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26 November 2013

Understanding Imperial Economics

Answer these questions after reading the following articles:



1. Why did the price of Oil 'stabilize' after the Iran/US Nuclear Arms Agreement?

2. Why did 'Doveish' talk deflate the value/price of the Euro?


Oil prices stabilize after Iran deal, Asian shares steady

TOKYO Mon Nov 25, 2013 9:48pm EST

Reuters) - Oil prices stabilized on Tuesday after Monday's slide as traders questioned how quickly the Iranian nuclear accord could translate into higher supplies, while the yen came off a four-year trough against the euro.
Asian shares headed for a third straight session of gains, though Tokyo's Nikkei benchmark retreated from a six-month high as the yen recovered some of Monday's steep losses.

The Thai baht slipped 0.3 percent to a 11-week low of 32.080 per dollar on heightened political uncertainty as anti-government protesters forced their way inside the country's Finance Ministry and burst through the gates of the Foreign Ministry compound, in a bid to oust Prime Minister Yingluck Shinawatra.

On Monday, the Thai SET index .SETI fell for a fifth straight session to an 11-week closing low.

U.S. crude prices added 0.3 percent to $94.37 a barrel, recouping some of the previous session's 0.8 percent decline following a weekend deal between the West and Tehran to halt Iran's most sensitive nuclear activities in exchange for some relief from sanctions.

Brent crude prices softened a touch after ending almost flat on Monday from a slide of as much as 2.7 percent.

"The interim six-month 'freeze' agreement just reached on Iran's nuclear program should not have any impact on oil prices, aside from short-term sentiment, because core sanctions on oil and banking have not been touched," Societe Generale said in a note.

"We see a greater than 50 percent chance that a comprehensive agreement will be successfully reached within six months.

"If and when that happens, it could take Iran three to nine months to recover the one million barrels per day in production lost since 2011."

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS advanced 0.3 percent, building on a 0.3 percent rise in the previous session, though it faced resistance at its 50-day moving average.


Tokyo's Nikkei share average finance/markets/index?symbol=jp%21n225">.N225 shed 0.7 percent after it climbed 1.5 percent on Monday to within sight of a 5-1/2 year peak reached in May.

The Japanese currency, which typically falls when share prices rise, was up 0.2 percent at 101.50 yen to the dollar and steady at 137.385 to the euro.

Minutes of the Bank of Japan's October 31 meeting showed some board members said they saw economic growth and prices at risk of declining, underscoring lingering pessimism within the board on the outlook for meeting its inflation target.

The euro inched up 0.1 percent to $1.35355, having fallen 0.3 percent overnight.

"We remain bullish on the dollar heading into 2014 but remain tactically cautious on establishing longs, with a number of U.S. dollar pairs already trading at the high end of their ranges and data unlikely to be consistent enough to support expectations for an early tapering," analysts at BNP Paribas wrote in a note.

Data showed on Monday that contracts to buy previously-owned U.S. homes fell for a fifth straight month in October, hitting a 10-month low and adding to signs of cooling in the housing market.

U.S. stocks ended mixed overnight, with the Dow Jones industrial average .DJI posting a slim gain to end at another record high, while the S&P 500 .SPX eased 0.1 percent.

(Editing by Shri Navaratnam and Eric Meijer)

Dovish talk deflates euro, yen enjoys rare breather

SYDNEY Mon Nov 25, 2013 6:33pm EST

(Reuters) - The euro recoiled from a four-year high against the yen on Tuesday and retreated on the dollar as dovish comments from European Central bank officials deflated the high-flying currency.
The euro slipped to 137.22 yen from a peak of 137.98, and dipped to $1.3520 from Monday's high of $1.3561.

The moves were a small setback for the common currency, which has been recovering strongly after last Wednesday's steep drop on a media report the ECB was actively considering cutting one of its key interest rates to negative.

ECB Governing Council member Christian Noyer said on Monday interest rates have to remain low for an extended period and might go even lower if needed.

Echoing the dovish tone, Governing Council member Ardo Hansson was quoted as saying the ECB still has room to cut rates.

Analysts said markets were keen to see if the ECB would cut its deposit rate to negative.

"Any hints on the possibility of a negative deposit rate are worth watching particularly closely after last week's newswire reports suggested this was an option under consideration - probably a more palatable tool than QE for the Governing Council," analysts at BNP Paribas wrote in a note to clients.

Softness in the euro saw the dollar index .DXY drift up to 80.859, pulling up from Monday's session low of 80.677.

Overall, trading was subdued in a U.S.-holiday shortened week and ahead of a rush of U.S. data before the Thanksgiving day holiday on Thursday.

U.S. data on Monday painted a mixed picture on the world's biggest economy with contracts to buy previously owned homes falling to a 10-month low, while services sector activity rebounded.

Against this backdrop, the dollar trimmed gains on the yen to 101.52, having hit a six-month high around 101.91. Still, it was creeping ever closer to its 2013 peak of 103.74 set in May.

The yen has been the market's funding currency of choice for carry trades, given the Bank of Japan is the most committed to maintaining ultra-loose monetary policy among major central banks.

While Australia's monetary policy is nowhere near as stimulatory as those in the major economies, the country's central bank has been doing its best to talk down the local currency.

The Aussie last stood at $0.9177, having plumbed a fresh three-month trough of $0.9120 overnight. It has slid more than 6 percent from a recent peak of $0.9758 set in October.

RBA Deputy Governor Philip Lowe said on Tuesday he expected to see the Australian dollar lower over time and reiterated that the central bank would not rule direct intervention in or out.

Lowe, though, said the threshold for intervention was high.

(Editing by Richard Pullin)


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