20 JUNE 2013: FED STRENGTHENS USD WHILE STOCKS PLUNGE

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The US Federal Reserve (FED) will start to taper its monetary easing program in the second half of 2013 ,and terminate the bond buying completely in the first half of 2014. That was Chairman Ben Bernanke’s message after FED’s meeting yesterday. A termination depends, however, on continued growth, controlled inflation and achievement of FED’s 6.5 % unemployment target. The US economy is moderately growing, but FED see increased downturn risks due to budget cuts, which have weakened growth. The low interest rate policies will continue.

Markets reacted by sending stocks down. Dow Jones Industrial fell 1.35 %. Nasdaq lost 1.12 %. The Asian indexes plunged on the news. The bond buying program has been the main driver behind this year’s stock rally. A termination invites uncertainty. The Asian-Pacific MSCI-index fell more than 3 %. The Japanese Nikkei was equally hard hit as were Australia, New Zealand and other Asian markets. The downturn in equity markets is most probably going to continue in Europe today.

FED’s conclusion and Bernanke’s comments don’t come as a big surprise. Over the last few weeks there has been continuous speculation as to when tapering would start. FED seems to be convinced that the US economy is on the right track, but keeps the door open for continued stimulus policies in the worst case scenario. This “exit” from monetary easing shall hardly calm nervous markets which usually overreact to news regarded as negative.

FED’s decision has strengthened the Dollar in relation to all currencies. EUR/USD has fallen from the 1.34 level to 1.326. Yen has also lost ground and trades at 96.28 Yen to a Dollar.GBP/USD, which lately has traded at around 1.57, plunged to 1.5448. The USD/AUD continues to fall, 0.9250, on new data confirming a slower Chinese growth. Oil prices are down. Brent crude trades at USD 104.69 a barrel, down one-and-a-half Dollars. Gold and commodity prices continue to lose ground.

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07 JUNE 2013: DOLLAR PLUNGES IN BROAD SELL-OFF

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The Dollar plunged against the Euro, Japanese Yen, and other currencies as investors reduced bets on the greenback on concerns that today’s US jobs report will disappoint. Euro/USD trades at 1.3262. American stocks fell in tandem with a weaker USD, but rebounded to end in positive territory. Dow Jones added 0.53 % to climb back above the 15.000 level. Nasdaq gained 0.66 % to 3 424. The changes seem to be technically driven by psychological factors.

A poll amongst economists expects 170 000 new jobs could’ve been added to the US economy in May with an unemployment rate of 7.5 %. Fear of a weaker than expected job report prompted, however, investors to unwind bets on a stronger Dollar that had been profitable for months. Gold prices, which have been under strong pressure for months, suddenly rose 1 percent to USD 1412 an ounce as investors sold long positions on the Dollar.

The Euro gained after the European Central Bank, ECB, left interest rates unchanged. ECB President, Mario Draghi, stated that further monetary support was unlikely in the near future. ECB has kept interest rates at a record low of 0,5 % waiting for a turnaround in the Euro zone. Bank of England have also chosen to leave their loose monetary policy unchanged. British Sterling, GBP, has jumped against the Dollar at 1,5612 and gained substantially during the last few days from low 1.51 levels.

Concerns that key US job data will disappoint sent the Japanese Nikkei into bear territory in Asia this morning. The Nikkei plunged 1.9 % to a two month low. Nikkei has lost 20 % from a five-and-half-year high, just two weeks ago. Other Asian stocks failed to capitalize on overnight gains in Wall Street. The Asian Pacific MSCI-index fell 0.6 % to its lowest level since November. The fall in equities seem to indicate a stronger appetite among investors for safe haven bonds. The yield on U.S, German and Japanese bonds have risen recently.

Oil prices are higher on the back of a weaker Dollar. Brent crude trades close to USD 104 a barrel, up from the USD 100 mark earlier in the week.

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04 JUNE 2013: DOLLAR DROPS ON NEW DATA

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The US Dollar suffered a serious setback and dropped to one-month lows against a basket of major currencies on Tuesday after the index on the US- manufacturing fell for the first time in six months. National factory activity sank to the lowest level seen since 2009.

