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• German economic institutes see 2012 growth of +0.8%, 2013 growth of +1.0%
• Lagarde Seeks More Time for Greece Austerity
• ECB: Cut In Deposit Rate Led To Bank Funding Concerns
• Soooooo cute…..
• ECB: OMT Is Necessary,Proportional, Effective Mon Policy Tool
• Update: BOE Weale: Not “Self-Evident” More QE In Line Infl Aim
• Mersch’s ECB Exec Board Hearing Set For Oct 22
• Spain’s Economic Situation Could Get Much Uglier..
• ECB monthly bulletin: There are “severe distortions” in govt bond markets
• Fed Yellen: MonPol Can’t Fully Offset Ltd Scope For Fisc Stim
• Fed’s Yellen: Most advanced economies are growing very slowly
• IMF’s Shinohara: BOJ has room for further monetary stimulus to achieve its 1% inflation target
• ECB Nowotny: No Need To Change ECB Int Rate Policy At Moment
• ECB’s Nowotny: Sees North-South divergence in the Eurozone
• Spanish September CPI +1.0% m/m, +3.4% y/y
• BOJ’s Shirakawa: Global economy is very unstable
• Martin Weale casts doubt on QE as he sounds alarm over inflation
• FRANCE DATA: Sept HICP -0.3% m/m, +2.2% y/y; Aug y/y.
• IMF Lagarde Said to Say Yen Has Somewhat Over-Appreciated
• MOF Offl: Japan, China Should Use Swaps To Up Yen-Yuan Trades

German economic institutes see 2012 growth of +0.8%, 2013 growth of +1.0% Posted: 11 Oct 2012 02:03 AM PDT Down from April forecasts of +0.9% and +2.0% respectively. Blimey that original 2013 forecast was pretty cack. Even I could have done betta than that, infact alot betta!!!!!

Lagarde Seeks More Time for Greece Austerity Posted: 11 Oct 2012 01:58 AM PDT The  IMF chief’s calling for Greece to be given another 2 years to meet its budget targets saying also that the IMF could be involved in new euro bailout programs without contributing its own loans Instead of front-loading the Greek bailout with budget cuts and structural changes, she said “it is sometimes better, given the circumstances…to have a bit more time.” “This is what we advocated for Portugal, it’s what we advocated for Spain, and it’s what we’re advocating for Greece, where I have said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation program that is considered,” Ms. Lagarde said. More…. WSJ

ECB: Cut In Deposit Rate Led To Bank Funding Concerns Posted: 11 Oct 2012 01:50 AM PDT FRANKFURT (MNI) – The European Central Bank’s decision back in July to cut its deposit rate to zero led to concerns that credit institutions’ access to funding could suffer further, as money market funds possibly reduced their purchases of banks’ debt securities amid lower net returns on short term assets, the central bank said on Thursday. “In such an environment, money market funds (MMFs), for instance, experienced withdrawals in recent quarters,” the ECB said in its latest Monthly Bulletin, adding that funds available for bank debt purchases had also decreased. “Such a situation could thus lead to further constraints on credit institutions’ access to funding,” the ECB said. “Besides this, forthcoming regulatory requirements regarding banks’ funding strategies tend to favour retail funding sources over market-based funding. These developments might thus weigh on banks’ security-based funding efforts.” However, with the banking sector attracting and maintaining retail deposits from the non-financial private sector, banks appear to have anticipated potential funding issues, the bulletin continued. “For instance, to the extent that the increase in overnight deposits stems from money-holding sector entities’ selling of risky non-bank assets to non-euro area residents, the respective flows ultimately mirror an improvement in banks’ funding position,” the ECB noted. “At the same time, insofar as the expansion in M1 deposits reflects portfolio shifts at the expense of other bank liabilities, banks’ funding position is concerned mainly with respect to its maturity.” – Frankfurt bureau: +49 69 720 142; email: frankfurt@mni-news.com [TOPICS: TOPICS: M$X$$$,M$$EC$,MGX$$$,MT$$$$,M$$CR$]

