26 JUNE 2013: US DATA LIFTS STOCKS

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Strong manufacturing and housing data lifted the US equity markets after several losing sessions following the meeting in the Federal Reserve (FED) and Chairman Ben Bernanke’s statement last Wednesday. Global markets have since been in turmoil on the prospect of a tapering in the USD 85 billion monthly bond buying program, which have fed stocks with liquidity and created what many see as an artificial rally. Uncertainty as to whether monetary easing will continue, has in two weeks wiped out most of these gains.

The economic data presented yesterday gave strong arguments to those arguing that the US economy is back on the right track and the 6.5% unemployment target set by FED, is within reach. Realizing the heavy waves last week’s statement has created, FED representatives were, on Wednesday, eagerly playing down the likelihood for a quick end to monetary easing, stressing the many uncertainties and FED’s conditions for a termination.

These efforts were, to a certain degree, undermined by better than seven years housing figures. Greater demands for capital goods such as cars and aircrafts point in the same direction. The positive numbers had Dow Jones turn sharply up after four dismal losing sessions. Dow ended 0.65 % up at 14 754, still far from the benchmark 15 000. Nasdaq also gained ground and added 0.5 %. The European markets ended in positive territory after big losses since last week.

The Dollar is the big winner of the FED statement. It gained new ground after the housing data was published, but fell somewhat back. EUR/USD which started on a good note on 1.3235 dipped at a point below the resistance level on 1.3172 which represents the last 200 days moving average. A fall below that level will indicate that the EURO is in bullish territory. EURO fell as deep as 1.3162, but has since recovered well above 1301,72 to 1.3091.

The USD/JPY followed a similar trading pattern and stands 97.90. Australian Dollar rebounded strongly while the Chinese Central Bank’s tighter credit conditions towards private lenders conducting a freewheeling policy, sent new shivers through the Chinese stock markets. The losses were, at one point, 5.5 %, but turned back to a relatively modest 0,2 %. While the US economy seems to improve fundamentally, there are big question marks around the world’s second biggest economy . Oil and commodity prices have risen on the back of the new positive data in US.

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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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22 April 2013: Gold rebounds; USD/JPY 99,84

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Last week was dominated by an extraordinary fall of USD 250 fall in gold prices and heavy losses in other commodities. Gold demonstrated, however, strong resilience and staged a rebound. Gold is hundred dollar up from the bottom of USD 1322 an ounce last week. Copper is still weak. While Brent crude again trades above USD 100 a barrel. Strong retail buying in Indian and China strengthened gold which was seen as a buying opportunity. Gold reached the USD 1400 mark on Friday and trades at 1422 in Asia. Many investors have kept their strong faith in gold on expectations of high inflation and governments being unable to deal with it, and continues to buy gold.

The G-20 meeting in Washington ended on Friday without any conclusive results. Since 2010 the group has turned from being a cohesive group of the world’s most important economies into a body that spends hours of negotiating the punctuation in a communique. Japan was the focus for attention. In spite of the fact that the Japanese yen, JPY, has depreciated 20% in relation to most currencies since November last year, G-20 accepted Japan’s explanation that its monetary policy is aimed at price stabilization and economic recovery. Its strong monetary easing does not intend to manipulate its exchange rate.

As expected JPY as a result of the meeting, continued to slide in Asia this morning. USD/JPY reached 99,84 and is again licking the symbolic 100 level which most likely is going to be broken during the day encouraged by the Group of 20 endorsing of Japan’s reflationary policies. Following the meeting, players feel comfortable selling the yen further. Asian shares inched higher, but investors remained wary of volatility given the uncertainty of global growth prospects. Global stock markets might be on the verge of a selloff.

The International Monetary Fund, IMF’s forecasts for the G-20 meeting were out of date no sooner than it was presented. Weaker US labor market figures and Chinese economic growth in the first quarter, make it necessary to downgrade growth forecasts for the world economy. The G-20 meeting also given another stark warning that economic forecasts is not any precise science. The Harvard economists Kenneth Rogoff and Carmen Reinhart’s have since 2010 postulated that when debt reaches 90% of Gross Domestic Product, GDP, growth automatically fell. This postulate has been the basis for government’s austerity measures especially in the Euro zone.

