Santa rally may face test next week

From Reuters
Get ready. The last trading week of the year will be a test for stocks to prove whether they have the strength to carry a rally into next year.
The broad S&P 500 index broke through its 200-day moving average on Friday after turning positive for the year as a four-day rally lifted stocks following a spell of better-than-expected economic data. At Friday’s close, the S&P 500 was up 0.6 percent for the year.
But despite the recent economic data that suggest the U.S. economy is on the right track to recovery, Europe’s sovereign debt crisis is troubling investors and weighing on the market.
Many market participants are reluctant to believe in a “Santa Claus rally” this year, which refers to stocks’ seasonal tendency to gain in the final five trading days of the year and first two trading days of the new year.
Warnings from major credit rating agencies on a potential downgrade of several European nations have kept investors on edge. After Standard & Poor’s surprised financial markets back in August with a downgrade of the United States’ triple-A credit rating on a Friday evening, investors worry a similar move could come at any time - even between Christmas and New Year’s.
But the absence of European sovereign bond auctions for the next two weeks could lend support to stocks.
“The fact that there won’t be a (European) bond auction until the second week of January, that takes away some spotlight from Europe, at least for a little while,” TD Ameritrade chief derivatives strategist J.J. Kinahan said.
“Unless we get earth-shattering news, the S&P could go up to (the) 1,300 levels,” he said.
The S&P 500 closed on Friday at 1,265.33.
The correlation between U.S. stocks and European sovereign bond yields has been high, especially the link with Spanish, Italian and German bonds. A poor bond auction in any one of these countries could trigger an instant selloff in the U.S. stock market.
What happens next week is important as it sets a tone for the coming year.
“If Santa should fail to call, bears may come to Broad & Wall,” so goes the Wall Street adage, according to the Stock Trader’s Almanac.
Ari Wald, a technical strategist at Brown Brothers Harriman, said the key level on the S&P 500 to watch is 1,260, which is a resistance from the index’s downward sloping 200-day moving average and the downtrend connecting its October and December peaks.
“A breakout above this supply would argue for continued seasonal strength through the first quarter of 2012,” he said.
He also noted that 1,200 is support from the index’s downward sloping 100-day moving average and the uptrend connecting its October & November lows.
“A breach of this demand could stir additional technical selling to 1,130-1,150 intermediate-term support,” Wald said.
With many investors absent until the start of 2012, trading volume is expected to be light, creating more volatility.
Next week’s data includes the S&P 500 Case-Shiller House Price Index and consumer confidence data on Tuesday.
The Chicago Purchasing Managers Index and pending home sales data are due on Thursday. After a strong gain in November, the Chicago index is seen giving back a modest amount in December.

Euro creeps higher but vulnerable into 2012

From Reuters
The euro edged up versus the dollar on Friday with risk appetite underpinned by upbeat U.S. data but with the euro zone crisis unresolved, investors were likely to sell the single currency again in 2012.
A drop in U.S. weekly claims for jobless benefits to a 3-1/2-year low and improved U.S. consumer sentiment in December boosted stocks and kept the euro afloat, though traders said flows were light as year-end holidays approached.
The single currency was up around 0.2 percent for the day at $1.3079, holding above a recent 11-month low of $1.2945. It is however down around 2.1 percent on the year.
“The dollar is still seen as a funding currency when risk appetite improves and people will sell dollars on the back of that,” said Chris Walker, currency strategist at UBS.
“But we still see uncertainties in the euro zone outweighing and look for a move towards $1.25 in the next few months.”
Traders highlighted some stop-loss orders in the $1.3120 region, which if hit could push the euro higher in thin markets.
The Wall Street Journal reported the Federal Reserve could commit to keeping rates near zero right out to 2014, saying the U.S. central bank could announce the decision at its next policy meeting on Jan 24-25.
But with the threat of sovereign downgrades hanging over the bulk of the euro zone, sentiment towards the single currency remains bearish heading into the new year, with the liquid dollar likely to be supported.
Two independent European government sources told Reuters on Friday that Standard & Poor’s is not expected to release its verdict on debt ratings for 15 euro zone countries until January.
Doubts over whether this week’s huge European Central Bank tender of cheap loans will be effective in easing the strain for troubled euro zone economies are likely to keep peripheral sovereign bonds under pressure.
Italian paper in particular is expected to come under renewed strain as the country faces a major refinancing hurdle early in the new year.
Many market participants say heavy buying of Italian and Spanish debt by the ECB is required to ease concerns over the precarious finances of the two countries.
Departing ECB Executive Board member Lorenzo Bini Smaghi said on Thursday the ECB was able to scale up its actions if needed and said quantitative easing could be an option.
“The lower-than-desired growth rates in broad money and credit and the downside risks to price stability will likely be the catalyst in driving the ECB to increase its bond buying programme early next year and will be presented as a way to counteract them,” said BNP Paribas in a note.
BNP recommended selling into any year-end rally for the euro and highlighted the $1.32-1.3250 area as tough resistance.
Morgan Stanley analysts expect the euro to be among the worst performing G10 currencies next year as the deteriorating economic outlook in Europe, continued ECB easing and liquidity measures, together with portfolio outflows, weigh on the currency.
A break below $1.2945 in the euro would open up a test of the 2011 trough at $1.2860, traders said. The euro was hovering near all-time lows against the Australian dollar on diverging economic fundamentals between Europe and Australia.
The single currency slipped to an all-time low around A$1.2841, for a loss of 1.8 percent on the week, and as the euro’s 25-day positive correlation with European stocks has weakened of late, analysts expected the euro to continue to lag the risk-sensitive Aussie should asset markets rally in 2012.
Against the safe-haven Swiss franc, the euro was steady at 1.2229 francs, not far from the cap of 1.20 introduced by the Swiss National Bank in September.
The dollar index was down 0.2 percent at 79.779, while the U.S. currency stayed supported at 78.00 against the yen. The United States is due to release personal spending, durable goods and new home sales data later in the day.

