GBP/USD and EUR/USD

Currency Positioning and Technical Outlook: Respect the Price Action

SATURDAY, NOVEMBER 10, 2012
Marc Chandler

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The US dollar appears to have broken out of the ranges that seemed to dominate since mid-September against the major currencies, except the Japanese yen and Australian dollar.

We had not anticipated the break out, believing that the resolution of the US fiscal cliff or the Spain/Greek issues in Europe were not imminent. Nevertheless, we did recommend that if the break did materialize, the price action ought to be respected, especially if it took place in the direction that was consistent with our understanding of the fundamental backdrop.

We did not appreciate the extent to which investors and consumers were looking past the US fiscal cliff. Formal and informal surveys find that many if not most expect the fiscal cliff to be averted, even if at the last minute. The fiscal cliff is generally understood to be the creation of Congress and it can be avoided or mitigated. The the failure to do so would be significant. The Congressional Budget Office warns that going over the cliff would drive the US economy into a sharp contraction in the H1 13 and although the economy would recover in H2 13, the hit would be severe enough mean the world's largest economy would contract overall next year. The improvement in unemployment would be reversed and return to the 9% area.

Consumer confidence is a 4-4 1/2 year highs. US consumers have been impressively resilient. The headline October retail sales due Wednesday, November 14 will likely be depressed by autos and gasoline, but the measure that is used to calculate GDP is likely to have risen by 0.4%. At the policy market, Intrade.com, the odds of a recession next year have fallen in recent weeks, risen, and this can be seen as a proxy for the fiscal cliff as without it, the US economy is likely to grow 2-2 .25% next year.

Business executive sentiment is less sanguine. Here surveys show that the fiscal cliff is of major importance. However, contrary to expectations it does not appear to have deterred hiring decisions. US non-farm payroll growth has averaged almost 157k this year and 170k in the past three months. Last year, a little more than 153k net new jobs were created on average every month.

On the other hand, business investment has been considerably weaker. While the uncertainty surrounding the fiscal cliff and tax schedules may be a contributing factor, something else appears to be at work. Durable goods orders have been trending lower since Q2 10. In the GDP calculations, gross private non-residential investment has been trending lower since Q3 11. The expiration of government incentives, the still substantial excess capacity, and soft world demand may also be weighing on investment.

Given that the policy makers players' card has not changed very much, we are concerned that the market may be under-estimating the ability of Americans to shoot themselves in the foot. As Churchill quipped, the Americans can be count on to do the right thing, but only after they have exhausted the alternatives. Our point is that the alternatives have not been exhausted.

While the CBO projects that going over the fiscal cliff would trigger a sharp though brief (a couple of quarters) downturn before growth returned, Europe may be hit harder. As Q3 GDP figures due out at the end of the week will show, the euro area economy is already contracting. A contraction in the US would strengthen their economic headwinds and would likely produce greater fiscal deficits that can only exacerbate their debt crisis.

As Japanese and Chinese trade figures show, access to a growing US market has helped offset or mitigate the weaker demand from Europe. A US recession would have knock on effects there too. After being bolstered by reconstruction spending, the Japanese economy also likely has entered a new contraction phase.

It looks like a win-win situation for the US dollar. If the US does go over the fiscal cliff, risk appetites will be dashed, which, broadly speaking, tends to be dollar (and yen) supportive. If the fiscal cliff is averted, growth differentials would also seem to favor the dollar.

The euro area debt crisis will most likely not be resolved any time soon. German Chancellor Merkel has suggested it may take another five years to work through the problems. It has already been indicated that this week's Eurogroup meeting of euro area finance ministers will not result in a new tranche of aid to be paid to Greece. That beleaguered country will have to issue bills to raise the funds to meet the redemptions it faces this month. The issue of a Greek exit has resurfaced again.

Spain, the other current focus in the euro area, is still putting new hurdles its way to formally ask for more assistance. Just as many participants expect, by hook or by crook, for the US to avoid the fiscal cliff, many see a larger aid package for Spain to be nearly inevitable. The impact of the establishment of the Outright Market Transaction Scheme has begun to wear off as Spanish bond yields have risen for three consecutive weeks. Over the last 60 days, the euro and Spanish bond yields move in opposite directions about 80% of the time.

As we discuss below, the dollar's technical tone improved markedly over the past week, especially against the European complex. We would be disappointed if there were not follow through gains in the days ahead. The yen may more likely consolidate its recent swings than trend. The dollar-bloc and peso are less clear technically In a strong US dollar environment, the Canadian dollar tends to do well on the crosses. We are more inclined to sell the Australian dollar and Mexican peso into strength.

Euro: The technical outlook deteriorated markedly with the break below support at $1.28. It had two outside days in the past week, where it traded on both sides of the previous day's range only to close lower on the session. On Friday, one of the outside days, the euro closed below Thursday's low. This price action may be seen as failed attempts to rally and suggests overhead supply. Perhaps many of those fund managers who moved toward benchmark euro zone exposure in Q3 are beginning to hedge. The next downside objective are found just above $1.26 and then $1.2475. A move back above $1.2825 would be helpful, but it may require a move above $1.29 to be constructive.

Yen: The dollar shed 1.5 yen last week, falling to almost JPY79.00. This corresponds to the 50% retracement of the rally from September 28 low near JPY77.45. The dollar's smart recovery on Friday stabilized the near-term technical picture. The dollar may test the JPY79.70-JPY80.00 area. Consolidation, rather than trending is likely to be the flavor of the yen in the coming days.

Sterling: Like the euro, sterling posted a couple of outside days last week, including on Friday, but failed to maintain any traction. In fact, before the weekend, sterling settled at two-month lows. The break of the October 23 low (~$1.5914) is significant and suggests sterling toward $1.5750-$1.5800. Some may put emphasis on the 200-day moving average, which is found near $15850. However, we find the 200-day moving average to be a better mile marker (where we are) rather than a road map (where we are going--support/resistance).

Swiss franc: The dollar appears to be breaking out to the upside against the Swiss franc and the prospects of a new trending market appears to be drawing fresh interest in the currency after central bank's cap successfully deflected speculative attention. A move now above CHF0.95 would seem to confirm a significant low has been carved out and the greenback can move into the CHF0.96-CHF0.97 range before being seriously challenged. It would require a close below CHF0.94 to negative this constructive technical outlook.

Canadian dollar: The US dollar has been trending higher against the Canadian dollar since mid-September. That trend line support now is seen near CAD0.9900. We have been suggesting a CAD1.0040 target and this was tested ahead of the weekend. A convincing move through this and our next target near CAD1.0135 comes into play.

Australian dollar: The Australian dollar has been fairly resilient and recorded new month and a half highs against the dollar at mid-week. However it reversed low and Friday's close was weak, though still above the 20-day moving average that comes in near $1.0355. It may take a close below the $1.0330 area to force the the bulls to reconsider. On the upside, the $1.0440-50 area looks to be a likely cap.

