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New Zealand Trade Balance Soars on 11.6% Decline in Imports

New Zealand’s trade balance in February improved substantially from that which was expected. The figure jumped to 489.0 million from an expected 75.0 million after imports fell 11.6%.

The alleviating news comes just a day after Bill English, the nation’s Minister of Finance, said that the current account gap is “uncomfortably large.”

Imports fell as the New Zealand Dollar continued to stifle the purchasing power that domestic residents had for goods produced abroad. The first two months of the year saw their currency depreciate 16.57% against its U.S. counterpart and 9.12% against a trade-weighted basket of currencies.

The amount of goods shipped to the country from Europe fell by a staggering 21.3% and 14% from Asia.

– LG


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European Union President Says Obama Stimulus is The ‘Road to Hell’

The head of the European Union slammed President Barack Obama’s plan to spend nearly $2 trillion to push the U.S. economy out of recession as “the road to hell” that EU governments must avoid.

The blunt comments by Czech Prime Minister Mirek Topolanek to the European Parliament on Wednesday highlighted simmering European differences with Washington ahead of a key summit next week on fixing the world economy…


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Geithner Open to China Using Non-Dollar as Reserve; Dollar Plummets

WIRE: Geithner was initially asked at a Council on Foreign Relations event in New York about proposals from People’s Bank of China Governor Zhou Xiaochuan for a new international reserve currency. He said “as I understand his proposal, it’s a proposal designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that…”


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Euro Central Bank President Trichet Says Deflation Won’t Hit Euro-Area, No Fiscal Stimulus

European Central Bank President Jean-Claude Trichet spoke to the Wall Street Journal and was quite reluctant to acknowledge some of the 16-nation currency bloc’s financial problems. He said that Europe does not need to use fiscal policy as liberally as the United States has.

He took some shots at the global financial community, stating that it is unjustified to criticize Europe for its lack of conviction in battling this crisis. Nonetheless he did offer his own critique of the U.S. situation, stating that the U.S. should be ‘quick’ on implementing a rescue plan and on settling on a final budget.

As far as monetary policy is concerned he said that zero interest rates would not be “appropriate” and that there are “drawbacks” to such a policy. He did, however, acknowledge the obvious, that the economic trend remains “downward.” While he did not give any specifics as to his ideal interest rate target, he did suggest that the bank could lower rates below the current 1.5% mark. Nonetheless, despite the difference in approach taken by the Federal Reserve and the ECB, central banks are not in a “race,” he noted.

Ultimately, he has confidence in the experts that say that deflation will not hit the Euro-Area.

We could see the Euro rally as the news of this interview disseminates among the public. As dwarfed expectations of deflation loosen the notion of a zero-interest rate policy, those seeking yield may send their money to Europe and hence prop up the 16-nation currency.

– LG

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The Federal Reserve’s aggressive unconventional policy measures to revive dormant credit markets have again pushed the central bank’s balance sheet above $2 trillion, according to data the Fed released on Thursday.
Liabilities on the Fed’s balance sheet rose to $2.050 trillion as of March 18 from $1.882 trillion the previous week. That number is expected to continue rising following a new vow in the Fed’s policy statement this week to spend over $1 trillion more in buying Treasuries and mortgage bonds…

Bloomberg: The size of the Federal Reserve’s balance sheet climbed 8.8 percent to $2.07 trillion in the past week as the central bank snapped up mortgage-backed securities in its campaign to lower U.S. home-loan rates.

Filed under: Economics, Politics, , , , , , , , , , , , , ,

N.Z. Prime Minister Key Sees Nation Emerging Stronger After Tax Cuts

New Zealand Prime Minister John Key said that the nation’s economy will emerge from this recession much stronger. “I, for one, am confident that New Zealand can come out of this recession stronger than many other countries,” Key said. “These tough times could be a springboard for much better times ahead.”

Since reaching a high of 0.8213 in late Feb. 2008, the New Zealand Dollar has lost as much as 40.4% against its U.S. counterpart. But the Prime Minister has sees this as a positive shift. Indeed, “the exchange rate is acting as a buffer.” That is, “firms in some industries, including for example, sheep meat, venison, and even niche manufacturing, are getting better incomes as a result of the lower currency,” he added.

