The U.S. trade deficit widened in September by an unexpectedly large 18.2 percent, the largest increase in more than 10 years, as oil prices rose for the seventh straight month and imports from China bounded higher.
Adding urgency to talks President Barack Obama will have with Chinese leaders in coming days, the monthly trade gap grew to $36.5 billion, from a slightly revised estimate of $30.8 billion in August, the Commerce Department said on Friday.
The monthly trade gap grew to $36.5 billion, from a slightly revised estimate of $30.8 billion in August, the Commerce Department said on Friday.
Wall Street analysts had expected the shortfall to grow modestly in September to around $31.65 billion.
Both U.S. exports and imports had their best month since December 2008. But in a sign of renewed U.S. economic growth, imports grew 5.8 percent in September, the biggest monthly gain since March 1993, while exports rose 2.9 percent.
Some analysts had expected more of an export boost because the drop in the value of the dollar against other major currencies makes American goods more competitive overseas.
But "the overall upturn in U.S. demand is trumping the fall of the dollar," said Craig Peckham, an equity trading strategist with Jefferies and Company in New York.
Trade Flows Picking Up
Imports of industrial supplies and materials showed the biggest gain in September, suggesting that U.S. manufacturers are ramping up for production.
International trade flows are picking up as massive stimulus from governments and central banks lift the global economy out of its deepest swoon since the 1930s.
The EU statistics office Eurostate said the euro-zone economy grew 0.4 percent in the third quarter from the second quarter, snapping the region's recession.
The U.S. government said last month the economy grew at an annual rate 3.5 percent in the third quarter after four contractionary quarters.
The average price for imported oil leapt to $68.17 per barrel and imports from the Organization of Petroleum Export Countries increased to $11.9 billion in September, both the highest since November 2008.
A separate report showed U.S. import prices rose for the third straight month in October, pushed up by a jump in the cost of fuel imports and the depreciating dollar.
Import prices advanced 0.7 percent after a revised 0.2 percent increase in September that was previously reported as a 0.1 percent gain, the Labor Department said.
The weak U.S. dollar is helping to lift U.S. exports, but at the same time, analysts cite it as a factor pushing up the price of oil and other commodities.
The U.S. dollar extended losses against the yen after the trade data. Stock index futures held gains, while U.S. Treasury debt prices were steady at lower levels.
"Although import prices were up, they were up less than expected. Again, with the weak dollar, you would have thought you would have seen more inflation on import prices," said Tim Ghriskey, chief investment officer with Solaris Asset Management in Bedford Hills New York.
Trade Gap With China Widens
The closely watched U.S. trade deficit with China widened 9.2 percent to $22.1 billion as imports grew 8.3 percent to $27.9 billion, both also the highest since November 2008.
The overall U.S. trade deficit, including with China, has fallen significantly this year in response to the worst economic downturn in decade.
But the gap with China narrowed just 15.9 percent in the first nine months of the year, compared with much bigger declines for Canada (79.6 percent), the European Union (42.0 percent) and OPEC (71.8 percent).
That has reinforced ideas that China's currency remains overvalued against the dollar, giving Chinese companies an unfair trade advantage.
President Barack Obama is expected to raise concerns about China's exchange rate regime when he meets with Chinese leaders next week in Beijing. On Friday he was in Japan for talks before heading to Singapore for this weekend's annual summit meeting with leaders of the Asia Pacific Economic Cooperation forum.
With U.S. unemployment the highest in 26 years, Obama has said he would press for a rebalancing of world economic growth where countries in Asia would open their markets to more American goods and rely less on exports to the United States and more on their own domestic demand.
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The Fibonacci retracement levels taking the high of the wick yesterday to the low of the wick today projects
50% = 5284
61.8% = 5290
My other variables such as Barclays, BP, BHP Billiton and Marcks and Spencer are not showing any signs or strength.
Add to that the liquidation in oil and the threat that it will breach $77 based on the assumption that EUR/USD is heading lower.
Dollar Index broken above 75.3-75.4 .............resistance = support
There is no argument for this market to higher at present .......
Nov. 13 (Bloomberg) -- President Barack Obama may find on his Asian visit that began today that discontent about China’s currency peg to the dollar isn’t confined to Washington’s lawmakers and business lobbyists.
From Mumbai-based Alok Industries Ltd., which supplies Wal- Mart Stores Inc. with textiles, to Bangkok-based semiconductor packager Hana Microelectronics Pcl, Asian companies say Chinese rivals have an unfair advantage because of the yuan-dollar link. The dollar has declined 14 percent in the past year against the currencies of six major trading partners.
In meetings at the Asia Pacific Economic Cooperation summit in Singapore and then in Beijing, Obama probably will discuss China’s fixed-rate policy, which has prompted central banks in India, South Korea, Thailand and Taiwan to accelerate dollar purchases to curb currency appreciation.
