Daily Client Note
Global Markets Review
Bull or Bear? It Does Not Matter
The topsy-turvy world of global trade continues its path of one day up and one day down, in reaction to breaking news sentiment. The unique set of fundamental circumstances unfolding as a consequence of years of miss-directed fiscal policies and institutional investment faux pas is likely to continue throughout the summer.
Wall Street opened lower which dragged the USD higher, while bullion was bought in the daily tango of global trade. It will be a relief to get the push-me pull-you farcical debt issues out of the way so that focus can switch to mid-term momentum reads.
Patience is required as the mid-term global charts go through a sideways spiral. We have been here before, many times, but this period of trade does seem to be going on forever.
Whether equity bull or bear, bullion buyer or seller, or a bond investor on the long or short end of the curve, the outlook remains the same; intra-day volatility as fair value is sought in milliseconds rather than historically over a period of days and weeks.
There are near-term trade opportunities in all markets when buying at the low of the previous session and selling at the high. These trades are available as a strategy because of the lack of mid-term chart directional sentiment and momentum.
The USD/S&P 500 inverse correlation remains strong, with equity and bond markets dominating intra-day direction across all global asset classes. Gold and Oil have started to form a near-term inverse correlation, with gold buying being met with oil selling, and vice versa. Silver trade does not yet have the strength of upside momentum seen in gold, but that may be more to do with Exchange floor margin requirement threats more than anything else.
The trade desk has highlighted over the last four years the changes that have happened in regard to electronic trading dominance, and the increase in algorithm trade that tracks momentum, headlines, price action, and sentiment. Who would have thought that Buy-and-Hold would so quickly cover just few days as a strategy, rather than the previous connotation that buying-and-holding could last decades.
Traders and investors have not been in such reactive market arenas before, which is a pure reflection of the technical advancements globally that has all aspects of daily life impacted by the speed in which information now travels.
The relentless desire to get information quicker than yesterday, in an effort to respond sooner, has transposed itself into traded markets that are truly 24-hours and are so completely globalized now that regional 9-to-5 trading is virtually obsolete.
Those looking for a flowing bell curve effect on their investment portfolio will not get it by trading and investing in regional markets only; gaps in closing/opening prices due to global momentum swings are prevalent. The long-term investor will have to introduce a near-term mix of global exposure to their portfolio.
Global exposure can be achieved via futures trade, which most see as specialized market verging on the dark side of the moon, via overseas accounts, which the US administration is determined to end, or via currency trading which remain the most liquid of all global traded markets.
As a balance to equities and bonds held over the longer term, exposure to forex offers easy access, low margin requirements, and access to global momentum. Equity and bond sentiment leads, and historically forex follows, creating a tradable balance to the buy-and-hold swings and dips.
Whether equity markets go on a bull run that has S&P 500 breaking 1350 and 1370, or has a bearish reversal that tests 1295 and 1275 is literally a coin-flick in the current headline-dominated trading environment. The reaction to either move however is tradable, via the currency markets that will track both bull and bear equity trade with a high daily correlation.
Global Trade Desk- Bull or Bear? It Does Not Matter
Wall Street jumps on optimism, Dollar slump continues
The DOW rose 1.52% on Wednesday and has risen more than 300 point in three days. Earnings reports and better-than-expected housing data triggered optimism in Wall Street.
In the currency market, the Aussie and the Swiss Franc were among the best performers. The Yen trimmed losses on American hours but finished mostly lower in the market.
The EUR/USD reached fresh 15-month highs at 1.4545, pulled back afterwards to 1.4485 but managed to rise back above 1.4500. Cable remained steady on American hours consolidating around 1.6400, barely below April highs.
The USD/CHF extended its decline to fresh record lows at 0.8870/80 and remains under pressure. Greenback is also trading at record lows against the Aussie.
Renault launches Facebook game to engage city drivers
LONDON - Renault has launched a Facebook game in an effort to target its super-mini Twingo model at younger, city-dwelling consumers.
In the Facebook app, created by Publicis Modem, the French manufacturer poses a series of questions about contemporary life in an attempt to engage male and female drivers between the ages of 20 and 35 years old.
Question include, "Ever added someone from school just to see what job they're doing now?" and, "Have you ever posted and deleted and then posted and deleted a comment on a friend's wall until you got it just right?".
Cristel Davila, Publicis Modem, said: "Facebook is both the embodiment of modern times and the perfect place to target our audience. From our side, it was crucial to get the questions and mechanics spot on, to ensure that this Twingo campaign had viral potential."
Separately, Renault is rolling out a new reality TV programme on its Renault TV platform. To promote the launch of its Mégane Coupé Cabriolet and Renault Wind coupé-roadster models, the marque is inviting consumers across Europe to audition to take part in a road trip. The show, entitled 'Very Good Trip', will screen in June and July.
Geithner Urges Europe to Revise Hedge-Fund Rule Plan (Update1)
“As you consider how to design this important set of reforms, I hope you will keep in mind our shared commitment to create regulatory reform that does not discriminate against foreign firms,” Geithner said in a letter to four European finance ministers released today by the U.S. Treasury.
