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Unemployment in the Eurozone

January 9, 2013 in Euro Zone

Figures released yesterday for November from Italy reveal that over 37% of young Italians (15-24 years) are unemployed. This is a powder keg-in-waiting for whoever succeeds Prime Minister Mario Monti. When viewed in the context of the overall unemployment rate of 11.1%, the difference appears even starker. Bleak economic conditions in Italy, possibly due to austerity measures, are putting pressure on employment.  In addition, businesses already fearful of the uncertain economic situation are afraid to hire workers in the context of tough labour laws that make firing difficult.

Note that across the pond, in the United States, even a single digit unemployment rate of 7.8% has caused massive concern to the political leadership.  Youth unemployment in Italy has grown for the third month running, and its current level is the highest seen since 1992 when records started.

But Italy is not the only problem area in Europe as far as employment is concerned. The continued overhang of the sovereign debt crisis has put the economies of the region under recessionary conditions that have impacted employment.

Yesterday Eurostat released employment data for the Eurozone, and revealed that the number of people out of work in November reached 18.8 million, catapulting the unemployment rate to a new all-time high of 11.8%. The unemployment rate across the EU area as a whole was 10.7%.

Significantly, both the statistics are up hugely over the same month in 2011, when they reported at 10.6% and 10% respectively.

Here is a look at the country-wise unemployment rates as reported by Eurostat.

European Commissioner for Employment, Social Affairs and Inclusion, Laszlo Andor said “2012 has been another very bad year for Europe in terms of unemployment and the deteriorating social situation,” in his annual review of employment trends.

He also commented that a widening gap was emerging in the performance of the economies between Germany and neighbouring north side economies, which were economically better off than Europe’s southern Mediterranean rim.

US Non-Farm Payrolls Show Marginal Improvement

January 5, 2013 in U.S.

Job growth in the US signalled tepid growth with the December Non Farm Payrolls showing an addition of 155,000 non-farm jobs – just a whisker above the consensus estimate of 150,000, and slightly better than the figure of 146,000 reported in November.

The unemployment rate came in flat at 7.8%, the same as that in November (revised).

Sectors which showed notable growth in jobs added were Construction (+30,000), Manufacturing (+25,000) and Education/Health (+65,000). Retail trade (-11,300) and Government (-13,000) were the major losers.

Education/Health accounted for over 40% of the total NFP gains. The private sector employment gain was 168,000.

The influx of new job-seekers into the labour market neutralized the NFP gains and kept the unemployment rate flat.  The implications are that the economy has to do much better than currently in order to meaningfully reduce the unemployment rate.

Swiss Economy and Swiss Franc Updates – The Past And The Future

January 4, 2013 in Switzerland

Swiss Franc tends to gain during the economic turmoil as people tend to go for safer investments. During 2009 to 2012, the Swiss currency has seen some major moves. Here we shall see what factors have caused the heavy moves and what we can expect during 2013.

During the last three quarters of 2009, EUR/CHF had always been averaging over 1.5000 mark. From middle of December 2009 the Swiss Franc had started appreciating against the Euro and during August 2011 it had reached the low of 1.0070 i.e. an appreciation of approximately 35% from the level of 2009. USD/CHF was 1.1912 during the middle of March 2009 and after a drop to 0.9912 during November 2009 the currency pair had recovered again to 1.1731 by the end of May 2010. The subsequent drop from there saw a low of 0.7069 by the beginning of August 2011 i.e. an appreciation of approximately 40% against the U.S. Dollar since May 2010.

EUR/CHF from 2009 to 2012

EUR/CHF during 2009 to 2012


The drastic appreciation of Swiss Franc was a grave danger to Swiss economy because Swiss economy is heavily dependent on exports.