“It’s just outrageous, the impact on their neighbors and on relatively poor countries,” said Simon Johnson, chief economist at the International Monetary Fund in 2007 and 2008 and now a senior fellow at the Peterson Institute for International Economics in Washington.
As Obama seeks to push the Group of 20 goal of rebalancing the world economy from excessive U.S. consumer spending and Asian exports, South Korea’s won gained 8 percent against the yuan in the past six months. Japan’s yen has risen 6 percent, while India’s rupee gained 6 percent and the Thai baht 4 percent. The yuan is a denomination of China’s currency, the renminbi.
Capital Flows
The People’s Bank of China this week said foreign-exchange policy will take into account global capital flows and changes in major currencies and scrapped language in a previous report to keep the yuan “basically stable.” The economy expanded by 8.9 percent in the third quarter from a year earlier.
“There has been a subtle message sent that as China’s economy starts to recover, it’s probably appropriate for the PBOC to move back to a managed float,” Stephen Roach, chairman of Morgan Stanley Asia in Hong Kong, said in an interview. A shift may not be imminent and wouldn’t reach the 15 percent to 20 percent that some U.S. lawmakers have demanded, he said.
Investors see a rising yuan. Twelve-month non-deliverable forwards for the yuan rose 0.2 percent to 6.5925 per dollar as of 3:33 p.m. in Shanghai, signaling trader bets on a 3.5 percent gain from the spot rate of 6.8259. China has kept its currency at about 6.83 per dollar since July 2008, after a 21 percent gain the previous three years.
‘Some Progress’
“This is a more multilateral issue and I am glad the G-20 is looking into it,” Bimal Jalan, former governor of the Reserve Bank of India and a retired lawmaker, said in an interview from New Delhi.
Mahindra & Mahindra Ltd., India’s largest sport-utility vehicle maker, says it is unfair to compete with China in global exports when the rupee floats and the yuan is fixed.
“There should be world pressure on China to respond more to global market forces and play the game right,” Managing Director Anand Mahindra said in an interview in Singapore.
Banks are predicting that an end to the yuan’s peg will allow currency gains across the region. The won will gain 7 percent by the end of the third quarter of 2010 as both the yuan and the rupee appreciate by 3 percent, according to the median forecasts in separate Bloomberg surveys of analysts.
Buying Contracts
“Over time the yuan will gradually appreciate against the U.S. dollar,” said Michael Hasenstab, who oversees $45 billion of fixed-income investments at Franklin Templeton Investments in San Mateo, California and whose $13.2 billion Templeton Global Bond Fund has beaten 98 percent of peers during the past five years, according to data compiled by Bloomberg. He bought yuan forward contracts last year. “The economic recovery is pretty strong in China.”
China’s purchases of dollars to prevent appreciation gave it foreign-exchange reserves totaling $2.3 trillion in the third quarter, the world’s largest. The country is the biggest foreign holder of U.S. government debt, with $797.1 billion in August, up 10 percent from Jan. 1, Treasury data show.
APEC forum finance ministers called for “market-oriented exchange rates that reflect underlying economic fundamentals” in a statement released in Singapore yesterday. They stopped short of naming any currencies.
Obama, 48, and his Chinese counterparts are unlikely to clash on the yuan as he seeks broader cooperation on avoiding trade disputes between the two countries, said Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts and former IMF chief economist.
Bargaining Power
“The Americans have very little bargaining power at the moment,” Rogoff said. “This is going to end when the Chinese decide they don’t want it any more, they want to have a more domestically oriented growth strategy.”
Treasury Secretary Timothy Geithner said yesterday that Asian countries had shown a “commitment to moving over time to a more flexible market-determined exchange system. We’ve seen a lot of progress in that direction over the last several years,” he said in a Bloomberg Television interview in Singapore.
In Washington, Senator Christopher Dodd was less optimistic. Asked in a Nov. 11 Bloomberg Television interview whether Obama should discuss the yuan, the Connecticut Democrat and chairman of the Banking Committee responded: “He’s got to raise that issue. You can’t give your competitor, your adversary in this case, a 40 percent advantage in global economies.”
Congressional Legislation
Steelmakers such as Nucor Corp., the second-largest U.S.- based steelmaker by sales, unions such as the United Steelworkers, corn growers and textile companies have ramped up pressure on Congress to enact legislation aimed at forcing China to raise the value of its exchange rate.
“They’ve had a pretty good deal for a long time,” AFL-CIO President Richard Trumka said yesterday at a Washington conference hosted by Bloomberg Ventures, a unit of Bloomberg LP, parent of Bloomberg News. “They’ve not played by the rules.”
China’s trade surplus will probably be half last year’s level at $200 billion, which means less pressure on the yuan to appreciate, said Liu Yuhui, director of the Center for Chinese Economic Evaluation in Beijing at the Chinese Academy of Social Sciences, which advises the government on policy.
