Showing posts with label market updates. Show all posts
Showing posts with label market updates. Show all posts

Market Analysis and GBPUSD Analysis

Wednesday, December 31, 2008

We highlight here, on the last day of 2008, several key US economic indicators to highlight the dire plight of the US economy as a predicator for what is to come in the first quarter of 2009. In a year that saw record highs and record lows in equities, interest rates and currency valuations, it is important, we feel, to bring you the closing numbers of one of the largest and most significant economies in the world. The figures below represent the state of the US economy at the end of the 2008 cycle.

Existing home sales fell by 3.1% mom in October, and they might have declined again – albeit only slightly, due to the massive increase in foreclosures – from 4.98m to 4.95m in November. Pending home sales, which tend to lead existing home sales by 1 to 2 months, decreased in the previous two months, thus indicating that existing home sales’ downward trend has continued.


New home sales fell from 0.457m to 0.433m in October, the lowest level since February 1991. Another decline is forecasted again for November, to 0.415m, not least due to tight credit conditions.

The Conference Board’s consumer confidence rebounded from 38.8 to 44.9 in November, supported by significant declines in gasoline prices and the victory of Barack Obama in the Presidential Election. However, the recovery is likely to have been only temporary, as the situation on the labor market is deteriorating rapidly, adding to the worries about wealth losses and tighter credit standards. It is expected that consumer confidence would have declined to about 42.0 in December.


In contrast, the University of Michigan’s (UMI) preliminary consumer sentiment rose by 3.8 points in December. But only the assessment of present conditions improved, whereas expectations deteriorated further. We expect mounting job losses to have had a stronger impact on consumers than the continued decline in gasoline prices, and thus UMI’s final consumer sentiment for December may only reach 57.0, reducing the improvement to 1.7 points.


Personal income is expected to have all but stagnated in November, as aggregate weekly hours declined slightly and average hourly earnings only increased moderately.

Personal spending will have fallen significantly by about 1.4% as the deflator will be similarly negative, due to the plunge in gasoline prices in particular. Furthermore, consumer confidence is at very low levels and retail sales plummeted by 1.8% mom. Real personal consumption is likely to fall by an annualized 3.5% in Q4, roughly equaling the drop in Q3.

EUR/USD

We've covered this one extensively in recent days. The Euro has rallied for good reasons: it has refused to join the competitive devaluation impulse launched so aggressively by the Fed and the Bank of England and it is one of the most liquid currencies outside the USD in a world that is very concerned about illiquidity. Its economic weakness has also been less vicious so far on the whole as well, even if there are very troubled spots. But the single currency's weaknesses may become much clearer in the New Year, including very likely bickering among the EuroZone members and the difficulty of coordinating policy among so many nations when the stresses of weak economies could make national agendas compete with the EU framework. We're also concerned about the state of play in European credit markets, when so much debt must be rolled over in 2009 and the banks in Europe as well, particularly their exposure to Eastern Europe. The EUR is overpriced in the bigger picture - look at shorting EUR vs. SEK and NOK as a potential value play in the New Year or shorting the EUR on a trade-weighted basis.

http://em-sender4.com/fb/fb/userFiles/555/eurusd2.bmp

GBP/USD


Even more ugly data out of the US yesterday (see above) with a larger than expected drop in home prices (not really surprising as this is oldish data from October, when the deleveraging panic was full upon us. Yesterday we discussed the idea that the December freefall in yields at the long end will likely aid a slowing of house price depreciation for the lower end of the housing market.) Consumer Confidence in December also posted a massive drop to a record low. This is a bit surprising considering the fact that the survey came after the US election, and after a huge additional drop in gasoline prices. Also, the other major surveys suggested a bit of stabilization. Still, this data is by no means a shock and speaks of the real economic pain being felt in the US economy. The mounting rate of job losses means that many are worried about their future as they see colleagues and relatives losing their jobs even if they haven't lost their own yet. The viral effect of employment insecurity is going to result in a massive continued contraction in consumption in 2009.


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Finexo Market Review

Thursday, October 30, 2008

JPY crosses recovered sharply as Asian equities fought back from new lows and on intervention risk.

Are short term highs in the USD and JPY behind us? Trichet signals rate ease next week from ECB. US Fed likely to cut 50 bps tomorrow.

MAJOR HEADLINES – PREVIOUS SESSION

• US Sep. New Home Sales rose to 464K vs. 450K expected and 452K in Aug.
• Japan Sep. Retail Trade fell -0.4% YoY vs. 0.0% expected
• Australia Q3 NAB Business Confidence fell to -7 vs. -8 in Q2
• Germany Nov. GfK Consumer Confidence rose to 1.9 vs. 1.5 expected and 1.8 in Oct.