Mexican Peso: The US dollar rallied 40 pesos in the last three sessions (MXN12.90-MXN13.30) as risk-off dominated the capital markets. Market positioning, heavily leaning the other way, may have contributed to the sharpness of the move. The technical tone is poor for the peso, and the dollar has potential to rise toward MXN13.40-MXN13.44. On the other hand, a break below MXN13.07-MXN13.12 would warn that the upside recovery in the dollar is over.

http://svc.npario-inc.net/DMP/C128/0...ld=159929&seg=http://aidps.atdmt.com/AI/Api/v1/Use...?meta=appNexusEU 2013 budget talks end in failure


http://s1.reutersmedia.net/resources...=CBRE8A81OTT00


By Charlie Dunmore
BRUSSELS | Fri Nov 9, 2012 4:53pm EST

(Reuters) - Talks on the European Union's 2013 budget collapsed in acrimony on Friday, denting hopes of a swift deal later this month on the bigger issue of the bloc's long-term spending for 2014-2020.

Negotiators for EU governments and the European Parliament walked out without even discussing next year's spending blueprint, after 8 hours spent squabbling over a request for 9 billion euros in extra cash to fill a funding gap in 2012.

"Under these conditions, we felt that negotiations which hadn't really begun by six o'clock in the evening couldn't reasonably be expected to finish during the night," said the parliament's lead negotiator, French lawmaker Alain Lamassoure.

Sources in the meeting said the talks ultimately failed because lawmakers from the European Parliament refused to discuss the 2013 budget before an agreement on the extra funds for 2012, while governments wanted to negotiate both as a package.

Asked whether the parliament took the decision to walk out of the talks, Lamassoure said: "I would say rather that it was the ministers who didn't walk in."

Before Friday's talks, negotiators warned that failure could affect the outcome of an EU summit on November 22-23, where leaders will try to agree plans for the bloc's next long-term budget worth roughly 1 trillion euros ($1.27 trillion).

"If we succeed in these negotiations now, we will create a better atmosphere for convergence and agreement in the (summit) negotiations," said Cyprus's deputy minister for EU affairs, Andreas Mavroyiannis.

"If not, I suppose this will poison a little bit the atmosphere," he told Reuters ahead of the meeting.

The failure will also delay about 670 million euros of EU aid funding to the Italian region of Emilia Romagna, which was hit by a series of powerful earthquakes earlier this year, but negotiators said there was agreement that the funds should be paid.

A fresh round of talks is expected ahead of a November 13 deadline for a deal. If the deadline is missed, the European Commission will have to draft a new budget plan in a Last-ditch bid to get an agreement before the end of the year.

FUNDING LIMITS

The European Commission said its request for additional money this year was needed to avoid cutting off EU funds for education, infrastructure and research projects.

The request was based on government estimates of claims for EU funds that they expected to submit before the end of this year, it said. But net budget contributors including Germany, Britain and the Netherlands questioned the figures.

"We take the view that implementation of the budget in 2012 is not a basis for the claims made by the Commission," Germany's Permanent Representative to the EU Peter Tempel said.

"These extra needs mentioned by the Commission should be met above all by redeployment, and we expect the Commission to react to that point," he told EU colleagues during the meeting.

But EU Budget Commissioner Janusz Lewandowski said any unused funds in this year's budget had already been moved to fill the gap, leaving no room for further redeployments.

"What I can confirm... is that we need 9 billion," he told reporters after the meeting. "But for sure it cannot be redeployment - we are at the limit."

If no deal is reached on the 2013 budget before the end of the year, the budget for 2012 will be divided into 12 equal parts and paid monthly into the EU's coffers, leading to disarray in the bloc's spending in areas such as agriculture.

The Commission and EU lawmakers are demanding a budget of 138 billion euros in 2013, representing a way-above-inflation 6.8 percent rise compared to this year.

Most national governments want to limit any increase to 2.8 percent, and identified about 5 billion euros in cuts to proposed regional development aid and overseas spending in areas such as development assistance and trade promotion.

One major incentive for net budget contributors to limit next year's spending is the fact that if agreement on the 2014-2020 framework is delayed, the budget ceiling for 2013 will be automatically rolled over with an annual increase for inflation. ($1 = 0.7868 euros)


(Additional reporting by Francesco Guarascio; Editing by Ethan Bilby; editing by Ron Askew)



Source : Reuters

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Bernanke's stamp on Fed could tie hands of successor

By Jonathan Spicer
NEW YORK | Sun Nov 11, 2012 8:12am EST



http://s1.reutersmedia.net/resources...=CBRE8AA10C100


(Reuters) - President Barack Obama's next choice to head the U.S. Federal Reserve could have his or her hands tied if Ben Bernanke and company continue to re-write the policymaking rule book at their current clip.

Under Chairman Bernanke, who is expected to step down when his current term expires in January 2014, the U.S. central bank has embraced the goal of making the historically shrouded business of setting monetary policy far more transparent.

It has adopted a string of new rules and guidelines to clarify its policy intentions, including an inflation target and a conditional vow to hold interest rates near zero until at least mid-2015.

The next step is being hotly debated now.

Fed policymakers are striving to agree on a set of economic variables, or thresholds -- probably particular levels of unemployment and inflation -- that would signal when the time to raise interest rates was finally drawing near.

The trick is making a credible commitment that convinces investors to keep longer-term borrowing costs low, thus stimulating the economy, while at the same time ensuring the Fed can react swiftly to changing economic realities.

The concern is that these rules and guidelines will crimp the central bank's flexibility in years to come as it deals with the fits and starts of a protracted U.S. economic recovery.

"The more they do it over the next year, the more the next chair will be constrained," said Vincent Reinhart, chief U.S. economist at Morgan Stanley and a former Fed economist. The "constructive ambiguity" the central bank has famously used over the years to safeguard its policy-setting discretion is slowly disappearing, he said.

PRESERVING POLICY CREDIBILITY

In battling the worst recession in decades, central banks around the world have deployed untested tools, such as large-scale bond purchases. They have also often made commitments about how, and for how long, they plan to use the tools.

Their decisions will matter for years to come.

After eight grueling years battling a severe financial crisis, the deepest recession since the Great Depression and a disappointing recovery, Fed watchers say Bernanke will likely want to step down when his second term as Fed chief expires, even if Obama wants him to stay.

But the economy is unlikely to have fully recovered by then, leaving any rate-hike cycle to his successor. Fed Vice Chair Janet Yellen and Lawrence Summers, a former White House economic adviser, are both considered possible top candidates for the job.

Whomever Obama nominates will be handed a rule book from the Bernanke era that will be difficult, and maybe unwise, to erase.

