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... from IDEApro Suite
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[NOK] Election outcome up in the air
The latest poll today by the Aftenposten newspaper shows the governing 3-party coalition and its Progress party supporters would get 84 of 169 Parliamentary seats, one short of a majority. Meanwhile, Labour's "Red-Green" alliance would have 82 seats, the unaligned Coastal party would have 2 and the Communists 1. This would give these small parties a potentially decisive role, and the Coastal party says it is undecided who it would support. Another poll by the Verdens Gang newspaper showed the governing coalition with a majority of 85. These estimates reflect the Liberal party, which is part of the centre-right coalition, getting more than 4% of the vote, which would entitle it to 7-8 seats instead of one. While momentum seems to have shifted in the govt's favour, the outcome is clearly on a knife edge.
In one way it wouldn't be surprising to see the current govt re-elected, as Norway's economy is doing well. And there are no particular reasons for dissatisfaction other than a public preference for more funding of public services at the expense of the wealthy. But even if the centre-right manages a Parliamentary majority, PM Bondevik of the Christian Democrats may still not be able to keep his job (which he has held for 6-1/2 of the last 8 years). The support of the Progress party he relies on is conditional on a new PM, which may be Ms Erna Solberg of the Conservative party. The other alternative PM is Progress Party leader Karl I Hagen himself. While as influential head of the country's second-largest party after Labour, this may not seem surprising. But by espousing populist -- free spending, anti-immigrant -- policies, Hagen is an anathema to the mainstream parties and thus would be an unlikely choice. We will not seriously consider this 'wildcard' scenario.
By contrast, either a continuation of the centre-right or a regaining of power by Labour's Stoltenberg would enjoy market credibility. After all, Stoltenberg, a trained economist and PM during 2000-2001, can be considered an advocate of 'New Labour'. In fact, it was under his administration that state oil company Statoil was part-privatised. Labour's record of fiscal responsibility is also about the same as the centre-right govt -- although unsurprisingly it favours relatively higher social spending and higher taxes. The net effect of such Labour priorities on the 2006 budget could be slightly expansionary for the economy. EU membership is controversial between all the parties, so little movement in that direction is expected in any case.
Market implications are relatively muted. While NGBs would tend to be most vulnerable to a Labour victory, implications are more ambiguous for NOK. On one hand, currencies tend to benefit from presumably more pro-market conservative governments, but also from the higher expected interest rates associated with the left. In any case, the FX market has evidently become relaxed about the election, after NOK has strengthened recently to 2-year records. In any case, the removal of election uncertainty next week should support our call for EUR/NOK to drop to/below 7.70 by end-month. We also continue to expect NGBs to continue their gradual underperformance.
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... from IDEApro Suite [CAD] FX Alert- BOC HIKES ANOTHER 25 BPS--The Bank of Canada hiked another 25 bps, bringing its overnight rate to 0.75%. Although the committee was pleased with jobs being added in Canada, it was concerned about the sustainability of the global economic recovery. Carney et al cited the usual suspects: balance sheet repair by corporations and consumers; European budget deficits and austerity measures; and mixed economic data from the United States, its largest trading partner. The Bank of Canada reduced its GDP forecasts for 2010 (3.5% from 3.7%) and 2011 (2.9% from 3.1%). However, it raised the 2012 growth expectation to 2.2% from 1.9%. The BOC saw no threat of inflation and future rate moves dependent on domestic and global developments.
7/20/2010 7:08:07 PM
Read [USD] FX Alert: Decoupling is alive and will kill the USD--We have stated for sometime that our FX Strategy was based on view that the market will not believe signs that the US economic recovery loosing steam (fiscal stimulus running out and the overhang of unsold properties dampening the recovery) will drag the rest of the world down with it. This theory was discredited last year after the synchronised global downturn of 2008. However that downturn was caused by a global banking crisis. It is almost impossible for any economy to withstand a global shock unless it is a completely closed economy. Originally decoupling described the belief that global growth depended on US consumption growth -hence the phrase 'when the US sneezes the rest of the world catches a cold'. The latest evidence suggests that the global economy is indeed decoupling from US economic growth prospects.
7/16/2010 6:57:56 PM
Read [EUR] FX Alert: Still no policy credibility left increasing risks to GBP--A couple of months ago we wrote in an FX Alert entitled 'No policy credibility left in the UK' that both monetary policy and fiscal policy were likely to loose credibility and prove GBP negative. The evidence is mounting even faster than we had anticipated on all fronts and in our favour (i.e. GBP negative). More importantly this view is increasingly being reflected in the wider financial press. In yesterday's FX Comment we cited the widely reported reasons on how the newly established Office for Budget Responsibility had essentially lost all credibility for independence (in record time). It was supposed to bring some credibility to the UK government's growth and debt projections. But as the FT newspaper pointed out last Friday, the OBR's assumptions on trend growth, public/private sector jobs growth and implications of the Emergency Budget on UK growth prospects conveniently clearly favoured the current coalition government's policy judgements (i.e. faster pace of fiscal consolidation was needed).
7/13/2010 7:30:26 PM
Read [USD] FX Alert - June Non-Farm Payrolls Decrease -125K - The June Labor Department employment situation report revealed a decrease of -125k in non-farm payrolls, versus the revised +433k increase that occurred in May (prev. +431k), just above market expectations for a -130k decrease. This comes alongside a decrease the unemployment rate to 9.5% (lowest reading since July 2009), below expectations for a 9.8% reading. Meanwhile, average hourly earnings came in -0.1% m/m (+1.7% y/y), versus the revised +0.2% m/m (+1.9% y/y) increase seen in May (prev. +0.3% m/m, +1.9% y/y). Meanwhile, average weekly hours edged lower to 34.1 in June (down from 34.2 in May). According to the release, the headline reading was weighed down by the unwinding of census activity, reflected in a -198k decline in Federal Government jobs. Private sector jobs increased +83k, roughly in line with downwardly revised expectations seen in the wake of Wednesday's ADP employment release.
7/2/2010 7:23:31 PM
Read [INT] FX Alert GO SHORT GBPJPY--When we look around the majors to find a trade recommendation that will give us the best bang for our buck, we believe going short GBPJPY is the option to choose. We feel that the recent run-up of GBP, brought on by UK's budget proposal and BOE's Sentance's comments about hiking rates, will be short-lived as the budget cuts will strangle growth in the UK eventually. The tax increases and spending cuts, projected to total about 135 billion pounds over the course of several years, will reduce UK's GDP figures. Additionally, hopes of revenue expected to come through trade will be dampened as UK's European trading partners are experiencing fiscal austerity measures as well. The Office of Budget Responsibility (OBR) estimates that 1.3 million jobs will be lost, with 600k coming from the public sector, and 700k coming from the private side. Yet, the same office believes that the economy will grow 2.3% in 2011 and 2.8% a year for the next four years. This may be too optimistic as some analysts expect a 1% GDP growth next year. There is even talk of more quantitative easing if the economy doesn't jumpstart.
7/1/2010 7:13:07 PM
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