Finexo Market Comment:

The weakness in emerging markets is feeding into pronounced weakness and confidence in the export-driven Germany economy and has been a factor in the weak EUR of late. This and declining inflation threats finally had Trichet out yesterday signaling that the ECB will lower rates next week - with a 50 bp cut likely both then and possibly also in December. German 2-year rates have plummeted from over 4.50% in July to about 2.60% yesterday and appear to be on their way to the 2.00% lows from the post tech-bubble lows. But not only are German exports threatened by the emerging market crisis. European banks are also very much on the hook, having been the chief lenders to emerging markets in recent years - and that's another way we can connect EUR weakness with EM weakness. For the EUR to consolidate, we will also need to begin to see more stabilization/liquidity in the EM currencies and markets. There are a few signs of this out there, but nothing definitive thus far.

JPY crosses have seen a huge rally overnight from very depressed levels. Initially, the market seemed to thumb its nose at the idea of BoJ intervention, even after the imminent threat of such intervention was made explicit with the unplanned G-7 statement yesterday which was essentially a public green-light for Japan to intervene at will. At these levels and considering the desperate liquidity conditions in the market, the market ought to take the threat more seriously - the BoJ has enormous firepower and this isn't 2003. The rally overnight is a sign that the market is taking this threat more seriously. As well, a new naked short-selling rule was moved forward to today in Japan and has given the Nikkei some short term support (originally, the move was scheduled for Nov. 4) As JPY crosses go, so likely also will go the USD crosses, meaning that this powerful new force in the markets may finally serve to halt the seemingly unstoppable declines we have seen. If nothing else, the move will now be far more fraught with choppy two-way action even if the decline continues, as Japan is likely drawing a line in the sand here.

The countervailing force in this market to any potential moves by the BoJ and other Central Banks' intervention efforts is the strong risk of both month-end and year-end-related forced liquidation by mutual funds and hedge funds as they contend with an avalanche of redemptions. The question is to what degree speculation has entered the picture and tried to take advantage of the desperation out there. The end of the month trade is upon us this week and may be a key test for where we stand on this front. If forced liquidations of assets continue to take the upper hand then the seemingly endless vortex of declines may continue.

In any case and especially after last Friday's action, we must underline that risk has never been higher in the markets and one must tread more carefully than ever in these markets.

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Finexo Forex Headlines

Wednesday, October 15, 2008

Rally in risk hits a rough patch as uncertainty continues. But credit spreads are easing and must ease more for a continued renewal of risk appetite.

US September Retail Sales on tap - the credit crisis began hitting with full force in mid-September - any USD implications?

LATEST HEADLINES

US ABC Weekly Consumer Confidence out at -48 vs. -44 expected and -43 the previous week

  • Australia Aug. Westpac Leading Index fell -0.1%.

  • Japan Aug. Adjusted Current Account Total out at ¥903.2B vs. ¥1156B expected.

  • Japan Sep. Tokyo Condominium Sales fell -53.3% YoY vs. -38.8% in Aug.

  • Risk appetite clearly got ahead of itself yesterday after historic 2-day equity rally (as much as 25% in S&P500 from Friday bottom to Tuesday top!).

  • Most markets in Asia fell on the day, though the Nikkei managed to eke out a 1% gain

  • It is important for the various credit spreads to come in further for a renewed rally in risk. The US 3-month Libor vs. T-bill spread dropped 11-12 bps, but still above a week ago. 2 yr. dollar swap spreads fell sharply yesterday as bond market reopened in the US.

  • Theme shift: we will now have a renewed focus on the main street economy if worst part of financial crisis now behind us: US Retail Sales for September up today the first key indicator. Could be worse than expected Norges Bank looking to cut 50 bps today - as Scandies remain very weak.

  • USD reaction to markets continues to be: the more risk appetite, the weaker and vice versa - same as JPY and CHF.

  • Intel's revenue and earnings were solid yesterday - a positive sign in an otherwise ugly earnings landscape.

  • In Canada, elections were held yesterday and it appears that the Conservative Harper will remain in power - though still with a minority government. No apparent FX implications so far.