Though the guidelines adopted under Bernanke are not iron-clad law, "the credibility of policy actions would be at stake if they were easily overturned," said Peter Hooper, chief U.S. economist at Deutsche Bank Securities.

AGE OF IMPROV

If Fed officials can reach agreement, economic thresholds would replace their stated expectation that interest rates would remain near zero through at least mid-2015.

It would be the latest refinement to the Fed's communications toolkit. In the last 16 months alone, it moved to tie low interest rates to calendar dates, adopted a formal inflation target of 2 percent, and published the policy expectations of each of its 19 policymakers. It built on that list in September when it said it expected to buy bonds until the labor market outlook improved "substantially."

Within the Fed's policy-making committee, however, consensus on which unemployment or inflation levels to use has proven elusive. Four top Fed officials have gone public with their own proposals, whether simply to provide a window into their tough internal debate or to sway their colleagues.

"It would be nice if we could communicate more clearly what those parameters are," William Dudley, the influential president of the Federal Reserve Bank of New York, said last month.

"The problem of course is that it's very hard to summarize the economy, and how you're going to feel about the economy, through just one or two parameters," said Dudley, who has not pitched a plan.

Yellen -- who as chair would likely smooth the transition from Bernanke -- could shed more light on the issue on Tuesday when she gives a speech on central bank communications.

To be sure, Bernanke's Fed has been careful to leave itself some breathing space. The current round of bond purchases is "open-ended," meaning there is no dollar value or timeline constraining it.

Still, the drum beat of rule changes continues.

The Fed is also considering adopting a "consensus forecast" to give investors a better sense of how policy is likely to evolve. That would build on a January decision to publish for the first time individual policymakers' rates forecasts.

As Bernanke's term draws to a close, the jury is still out on the effectiveness of the new transparency steps.

"It is the improvisation stage," Reinhart said, "and it does feel unsatisfying."

(Reporting by Jonathan Spicer; Editing by Tim Ahmann and Leslie Adler)



SOURCE : Reuters

Europe Finance Chiefs Seek Greek Pact as Economy Gloom Gr

By Patrick Donahue - Nov 12, 2012 8:04 AM GMT+0700



European finance chiefs will seek a program to maintain Greek solvency today after the country’s parliament approved a raft of austerity measures, even as the currency union confronts the prospect of a worsening economy.

Finance ministers from the 17-member group will meet at 5 p.m. in Brussels following the Nov. 8 agreement by Greek lawmakers to make cuts in pensions and benefits. While the ministers are unlikely to finalize an updated aid package, a European official said Nov. 9 that they’ll find a way to overcome a gap in the country’s financing this week.


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Greek Prime Minister Antonis Samaras. Photographer: Chris Ratcliffe/Bloomberg


“We remain confident that European support will be agreed on by the end of November, or early in December,” Erik Nielsen, London-based chief global economist at UniCredit SpA, wrote in a note to clients yesterday.

While a two-month-old European Central Bank bond-buying plan has helped ease borrowing costs for euro-area countries, leaders including Chancellor Angela Merkel are confronting an additional challenge as economic malaise reaches Germany, whose indicators last week showed growth grinding to a halt.

With the threat that a showdown over the U.S. budget could compound a slowdown in global growth, ECB President Mario Draghi said Nov. 8 the outlook for the euro area is worsening. The euro has fallen 0.8 percent against the U.S. dollar since Nov. 7.

While ministers probably won’t approve 31.5 billion euros ($40 billion) in fresh loans to Greece, the maturing of 5 billion euros of Greek bills on Nov. 16 won’t lead to an “accidental default,” a European official said last week.

Extra Years

The ministers will assess whether the latest round of cuts that Greek Prime Minister Antonis Samaras squeezed through parliament with 153 of 300 votes, are sufficient to warrant further aid. Samaras today garnered the support of enough lawmakers from his three-party coalition to secure approval for the 2013 budget.

Samaras has pressed for two extra years, until 2016, for Greece to meet deficit-reduction targets imposed by European governments and the International Monetary Fund. That prospect opens a debate about how to plug the resulting financial hole, such as engineering a buyback of Greek debt.

European leaders’ current target is to reduce Greek debt to 120 percent of gross domestic product by 2020.

Meanwhile, the ECB’s Draghi said last week that the central bank stands ready to unleash its bond-purchasing program, known as Outright Monetary Transactions. Investors are still waiting for Spain to seek such a program, which would entail an aid request to European bailout funds.

Yields Fall

Spanish Prime Minister Mariano Rajoy said Nov. 6 he needs to know how much the ECB would push down Spain’s borrowing costs before his government signs up to any conditions attached to aid. Draghi said last week that the decision must be taken by Spain and the ECB “can’t give any assurances ex ante.”

Yields on Spain’s 10-year bonds have fallen below 6 percent since the ECB’s plan emerged, down from a peak in July of 7.6 percent. They closed at 5.8 percent on Nov. 9.

“I would be surprised if a Spanish request will be realized this side of New Year,” UniCredit’s Nielsen said.

Merkel will meet with Portuguese Prime Minister Pedro Passos Coelho in Lisbon today. Portugal, which is receiving bailout aid, has been given more time to narrow its budget shortfall after tax revenues fell short of forecasts.

Merkel last week stuck to her austerity-first agenda, saying that the only way to win back confidence in the markets was through competition-enhancing measures and lower debt.

‘Utmost Importance’

“Investor confidence will be absent, therefore the reduction of debt is of utmost importance,” Merkel said in a Nov. 8 speech in Berlin.

With the euro area’s third-quarter GDP figures due on Nov. 15, any crisis-fighting measures could be damaged by a return to recession. Economic confidence in the bloc fell to a three-year low in October, while the European Commission expects growth of 0.1 percent in 2013 after a contraction of 0.4 percent in 2012.

The gloom has reached Germany, Europe’s largest economy, where exports, factory orders and industrial production all fell more than forecast in September. Business confidence in Germany dropped to a 2 1/2-year low last month.

The global outlook could be further imperiled as the U.S. government confronts a so-called fiscal cliff at the end of the year. Should the administration of re-elected President Barack Obama not reach an agreement with Congress, $607 billion in automatic tax increases and spending cuts will take effect starting at the beginning of 2013, possibly triggering recession.



Source : bloomberg

EU Seeks to Keep Crisis Fight on Track After Greek Vote

By Patrick Donahue - Nov 12, 2012 3:30 PM GMT+0700



Greek lawmakers’ midnight approval of a 2013 austerity budget put the onus on European finance ministers meeting later today to keep their three-year crisis fight on track.

