PrimeSquawk Morning Call: Japan's LDP Strengthens Grip

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PrimeSquawk G7 Morning Call
Special to

TheStreet.com

Japan

Prime Minister

Hashimoto

has moved to within one vote of securing an absolute majority for the

LDP

in the lower house as defections from Ozawa's spavined

Shinshinto

party continue. The latest to re-rat is former Shinshinto chief strategist Kazuo Aichi who served as Defense Minister during the Shinshinto led government in 1993. One observer within Hashimoto's cabinet who is not entirely amused by this drift toward full power is finance minister Mitsuzuka who continues to want Hashimoto's power to push fast and complete reform checked somewhat. Mitsuzuka called today for the continuation of coalition style government despite the impending majority status of the LDP.

As dollar yen approached the 118 level last night lightly scattered verbal intervention began out of the US and Japan. American trade chief Charlene Barshevsky warned that Japan cannot depreciate its way out of recession and MITI vice minister Sato said there would be a major political problem if the Japanese trade surplus remained at these high levels throughout the fall. Japanese MOF leader Mitsuzuka warned that the dollar rise above 115 was only temporary.

Currency

Sterling/mark continued to slide overnight as dollar/mark came under pressure from an

FT

story that said the

Bundesbank

was signalling the start of a rate-hiking cycle earlier than markets had anticipated. The

FT

article said only

EMU

political considerations were keeping the central bank on hold for now and hinted that France's expected opposition to rate hikes was the main block to fast action. Our sources are considerably less certain about a rate hike out of Germany since the growth underway is still primarily an export phenomena, although machinery orders for June surged 16 percent on the back of strong foreign buying.

UK

Sterling's correction continued despite strong economic news out of the

UK

as the Bank of England confirmed M4 is rising at 11.7% this year while consumer credit figures came in way above market expectations and at their highest total level since records have been kept. Less surprising but still strong were the private sector business borrowing figures that showed a new surge in the second quarter. Building firms reported another strong month of demand but noted that new projects are now being slowed by lack of available skilled labor. Three out of four companies are having a hard time finding bricklayers and UK construction federation chairman Martin Laing said these numbers make it more important than ever that builders work with the government in setting up its welfare to work program in a hurry.

France

Consumer news was not so frisky. INSEE reported that June consumer spending on durables plunged 2.9% for the month, almost triple the number markets had been expecting. These weak numbers were partially offset by upward revisions to the May consumption figures.

Germany

So-called Wise Man Rolf Peffekoven (witch's pepper) continued his one-man assault on the rising dollar today as he told the

Berliner Zeitung

that the U.S. and UK had to consider intervention to stop their currencies from rising further and asserted that the Bundesbank would support intervention rather than rate hikes to stop the d-mark's fall. Last week Peffekoven said he knew of a deal to intervene among G7 countries, although he would not reveal how an academic advisor stumbled upon such evidence. Peffekoven also weighed in on the German EMU delay contest lining up with the more moderate 2-year delay school as opposed to the 5-year delay school led by Professor Doctor Beidenkopf the Saxony premier.

Italy

Wage reports came in just as expected: up 4.6% for the year. Budget Minister Ciampi said the rising dollar would not add to inflation risks down the road. There was better than expected news out of the pension reform talks as union leader Sergio Cofferati outlined the clear makings of a deal which trades new employment pushes by the government for cuts in early retirement schemes. According to late reports this morning union officials believe good progress was made and have agreed to re-start the talks on August 28 after the summer break.

U.S.

And finally, Secretary of State Madeline Albright lit up the night in Kuala Lampur at the

ASEAN

conference by singing to Asian leaders a song that, in part, mocked Malaysian prime minister Matathir's recent obsession with speculators. Albright sang to the tune of Don't Cry for Me Argentina words that included the following verses:

I came here to talk to your leaders
But they were all on the golf courses
So I went back to Sunway Laguna
And called George Soros
To talk market forces and hatch a conspiracy
The rest is history

PrimeSquawk, a provider of market information and macro-political commentary for bond and currency traders, provides this morning call. It is not meant as investment advice. Further information is available at www.primesquawk.com.