Europe’s Alternative Investment Fund Management Directive, proposed a year ago, will limit hedge funds’ borrowing, require registration of funds with more than 100 million euros ($134 million) under management and impose limits on pay. One clause would prevent European funds from investing in pools based outside the region.
The letter follows Geithner’s warning last month to European Union financial services commissioner Michel Barnier that the rules would discriminate against U.S. funds. EU finance ministers delayed plans to discuss the planned regulations last month amid concerns that the plans could spark a trade war.
The rules “would discriminate against third-country funds and fund managers by denying them the opportunity to access the EU single market,” because only European firms would be eligible for a “passport,” Geithner said. “It is my hope that this provision will be revised” to grant access to non-European funds, fund managers and custodians, he said.
Geithner sent the letter to U.K. Chancellor of the Exchequer Alistair Darling, French Finance Minister Christine Lagarde, German Finance Minister Wolfgang Schaeuble and Spanish Finance Minister Elena Salgado Mendez. In the letter, he said the U.S. is working on its own proposals to strengthen the regulation of hedge funds, in keeping with international agreements made by Group of 20 nations.
FDIC Proposes Banks Prepay Deposit Fees Through 2012
The insurance fund will have a negative balance as of tomorrow after 120 banks were shut in the past two years, and will be positive by 2012, the staff said. Banks failures may cost $100 billion through 2013 with half the cost already incurred, the FDIC said. The agency today rejected options for a second special fee or borrowing from the Treasury Department.
“What we are proposing to do is to tap the ample liquidity of the banking industry to improve our own liquidity position without borrowing from the Treasury,” FDIC Chairman Sheila Bair said at a Washington board meeting.
The agency is required by law to rebuild the insurance fund when the reserve measured against insured deposits falls below a certain level. The fund, drained by 95 bank failures this year, had $10.4 billion as of June 30 and will return to a positive balance in 2012.
The proposal adopted unanimously by the board requires banks to pay premiums for the fourth quarter and next three years on Dec. 30.
The board backed prepayments over alternatives such as borrowing taxpayer dollars from the Treasury Department, charging the banking industry a special fee in addition to levies they already pay and borrowing directly from the banks.
Dec. 30 Payment
Under the proposal, the FDIC wouldn’t impose another special assessment this year. The agency would raise assessments by 3 basis points in 2011.
The FDIC will seek public comment until Oct. 28.
The banking industry lobbied against a special fee that would be added to the regular annual premium, telling the FDIC and Congress such a levy would hurt their ability to raise capital. The industry welcomed the FDIC’s proposed approach.
“It’s certainly a better solution than taking a large chunk of money out of banks’ income and capital,” James Chessen, chief economist at the American Bankers Association, said after the meeting.
The prepayment approach gives “the FDIC the cash that they need, it will be paid for by the industry and it will not have the severe impact that other options would have had on banking,” Chessen said.
Banks paid a special assessment in the second quarter that raised $5.6 billion for the insurance fund. The agency also has authority to impose fees in the third and fourth quarters.
Banks backed prepayment because the premiums are classified as an asset when the payment is made, becoming an expense during the quarter in which the obligation is due.
G-20 Plans to End ‘Financial Balance of Terror’ After Summit
World leaders, meeting in Pittsburgh last week, adopted a framework for more durable economic growth as they sought to prevent a replay of the worst crisis since the Great Depression. They also acknowledged the growing clout of China and other emerging economies by giving them a bigger voice in decision- making.
The aim is to reduce U.S. dependence on overseas capital to finance consumption, while cutting the reliance of China and other creditor nations on American consumers to buy their goods. Summers, head of Obama’s National Economic Council, has singled out the current arrangement as a risk to prosperity since it leaves each major economy a hostage of the other’s policies. “Because our global economy is now fundamentally interconnected, we need to act together to make sure our recovery creates new jobs and industries,” Obama told reporters in Pittsburgh Sept. 25 after hosting his first economic summit.
To help ensure that happens, G-20 countries agreed to give the 186-member International Monetary Fund a role assessing their efforts. The oversight function will be among the topics discussed by policy makers as they head this week to Istanbul for the annual meetings of the IMF and World Bank.
Slower Growth
After expanding at a 4.6 percent annual pace in the five years through 2008, the world economy might be in for a spell of slower growth unless G-20 countries follow complementary policies, said Edwin Truman, a senior fellow at the Peterson Institute for International Economics in Washington.
The U.S. is counting on the crisis and its aftermath to convince countries like China that it’s in their own interest to shift away from exports toward domestic demand as Americans save more and spend less, Truman said. The U.S. savings rate rose to a 14-year high of 6 percent in May before falling to 4.2 percent in July.
“U.S. consumption is all but certain to be very stagnant for the next few years,” said Desmond Lachman, a former IMF official who’s now at the American Enterprise Institute in Washington. “You’ve got to find other sources of demand.”
In the meantime, G-20 leaders acknowledged the recovery remains dependent on emergency government measures, and they pledged to avoid pulling back until the time is right. “We will avoid any premature withdrawal of stimulus,” their communiqué said.
Stocks Decline
That promise may encourage investors to take on more risk after signs of economic weakness prompted the biggest weekly declines in European and U.S. stocks since July, said Sophia Drossos, co-head for global foreign exchange strategy at Morgan Stanley in New York.
