Daily Economy Watch
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Daily Economy Watch keeps an eye on events that affect your hard asset portfolio. View archives.

February 22: Eurozone manufacturing, services contract

Source: Bloomberg

London -- European services and manufacturing output unexpectedly shrank in February as the euro-area economy struggled to rebound from a contraction in the fourth quarter. A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate today. Economists had forecast a reading of 50.5, according to the median of 16 estimates in a Bloomberg News survey. A reading below 50 indicates contraction. Budget cuts by governments may curb the pace of Europe’s recovery as countries across the region battle the sovereign- debt crisis. At the same time, China’s manufacturing may shrink for a fourth month in February, indicating the world’s second- biggest economy remains vulnerable to a deeper slowdown as Europe’s crisis caps exports.

“We see some signs of stabilization, but it’s still too weak to conclude that we’ll be able to avert a recession,” said Jens Kramer, an economist at NordLB in Hanover, Germany. “Germany and France helped counter some of the slack, but tougher consolidation measures in countries like Spain or Portugal will continue, which means that it will probably have a negative impact on the economic performance into 2013.” A gauge of euro-region manufacturing rose to 49 in February from 48.8 in January, Markit said. A measure of services fell to 49.4 from 50.4. In China, the preliminary 49.7 reading of a manufacturing index from HSBC Holdings Plc and Markit compared with a final 48.8 in January. See full story.

February 21: Dollar edges up after Greece rescue deal

Source: Marketwatch

New York -- The dollar edged up against the euro on Tuesday in the wake of a euro-zone agreement to approve a long-awaited bailout for Greece. U.S. stocks gained and bonds fell, indicating the deal made investors feel more confident shifting to riskier from safer assets, which initially boosted the euro. However, analysts cautioned that the deal may undermine Greece’s ability to grow out of its debt burden. The euro briefly fell under $1.32, then lately traded at $1.3251, little changed from $1.3259 when European stock markets closed on Monday. Against the yen, the euro EURJPY +0.06% bought ¥105.63, up from ¥105.38 Monday.

The dollar index, which tracks the U.S. unit against a basket of six major currencies, traded at 79.023, up marginally from 78.885 Monday. U.S. markets were closed Monday for Presidents Day but European markets were open. Euro-zone finance ministers agreed early Tuesday to provide a 130 billion euro ($172 billion) bailout to Greece, the second tranche of a rescue plan for the debt-ridden nation. Also, a private-sector bond swap is set to be launched this week. Private bondholders will take writedowns of 53% on the value of their holdings, up from an earlier proposal for haircuts of around 50% agreed in March. See full story.

February 20: Greece moves toward second bailout

Source: Bloomberg

Brussels -- European governments moved toward a second rescue of Greece, calculating that the 130 billion-euro ($172 billion) cost of a fresh bailout is a price worth paying to prevent a default that could shatter the euro area. Finance ministers are weighing the terms of new loans to Greece and a possible contribution by central banks at a meeting today in Brussels. They also aim to start a bond exchange with private investors meant to stave off a Greek bankruptcy next month.

Bondholders’ response to the swap, Greece’s ability to prolong two years of austerity and a gantlet of parliamentary approvals in northern European countries gripped by an anti- bailout mindset loom as risks to the latest salvage operation. “We still have a bit of work to do,” German Finance Minister Wolfgang Schaeuble told reporters as he arrived for the meeting of euro-area finance chiefs. “We’ve set out to wrap up the decision on a new aid program for Greece. I’m confident.” See full story.

February 17: Oil at 9-month high on geopolitics, Greece

Source: Marketwatch

San Francisco -- Crude-oil futures rose Friday to their highest in nine months as lingering geopolitical worries kept a fear premium in the markets and traders grew optimistic the Greek saga is closer to an end. Oil gained 4.6% this week, advancing for two consecutive weeks. Such weekly gains were the highest since the week of Dec. 23. It is “really hard not to sound like a broken record when it comes to the crude complex currently, as it remains under the influence of Greek debt woes and simmering geopolitical tension,” said Matt Smith, an oil analyst at Summit Energy in Kentucky, in a note to clients.

