Dollar Hits 15-Year Low vs. Yen; Trade Deficit Will Reduce GDP; BOE Trims Forecast; Greek Economy Sinks 1.5%; Australia Commercial Real Estate Bust

It's time for an international roundup including Japan, Australia, Europe, England, and the United States. Let's kick things off with a look at the Yen.

Japanese officials are busy yapping away, hoping to talk down the Yen, which as hit 15-year highs vs. the US dollar.

Bloomberg reports Yen Trades Near 1995 High on Speculation Intervention Unlikely

The yen traded near its strongest level against the dollar since July 1995 on speculation Japan is unlikely to try and lower the value of its currency. Japan hasn’t intervened in the currency markets since March 16, 2004, when the yen was around 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($173 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.

Exporters said they can remain profitable as long as the yen trades at 92.90 per dollar or weaker, according to a Cabinet survey released in February. The breakeven point was 97.33 a year earlier.

Intervention on the Way?

Reuters reports Japan officials step up campaign against yen rise

Japan policymakers fired off a volley of comments Thursday to curb yen strength and the central bank checked rates with banks as officials stepped up efforts to prevent the currency from harming a fragile economic recovery.

The yen has risen steadily against the dollar from around 95 yen in early May to a 15-year high Wednesday of 84.72 yen, prompting currency markets to speculate that authorities might intervene.

Government officials have shown increasing alarm in recent weeks at the yen's rise against the dollar. Thursday, both the finance minister and central bank governor Masaaki Shirakawa issued comments simultaneously.

Noda declined to comment on intervention, saying instead: "I'm closely in touch with the prime minister and the chief cabinet secretary with regard to the series of market moves. We will respond appropriately while carefully examining economic trends."

Shirakawa said currency and stock markets are showing big fluctuations caused by uncertainty over the U.S. economic outlook.

"The BOJ will closely watch market fluctuations and their impact on the Japanese economy," he said in a statement.

"Whether Japan will intervene depends on how much global shares and U.S. bond yields will fall. But if the dollar falls to around 82-83 yen, the chance of intervention will rise," said Masafumi Yamamoto, chief FX strategist at Barclays Capital.

A euro zone official Wednesday had said European authorities would not welcome such a move by Tokyo and that joint intervention by major central banks was not on the cards.

Yen Summary

Europe is happy about the rise of the Yen, but Japan is not. Indeed the value of the Yen is above where it needs to be for Japanese exporters to make a profit. Japan is worried that European exporters will capture market share but Europe of course is smiling about such prospects.

Talk is cheap but intervention does not work so the global trade imbalances just simmer, with everyone expecting US consumers to lead the world recovery. Regardless of the increasing trade deficit, I highly doubt that is going to happen.

European Industrial Production Unexpectedly Declines

One of the reasons the Euro has plunged over the past two days is European Industrial Production Unexpectedly Declines

European industrial production unexpectedly declined in June, led by a drop in durable consumer goods such as furniture and home appliances.

Output in the economy of the 16 nations that use the euro dropped 0.1 percent from May, when it increased 1.1 percent, the European Union’s statistics office in Luxembourg said today. Economists had projected a gain of 0.6 percent, the median of 32 forecasts in a Bloomberg survey showed. From a year earlier, June output gained 8.2 percent.

Europe’s economic growth may slow as governments reduce spending to tackle bloated budget deficits and the global recovery shows signs of losing momentum. Factory orders in the U.S., the world’s biggest economy, fell more than economists forecast in June, while China’s industrial output rose the least in 11 months. Still, European economic confidence rose to a two- year high in July and manufacturing growth accelerated.

“It’s definitely too soon to declare the euro-zone manufacturing boom over,” said Peter Vanden Houte, an economist at ING Groep NV in Brussels.

Production of durable consumer goods in the euro area fell 0.9 percent in June from the prior month, when they rose 3.2 percent, today’s report showed. Output of intermediate goods such as car engines and steel decreased 0.6 percent from May, when it gained 0.8 percent. Output of capital goods such as factory machinery increased 0.2 percent in June, while energy production rose 0.3 percent.

While governments are reining in deficits, investors are growing more optimistic about the outlook. European economic confidence rose to the highest in more than two years in July and manufacturing growth accelerated.

This happy talk in Europe is rather amazing, and unwarranted in my opinion.

Greek GDP Drops Another 1.5%

The BBC reports Greek economy shrinks a further 1.5%

The Greek economy shrank by a further 1.5% in the second quarter of the year, Greece's statistics agency has said. That adds to 0.8% decline in GDP recorded for the first three months of the year, suggesting that the decline in the economy is speeding up. Greece's GDP has fallen 3.5% since this time last year.

BOE Cuts Economic Forecast

The New York Times reports Blaming a Slow Recovery, the Bank of England Trims Its Economic Forecast

The Bank of England cut its economic growth forecast Wednesday, in part blaming the uncertain pace of the recovery in the United States and the rest of Europe.