The finance chiefs gathering at 5 p.m. in Brussels intend to prevent a 5 billion-euro ($6.4 billion) Greek bill redemption on Nov. 16 from triggering an accidental default, while they’re unlikely to ratify a 31.5 billion-euro payment to Greece that has been frozen since June, a European official said Nov. 9.

http://www.bloomberg.com/image/iCSbXc5D5iCY.jpg

We remain confident that European support will be agreed on by the end of November, or early in December,” Erik Nielsen, London-based chief global economist at UniCredit SpA, wrote in a note to clients yesterday.

With the euro-area economic slowdown reaching Germany and stoking mounting public protests in France and Spain, German Chancellor Angela Merkel will travel to Lisbon today, following her trip last month to Athens. European Central Bank President Mario Draghi said last week the outlook for the euro area is worsening. The euro has fallen 0.8 percent against the U.S. dollar since Nov. 7.

The European ministers will assess whether the latest round of cuts that Greek Prime Minister Antonis Samaras squeezed through parliament with 153 of 300 votes, are sufficient to warrant further aid. Samaras today garnered the support of enough lawmakers from his three-party coalition to secure approval for the 2013 budget.

Playing for Time

Samaras has pressed for two extra years, until 2016, for Greece to meet deficit-reduction targets imposed by its creditors. That prospect opens a debate about how to plug the resulting financial hole, such as engineering a buyback of Greek debt.

European leaders’ current target is to reduce Greek debt to 120 percent of gross domestic product by 2020. The European Commission last week estimated the ratio in 2014 will rise to 188.9 percent from 176.7 percent this year.

Meanwhile, the ECB’s Draghi said last week that the central bank stands ready to unleash its bond-purchasing program, known as Outright Monetary Transactions. Investors are still waiting for Spain to seek such a program, which would entail an aid request to European bailout funds.

Without ECB help in refinancing the 5 billion-euro Treasury bill redemption this week, Greek Finance Minister Yannis Stournaras told lawmakers late yesterday, the country’s private sector faces “sudden death.”

Spanish Prime Minister Mariano Rajoy said Nov. 6 he needs to know how much the ECB would push down Spain’s borrowing costs before his government signs up to any conditions attached to aid. Draghi said last week that the decision must be taken by Spain and the ECB “can’t give any assurances ex ante.”

Spanish Yields

Yields on Spain’s 10-year bonds have fallen below 6 percent since the ECB’s plan emerged, down from a peak in July of 7.6 percent. They were at 5.82 percent at 9:05 a.m. in Madrid today..

“I would be surprised if a Spanish request will be realized this side of New Year,” UniCredit’s Nielsen said.

Merkel will meet with Portuguese Prime Minister Pedro Passos Coelho in Lisbon today. Portugal, which is receiving bailout aid, has been given more time to narrow its budget shortfall after tax revenues fell short of forecasts.

Merkel last week stuck to her austerity-first agenda, saying that the only way to win back confidence in the markets was through competition-enhancing measures and lower debt.

“Investor confidence will be absent, therefore the reduction of debt is of utmost importance,” Merkel said in a Nov. 8 speech in Berlin.



Source : bloomberg

A Few Observations to Start the New Week

MONDAY, NOVEMBER 12, 2012
Marc Chandler

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The US dollar is little changed against most of the major and emerging market currencies. Asian equities were mostly lower, while European bourses are decidedly mixed. Core bond yields are flat to lower, while peripheral bond yields are mostly higher.

The lack of fresh trading incentives and holidays in the US and Canada are contributing to the choppy though consolidative tone. The Australian dollar is the out-performer, gaining about 0.4% against the dollar. It has been helped by an increase in domestic home lending, better Chinese trade figures and a local press report playing up Russia purchases for reserve purposes.

In broad terms, the American and Chinese economies are reporting better figures, while the conditions in Europe, Japan and have deteriorated. Japan reported a largely as expected 0.9% contraction in Q3 GDP (quarter-over-quarter) for a 3.5% annualized paced. A further contraction in the present quarter looks likely as well.

The same can said of the euro area, though admittedly the contraction likely to be reported later this week is most like 0.1-0.2%. It follows a 0.2% contraction in Q2 and the early figures points to a contraction in Q4 as well.

In a rare occurrence, the BOJ has eased monetary policy two months consecutive months. It is off the table until next year, perhaps under the leadership of a different governor. ECB President Draghi did leave the door ajar for an additional rate cut at some juncture. New staff forecasts will be produced for next month's meeting, but if a cut in the refi rate is forthcoming, it seems more likely in Q1 13 than Q4 12.

India reported an unexpected decline (-0.4% year-over-year) in October industrial production earlier today. The Dow Jones consensus was for a 2.8% expansion. Manufacturing, which accounts for a full three-quarters of the index fell 1.5% from year ago levels and capital goods output, a proxy for capex, fell by a sharp 12.2%. Separately, India reported a record $21 bln trade deficit as imports, thanks to oil, surged 7.4% (year-over-year) and exports fell 1.6%. Despite more pressure from industry to ease rates, the central bank remains concerned about price pressures. Wholesale prices will be reported on Wednesday and are expected to have risen about 7.9% year-over-year.

The US fiscal cliff is a critical issue in the market.There is an underlying confidence that because the outcome would be so painful, politicians will find a way to avoid going of the fiscal cliff. What seems most striking is the divergence between the multi-year high in consumer confidence (Conference Board and University of Michigan measures) on one hand and the heightened anxiety of business executives and fund managers, on the other. Our understanding of the incentive structure warns that it maybe easier to address the fiscal cliff after than fact rather than before. Before a decision is likely on fiscal policy, the Fed may have to make one on monetary policy.

The FOMC meets in a month. This week's minutes may offer some insight whether into its inclination to replace the long-term Treasuries being bought with the sales of shorter-term notes under Operation Twist, which will be completed by the end of the year, with outright purchases under QE3+. The economic data in recent days, especially trade and inventory reports, suggest Q3 GDP may be revised higher from the 2% estimate. Early Q4 data suggests something a touch softer. However, it is not clear how much this matters, in the context of the impact of the fiscal cliff, which if taken fully could force the US economy to contract as much as 0.5% next year, according the Congressional Budget Office. The impact would be the sharpest in the first half.

The pressure on Spain's Prime Minister Rajoy is increasing. Spanish bonds have sold off for three consecutive weeks. The beneficial impact of the ECB's announcement of Outright Market Transactions is wearing off. Moody's and Fitch raging agencies have warned of the risk of a credit downgrade is aid does not materialize. Before the weekend, the EU expressed its frustrations, saying that Spain's efforts to close its budget deficit had "hardly advanced." It forecasts that Spain's deficit this year will be near 8% of GDP, not the 6.3% adjusted target. Spain is headed for more difficulties. It is assuming the economy contracts 0.5% next year. The EC and IMF forecast a 1.5% contraction. This gap is likely to be unpleasantly resolved in the kind of conditionality that will likely be demanded in exchange for additional aid.