An Excel error put serious question marks with the evidence the economist have built their postulate on. For the first time in years it thereby is possible to put questions with postulates presented as science. The austerity measures in Europe are as most other economic theories are based on political attitudes. When such postulates end up in mass unemployment and social misery it might be right time to take a break and ask whether the austerity measures resulting in mass unemployment and social misery are the right prescribed medicine. 

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16 April 2013: Gold prices collapse

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Gold collapsed completely yesterday as precious metals plunged to the lowest levels seen in years. Gold trades at USD 1351 an ounce falling 250 dollar in two days. Silver fell from USD 28,25 ending yesterday at 22,50. Oil and other commodity prices sharply declined. Brent crude fell below the critical USD 100 a barrel level at USD 98,42. Stock market plunged as investors dumped risky assets and worries over slowing growth in China and US took hold. After a short spell of relief, Japanese yen, JPY, continued to slide against USD, before rebounding to 97,67 yen to a dollar.

The dramatic development in financial markets follows a worldwide rally in stocks in the first months of 2013 where daily new records on Wall Street have outpaced fundamentals. The monetary easing in the US, Europe and lastly Japan have injected huge capital into stocks without succeeding to create new employment. Risk markets have been rallying at a pace not in line with a tepid global growth recovery. Investor’s sell off of precious metals, commodities and shares might be seen as a last ditch effort to take some profit while markets evert to levels more in line with fundamentals.

Investors are reassessing their portfolio allocations for the second quarter of 2013 on that basis. In this perspective it seems likely that funds would be pulled out of the US stock market also taking European uncertainties into account. US debt might then back as a secure long term investment and reduce demands for an alternative safe-haven as gold. There are therefore valid question marks as to whether the deep plunge in gold will continue and that we are still far from a bottom.

USD/JPY recovered during Monday. The dollar fell to 95,67 yen. The Euro hit a low of 125 yen. Both USD and Euro have rebounded. Euro is trading at 126,75 yen. In a market dominated by steep falls and quick rebounds, EURO/USD has traded steady in an interval between 1.3050 and 1.31. In early Asian trading, the Asian-Pacific index, MSCI, has stabilized after a 2% drop in European and US markets yesterday. A bomb explosion killing two and injuring 130 people at the finish line of the Boston marathon added to the downward pressure on the New York exchanges. 

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15 April 2013: Chinese GDP unexpectedly slows

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The Chinese economic growth unexpectedly lost momentum in the first quarter of 2013 as gains in factory output and consumption weakened; driving stocks and commodities lower on concern of a slowdown in global expansion. Gross domestic product, GDP, rose 7,7% from a year earlier. The GDP numbers did not meet analyst forecasts of 8,0% growth. March industrial production gained less than estimated. Retail-sales growth are, however, in line with forecasts.

The weaker than estimated forecasts put oil prices under new pressure. Brent crude fell to USD 101 a barrel as gold tumbled to a 21-month low. The steep decline in gold and silver prices started last Thursday and gained momentum during Friday night and early Asian trading. Gold hast lost USD 150 an ounce in less than one week and trades at 1441. The gold prices decline follows a bearish note from Goldman Sachs which foresees continued falls in the precious metals and strongly recommend sales.

The depreciation of the Japanese yen, JPY, has halted as US authorities warned Japan against devaluation. USD/JPY licked on 100 mark several days during last week. It is now trading at 97,67. Euro/USD keeps steady at 1.3074. USD/GBP (British pound sterling) stays at 1.5321. Inside the Euro zone it might be quiet before new storm forecasts. European finance ministers adopted last Thursday a 10 Billion Euro bail-out for Cyprus.

The Cypriot government has simultaneously lifted the forecasts of its own contribution to the banking bail-in from Euro 5,8 to the double amount. This will put private account deposits in the Cypriot banks under new hair-cut pressure. The increase in bail-in demand comes on top of rumors that Cyprus is selling major part of its gold reserves. That has added to the downward pressure on gold prices. The Governor of the Cyprus Central Bank, CBB, has voiced concern that the independence of the CBB is under government pressure.