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Themes To Watch – Upcoming Session Recommended by Finexo.com

Wednesday, October 8, 2008

Key Risk Events (All times in GMT)

  • Sweden Aug. Industrial Production and Orders (0730)
  • UK Sep. BRC Shop Price Index (0930)
  • Germany Aug. Industrial Production (1000)
  • US Fed's Plosser to Speak (1145)
  • Canada Sep. Housing Starts (1215)
  • US Aug. Pending Home Sales (1400)
  • US Weekly Crude Oil and Product Inventories (1435)
  • Japan Aug. Machine Orders (2350)
  • Australia Sep. Unemployment Rate (0030)


Finexo Market Analysis

  • UK getting ready to put tax payers' money into banks (aka nationalization), according to Chancellor of the Exchequer, Alistair Darling.

  • US Fed/Treasury considering to get into the unsecured lending market (i.e.commercial paper). This has never happened in the history of the Fed and the legal basis and ramifications are unclear.

  • The RBA cut interest rates to 6.00% (i.e. -100 bps.). The expectation was 6.50%. ASX200 saw some support after the move (only stock index, which ended higher yesterday). AUD plummeting.

  • Iceland's Prime Minister says that it cannot be ruled out that they will go bankrupt.

  • Commodities are plummeting. Several of them were limit down in Shanghai trading. Only exception is precious metals, which are still holding the ground.

  • DOW dropped to (and closed) below 10,000 for the first time since 2004.

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Finexo Latest Headlines

Tuesday, October 7, 2008

LATEST HEADLINES

• New Zealand Q3 NZIER Business Opinion Survey rose to -19 from -64
• Australia's RBA cut rates 100 bps vs. a 50 bp cut expected
• Australia Sep. AiG Performance of Construction Index fell to 31.8 vs. 43.1 in Aug.
• Bank of Japan left target rate unchanged at 0.50% as expected

MARKET COMMENTS

Surely yesterday was some kind of short-term capitulation across markets: we certainly hope so, as AUDJPY was down as much as 13%+ on the day before the big bounce overnight. The RBA cut a surprise 100 bps - which really shouldn't be surprising considering the market action of late and shows more foresight than what we are seeing from the BoE and the ECB. The AUD selling was so overdone that the 100 bp cut may actually be seen as a good sign that the RBA is at least willing to do something to shore up the economy relative to other central banks (notably of the European variety), interest rate differentials aside.

Despite shifting into outright panic mode yesterday that lasted well into the North American session, signs of hope materialized into the close in the US and continued a bit overnight, with very robust bounces in equity indices (S&P500 is up some 6% from its lows of yesterday as this is being written) A chunky bounce, to the say the least, also arrived in JPY crosses - which would of course look more impressive were it not for yesterday's cliff-diving act.


The credit crunch grinds on, but the next step by the Fed is beginning to crystallize: the need to extend credit directly to institutions that desperately need to roll over their debt and can't get funding from banks, where all lending has essentially stopped. This is a lead story almost across the board and must be followed closely - as this step will be needed to prevent a total meltdown and immediate real economy effects (the longer term economic effects of all this have already been set into motion) In other words, the Fed's drastic liquidity measures are not spilling over to non-banking institutions and now they are very likely to address this problem with an unprecedented move into unsecured lending. Watch Bernanke's appearance today for a follow-up on this story. Such a move could prop up the corporate commercial paper market and the state and local government debt markets and finally start to rein in some of the credit spreads that are signalling totally frozen credit of late. If these measures are able to bring credit spreads down in the coming days, we may have room for a further relief rally in risk appetite (with usual implications for JPY and CHF) . The situation for the EUR is less clear, as the policy response has been, and may continue to be, far more difficult due to the unworkable ECB/fractured national framework.

The UK Chancellor Darling is also hatching a plan to invest government funds in banks in exchange for shares in those banks, in a program modelled after a Swedish bank rescue executed in the early 1990's.

There's also talk of a coordinated global rate cut arriving as soon as this weekend's G-7 meeting after the RBA cut 100 bps overnight. Certainly, this is a sentiment booster if it happens, and is particularly necessary in the UK and in the EuroZone. But credit markets remain the key....

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Britain economy facing crisis

Monday, August 18, 2008

Concerns about the economy of the UK weakened sentiment, thus hurting the sterling which dropped to a 21-month low on Monday. According to a recent survey, businessmen and factory owners do not expect the growth of their businesses in the near future due to the poor state of the economy. More than a third of business owners believe that they will have no choice but to cut jobs and bonuses.

Despite July's manufacturers' costs falling more than expected, the numbers were still higher than last year's, providing some support to the pound. This also sparkled expectations of an interest rate cut from the Bank of England, meant to boost economy growth. I think now that the economy is in such a bad shape, any encouraging news matters and will surely make some difference.