Soooooo cute….. Posted: 11 Oct 2012 01:32 AM PDT Ahhhhhhh

ECB: OMT Is Necessary,Proportional, Effective Mon Policy Tool Posted: 11 Oct 2012 01:20 AM PDT FRANKFURT (MNI) – The European Central Bank’s new bond program is a necessary monetary policy tool that does not seek to circumvent the ban on monetary financing by the central bank, the ECB reiterated in its monthly bulletin released Thursday. In a “compliance” note included in the report, the ECB said its Outright Monetary Transactions program unveiled on September 6 was needed to address “severe distortions in government bond markets which originate, in particular, from unfounded fears on the part of investors of the reversibility of the euro.” The OMT was therefore needed to restore the ECB’s ability to conduct a single monetary policy. “From the ECB’s perspective, OMTs are a necessary, proportional and effective monetary policy instrument. They aim at ensuring an effective transmission of the Eurosystem’s monetary policy and, thereby, at securing the conditions for an effective conduct of the single monetary policy within the euro area, with a view to achieving its primary objective of maintaining price stability,” the report said. The ECB’s report recognizes that even bond purchases on the secondary bond market could in some circumstances violate the ECB’s treaty and made clear that “secondary-market purchases of public debt instruments will, under no circumstances, be used to circumvent the objectives of the prohibition on monetary financing.” “In defining the operational modalities for OMTs, particular care has been given to the need to comply with the prohibition on monetary financing,” the report said. The ECB argued that bond buying will only be used “to the extent necessary to achieve the objective of maintaining price stability,” which means there will be a “strict selection” of countries that qualify for OMT bond buys. – Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com [TOPICS: M$X$$$,M$$EC$,MGX$$$,MT$$$$,M$$CR$]

Update: BOE Weale: Not “Self-Evident” More QE In Line Infl Aim Posted: 11 Oct 2012 01:20 AM PDT LONDON (MNI) – Any increase in quantitative easing measures by the Bank of England could have a significant impact on inflation levels in the UK, a senior BOE policy maker says Thursday. In an interview with the Daily Mail published today, Martin Weale, a member of the Monetary Policy Committee, warns additional QE causes him concern over the stickiness of inflation. “I am concerned about the stickiness of inflation,” Weale said. “It is certainly not self-evident to me in the light of the apparent stickiness of inflation that substantial extra support for the economy would be compatible with the inflation target,” he added. Weale explained his concerns, noting the contradicting factors at work. “There are two things pulling in opposite directions. On the one hand, economic growth is weak and the economy looks to be more or less flat. On the other hand, inflation gives a sense of being becalmed at something above our target,” he told the paper. Despite the National Institute for Economic and Social Research – an Institution Weale worked for before his MPC appointment – declaring the UK to be out of recession, the policy maker is not so sure., “I think most people are expecting fairly good growth in the third quarter. There was the Olympics effect and then you have the bounce back from the second quarter,” he says. “The Jubilee depressed output in the second quarter so you get an automatic bounce back. But if we talk about underlying growth then I think the economy is flat,” Weale said. He continues: “The persistent worry we have is that if people get used to the idea of high inflation, if they take the view that the Bank of England isn’t bothered about the inflation target, it can lead to increased inflation risks and can affect the way in which people negotiate wages and set prices”. “You get much greater stability with inflation targeting and for the regime to be credible people have to think it is taken seriously.” Weale also said that a cut in Bank Rate is unlikely, something also downplayed by a number of other MPC members, including the governor. “We can see risks associated with an interest rate cut,” Weale said. “The sort of risks that people are worried about are that some lenders might find it worsens their financial position and as a result they reduce lending so any decision to do that would need a careful assessment of the benefits relative to the risks”. Weale is not convinced by the latest data that the recovery has got legs and rejects the idea of ‘green shoots’. Weale also refused to put any kind of timing on when the recovery could get underway: “…I certainly wouldn’t want to say exactly when it is going to happen. My hope and expectation is that there will be some improvement next year.” But he cites major risks too, rising prices as a result of food price pressures and energy inflation. The euro zone and the looming US fiscal cliff are other key risks. Weale also sees a risk of a ‘triple-dip’ – meaning the economy slides back into recession later this year after the briefest of revivals. “I certainly would not say there is no risk of that happening”, he says. But it is not his central forecast, he makes clear. “Everyone is expecting next year to be a bit better than this year,” he says. But he adds that the euro zone could stymie that if developments there worsen. –London Bureau +20 7862 7499; ukeditorial@marketnews.com [TOPICS: MT$$$$,M$X$$$,M$$FI$,M$$BE$]

