HOTS NEWS 10 JANUARY 2007

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All coming news
24 Jan 0850JT - Nov All Activity +0.3%m/m, +2.2%y/y
18 Jan 0850JT - Nov Tertiary Activity +0.1%m/m, +1.6%y/y

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International Press Review 10th January (TODAY)

Wed Jan 10 03:05:00 2007(EST)

FT (P. 8) - Uncharacteristic uncertainty surrounds the European Central Bank's first interest rate-setting meeting of 2007 tomorrow. The outlook for the eurozone economy is cloudy - growth seems strong but the immediate inflationary dangers might not be as great as the ECB fears. However, Jean-Claude Trichet, ECB president, has also deliberately built in additional tension to mark a change of style from 2006, when the likely path of interest rate increases was usually clear several months in advance. While the ECB is not expected tomorrow to change its main interest rate from 3.5 per cent, some economists believe Mr Trichet could surprise markets by suddenly signalling a rise is likely in February rather than March - currently the the consensus view. The pace at which the ECB raises interest rates could determine how high borrowing costs rise during the current economic upswing. Economists generally reckon interest rates will rise to about 4 per cent this year. Since December 2005 the ECB has raised rates by a quarter percentage point six times from a low of 2 per cent. Mr Trichet altered the ECB's codebook in December, after the latest rise in borrowing costs. He pledged to "monitor very closely" inflation developments - a phrase used before to signal a rise in borrowing costs two months away. But the ECB president insisted that to expect a February rise as a result would be "a wrong interpretation". His aim was to create room for manoeuvre in the timing of future interest rate rises. Subsequently buoyant economic growth has continued, particularly in Germany, Europe's largest economy. Figures yesterday showed Germany's trade surplus reached a record €19.3bn ($25bn, £12.9bn) in November. Industrial production rose by a stronger-than-expected 1.8 per cent in the same month. The ECB will also have been alarmed by fast growth in M3, the broad money supply measure it watches closely as part of its analysis of inflation trends. M3 grew at an annual rate of 9.3 per cent in November, the fastest since 1990.

FT (P. 1) - Vladimir Putin yesterday faced an angry European backlash about his decision to halt oil supplies through the pipelines crossing Belarus. As the Russian president made clear his determination not to back down in his dispute with Belarus, Angela Merkel, the German chancellor, denounced his actions as "not acceptable", noting that even during the cold war, Russia had been a reliable energy supplier to Europe. Ms Merkel, speaking as the new president of the EU, said Russia's latest display of energy muscle "hurts trust and it makes it difficult to build a co-operative relationship". Mr Putin, speaking in a televised meeting with ministers in Moscow, stressed he wanted to do all he could to ensure that oil supplies to western Europe were not affected. But he escalated the dispute by telling his government to tell Russian companies to cut output because of the transit dispute. Belarus wants Russia to pay an export duty of $45 per tonne of oil transported through Belarus. This is in retaliation for Russia slapping $180 export duty on crude oil it sells to Belarus. Yet for all the political furore, oil markets yesterday shrugged off the latest geopolitical threat to supply, focusing instead on the warm US winter and strong inventories. At one point yesterday the price of oil hit an 18-month low point, dipping below $54 in New York, although it later recovered most of its losses…The political row in Belarus - and Venezuela's announcement of plans to take state control of its heavy oil projects - did little to deflect the downward trend in the price. The price of oil has fallen by more than 10 per cent since the start of the year and yesterday Mustafa Mohatarem, chief economist of General Motors, forecast it would fall below $50 this year. West Texas Intermediate crude for delivery in February fell to an intra-day low of $53.88 a barrel before recovering. Brent crude fell to an intra-day low of $53.64 a barrel before climbing back.

