-Repeats Item First Transmitted Saturday.
-BOE Dale: Policy Can Respond if Economic Outlook Deteriorates
-BOE Dale: Upping Stimulus May Not Be Right Response to Weak Growth

DUBLIN (MNI) – Bank of England Chief Economist Spencer Dale has
highlighted the risks attached to prolonged, ultra loose monetary
policy, warning of the dangers of perverse effects from quantitative
easing and saying providing more stimulus in response to weak growth may
be the wrong thing to do.

In a speech here, Dale cited the risks the central bank is
running by buying up a large chunk of the gilt stock through QE and by
pumping in stimulus when there are deep concerns over supply side
weakness in the UK economy.

Dale voted against the stg50 billion increase in QE sanctioned by
the MPC at its July meeting and has consistently been more cautious than
his colleagues over increasing monetary stimulus.

In this speech at a conference at Trinity College, Dale said that
monetary policy may be able to do little to stimulate growth and could
run up against supply constraints.

“Injecting additional monetary stimulus when we observe weak output
might not be the right thing to do,” he said.

UK productivity growth has slumped and Dale said if supply and
demand weakness were both due to external factors, such as tight credit
and an impaired financial system, “further demand stimulus may run up
against supply capacity relatively quickly and so largely result in
higher inflation.”

Providing further stimulus would be the right thing to do if weak
growth was due to weak demand, but Dale highlighted policymakers’
uncertainty over what is happening in the economy at present.

The BOE chief economist also highlighted the risks attached to his
own institution’s favoured stimulus policy, QE, which relies on
purchasing industrial quantities of gilts.

The BOE’s in-house view is that QE works, in part, through
“portfolio effects” – driving down the yield on gilts and encouraging
investors to opt for higher yielding, and higher risk, assets.

“QE works by encouraging institutional investors to hold an
increasingly risky portfolio of assets. This helps to increase the
demand for debt and equity issued by UK companies. But it comes at the
expense of increasing the risks borne by key parts of our financial
sector,” Dale said.

The BOE, which is undertaking a stg375 billion QE programme, has
already acquired around 40% of the total stock of conventional gilts.
Eventually, it will have to unwind QE and sell-off those gilts which
haven’t reached maturity.

Dale worries about the impact these blockbuster sales could have,
as investors will have to reduce other type of assets to buy the gilts.

“Achieving this portfolio rebalancing without unsettling the
government bond market and, equally important, causing a substantial
crowding out of private sector debt will be a delicate task,” Dale says.

He also says the BOE needs to take seriously the perception, albeit
a misplaced one, that QE is simply “monetary financing”, with the BOE
stepping in at a time when fiscal deficit are close to post war highs.

Dale was more enthusiastic about the Funding for Lending Scheme,
the flagship credit easing scheme created jointly the Treasury and the
BOE.

He believes this could have a significant effect as, by providing
banks with cheap funding and encouraging them to lend more, it should
tackle credit constraints.

“By helping to improve the availability of bank lending to
companies and households who previously have been effectively starved of
credit, it could have a significant effect on demand,” Dale said.

For all his reservations over ultra loose monetary policy, Dale
stresses the MPC has scope to inject more stimulus if the economic
outlook becomes darker still.

“There is scope for monetary policy to do more. If the economic
outlook deteriorates further, policy can respond. We have not yet run
out of road,” he says.

–London Bureau; Tel: +44207 862 7491; email:
drobinson@marketnews.com

[TOPICS: M$$BE$]

-Repeats Item 1st Transmitted Saturday
-Adds Detail To Version Transmitted At 1245 GMT
-BOE Dale: If QE Is Less Effective, Costs May Rise Compared To Benefits

DUBLIN (MNI) – Bank of England Chief Economist Spencer Dale has
argued against the simplistic view that if quantitative easing becomes
less effective then the dosage should be increased.

Dale says that policymakers must factor in the costs as well as the
benefits of QE, and if the benefits are diminishing the costs will
become proportionately greater.

In his speech here, Dale highlighted the risks associated with
ultra loose monetary policy.

“When you are thinking about policy strategy you need to recognise
there are costs as well as benefits,” he said in a question and answer
session following the speech.

“Sometimes one hears commentators say, ‘well, suppose QE has become
less effective. Don’t worry, just double it, If it has become half as
effective just double the dosage’.”