The disappointing data curbed speculation that the Federal Reserve (FED) would scale back its stimulus anytime soon. The dollar index, against a basket of major currencies, DXY, fell one percent as the Japanese Yen strengthened. USD/JPY dipped below 100 for the first time in weeks at 99.70.

Long positions on USD are, therefore, likely to remain under pressure until Friday’s job reports. The unemployment numbers will have to beat the expected forecasts of 165,000 less unemployed significantly, to revive the upside momentum in the USD, analysts say.

The renewed pressure on the dollar saw the Euro/USD above the 1.31 level for the first time since May the 9th. The Euro has fallen back to 1.3063 in the early Asian trading session. USD/JPY fell as low as 98,86 and has lost 4.5 %, 4 % from the high on 103,74 set last month. The dollar’s fall against other currencies, which had lately lost ground against the dollar, was even more dramatic. The Australian dollar rallied more than 2% close to parity with the USD at 99.92.

The US data led to a turnaround in Asian stocks which recovered from their lowest levels in half a year. The Japanese Nikkei has fallen as much as 15% over the last two weeks.The American indexes initially fell on the disappointing manufacturing data, but recovered in a volatile session. Nasdaq turned positive on Intel strength, and Dow Jones gained 0,82 % at 15 239. Oil and gold prices are steady compared to yesterday. Gold is at USD 1411 an ounce and Brent crude trades at USD 101,89 a barrel.

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03 JUNE 2013: ASIA FALLS ON PROFIT-TAKING

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Asian shares fall on profit taking Monday after recent highs. Uncertainty over how much longer the current US stimulus will continue, still dominates the agenda at the start of a new trading week.China’s last PMI figures (Purchasing Manager’s Index) published during the weekend, creates concern in light of softening domestic and external demands. More US-data this week might give a clue as to growth and demand prospects and will hopefully show some direction in regards to how long the monetary easing will last.

The dollar index rose last week on investors bets that improved data on the US economy would encourage the Federal Reserve (FED) to reduce monetary stimulus, which have boosted investments into riskier assets as emerging market currencies. The South African Rand, Mexican Peso and Hungarian Forint were hardest hit against the dollar in a volatile week in the currency market that saw investors reduce their exposure to risk-related assets.

The New Zealand Dollar fell more than any other developed currency after their Reserve Bank Governor stated that the Kiwi dollar still remained overvalued. Further currency interventions were thus needed to weaken the Kiwi.

The Euro/USD gained substantially last Thursday, but fell back due to the unemployment figures published on Friday. The unemployment rate in the Eurozone hit a fresh record high at 12.2 percent in April. Youth unemployment is reaching alarming levels. Euro/USD trades at 1.3013 in the morning. The President of the European Central Bank (ECB), Maro Draghi, said that the Eurozone economy is on track for a recovery driven by ECBs loose monetary policy, and outside demand.

Japanese Yen is up against USD at 00.48 amid a bout of profit-taking by investors last week. GBP is steady at 1.5217. Oil prices are under pressure, but Brent crude is still trading above USD 100 a barrel. Gold prices are slightly up at USD 1395.

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31 MAY 2013: NEW RALLY IN CURRENCY MARKET – EURO PREVAILS OVER DOLLAR

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All conditions were created for a rally of EUR/USD: reports from the Eurozone were better than forecast, and at the same time for the USA – worse than predicted. The result didn’t keep itself waiting for long, the pair could go above the strong resistance level at 1.30, although it reached a maximum on 1.3061 and finished the trading session around 1.3040. It is quite interesting actually, that the data from the USA were not as dire as predicted, and the Eurozone in general was not presenting something really satisfying or exceptional. The conclusion comes by itself – the overbought USD gives power to the Euro.

So, GDP (Gross Domestic Product) of the USA in 1 quarter was reconsidered to fall from 2,5% to 2,4%, and the number of the unemployed who have submitted an application for receiving a grant, grew to 354 thousand. It is absolutely not enough to frighten Bernanke, but it is quite enough to provoke investors to close long positions on USD on tops. This also gave support to the British Pound and GBP/USD from the level of opening at 1.5129 pair reached a maximum of 1.5219, having finished the trading session around 1.52.