“The G-20 outcome could lead to a reversal of the selloff,” she said.
Demand for U.S. durable goods unexpectedly fell in August and loans to households and companies in Europe grew at the slowest pace on record, reports showed last week.
The Standard & Poor’s 500 Index has dropped 2.2 percent since Sept. 18, and Europe’s Dow Jones Stoxx 600 Index slipped 2.4 percent in the same period.
Developing-nation equities suffered their steepest weekly decline in more than two months last week, with the MSCI Emerging Markets Index ending 1.2 percent lower.
Lopsided Trade Flows
G-20 leaders pledged to correct the lopsided flows of trade and investment blamed for contributing to the crisis: U.S. consumers borrowed money to finance purchases of Asian-made cars and flat-screen TVs. Asian exporters, meanwhile, invested their surplus cash in U.S. Treasury notes, pushing down borrowing costs and further fueling the credit binge.
Some economists cast doubt on the pledges by the G-20, since no sanctions will be used to enforce them and a similar push in 2006 by the IMF petered out.
“Unless the major surplus and deficit economies actually decide that they really want to go down this route, it’s hard to imagine anything will happen,” said Kenneth Rogoff, a former IMF chief economist who now teaches at Harvard University.
Obama, Chinese President Hu Jintao and European leaders including German Chancellor Angela Merkel face plenty of hurdles as they seek to place the world economy on a more stable footing.
The U.S. must cut a $1.6 trillion federal budget deficit, while China contends with a record $2.1 trillion in foreign exchange reserves representing years of accumulated trade surpluses.
Central Bankers
Central bankers, who did not attend the summit, may be wary of any suggestion that they sacrifice their independence in the name of worldwide coordination. And global institutions such as the IMF and the Basel, Switzerland-based Financial Stability Board may lack the horsepower to carry out the added responsibilities they’re being given. Chinese officials said they recognize that the country must shift its economic priorities.
“China also understands that its economic-growth model has some flaws,” Ma Xin, director-general of international cooperation at the National Development and Reform Commission, China’s top planning agency, said in Pittsburgh.
Change may take time, Ma suggested. He said that his nation’s “low” consumer spending is something that has “accumulated over many years and it is a structural problem.”
Treasury Secretary Timothy Geithner pointed to the increase in the U.S. savings rate as an “encouraging sign.”
‘Measured Optimism’
After “a long period of time living beyond our means, you see people already changing behavior,” the Treasury chief said in Pittsburgh. “That’s one reason why we can stand here today and express some measured optimism about our capacity to put in place a more sustainable recovery.”
There are other signs that imbalances are shrinking. The U.S. current-account deficit narrowed in the second quarter to $98.8 billion, the least since 2001. Credit Suisse AG predicts Chinese imports may rise 30 percent to $313 billion in the fourth quarter as the government’s stimulus program spurs domestic demand.
“While the global rebalancing to date has been significant and broad-based, it remains to be seen whether this process will continue,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York.
Giving emerging markets such as China, India and Brazil a greater stake in global decision-making may ensure that it does.
Supplants G-8
The broader G-20 will supplant the Group of 8, a club of the most highly developed nations plus Russia, as the guardian of the global economy after last week’s summit. The G-20 accounts for about 85 percent of global gross domestic product. The risk is that the larger group will find it more difficult to make decisions, said Tim Adams, who served as the U.S. Treasury’s top international official in the administration of George W. Bush.
“The bigger the grouping, the harder it is to get consensus,” said Adams, managing director of the Lindsey Group, a Washington-based economic advisory firm. “You can’t have the agenda taken over by the favorite hobby horses of each country.”
The third summit of G-20 leaders in the past year also plotted a road map for revamping the banking industry after the two previous meetings, in Washington and London, focused on fighting market turmoil and reversing the spiral into recession.
Deferred Bonuses
Leaders agreed that banks must avoid “multiyear guaranteed bonuses” and that a “significant portion of variable compensation” must be deferred, paid in stock, tied to performance and subjected to clawbacks if earnings flop. They stopped short of endorsing a French proposal to introduce specific caps on pay.
Awards must also be curbed if they are “inconsistent with the maintenance of a sound capital base,” the G-20 said. Regulators should be allowed to modify the compensation practices of key firms. Banks will also have to increase the quality and quantity of capital they hold by the end of 2012. The regulatory overhaul is “for real, but there will be plenty of argument over the detail of how it’s done,” Leon Brittan, vice chairman of UBS Investment Bank and former European Union trade commissioner, told Bloomberg Television.
U.S. Stocks Climb on Takeovers; Affiliated Computer Surges
Affiliated Computer Services Inc. jumped 14 percent after Xerox Corp. made its biggest purchase by agreeing to buy the company for $6.4 billion. Abbott Laboratories advanced 3.8 percent on plans to purchase Solvay SA’s pharmaceutical unit and gain control of the TriCor cholesterol drug. Cisco Systems Inc., the largest maker of networking equipment, had the steepest gain in two months as Barclays Plc predicted revenue will increase.