“In a world where there are no costs associated with a policy tool
that is an entirely, eminently sensible response but if there are costs
as well as benefits and those benefits become less and the costs don’t,
then suddenly … in terms of cost/benefit analysis it starts to become
a less attractive tool,” Dale said.

In his speech he talked about the tricky challenge of unwinding QE,
with the BOE holding some 40% of the outstanding gilt stock.

Dale voted against the last tranche of QE that was sanctioned at
the July meeting by the BOE Monetary Policy Committee.

In the Q and A, Dale also expressed deep skepticism about some of
the more radical forms of monetary stimulus – monetary financing, or the
‘helicopter drop’ of money, and setting negative interest rates.

He said monetary financing has been used in pejorative sense in
economic history but it was not necessarily a bad thing. In practice,
however, it would be highly problematic.

“It has some quite tricky things associated with it. One … is the
impact it will have … in terms of (policymakers’) credibility,” Dale
said,

“If you did do this (helicopter drop money) and it immediately led
to a sharp jump in inflation expectations you wouldn’t get any benefit
for the economy at all. You would just get a big price level effect,” he
said,

He said that, secondly, monetary financing would be a step into
unchartered waters and thirdly “by its very nature it is pretty hard to
reverse.”

He said monetary financing shouldn’t be condemned into the “evil,
you should never think about it bucket but, for me, it is in the bucket
of ‘I don’t really want to go there if I can help it’.”

–London Bureau; Tel: +44207 862 7491; email:
drobinson@marketnews.com

[TOPICS: M$$BE$]

So says Business Insider.

In the last few weeks insitutions have begun to fret that they had too little risk onboard, and early sentiment following Friday’s NFP  is for  a bounce in equities and  commodites

Cam Hui’s (Qwest Investment Fund Management) personal views….

More …  ‘Seeking alpha’

From -30.3 in August and much better than forecasts of -30.7.

ECB bond buying  largely behind the first improvement since March

BGA is German trade association and Boerner is head honcho.

• Definitely does not expect recession in Germany this year
• Does not see German exports falling or stagnating in this year or next

Industrial Production
– July –
%mom %yoy

Median Forecast 0.1 -3.3
High forecast 0.5 -2.8
Low forecast -0.4 -3.6
Previous period -0.6 -2.2
-
Number of responses 7 5
-
Barclays Cap. -0.3 -3.6
Berenberg Bank 0.2 n/a
Capital Economics 0.5 -2.8
Citi n/a n/a
Commerzbank 0.2 -3.1
LBBW -0.4 n/a
Natixis -0.1 -3.3
Soc. Generale n/a n/a
UBS -0.2 -3.4

–

HICP (final)
– August -
%mom %yoy %yoy (core)

Median Forecast 0.4 2.6 1.7
High forecast 0.4 2.6 1.7
Low forecast 0.3 2.6 1.7
Previous period -0.5 2.4 1.7
-
Number of responses 7 10 2
-
Barclays Cap. 0.4 2.6 n/a
Berenberg Bank 0.4 2.6 n/a
BNP Paribas 0.4 2.6 n/a
Capital Economics 0.4 2.6 n/a
Citi n/a 2.6 n/a
Commerzbank n/a 2.6 n/a
LBBW n/a 2.6 n/a
Natixis 0.3 2.6 n/a
Soc. Generale 0.4 2.6 1.7
UBS 0.4 2.6 1.7

——————————————————————
* Median is based on above forecasts and is not intended to represent
a consensus.

The survey was conducted on Friday, September 7.

[TOPICS: MTABLE,M$GDS$,M$G$$$,M$XDS$,M$X$$$]

CPI – August HICP – August
%mom %yoy %mom %yoy

Median Forecast 0.6 2.1 0.8 2.4
High forecast 0.8 2.2 0.8 2.5
Low forecast 0.5 1.9 0.6 2.3
Previous period -0.4 1.9 -0.5 2.2
-
Number of responses 7 8 6 6
-
ABN AMRO n/a 2.0 n/a n/a
Barclays Cap. 0.7 2.2 0.8 2.4
BNP Paribas 0.7 2.1 0.8 2.4
Capital Economics n/a n/a 0.6 2.3
Citi 0.8 2.2 0.8 2.5
Commerzbank 0.5 1.9 n/a n/a
Natixis 0.6 2.0 0.6 2.3
Soc. Generale 0.6 2.1 0.7 2.3
UBS 0.5 1.9 n/a n/a

———————————————————————–
* Median is based on above forecasts and is not intended to represent
a consensus.

