Notes From Underground: The Aussies check and the Canadians are expected to raise

It’s June 1 and we have two central bank meetings. The RBA is expected to stand pat as they have raised more aggressively than any other central bank and with the turmoil in the European markets, expectations are for no change. The announcement comes tonight at 11:30 p.m. CST. Rates are presently at 4.5 percent and even though the Aussie Dollar is down about 11 percent since the last meeting, the Aussies should be comfortable with where rates are, especially if China begins to slow from the previous fast pace of growth.

The Canadian Bank is expected to raise rates 25 basis points to 50, although some analysts think that they may raise rates 50 bp as economic activity is picking up. Today, Canada released its GDP numbers and annual growth came in at the high prediction of 6.1 percent so the BOC may have some incentive to be more aggressive. In addition, Canadian employment numbers have been robust and the currency is 5 percent off its recent highs as the European debt crisis has negatively impacted commodity prices, which have put downward pressure on the LOONIE. This may allow the BOC to be more aggressive as they have previously alluded to the strength of the currency as a reason for being cautious about tightening.

In Germany, we had further negative news for Frau Merkel as German President Horst Kohler resigned. Kohler is a former head of the IMF, who has great international credibility. He came under fire for his views about the need for Germany to become more involved in internationally sanctioned military efforts, as it was in Berlin’s interests as a major exporter and global economic force. This view did not sit well with the pacificistic tendencies that have dominated German politics for the past 60 years. Kohler leaving the seen undercuts Merkel at a time when she is under stress from the Greek bailout. This should not undermine the sitting government but it is just ammo for the anti-government forces on both the left and the right. The beat of German national self-interest is getting louder and if we were Sarkozy we would begin to mimic the language of Marcel Marceau: It is time to go silent, Sarkozy, and not perturb the Germans. The last thing Europe needs now is a more disgruntled Germany.

A SHORT ASIDE: an article in tomorrow’s Financial Times notes how London Home prices are on the rise due to Russians taking advantage of the weak British POUND. This is something to watch as we have been discussing this for months as at some point U.K. assets would be deemed attractive because of the weak ness of the POUND during the last 18 months. This is not yet a trend but if the Russians are coming others will follow.

There has been more news about THE PRU/AIA deal but nothing firm as of yet. It seems as if the deal may fall apart as the Treasury and FED to go to a Hong Kong-based IPO. If, in fact, that takes place, the British POUND will find support as short positions will have to be unwound.

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6 Responses to “Notes From Underground: The Aussies check and the Canadians are expected to raise”

  1. Hubert Says:

    it often shows how versed you are in US politics. IN the US, would you ever take an official reason given for ceding a high post as the real one ? If no in the US, why yes in Germany? I do not know the details but I can assure you one thing: Koehler stepping back had absolutely nothing to do with his Afganistan comments.

  2. yra Says:

    Hubert –appreciate the comments—Your criticism is correct as we and the media are so American centric;it is why we read the FT and not the WSJ–we will watch the Kohler story to see what else underlies his resignation but we have always appreciated his outspokenness—even when he was at the IMF—-but thanks for your thoughts

  3. Hubert Says:

    Nobody gave any importance to his Afghanistan interview before yesterday. It was irrelevant.
    Koehler is a decent buy. But never was the smartest cookie as you might have noticed at his time at the IMF.
    He did not want to sign the Bail-out legislation and went travelling instead. Seems to have had quite a run-inn with Frau Kanzlerin. She read him the riot act. He caved, signed it and resigned.
    Which shows what Softie he is. Or we was blackmailed. Or both. Whatever.
    As he resigned anyway he should have walked out without signing – leaving that to his sucessor. I always wondered why “Zivilcourage” is found in german lexicons. There is nothing like it in Germany. 90 % of parlamentarians did not want to sign. None of them wanted to risk his/her career.

    Koehlers – not very productive – revenge is that the coalition parties will probably not be able to win the coming vote on his sucessor. A vote for a SPD candidate supported by Greens and Communists might well be the first symbolic (but highly important) act of power transfer.

    • Hubert Says:

      Sorry, last paragraph is wrong. I looked again: Coalition parties still have majority for new President. I thought it had already changed with state elections in NRW. I was wrong…

  4. Hubert Says:


    btw: If you want to find out about Germany, forget about the FT or the Economist. Why the British get Germany so wrong would be a theme for a long book. German media is unreliable too, as they are mostly a ward of the state, You have to work through private contacts here.

  5. yra Says:

    thanks Hubert–will take your advice

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