The Standard & Poor’s 500 Index added 1.7 percent to 1,062.56 at 11:53 a.m. in New York. The Dow Jones Industrial Average gained 138.68 points, or 1.4 percent, to 9,803.87. About 333 million shares changed hands on the New York Stock Exchange, 27 percent less than at the same time a week ago as trading slowed for the Yom Kippur holiday.
“We’ve seen a pickup in acquisitions and it’s a very big plus,” said Hugh Johnson, who manages more than $1.6 billion as chairman of Albany, New York-based Johnson Illington. “It’s always good news when you see money come into the market.”
All 10 of the S&P 500’s main industries advanced today, trimming the decline in the index to 0.8 percent since it reached an almost one-year high on Sept. 18. The benchmark gauge for U.S. equities has climbed 57 percent in the past six months, pushing valuations on an earnings basis to the highest level since 2004. Companies in the S&P 500 traded at 20.2 times their profits on Sept. 22, data compiled by Bloomberg show.
M&A
Xerox, the world’s largest maker of high-speed color printers, said it’s buying Affiliated Computer for $63.11 in cash and stock for each Affiliated Computer share, 34 percent more than the closing price on Sept. 25. The purchase will extend Xerox’s reach in the services market as sales of its traditional printing equipment decline.
Affiliated Computer jumped 14 percent to $53.73 for the S&P 500’s biggest gain. Xerox posted the biggest loss in the index with a 16 percent slide to $7.49.
Abbott added 3.8 percent to $49.13. The company’s purchase of Solvay’s pharmaceutical unit will also give Abbott a bigger presence in emerging markets and lower its dependence on the arthritis drug Humira.
Cash Flow
As the economy emerges from the worst recession in 70 years, cash flow may rise from the $1.5 trillion reported by the Commerce Department for the year ended in June, according to data compiled by Credit Suisse Group AG and Bloomberg. Cash relative to share prices will climb to the highest in at least two decades next year compared with yields on corporate bonds, the data show.
The previous high in 2005 preceded the two busiest years ever for takeovers.
Europe’s Dow Jones Stoxx 600 Index jumped 1.6 percent. Germany’s DAX Index advanced 2.4 percent after Chancellor Angela Merkel won re-election with enough support to govern with the pro-business Free Democrats.
The MSCI Asia Pacific Index fell 1.5 percent, led by Japanese exporters as the yen strengthened to an eight-month high.
Cisco rose for the first time in five days, jumping 5.2 percent to $23.80. Barclays raised its recommendation on the company to “overweight” from “equal- weight.”
Insurers Rally
A measure of insurers in the S&P 500 rallied 3.2 percent. Insurance Services Offices Inc. said U.S. property and casualty insurers, a group including Allstate Corp. and Travelers Cos., returned to an underwriting profit in the second quarter, making more on premiums than they paid in expenses and claims.
Americans holding $3.5 trillion in cash are giving money managers increasing confidence that the stock market rally under President Barack Obama will continue through the end of the year. Even after reducing money-market accounts by 11 percent this year, investors have cash equal to 73 percent of S&P 500 companies’ net assets, according to data compiled by the Investment Company Institute and Bloomberg. At the peak of the bull market in 2007, the measure of buying power was 62 percent.
MEMC Electronic Materials Inc. lost 2.3 percent to $16.90. The maker of silicon wafers for solar modules and semiconductors was cut to “hold” from “buy” at Citigroup Inc.
Gander Mountain Co. surged 35 percent to $5.15. The sporting-goods retailer said it will go private, buying out stockholders who own fewer than 30,000 shares for $5.15 a share.
FOREX-Yen rises, Aussie pauses near 1-year high
* Yen stronger as investors trim longs in Aussie, kiwi
* Shanghai share drop dent Aussie, undermine strong data
* But rate hike talk provides support to AUD
* Kiwi's rise to pose fresh headache for RBNZ
By Satomi Noguchi
TOKYO, Sept 8 (Reuters) - The yen rose broadly on Tuesday, while growth-linked currencies like the Australian and New Zealand dollars paused near one-year highs as investors trimmed buying positions.
Investor appetite towards riskier assets including those higher-yielding currencies was tamed as Chinese shares opened down and dragged Tokyo shares lower into negative territory.
The yen and dollar fell broadly the previous day when the U.S. market was closed for the Labor Day holiday amid a broad improvement in risk taking.
Investors had been encouraged by global financial chiefs' statements at the weekend that it was too soon to start unwinding fiscal, monetary and financial-sector stimulus measures.
"There is no news or factor that's causing the yen's rise at the moment. It is just that climbs in yen crosses looked hard to stretch after yesterday's moves, prompting some people to cut long positions," said a chief trader for a Japanese bank.
The U.S. dollar dipped 0.3 percent from late trade in London on Monday to 92.78 yen.
The euro fell 0.3 percent to 132.95 yen. On the dollar, it was nearly flat at $1.4335 after having gained 0.3 percent the day before.
The greenback trimmed earlier losses against a basket of currencies with the dollar index trading at 77.999, nearly unchanged on the day.
The Australian dollar dipped 0.2 percent to $0.8539, retreating from a one-year high of $0.8578 struck on Monday. It fell despite data showing Australia's business confidence hit a six-year high in August, as traders continued to cut Aussie long positions against the yen.
