02 April 2013: “Tax havens” fight for Cypriot clients

 

The dollar was losing momentum yesterday and early Tuesday as the Institute for Supply Management, ISM, announced that its index for national factory activity fell 6% in February. New orders, a key indicator for future growth, accounted for much of the fall. US stocks fell after being closed since Thursday due to the Easter holidays. The weak ISM manufacturing data together worries in the euro zone after the Cyprus bailout and some growth concerns in China, point towards a softening of economic activity and a weaker sentiment prior to the 2013 first-quarter earnings session.

EURO/USD fell 20 points to 1.2863 and also lost ground towards the Japanese yen, JPY, trading at 92,96 yen to the dollar. Copper prices fell to the lowest level in months on Chinese growth concern.
Oil prices are strong. Brent crude trades at USD 110,80 a barrel. Gold is up to 1602.

The ink was barely dry on the bailout of the Cypriot banking system last week when the legal challenges began rushing in. The first challenge was launched by the powerful Church of Cyprus which has big business interests on the island, which questioned the legality of shareholders in Bank of Cyprus having their equity stakes taken as part of the bailout mechanism. The complaint was filed on the basis that expropriation of property is contrary to the Constitution of Cyprus. The Church successfully petitioned the government. More legal challenges are to come.

A blame game hunt to find the “guilty men” responsible for the banking disaster has also intensified. Both the Minister of Finance and the Governor of the Central Bank have been caught in the fire line. The crisis is most likely to have potentially more worrying consequences for Cyprus’ relation to the EU. Politicians and officials being instrumental in securing that Cyprus became a member in the EU and EURO, have voiced grave concern and stressed that if they would not have recommended membership if they had seen what has now been coming.

Cypriots start to be critical for the speculative way their banks were run, but the anger and fury are mainly directed against Germany and EU which “wanted to punish Cyprus”. There is also growing irritation over EU singling out Cyprus as the only “offshore financial center” culprit. Germany stressed that the financial sector in Cyprus was seven times its GDP without asking questions to other EURO and EU members as Malta and Luxembourg where the baking sector is 8 and 22 times bigger than the GDP.

There is also growing irritation as to the aggressive way other offshore destinations inside and outside Europe now is trying to steal especially Russian clients away. Instead of demonstrating solidarity with a striving Cyprus and their banking sector these same countries are now trying to lure potential clients to their “tax havens”.

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11 March 2013: US-Dollar keeps the upper hand

 

The USD keeps the upper hand in the currencies markets and continue to gain both against a currency basket and major currencies as Euro, GBP and JPY. USD/JPY traded at 96,10 – a 3-and-a-half year high following surprisingly strong USD labor data on Friday. US employers added a more-than-expected 236 000 workers to their payrolls in February. The jobless rate fell to a four year low of 7,7%.

There is still a way to go before the unemployment numbers reach the 6,5% target set by the Federal Reserve (FED) and monetary easing is reconsidered. Before this target is obtained the US economy must produce more than 200 000 monthly jobs for the next three consecutive months. The strong February data has, however, created a momentum and new optimism that the US economy finally is turning and lying the financial crisis from the autumn 2008 behind.

Risk appetite was, however, curbed by a mixed bag of economic data from China painting a patchy recovery in the world’s second-largest economy. The data signaled a looming dilemma for policymakers, as inflation stood at a 10 month high in February. Factory output and consumer spending were weaker than forecast. The data caught commodity prices between growing optimism of increased consumption and a stronger dollar. Non-dollar holders are buying dollar-denominated commodities.

In Asia the MSCI-index for Asia-Pacific was up 0,1% while Shanghai fell 0,3%. The Dow Jones industrial average posted its fourth consecutive record high on Friday. European shares also jumped on the strong US labor data. The strength of the dollar is also a reflection of more fundamental money flows out of the yen and euro. These developments nudge the dollar higher. Currency speculators are boosting their bets in favor of USD and raised their short positions in most other currencies as yen, pound sterling GBP and Euro. Oil and precious metal prices keep steady. 

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07 March 2013: GBP and Euro face strong pressure

 

A solid job report showing that US private employers added a larger-than-expected 198 000 jobs in February, gave the dollar a strong boost yesterday, trading at its highest level against a basket of currencies in 6-1/2 months. Both the Euro and Pound sterling (GBP)are under strong downward pressure. Euro/USD dipped below 1.30 and trades at 1.2990 prior to meeting in the ECB, European Central Bank, later today.  GBPUSD traded below the critical 1.50 level on rumours on monetary easing.