Switzerland Exports and Imports:

1) Exports amount to 50% of the GDP of Switzerland and out of that nearly 60% exports are to Euro zone. The main trading partners for Swiss exports are as follows:

  • Germany: 19.2%
  • U.S.: 10.2%
  • Italy: 7.9%
  • France: 7.7%
  • U.K.: 5.9%

Swiss Exports

Imports from Europe into Switzerland have 80% share of total Swiss imports.

Swiss Intervention

The drastic appreciation of Swiss Franc had made Swiss National Bank (SNB) to intervene during September 2011 and SNB whereby SNB announced that they will not tolerate EUR/CHF to go below the exchange rate of 1.20. SNB had announced to go for unlimited buying of Euro to maintain that rate. Since then the EUR/CHF had gone as high as 1.2473 by middle of October 2011 and then settled down in the narrow range between 1.2000 and 1.2184 except on occasion when it had touched 1.1997.

Swiss Franc also depreciated Against U.S. Dollar and USD/CHF had gone as high as 0.9972 during July 2012 before the bearish pressure came into the picture ahead of the psychological level of parity.

Switzerland Foreign Exchange Reserves

The result of Switzerland National Bank’s intervention to devalue the currency was a huge jump in the Swiss Foreign exchange reserves and by 2012 end Switzerland became the country with 4th largest foreign exchange reserves in the world.

The table below shows some of the countries with the highest foreign exchange reserves. The data mainly shows the Forex reserves in convertible foreign currencies. Data sources are International Monetary Fund and Central Intelligence Agency and Chinability.


During Q4-2000 and Q1-2001


During the end of 2012 (or the latest available figures)

% Growth from 2000

% Growth from 2005

































































































The Graphical representation of the Foreign exchange reserves

Swiss foreign exchange reserves


The graphical representation of the growth of Foreign exchange reserves except China


Growth in foreign exchange reserves Switzerland and other countries- Historical data

Note: China is excluded in the above graph because the drastic increase in the Forex reserves in China makes the other bars in the chart to disappear because of the limitation of the height of the chart.

Switzerland – Current Economic and fundamental facts:

Swiss Exports in a healthy shape

Swiss monthly exports levels were frequently falling below 1600 Million Swiss Franc when the currency was appreciating during 2009 to Mid-August 2011. The following chart shows that since August 2011 the monthly exports are consistently above that mark with the exception of May 2012 when there was a slight drop to  15926.5 Million Swiss Franc.

Swiss exports during 2009 to 2012

Unexpected growth of population in Switzerland

There has been an unexpected rise in the population of Switzerland which had crossed 8 Million mark by the end of the 3rd quarter of 2012. This includes 1.85 Million i.e. over 23% Million foreigners. Year 1999 estimates by Bundesamt für Statistik (BfS) were for a population growth to a peak of 7.4 Million by the year 2030 followed by a decline. The same were revised in 2005 when it was estimated that the population growth would continue till 2035. The rapid growth in the numbers which Switzerland has seen in past 5 years is mainly due to continuous immigration of foreigners and this suggests that the population would cross 10 Million Mark by 2031.

The Effects of rapid population growth

On one hand the unplanned growth has negative effects as the growth in infrastructure may not be able to cope with it. It also puts more burden on government’s outflows for public benefits. However, on the other hand it increases the consumer spending and puts more money in rotation to help the economy. The increase in skilled man-power also goes in favor of nation building by faster developments and innovation.

Swiss Unemployment Rate

The unemployment Rate in Switzerland has been quite lower than the Euro zone as well as the U.S. The last quarter of 2012 saw an unemployment rate of 11.70% in Euro zone. The unemployment rate during the same time in the U.S. has been 7.7%. In comparison Switzerland’s unemployment of 3.1% indicates quite a healthy picture of the economy.