But the strong data added to mounting speculation that local rates will rise in coming months, providing overall support to the Aussie.
Even before the release of business confidence measures, implied rates were pricing in a 45 percent chance of a rate hike in October by the Reserve Bank of Australia.
The Aussie is also likely to draw support from firm gold prices which were hovering within striking distance of the $1000 an ounce level.
The kiwi edged lower to $0.6921 after jumping over 0.8 percent on Monday to hit a one-year high of $0.6935. The gains come ahead of a Reserve Bank of New Zealand meeting on Thursday to decide on monetary policy.
The recent surge in the kiwi could be a focus of Governor Alan Bollard, who has expressed his discomfort with its rise. The kiwi has rallied 30 percent since March, forcing monetary conditions to tighten to the frustration of the RBNZ which threatened to cut interest rates at its last meeting in July. (Additional reporting by Anirban Nag; editing by Joseph Radford)
USDCHF Forecast
Similar to EURUSD, the USDCHF didn’t make significant movement yesterday with no more than 60 pips movement. I think we are in no trading zone. Price still trapped in range area of 1.0715 – 1.0527 and range trading strategy which is to buy around 1.0527 or to sell around 1.0715 is still the best strategy for now. I prefer a bearish continuation scenario but a valid break below 1.0527 is needed to confirm the bearish scenario. CCI in neutral area both on h4 and daily chart.
Trichet Says World Economy Shows Signs of Stabilizing (Update1)
By Simone Meier and Christian Vits
Sept. 7 (Bloomberg) -- European Central Bank President Jean-Claude Trichet, who chaired a meeting of central bankers today, said the global economy is showing signs of emerging from its worst recession in more than 60 years.
Latest indicators have been better than anticipated and stabilization is “something which seems to be confirmed at the global level,” Trichet said at a press conference at the Bank for International Settlements in Basel, Switzerland. “It’s not excluded that we would have a bumpy road ahead and of course alertness remains of the essence,” he said.
Central bankers have cut borrowing costs to record lows and injected billions into the financial system after the U.S. housing slump triggered the collapse of Lehman Brothers Holdings Inc a year ago, throwing the global economy into its worst slump since the Great Depression. Governments are also trying to kick- start growth with stimulus packages.
The Organization for Economic Cooperation and Development said on Sept. 3 that the combined economy of the Group of Seven nations will shrink 3.7 percent this year, less than the 4.1 percent contraction it projected in June. The U.S., Japan, Germany and France will all show growth in the current quarter while Canada and the U.K. will continue to shrink, the Paris- based group forecast.
Free Fall Over
“A number of projections had been slightly revised up, confirming that we’re probably, in a large part of the economy, out of the period of free fall,” Trichet said. Still, “we have to remain prudent and cautious.”
Trichet met in Basel with his counterparts from the world’s largest central banks including Bank of Japan Governor Masaaki Shirakawa and China’s central bank governor, Zhou Xiaochuan. While some policy makers have stressed the need to withdraw emergency measures as soon as the economy improves in order to prevent inflation, the Federal Reserve, the Bank of England, the Bank of Japan and ECB are still in the process of implementing asset-purchase programs in a bid to encourage lending. The ECB on Sept. 3 kept its key rate at a record low of 1 percent after loaning banks as much money as they wanted for 12 months and starting to purchase covered bonds.
Trichet said there’s “a great unity of purpose” among central bankers to deliver price stability. “This unity of purpose doesn’t mean that we do the same because we’re in different situations,” he said.
‘Lessons’
Central banks and governments around the world are seeking tougher regulation after excessive risk-taking by financial institutions sparked $1.61 trillion in losses and writedowns and led to taxpayer-funded bailouts.
The Basel Committee on Banking Supervision yesterday agreed lenders should raise the quality of their capital by including more stock. Financial firms will also have to introduce a leverage ratio and devise ways to boost reserves when the economy is robust, the panel said.
Central banks and governments must “draw all the lessons from the past” in order to ensure that new bubbles aren’t created and “abnormal” risk-taking doesn’t re-emerge, Trichet said.
The Global Economy Meeting is held every two months under the auspices of the BIS, the central bank of the world’s central banks.
Most Asian Stocks Gain as Computer Chip, Metal Prices Advance
By Patrick Rial and Masaki Kondo
Sept. 8 (Bloomberg) -- Most Asian stocks climbed, led by technology and commodity companies, as computer memory prices and metal prices rose. Japanese banks declined after lending growth slowed last month. Elpida Memory Inc., Japan’s largest maker of dynamic random access memory, rose 2.8 percent after the benchmark price for chips climbed to the highest since August 2008. BHP Billiton Ltd., the world’s largest mining company, climbed 1.6 percent in Sydney after a metals gauge in London rose to a one-week high. Mitsubishi UFJ Financial Group Inc., Japan’s
biggest publicly traded bank, sank 2.4 percent in Tokyo.
The MSCI Asia Pacific Index gained 0.1 percent to 114.36 as of 10:37 a.m. in Tokyo, with three stocks advancing for every two that declined. The gauge has climbed 62 percent from a more than five-year low on March 9 on speculation stimulus measures worldwide will revive the global economy.
ategist at Tokyo-based SMBC Friend Securities Co. “We’ll see a slew of companies boost full-year forecasts when they report first-half results.”