“As global trade is still shrinking, which government would prefer a stronger currency?” he asked. “Most calls for a stronger yuan now come from Europe and other emerging-market countries. Pressure from these countries alone isn’t strong enough. The U.S. doesn’t want a stronger yuan because that would cause a collapse in the dollar in the short term.”
Chinese President Hu Jintao today ignored the currency issue in his speech to APEC leaders, instead focusing on steps the country is taking to boost domestic consumption. reliance on investment and exports for economic growth.
Chinese Consumers
“We have been working hard to improve the consumption environment,” he said. China wants to “increase people’s ability to spend and foster new areas of consumer demand,” he said.
Goldman Sachs Group Inc. yesterday reiterated its three, six and 12-month forecasts for the yuan to stay at 6.83.
Asian nations may also be reluctant to criticize: China’s 4 trillion-yuan ($586 billion) stimulus plan is helping lift their economies from recession. Chinese demand for minerals boosted the Australian economy enough to make it the first country to raise interest rates in the Group of 20.
Asian companies say their governments should take a tougher line.
“Southeast Asia is at a competitive disadvantage if the yuan is linked to the declining dollar,” said Richard Han, chief executive officer at Hana Microelectronics, which competes against Chinese companies.
Han, who also has operations in China, said a rising yuan would further erode any advantage Chinese companies have over rivals in southeast Asian nations. “China is becoming less and less competitive to Thailand,” he said.
Indian Exporters
Alok Industries, which has invested $1 billion in clothing and textile factories in the past five years to match its Chinese rivals, said it will be “difficult” to maintain its current growth pace as a stronger rupee puts pressure on profit margins.
“Indian exporters are getting hit,” Chief Financial Officer Sunil Khandelwal said in an interview in Mumbai. “China now has considerably less international pressure to reform the yuan and capital flows are pressuring the rupee higher.”
Chinese export manufacturers are enjoying their currency’s weakness. Rugged Tu, 33, a sales manager at electric toothbrush- and razor-maker Zhejiang San’an Industry Co., said sales to Europe increased 20 percent this year, as the yuan fell 9 percent against the euro, and remained stable for the U.S.
“I hope the yuan exchange rate will stay steady,” Tu said in a Hong Kong interview. “It matters a lot for the export market, which is very important for China.”
More Dollars
Asian central banks this year have increased their holdings of U.S. dollar assets, including Treasuries, to prevent their currencies from appreciating and thus making exports more expensive relative to China’s. While China’s holdings of U.S. Treasuries rose 10 percent this year, Japan’s increased 16 percent and those in the rest of Asia by 25 percent, according to Bloomberg data.
At the same time, China’s Asia hand has strengthened: It has replaced the U.S. as the biggest trading partner for most of the region’s economies. In 2002, U.S. two-way trade with Japan, South Korea, Thailand, Indonesia, Malaysia and Singapore exceeded Chinese trade with those countries. In 2008, each of those countries traded more with China than with the U.S.
“The dam is really going to burst if America’s can-do president can’t convince the Chinese that it is in their own self-interest to deal with this threat to the global economy,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “No nation on its own can enjoy a trade advantage that benefits its own citizens to the detriment of those in the rest of the world forever.”
As U.S. President Barack Obama prepares for his China visit , China and other Asian countries are under pressure to let their currencies float upwards against the dollar, amid extreme financial uncertainty and the disturbing prospect of political tensions. This is the wrong way to do things. The Sino-American currency relationship is certainly critical to any prospective recovery of the world economy, but we need a new, more revolutionary, approach.
Despite its recent financial woes, the U.S. remains the only actor on the world stage that can break down the barriers impeding the natural flow of capital around the world. These barriers are global, and have a dramatic impact on the destinies of not only the aging and affluent people of the West but also the young but impoverished people of the developing world, including China. These destinies are joined by a very simple economic fact: The old tend to have savings, while the young tend to have energy. To fund their retirements, old people must find young people to whom they can lend. And to start families and businesses, young people must find old people from whom they can borrow.
With the continued rise in American unemployment, despite nearly a trillion dollars in stimulus and over eight trillion dollars in federal subsidies and guarantees to the financial system, this co- dependency should be glaringly obvious. Americans, at the cusp of the biggest retirement wave in their history, must save as they never have before, particularly after the wealth destruction of the past two years.
Two decisive actions would help open the floodgates that separate the capital-thirsty developing world from the capital-rich savers of the West. We need, first, monetary policy to stabilize currencies (currencies of developing nations, in particular) while creating conditions for the rapid development of their domestic capital markets. And we need fiscal and regulatory changes to encourage savings and investment in the United States.