The survey was conducted on Friday, September 7.

[TOPICS: MTABLE,M$GDS$,M$G$$$,M$XDS$,M$X$$$]

To -0.8% q/q, -2.6% y/y from previous -0.7%, -2.5% respectively.

ITALY DATA: 2Q final GDP -0.8% q/q; -2.6% y/y, (1Q -0.8% q/q; -1.5%
y/y), as a drop in domestic demand was only partly offset by a growth in
exports, ISTAT said.
–4th consecutive Q/Q contraction; worst Y/Y decline since 4Q09
–Net exports contributed 0.2 points to q/q growth, while net domestic
demand subtracted 1.0 point from GDP growth.
–The 2Q result gives a growth platform of -2.1% for 2012, ISTAT said.
–See main wire for more details.

That’s the minutes from MPC meeting on August 27th.

I wonder if Draghi’s performanace last week will have made them any more positive?

EUR/USD drifting lower, presently at 1.2780.

Buy orders seen clustered 1.2750/60, sell stops below there apparently.

• Power law to go to cabinet once agreed with Econ Min Montoro
• Surprised at decision to close Garona nuclear power plant
• Spain will decide on ECB aid request when it sees terms and conditions

Thats not to say that the US couldn’t choose to do so , but it could never be forced  to…..

More…. Forbes’s John Harvey

Italy 10 year govt bond yield up 3 bps at 5.08%.

Spain 10 year govt bond yield down 3 bps at 5.60%.

With the 1.2750 upside parameter of the last 1.2550-1.2750 poll having been reached and breached Friday it’s time for another.

We’re at 1.2800. What’ll we see first 1.2700 or 1.2900?

As per usual, reason/s behind choice appreciated but not obligatory.

This one I think is tres tres difficile

– Japan Aug Watchers’ Current Index 43.6 Vs July 44.2
– Japan Aug Watchers’ Current Index Posts 1st Drop in 2 Months
– Japan Aug Watchers’ Forward-Looking Index 43.6 Vs July 44.9
– Japan Aug Forward-Looking Index Posts 4th Straight Drop
– Japan Govt Keeps View: Economy Shows Some Weakness

TOKYO (MNI) – The Economy Watchers’ Survey index for Japan’s
current economic climate marked the first drop in two months as
subsidy-backed car sales have slowed and the global slowdown is hurting
business sentiment, Cabinet Office data released Monday showed.

The forward-looking index fell for the four straight month on
concerns that confidence may be dampened by the government’s plan to
double the 5% sales tax by 2015 and car sales will see a pullback after
the government ends its reward program for buying greener vehicles soon.

The current conditions index fell to 43.6 last month from 44.2. It
remained the lowest level since May 2011, when it stood at 36.0 in the
aftermath of the devastating earthquake that year.

The pace of year-on-year growth in new vehicle sales slowed
further to +7.3% in August from +36.1% in July, the latest industry
data showed.

In December the government revived subsidies for buying
low-emission vehicles. However, because the program is running out of
money due to strong demand, it is expected be terminated again in
September.

The forward-looking index, which gauges conditions two to three
months ahead, slipped to 43.6 in August, down from 44.9 in July, a
fourth straight fall.

Based on the survey results, the government maintained its economic
assessment, saying that the economy “has been picking up moderately but
is now showing some weakness.”

The watchers’ index gauges whether respondents with jobs most
sensitive to economic conditions — taxi and truck drivers, department
store sales staff as well as restaurant and shop owners — believe
economic conditions have improved or worsened from three months before.

The household sub-index for the current conditions dropped to 42.1
in August from 42.8 in July while the business sub-index for current
conditions fell to 44.0 in August from 44.8 in July.

By contrast, the labor sub-index rebounded slightly to 52.5 in
August from 52.1 in July as job offers increased in the wholesale and
retail sectors as well as the service industry.

The Cabinet Office said the survey was conducted between Aug. 25
and Aug. 31.

tokyo@marketnews.com
** MNI Tokyo Newsroom: 81-3-6860-4820 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$,MT$$$$]

FRANCE DATA: July industry output +0.2% m/m; June flat m/m
– Above expected; MNI analysts survey median forecast -0.5% m/m
– July industry output -0.5% vs 2Q average; 2Q -0.6% q/q
– July mfg output +0.9% m/m after June flat m/m (+0.1%)
– Please see MNI Mainwire for further details

Well above forecasts of -0.5% m/m and a revised flat reading in June.