Mersch’s ECB Exec Board Hearing Set For Oct 22 Posted: 11 Oct 2012 01:10 AM PDT BRUSSELS (MNI) – The European Parliament will hold a hearing with European Central Bank Executive Board nominee Yves Mersch on October 22, a spokesman for the Parliament’s Economic and Monetary Affairs Committee confirmed. The committee, which had until now been blocking formal approval of the governor of the central bank of Luxembourg by stalling his hearing, agreed to set the date after the President of the European Council, Herman Van Rompuy, agreed to speak out against the lack of women in senior positions at the ECB. EU lawmakers currently pushing to legislate quotas for women on company boards jumped on the heavily contested ECB executive board appointment, for which no women had been considered, to spotlight the issue of gender balance. There has been a vacant seat at the ECB’s six member board since Jose Manuel Gonzalez-Paramo stepped down at the end of May this year. –Brussels Newsroom, +324-952-28374; pkoh@mni-news.com [TOPICS: M$X$$$,MGX$$$,MT$$$$,M$$EC$]

Spain’s Economic Situation Could Get Much Uglier.. Posted: 11 Oct 2012 01:08 AM PDT A sovereign downgrade to near ‘junk’ status, rising unemployment, street protests, Catalonia’s threats to secede and failure to meet deficit targets are just a few  of the many problems facing Spain… Citi have  the most pessimistic outlook for the Spanish  economy. More…. Business Insider

ECB monthly bulletin: There are “severe distortions” in govt bond markets Posted: 11 Oct 2012 01:03 AM PDT OMT bond-buy programme is necessary, proportional, effective monetary policy instrument Secondary market buys not for circumventing monetary financing prohibition OMTs used to address malfuctioning of certain market segments To end OMTs once objective has been achieved IMF involvement sought in activation of OMTs ECB has “full discretion” to suspend OMTs EUR/USD sits at 1.2871, up 4 pips from the level that greeted me first thing