Japan’s Nikkei 225 Stock Average added 0.3 percent. JVC Kenwood Holdings Inc. surged 20 percent as the Nikkei newspaper said the company may beat profit forecasts. Australia’s S&P/ASX 200 Index gained 0.9 percent. New Zealand’s NZX 50 Index rose 0.3 percent in Wellington.
Futures on the U.S. Standard & Poor’s 500 Index lost 0.3 percent. Markets in the U.S. were shut yesterday for a public holiday.
Chip Prices
Elpida gained 2.8 percent to 1,194 yen. Prices of the benchmark 1-gigabit computer-memory chip climbed to $1.71 yesterday, from as low as 58 cents in December, according to Dramexchange Technology Inc., operator of Asia’s biggest spot market for the chips.
Advantest Corp., the world’s biggest maker of memory-chip testers, gained 0.7 percent to 2,340 yen. The company expects July-September orders for its chip-testing equipment to exceed levels for the preceding quarter, the Nikkei reported, citing President Haruo Matsuno.
In Sydney, BHP climbed 1.6 percent to A$37.35, while Rio Tinto Group, the world’s third-largest mining company, gained 1.8 percent to A$57.73. A gauge of six metals, including nickel and copper, climbed 0.7 percent in London yesterday to the highest close since Aug. 28.
Higher Forecasts
Sumitomo Metal Mining Co., Japan’s second-largest copper smelter and top producer of nickel, gained 0.8 percent to 1,508 yen after lifting its full-year profit forecast five-fold. car navigation systems and audio devices, the newspaper said.
Mitsubishi UFJ retreated 2.4 percent to 540 yen, and Sumitomo Mitsui Financial Group Inc. slid 2.9 percent to 3,680 yen. Lending growth at Japanese banks slowed in August for an eighth-straight month, Bank of Japan figures showed today, as companies cut spending and unemployment climbed to a record.
Euro Rises a 2nd Day Versus Dollar on Optimism Recession Easing
Sept. 7 (Bloomberg) -- The euro rose against the dollar for a second day before a report forecast to show European investor confidence rose to the highest level since July 2008, signaling the region’s recession is easing.
The euro also gained for a third day versus the yen on speculation a German report will show factory orders expanded in July for a fifth month. Australia’s dollar rose to the highest level in a year against the greenback after the Group of 20 nations pledged to maintain economic stimulus, driving up Asian and European stocks. Treasury futures were unchanged on the U.S. Labor Day holiday.
“Confidence seems to be building up, and euro-dollar is up a bit,” said Paul Bednarczyk, a currency strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “There’s a little bit more risk appetite around.”
The euro strengthened to $1.4347 as of 9:08 a.m. in London, from $1.4297 in New York on Sept. 4. Europe’s currency rose to 133.76 yen, from 132.98 yen, and climbed to 87.38 British pence, from 87.22 pence. The dollar traded at 93.25 yen, from 93.01 yen. The euro will probably stay between $1.42 and $1.44 for the rest of the week, Bednarczyk said.
Australia’s dollar climbed to 85.47 U.S. cents, from 85.07, after earlier rising to 85.55 U.S. cents, the strongest level since September 2008. Australia’s currency advanced to 79.68 yen, from 79.11 yen.
The yen weakened versus all 16 of its major counterparts as the Nikkei 225 Stock Average climbed 1.3 percent. Europe’s Dow Jones Stoxx 600 Index advanced 1.4 percent.
Labor Day Holiday
Ten-year U.S. bond futures maturing in December 2009 were unchanged at 117-01 as the Treasury prepared to sell $70 billion in three-, 10- and 30-year debt this week, according to data compiled by Bloomberg.
The euro snapped three days of losses versus the pound as a Bloomberg News survey of economists showed an index measuring euro-region sentiment will rise to minus 13.7 this month from minus 17 in August. The Limburg, Germany-based Sentix research institute is set to report the index at 10:30 a.m. local time.
Germany’s Economy Ministry in Berlin will say today factory orders gained 2 percent in July after rising 4.5 percent in June, according to a separate Bloomberg survey of economists.
G-20 officials including U.K. Chancellor of the Exchequer Alistair Darling and German Finance Minister Peer Steinbrueck said in London last week that it was premature to quit emergency measures to fight the global recession, signaling central banks will hold down interest rates.
‘Improved Outlook’
“With an improved outlook for growth and no early unwinding of stimulative policies, this should support investor risk appetite and hence global growth-sensitive currencies such as the Australian dollar,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in a research note today.
U.S. companies cut payrolls by 216,000 workers in August, fewer than economists had forecast and following a 276,000 reduction in July, Labor Department data showed on Sept. 4. The jobless rate rose to 9.7 percent from 9.4 percent.
“There’s a sense the worst of the worldwide recession is over, with the equity market rebounding,” said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Corp. in Tokyo. “From a risk-appetite perspective, the yen is likely to be sold.”
The benchmark interest rate is 0.1 percent in Japan, compared with 3 percent in Australia, making the South Pacific nation’s assets attractive to investors.
