wednesday showed U.S. companies added 156,000 workers in April, falling short of analyst estimates. Economists are predicting payrolls climbed by about 200,000 last month after a 215,000 increase in March. A figure below 130,000 would likely take a rate rise off the table, Englander wrote in a note to clients.

“On a bad number, we would see the dollar weaken,” Englander said. “The unwinding of the dollar strength is far from complete.”

The greenback slumped as much as 0.7 percent on Oct. 2 when payrolls fell 58,000 short of forecasts as traders scaled back expectations for Fed rates. Futures contracts show a 10 percent likelihood of an increase in June, and a 52 percent probability for December. The calculation assumes the effective fed funds rate will average 0.625 percent after the central bank’s next increase.

Hedge funds increased wagers on dollar weakness last week after turning net bearish on the currency versus eight peers for the first time since 2014 a week earlier.

Forecasters expect the dollar to strengthen to $1.10 per euro and 115 yen by year-end.

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John Rubino: How Stupid Do You Have To Be To Let This Happen?

By John Rubino, Mar 27, 2016

How Stupid Do You Have To Be To Let This Happen?

Europe is the birthplace of Western civilization and the source of most of the trends and bodies of knowledge that define modernity. The average European speaks several languages versus sometimes less than one for Americans. They are, in short, a well-schooled people with vast accumulated wisdom.

So how do we explain this: After World War II most European countries set up generous entitlement systems including government pensions designed to offer dignified retirements to citizens who had worked hard and paid taxes and obeyed the rules for a lifetime. BUT they didn’t bother putting anything aside for the inevitable — and mathematically predictable — retirement of the immense baby boomer generation. Here’s an excerpt from a recent Wall Street Journal article outlining the problem:

Europe Faces Pension Predicament

State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared.Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers.

“Western European governments are close to bankruptcy because of the pension time bomb,” said Roy Stockell, head of asset management at Ernst & Young. “We have so many baby boomers moving into retirement [with] the expectation that the government will provide.”

The demographic squeeze could be eased by the influx of more than a million migrants in the past year. If many of them eventually join the working population, the result could be increased tax revenue to keep the pension model afloat. Before migrants are even given the right to work, however, they require housing, food, education and medical treatment. Their arrival will have effects on public finances that officials have only started to assess.

A Growing Mismatch
The pension squeeze doesn’t follow the familiar battle lines of the eurozone crisis, which pits Europe’s more prosperous north against a higher-spending, deeply indebted south. Some of the governments facing the toughest demographic challenges, such as Austria and Slovenia, have been among those most critical of Greece.

Germans, meanwhile, “are promoting fiscal rules in Spain and other countries, but we are softening the pension rules” at home, said Christoph Müller, a German academic who advises the EU on pension statistics. He pointed to a recent change allowing some workers to collect benefits two years early, at 63. A German labor ministry spokesman called that “a very limited measure.”

Europe’s state pension plans are rife with special provisions. In Germany, employees of the government make no pension contributions. In the U.K., pensioners get an extra winter payment for heating. In France, manual laborers or those who work night shifts, such as bakers, can start their benefits early without penalty.

Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69.

In 2012, the Polish government launched a series of changes in its main national pension plan to make it more affordable. One was a gradual rise in the age to receive benefits. It will reach 67 by 2040, marking an increase of 12 years for women and seven for men. The changes mean the main pension plan now is financially sustainable, said Jacek Rostowski, a former finance minister and architect of the overhaul.

The party that enacted the changes lost an election in October, however, and a central promise of the winning party is to undo them. Recently, Poland’s president introduced a bill to reverse some of the measures. “You have to take care of people, of their dignity, not finances,” said Krzysztof Jurgiel, agriculture minister in the current Law & Justice Party government.

The implication is that Germany, Italy, Spain, France et al are functionally bankrupt, apparently (amazingly) by choice. They saw the avalanche coming decades ago and instead of getting out of the way or reinforcing their chalets, simply sat there watching the snow roll down the mountain. It will be arriving shortly, and they’re still debating what — if anything — to do about it.

In fact the only thing that can be reasonably described as preparation is the decision to ramp up immigration. This might have worked if Europe had chosen more compatible immigrants, but that’s a subject for a different column. For now let’s focus on insanely stupid choice number one, which is to offer entitlements with no funding mechanism other than future tax revenue. If an insurance company or corporate pension plan did something like that its executives would be led away in handcuffs — rightfully so, since the essence of such deferred-payout entities is an account that starts small and grows to sufficient size as its beneficiaries begin to need it.

So what the Europeans have aren’t actually pensions, but a form of election fraud designed to give an entire generation of politicians the ability to offer free money to voters without consequence.

Soon, a whole continent will be left with no choice but to devalue its currency to hide the magnitude of its mismanagement. The math will work like this: devalue the euro by 50% while raising pension payouts by 20%, thus cutting the real burden significantly — while taking credit for the nominal benefit increase at election time. It might work, based on the level of voter credulity displayed so far.

Now here’s where it gets really interesting. The US “trust funds” that have been created to guarantee Social Security and Medicare are full of Treasury bonds, the interest on which is paid from — you guessed it — taxes levied each year on US citizens. So the only real difference between the European pay-as-you-go and US trust fund models is that the former is more honest.