Some small cheer ahead of the big budget which won’t be putting any smiles on any faces…

PARIS (MNI) – French economic activity is likely to remain on a
downward slope in the months ahead, the Bank of France forecast Monday,
citing the results of its monthly business survey.

The central bank confirmed its projection for a modest GDP
contraction of 0.1% in 3Q. Since 4Q of last year, activity has been flat
overall.

The latest survey showed industry executives “slightly more
favorable” about activity in August, especially in the pharmaceutical
and chemical sectors. Indeed, the central bank’s sector climate
indicator, based on the latest three months’ results, rebounded three
points to a four-month high of 93, though still seven points below
average. Most analysts had expected little change but were split on the
direction.

However, manufacturing capacity utilization remained well below
average in August at 77.0%, unchanged from July. Order books contracted
further and finished goods inventors were slightly lower. Prices were
boosted somewhat by costlier commodities.

Manufacturers’ overall production outlook for September fell into
negative territory at -3 after a seven-point rebound for August,
pointing to “a decline in industry activity in the short term,” the
central bank said.

Other leading indicators for industry also point to weak activity
ahead. Insee’s index of own-company expectations is far below normal and
the August factory PMI flagged a further contraction in new orders.

France’s services sector was stable in August, with gains in the
management consultancy and advertising sectors offsetting declines for
temporary work, the central bank said. Payrolls were stable and prices
rose marginally. The services climate index regained one point from a
31-month low in July to return to June’s level of 91.

The outlook for services activity in September was stuck at zero
for the fourth month in a row, which the central bank interpreted as a
signal of stability in the short term.

France’s services PMI slipped back into contraction territory in
August (49.2), with new business falling faster (47.1). Insee’s sector
survey showed company expectations sinking in August to the lowest level
in three years.

–Paris newsroom +331 4271 5540; e-mail: ssandelius@mni-news.com

[TOPICS: M$F$$$,M$X$$$,M$$EC$,MT$$$$,MGX$$$]

EUR/USD:  Offers 1.2800/20 (late Fri NY high 1.2817) ahead of tech res 1.2835/40 (200 day MA 1.2838). Also barrier talk  1.2825 and 1.2850.  Buy stops through 1.2850.  Bids 1.2750/60 and 1.2700/10

GBP/USD:  Offers 1.6025/35 (Fri high 1.2035) possible buy stops above. Bids 1.5940/50 ahead of 1.5920/30 (Fri lows 1.5923)

EUR/GBP:  Offers 0.8000/10 and 0.8035/45, Bids 0.78970/80 (tech 100 day MA 0.7976) and 0.7925/35 ahead of stronger bids 0.7900/10 (55 day MA 0.7902)

USD/JPY:  Bids 78.00/20 (likely semi-official, Japan Life co's, importers). Sell stops through 78.00 and larger through 77.90 ahead of larger bids 77.50/70. Offers from 78.30 up to 78.50(exporters) ahead tech res 78.67 (Ichimoku cloud base) and more offers 78.90/00.

EUR/JPY: Bids 100.00/10, 99.60/70 ahead of tech supp 100 day MA at 99.45. Offers 100.20/30 ahead of tech res 100.43 (Fri high)

AUD/JPY:  Bids 80.95/05 likely sell stops below ahead of tech supp 100 day MA 80.76 and more bids 80.30/40. Offers 81.20/30 and more /tech res up at 81.70/80 (200 day MA 81.79)

EUR/CHF: Offers 1.2100/10, larger up at 1.2150/60 (Fri high 1.2156) possible buy stops above, but offers plentiful ahead of 1.2200. Bids 1.2070/80 and 1.2050/60

AUD/USD:  Bids 1.0345/55(Fibonacci 50% retracement level 1.0355- of 1.0545/1.0166 fall) and more down at 1.0300/10, possible sell stops through 1.0270. Offers 1.0390/00 (debatable barrier 1.0400), but likely buy stops above ahead of further offers/tech res 1.0430/40

EUR/AUD:  Bids 1.2300/20 and 1.2235/45, Offers 1.2360/70 and 1.2390/10

NZD/USD:  Offers 0.8145/55 buy stops above ahead of tech res 0.8185/90 (Aug 22 high 0.8187), Bids 0.8100/10 and 0.8040/50, likely sell stops through 0.8000