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Forex Futures Forum Archive for 06/1/2005
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Ldn 21:57 GMT June 1, 2005
Hungary Foreign Min:EU Enlargement Fears Factor In No Vote
BUDAPEST (AP)--Fears about the enlargement of the European Union played a part in the French and Dutch rejections of the proposed E.U. constitution, Hungary's foreign minister said Wednesday.
Ferenc Somogyi, whose country has ratified the charter, also said a lack of information about the way the 25-nation bloc operates, even in founding member states, was at the core of the double rejection of the treaty.
Speaking with state-run news wire MTI after Dutch voters overwhelmingly rejected the proposed charter, Somogyi said: "The general political atmosphere, economic problems, enlargement related-fears have left their mark on the Dutch referendum, similarly to the French one."
With most of the Dutch votes counted, 62.2% were against the treaty and 38.8% voted for it, the Dutch national broadcaster NOS said. French voters rejected the charter in a referendum Sunday.
Somogyi said the dual rejection left "leading" E.U. states facing a serious political challenge and he expressed his hope that a solution would be outlined at the next E.U. summit in mid-June.
"Nobody has yet been able to come up with a viable suggestion as to what should be done in the event of a rejected European constitutional treaty, but we still have two weeks left until the summit," Somogyi said.
The foreign minister said Hungary will be urging decision makers to continue work on the budgetary process and to adhere to the bloc's enlargement agenda already agreed upon
Syd 21:33 GMT June 1, 2005
THE ASIAN WALL STREET JOURNAL
China Undertakes Financial Overhaul
SHANGHAI -- At a time Beijing remains stubborn about its currency-exchange rate, Chinese monetary authorities are pushing to profoundly overhaul other parts of the country's financial system.
All the focus on the yuan appears to be obscuring the fact that much change is under way: China is fostering top-down makeovers both of its hardware and of the mindsets of people staffing its regulatory agencies and sprawling network of banks, brokerage firms and stock exchanges.
As China seeks to bring its financial system into the 21st century, its financial institutions are spending hundreds of millions of dollars to upgrade their computer systems, and to train thousands of bankers and bureaucrats in international financial practices. China must introduce these changes if it is to integrate into the financial system globally -- and to prevent a possible financial crisis at home.
The country's financial system is plagued by bad debts, lack of transparency, corruption and other abuses. Chinese banks will face greater competition in 2007 when the country is obliged by World Trade Organization commitments to open banking fully to foreign competition.
Preparations for that deadline are providing foreign players opportunities to sell equipment to China and to influence the development of its financial industry. Companies such as International Business Machines Corp. are supplying computer systems to Chinese banks, while the New York Federal Reserve is holding seminars to educate Chinese central bankers.
China still has a long way to go. Many offices of Chinese banks use pins to fasten documents, because they don't have staplers -- let alone comprehensive computer networks to link up all their branches across the country. The absence of such networks makes it easy for borrowers who have defaulted on a loan to go to a branch in another city and get a new loan. The lack of computerized systems also allows fraud and other abuses to proliferate.
In addition, the biggest banks each employ hundreds of thousands of workers, who are needed to staff thousands of branches and sub-branches that extend to small counties and towns. But many employees at these levels -- and even those at headquarters -- have little understanding of modern financial practices.
A main focus of China's financial reforms has, therefore, been to educate these employees, as well as government regulators, including at the People's Bank of China, or central bank, through training programs exposing them to international operating methods, from best practices in accounting to the technicalities of money-market operations.
Beijing is sending thousands of its top financial officers to international training programs each year. The Washington-based International Monetary Fund holds weeks-long courses for Chinese central bankers on how to set sound financial policy and respond to crises. The Hong Kong Monetary Authority last year hosted more than 800 central-bank branch managers and other officials from around the country at its headquarters for courses taught in Chinese.
At seminars run by the New York Federal Reserve Bank each year, Chinese central bankers and those from other countries get impressed with the global importance of financial flows and other macro-issues. "It's the networking, the brainstorming and the appreciation of how big this thing is -- from a New York vantage point," says Howard Howe, an official in the Fed's international-affairs department, which runs the programs.