 While the job data fuelled hopes that the US economy is improving, the British pound fell to its lowest level in 2-1/2-year as market players positioned for more stimulus from the Bank of England (BOE). The strict austerity measures introduced by the British government over the last two years have  not been working,  and the UK economy is facing the threat of triple-dip recession. While BOE and other central banks are considering the same monetary easing policies as the US FED  has practised, US is debating whether to exit their bond buying program.

 After the dollar index, DXY, hit, a bottom level of 78,918, in the beginning of February  it has rallied 4 % since. The stronger employment data along with better housing figures are likely to fuel speculation that FED  will end its bond buying program sooner than expected in spite of FED Chairman, Ben Bernanke’s strong statement to the contrary only weeks ago.

 Of the three major Western central banks;  ECB, BOE and FED,  BOE is the most likely to act in favour of more easing. Three of BOE’s members voted in favour of quantitative easing last month.  It is expected that a majority this week will opt for a moderate 25-billion-pound balance sheet expansion.  That would put sterling under further strong pressure.  ECB meets in Frankfurt today on the backdrop of a political deadlock in Italy and prospects for a further fall in the Euro. It is, however,  expected that ECB will keep its policies unchanged. 

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06 March 2013: Increased risk appetite on Dow’s record-high

 

Asian shares extended gains on Wednesday following Wall Street’s record close. The Industrial average index, Dow Jones, ended at an all-time high as the pan-European Euro first 300 index closed at its highest level in 4-and-a-half year. The MSCI-index for Asia-Pacific added 0,9% while the Japanese Nikkei surged 1,3%. Copper, crude oil and commodity related currencies are all up. The USD DXY-index eased 0,2% against a basket of currencies.

The markets were spurred by fast February growth in the huge US services sector and bolstered by China’s announcement of record government spending in 2013. These factors boosted investors’ sentiment and hopes of economic growth and increased demand for gods. EURO, British sterling, GBP, and JPY which have been the big losers over the last weeks, have consolidated and gained some ground. Euro/USD trades at 1.3065. USD/JPY is at 93.22.

The strong rally in the stock markets is partially a product of the monetary easing policies conducted by the US Federal Reserve since last summer and followed intentionally and in practice by several other Western central banks. There have been a lot a spare capital on the side lines waiting to strike. Over the last weeks and months we have witnessed a recirculation of capital into the more risk prone equity market. The new records are a result of this recirculation. Major investors are gambling on a turnaround in the global economy and pushed their free cash into stocks in spite of the problems in the Eurozone and an overheated Chinese property market.

Oil prices are also up this morning. Venezuela’s President Hugo Chavez lost his two years long fight with cancer and passed away this morning 58 years old. Venezuela is one of the biggest oil producing countries in the world, and Chavez has led a policy where a substantial part of the country’s oil riches have been transferred to the poor and have-nots. Chavez has also been a guarantor for domestic political stability and encouraged other Latin American countries to follow his suit. It remains to be seen whether the power vacuum created by his death is filled in such a way that political unrest and renewed pressure on oil prices are avoided. 

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05 March 2013: Wall Street higher in closing rally

 

In a late-day rally Wall Street pushed major stock indexes near all-time highs despite concerns about growth and China’s housing market. Any slowdown in China could affect US growth. Commodities and US-materials have a big exposure towards China. This goes especially for giants as Caterpillar and Alcoa which lost respectively 1,8% and 1,1% and were the big losers in yesterday’s trade.

Asian shares followed suit and rebounded strongly on Tuesday after a sharp sell-off triggered by slumping Chinese stocks the previous session. The MSCI-index for Asia-Pacific shares won back 1.1% of the 1.3% lost on Monday. In a prepared statement for the opening of China’s annual parliament meetings, outgoing Premier Wen Jiabao, stressed that China would boost fiscal spending in 2013 in a bid to deliver on the promised 7,5% economic growth for 2013.

This boosted the Australian stock market which rose 1,5% outperforming its Asian peers. Japan’s Nikkei stock average rose 0,8% to 53 month high. At least for now markets continue to be bullish in spite of spending cuts in the US, lack of any kind of political resolution in Italy and weaker data from China including an overheated property market. Markets are flush with capital due to monetary easing and continuous low interest rates. For the time being this seems to trump every other concern.