Meanwhile, Rajoy is still playing hard to get. Last week, two months after the OMT was unveiled, Rajoy articulated, perhaps the clearest thus far, of what he wants, but at the same time it seems to reflect a profound misunderstanding. He wants the ECB to specify in advance how far it would be willing to push down Spanish interest rates if OMT was invoked. This is seems to exaggerate the ability of the ECB to dictate short-term interest rates.

It also misunderstands Draghi's intent. Draghi is trying to walk a fine line between ensuring the transmission mechanism is working and that investors are only exposed to Spain's credit risk not exit risk, but not enough to remove the market pressure. Draghi is not giving as much as Rajoy would like, though more than Germany's Weidmann can approve. Social tensions are also rising in Spain. Unemployment is just below 26% and industrial output has fallen for thirteen consecutive months. Rajoy responded to the social disintegration by seeking new mortgage regulation to reduce evictions (~400k since 2008 bubble popped).

Samaras secured parliamentary support just barely for the privatization program, for the austerity package, which includes more pressure on labor, and the austere 2013 budget. The price is measured in political and social terms. The center is melting in Greece. Syriza on the left and Golden Dawn on the right have seen their support rise around 3 percentage points each since mid-year. New Democracy is seeing a commensurate decline in support. Unemployment, reported at the end of last week stands at 25.4%, more than twice the euro zone average, and youth unemployment stands at an incredible 58%.

There are many moving parts for Greece's aid. The size of the payment and the escrow feature need to be sorted out. A cut in the interest rate on some debt owed to the EU and EFSF and some extension will be ultimately agreed up. If Greece does not get the payment in shortly, the ECB may be forced again to raise the ceiling on Greek T-bills that the Greek central bank can accept in exchange for emergency lending (ELA). Reports suggest that the Greek central bank is within 3.5 bln euros of its T-bill limit. This scenario has already been played out once. It could become a habit.

Many central banks, including the Federal Reserve and the Bundesbank, transfer much of their profits earned back to the federal government. What is interesting about the Bank of England's announcement at the end of last week is that it will return the interest earned on the GBP375 bln of gilts it owns under its asset purchase scheme (QE) back to the government with the understanding that it will be used to reduce the stock of existing debt.

BOE Governor King suggested that this was equivalent to an easing in financial conditions insofar as it reduces the gilts in private portfolios and increase their cash holdings. This is not debt forgiveness that had been previously discussed. It is more of an interest free loan, tantamount to 25% of GDP, made by the central bank to the government with reserves that it created. The interest payments are also a buffer to help cushion an decrease in price. Both the BOE and Her Majesty's Treasury know that what the BOE may pay today it may need to receive later.

The Chinese yuan has appreciated about 2.5% against the US dollar since July. A period of consolidation is likely. There seems alternating strategy between focusing on the currency mechanism and the capital flow mechanism. Over the weekend, China signaled it will soon announce an increase in the quota allowing CNY offshore to be used for portfolio investment onshore (known as RQFII (remnimbi qualified foreign institutional investor). A CNY200 bln increase is anticipated (~$35 bln). Officials also indicated that it will also likely increased the QFII (qualified foreign institutional investor) quotas as well. A little more than six months ago the quota was raised to $80 bln from $30 bln. There appears to be also some sympathy for lifting the $1 bln individual cap.

Multi Levels for EURO in H4 time frime

Tuesday, November 13, 2012

PUPLE Levels Colour (with Prices) is MEDIUM Levels move.
BLUE Levels Colour (with Prices) is BIG Levels move.

Broken Lines Colour (without Prices) is IMPORTANT Levels.

NOTE :
1.2627 is Important Price

Are you referring 7-Sep-2012 Low on Daily?

Multi Levels for POUNDS in H4 time frime

Tuesday, November 13, 2012

PUPLE Levels Colour (with Prices) is MEDIUM Levels move.
BLUE Levels Colour (with Prices) is BIG Levels move.

Broken Lines Colour (without Prices) is IMPORTANT Levels.

NOTE :
1.5851 / 1.522 is Important Prices

Congress comes back Tuesday to confront "fiscal cliff"

By Rachelle Younglai and Jason Lange
WASHINGTON | Mon Nov 12, 2012 9:28pm EST


http://s1.reutersmedia.net/resources...=CBRE8AC037C00


(Reuters) - Amid a global fright over Washington's political brinkmanship, U.S. lawmakers return to the capital on Tuesday with a seven-week deadline to reach agreement on scheduled tax hikes and budget cuts that threaten to trigger another recession.

The post-election battle over the so-called fiscal cliff is shaping up as an extension of the political campaign with Democrats trying to rally support for raising taxes on the wealthy as part of any deal, and Republicans countering that such an approach would devastate "job creators" across the country.

President Barack Obama has scheduled high-profile White House meetings with business, civic and labor leaders in advance of a summit set for Friday of top Republicans and Democrats in Congress.

Republican leaders, among them former vice presidential nominee Paul Ryan, have planned their own round of television appearances and news conferences to make their case.

Both sides generally agree on the need to avoid the jolt of $600 billion in draconian deficit-reduction measures they all agreed to in August 2011. They also agree on a need for long-term deficit reduction and revisions of the tax code.

They are at odds, as they were during the election campaign, over how to get over the immediate crisis, with the main disagreement focusing on whether to extend tax cuts for everyone, as Republicans want, or just for those earning below $250,000, as the president wants.

The president and congressional Republicans have sounded conciliatory notes since the election on reaching a deal. But it was clear on Monday that the two sides were still far apart, setting up prolonged debate that could keep investors on edge for the rest of the year.

Obama won re-election last week but Congress remains divided, with Democrats controlling the Senate and Republicans running the House of Representatives.

ECONOMISTS CALL FOR COMPROMISE

In a commentary that raised eyebrows in Washington, economist Glenn Hubbard, who was the chief economic adviser to Republican presidential candidate Mitt Romney, urged Republicans to accept an increase in average tax rates, though not in marginal tax rates as advocated by President Obama, as part of a long-term deficit solution.

Tuesday, a group of 350 economists, organized by a largely liberal group called "Campaign for America's Future," will issue a statement urging both sides to cease their "obsessive concern with cutting deficits" amid a "fragile" economic recovery.

The widespread sentiment of market analysts was reflected in a memo by PNC strategists noting that while the elections "brought some clarity" to the cliff situation, "significant uncertainty remains in the outlook regarding timing and composition of a fiscal cliff deal.

"The longer it takes the president and Congress to negotiate a deal, the higher the odds that the U.S. fiscal situation will unhinge the progress made during the past three years of economic recovery."

The president's staff released a list of business leaders expected Wednesday at the White House, following Tuesday's event with labor leaders, including AFL-CIO president Richard Trumka.

General Electric Co CEO Jeff Immelt will attend, as well as American Express Co Chairman and CEO Kenneth Chenault.