After disappointments with the labor market in Germany, today it is worth looking at the data on retails in the country. Usually there is direct correlation: there is no income – there are no expenses, however analysts predict the indicator’s growth, so tension in the market increases. If sales volumes will really increase, it will give additional support for further strengthening of EUR/USD to the next resistance levels on 1.3070 and 1.3110.

In relation to Japan today, it is worth acknowledging the statement of IMF (International Monetary Fund), in which it completely supported the current monetary policy of the country, and stated extensive prospects of its further realization. Furthermore, the problem with growth of profitability of state bonds is considered to be completely controllable. Asian stock markets started the day positively, however, by this time, buyers confidence had already evaporated. Japanese Nikkei slightly restores yesterday’s losses, while the Hong Kong’s Hang Seng again looks worse than its”colleagues”.

Prices for precious metals are stable, with Gold on 1417.08$ and Silver on 22.74$. Prices for oil are slightly down, with Brent on 102.07$ per barrel and WTI on 93.47$. Today the next meeting of representatives of member countries of OPEC becomes a key event of the day in the oil market. Questions on the current quotas of production, and also the increase in production of oil in the USA will be discussed. America now produces record volumes of oil, thereby reducing the dependence from former exporters.
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Gold Rebounds As USD Weakens

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Gold and Silver rebounded strongly yesterday after the onslaught at the end of last week, and in Asia on Monday morning. Both the precious metals fell nearly 5 %. Gold trades at USD 1387 an ounce in Asia, 35 dollars up from the lows 24 hours ago. Silver trades at USD 22,70 rebounding from a low of 21.00 and reached USD 23, at the start of the Asian trading session. The cautious comments from representatives from the US Federal Reserve (FED) regarding the bond-buying stimulus, have weakened the USD.

In a statement on Monday, the President of the Federal Reserve in Chicago followed up last week’s comments from another regional FED president, that the bond-buying program might end abruptly in the autumn if, by then, the FED was sure that the labour market was on solid footing. Earlier, the FED put a 6,5 % unemployment statistic as the critical mark. The last published data showed a 7,6 % unemployment statistic. The aggressive monetary easing policies now also followed by Japan, has given global stock markets a strong boost.
US-stocks ended flat on Monday with indexes hovering near record levels. Concerns about a stop in bond-buying and a correction are influencing markets. Energy stocks and primarily solar companies soared. Dow Jones saw an intraday high at 15 391. S&P reached 1 672. Both indexes are up 17 % since January 1st. Investors are split between nervousness for a strong correction due to the sharpness and length of the rally, and those who are afraid to miss a continued rally.
European shares set a new five-year high for the fourth straight session on Monday, after positive indicators from The United States and Japan pointed to an improving global economic outlook. European blue chip stocks (Financial Times Eurofirst 300 index) was up one percent, which is the highest level seen since mid 2008. The positive US consumer sentiment data from Friday, the highest level seen in almost six years, is seen as especially encouraging. EasyJet and Ryan Air were among the biggest gainers.
The Japanese Yen tumbled yesterday after comments from its Minister of Economy, warning that the currency might have weakened enough. USD/JPY fell to 102 after Friday’s high on 103,22, but has rebounded to 102,22. Oil prices are keeping steady. Brent crude trades at USD 104,83 a barrel. FED Chairman Ben Bernanke’s statement to Congress on Wednesday will be crucial for the further development in currencies and global equity markets.

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09 MAY 2013: STOCKS RALLY AS MAJOR CURRENCIES LOSE DIRECTION

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Global equity markets continue to rally as major currencies have lost a clear direction. Encouraging global data and Wall Street’s extended record rally, took Asian shares to a new two-year peak Thursday morning. Australia presented strong unemployment numbers. While 50 100 new jobs were added in April, the South Korean central bank made a surprise 0,5% interest cut lowering the interest rate to 2,5%. These steps further cemented the positive mood in global markets.