Fragile euro edges higher, helped by U.S. data

From Reuters
The euro edged up versus the dollar on Friday with risk appetite underpinned by better U.S. data, but investors were likely to sell the currency again in 2012 while the euro zone remained plagued by uncertainty surrounding its debt crisis.
A drop in U.S. weekly claims for jobless benefits to a 3-1/2-year low as well as an improvement in U.S. consumer sentiment in December boosted stocks and kept the euro afloat, though traders said flows were light as year-end holidays approached.
The single currency was up around 0.2 percent for the day at $1.3075, holding above a recent 11-month low of $1.2945. It is however down around 2.1 percent on the year.
“The dollar is still seen as a funding currency when risk appetite improves and people will sell dollars on the back of that,” said Chris Walker, currency strategist at UBS.
“But we still see uncertainties in the euro zone outweighing and look for a move towards $1.25 in the next few months,” he added.
Traders highlighted some stop-loss orders in the $1.3120 region, which if hit could push the euro higher in thin markets.
The Wall Street Journal carried a story late Thursday that the Federal Reserve could commit to keeping rates near zero right out to 2014. The report claimed the Fed could announce the decision at its next policy meeting on Jan 24-25.
But with the threat of sovereign downgrades throughout the euro zone hanging over the euro, sentiment towards the currency remains bearish heading into the new year, with the liquid dollar likely to be supported.
Doubts over whether this week’s European Central Bank tender of cheap loans will be effective in easing the strain for troubled euro zone economies are likely to keep peripheral bonds under pressure. Italian paper in particular is expected to come under renewed strain as large scale refinancing is needed in the early part of the new year.
Many market participants say heavy buying of Italian and Spanish debt by the European Central Bank is required to ease concerns over the precarious finances of the two countries.
Departing ECB Executive Board member Lorenzo Bini Smaghi said on Thursday the ECB was able to scale up its actions if needed and said quantitative easing could be an option.
“The lower-than-desired growth rates in broad money and credit and the downside risks to price stability will likely be the catalyst in driving the ECB to increase its bond buying programme early next year and will be presented as a way to counter act them,” said BNP Paribas in a note.
BNP recommended selling into any year-end rally for the euro and highlighted the $1.32-1.3250 area as tough resistance.
A break below $1.2945 in the euro would open up a test of the 2011 trough at $1.2860, traders said. The euro was hovering near all-time lows against the Australian dollar on diverging economic fundamentals between Europe and Australia.
The single currency slipped to an all-time low around A$1.2841 , for a loss of 1.8 percent on the week
The New Zealand dollar dipped briefly on news of another earthquake near Christchurch but soon steadied at $0.7738 , up from $0.7724 late in New York on Thursday.
Against the safe-haven Swiss franc, the euro was steady at 1.2229 franc, not far from the cap of 1.20 franc introduced by the Swiss National Bank in September.
The dollar index was down 0.2 percent at 79.818, while it stayed supported at 78.02 against the yen.