The weaker growth in China adds to concerns that the global recovery is struggling. Monetary easing by injecting money into economic system has led to new records on the stock exchanges, but no new working places are added. There are fears that new record high stock markets barely represent a new bubble. The International Monetary Fund, IMF, is said to consider to lower its forecast for US growth. The guru investor, George Soros, warns that Germany shall be in recession by end of September. Soros is also forecasting a breakup of the Euro either by a unilateral German exit or by member states exiting following the Cyprus crisis.

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12 April 2013: Wall Street posts new record highs

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Asian shares retreated marginally Friday morning after recent gains. The Asia-Pacific, MSCI-index fell 0,3% due especially to the tense situation in the Korean peninsula. Investor’s confidence was underpinned by new record highs on Wall Street. Shares rose for the fourth day. A drop last week in the number of Americans seeking unemployment benefits, gave markets a new boost. A 14% plunge in personal computer sales in first quarter, the sharpest drop in two years, could not spoil the good sentiment. USD/JPY continues to flirt with the 100 yen mark.

The Nikkei index helped by Bank of Japan’s (BOJ) efforts to fight deflation dropped 0,8% on profit taking. The Nikkei is up 10% over the last week and trades at its highest level since July 2008. The dollar has gained 6% towards the yen the last week and hit a 99,95 yen to dollar on Thursday, a level not seen in four years. Euro/Yen climbed to 131,10 and reached the highest level seen since 2010. Aussie dollar also soared towards the yen. USD/JPY fell back to 99,50 unable to break through the 100 mark.

In Europe the EU- Commission’s bleak forecast on the economic development inside the Euro zone did not affect the strength of the Euro. Euro/USD is steady around 1,31 – 1.3150. Slovenia with its struggling banking sector, was singled out as a candidate to be next in line for a bail-out after Cyprus. But the banking sectors Italy, Spain and also France remain in the danger zone. The guru investor, George Sorros, stated earlier in the week that he saw Eurobonds as the solution to Europe’s troubled economies and saw a possible German Euro exit as a viable alternative.

President Barack Obama’s latest proposal to solve the US budget crisis by trimming Social Security and other safety-net benefits have is off to a cold response. Republicans, Democrats and even the White House have distanced themselves from the proposal. The reactions illustrate the difficulty of reaching a bargain to reduce spending and tame the deficit. The Republicans said that the President’s offer did not go far enough to cut spending.

In Cyprus the Central Bank has been selling part of its gold reserves to raise around 400 million Euro to help finance part of its bailout, the European Commission announced on Wednesday. Cyprus has totally a reserve of 13,9 tons. 10,35 tons are set to be sold. The transaction had a negative impact on gold prices which following the Cypriot sales fell USD 20 dollar an ounce on Wednesday. The Cyprus Central Bank is selling gold at a time when other central banks are building up their gold reserves as security against monetary easing and big volatility in the currency markets. 

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10 April 2013: Dow closing at record high

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US-Stocks advanced on Tuesday with Dow Jones closing at a record high following a rally in cyclical shares and as the earnings season started to heat up. Asian stocks edged higher in Wednesday morning trade. Chinese trade data signaled a recovery in the world’s second largest economy as imports grew 14,1% year on year, much higher than expectations. The yen remained under pressure. USD/JPY stayed on 99; not able to break through the psychological 100 yen a dollar barrier.

The return to record levels indicates that investors again are using market declines as buying opportunities. The two winning groups, technology and energy, are closely tied to the pace of the economic growth. Microsoft jumped 3,6% as the top gainer on Dow Jones which advanced 0,41% to a record high on 14 673. Stocks were given a boost from the earnings session. ¾ of the 5% of the companies hitherto reporting results, have delivered higher than expectations.