Losses in the yen may be limited today due to trading patterns during the Labor Day holiday, said Tohru Sasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co., citing charts prepared by the bank.
“While we are tempted to say that the market is likely to be range-bound because today is a U.S. holiday, the yen actually has a strong tendency to appreciate on the U.S. Labor Day holiday,” Sasaki wrote in an e-mail to Bloomberg News today.
The yen has appreciated eight out of nine times since 2000 on Labor Day, Sasaki said.
Sept. 7 (Bloomberg) -- World leaders gathering in Pittsburgh this month may take the biggest step to curbing the pay and profits of bankers after their economic policy makers narrowed differences over bonuses and capital rules.
Finance ministers and central bankers from the Group of 20 nations left weekend talks in London with a regulatory blueprint for a financial industry whose risk-taking triggered a global recession and required taxpayer-funded bailouts. The pledge to shore up the international financial system spurred European and Asian shares higher today.
isk of being unenforceable, say analysts.
Finance chiefs agreed that elements of a global pay code include forcing banks to “claw back” cash awards if earnings falter; better tying compensation to long-term performance and base pay; deferring payments and disclosing more on what they hand top earners, according to a Sept. 5 statement.
‘Living Wills’
Banks will also have to curb leverage and raise the amount and quality of assets they keep in reserve once growth takes hold. They were also prodded to use profits to raise capital and lending and to outline “living wills” on how to fold international operations in crises.
The ministers left it to the Financial Stability Board, a Basel-based panel of regulators that the G-20 established five months ago, to flesh out the plan. The board will also research whether there needs to be a limit on bonuses as a percentage of a bank’s profits.
Separately, a panel of central bankers and regulators that oversees the Basel Committee on Banking Supervision yesterday agreed on new standards calling for lenders to raise the quality of their capital, introduce a leverage ratio and devise ways to boost reserves when the economy is robust.
Even if the deadline for detailed proposals wasn’t in less than three weeks, officials would struggle to control how bankers pay themselves, said Nicholas Stretch, a London-based partner at law firm CMS Cameron McKenna.
‘No Teeth’
“There’s no teeth here,” Stretch said. “If you push too far in one direction, banks will just move in the other.”
Political leaders expressed doubts that financial-industry interests can be overcome.
“Will the U.S. follow us? Will President Obama have the courage to tackle the ancient order?” French Prime Minister Francois Fillon said yesterday in Seignosse, southwestern France. “We will know in a few days if actions live up to speeches.”
The weekend agreement built on G-20 efforts born in the wake of the crash of the U.S. housing market and the collapse of Lehman Brothers Holdings Ltd. almost exactly a year ago. The ensuing crisis led to $1.6 trillion in bank losses and writedowns.
The G-20 is also seeking to quell public anger after governments rescued banks only to see them soon return to profit and awarding bonuses.
Bonus ‘Greed’
“Greed was one of the reasons for this crisis,” Italian Finance Minister Giulio Tremonti said. Because of the bailouts, “limiting bonuses isn’t only about how much a banker earns, but it’s about the relationship between banks and governments.”
g guaranteed payouts to new hires.
“We need to bring the sense of common purpose and urgency that we demonstrated at the peak of the crisis to the challenges of restoring growth and to reforming the financial system,” said U.S. Treasury Secretary Timothy Geithner, who wants new capital rules in place by the end of 2012.
Push to Contain Bonuses
Finance ministers from France and Germany, who spoke to reporters together after the meeting, claimed credit for what they called a successful push to contain bonuses, overcoming initial resistance from the U.S. and U.K. The Europeans relented on a proposal to limit individuals’ compensation.
“Without Germany and France insisting, we wouldn’t have come this far,” said Germany’s Peer Steinbrueck. Christine Lagarde of France called bonuses “quite outrageous.”
While the ebbing of the crisis may still slo
Basel II
They also narrowed a trans-Atlantic divide on capital rules. The U.S. agreed to implement Basel II capital rules, acknowledging French criticism that Obama’s administration was beginning a new reform drive without enacting existing capital standards.
Setting aside more capital may hurt banks’ earnings. That concern pushed up the cost of protecting their bonds from default by the most in a month in Europe on Sept. 2. Credit- default swaps on the Markit iTraxx Financial index linked to 25 European banks and insurers jumped 5.5 basis points that day to 94 basis points, the biggest one-day increase since Aug. 8, according to JPMorgan Chase & Co. prices.
Expressing caution on the outlook for the world economy, the G-20 officials judged it premature to start unwinding record-low interest rates and more than $2 trillion in fiscal stimulus. At the same time, they agreed the eventual exit from emergency measures should be coordinated across borders to avoid distorting markets.
IMF Raises Forecast
The policy makers were told by the International Monetary Fund that it had raised its forecast for global growth next year to 2.9 percent from July’s 2.5 percent estimate. The Washington- based lender cut its projection for contraction this year to 1.3 percent from 1.4 percent, according to an official from a G-20 government, citing a paper prepared for the meeting.
The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.