Both are involved in an ad hoc lobby group called "Fix the Debt," which is launching an advertising campaign this week on behalf of balanced, long-term deficit reduction.

The CEOs of 17 big U.S. companies involved with "Fix the Debt" have written lawmakers urging speedy resolution of the fiscal cliff. Their letter will be delivered on Tuesday, when Congress reconvenes.

INTENSE LOBBYING

The city is awash in petitions, letters of concern, editorial recommendations and expensive lobbying efforts, particularly by the defense and healthcare industries, which stand to lose billions of dollars.

Universities and research institutions have also organized to fight the cuts, fearing a massive loss of federal funding of research, particularly in the biological sciences.

The nation's mayors, who see great risks to the many federal aid programs for the cities, have also organized against the cuts.

While the budget cuts and tax hikes are not formally linked, they have become intertwined politically because of timing: both take effect at the beginning of 2013.

Republican leaders have conceded they could support higher taxes, but that the extra revenues should come from getting rid of tax loopholes - not by increasing anyone's tax rates.

"We think you can get that through growth and we think you can get that through reforming the tax code," Representative Peter Roskam, a senior House Republican, told Fox News.

Democrats also looked unwilling to budge, sticking to their demand for higher rates for the rich.

"Unless you're willing to deal with rates ... you don't really touch the very wealthiest Americans," Representative John Yarmuth, a Democrat from Kentucky, told MSNBC.

A senior House Republican aide said he doesn't expect any significant movement on the cliff until after Obama's meeting on Friday with congressional leaders, if then.

"The meeting with the president should get the ball rolling in a serious way," the aide said.

(Additional reporting by Thomas Ferraro in Washington; Editing by Fred Barbash and Lisa Shumaker)



Source : Reuters

Europe Needs Better Bank Rules

By Gunnar Hokmark Nov 13, 2012 6:50 AM GMT+0700



The European Union’s collective economy is the biggest on the globe, larger than the U.S. or China, yet it is being held back by the fragmented nature of its markets. This has to change.

If Europe is to stimulate the competition and growth that are essential for it to emerge from the current economic crisis, then the world’s largest economy must also become the world’s largest single market.

That’s why the growing discussion of how to create a so- called multispeed EU of inner and outer cores, including the proposal for a new euro-area banking supervisor within the European Central Bank, offers the wrong answer to Europe’s troubles. We need to stick together and develop the union that we have, and that includes building a single financial market for all 27 member states.

For such a pan-European financial market to work, we do need better bank supervision and safer systems for deposit guarantees. We also need a common set of rules that clarifies capital requirements and procedures for the recovery and resolution of distressed banks.

As the European Parliament’s rapporteur on banking resolution, this is my point of departure for the work that’s now under way to create rules on how to recover or safely dissolve troubled banks, a central part of the discussion on how to create a banking union. The European Commission issued a draft directive in June, and it is our job in Parliament to amend it and later negotiate the final text with the Council of Ministers. We hope to reach a final agreement next spring.

Proposed Principles

In my proposal for the directive, currently up for consideration in the Parliament, I have laid out the set of principles that I believe should be followed.

First, recovery and resolution need to restore the basic rule of capitalism that owners should not only be entitled to profits but also bear potential losses. That means not using public money to rescue bank owners when the authorities are trying to protect the financial system or its critical functions. Shareholders must risk losses, and failing banks must run the risk of liquidation.

Second, management of distressed banks must be designed in a way that forces creditors to scrutinize the creditworthiness of those to whom they lend. Credits should not be granted on the basis that a public backup system for rescuing failing institutions exists, but because of trust in the bank’s ability to repay its debt on commercial terms.

The commission’s proposal states that regulatory authorities -- whether national or supranational -- should intervene and force banks that get too close to solvency and liquidity problems to change direction or management. In my report, I set out explicit rules for when authorities should be allowed to intervene in order to reduce the risk of arbitrary or premature intrusion.

I have also excluded liquidity as a trigger for intervention and instead sought to provide quantitative criteria on the basis of the EU’s future rules on capital requirements. Liquidity-related triggers could further systemic risk, as the mere expectation that an institution may end up in resolution might provoke a liquidity crisis and thus be self-fulfilling. Equally, severe liquidity problems often rapidly develop into capital problems and would then be covered anyway.

The commission has also proposed that the resolution authorities should be able to intervene when a bank is in a crisis by: forcing the institution’s sale to a third party; separating good and bad assets; setting up a bridge bank and bailing in long-term creditors, for example by converting bonds they hold to equity; or writing down the notional value of bank liabilities.

Systemic Differences

Each of these tools is relevant for the management of individual banks in crisis, but they may not be sufficient if an economic and financial crisis were to hit the banking system. So, I’ve proposed a clear distinction between what is required when an individual bank is in trouble, and what might be needed when a crisis threatens the banking system.

In the first example, it is often bad management or an inferior business model that has led to excessive risk-taking. In such cases, lost asset and collateral values will probably not be possible to restore. Public money should not be spent and the institution should be wound down.

In the case of a systemic crisis, by contrast, banks will have ended up in smaller or bigger difficulties depending on how their managements responded to challenges in the macroeconomy. In most cases external factors, such as an overall economic shock or the bursting of an asset price bubble, will have caused the banking system’s crisis.

Asset values that deteriorate and undermine collateral as a result of such a situation will probably revive as time goes on and the economy recovers. The risk of an eventual taxpayer loss associated with public intervention will therefore be smaller than in the case of a bank that fails due to its flawed business performance. At the same time, public intervention will protect the economy and prevent a deepening of the crisis.

This is why I’ve proposed the possibility for EU member states to intervene with a blanket guarantee, capital injection or temporary public ownership of banks to ensure the maintenance of critical functions in the financial system -- provided that the shareholders of affected banks, as well as long-term debt holders to an appropriate extent, have taken the associated losses. I shall also work to ensure that national resolution funds are pre-financed, thereby contributing to stability when a crisis hits.

We can tighten the rules for the supervision and monitoring of cross-border banks and systematically important banks. This can be done by giving the European Banking Authority, which is based in London and covers all EU countries, a further mandate to monitor and follow up on the supervision that’s performed by national authorities.

Firm Framework

If the countries in the euro area, as a part of their monetary union, want to consolidate their supervisory authorities and create common deposit guarantee plans or, within the requirements of crisis management for banks, want to use the European Stability Mechanism, then this should be done within the framework of existing EU law. It would not require new unions within the EU.

We don’t need to create new institutions to fix the EU’s banking woes, a move that inevitably will risk dividing the EU into those who sign up to the new bodies and those who don’t. We should use and develop the union that we have and hold our 27 nations together rather than encourage division. This will enable us to act now instead of getting lost in never-ending treaty discussions.