Actually what i believe is that the expectations of a cut in interest rates usually damage the currency by lowering its yield advantage, yet in the case of the UK economy in which growth has slowed so significantly, these prospects easing the UK's borrowing costs, could actually become an advantage.

Until the present, the BoE has been stuck between a rock and a hard place, with growing inflation on the one hand, and the limited ability to cut interest rates in the face of no growth, on the other. The Financial Services Authority of Britain has issued a statement that the industry should prepare itself for a possible crisis; similar to the one Britain went through during the 1990s recession.

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Dollar Loses its 7-Month High and high volatility seen.

Saturday, August 9, 2008

According to the news update I read today at FINEXO the dollar lost ground against the yen, thus retreating from its 7-month high achieved due to the fall of oil prices to a 3-month low. Many of the traders preferred to sell on the profits of the previous day, in which the oil's drop beneath $120 a barrel supported stock gains and investors are willing to take more risks after yesterday's new found support in the dollar.


When investors are willing to take more risks, this usually means the renewed investment in low yielding currencies like the yen in order to profit from higher interest rates somewhere else, also known as carry trading. Despite this short-lived profit-taking, analysts believe that the dollar will continue its rise.
My growing concern is about the Japanese economy, which might increase dollar buying. The yen is under pressure due to a series of data suggesting that Japan's postwar economic growth might be coming to an end. This supports views that the Bank of Japan would probably leave interest rates unchanged at 0.5% in the near future.
Market players are closely monitoring the yen to see if it can break above the 109.95 yen resistance, the highest in almost 6 years. The dollar eventually stabilized at 109.40 after a drop of 0.4 percent. The previous day's 7-month peak was of 109.89.

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NZD/USD – Kiwi at a 10-Month Low due to an Apparent Recession and Rates' Drop

Friday, August 1, 2008

The New Zealand dollar reached its 10-month low on Thursday, due to growing concerns about an extended period of recession and a rapid fall of interest rates. I think this is due to the combination between the pessimistic comments made by Alan Bollard, the Governor of the Reserve Bank of Australia, as well as further negative data will contribute to the kiwi's weakness.

Next week's employment data and labor costs are expected to drag the New Zealand currency even lower. The monthly business outlook released by the National Bank of New Zealand reflects the companies' pessimism regarding the conditions of their trade for the fifth month in a row this July. This is the lowest consecutive negative reading in 20 years. According to senior economists, this is not only negative data, but it reflects the recessive state of the country.

New Zealand's Central Bank is expected to further cut interest rates in a meeting on September 11, by a quarter point to 7.75%, this is after they were already cut for the first time in five years last week. Analysts believe that if next week's wage and jobs figures point to a further easing the labor market, the market may start factoring in the risk of a 50 basis point cut.

As I have previously mentioned, The New Zealand currency dropped to $0.7316 its lowest reading since September on Wednesday due to a statement made by Alan Bollard about the various interest cuts ahead, due to the weakening of the economy and inflation pressures. It strengthened on Thursday and was set at $0.7356, yet analysts say that a further weakening of the economy may prove that this change is only short-lived.

The Kiwi stabilized at $0.7329 in comparison to Wednesday's $0.7345.

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USD/JPY The main reasons and prediction for US Dollar volatilities according to the news updates by FINEXO.……

Friday, July 25, 2008

The main reason for US Dollar volatilities in the next week according to the news updates by FINEXO are.……

1. The continued drop in oil prices added up to $20 from the all-time peak of $147 hit on July 11. Furthermore, President George W. Bush threatened to veto a bill meant to salvage the housing market. These factors contributed to the reinforcement of the dollar.

2. The dollar received further support from the president of the Philadelphia Federal Reserve Charles Plosser who stated that the Fed might have no choice but to raise interest rates to counteract inflation. According to senior traders, this reflects that market sentiment is now inclined to dollar buying.

3. The fact that the dollar managed to hold its position after breaking the 200 day moving average against the yen was considered a great supportive factor by analysts who stated that if the dollar manages to break the 108.59 barrier of mid June, it could reach up to 110.00 yen.

4. Furthermore, U.S. Treasury Secretary Hank Paulson emphasized the importance of a strong dollar. These statements provoked speculation among traders, and reinforced the dollar. Yet analysts explain that these statements represent the minority's opinion, as the rest Fed members give a higher priority to ending the credit crisis first.

5. According to analysts, the dollar broke through some key levels and has upside momentum; however Japanese exporter selling could emerge at these levels and further weaken the dollar.

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