Australia’s neighbor has been in recession since the first quarter of 2008. It is likely that throughout the entire year, New Zealand’s economy shrank at least 0.3%. In that 12 month period, the unemployment rate rose from 3.4% to 4.6%. Since June the central bank has slashed the overnight cash rate by 525 basis points from 8.25%, the most of any nation throughout that period.

Key has taken steps to ‘think outside-of-the-box.’ His latest piece of legislation aims to give incentives for Australians to vacation in New Zealand. He has increased Tourism New Zealand’s budget by $2.5 million, an increase of more than 25% of its current $9 million budget. “The impact of the global recession is likely to result in New Zealand becoming a more attractive holiday option as Australian consumers tighten their spending,” Key said.

‘Trickle-down economics’ seems to be what Key really wishes to aim for. The Prime Minister plans to cut income taxes on Apr. 1. But such action won’t be adequate. His comprehensive plan also seeks to increase infrastructure investments. In an effort to enhance their transportation efficiency, he plans on increasing the petrol tax by NZ6 cents per liter. Other spending will include school building programs because he is ‘determined to build on these strengths so that when the world starts growing again, New Zealand can be running faster than the countries we compete with,” he said.

– LG

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Mexico Slaps U.S. With $2.4 Billion Tariffs on 90 Products

Mexico slapped the United States with $2.4 billion worth of tariffs on 90 unnamed industrial and agricultural products. The move comes in retaliation after the U.S. Congress cancelled a pilot program that would allow a handful of Mexican truckers to deliver goods throughout the U.S.

According to Gerardo Ruiz Mateos, Mexico’s Economy Minister, the tariffs are allowed under the 1994 North American Free Trade Agreement (NAFTA). “We consider this action by the United States to be wrong, protectionist and clearly in violation of the treaty,” Ruiz Mateos added.

Mexico’s actions might be coming at one of the worst times in the U.S.’ economic history. In January, exports from the U.S. to the world fell 12.5% from the month prior. Since August the figure has plummeted 33.45%. To Mexico alone, that figure has fallen to levels last seen in Jul. 2005 or by 34% since August.

U.S.’ southern neighbor might be hurting itself too. Mexico’s Peso has tanked after hitting a 6-year high against the U.S. Dollar of 9.85 on Aug. 04th. It reached an all-time low only three days ago of 15.58. Such a violent change in price will make it more expensive for Mexicans to purchase goods produced north of its border. But with the enactment of such tariffs, the inflationary pressure felt from Peso weakness will only be exacerbated. Thus the new trade policy may actually prove to hurt Mexico as much as it does the United States.

– LG

UPDATE: Mexican, U.S. Officials to Discuss Trucking Dispute

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JPMorgan’s Rating Outlook Slashed by Moody’s

JPMorgan Chase & Co., a commercial and investment bank that was once thought to be one of the most stable, had its rating outlook cut to negative by Moody’s Investor Service after trading ended today. Indeed, the bank which purchased Bear Stearns after it had essentially failed last March and who purchased Washington Mutual after the FDIC had placed it into receivership was once seen as a beacon of banking stability. Now, with the expectation that the financial institution will be hit with bad loans and credit defaults, the lender’s status is in danger.

The news of this release may spark volatility in equity markets throughout European and U.S. trading. As such, those pairs which have been estimated to be vehicles for risk aversion, the U.S. Dollar against the Euro for example, may see their respective price action push full steam ahead.

– LG

Filed under: Economics, , , , , , , , , , , , , , ,

Reserve Bank of Australia Holds Rate Steady For First Time in Seven Months; Currency Jumps

The Reserve Bank of Australia held its overnight cash rate at 3.25% despite expectations calling for a 0.25% cut in the main policy rate. For the first time in seven months, the central bank left rates unchanged after an aggressive rate slashing campaign that began in August. Since then, the RBA has sought to prop the ailing south-pacific economy by easing liquidity. Throughout those seven months, the bank slashed the rate by 400 basis points from 7.25% to 3.25% in early February.