Rather than exporting and saving, America is vacuuming capital out of the rest of the world and going further into debt. Once we exclude the option of admitting a few million skilled, entrepreneurial young immigrants — as Israel did from Russia two decades ago — the present crisis can be solved only by opening the world to American exports and restructuring the American economy to create the necessary export capacity.
The greatest crisis the present administration faces is the collapse of the dollar and its role as the world’s main reserve currency. Paradoxically, preventing the dollar’s collapse also represents a once-in-a-century opportunity for American leadership. U.S. fiscal and monetary policies degrade the dollar’s value and force part of the burden of financing a misguided fiscal stimulus on America’s trading partners.
The United States should instead establish a fixed parity for the dollar with the currencies of its largest trading partners, starting with China. By stabilizing the dollar against the renminbi and, eventually, other currencies, the United States can create a shield behind which the capital markets of developing countries could flourish and capital continue to flow to the United States.
Currently, developed nations can protect themselves against sudden shifts in the flow of capital, but poor nations with nascent capital markets cannot. Currency stability is the first step for the creation of capital markets in the developing world.
The Obama administration (influenced, apparently, by the Keynesian outlook of Larry Summers, director of the White House’s National Economic Council) insists that the U.S. financial crisis endures because Americans save too much and spend too little.
There are two things terribly wrong with this notion. The first is related to the fact that the administration perceives the situation through the Keynesian notion of a diminished “marginal propensity to consume.” But Keynes was constructing a short-run model of a closed economy, and the United States today confronts the accumulation of long-run problems.
The second thing wrong with the administration’s present course stems from an insular focus on spurring consumer spending within the United States, the lip service paid to global cooperation notwithstanding. The solution to the savings–investment disparity does not lie in tinkering with government spending but in helping savers and investors come together across national frontiers. We can correct the balance sheets of both the United States and its trading partners by financing the capital markets in places where young people actually live.
China, in particular, is the natural fulcrum for America’s proper economic policy. China’s requirements for infrastructure and capital equipment are enormous: Two-thirds of its people still live in conditions of extreme backwardness. But rather than invest in its own interior, China has diverted its savings to securities in Western currencies as a rainy-day hedge against potential political and economic disruption.
America should help China stabilize its currency by solemn and formal agreement to link the renminbi to the dollar, and China should in turn make its currency convertible and open its capital market to American institutions. A Sino-American currency agreement would quickly become the point of orientation for the rest of Asia and eventually for other countries.
In effect, China needs to reduce its saving rate drastically while America increases hers. Why would not just letting its currency to be convertible, on its own, without coordinating with the United States, be part of the solution, as some propose?
The simple answer is that China’s capital markets — and by extension its political system — are still too fragile to withstand the tsunami-sized capital flows caused by the dollar’s instability. Dollar devaluation sends capital rushing into China, distorting asset prices. By contrast, a repetition of the global liquidity crisis that followed last year’s failure of Lehman Brothers could provoke massive capital flows out of China, in a repeat of the 1997 Asian crisis. As long as the United States subjects its currency to extreme volatility, China cannot take the risk of making its own currency convertible.
As part of this strategy, America should ease restrictions on Chinese and other foreign investment in American companies. A crucial part of stabilizing the dollar is to increase global demand for dollars, by selling more American assets to reduce America’s overhang of foreign debt.
A partnership on this scale would constitute a revolution in American policy. Opening the world for American exports is half the task. The other half requires our restoring the nation’s export capacity. Despite the present crisis, America remains the world’s strongest platform for innovation. America continues to lead in every field of technology: software, communications equipment, aircraft, biotechnology, and electricity production.
The way to increase American export capacity is economically simple, but it requires visionary political leadership. The United States has been borrowing in order to consume; it needs now to save in order to invest. It needs to shift the tax burden, moving it away from savings and investment and on to consumption. Individual and corporate income tax should be replaced with consumption-based taxes (value-added and sales tax).
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EUR/USD........I am looking to sell at 38.2% and 50%, 1.4910 and 1.4935 respectively and then adjust the stop to 30 points based on the average position. I may also take the trade early as 1.49 depending on the price action.
target = 1.4865 - 1.4825
The FTSE 100 obeyed the following trend lines for the majority of the day until the US session started and we had a necktie formation(when the 20 moving average converge
s with the 50 moving average and trades above it) and broke through the wedge formation to the upside. The FTSE encountered resistance in this region yesterday and also failed to get past this level after it failed an intra day double top.
200 MA will act as support in the interim at 5258 which coincides with the gap down/opening level today.
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The EUR/USD and Oil are at critical juncture.............
$76.50 - 76.8 has attracted buyers in the past, which instrument will find its support first and cause the other to rally and which instrument will give way and cause the other to falter.
The wedge formation is playing out well, bull flag pattern of higher highs and higher lows remains intact. The only concern I have is the liquidation in the EUR/USD which is causing a liquidation in Oil.