Recent data showing improvement in the U.S. job, housing and manufacturing markets also helped move crude along, as did renewed optimism Greece will receive what it needs to avoid a disorderly default, he added. The European Central Bank is reportedly conducting a Greek bond swap that would boost chances for an agreement early next week for a second bailout for Greece, analysts said. In the geopolitical front, concerns continued to center around Iran and its reaction to an oil embargo. Outages in Yemen and South Sudan also have contributed to fears of an impeding supply disruption. See full story.

February 16: Jobless claims fall to nearly four-year low

Source: Marketwatch

Washington -- The number of Americans who applied for unemployment benefits dropped last week to the lowest level in almost four years, further evidence of an improving U.S. labor market, government data showed. Initial claims are a good gauge of whether layoffs are rising or declining. They’ve fallen steadily since last summer, an indication that fewer people are losing their jobs and more are finding work. As a result, the unemployment rate has declined to 8.3% from 9.1% last August, though it still remains quite high at this stage of an economic recovery. The Labor Department on Thursday said jobless claims decreased by 13,000 to a seasonally adjusted 348,000 in the week ended Feb. 11. That’s the lowest level since March 2008, when the U.S. was in the early stages of a recession.

Economists surveyed by MarketWatch estimated claims would rise to 368,000. Claims from two weeks ago were revised up to 361,000 from 358,000. Hiring is generally viewed as improving when weekly claims drop below the 400,000 mark. “All in all, the solid downward trend in claims, alongside recent positive employment reports, reinforces our view that the labor market recovery is building momentum,” economist Peter Newland of Barclays Capital said in a note. See full story.

February 15: Dollar gains vs. euro on latest Greek worries

Source: Marketwatch

New York -- The dollar rose against the euro on Wednesday following reports that European officials are considering ways to delay the next bailout payment to Greece for two months. The euro rose as high as $1.3190, before reverting to $1.3067, down compared to $1.3094 from late North American trading on Tuesday. The dollar index, which tracks the U.S. currency against six rivals, traded at 79.641, off its low around 79.098 and very close to its late Tuesday level of 79.607. The shift followed a Reuters report saying European Union finance officials are considering ways of delaying parts or even all of the second bailout program for Greece while still avoiding a disorderly default.

The delay could be until after Greece holds elections, expected in April, according to the news agency. The creditors are considering a bridge loan to cover the €14.5 billion ($19 billion) bond repayment on March 20. “The risk of a default increased after reports from EU sources that euro-zone finance ministers could delay all or part of a Greek bailout until Greece provides the necessary documentation to assure that they will not renege on the deal,” said Kathy Lien, director of currency research at GFT. “Europe and Greece are playing a game of chicken.” The euro stayed lower even after euro-zone officials, following a conference call, expressed confidence that they will be able to sign off on aid for Greece at a meeting on Monday. See full story.

February 14: Dollar hits highest since November vs. yen

Source: Marketwatch

New York -- The dollar rose to its highest level since November against the Japanese yen on Tuesday after the Bank of Japan surprised the market by expanding its asset-purchase program. The dollar advanced against the Japanese yen, trading at ¥78.49 — touching its highest level on a closing basis in three months — and up from ¥77.60 in late trading Monday. It’s the biggest one-day increase since October. The euro jumped 0.6% against Japan’s currency to buy ¥102.73. The dollar index, which measures the greenback against a basket of six currencies, rose to 79.607 from 78.963 in late North American trading on Monday. The yen is the second-heaviest weighted currency in the index, behind the euro.

The Bank of Japan also set a temporary inflation target of 1% and keeping its interest-rate range unchanged at a 0-0.1% range. The central bank said the ¥10 trillion increase in the asset purchases — raising the total to “about ¥65 trillion” — would be earmarked for the purchase of Japanese government bonds. “This is a significant amount of additional easing, and with the BOJ’s preferred measure of core inflation currently running at only -0.1% year-on-year, investors are bound to expect further bouts of monetary accommodation down the road,” said Chris Walker, currency strategist at UBS. See full story.

