Key News
* Lloyds’ Capital-Raising Plan Fails FSA Test, Telegraph Reports (Bloomberg)
* Gain in US Household Wealth Will Help Ease Strain on Spending (Bloomberg)
* US Treasury’s money market guarantee closing down (Reuters)
*Public sector borrowing hits August record (FT)
The Event Agenda
The Afternoon Run Down
Gold has sustained the $1,000 level. Although pulling back a bit today, it’s now had five closes above $1,000 and should challenge the all-time high of $1,032.
Protectionism is heating up, going into next week’s G-20 meeting. G-20 member countries pledged to avoid protectionist policies, yet since their last meeting in April the WTO has a record of 91 protectionist initiatives filed against G-20 countries. The U.S./China dispute weighed on Chinese stocks over night sending the Shanghai index down 3%. When stocks in China fall, risk appetite takes a hit.
The dollar is doing better today across the board on the weaker risk bid, following an eight day slide in the dollar index. The big mover of the day is the British pound.
The UK Lloyds Bank failed to raise enough capital to satisfy an FSA (Financial Services Authority) stress test. The pressure on the pound picked up earlier in the week when the BOE announced that it is considering cutting the interest it pays on bank reserves- a move to get banks lending, and also an indication that the BOE is not nearing the exit doors for QE and easy money policies.
The pound had the biggest weekly drop against the euro since January of this year. With all of the dollar pressure this week, the pound remained the relative loser. And with all of the dollar bears calling the play-by-play of a perceived dollar rout, the dollar index is going into the close of the week barely changed.
Most of the noise in currencies has been relative to gold. For the month of September, gold is up 6.3% against the pound, up 5.9% against the dollar and up 4.1% against the yen.
On Wednesday, Bernanke said that the U.S. recession is “likely over.” It’s not news, but merely a statement of what’s likely a fact. The third quarter ends in less than two weeks and the U.S. economy is expected to print a positive GDP number, technical end to recession. Nonetheless, stocks rallied and interest rates moved higher. And keeping with the tone of the week, the dollar was sold.
We also had the DPJ party take office in Japan. After the finance minister surprised the markets by taking a strong yen stance, he has now moderated his tone saying the government shouldn’t comment on yen rates. Strong currencies remain a serious problem for countries trying to achieve and sustain recovery. And intervention speculation will continue to accelerate.
Key Charts
This technical break in EUR/GBP opens up more weakness for the pound.
Gold sits above the $1,000 mark with a record speculative long position. That makes long positions very vulnerable, as any sharp move lower will have speculators running for the exits…
Prices across several countries this week indicated some slight upward price pressure—still well below target inflation rates.
Chicago Tribune article reported the first half of 2009 was the worst decline of retail sales tax receipts in 20 yrs in the Chicago area. Not estimates, but actual tax receipts…
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