Swiss Franc – What To Expect

The high dependency of Swiss exports on Euro zone makes the Swiss Franc’s strength depend on the strength of Euro to a great extent. There has been some improvement in the previous strong bearish sentiments about Euro even though the underlying fears have not completely  diminished. Another fall for Euro cannot be ignored but before that some further upward consolidation is surely expected. Apart of this, as mentioned above, the unemployment situation and even the export levels remain in control in Switzerland. The inflation forecasts also do not indicate any risk of serious upward gains. Considering all these our view of Swiss Franc pairs is as follows:


Considering the above mentioned facts and the overall fundamentals of Switzerland economy, we expect some more strength in the Swiss franc against U.S. Dollar. In the mid to longer-term, if resistance near 0.9500 level holds and a break below 0.9000 psychological level takes place then USD/CHF may see some more downward moves first towards 0.8930 and then possibly 0.8840. As far as slightly longer-term outlook is concerned, considering the overall situations in Euro zone and the underlying sentiments associated with that, the Euro honeymoon is not expected to last very long. With that in mind subsequently an appreciation of USD/CHF cannot be ignored towards 0.9740 or more.


Swiss National Bank’s set floor for EUR/CHF for 1.2000 level does not seem to have any immediate threats. Considering the size of economy SNB’s intervention would always be more effective than in any other country like Japan. This makes the lower limit for the short-term to medium-term as 1.2000 for EUR/CHF. We do not expect any strong bullish sentiments for Euro zone but some more upward correction in Euro valuation is expected. That would give Euro relatively a better edge against the Swiss Franc in the mid-term. Considering this we expect EUR/CHF to have some more appreciation, in next few months, first toward 1.2360 and then possibly 1.2440.


in the coming months we expect some more weakness in GBP/CHF. Even though, because of frequently changing sentiments, some volatile moves below 1.5160 cannot be ignored but overall we would expect some weakening toward 1.4600 in the coming months.

Data Sources: Central Intelligence Agency, International Monetary Fund, Bundesamt für Statistik, UBS, Reuters, Chinability, Trading Economics, Wikipedia.

Disclaimer: These views our the views of ForexAbode Analysts and should not be taken as an investment advice. We have put in all possible efforts to validate the correctness of the data provided but can not take any responsibilities of any mistakes.

FOMC Minutes Spark the Risk-Off

January 4, 2013 in U.S.

The minutes of the December FOMC meeting, released yesterday, spooked the markets and touched off a rally in the US Dollar. Aiding and abetting the move was a better-than-expected employment release from ADP that showed the US private sector added 215,000 jobs, comfortably beating the forecast of 150,000 jobs.

The FOMC minutes revealed that at least some members of the Committee have begun expressing their reservations on the continued bond purchases being implemented by the Fed in the form of monetary stimulus. Markets had taken as a given that the stimulus program was here to stay until the twin guideposts of inflation and employment signalled otherwise.

The rumblings in the FOMC called this assumption into question and instigated a flight to ‘risk-off’ assets that resulted in an appreciation in the US Dollar and pressure on the euro and aussie. FOMC members discussed the timing of an end to stimulus, with some even advocating an immediate end, while others thought the end of the year would be appropriate.

India’s Current Account Deficit a Mounting Cause for Concern

January 3, 2013 in India

A rising oil bill, persistent gold imports and falling exports are ganging up to create a rising current account deficit headache for India’s Finance Minister, P Chidambaram.

The deficit is now 5.4% of the country’s GDP, as per figures released for the September quarter.

One of the measures Chidambaram may take is to make it more expensive to import gold. Indians are known for their voracious appetite for gold for investing, and for gifting during marriages and ceremonies. As a result, India is one of the biggest importers of gold globally. The most obvious route may be to hike duties further on import of the yellow metal, even though the import duty was doubled in March to 4%.

However, Chidambaram sees no reason to panic, considering investment flows from foreigners may be sufficient to finance the deficit. In addition, the country has about $296.5 billion in currency reserves, which, by themselves, are the equivalent of seven months of imports.

This puts the focus on flows from FIIs and FDI, and the need to make the country’s investment climate more attractive through reforms and therein lies the rub. India’s coalition politics make it difficult to push through radical reforms, though a start seems to have been made in retail.