Lower interest rates and central banks increased money printing have created spare liquidity which moves into stocks. The Japanese monetary easing brought the Nikkei index within striking distance of a five-years highs outperforming its global peers. Stocks remain the favored asset class among investors as monetary easing depresses return on bonds. Unclear prospects regarding the world economic growth weigh negatively on commodity prices. Commodities trade without any clear direction with precious metals temporarily falling out of favor with investors.

In contrast to the clear uptrend in global equities major currencies have lost direction. This is the case with Japanese yen, JPY, which depreciated continuously since November last year and depreciated and lost 20 – 25% against most currencies. The last weeks USD/JPY has traded in the interval between 97 – 99 yen a dollar unable to make a major breakthrough and jump above the psychological 100 level.

Investors which made huge profits betting on big cash currency positions earlier this year go into equities which regardless of economic fundamental outlooks are strongly buoyed by monetary easing. As long as central banks keep their accommodative stance the uptrend in stocks would continue. Stocks were also helped by the upbeat US unemployment figures last Friday, Chinese trading data and more promising prospects for the German industry.

In spite of the economic outlook for the Euro zone continues to be dismal, the Euro remains resilient. Euro/USD trades at 1.3160. The economic problems in Europe are indeed serious, but traders have recently burnt their fingers on going short on Euro and stay away. The Euro seems to have discounted eventual bad news, and the balance of payment and real interest rates are no lower than anywhere else. There is no clear conviction among traders as to the timing of Euro weakness. In this financial climate oil prices are keeping up steady. Brent is hovering around USD 104 a barrel. Gold price which fell to USD 1449 on Tuesday, has picked up and trades at 1474.

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08 MAY 2013: ASIAN SHARES RISE ON CHINESE TRADE DATA

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The positive sentiment in global equity markets received a new boost on better than expected Chinese trade data. Asian shares rose to their highest level in two years after China reported a 14,7% export increase in April. Imports were up 16.8% with a trade surplus of USD 18,16 Billion for the month. The Chinese data comes on top of new Wall Street highs with Dow Jones closing above 15 000. In Germany industrial orders showed unexpected strength last week and pulled the Dax index into record territory.

The Australian Reserve Bank became yesterday the last central bank to cut interest rate creating an opening for parity between Australian and US dollars. Share prices are helped by decreased bond returns. The cut in interest rates play into the hands of equities. The Asian Pacific MSCI-index rose 0,8% and reached the highest level since August 2011. Global market sentiments were helped by strong quarterly results by one of the world leading banks, HSBC, and a profit jump for the US Disney. Cut in the labor seems to be the driving force behind HSBC’s result.

The Chinese trading numbers are likely to ease recent concerns about weakness in the recovery in the world second-largest economy. Doubts remain, however, over real demand in China, and the accuracy of their figures. Oil and commodity prices are trading firmer after the Chinese data. A successful bond trade in Portugal supported the upbeat mood and strengthened the Euro. Euro/USD is steady at 1.3080. There is still no breakthrough in USD/JPY which sticks to the 99 yen a dollar level. USD/British sterling, GBP is trading at 1.5479 slightly down from yesterday.

Gold continues to be under pressure. Gold lost one percent during yesterday’s trade. It has recovered to 1455. Gold backed exchange traded funds fell to their weakest level since 2009 indicating that investors money is leaving gold for booming stock markets. This suggests that the super cycle of commodities might be over and that tough times might lie ahead especially for metals. Analysts see that commodity prices in the future probably may be more determined by normal supply and demand balances than by speculative money flows.

Gold traders take an opposite opinion. The present equity boom is driven by low interest rates and central banks money printing. This will create inflationary pressure and challenges for the market system as witnessed by the financial crisis in the autumn of 2008. In such an environment investors will still use gold and precious metals as a hedge. Gold bulls, therefore, stress that a rebound to the USD 1700 level is most likely also in a shorter term perspective.
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30 APRIL 2013: S&P500 INDEX AGAIN APPROACHED ABSOLUTE MAXIMA

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In the first day of the week the index of the wide market S&P500 closely approached recently established historical maxima and now has chance to continue an ascension on new heights. Following the results of the yesterday’s trading session the S&P500 index increased by 0,72%. Quotations stopped at the level of 1593,61 points. To an absolute record there was not enough one point only. As the closest level of resistance which can be reached within an ascending trend, we will allocate a level of 1610.