In advance of the reports of earnings for the second quarter expectations have deliberately been plaid down. Alcoa, the aluminium producer, which traditionally is first out with its quarterly report, filed its adjusted results late on Monday, setting the tone for the earnings season. Alcoa’s results were slightly better than expectations. The Alcoa stock ended flat. First Solar Inc was the shining star with a surge of 45,5%. Solar’s results lifted the whole solar sector.

The dollar which has jumped 7% against yen since the Bank of Japan (BOJ) last Thursday stated that it will pump USD 1,4 trillion into the Japanese economy, was not able to break through the 100 level. This might easily happen during the week. Australian dollar continues to demonstrate strength after the surge in Chinese import. Euro/USD is steady in the interval between 1.3050 and 1.31.

Oil prices have recovered after the steep fall last week. NYMEX, New York crude, trades at 93,91 and Brent crude is at USD 106,40; up two dollars from the lows yesterday. Precious metals are up with gold trading at USD 1585 an ounce. 

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09 April 2013: Aggressive bond buying sinks JPY

ImageUSD/ JPY dropped for the third straight day as the Bank of Japan (BOJ) yesterday started  its aggressive monetary easing program. Following the strategy of the US Federal Reserve (FED), BOJ is buying Japanese bonds for trillion in an effort to stimulate economic growth.  The Japanese government intends to get out of the vicious inflation  circle and  has set a target for 2 % inflation. The bond buying has boosted the Japanese stock market. US stocks also gained yesterday ahead of second quarter earnings session which is expected to show moderate growth.

 USD rallied to its highest level towards JPY seen since 2009, trading at 99,50 yen as BOJ concluded its first bond purchases since announcing the new monetary easing last week. Wall Street slipped in early trading as caution ahead of the quarterly season dominated the sentiment. Stocks turned around and ended in positive territory.  US stocks have rallied strongly over the last months with major indexes hitting record highs. Earnings forecast are predicting a 1,6 % rise in earnings over the last year.

 The Nikkei index in Tokyo jumped 3.1 % and saw its highest level since 2008 as BOJ shall pump  an equivalent to USD 1,4 trillion into bonds over the next two years. These measures  have created a bonanza in the stock and real estate markets. Traders are waiting for a break through of the psychological  100 yen level a dollar.  US 10 years treasury bills fell sharply last week in response to the aggressive Japanese measures.

 Oil prices hitting a 8 month low on Friday, have recovered.  Brent crude is trading at USD 105,55 a barrel, up one dollar from the beginning of the week. Euro/USD has made a strong come back from its low level on 1.2760 last week in the aftermath of the turbulence in Cyprus and the press conference of the European Central Bank (ECB).  Euro/USD is  trading at 1.3050.  British pound, GBP, and other major currencies have also gained ground against dollar. Precious metals led by gold,  USD 1575 an ounce, is also trading higher.

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05 April 2013: Draghi: Cyprus not a template

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Cyprus is not a template for other possible banking crisis inside the Euro zone, the president of the European Central Bank, ECB, Mario Draghi stated after the ECB board meeting yesterday. Draghi thereby criticized his own decision where Cyprus banks with the blessing of the ECB, was given the right to confiscate funds on private banking accounts below the guaranteed Euro 100 000. Draghi admitted that the proposal was not very “smart”, and stressed that potential future crises would be handled differently without risk for private account holders and companies. This initial wrong decision was quickly corrected, Draghi added.

It took, however, more than a week before the ECB sponsored proposal was rejected by the Cypriot parliament and a new bailout plan was presented. In the meantime it created confusion and havoc in the global financial markets. The new proposal exempted accounts with a balance below Euro 100 000 and from confiscation and left to foreign account holders, mainly Russians and Ukrainians, to bear the bulk of the bailout burden.

The Euro fall as low as 1.2745 on Draghi’s remarks. Euro/USD later recovered strongly to 1.2933. The way ECB and the EU have handled the Cyprus crisis, has, however, put grave question marks as to Draghi and EU-politicians ability to handle the euro zone problems. The crisis ridden Southern European periphery is dragging further into recession, and the only solution the troika of EU, ECB and the International Monetary Fund, IMF, has been able to come up with is a further vicious circle of reduced economic growth, increased taxes and growing unemployment.