Fed Yellen: MonPol Can’t Fully Offset Ltd Scope For Fisc Stim Posted: 11 Oct 2012 12:40 AM PDT By Steven K. Beckner TOKYO (MNI) – Industrialized nations are “operating well short of potential” because monetary policy can’t offset the “limited scope” for fiscal stimulus, Federal Reserve Vice Chairman Janet Yellen said Thursday. Although Asian economies are growing more rapidly, they need to depend less on exports and more on domestic demand, said Yellen, speaking ahead of the annual meetings of the International Monetary Fund and World Bank. Japan needs to increase its growth potential through higher productivity and increase in labor force participation, she said in remarks prepared for delivery to the Institute of International Finance. She steered clear of commenting on future U.S. monetary policy a month after she joined her colleagues on the Fed’s policymaking Federal Open Market Committee in launching a third round of quantitative easing and further delay to hikes in the federal funds rate to at least mid-2015. Yellen said “most advanced economies are growing very slowly and operating well short of potential.” In fact, she added, “by historical standards, their performance is even more anemic that we would have expected, given the nature of the previous recession.” Yellen said “this shortfall likely reflects the unusually limited scope for fiscal stimulus at present, which very accommodative monetary policies have not been able to fully offset.” “The recovery from the global recession of emerging market economies, especially in Asia, has been more robust, but even these economies are slowing in the face of weak global demand, and they would benefit from further progress toward a more balanced model of growth led by domestic demand,” she said. Although Japan was recovering more rapidly than the other advanced economies before it was hit by an earthquake and tsunami last year, “it, too, faces issues with the longer-run sustainability of its debt as well as other structural challenges that need to be addressed,” she said. In contrast to the U.S. and other advanced economies, “emerging market economies, particularly in Asia, recovered sharply from the global downturn, in part by using countercyclical fiscal and monetary policies to bolster domestic demand,” Yellen said. “(T)he recovery in the Asian economies appears on pace with what we might have expected, given the severity of the previous recession. This swift recovery has not only benefited Asia, but the global economy as well.” “Lately, however, the momentum in the emerging Asian economies has weakened, in part as their exports to Europe and the United States have slowed,” she continued, noting that “exports to China from other countries in the region have also weakened, partly because of the unwinding of China’s earlier stimulus programs, but also because China’s exports to the advanced economies have slowed, thus lowering its demand for imported parts and components.” Yellen said that, for now, “emerging Asia is offsetting weakness in external demand through accommodative monetary and fiscal policies,” but she said that can’t last. “Ultimately, it would be desirable, both for the region and for the global economy, if emerging Asia were able to rely less on temporary policy stimulus and more on a fundamental rebalancing of growth toward domestic demand.” While there has been some progress in this direction, she said “some of this adjustment likely reflects cyclical factors, and, moreover, the aggregate current account of emerging Asia remains substantially in surplus.” Yellen said “greater reliance on domestic demand would not only help shield Asia’s economic growth from the weakness in the advanced economies; it would also boost the well-being of its citizens by enabling them to consume a greater share of the output they produce.” Besides, she said, “transforming emerging Asia into an independent engine of global growth would put the global economy on a much surer footing, thus helping to achieve the Group of Twenty nations’ commitment to strong, sustainable, and balanced growth.” As for Japan, Yellen said it “faces fiscal and demographic challenges similar to those of other advanced economies in Europe and the United States.” “Japanese government spending helped propel the economy’s bounceback from recession, but it has also added to public debt, which the International Monetary Fund now projects will rise to 237% of gross domestic product this year, the largest among the major advanced economies,” she noted. “Along with this high debt, aging of the population and slow GDP growth pose important concerns for fiscal sustainability,” she said. Yellen said that so far “the savings of Japanese household and firms have been more than enough to finance the government deficit; indeed, interest rates on government debt have fallen to near record lows.” “Accordingly, Japan, like the United States, has the scope to carry out fiscal consolidation plans that address long-run sustainability issues without endangering near-term growth prospects,” she went on, adding that “policymakers in both Japan and the United States face the challenge of designing policies that provide a credible commitment to medium-term deficit reduction without disrupting the fragile recovery.” She said medium-term deficit reduction plans, once put in place, “should help reduce uncertainty and boost household and business confidence.” But that’s not all Japan needs to do, according to Yellen. “Japan would also benefit from measures to increase its potential growth, which is generally estimated to have fallen to less than 1% and could decline further as population aging progresses,” she said. “It is widely believed that easing regulations could promote faster productivity growth, particularly in the services sector.” “Declines in the working-age population also make it desirable to boost labor force participation,” she said. “Higher employment and faster productivity gains would help to boost economic activity, enhance fiscal sustainability, and restore Japan’s contributions to global economic growth.” [TOPICS: M$U$$$,MFU$$$,MGU$$$,M$$CR$,MT$$$$,MMUFE$,M$$BR$]

Fed’s Yellen: Most advanced economies are growing very slowly Posted: 11 Oct 2012 12:37 AM PDT ..And not operating at full potential Fiscal inaction has led to an ‘anaemic recovery’ European debt crisis and housing market are dragging on US growth and employment Japan’s  high debt levels, aging population and slow GDP growth are all concerns for fiscal sustainability