Expectations, however, deviated quite substantially. Of the 18 economists that Bloomberg had surveyed, four called for the bank to hold the rate steady while seven expected a 50 basis point cut. The remaining seven favored a 25 basis point move down.

The Australian Dollar jumped 48 pips against its U.S. counterpart in the seconds following the announcement.

Interestingly enough, the pair also spiked just seconds before the rate announcement, implying that some institution was made aware of the decision BEFORE it was made public.

AUD/USD Jumpes Seconds After Rate Decision; Prepared by Luis Gil using FXTrek Intellichart

AUD/USD Jumpes Seconds After Rate Decision; Prepared by Luis Gil using FXTrek Intellichart

Filed under: Global Economics, , , , , , , , , , , , ,

Euro Monetary System Risks BREAKUP As Unemployment Soars Higher Than Expected


Unemployment Rises to 8.2% With Forecasts Seeing 8.1%…

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U.S. Consumer Prices Rise Above Expectations…EXCLUDING ENERGY

When excluding food and energy, whose primary component (gasoline) rose in price by 6.0% on the month, the Consumer Price Index rose 0.2% in the month of January alone. Expectations called for a rise of only 0.1%. December’s figure stayed flat from the month prior. Overall inflation in the 12 months through the first month has come out to be 1.7%, a tick down from the previous month’s data, but still 0.2% points above expectations.

In a speech given on Wednesday, Fed Governor Ben Bernanke stated that such developments would “help to better stabilize the public’s inflation expectations, thus contributing to keeping actual inflation from rising too high or falling too low.” Indeed, the central bank’s projected 2.0% longer-run inflation target seems to be on track to be met.

On the news, the U.S. Dollar continued it’s overnight rebound against the Euro. -LG

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Mexico’s Bank Chief Ortiz Ensures Peso Intervention (A Long Rant on Mexico’s Economy)

The Mexican Peso Has Lost 30% Against The U.S. Dollar Since August

The Mexican Peso Has Lost 30% Against The U.S. Dollar Since August

In a speech given yesterday, Guillermo Ortiz, Governor of the Bank of Mexico (BANXICO), promised that he would defend the Peso for the “foreseeable future.” The expectation-anchoring announcement came after the Mexican currency tumbled 30% against the U.S. Dollar – over the previous six months. Indeed, the currency has become Latin America’s worst-performing one over the said period. At the Peso’s low, Feb. 4th, the greenback could purchase 14.70 units of the Mexican currency…a stark contrast from it’s 6-year high, Aug. 04th, 2008, of 9.85 units.

In a speech given minutes ago, Mexico’s Deputy Finance Alejandro Werner stated that the 110 million-person nation could see the economy shrink by as much as 1.0% in 2009. This estimate seems overly optimistic considering the fact that his nation’s exports have been significantly sliding since October. December and November alone saw the metric decline by 19.7% and 16.1%, respectively. Beyond this fundamental-based skepticism, Governor Ortiz added that forecasting in this environment is “very difficult.”

“A little late in the game” seems to be the theme surrounding BANXICO’s delayed reaction to the U.S.’ credit crisis. While most of the G7 central banks slashed rates, Ortiz raised them – from 7.50 to 8.25% over a three month period between May and August of 2008. It was not until January’s meeting that the monetary authorities nipped the rate by 50bp – a small move compared to the three digit point slices being slashed off the overnight rate in many countries like New Zealand and the UK.

Overall, with 85% of Mexico’s exports headed towards it’s northern neighbor and U.S. demand for goods deteriorating drastically the Mexican economy will probably recede by more than 1.0%. With growth slowing, the BANXICO will likely slash rates further. If indeed the prolonged global recession deepens, Mexico may have to adopt a near-zero interest rate policy that will surely cost them any strength remaining in the Peso’s shadows. As such, Ortiz’ defense of the currency will cost his country it’s much needed foreign reserves. – LG

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