February 13: Oil at 5-week high on Greece, Iran tensions

Source: Marketwatch

San Francisco -- Crude-oil futures rose Monday to their highest in nearly five weeks after the Greek government passed an austerity program and on concerns about oil supplies amid tensions in the Middle East. The supply fears were stoked after an attack connected to the Israeli embassy in New Delhi and a foiled attempt in Tbilisi, Georgia, that the Israeli government blamed on Iran. Crude for March delivery gained $2.24, or 2.3%, to $100.91 a barrel on the New York Mercantile Exchange, gathering more steam as the trading day progressed. That was oil’s highest settlement since Jan. 10. Concern over Greece and a downbeat demand outlook from the International Energy Agency had sent crude down 1.2% on Friday.

But markets turned more optimistic after Athens passed its key austerity measures early Monday. “Crude prices are on the charge higher today on the back of Greece’s parliamentary approval of austerity measures. With disaster seemingly diverted (well, postponed) by this vote, the flame of risk appetite has been fanned, and the euro and equities are hot to trot,” said analyst Matt Smith, with Summit Energy, in a note to clients. Tensions in the Middle East also resurfaced as Israeli officials blamed Iran for the attacks on Monday. The Delhi attack wounded the wife of an Israeli diplomat and her driver; a bomb strapped to a car connected to the Israeli embassy in Tbilisi was defused. Iran denied involvement in the India attack. See full story.

February 10: Dollar gains on Greece uncertainty

Source: Marketwatch

New York -- The U.S. dollar rose on Friday, reversing losses in recent days, after euro-zone finance ministers delayed approval of a crucial bailout package for Greece, pushing traders back away from the euro and other assets deemed riskier. The dollar index, which measures the greenback against a basket of six currencies, rose to 79.149, from 78.582 late Thursday. The euro fell to $1.3165 from $1.3287 in late North American trading on Thursday. The euro had topped $1.33 in recent days.

The shared currency extended a loss after news reports a junior member of the country’s three-party ruling coalition wouldn’t back the austerity measures and resigned, raising worries about a vote on the package in parliament slated for Sunday. “The strength of the risk rally since the start of the year has left many asset prices and currencies looking stretched,” said Kit Juckes, head of foreign exchange at Societe Generale. “A correction is overdue and even if, as usual, the most likely outcome is that a deal can be patched together over the Greek bailout, uncertainty is as good a catalyst for correction as anything else on a day of limited new news elsewhere.” See full story.

February 9: Euro hits 2-month high on Greece deal

Source: Reuters

New York -- The euro traded in a narrow range after hitting a new two-month high against the dollar on Thursday after Greek leaders agreed to a deal on reforms needed to avoid a messy default and the European Central Bank chief flagged tentative economic improvement in the euro zone. Greece's deal removed an important obstacle for the euro, which had been trading narrowly as investors placed bets based on headlines. With the overhang of Greece out of the way, the euro's strength could prove to be temporary, with the focus likely shifting to larger debt-burdened countries, such as Italy and Spain. Greek political leaders clinched a long-stalled deal on reforms and austerity measures to secure a second international bailout and avoid a chaotic default, hours before the country's financial backers began meeting in Brussels.

"The euro will likely see some more gains in the next few days, largely due to people taking profits on short euro positions," said Chris Fernandes, vice president, senior foreign exchange advisor for the capital markets division of Bank of the West. "While the ECB's LTRO (long-term refinancing operation) gives much more assurance to the euro zone, it is also flooding the market with liquidity and by pushing yields down it also puts downward pressure on the euro." The ECB's second three-year liquidity operation, or LTRO, is on February 29. The central bank funneled banks 489 billion euros at a first three-year ultra-cheap loan operation in December, a measure that had gone a long way to calm financial market turmoil. See full story.

February 8: Jobless decline masks drop in U.S. labor force

Source: Bloomberg

Washington -- Yhe unemployment rate’s unexpected drop to a three-year low has overshadowed a less-positive labor- market development: fewer Americans are looking for work. Last week’s Labor Department announcement that the jobless rate fell to 8.3 percent in January sent stocks and bond yields higher. The same report showed the share of working-age people in the labor force had declined to the lowest level in 29 years.