Asian shares up as US data spur year-end bounce

From Reuters
Asian stocks rose more than 1 percent and U.S. index futures also gained on Friday, as signs of a strengthening economy in the United States encouraged a year-end bounce for riskier assets.
European shares were also expected to open higher, helped by a 0.5 percent rise in S&P 500 index futures that pointed to further gains when U.S. trading resumes.
Wall Street stocks had risen for a third straight day on Thursday, leaving the S&P 500 index virtually flat for the year, after data showed new claims for unemployment benefit dropped to their lowest in 3-1/2 years.
The euro crept higher, but remained subdued amid doubts over whether this week’s European Central Bank tender of cheap loans will be effective enough to ease the financial strain on troubled euro zone economies.
“The highlight is the continuation of good data on the U.S. economy. China also seems to have managed to orchestrate a soft landing...,” said Ben Le Brun, market analyst with OptionsXpress in Sydney. “The problem child is still Europe.”
MSCI’s broadest index of Asia Pacific shares outside Japan rose 1.2 percent, with Australian and Korean shares both rising more than 1 percent . Tokyo’s financial markets were closed for a holiday.
Spreadbetters called London’s FTSE to open up 0.6 percent, Frankfurt’s DAX up 0.9 percent, and Paris’ CAC-40 up 1 percent.
Asian share markets, both developed and emerging, have sharply underperformed U.S. stocks in 2011, with the MSCI Asia ex-Japan losing 17 percent, and the Nikkei share average down about 18 percent, while Australia’s benchmark has lost about 13 percent. The MSCI World index fared slightly better, losing only 10 percent this year.
Citigroup equity strategists said in a note that Asia had seen its worst December fund outflows in 20 years as investors continued to pull money out of global equity funds.
The euro crawled up to around $1.3067, from $1.3050 late in New York, in thin trade.
The ECB’s first ever tender of ultra-cheap three-year loans on Wednesday, which saw 523 banks gorge on a total of 489 billion euros, has failed to win the single currency much support.
But despite the long-running debt crisis, the euro is only down around 2.4 percent for the year, having found support from higher ECB interest rates in the first half of 2011 that pushed it to a year high near $1.50 in May.
“People are diversifying away from U.S. dollars and that’s what it comes down to,” said David Scutt, a trader at Arab Bank Australia in Sydney.
“Despite the fact the U.S. economy is strengthening, there are still expectations in the marketplace that the Fed has showed it’s very keen to print at the best of times, and that’s helping the likes of the euro.”
The U.S. Federal Reserve has kept interest rates near zero for more than three years and has signalled it will keep them there through at least mid-2013. It has also bought $2.3 trillion in long-term securities to push down borrowing costs.
The New Zealand dollar dipped briefly on news of another earthquake near Christchurch, but soon steadied as there were no reports of casualties or widespread damage, unlike the previous quake in February.
It was trading at $0.7745, up from $0.7724 late in New York.
The rosier picture painted by the U.S. data supported commodities, with copper, which is sensitive to expectations of industrial demand, rising 0.5 percent to $7,575 a tonne, on course for its first weekly gain in three weeks.
U.S. crude oil edged up slightly, drawing closer to $100 a barrel, while Brent crude was little changed just below $108.
Gold inched up 0.2 percent to around $1,609 an ounce.
The precious metal has shed more than $300 since racing to a record above $1,920 in September, an appreciation driven partly on fears that the Federal Reserve’s monetary easing steps would stoke inflation against which it has traditionally been seen as a hedge, but remains up around 13 percent on the year.

Japan set to enter dollar swap agreement with India

From Reuters
The Japan government is considering a dollar swap arrangement with India to provide emergency liquidity in case the European debt crisis reaches emerging economies, the Nikkei business newspaper reported on Sunday.
The agreement would set the total swap arrangement at $10 billion, or 780 billion yen, the Nikkei said.
Both countries are looking to sign off on the arrangement next Wednesday, when leaders meet at a bilateral summit, the paper said.
The currency swaps are expected to support the Indian rupee as it continues to weaken against the greenback and Europe’s sovereign debt crisis hits India’s exports.
The dollar-swap arrangement with India would follow a similar agreement with South Korea in October.