The Fiscal Cliff – A Stopgap Arrangement

January 3, 2013 in U.S.

Politicians in America effectively kicked the can down the road as they dithered, again, on arriving at a lasting solution to the country’s problems of an unsustainable budgetary deficit and debt.

The stop gap arrangement, which gives them another two months to bicker and posture, will see a rewind of the traumatic situation just witnessed, because that’s when the country will also hit its borrowing limit, as no meaningful spending cuts or revenue raising measures are happening as of now.

Literally at the eleventh hour, the Senate and the House passed legislation that did away with large tax hikes on most Americans except the wealthy, and prevented massive expense cutbacks such as in defence and welfare.  But Republicans, smarting from what is being called a victory for President Obama, are gearing up to extract their pound of flesh, mostly as expense cutbacks, when the debt ceiling comes up in two months.

That will be accompanied by the twin Damocles’ Swords of a US default and a credit downgrade.

Expect more histrionics and last minute deal-mongering in spite of President Obama’s urging “a little less drama,” though he appears to have the advantage after averting the fiscal cliff.

Countdown to the Fiscal Cliff – Dec 25, 2012

December 25, 2012 in U.S.

There are increasing signs that perhaps the U.S. will indeed go over the fiscal cliff.

As of now, there is no sign of a concrete proposal on the table that can be debated and negotiated. Congress is in recess while both President Obama and Speaker Boehner have proceeded out of town on vacation. Any action to hammer out a solution and to legally implement it must therefore be completed within the few days between Christmas and D-day, which is January 1. That looks difficult, though the politicians may yet get their act together.

A rising swell of opinion puts some of the blame at the door of President Obama, saying he has a secret agenda to let the fiscal cliff happen and thereby let Americans face the spectre of a huge rise in taxes. Thereafter, it may be politically more expedient to try to roll back some of those taxes, looking better opposite the Republicans, who could be handed the blame for the fiscal cliff.

These have been strenuously denied by the Democrats, though unfortunately, as things are shaping up, it appears that script is playing out.

As for the markets, there would probably be volatility and turmoil ahead as the reality sinks in. But they may bounce back, rubber-band like, once some clarity emerges after January 1.

Desperate Times May Cost the Bank of Japan its Independence

December 23, 2012 in Japan

“We expect (the BOJ) to discuss it at the next policy board meeting.”

That is incoming Japanese Prime Minister Shinzo Abe’s brief to the Bank of Japan with respect to his 2% target for inflation.

Abe’s statement, spoken during a television interview today, is backed up with a simple threat in case the BOJ does not toe his line: “”If it doesn’t, we’ll revise the BOJ Law and set up a policy accord with the central bank to agree on an inflation target. We may also seek to have the BOJ held accountable for job growth.”

Is he taking a page out of the US Fed’s book by binding the bank to the twin guideposts of an inflation target and an unemployment rate?

Note that at its recent meeting the US Fed too decided to keep its ultra-low interest rate unchanged “at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

Is this an unspoken opinion that the BOJ has been less pro-active in engaging with the country’s economic problems compared to its US peer across the ocean?

Apart from the stick of changing the law to cut the BOJ’s wings, Abe also stated that he will handpick someone more amenable to his own views when current BOJ Governor Masaaki Shirakawa’s term expires in April next year.

Japan’s economy has been plagued by deflation and recent data points to slowing exports and GDP. The economic mire has probably pushed Abe to consider radical steps to reignite growth, and he is unlikely to let the much-hallowed ‘independence’ of the central bank stand in his way, given the massive mandate that swung him back to power at the last general election.

Countdown to the Fiscal Cliff – Dec 21, 2012

December 21, 2012 in U.S.

Hard won concessions wrested from each other by Obama and Boehner faced a serious setback Thursday when Republicans cancelled a vote on Boehner’s Plan B legislation.

