Tag Archive | "Stall Tactics"

Tags: , , , , , , , , , , , , , , , , , , ,

USD Confidence Falls: UK Hits Highs


US equity and currency markets turned lower overnight in the face of political bickering about whether the US government should pay its bills. All three major equity markets turned down at the open on Friday and were poised to give back Thursday’s gains by 10:00 a.m. The dollar also gave ground against a number of currencies despite weakening banking news in Europe and uneasiness in Japan.

In the US, Senators Ted Cruz and Mike Lee continued their stall tactics, defying Republican leadership, and slowed the vote on the debt ceiling-Obamacare defunding bill forwarded by the House. This, in turn, will slow appropriate revisions to be returned to the House that would keep the government open. The delay tactic increased the likelihood of a government shutdown and put the debt ceiling, which will expire on October 17th, into crisis mode.

Investors are not amused. After good employment news on Thursday, The Consumer Confidence Index missed expectations on Friday coming in at 77.5, the lowest level since April 2013. Meanwhile, consumer confidence in the UK was at its highest level since 2007 and even uneasiness in the European banking sector kept consumer confidence in the euro zone higher than in the US.

In early morning trading, the Dow was off 95.05. The S&P 50  was down 9.86 and Nasdaq was 16.33 points lower.

Discord Over European Bank Stress Tests

The euro zone intends to submit its banks to controversial stress tests as a first step in solidifying the region’s banking sector. Capital infusions enabled US banks to reboot their capital reserves but in Europe there is no backstop to ensure that banks are adequately capitalized. This has caused a general tightening of credit markets in the euro zone’s more tenuous economies.

Credit markets in Greece, Italy, Portugal and Spain are frozen. As a result there is virtually no growth in these countries and unemployment remains at record highs.

The stress tests are regarded as important to stabilize international markets and currencies. However, after the stress tests are performed, there is no plan in place to remedy shortfalls. Many banks in the region have insufficient reserves. The net effect of the stress tests will be to highlight weaknesses in the banking sector with no plan to remedy the reserve shortfalls.

The tests administered by the ECB, the European Banking Authority (EBA) and the EU will reportedly be stringent. The ECB will be focused on the euro zone’s biggest banks. The model will be used by the EBA to test the remaining banks in the euro zone through a program known as the Asset Quality Review.

Europe’s top 42 banks are 70 billion euros below new international capital norms. However, analysts suspect that the problems are much bigger ion the euro zone’s smaller banks.

Euro zone purse strings are controlled by Germany who is opposed to the construction on a region-wide re-capitalization plan. Without such a plan, the stress tests will put pressure on governments in the area to boost the banks.

The prognosis is that the absence of testing gives the banks a grace period but the day of reckoning is on the horizon.

Currencies

The USD was down 0.1 percent against a basket of currencies. After gaining 0.3 percent on Thursday.

The biggest move of the day came from the UK where British sterling was up 0.4 percent at $1.6096. The UK recovery appears to be gaining momentum.

The dollar did not fare well against the euro ($1.3558) or the yen 98.280.

Yield on the 10-year Treasury continued its trend toward 2.5 percent and was at 2.62 percent early Friday.

Forex Trading Articles by Forex Blog & Online Forex Trading

Posted in Forex Trading NewsComments Off on USD Confidence Falls: UK Hits Highs

Tags: , , , , , , , , , , , , , , , , , , ,

No Cruz Control: Markets Nervous


Texas Tea Party Senator Ted Cruz finally ended his 21-hour-19 minute self-promotion at the expense of the US taxpayer and global markets on Wednesday at noon. His nonsensical attempt to establish himself as a Tea Party Presidential candidate most likely eliminated any chance Cruz has for being regarded as a serious candidate in 2016.

Cruz’s stalling tactics on the Senate floor included such lofty pursuits as improving his ability to read Dr. Seuss. American taxpayers and global investors were left shaking their heads at the ludicrousness. Once again the contrarian and obstructionist policies of the radical right wing Tea Party came at the expense of the public good and the GOP brand.

With a possible closure of the government in the balance, Cruz first encouraged House Republicans to pass a bill that would defund Obamacare and later acknowledged that the legislation was doomed from the beginning. In efforts to save face and assert himself as a Tea Party favorite, Cruz launched his 21-hour self-serving initiative.

With many senior Republicans opposed to Cruz’s stall tactics, the Republican party appeared more divided than in the past, suggesting that the only way to get meaningful legislation in Washington was for centrists from both sides of the aisle to bond. Bystanders had to question Cruz’s motives. Many Independents and Democrats believe that what conservatives fear is that Obamacare may in fact trim the cost of healthcare and be a successful program.

What makes Cruz’s childish performance more puzzling is the fact that he represents a state with the highest number of persons without health insurance. It is clear that Cruz’s presidential aspirations surpass his willingness to represent the best interests of his constituents. Instead, Cruz is following the big money that Tea Party supporters pile into American politics.

Global Equities Nervous        

The debt ceiling increase has global markets on edge and Cruz’s grandstanding did nothing to calm US or international markets. US equities lost ground for the fourth consecutive day as investors considered the possibility of a government shutdown and default.

Republicans deployed the same strategy in 2011, causing a downgrade of the nation’s credit and billions of dollars in increased borrowing rates. The 2011 debt ceiling strategy unnerved consumers and investors alike.

Treasury Secretary Jack Lew advised Congress that the government would not be able to borrow funds after October 17, when government coiffures would only have about $30 billion. If the debt ceiling is not raised, several important government agencies will not be open for business on October 1.

On Thursday, conversation pointed toward a short-term extension of the ceiling while the House and Senate try to hammer out a longer term deal. It is expected that the Senate will strip the defunding of Obamacare provision and send the debt ceiling increase back to the House on Saturday, giving House Majority leader the opportunity to put the stripped down version to a vote.

However, Boehner may or may not bring the Senate’s bill to the floor. House Republicans are meeting Thursday to strategize. Weakened by Cruz’s performance, most analysts expect the House to pass a temporary quickly but American taxpayers have learned that their government is paralyzed by the most dysfunctional Congress in the history of the nation.

According to a New York Time poll, 80 percent of Americans say it is unacceptable for Congress or the president to threaten shutdowns during fiscal negotiations.

Investors and Taxpayers Uncomfortable

Secretary Lew emphasized that if the government becomes unable to pay its bills, the consequences would be catastrophic. Historically, debt ceiling negotiations have a negative effect on equity markets.

On Thursday, the FTSE 100, Germany’s DAX and France’s CAC 40 all opened lower. Equities in Shanghai and Singapore also opened lower.

On Wednesday, the DOW was off 0.4 percent, the fourth consecutive down day. The S&P 500 lost 0.267 percent, its fifth straight losing day.

The dollar posted modest gains against the yen (98.92), euro ($1.352) and British Sterling ($1.6027). Yields on the 10-year Treasury hovered around 2.64 percent.

Forex Trading Articles by Forex Blog & Online Forex Trading

Posted in Forex Trading NewsComments Off on No Cruz Control: Markets Nervous