There are no big movements in the currencies. Euro/USD is steady on 1.3015. EU Finance Ministers met yesterday to discuss bail-out terms for Cyprus (see separate article). USD/JPY is at the same 93,50 levels as seen at the start of the week. British pound, GBP, has avoided to slump below 1.50 and trades above 1.51. Oil prices have recovered from yesterday’s low. New York crude, NYMEX, is above USD 90 a barrel. Brent crude trades at 110,25. Gold and silver are marginally higher than at the start of the week. Gold at USD 1580 an ounce. 

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04 March 2013: Asia tumbles on China worry

 

Asian  shares slipped on  Monday as China tightened its grip on the property sector. Beijing increased Friday  required down payments and loan rates for buyers for second homes in cities where prices have been quickly  increasing  in an effort to contain housing costs. This had immediately a negative effect on the Chinese markets and led to a tumble in Asia. The MSCI-index for ASIA-Pacific shares are 1,3 % down after Shanghai shares slipped 2,3 %.

 Slower growth in  Chinese increasingly important services sector had also an impact. The growth in this sector was slower than in five months, reinforcing the view that the Chinese recovery remains modest. The slower Chinese growth had an immediate effect on Australia where the AXJO index fell 1.2 %. Japan was the only positive spot.  The Nikkei 225rose 0,6 % as the sole gainer in the region. Export companies were boosted by a weaker yen and surprisingly strong US manufacturing and consumer sentiment.

 The new Governor of Bank of Japan (BOJ) stated that BOJ is ready to take whatever measures necessary to get Japan out of the vicious deflation circle. USD/JPY trades at 93,33. In spite of its budget problems USD is trading on a six months high against a basket of currencies. Currency speculators have over the last week increased their bets in favour of the US dollar.

 Evidence of Europe’s problem with Spain at risk needing a state bailout is weighing in on the Euro.  Data presented on Friday showed that Germany and Ireland are the only Euro zone members with factory output growth last month. Joblessness within the Euro zone rose to an all-time high. The Euro steadied at 1.3015 after slipping to a low of 1.2966 on Friday, the lowest level seen in 3 months.

 Concerns about the negative impact from the USA spending cuts also weighed in on US crude which is down to USD 90.59 a barrel. Brent is trading at 110,50. Gold and silver prices are hurt by the strong dollar.

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28 February 2013: Bernanke and data lift Wall Street

Stocks rose on Wednesday with major indexes posting their best daily gains since early January, as Federal Reserve Chairman, Ben Bernanke, gave robust support for continued stimulus policy and data pointed to modest economic improvement. In his second day before a Congressional committee, Bernanke defended FED’s buying of bonds to keep interest rates low to boost growth. Bernanke’s comments helped market rebound from its worst decline since November. Dow Jones Industrial closed at a level not seen since 2007.

A relatively smooth auction of Italian government bonds further helped temper concerns about the country’s political deadlock. The Euro held its ground against both dollar and Japanese yen on Thursday. The common currency edged up 0,1% to USD 1.3147 after steep losses following the Italian elections. The Euro hit an eight-week low on 1.3018 on Tuesday. Solid sales of Italian government bonds yesterday helped soothe the jitters that the political deadlock could destabilize Europe’s second biggest sovereign debt market.

Strong US business spending data also boosted investors’ sentiment easing worries about looming US fiscal spending cuts and prompting the yen to resume its decent after a brief spell of sharp gains earlier in the week. In Washington positions between President Barack Obama and congressional leaders over the budget crisis hardened yesterday as last ditch talks to prevent harsh automatic spending cuts beginning March 1st, failed to make substantial progress.

British sterling (GBP) is still weak trading at 1.5169 against the dollar. The Australian dollar is stronger and oil has regained some ground. Brent crude is trading above USD 112 a barrel. Also gold is somewhat stronger trading close to the critical USD 1600 level an ounce.

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27 February 2013: Berlusconi “derailed” world stock markets

 

Yesterday we again could not see a uniform dynamics on the world stock markets. The European indexes fell off on news on outcome of the Italian elections, having lost on the average 2,5%. At the same time the American indexes could show ascending dynamics, having added about 0,7%.

There were a few reasons for activity of buyers in the American market. First, speech of the head of the Federal Reserve System (FRS) Ben Bernanke. The banker sounded the position concerning influence of a new round of the program of quantitative easing (QE3) on economy of the USA. Bernanke focused attention of investors on advantages of QE3, among which economic recovery against control of inflation at the level of 2%. According to the head of FRS, benefit from soft monetary policy outweigh the related risks so turning of stimulating measures is not necessary at the current stage.