The central bank in Britain now forecasts annual growth to peak at 3 percent, less than the 3.6 percent it had predicted in May. It also said inflation would remain above the bank’s 2 percent target until the end of next year, longer than previously predicted, before falling below the target in 2012.

“There are clearly risks,” Mervyn King, the Bank of England governor, said Wednesday, hinting that the central bank might consider expanding its stimulus package to support the economy. “Business and consumer sentiment have shown signs of softening, measures of financial fragility remain elevated and there is great uncertainty about the outlook for both the U.S. and our most important trading partner, the euro area.”

The recovery in the United States has run into trouble, economists say, because a lack of confidence keeps consumers and businesses from stepping in where government stimulus packages left off.

“At this point policy makers should have reinstated confidence,” said Karen Ward, senior global economist at HSBC in London, “but the private sector isn’t taking up the baton in a way we’d hoped.”

Add the bank of England to those in the over-optimistic camp. And notice that absurd comment from HSBC. The private sector is still deleveraging and has a long, long way to go, yet economists think consumers are about to pile on more debt.

There was never a "recovery" in the first place. Economists for some reason just do not understand this simple fact. They remain Fooled by Stimulus With Structural Problems Still Intact.

Australian Malls Lose Their Shine

Things are not well down under either. My friend "Brisbane Bear" comments "Retailer business models are broken yet most retailers are hoping things come back. They won't".

Please consider The gleaming malls are losing their shine

The disparity in Australia's two-speed economy, between a resource sector that is in overdrive and the hard scrabble of retailing, hit home to financial planner Kate Kimmorley when the Marina Mirage shopping centre slipped into receivership last month.

Ms Kimmorley maintains an office near the gleaming halls of designer clothes shops and boutique restaurants on the Southport Spit. She shops there and likes to drop in after work to one of the bars overlooking the rows of million-dollar motorboats and yachts.

Some of her best customers run shops in the centre -- and they're feeling the pain that is rippling through retailing, belying the stellar performance of mining.

"I sometimes wonder how they're going to cover the rent because they've had this fantastic refurbishment but there's less people there," Ms Kimmorley said yesterday.

Sam Hue, the self-styled "Wok Man" of the complex, said takings for his fast-food business last month were 30 per cent down on those 12 months ago.

"This is a great place and the people will come back," he said. "But they're not here now."

Brisbane Bear writes ...

The adjustment phase will render at least 50% of these retailers redundant.

'Things' ain't coming back.

regards
Brisbane Bear

Australia Commercial Real Estate Bust

Inquiring minds are reading Retail profits under attack for a decade, warns ex-Macquarie banker

The aftermath of the global financial crisis and changes in consumer behaviour could hit retail profits for a decade. The warning has come from former Macquarie Group property investment banking head Bill Moss.

Shopping centre owners and retail property would be one of the hardest-hit sectors, with real estate generally having further to fall in value, Mr Moss said.

"We're heading into a decade, or a generation, of changing consumer trends." Mr Moss said.

The population was ageing, the internet was eroding sales in shopping centres, the middle consumer market was disappearing, and discretionary spending patterns were changing sharply.

With retail sales falling and more uncertain economic times, Mr Moss questioned how many retailers were defaulting on their rent payments. "My guess is shopping centre rents will fall," he said.

"The global recession really is affecting us, despite what Julia Gillard says. It will affect us and retail profits for a decade."

US GDP Overstated

Economists were surprised by the last downward revisions in GDP yet another downward revision is on the way thanks to a rising trade deficit.

Bloomberg reports Wider Trade Gap Signals Weaker U.S. Second-Quarter Growth

A swelling trade gap, less stockpiling and weaker construction indicate the U.S. economy slowed even more in the second quarter than the government estimated last month, economists said.

Revisions due later this month may shave last quarter’s 2.4 percent annual growth rate by 1 percentage point or more, according to Morgan Stanley’s David Greenlaw and Nomura Securities International Inc.’s David Resler. The trade deficit in the U.S. unexpectedly widened by $7.9 billion to $49.9 billion in June, Commerce Department figures showed today in Washington.

A surge in imports means American companies contributed less to the rise in gross domestic product, the value of all goods and services produced in the U.S., than previously estimated. Earlier reports showing smaller gains in inventories and less of a rebound in commercial construction than the government projected will also reduce the pace of expansion.

“The slowdown occurred earlier than we thought,” said Harm Bandholz, chief U.S. economist at UniCredit Global Research in New York. “We expected the recovery to lose momentum only in the second half and now it occurred in the second quarter.”

Trade probably subtracted 3.25 percentage points from growth, the most since 1982 and up from the 2.78 points the government estimated last month, Bandholz said.

By Resler’s calculations, the world’s largest economy probably grew at a 1.3 percent pace from April through June, while Greenlaw’s estimate is down to 1.4 percent.

That should put a nice international flavor to the "Non-Recovery".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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