FT (P. 8) - Workers in the European Union could be deprived of the right to strike by judges, trade unionists said yesterday, as a labour rights case was heard by the bloc's highest court. The European Court of Justice will rule in the coming months on whether Swedish construction workers were entitled to blockade a building site run by a Latvian company that was not paying the going rate in Stockholm. "If the court rules that countries cannot enforce their own labour standards it will be a race to the bottom," said Erland Olauson, vice-president of the Swedish trade union confederation. The case highlights the tension between the right of workers to move across borders in the 27-member EU and labour rights, also enshrined in treaties. It has once again divided more prosperous western states and the newer members, former communist countries who offer low-cost competition. Most of them, as well as the UK, are backing the company and Latvia. London argues there is no Europe-wide right to strike. Germany, France, Spain, Italy and others where labour markets are heavily regulated are backing Sweden. Laval, the Latvian company, won a contract to build a school in the Stockholm suburbs. It contracted Latvian labourers and refused to sign a collective wage agreement with a Swedish trade union, as required by local law. It paid workers less than half the average construction wage. In most Nordic countries, unions and employers negotiate collective wage agreements that are enforceable in the courts. Workers need not be union members to benefit. At issue is whether workers should be governed by the law of the country they work in or their homeland. Today the court hears a similar case involving Viking Line, a Finnish shipping line that used Estonian labour. John Monks, the head of the European Trade Union Council, warned that there could be a backlash against migrant workers if they reduced labour standards.

FT (P. 8) - The Turkish government yesterday postponed the privatisation of parts of the country's electricity distribution network amid fears that it would lead to higher prices for consumers in a general election year. The announcement confirmed speculation ignited last week by Recep Tayyip Erdogan, the prime minister. During a trip abroad, he unsettled some of his cabinet colleagues and the financial markets by suggesting that the sell-off might be too politically sensitive as Turkey nears polls, scheduled for November. Hilmi Guler, the energy minister, said yesterday that the privatisation of three distribution companies, including one in Istanbul, would not take place before the election. "We don't want to address such a vital issue as electricity privatisation in a rush," he said. Local reports said the sell-off could have raised about $3bn (€2.3bn, £1.55bn). The privatisation was not a condition of Turkey's $10bn loan agreement with the International Monetary Fund, and IMF officials in Ankara would not comment yesterday. But its postponement may fuel concern that the government's commitment to structural reform, including ending distortions in electricity pricing, will weaken during what promises to be a bruising election campaign. Turks already pay some of the highest prices in the world for energy, especially petrol. Uncertainty about the government's intentions added to pressure on the Turkish financial markets, already buffeted by global trends in recent days. Stocks fell a further 2 per cent yesterday. Observers said the decision to postpone was a sign of how politics was starting to dominate the agenda this year after four years during which the focus was on stability and structural, social and political reforms. Parliament is also due to elect a new president in May. There is intense speculation about whether Mr Erdogan will stand for the post. If he does, it could undermine any chance his ruling, neo-Islamist Justice and Development party (AKP), in office since late 2002, has of winning a second overall majority in the parliamentary election

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10 Jan 07: 08:02(LDN) - FX NOW! EUR/USD, EUR/GBP Flows - suspicions of sovereigns, GBP still flying

8:0014:0020:0002:0008:0014:0020:0002:0008:001.29More names in the frame on the buy side of EUR/USD, including the UK clearer often associated with 'Chinese' interest behind. Meanwhile, EUR/GBP is pushing deeper onto the .66 handle with a German name prominent ...... .6667 (1.50 for GBP/EUR) suddenly looks a possibility again.
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The French Nov trade balance worsened a little to EUR-2.834bn and continues to suggest Net trade is unlikely to make a significant contribution to Q4 GDP growth (although unlikely to be a significant drag on growth as it was in Q3). Taken together with the production data it suggests less reason to be upbeat on Q4 GDP growth.
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France Nov industrial production came in below expectations at -0.2%m/m (MKt: +0.5%m/m, 4Cast: 0.0%). Manufacturing production was also slightly worse than expected at -0.2%m/m (Mkt: +0.5%, 4Cast: -0.1%m/m). This is a poor outturn and consistent with the latest French Fin Min comments that Q4 GDP growth is likely to be between 0.6%q/q and 0.8% (much lower than the earlier much touted figure of 0.9%q/q)
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10 Jan 07: 07:46(LDN) - FX NOW! EUR/USD Flows - Day traders start long, but the pony might be getting tired

The exchange based traders have kicked off the European session from the long side after the bids appeared solid in the Asian session once all the stop loss interest had been absorbed. However, in a market that only has only seen reliable buying from one are - sovereigns - there is a danger that the one trick pony is getting tired. We would still look at 1.2940 as the level where serious questions will start to be asked of long term long positions.

source : www.oanda.com