Draghi had suggested yesterday that ECB could slash the interest rate, already at a record low level, even further. In a situation where the currency rates are highly volatile and often jump more than one percent a day, a reduction of the interest rate with 0,25% is not the most convincing argument to get the euro zone back on track. Along with low interest rates quantitative easing has been central banks preferred tool. ECB has heavily been buying national bonds in Italy and Spain to avoid spiraling bond rates.

Bank of Japan which also met yesterday, announced aggressive measures to ease monetary policy. USD/JPY plummeted from 93 to 95,67. BOJ will in the next two years double its holding of bonds and shares in line with the monetary easing policies of the US Federal Reserve (FED). BOJ has also set an inflation target of 2% to stimulate economic growth. BOJ’s plan implies to buy bonds for an equivalent of USD 73 Billion monthly. Fed is in comparison buying for USD 85 billion a month. Wall Street got a lift from BOJ’s surprisingly dramatic stimulus plan. This came along with supportive comments from ECB and FED, suggesting that central bank policies will keep underpinning measures to the benefit of stocks. 

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04 April 2013: ECB under fire for Cyprus handling

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Asian stocks fell as worse-than-estimated US economic data spurred concern about the pace of the US recovery as investors speculated whether the Bank of Japan (BOJ) would be able to meet forecast for monetary expansion and an inflation target of 2%. The MSCI Asia Pacific index slid 1% with carmakers as Toyota Motor declining on a stronger Yen. USD/JPY trades at 93.00. Copper prices, a strong indicator for economic growth, sank to its lowest level since August. Gold and silver prices plunged with Gold at USD 1546 an ounce. Oil prices fell two dollar a barrel.

The European Central bank (ECB) is meeting today in the aftermath of a botched attempt to rescue Cyprus. Bank shares have been tumbling across the Euro area and rattled confidence in policy maker’s ability to tame the sovereign debt crisis. With unemployment reaching a record high of 12,5%, doubts are growing about Mario Draghi’s forecast for a second-half economic recovery. The austerity measures prescribed from European bankers and politicians have so far dragged Europe into an even deeper recession.

The disconnect between official low lending rates and those businesses are actually charged, is also a growing concern for the ECB. More than four times as many small businesses in Spain were rejected loans in the second half of 2012 than in Germany or walked away from, too, expansive offers. The excess liquidity in the banking sector has halved over the last half year and lenders in the south European periphery might be in need of more central bank funding.

In front of today’s meeting critical questions are asked on the role ECB plaid in the Cyprus bailout. ECB initially welcomed and supported the Cypriot government’s plan to confiscate funds on all banking accounts including those below Euro 100 000. This was rejected by the Cypriot Parliament. A revised agreement was negotiated a week later under the threat of ECB cutting emergency funding to Cypriot banks. Additionally; capital controls were for the first time in the EU history introduced to avoid capital flight. Free movement of capital is one of the four basic freedoms EU cooperation is built upon.

The confiscation of private accounts and introduction of capital control have damaged investor confidence and banks reputation across the Euro zone. Between March 15 and 27 the Stoxx Europe 600 Bank index dropped 6,8%. The cost of insuring against default on European bank bonds have surged 41% in the same period. Partially responsible for a flawed bailout plan being presented to Parliament, ECB exacerbated markets reactions to the bailout and simultaneously harmed the trust in Europe’s crisis fighting abilities.

Analysts stress that even if the error originated in Cyprus, Euro Finance ministers and ECB’s big miscalculation were to support a flawed plan. This resulted in increased financial stress and uncertainties in global markets. The trust in the Euro was undermined. Whether Mario Draghi and the ECB today would be able to present the right damage limiting response, is an open question.

Three Supreme Court judges appointed by President Nicos Anastasiades will today start investigations into a decade of financial profligacy which brought Cyprus to its knees. They have also a mandate to look into the President’s own affairs after accusations of tipoffs that presumably saved close family for big amounts when of 21 million euros were transferred abroad days before the bailout plan was announced. 

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