IMF’s Shinohara: BOJ has room for further monetary stimulus to achieve its 1% inflation target Posted: 11 Oct 2012 12:24 AM PDT BOJ has room to buy a broader range of assets, bonds with longer maturities under asset buying programme Buying Foreign bonds as part of QE is equivalent to FX intervention and would send the wrong message to the world IMF stance remains  that the Yen is ‘moderately overvalued’ No major economical impact on the Japanese economy from territorial row with China ( you sure about that…, what about car exports to China..?) Many Asian nations see slowdown risks in their economies as a result of the European debt crisis

ECB Nowotny: No Need To Change ECB Int Rate Policy At Moment Posted: 11 Oct 2012 12:10 AM PDT TOKYO (MNI) – There is no call for the European Central Bank to alter its current monetary policy stance, ECB Governing Council member Ewald Nowotny said on Thursday. Briefing the press on the margins of the meetings of the IMF and World Bank, the head of the Austrian National Bank predicted inflation would fall next year to below 2% in the Eurozone. “The ECB is operating on the assumption that next year we will have a lower inflation rate in the Eurozone, under 2%,” he said. “And we see that core inflation … even this year clearly lies under 2%.” “It is certainly a sinking inflation rate to be expected,” he added, even if indirect taxes and fees in some southern member states have boosted inflation levels there. “Direct effects on interest rates I don’t see,” Nowotny continued. Although the ECB of course does not pre-commit, he observed, “at the moment I see no need for a change of interest rate policy.” Nowotny noted that while monetary policy can buy time, it cannot ultimately replace the need for governments to act on the fiscal and structural reform fronts. Nowotny described the “basic mood” as being “strongly dominated by the negative developments” as indicated by the IMF’s latest World Economic Outlook. He noted in this context the “very strong slump” foreseen for Italy and the downward revision to German growth next year. “Overall we see for the world a worsening of economic developments,” he said. In the Eurozone there is seen an “intensified drifting apart of south and north.” None of this simplifies the ECB’s task as central bank for the whole euro area, he remarked. “In all our conversations it was clear that the action of the ECB in August was absolutely necessary and positive,” he said, referring to the central bank’s announcement of its intention to buy sovereign debt. This decision addressed tail risks and in particular “the assumption of a break-up of the Eurozone” has lost its validity and “can be considered to be ruled out,” he said. The bond-buying program, the so-called OMT, “does not intend to harmonize interest rates in Europe, but rather there will continue to be differences at a national level,” he said. “The fear of a break-up of the Eurozone should be removed” from interest rates, he elaborated, “but beyond that, interest rates have an important steering function and this should be retained in the future.” As to Greece, Nowotny said that “all of us are aware that in Greece within the foreseeable future a solution must be found. There are ongoing talks with the Greek government, with the EU authorities, with IMF, but it is certainly too early to say something about the result of these talks.” Nowotny renewed his call for caution with regard to European banking supervision, calling for the emphasis to be put on the fact that “quality comes before speed” even if “certain southern states” are pushing for quick implementation of plans. Anything before the middle of next year would “certainly” be too fast. –Frankfurt bureau tel: +49-69-720-142. Email: dbarwick@mni-news.com [TOPICS: M$X$$$,MT$$$$,M$$EC$,MGX$$$,M$$CR$]

ECB’s Nowotny: Sees North-South divergence in the Eurozone Posted: 11 Oct 2012 12:07 AM PDT Global, Euro are outlook has deteriorated ECB has removed tail risk and a euro-area break -up is now not an issue Eurozone inflation will fall below 2% next year Sees no need to change ECB interest rates at the moment OMT is not aimed at harmonizing sovereign bond yields ECB supervision won’t be possible before mid 2013

Spanish September CPI +1.0% m/m, +3.4% y/y Posted: 11 Oct 2012 12:02 AM PDT slightly below forecasts of  +1.1% m/m and +3.5% y/y, but up from August readings of +0.6% and +2.7% September Core CPI 2.1% y/y up from +1.4% in August

BOJ’s Shirakawa: Global economy is very unstable Posted: 10 Oct 2012 11:52 PM PDT IMF meeting is meaningful amid uncertainty Will discuss Japan’s economy at G7 and wants to discuss global economic outlook Unfortunate that PBOC governor isn’t attending IMF, world Bank meetings ( wonder why….)