Daily Chart Art - September 7, 2009
AUDUSD: 4-hour
FINALLY! The AUDUSD finally broke past key resistance and established a new yearly high! The pair traded as high as 0.8537 late on Friday, before finally closing at 0.8509. How much higher can the pair go? The 4-hour chart shows that the pair is severely overbought so we may see a retracement. Will the former resistance turn to support now? If the pair ducks in below the line, it may find further stronger support around 0.8250. However, if the pair keeps shooting up, it may find it difficult to break through psychological resistance at 0.8600.
GBPUSD: 1-hour
A 60-minute chart of GBP/USD is shown above. The pair looks like it has broken above a complex inverted head and shoulders formation with a neckline pegged at the 1.6400 mark. This neckline may now act as a support. Currently, the stochastics is indicating that conditions are already overbought. Because of this, the pair may hover above the neckline for awhile before it gains some upward momentum again. It can easily reach 1.6500 once it does. On the other hand, it may also find itself down at 1.6300 if the resistance-turned-support fails to hold.
USDCAD: 4-hour
Daily Economic Commentary: United Kingdom September 7, 2009
Over the weekend, the British Chambers of Commerce reported that they expect the UK economy to contract by 4.3% by the end of the this year, and to grow by 1.1% in 2010. The BCC also said that unemployment can reach as high as 9.7% by mid-2010 and that a chance of a relapse is possible. Chief economist David Kern said that the economy has been too reliant on government stimulus and that the UK’s international credit standing could be threatened unless the UK government does something about it. With this in mind, will this prevent the Bank of England from expanding its quantitative easing plans? Take note, the BOE will be releasing its interest rate decision later this week.
We also saw some arguments on the political level as Chancellor Alistair Darling refused to back up Prime Minister Gordon Brown’s claim that his economic stimulus plans have “saved 500,000” jobs. Could more rumblings within the week trigger political turmoil? If it does, we all know what this could lead to – another GBP sell-off!
At 11:01 pm GMT, BRC Retail Sales and RICS Housing Price Balance reports are due. The latter report is expected to show that housing prices are close to stabilizing, with few reporting a decrease in home prices in their area.
This could be a make or break week for the GBP, with some high impact reports on deck. This week, the Halifax HPI m/m, Manufacturing Production m/m and Producer Price Index reports are all scheduled for release.
Daily Economic Commentary: United States September 7, 2009
Payrolls dropped only by 216,000 in August against expectations for a 223,000 lay-offs. The figure may still look huge but it is already a big improvement from the previous month’s 276,000 job losses. Despite the better-than-expected employment change, US’s unemployment rate still surged to 9.7% from 9.4%. While the labor market remains to be weak, the economic growth forecast for this quarter would set the bar for improved worker productivity and, thus, corporate profits.
The market discounted the still weak labor conditions. Risk appetite in the capitals markets surfaced once again. The USD sold off as a result.
Not much will happen today in the US due to a bank holiday.
The US’s unemployment claims for the week ending September 5 and its July trade balance will be released on September 10. The unemployment claims is seen to taper off a little bit to 555,000 from 570,000 while its trade balance is expected to improve marginally to -$26.8 billion from -$27.0 billion.
US’s federal balance and preliminary UoM consumer sentiment are due on September 11. Both accounts are seen to post improvements.
The expected gains in the upcoming economic reports may be bullish for the capitals markets but bearish for the USD.
The Week Ahead
The pair continues to channel between 1.4180 and 1.4400. Until one of these levels is broken the back and forth action is likely to continue.
Support within the range is also at 1.4260, 1.4230, 1.4290-1.4280.
Resistance is at 1.4330, 1.4350, 1.4380-1.4400.
A break below a higher support level indicates movement to the next support level. Movement above a lower resistance level indicates movement to the next resistance level.
Over the course of the week if either the high and low of the range are broken, the profit targets are 1.4600 - 1.4620 for a break above 1.4400 and 1.4000-1.3960 for a break below 1.4180.
Cory Mitchell, CMT
Daily Economic Commentary: United States
The USD saw some mixed trading yesterday, as most majors went for the rally-then-reverse routine. Initial jobless claims for the week recorded 570K in unemployment claims, worse than the forecast at 563K but modestly better than last week's 574K reading. Meanwhile, ISM non-manufacturing PMI recorded an improvement from 46.4 to 48.4.
For today's NFP report, a total of 223K in job losses are expected for the month of August. This would be an improvement over July's 247K increase in unemployment... if the actual figure meets or beats the consensus. Just a few days ago, the ADP non-farm employment change report, which is considered a sneak preview of the NFP report, printed 298K in job losses. Although it was significantly better than July's 360K in job losses, it was worse than the consensus of a 250K increase in unemployment. Whatever the actual NFP figure prints, the market is in for some volatility around the time of release at 12:30 pm GMT.
Also due today is the US unemployment rate and average hourly earnings report. The unemployment rate is expected to climb from 9.4% to 9.5% for August. This indicator just came from a surprise drop from 9.5% to 9.4% in July, causing some to think that the labor market woes are over. However, underlying figures show that the dip was a fluke since it was caused by discouraged workers dropping out of the workforce and not improved hiring. We'll see if the same phenomenon took place in August...
It looks like the USD plans to end the week with a big bang! Watch out for fireworks and stay on your toes. Good luck trading!
Gold Rallies More Than $20 An Ounce