Bangladesh Bank speeds up financial inclusion, says governor Atiur Rahman

From The Daily Star
Bangladesh Bank (BB) Governor Atiur Rahman yesterday said the central bank has intensified financial inclusion movement to ensure sustainable development.
It increased credit flow to agriculture, small and medium enterprises and environment-friendly projects, he said.
“The central bank has taken various steps to help the government ensure sustainable development and equitable economic growth for poverty reduction,” the governor said while addressing the reunion of the finance alumni of Dhaka University Finance Department.
During global economic crisis, Bangladesh efficiently maintained macroeconomic balance, he said, adding that despite external and internal risks, sustainable agricultural growth and sensible expansion of service and manufacturing sectors helped Bangladesh achieve a 6.7 percent GDP growth in last fiscal year.
“The government is expecting a 7 percent growth in the current fiscal year. During the last three years, the country achieved 47 percent growth in export, and inflow of remittance also witnessed a 20 percent growth and forex reserve reached $9.35 billion,” said the BB governor.
He said the euro zone has been facing a new financial crisis. To avert its negative impacts, the BB will have to closely monitor the possible overall economic risks side by side, playing a proactive role to minimise those risks, he added.
“For achieving long-term sustainable growth, we’ve to diversify our export products and look for new markets,” he said.
“We’ve to discourage import of unproductive luxurious products and check unnecessary state and social expenditures,” he added.
Rahman said Bangladesh needs to continue its hunt for new labour markets, and steps must be taken to increase manpower exports to the existing markets. Internal demand for manpower must be increased through expanding social safety net for the hardcore poor, he added.
The governor said economic cooperation must be strengthened at regional and international level to face possible economic crisis.
Especial emphasis will be given on intensifying intra-regional trade and cooperation through using the regional network such as Asian Clearing Union and Saarc, Rahman added.