The so-called participation rate was cited by Federal Reserve Chairman Ben S. Bernanke yesterday to support his assessment that the rate of unemployment obscures vulnerabilities in the job market. Bernanke, speaking to the Senate Budget Committee, confirmed the Fed’s stance that interest rates will stay low at least through late 2014, and repeated his view that the job market is a “long way” from returning to normal. “Weakness in the labor force is frustrating to the Fed, which needs to see broadened participation from labor in this recovery,” said Eric Green, chief market economist at TD Securities Inc. in New York. “What the Fed wants is the real stuff. They want unemployment falling with the labor force rising.” See full story.

February 7: Progress seen toward Greek rescue deal

Source: Marketwatch

Frankfurt -- With pressure mounting, Greek party leaders were reportedly close Tuesday to finalizing an agreement for a second rescue package needed to avert a chaotic default that could propel Greece out of the euro. Several news reports said government officials drafted a final document detailing provisions of a 130 billion euro ($170 billion) rescue package. The document is set to be presented to leaders of the three parties that back Prime Minister Lucas Papademos’s interim unity government at a meeting on Wednesday, after being postponed from late Tuesday. Hopes that the development signals an imminent agreement on austerity measures demanded by the European Union and the International Monetary Fund in return for the rescue package helped lift the euro, which jumped 0.6% against the dollar to trade at $1.3205.

Papademos conducted negotiations with Greece’s so-called troika of international lenders — the IMF, the EU and European Central Bank — that lasted until early Tuesday morning. This followed hard-fought talks between party leaders over the weekend. Greece agreed to lay off 15,000 public-sector workers by the end of the year, meeting one of the demands posed by the country’s international creditors. But party leaders had yet to agree on EU and IMF demands for private-sector wage cuts and other cutbacks they say must be delivered in order for Greece to receive the €130 billion in what would be a second bailout. See full story.

February 6: Dollar up as Greece deal delayed

Source: Marketwatch

New York -- The euro fell for a third day against the U.S. dollar on Monday as Greece struggled against the clock to cut a deal with its international creditors for a second bailout seen as essential to averting a messy default. The dollar index, which measures the greenback’s performance against a basket of six currencies, rose to 79.064, off its high of 79.516, from 78.969 in late North American trading on Friday. The euro -0.07% fell to $1.3124, from $1.3147 Friday.

The leaders of Greece’s main political parties have yet to reach an agreement on further austerity measures demanded by international creditors, while European leaders have upped pressure on Athens to come to an agreement. The additional austerity measures are a pre-condition for Greece to receive its second bailout from the so-called troika — European Union, International Monetary Fund and European Central Bank. Without a deal, Greece is seen as certain to default in mid-March, when a debt repayment comes due. The euro pared its losses late morning after a Greek government minister said the country agreed to lay off 15,000 public-sector workers this year, according to Dow Jones Newswires. However, Greek Prime Minister Lucas Papademos and leading lawmakers postponed a meeting another day until Tuesday. See full story.

February 3: U.S. adds 243,000 jobs in January

Source: Marketwatch

Washington -- U.S. companies hired the most workers in nine months and the nation’s unemployment rate fell to the lowest level in almost three years, according to the government’s employment report for January. The U.S. gained 243,000 jobs last month and the unemployment rate dipped to 8.3% as nearly every sector of the economy added workers, the Labor Department said Friday. The increase in hiring was the biggest since last April and supplies further evidence that the economy continues to strengthen after a slowdown last summer. The U.S. has added an average of 183,000 jobs a month in the past five months.

Hiring has also spread to most sectors of the economy. Jobs were added last month in manufacturing and construction, professional services, retail, health care, and food and restaurant establishments. The increase easily surpassed Wall Street forecasts. Economists surveyed by MarketWatch, for example, predicted the U.S. would add a seasonally adjusted 121,000 jobs last month, with an unemployment rate of 8.5%. Investors reacted positively. The Dow Jones Industrial Average ended at its highest level in more than four years. See full start.

February 2: Dollar pares gains as euro cuts losses

Source: Marketwatch

New York -- The dollar pared gains Thursday and the euro cuts its losses as a drop in U.S. jobless claims to their lowest level in nearly four years dulled investor interest in the dollar as a safe haven. Investors also continue to await final word on talks over writedowns on Greek debt held by private bond holders. The ICE dollar index, which measures the performance of the U.S. unit against a basket of six other currencies, stood lately at 79.010, down from an earlier high of 79.203, but still up from 78.925 late Wednesday.