Education at the Bank of China, one of China's Big Four state-run commercial banks, has taken a different tack: It has brought foreign expertise in-house. Earlier this year, the bank made an American banker, Lonnie Dounn, its chief risk officer. Mr. Dounn was so reluctant to approve loans when he worked at British giant HSBC Holdings PLC that he was known as "Dr. No," a former colleague says.
Zhu Xinqiang, an executive assistant president at Bank of China, said at a recent conference in Shanghai that the appointment of Mr. Dounn and other foreigners to Bank of China's board of directors can "bring in some very special knowledge and some very good management."
At the same time, China's financial sector is making huge investments to upgrade its technology. IBM and Germany's SAP AG have been providing Chinese banks with computers and the know-how to run them.
The Shanghai Stock Exchange last year signed a multiyear deal with a joint venture of U.S. consulting firm Accenture Ltd. and the German stock-exchange group Deutsche Boerse AG to build one of the world's most sophisticated trading systems over the next several years. And Reuters PLC recently launched an electronic foreign-exchange trading system for Chinese banks, which one day might handle global activity of a freely floated yuan.
Nowhere is the focus on international practices more apparent than at the central bank. With about five times the number of staff as the U.S. Federal Reserve, the People's Bank faces a huge challenge educating its staff. It has more than 100,000 employees in nine district branches and 1,800 sub-branches across the country. An additional 20,000 people work for the China Banking Regulatory Commission, and thousands more for the State Administration of Foreign Exchange, a quasi-central bank agency.
Central-bank officials "have basically been all over the world studying things," says a foreign central banker with knowledge of the Chinese programs.
A year ago, the IMF dedicated a five-story center in the northeastern port city of Dalian for training Chinese central bankers. To mark its opening in May 2004, the center held a session on China's exchange-rate policy. The U.S. and other major trading partners argue that China's currency, the yuan, which is basically pegged at a rate of about 8.28 yuan to $1, is undervalued.
Zhou Xiaochuan, governor of China's central bank, and his deputy Li Ruogu sat back as foreign economists offered their views. Columbia University's Robert Mundell and Ronald McKinnon of Stanford University argued that the yuan should remain where it is. Morris Goldstein of the Institute for International Economics and Harvard University's Jeffrey Frankel called for a double-digit percentage revaluation.
Livingston nh 13:03 GMT June 1, 2005
JP - 3.6%- I doubt it but my prediction that 4% would hold had a shelf life of less than 24 hours -- The Greater Fool Theory of Investing might have the bond market in thrall at the moment but April 2004 CPI (y/y) at 2.1%, April 2005 CPI at 3.5% and a yield curve inversion under 4% is not going to make the Fed very happy --
"Livingston nh 21:06 GMT January 13, 2005 ........ // as the reality of continued Fed hikes sinks in and inflation continues we may get a minor replay of the early Volcker years, a negative yield curve with negative real rates"
The US treasury should refinance the entire gov debt using 30 yr paper at 4%
Mtl JP 12:05 GMT June 1, 2005
10-yr: weekly close below 3.92 % would open 3.64%.
see it differntly nh ?
kfar saba zp 08:41 GMT June 1, 2005
folks, i appreciate the news posted in here and read it, but can we please simply post the link - i will read it too......... this so we dont weigh down the forum with endless streams....
Syd 01:28 GMT June 1, 2005
NEW YORK (Dow Jones)--What's bad for Europe could finally be bad for the euro.
After three years in which the European common currency was able to gain versus the dollar even in the face of anemic euro-zone economic growth, the addition of major political uncertainty to the fray could help tip the scales out of the euro's favor.
That heightened uncertainty started in earnest over the weekend with the French vote rejecting the European Union Constitution. The referendum throws a wrench into the development of the European Union, and could stall efforts to normalize policy.
But it might not stop with the constitution. With electorates in both France and Germany - the euro-zone's two largest economies - showing increasing dissatisfaction, deepening political malaise might continue to grab headlines and weigh on the euro.