Martin Weale casts doubt on QE as he sounds alarm over inflation Posted: 10 Oct 2012 11:52 PM PDT Personally I still think we’ll see more QE down the road, but then that’s just me. I still think the UK economy is in a world of hurt (despite recent encouraging noises from likes of NIESR)

FRANCE DATA: Sept HICP -0.3% m/m, +2.2% y/y; Aug y/y. Posted: 10 Oct 2012 11:50 PM PDT FRANCE DATA: Sept HICP -0.3% m/m, +2.2% y/y; Aug +0.7% m/m, +2.4% y/y – Below expected; MNI analysts survey median forecast +2.4% y/y – nsa CPI: -0.3% m/m, +1.9% y/y after Aug +0.7% m/m, +2.1% y/y – sa core: -0.1% m/m, +1.2% y/y after Aug +0.1% m/m, +1.3% y/y – Please see MNI Mainwire for further details

IMF Lagarde Said to Say Yen Has Somewhat Over-Appreciated Posted: 10 Oct 2012 11:50 PM PDT –MOF’S Jojima: Concerned Strong Yen Could Be Downside Econ Risk TOKYO (MNI) – Finance Minister Koriki Jojima quoted International Monetary Fund Managing Director Christine Lagarde as saying that yen has somewhat over-appreciated, in a bilateral meeting held on Thursday. Jojima said at the meeting he had expressed a concern that the yen appreciation could be a downside risk to Japan, which is now promoting reconstruction of disaster-hit area. tokyo@marketnews.com ** MNI Tokyo Newsroom: 81-3-6860-4820 ** [TOPICS: M$A$$$,M$J$$$,MGJ$$$,MMJBJ$]

MOF Offl: Japan, China Should Use Swaps To Up Yen-Yuan Trades Posted: 10 Oct 2012 11:50 PM PDT TOKYO (MNI) – Amid the bilateral territorial dispute over small islands, a senior Japanese official proposed on Thursday that Tokyo and Beijing should consider using a yen-yuan swap agreement to ensure ample liquidity in direct dealings between the two currencies. Tatsuo Yamasaki, Director-General of the International Bureau of the Ministry of Finance, also told a seminar on the internationalization of the yuan that the two economic powers should use financial markets in Hong Kong to facilitate yen-yuan trading. “The Bank of Japan and the People’s Bank of China have been working on the yen-yuan currency swap agreement” since they concluded it in March 2002, he said. “But when offshore transactions in the yuan increase, it becomes difficult for the private sector to ensure liquidity, and that’s when we could use currency swaps to secure liquidity.” Yamasaki also suggested that Japanese banks operating in China could use their JGB holdings as collateral to receive funds in yuan. Beijing has already allowed the Japan Bank for International Cooperation to issue panda bonds — bonds denominated in the yuan from a non-Chinese issuer sold in China, he said. The direct yen-yuan trading, which began on June 1 in Tokyo and Shanghai, is aimed at facilitating trade settlements between the two countries and lowering currency transaction costs. Last month, then Japanese Finance Minister Jun Azumi said Japan and China are expected to maintain direct yen-yuan trading and cross-holdings of each other’s government bonds despite the long-standing territorial dispute that has flared up again this year. tokyo@marketnews.com ** MNI Tokyo Newsroom: 81-3-6860-4820 ** [TOPICS: M$A$$$,M$J$$$,MGJ$$$,M$Q$$$,M$$FX$]]

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