U.S. jobless claims dropped by 12,000 to a seasonally adjusted 367,000 in the week ended Jan. 28, the Labor Department said Thursday. Economists surveyed by MarketWatch had estimated claims would drop to 370,000. “Giving today even more dissonance and complications is the continued strength in jobless claims data, suggesting the U.S. economy could be strong enough to drive earnings a bit higher,” said Richard Hastings, a macro strategist at Global Hunter Securities. “So it’s lots of conflicting data points.”

February 1: Markets warm to European debt

Source: Reuters

Brussels -- Cautious optimism that the euro zone crisis may be turning a corner fuelled demand for European government debt on Wednesday, easing pressure on Portugal, seen as the most vulnerable country after Greece. Portuguese bonds led a rally in debt issued by the euro zone's lower-rated states, capitalizing on a successful treasury bill auction and on increased confidence a deal to reduce Greece's debts to private bondholders will be clinched this week.

Ambitious economic reform programs announced by the new governments of Italy and Spain have helped improve market sentiment around the euro's future, although there are concerns that a deep recession in southern Europe may yet derail debt reduction efforts. Meanwhile, there was fresh evidence that the European Central Bank's flooding of European banks with cheap, three-year money is easing lending among banks and improving investors' willingness to take risk. See full story.

January 31: Euro falls after U.S. data

Source: Marketwatch

New York -- The dollar turned up against the euro on Tuesday, as weaker-than-expected U.S. data made traders shift away from riskier assets like stocks and towards relative safe holdings, including Treasury bonds and the greenback. The shared currency was higher during European trading hours, after European leaders late in the previous session notched a widely-expected agreement aimed at enshrining stricter and more enforceable debt limits and Greece’s prime minister said a deal with private debt holders was likely by the end of the week. The euro turned down to $1.3086, after topping $1.32 earlier, from $1.3117 late Monday in North America.

The ICE dollar index, which tracks the greenback against six currencies, rose to 79.278, from late Monday’s 79.220. The high amount of short positions in the euro — bets on a further decline — have caused periodic bounces in the shared currency, most frequently following positive news on the European debt crisis, said Boris Schlossberg, director of currency research at GFT. Following Monday’s news was a good example: the euro recovered after leaders of all but two of the European Union’s 27 nations approved a new fiscal compact, which is seen as a precursor to tighter fiscal union across the 17-nation euro zone. Britain and the Czech Republic, which aren’t euro members, opted out. See full story.

January 30: Euro pared losses as EU leaders meet

Source: Marketwatch

New York -- The dollar rose against the euro and other major currencies Monday, regaining some of the ground lost last week, amid ongoing worries over Greece and the region’s sovereign-debt crisis. The euro briefly fell under $1.31, but managed to recoup some of its losses as European leaders gathered for the first summit meeting of 2012. The benchmark, which measures the U.S. unit against a basket of six other currencies, rose to 79.220, from 78.854 late Friday. The euro -0.05% fell to $1.3117 from $1.3216 in late North America Friday.

Going into a summit meeting in Brussels, tensions between Greece and Germany were on the rise. Greek officials rejected a proposal by Germany, the largest European economy, to give the European Union veto power over Athens’s spending plans. “The dollar is broadly stronger against most major and emerging-market currencies as risk appetite dwindles on continued uncertainty over the developments surrounding Greece and French President [Nicolas] Sarkozy’s pledge to impose a financial transaction tax starting in August,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. He also noted yields on Italian debt were rising, as were yields for Portugal — which already accepted a bailout but may face the same issues that Greece has yet to resolve, said Dan Greenhaus, chief global strategist at BTIG. “Whatever is worked out for Greece would eventually serve as the blueprint for Portugal.” See full story.

January 27: Dollar slips; Greek hopes buoy euro

Source: Marketwatch

New York -- The dollar lost ground versus major currencies on Friday, with the euro finding support after a top European Union official said Greece and private creditors are near an agreement on voluntary write-downs on Greek-government debt. The dollar stayed down after reports showed the U.S. economy grew at a slower pace than forecast in the fourth quarter and a rise in January consumer sentiment. The ICE dollar index, which measures the greenback’s moves against a basket of six major currencies, fell to 78.854, from 79.416 in North American trade late Thursday. The euro rose to $1.3216, up from $1.3107 Thursday.