Of course, it remains to be seen whether the dollar can continue to benefit from the euro's problems. As has been the case, markets can often be keenly dollar-centric and worries over the U.S. current account deficit, and China's currency policy - the dollar's biggest challenges - very much continue to linger.
But for now, the pressure on the euro is putting aside the notion held by many in the market last week that the French vote was an issue that would come and go without having a lasting effect. By late last week, many market watchers suggested that after several weeks of falling, the euro had "priced in" the likelihood of a French 'no' vote.
But in Asian trading and as U.S. and London markets came back from a long weekend holiday on Tuesday, it became clear that the market hadn't priced enough political gloom into the euro.
There was no buy-the-rumor, sell-the-fact rebound in the euro this week. Instead, between Monday and Tuesday's sessions, the single currency lost 1.8%, bringing the total of five week's euro losses versus the dollar to 5.6%.
On Tuesday, that selling brought the euro squarely below the key $1.2460 level that is technically important because it is the top of the range in which the currency traded last summer before the dollar plunged later in the year. In late New York trading, the euro had dipped as low as $1.2298, its lowest level since Oct. 13, 2004. Some analysts say the dollar is on better technical footing than it has been in some time.
Could Incite More Euro Selling
The sharp euro selloff was likely the work of speculators such as hedge funds and proprietary bank traders. But the degree of the move, combined with the growing gap between U.S. and euro-zone economies, technical strength in the dollar and the now growing political risk, could draw a wider array of investors into the trade.
In particular, longer-term investors who have been betting that the dollar will start falling again later this year can only take so much pain and could begin to give up and buy the dollar. So far, few banks have upgraded what is still a long-term bearish consensus for the dollar on Wall Street, but such moves might be in the works.
"For the first time in three years, the market is saying that the dollar can go either way - a truly watershed event, from our point of view," said Jim McCormick, head of global currency research at Lehman Brothers in London, in a research note.
McCormick and others believe that the specific issue of the E.U. constitution is largely off the table for now even with an expected Dutch 'no' vote on Wednesday. But they also say that investors might be facing even more of a political weight on the euro than they previously expected.
With German Chancellor Gerhard Schroeder recently calling early elections after a major regional defeat for his Social Democrat party, and with the authority of French President Jacques Chirac severely weakened, the lack of unity on the E.U. Constitution is just the latest political blow in Europe.
That, say analysts, may only serve to heighten the markets' perceptions of the single biggest factor behind the electorates' unhappiness: the euro-zone's economic woes.
"For the last three years we've seen euro-zone growth was lower than the rest of the world, and it really didn't have any bearing on the euro's ascent," said Trevor Dinsmore, currency strategist at Deutsche Bank in London. "But now we're seeing the physical manifestation of that weak growth - a widespread dissatisfaction from the electorate - and that may act to heighten and prolong this political uncertainty."
Dinsmore said that while the risks directly related to the E.U. constitution vote in France and Netherlands may fade, the ongoing political churning within the euro-zone is likely to keep pressure on the euro.
Of course, the extent of that damage could be minimized if E.U. members can quickly come together with a way to revisit its aspirations for a tighter political fabric. Danish Prime Minister Anders Fogh Rasmussen raised that notion Tuesday, calling on E.U. leaders to swiftly make a "clear decision" about the future of the constitution. Austria's Chancellor Wolfgang Schuessel, meanwhile, suggested an E.U.-wide referendum on the European Constitution as a way out of the current crisis.
Good For Dollar By Chance
In addition, a euro-weakness story isn't necessarily an automatic dollar strength story. Though the dollar has continued on its path of reaching new highs versus the euro, it's very hard to tell how much further the trade has to run.
Some exchange rates, particularly that of the pound versus the euro, may be easier to forecast, given that France's 'no' vote calls into question whether the U.K. will even consider going through with its tentative plans to run a referendum for adopting the euro.
But for the dollar, at least some of the strength has been due to the mere fact that the French vote provided a nice excuse to extend the U.S. currency's trend higher in recent weeks.
"This outcome just so happens to be good for sterling and bad for euro," said David Bloom, currency strategist at HSBC in London. "But the vote should really mean neither for the U.S. It has just by chance been good for the dollar."
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