(Gunnar Hokmark is vice chairman of the European People’s Party group in the European Parliament, and responsible for the report on the recovery and resolution directive. The opinions expressed are his own.)
Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mail highlighting new View editorials, columns and op-ed articles.

Today’s highlights: the editors on David Petraeus and e-mail intelligence and on France’s dangerous competitiveness gap; Jeffrey Goldberg on meeting the Syrian rebels; William Pesek on the rise of Japan’s political right; Ramesh Ponnuru on the root of all Republican electoral problems; Amity Shlaes on the narcissism trap; Cass R. Sunstein on Lincoln’s lesson for the Supreme Court.



Source : Bloomberg

Hey Tsar

Cool thread, I appreciate your effort to try decipher relevant data from the media masses
I predominantly trade strictly PA / Tech, and prefer to stand asisde major data releases, (unless we get a friendly heads-up)

I mainly focus on Northern & Southern Hemisphere "Open" for my daily zones of interest, Monthly static Levels of interest, Pivots PP,s only Fibs 38 & 50 only, S&R Candle patterns / pa patterns,

Presently I am in the middle of November trade plans, which were calculated all last month, so its a bit hard joining a new thread, if I throw up a chart, the levels not understand so will try to explain, hopefully we can help each other survive this business.

1st chart Monthly ATHL ( all time high low) for me is very important levels and only ever change whenever a all time high or low is printed, thankfully is not often
Calculation is simple, basically a chart of mid levels.
I take the all time high and low, from the monthly chart, zoomed out as far as possible, if not original price entry, I dont care, I get enought candles to define levels

This gives egxample
ATH 2500
ATL 1500

2500 - 1500 =1000 = ATHL Range
1000 x .5 = 500
2500 - 500 = 2000 = AT Mid / 50% of AT Range / Average price etc etc etc 200 sma will basically align with this mid on monthly

so this is 1st 3 levels
ATHL Range 100% 2500
ATHL Range 50% 2000
ATHL Range 0% 1000

Then I repeat etc etc This can all be calculated without seeing pa other than High & Low Prices, what is interesting is pa,s reaction to these levels, and the levels are not influenced by what we "see" when looking pa

Bro these levels are very important to me whenever pa is close or tapping these level I am high alert,

I have attach Cable Chart hopefully you can understand what the levels are, these levels are on all my charts no matter what timeframe.
They are my first tool when preparing trade plans, from here I start working down through the tf,s looking for confuences of various S&R fibs, pivots, patterns etc etc

Bro if this too confusing just let me know I crap explaining stuff I will bbl am watching brit open

Yep... that's the Point Key of BEARISH trend

But posible to Lower Price 1.2615 as Upper Demand Area, Bro

Hi Kiwi Bro,

Welcome in Here...
And Thank you for your opinions and comments, Mate.

Youre so kind to explain your Methods & Strategy Trade with completly
There are slight differences mine, but has the same purpose.
The main difference is you use Monthly tf. I prefer H4 tf with Daily as a Guide (sometimes use Weekly for confirmation)

In November, many News and Even from ECB and US. So I paid attention to looking for Data and aid to know PA.
Need you know, I'm pure Technical Analyzer and about Fundamental limited ...
Tried to combine bits and pieces so can see a Picture of the REAL ECONOMIC World right now :nerd:


And made my analyisis about G/U and E/U :

The market's will move based on the results of Report will come out.
Can't determine Full Bullish or Full Bullish. Market's will played Zig Zag.

And this will last until the end of November, maybe even until the end of 2012.

IMHO


Best Regards,
Tsar



MEMO :
We felt start Monday at Yesterday, the Market's moved very Slowly...

Trouble Brewing for Euro as Greece Worries Grow

Published: Monday, 12 Nov 2012 | 10:57 PM ET
By: Jean Chua



The euro, which hit a two-month low against the dollar on Tuesday as hopes that Greece would receive essential aid soon faded, faces further losses as concern about Greece’s future grow, currency analysts warn.

http://media.cnbc.com/i/CNBC/Section...cked-1-200.jpg

The International Monetary Fund and euro zone officials on Monday failed to agree to a long-term plan to cut Greece’s debt, preventing the release of immediate aid to Athens and pushing the euro [JPY=X 79.22 http://media.cnbc.com/i/CNBC/CNBC_Im...hlist_down.gif -0.26 (-0.33%) http://media.cnbc.com/i/CNBC/CNBC_Im...ltime_icon.gif] to a low of $1.2681 in Asian trade.

Now more losses could be in store for the single currency, which has already shed 3.7 percent of its value against the dollar since hitting a peak in mid-September.

“It’s been a very protracted process and we have to say that it’s taken rather longer than we had anticipated,” Sean Callow, senior currency strategist with Westpac Bank in Sydney told CNBC Asia’s “Squawk Box” on Tuesday, referring to the negotiations over Greece.

“We’re becoming increasingly bearish on the euro and we have pretty much given up on our previous expectation for it to recapture $1.30,” he added.

The euro zone is facing pressure to ink a deal on Greece as Athens has to redeem 5 billion euros ($6.35 billion) worth of treasury bills on November 16 and was dependent on funds from the next euro zone aid tranche to tide it over.

(Read More: Greece Running Out of Cash; Government Under Threat)

This is looking increasingly unlikely. The next meeting of euro zone’s finance ministers, who met in Brussels on Monday, takes place on November 20, according to Euro group president Jean-Claude Juncker.

It does not look like the money will be available in time and Greece now plans to issue new one-month and three-month treasury bills on Tuesday to raise one billion euros and 2.1 billion euros, respectively.

But this is a short-term fix and until an agreement is reached on how to make Greek debt more sustainable, the euro will likely remain under pressure, analysts say.

Change of Fortune

The euro received a significant boost on July 26 after European Central Bank president Mario Draghi said the bank will do "whatever it takes" to prevent the euro zone from collapsing, sending the currency about 8 percent higher over 3 months. This rally looks like it's unravelling as markets worry about the consequences of a Greek debt default or the nation's exit from the euro zone.

(Read more: "Grexit" could spark global economic crisis: German think tank)

“We know that the Greek government will run out of money if it does not receive its next aid payment by the end of the month,” Kathy Lien, managing director of BK Asset Management said in a note on Tuesday.

“While everyone knows that the stakes are high and a default by Greece would spell big trouble for the euro zone as a whole, policymakers are dragging their heels and it is hurting the euro.”
Lien said she is awaiting more comments on Greece, especially on Germany’s vote, on which the disbursement of any additional aid to Greece depends. Any additional release of German financing to Greece, as well as alterations to the terms of its bailout, would require passage by the full German parliament, which will be in session next week.

“If we are lucky, Germany will vote and approve Greek aid next week because if they fail to do so, investors will become even more concerned about what could happen at the end of the month,” she said.