Besides that, another source of a positive was data coming from the market of real estate of the USA. So, sales of new houses in the country unexpectedly grew by 15,6% in annual expression. Let’s note that last year became the most successful in the housing market in the USA after 2009. In 2012 growth of sales of new buildings became maximum since 1983, having made 19,9%. It is necessary to note, that we can expect that real estate market will continue to develop this year as well, but definitely much slower.

Meanwhile, in Europe the main subject for discussion there are parliamentary elections in Italy. They caused a lot of noise and confusions in the financial markets. Profitability of the Italian bonds in the secondary market flew up to 4,8% that became a maximum level since the beginning of December, 2012. Besides, political risks in Italy led to euro exchange rate falling to a minimum level since the beginning of year. This morning, we can see EUR/USD pair traded on a level of 1.3076.

Risks of strengthening of debt crisis dragged off down world prices for oil. Brent is bargaining on a level 112.66$ and WTI on 92.78$ per barrel.

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26 February 2013: Italian elections became a reason for correction in the markets

 

Yesterday the world markets showed different dynamics. So, the European indexes finished Monday’s trading session moving upwards. Meanwhile, the American indexes began week with essential decrease. As a result of sales the Dow Jones and S&P 500 indexes could not keep the key levels – 14000 and 1500 points accordingly. Following the results of Monday the Dow Jones index lost 1,55%, the S&P 500 index lost 1,83%.

Markets were correcting due to the news coming from Italy. It became known that following the results of processing about 90% of bulletins two parties received identical result. The victory was won by Pierre Bersani’s left-centrist coalition and Silvio Berlusconi’s right-centrist coalition. Let’s remind that Bersani already declared commitment to the economic reforms which are carried out by the old government led by Mario Monty. Berlusconi’s victory is extremely undesirable for the Eurozone.

One of the most expected events for today is speech which will be given by the head of FRS B. Bernanke to bank committee. The head of FRS in his speech, most likely, will give an assessment to carried-out stimulating programs of FRS, namely repayment of assets as after announcement of protocols from the last meeting of FRS fears about early turning of programs increased.

USD/JPY pair yesterday has been decreasing from a level of 94.7 to a level 91, losing 4%, but at the current time is back to a level of 92.2. Most likely such movement was caused by strong weakening of euro and, respectively, a capital overflow in traditionally protective currencies – dollar and yen. EUR/USD is traded on a level 1.3062.

On Monday we have seen rather volatile session in the oil market where the positive news on oil import coming from China (+7% in January), have boosted price back to $115.8, but at closing price went again back and this morning Brent is losing 0.63% and traded on a level of $113.719. 

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25 February 2013: Moody’s reduced a rating of Great Britain with AAA to AA1

 

The trading session on Friday has passed more positively at the stock exchanges of the USA and Europe comparing to the days before. Investors returned to purchases, without having paid attention to statements of European Commission which reduced the forecast on growth of world gross domestic product in 2013 from 3,3% to 3,2%. Thus figures across Spain (-1,4% at a budget deficit on 6,7% from GDP), Italy (-1% at 2,1%), Portugal (-1.9% at 4,9%) really depress. However, this news didn’t confuse investors, and the European indexes FTSE (+0,7%), DAX (+1,03%), CAC (+2,25%), MIB (+1,4%) carried out all day in “a green zone” and finished the session of a steady growth.

The American indicators: Dow Jones +0,86%, S&P +0,88% and NASDAQ +0,97% also finished week with a rebound, without looking neither at inconsistent information from Europe, nor on rising to the USA “the fiscal cliff” to which there is only a week.

Statistics from China added a negative sentiment in the markets this morning, where the PMI index from HSBC, in February sharply decreased from the maximum reached in last month for 2 years, but remained above important level of 50 points. Thus Asian indexes began new week in “a green zone”, and NIKKEI arranged the next rally for 2% on news about planned appointment to the post of the head of Bank of Japan H. Kuroda, the known supporter of active stimulation of economy.

The situation in world economy still does not show a lot of optimism. The news coming from Moody’s published in the night from Friday to Saturday became a clear proof of it. The agency reduced a rating of Great Britain with AAA to AA1. The reason of this decision of Moody’s called weakness of the British economy which, according to agency, will keep sluggish growth rates at least till 2016.

Oil, however, moderately becomes cheaper today under pressure of a negative. Brent drifts next to a level 114.24, adding 0.12% and WTI is stable on 93.209. EUR/USD pair is traded on a 1.3216 this morning.

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