Bulls also were positive in the light of coming meetings of key central banks – on the 1st of May will be finished the next meeting of FRS, and on May 2 the decision on an interest rate will be made by European Central Bank. From FRS the investment community expects comments on recent deterioration of macroeconomic statistics and, respectively, promises of extension of QE at least until the end of the year; from the European central bank wait fall of an interest rate which ripened owing to lack of any signs of revival of economy of the region. Speculative expectations of cheap money as usual maintain appetite to risk, and Monday didn’t become an exception.

The trading session at Asian stock markets takes place today with mainly positive dynamics, continuing yesterday’s growth over the ocean, but the Japanese market which has come back from days off, looks worse than the colleagues. One of the reasons is dynamics in the currency market where USD/JPY pair continues movement under level 98, after it was once again rolled away from a level of 100 last week.

Also a big block of macro statistics has been issued today in Japan, mainly positive, however this factor is mainly ignored by Japanese investors. In particular unemployment rate decreased in March to 4,1%, expenses of households grew by 5,2% in annual calculation, the production PMI index raised to 51,1, and retails of the largest networks grew by 2,4%. Only an industrial production was worse than expectations and grew for March only by 0,2% at forecasts of growth for 0,4%.

In Australia, meanwhile, continues growth of the banking sector, and yesterday’s leaders of growth – National Australia Bank and Australia and New Zealand Banking Group add today another 2,5% and 4,5% respectively.

Prices of oil and precious metals are weaker this morning. Brent is on a level 103.55$ per barrel – loosing 0.25%. Gold and silver are on a levels 1460.93 and 23.98 respectively.

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29 APRIL 2013: GERMANY’S DAX ADDED 4.8% FOR THE LAST WEEK

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Leading stock indexes of Europe and the USA on Friday generally decreased – the British FTSE-100 decreased for -0,26%, the German DAX lost -0,23%, the French CAC lost -0,79%, the American Dow Jones added just +0,08%, S&P500 decreased for -0,20%, Nasdaq Composite lost -0,33%. Accordingly to the published statistics on Friday, growth rates of gross domestic product of the USA in the first quarter of the current year were accelerated, but were slightly worse than market expectations. At the same time the index of consumer confidence in the USA, counted by Michigan University, decreased, but at a size smaller, than was predicted.

As a whole for the past week the American share indexes added 1,1-1,9%, and European rose by 2,2%-4,8%. The German DAX which has added 4,8%, against improvement by the authorities of Germany of forecasts on growth rates of economy became the favorite of week within the European platforms. Bundesbank (the Central Bank of Germany) in the April’s review predicted growth restoration in economy of Germany in the second quarter against situation improvement on a labor market.
Trading session in Asian stock exchanges started without any uniform dynamics, Chinese and Japanese stock exchanges are closed today in connection with national holidays “Labor Day” and “Showa Day” respectively.

At the same time, Australian ASX where the raw materials companies are the major part of the index, remains to be in a green zone, despite the fact that on Friday evening there was quite sharp depreciation of metals. Mainly support is given by the banking sector. In particular the extracting companies Newcrest Mining and BHP Billiton lose around 0,5% of the capitalization while National Australia Bank and Australia and New Zealand Banking Group banks add 1,3% and 0,8% respectively. Significantly worse than the market looks the Kingsgate Consolidated gold mining company, which is losing -14,5%, because of the statement of intention to decrease expenses in connection with a collapse of prices on precious metals.

Today the statement concerning prospects of development of economy of the Asian-Pacific Region was made by representatives of IMF, having reported about fall in forecast on gross domestic product growth from 5,9% to 5,7%. Also experts noted remaining probability of slowdown of the Chinese economy.

Prices of precious metals continue its positive correction after steep falls we have seen not so long time ago, gold is increasing for 1,07% and is traded on a level of 1469,16. Silver is up for 1,88% on a level of 24,20.

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