Until a deal is reached, the euro could test its 100-day moving average level around $1.2639, Credit Agricole’s head of global forex strategy Mitul Kotecha said in a note on Tuesday.

“Some clues to the timing of the next Greek loan disbursement will undoubtedly help the currency, assuming that it is not too far into the future,” Kotecha said.

“The euro will also need today’s (Tuesday’s) Greek treasury bill auction to go well to give it some support. Unfortunately for the currency the risks are still skewed to the downside,” he said.



Source : CNBC

Yes bro the monthly levels are just my start point, then I work down thru the time frames, I will try explain levels as go

Presently I am watching a realy intriging battle cable bull versus bear, can see the daily supports her tapped, rising blue tl, 200 sma I did do little scalp with tonights data, but im not very good at longing so closed for few quick pip, and re enter short, this is on face is not good risk trade, but I have make nice pips from this girl, I posted my defend 6300 in eu thread and caught some nice add on coming down, but the supports list above I felt need closing until them broken and I will reassess, is good chance of nice bounce from the present supports, but I like a good scrap,,

sooo as chart show I have short fill, my bear supports are her below 38fib and my monthly level against bull rising tl and 200 sma is sound crazy but I think my bears up up for taking out these supports, and if them do I will have very nice protection for my entry, "or" bulls bounce and smash me
this not wise trade bro, just me the crazy kiwi

Each Traders have own Method and Strategy with based their Style. But they had the same goal, Profits.

These third time I've changed my method, though it is still not the Best
At least have better results by Now...


You're One of the Best Trader in FF, Bro

This is zoom in to 4 hr chart with D W & Monthly PP,s
Can see how is cheeky short, I am risking 15 pip for 157 pip reward, I can try this 10time and only get it right once and I am zero loss, 2 success trades give me 157 green pip moreover if her can break supports, this trade will anchor add on trades below

My stop has protection 38 fib ans previous broken support 23 10 2012 and at moment her poking nose through todays PP but I have little concern yen depreciating, if is BOJ I will jump ship

The Economic Indicators That Matter to China’s Next Premier

Published: Tuesday, 13 Nov 2012 | 2:43 AM ET
By: Jean Chua



Forget GDP, it doesn’t tell the whole story about a country’s economy. Focus instead on these economic indicators: electricity consumption, rail cargo and bank loans.

http://media.cnbc.com/i/CNBC/Section...eqiang-200.jpg

This is apparently what Li Keqiang, expected to take over as premier in China’ leadership transition, said at a meeting with the U.S. ambassador in 2007, according to a Wikileaks cable.The Chinese GDP figure is “man-made” and for “reference only,” he was quoted as saying.

While it’s not clear whether Li stands by these views, economists say it is fair to treat the Chinese gross domestic product (GDP) with some caution.

The latest data shows China’s economy grew 7.4 percent in third quarter from a year earlier, putting the economy on course for its slowest annual expansion in 13 years at a rate of about 7.5 percent.

“It would not surprise us if GDP growth is overstated—the economy is likely far weaker than it appears,” said Alistair Thornton, China economist with IHS Global Insight in Beijing.

That’s a view that Patrick Chovanec, a professor of business at Tsinghua University in Beijing, shares. “The data is a more prominent concern in China because the numbers don't seem to square. I have trouble reconciling a 7.5 percent GDP number with what I see in other data,” he said.

So, what do the indicators that China’s premier-in-waiting appears to track, say about the state of the world’s second largest economy?

(Read More: How Wen Jiabao Undermined the Party's Legitimacy)

In third quarter of the year, power use, rail cargo and bank loans all took a particularly negative turn.
Rail cargo volumes, which were already growing in the low single-digits earlier this year, started falling in June and continued to slide in the third quarter of the year.

Latest data showed that rail freight fell 9.2 percent year-on-year in August, the worst decline since the height of the global financial crisis in 2008.

(Read More: China Raises Rail Spending Plan Again to Support Economy)

“If China says GDP growth is around 7.5 percent but rail freight is falling by 7-8 percent, you can't reconcile that,” said Chovanec.

Power use and disbursement of bank loans have also shown a steep drop. Growth in power use, for instance, has slowed to 2.9 percent in September from the month earlier after expanding at an average monthly rate of almost 12 percent in 2011.

Thornton says power consumption is a key gauge of the health of Chinese industry because industrial demand makes up 70 percent of total power consumption.

Key Banking Sector

Growth in lending has also declined alongside the economy. An annual growth rate in China this year of 7.5 percent, the government’s target, would mark a slowdown from last year’s 9.2 percent and an average rate of 10 percent for the past three decades.

Beijing has tried to help boost lending and support the sluggish economy by cutting interest rates twice this year and reducing bank reserve requirements (RRR) three times since November, but has refrained from taking aggressive action since the last RRR cut in July.

This has some analysts worried and they say the new leadership, expected to be ushered in during the Communist Party’s Congress starting on November 8, will need to do more to encourage bank lending.

(Read More: Why China’s Bank Earnings Could Surprise Investors)

“In 2012 the economy seems to have slowed to the point that companies need less working capital finance,” Jim Antos, a banking analyst with Mizuho Securities in Hong Kong told CNBC. “The new government needs to tackle China’s slowing economy and the credit component is the grease that keeps the wheels of industry turning.”

Total new loans reached 6.72 trillion yuan ($107.4 billion) in the first nine months of 2012, up 18 percent from the same period last year, according to the People’s Bank of China. This is however down from the 30 percent average growth in new loans in the past decade.

Antos is also concerned about credit quality, citing a more than 20 percent surge in past due loans – defined as repayments that are 30 to 60 days behind schedule – in the first half of the year.

(Read more: China Banks' Bad Loans Steady, Capital Adequacy Up)

This is a “very significant change, something we have not seen at any point in the past 5-8 years in China,” he added.

Banks themselves may be getting worried about the quality of their loan books and have been progressively building their defenses against those loans going sour. In the third quarter, China’s big four banks increased provisions against bad debt for the third consecutive quarter, by a range of 20 to 48 percentage points.

Bad loans could come back to haunt the banking system and the new leadership, unless something is done about it, Antos said.

“The concern of many investors is that the government may not be willing to come to grips with weaker credit quality, but instead allow banks to continue to roll over loans that should probably be restructured,” he said.

China’s economy may be more fragile than the GDP numbers suggest and if Li is paying attention to this, as the Wikileaks cable suggests, the next Chinese premier may well be a reason to expect stronger action from Beijing in boosting growth.

“Recalibration will not be enough for the new leadership. Urgent reforms are needed,” Thornton said. “The longer the delay, though, the higher the costs. It has been true under every administration since (former leader) Deng Xiaoping, but it really is make or break for the economy under Xi and Li.”



Source : CNBC

currnet outlook