Olli Rehn, the EU’s commissioner for economic and monetary affairs, told a panel discussion in Davos, Switzerland, that the Greek government and negotiators were close to a deal, which could be inked over the weekend. Talks between representatives of private creditors and the Greek government have dragged on amid disagreements over the interest rate Greece should pay on new bonds issued as part of a planned swap necessary for Greece to avoid defaulting on a large debt payment in March. “Hopes of seeing a Greek PSI [private-sector involvement] deal has helped to prop up the euro on Friday, but the below-forecast U.S. GDP report has dragged on market sentiment as it dampens the outlook for global growth,” said David Song, currency analyst at DailyFX. See full story.

January 26: Dollar recovers from 7-week low

Source: Marketwatch

New York -- The dollar fell to a seven-week low against major currencies on Thursday, then recovered some as U.S. stocks extended losses following a slew of U.S. economic reports on jobless claims, durable-goods orders and new-home sales. The move comes a day after the Federal Reserve said interest rates may remain at ultralow levels until late 2014, reducing the appeal of the greenback to international investors. The ICE dollar index, which measures the U.S. unit against a basket of six major currencies, fell to 79.416 from 79.563 late Wednesday in North America. It touched its lowest level on a closing basis since early December and is well below its 80.131 level ahead of the Fed’s policy announcement.

The euro rose to $1.3107 from $1.3091 late Tuesday, after hitting its highest level of the new year. The dollar initially extended losses after a pair of U.S. reports showed jobless claims rose to 377,000 in the latest week and durable-goods orders jumped 3% last month — both higher than economists expected. See full story.

January 25: Dollar falls to low for the year after Fed

Source: Marketwatch

New York -- The U.S. dollar turned down against major currencies on Wednesday, pushing the euro to its highest level since late December, after the Federal Reserve said it would keep interest rates exceptionally low for more than a year longer than it has previously stated. The greenback extended its decline after the Fed released individual voting members’ interest-rate expectations and Fed Chairman Ben Bernanke’s news conference. The ICE dollar index, which measures the U.S. currency against a basket of six major units, fell to 79.563 from 80.131 before the release and versus 79.853 in North America late Tuesday. The euro turned up to $1.3091 from $1.2984 earlier and $1.3026 late Tuesday. The euro briefly touched $1.31, a level it hasn’t closed above since Dec. 20.

The Federal Open Market Committee said in a statement that economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.” Keeping rates so low for so long raises the chance, in analysts’ eyes, that the Fed will find reason to expand its bond-purchase program, which has been called quantitative easing. “‘Rates stay super-low until economic recovery’ is much, much stronger and the odds of more QE remain extremely high,” Kit Juckes, chief currency strategist at Societe Generale, wrote in emailed comments. “In FX terms, this is still debasement/devaluation.” See full story.

January 24: Greek economy to implode: Hanke

Source: Marketwatch

New York -- Whether or not Greece is able to reach an agreement on the restructuring of its debt, the country is set to “implode” as the economy contracts, according to Johns Hopkins University’s Steve Hanke. “The game is completely over,” Hanke, professor of applied economics, said at the Bloomberg Sovereign Debt Crisis Conference in New York hosted by Bloomberg Link. “All the calculations are nonsense and have been since day one. Since the crisis began the money supply has been shrinking and the economy is going to implode, no matter what they do in the short run.”

Money supply is shrinking at an annual rate of about 16 percent in Greece, meaning there won’t be growth needed to support debt payments, Hanke said. Greece is pursuing talks on a debt swap with private creditors that would lower Greece’s debt to 120 percent of gross domestic product by 2020. European governments have sought to fill a deeper-than-expected gap in Greece’s finances by having investors accept a lower interest rate on exchanged bonds. The International Monetary Fund cut its forecast for global growth today and warned that the European debt crisis threatens to derail the world economy. The fund, in an update of its World Economic Outlook report, lowered its estimate for global growth this year to 3.3 percent from a September forecast of 4 percent. See full story.