This is why gold bugs and other sound money people are so certain that precious metals will soon be a lot more valuable. The pension numbers are catastrophic everywhere and the reckoning that was once merely inevitable is now imminent. Europe is a little further along demographically and so might have to devalue its currency first, but $80 trillion in unfunded Medicare liabilities can’t be denied. We’ll be following along shortly.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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John Rubino: Well That Didn’t Work

By John Rubino, Mar 18, 2016

Well That Didn’t Work

The Bank of Japan and European Central Bank eased recently, which is to say they stepped up their bond buying and/or pushed interest rates further into negative territory. These kinds of things are proxies for currency devaluation in the sense that money printing and lower interest rates generally cause the offending country’s currency to be seen as less valuable by traders and savers, sending its exchange rate down versus those of its trading partners.

This was what the BoJ and ECB were hoping for — weaker currencies to boost their export industries and make their insanely-large debt burdens more manageable. Instead, they got this:

Yen March 16

Euro March 16

Both the yen and the euro have popped versus the dollar, which means European and Japanese exports have gotten more rather than less expensive on world markets and both systems’ debt loads are now harder rather than easier to manage. And it gets worse: Japan’s yield curve has inverted, meaning that long-term interest rates are now lower than short-term rates, which is typically a harbinger of recession. Here’s a chart from today’s Bloomberg:

Japan yield curve March 16

This sudden failure of easy money to produce the usual result is potentially huge, because the only thing standing in the way of a debt-driven implosion of the global economy (global because this time around emerging countries are as over-indebted as rich ones) is a belief that what worked in the past will keep working. If it doesn’t — that is, if negative interest rates start strengthening rather than weakening currencies — then this game is over. And a new one, with rules no one understands, has begun.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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John Rubino: Is This The End? Draghi Fires His Bazooka And Markets Turn Away In Disgust

By John Rubino, Mar 10, 2016

Is This The End? Draghi Fires His Bazooka And Markets Turn Away In Disgust

ECB chair Mario Draghi delivered big-time this morning by announcing lower interest rates and a new round of debt monetization. Historically, this kind of thing has sent the financial markets into Pavlovian ecstasy, with stocks soaring and the local currency falling.

Sound money people have for years been warning that such New Age monetary policies are poison and that the markets would eventually wise up and react accordingly. Today, finally, that’s what they did. European stocks popped on the news — then dropped.

Euro stocks post Draghi March 16

The euro did the opposite, dropping then popping:

Euro March 16

And the US dollar, which in a rational Keynesian world should soar as its main competitor is inflated away, fell hard:

Dollar index post Draghi March 16

US stocks, as this is written at 1 pm EST on Thursday, are down and gold is up big, which implies that markets now view negative interest rates and central banks buying corporate bonds and equities as signs of profound failure rather than innovative genius.

It is now clear that the only reason a government would resort to such things is that its previous policies haven’t worked. In which case there’s no reason to think the next batch will do any better. Which in turn implies that financial assets are a dangerous place to be while chastened monetary authorities sort out their misconceptions and rework their models.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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Why China is pumping huge sums into its financial system

CNN Money, Jan 26, 2016

A pedestrian walks past a Chinese yuan currency sign in Hong Kong on August 11, 2015.  China's central bank cuts the reference rate for its yuan currency against the US dollar by almost two percent, reportedly a record reduction, as it seeks to bolster flagging economic growth.  AFP PHOTO / Philippe Lopez

China is pumping huge sums of money into its financial system to stave off a cash crunch.

The reason? An upcoming major holiday combined with massive capital outflows from the world’s second-largest economy.

The festivities of Chinese New Year, which falls in early February this year, put pressure on the financial system as people splash cash on gifts, meals and travel.

The People’s Bank of China, the central bank, typically pours extra funds into the system ahead of time.

“If it didn’t, the increased demand for cash during the holiday would cause liquidity conditions to tighten significantly,” Julian Evans-Pritchard, China economist at Capital Economics, wrote in a recent report.

But this year, the stakes are particularly high. Chinese financial markets have been in turmoil amid concerns over the country’s slowing economy and weakening currency.

Many investors are moving funds out of the country, seeking better returns elsewhere. The outflows last year are estimated to have reached a whopping $676 billion, according to one financial industry group.

The money gushing out of the country makes life trickier for the central bank.

“On top of seasonal cash demand, the challenge looms larger this year due to capital outflows,” economists at HSBC said in a research note this week.

The central bank has responded with a series of aggressive measures to inject more cash into the system and has pledged to do more after meeting with commercial banks late last week.

On Tuesday, it said it was injecting 440 billion yuan ($67 billion) into the system.

That’s the most it’s offered on one day in nearly three years, according to Bloomberg, and follows hundreds of billions of yuan it pumped in last week.

But Tuesday’s move didn’t help calm the country’s volatile stock market. The Shanghai Composite plunged more than 6%.

Analysts say the flood of cash is a way for the central bank to ease monetary conditions without resorting to more traditional tools, like allowing commercial banks to lend more money or cutting benchmark interest rates.

The central bank used those tools repeatedly last year as economic growth waned and the stock market tanked.

But it may be reluctant to employ traditional measures too quickly this year, economists suggest, because of concerns they could intensify downward pressure on the yuan.

The Chinese currency fell sharply against the dollar at the start of this month, unsettling investors who feared it would continue to weaken.

Pumping extra cash into money markets has bought the central bank some time, analysts say, but it is still likely to have to go back to standard monetary policy tools later this year to deal with the raft of challenges the economy is facing.

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