Boehner’s plan proposed to raise taxes on the rich, those earning over $1 million per annum. Though the bill was largely symbolic, as it would have passed in the Republican controlled House but would have failed in the Democrats led Senate, its abandonment lays bare the immense opposing pressures that stand in the way of a resolution.

A chastened Boehner acknowledged the bill did not have the required support from amongst his own members, and put the ball in Obama’s court, asking him to come up with suitable legislation to avoid the impending financial catastrophe.

Both Obama and Boehner ultimately need the support of their party members to resolve the deadlock. Republicans have traditionally opposed higher taxes and defence cuts. Democrats loathe cutbacks on welfare spending such as healthcare and Social Security pensions.

Yet the country’s massive fiscal deficit can be resolved only by taking these self-same bitter pills.

The news of the turmoil sent investors across the world scurrying to seek shelter in the dollar and yen.

Action now shifts to next week when the House and Senate will reconvene.

The US Current Account – Third Quarter 2012

December 19, 2012 in U.S.

The Bureau of Economic Analysis of the US Department of Commerce released data relating to the country’s current account for the third quarter of 2012, as a part of its report on International Transactions for the same period.

The US current account deficit is defined as “the combined balances on trade in goods and services, income, and net unilateral current transfers.”

During the reported quarter the current account deficit fell to $107.5 billion compared to $118.1 billion in the second quarter, according to a preliminary estimate.

The main factor responsible was the fall in the deficit relating to goods and services, which declined to $124.5 billion from $137.4 billion in the previous quarter. Of this change, the deficit on goods was down to $173.9 billion from $185.7 billion, while services surplus rose from $48.3 billion in the previous quarter to $49.4 billion in the reported quarter.

The surplus on income account fell to $50.8 billion from $52.1 billion in the last quarter.

Net unilateral current transfers rose from $32.7 billion to $33.8 million in this quarter.

Minutes of the RBA from its December 4 Meeting

December 18, 2012 in Australia & New Zealand

The RBA released today the minutes of its Monetary Policy Meeting held on December 4, 2012.

Important observations

The bank reviewed the international economic situation and noted that conditions had turned marginally positive. Growth had stabilised in the Chinese economy due to easing fiscal policy and higher infrastructure spending. In the United States better consumer sentiment, moderate growth in employment and an improving housing market combined to support economic activity. On the other hand, the Japanese economy exhibited export weakness and a contraction in economic growth. Conditions in the Euro area worsened further. Globally commodity prices remained more or less flat over the period after the last meeting.

Domestic economic conditions were marked by slowing consumption growth, modest expansion in employment, a slight recovery in residential construction sector, slowing investments in the mining sector, and slowing growth in business credit overall. The case of wage growth during the second quarter fell with surveys indicating further pressures on wage rates in the near future. Also, leading indicators and available information pointed to a softening labour demand, and therefore muted employment growth in future months.

The members decided to lower the cash rate from 3.25% to 3% based on the following:

  • “The information on labour costs and softening labour market conditions suggested that the inflation outlook still afforded the Board some scope to provide additional support to demand.
  • Further confirmation that the peak in resource sector investment was near, and that the short-term outlook for non-resource investment remained subdued, indicated that there was a case for the Board to provide that support.”


Countdown to the Fiscal Cliff – Dec 18, 2012

December 18, 2012 in U.S.

According to a BBC report, House of Representatives Speaker John Boehner and US President Barack Obama met for about 45 minutes at the White House yesterday.

As efforts to resolve the crisis gather momentum, the meeting is an encouraging sign that the logjam may yet be broken. The meeting followed a previous one on Thursday and a telephonic conversation between them on Friday.

Though no details are available regarding what transpired at the meeting, according to White House Press Secretary Jay Carney, “we have seen since the election a change in tone and, in some cases, a change in position from different Republicans, including elected Republicans, on the issue of, first revenue, and then acknowledging that rates have to go up.”