Celebrating the successes of small efforts

From The Daily Star
‘NO society can surely be flourishing and happy, of which by far the greater part of the numbers are poor and miserable’ - Adam Smith in The Wealth of Nations (1776). Sadly, poverty is still a scar on humanity’s face and a denial of every ‘basic human right’—health, education, housing, food, water and energy, and access to fairer banking and credit.
The idea of small, ‘collateral-free’ loans for poor—developed by Nobel Peace Prize-winning Bangladeshi economist Muhammad Yunus in 1976, followed by founding the Grameen Bank (village bank) in 1983 -- or microcredit as a tool to alleviate poverty has become a global phenomenon. After two decades, this movement has gained a centre-stage with Microcredit Summit Campaign planted in 1997, followed by its year-on-year strength. The Global Microcredit Summit 2011 marked the 15th year of this campaign.
As the editorial lens of this excitingly new journal defines, the purpose of a more ‘encompassing economics paradigm’ is to progress the productivity and sustainability of our next generation out of every community. From this perspective, bold entrepreneurial challenges emerge all over the world in which developed nations can gain a lot from going back to basic community-grounded lessons as Bangladesh has shown the way and is branded as the epicentre.
And, our attempt to develop a special ‘Action Research’ issue of this journal to match the aspirations of the fifteen years of the microcredit summit campaign would refresh readers with what Dr John Hatch of the Foundation for International Community Assistance (FINCA) emphasised at the US-based citizens lobby—RESULTS’ International Conference in 1994 calling for a microcredit summit to launch a vigorous campaign to reach the world’s poorest families:
“Behold the largest self-help undertaking in human history—bringing hope, dignity, and empowerment to tens of millions of the world’s poor and poorest families. Behold a movement with global outreach that has penetrated beyond city slums and market towns to even the most isolated villages. Behold an industry that embraces thousands of NGOs, credit unions, public and private banks, and an infrastructure of hundreds of thousands of community-based peer lending groups that are enabling many of the planet’s most disadvantaged households to generate the additional income and savings they need to keep their children alive, nourished, healthy, and able to attend school.”
Just a couple of days after the first microcredit summit held in Washington, DC, USA from February 2-4 in 1997, Prince Charles during his visit to Dhaka met the ‘real-world’ microbanker Prof Muhammad Yunus, who, he—as expressed in a Foreword to Banker To The Poor (1998) -- found remarkable, speaking the greatest good sense … “I have since done all I can to encourage a wider consideration and appreciation of micro-credit... It has a use, too, in the developed world—whether in remote rural Norway or run-down suburbs of British cities. It is remarkably cost-effective. It has a proven track record ... Best of all, it allows poor and disadvantaged people to take control of their own lives, make something of themselves and improve the lot of their own families.” His expression resonates what microcredit enthusiasts in Europe now advocate, it could just easily help the unemployed in Europe, where a sovereign debt crisis and eventual public spending cuts are currently compounding stubbornly high jobless figures. Even in normal circumstances, it could help those—with pitiful credit scores and the lack of collateral—who don’t stand a chance of getting loans from traditional lenders, pull themselves off welfare by staring their small businesses. In this context, European Commission’s new 10-year plan to boost economic growth and create jobs, known as ‘Europe 2020’, presents an opportunity to integrate microcredit into EU priorities. But existing regulatory obstacles to micro-finance institutions (MFIs) operations in Europe need to be lifted.
Recently, Microcredit champion Prof Yunus and European Commission President José Manuel Barroso had discussions on the prospect and promotion of microcredit in Europe to lift disadvantaged communities out of poverty, and the urgency of introducing appropriate laws and regulations. It is, however, a welcome development that a consortium of 20 law firms are now working for a major study on the regulatory obstacles to microcredit across the EU’s 27 member states. Maria Nowak, founder of ADIE International, the biggest MFI in Western Europe, is actively assisting in this move.
In the face of worsening global economic crisis the battle between the macroeconomics that disinvests in youth’s futures and sustainability, and the entrepreneurial economics that improves the net generation’s productivity, is accelerating. The lack of a pro-youth investment mindset virtually poses a challenge to transformative economics. It would seem probable that both developed and developing worlds now need to learn the transparent truth about the models that microcredit summit set out to empower worldwide knowledge exchanges around the first Microcredit Summit in 1997. In other words, all of our media now needs to value the leadership and working heroes and heroines of Bangladeshi microcredit now more than ever. As an innovative micro-up route to economic transformation, among other things, the success of micro initiatives represents aggressive use of market forces and sustainable business practice to achieve substantive social goals. Both BRAC and Grameen Bank are classic examples of such a model. Also, originated in 1999, Jamii Bora is a recent addition. In this spirit, perhaps, Queen Sofia of Spain and Prince Charles of the UK were inviting wider audience to understand how Bangladeshi microcredit worked as a transformative system from assumptions that ‘fatal conceit’ economics has spun over the last 40 years. As such, this journal forms a part of wider movement to transform economics.
This special issue aims at celebrating connectivity between ‘basic human rights’ areas of health, education, housing, food, water and energy, credit and banking. And we have attempted to illustrate, alongside BRAC and Grameen, a number of micro initiatives/projects like Jamii Bora of Kenya which originated during the first 15 years of Microcredit Summit Campaign, with focuses on—does this programme integrate with other micro-practice areas or millennium development goals beyond financial impacts of ending poverty, what makes the model of the project sustainable, and what collaboration help is needed next?
The Microcredit Summit Campaign has recently shown that while more than 205 million people worldwide received a microloan in 2010, this multi-year campaign focuses on outreach to the poorest clients. According to the report, over the last 13 years, the number of very poor families with a microloan has grown more than 18-fold from 7.6 million in 1997 to 137.5 million in 2010. The latest data comes from more than 3,600 institutions worldwide, with more than 94 percent of the information having been collected within the last 18 months.
The Campaign’s goal set for 2015 that 175 million of the world’s poorest families, especially the women of those families, would be receiving credit for self-employment and other financial and business services. With an average of five in a family, this would affect 875 million family members.
Figures released by the Microcredit Summit Campaign on January 28 this year shows that nearly two million Bangladeshi households involved in microfinance, including almost 10 million family members, rose above the $1.25 a day threshold between 1990 and 2008. Dhaka-based Economic Research Group (ERG) undertook the survey between February and August in 2009, covering more than 4,000 Bangladeshi households. This survey included a large number of clients from BRAC and Grameen Bank—the two Bangladeshi institutions known for their groundbreaking efforts to end rural poverty.
While successes of micro initiatives leading to improved lives out of microloans continue, overindebtedness from multiple loans, coercive collection practices, exorbitant interest rates and mission drift arising out of two MFIs (Compartamos in Mexico and SKS in India) hugely profiting from initial public offerings (IPOs), appear as grey areas and pose a challenge to the sector’s direction. It is good that the summit’s plenary and workshops sessions were well designed to address, debate, interact and redefine the way forward while reasserting integrity of the MFI sector—not to benefit out of poverty and lose sight of its development focus. Also, many action learnings described in this special issue via deliberations by resourceful practitioners of exciting initiatives devoted to ultra-poor in rural areas and in urban slums, institutions offering student loans and scholarships to tens of thousands of children from extremely poor and illiterate backgrounds, and initiatives linking microfinance with health and clean energy, and with agriculture and clean water, will hopefully reinforce the promise of MFI sector.
It is an optimism that the Global Microcredit Summit 2011 in Valladolid, Spain, attended by over 2,000 delegates representing micro initiatives from all over the globe—remarkably BRAC, Grameen and Jamii Bora—would joyfully celebrate successes and remain as a lively, interacting assembly of understanding, respect and commitment towards microcredit borrowers worldwide—the millions of women and men who have set their great expectations on this summit.
Finally, this special issue of the Journal of Social Business carries the announcement of launching a new think and action tank by Adam Smith and Yunus scholars on Social Business Entrepreneurship and New Economic Ideas, known as “Global Institute for New Economics”. The think and action tank would develop an assembly of ‘social consciousness’ entrepreneurs and practitioners, policymakers and economists committed to action research on social intervention issues.