I recently exchanged e-mails with a fledgling FX trader who was concerned with regards to what he termed his “lack of focus”. He felt that his mind drifted from subject to subject and he often found himself “aimlessly wandering around the internet” and not focusing on the job in hand. He’d even wondered whether he suffered from some form of attention deficit disorder and considered that trading may have ‘unlocked’ this poor attention span, or was it always there and he’d accidentally aggravated it?

As a forex day trader he concentrated his trading exclusively on two currency pairs, the EUR/USD and USD/CHF. His strategy (method) was fairly straight forward; he traded off a one hour time frame, looked for price to have crossed R1 or S1 with extra confirmation from a momentum and oscillating indicator and he was profitable, he looked for a 1:2 R:R circa 100 pips take profit limits. His psyche seemed healthy and his MM was sound, he risked no more than 1% per trade and would have a max. risk of 2% account market exposure if his EUR/USD/CHF correlation was ‘working’.

It’s a difficult spot to be placed in when asked to be an ‘FX doctor’ given we all have idiosyncratic trading behaviour, but on the face of it I couldn’t understand his anguish unless it was affecting his results. Once you’ve developed a consistently profitable edge would it matter if you caught up with all the weekend’s Premiership goals, talked “a load of FX” on forums, or watched the BBC I-Player whilst waiting for your set up to trigger? Isn’t part of the reason we migrate to becoming self employed forex traders precisely so we can enjoy the freedom and benefits that go with the job? Would I not be fully focusing on the job if I decide to swing trade but can’t monitor my trades whilst I’m at the gym, in a circuit training session, or mountain biking down a Welsh mountain? And surely one of the massive benefits of using alerts as part of any trading/charting package and platform is that the alert can jolt you into action, literary alert you to your trade set up? And if you use Meta Trader, to develop an expert advisor that executes all your trades as part of your pre defined plan, surely you’ve reached a stage of trading Nirvana were you can switch off?

The only reason I could visualise attention being an issue is if you were a scalper, but if trading represents sitting in front of a bank of monitors for eight hours a day, taking circa fifty trades per day, then such an unnatural existence is bound to cause times when your focus and attention drifts. Would air traffic controllers be expected to complete an eight to ten hour shift without a break, how long or how many miles are long distance lorry drivers allowed to drive before they’re legally forced to take a break? After 4.5 hours of driving the driver must take a break period of at least 45 minutes and cannot complete more than eleven cumulative hours driving in a fourteen hour period. We all switch off when motorway driving, we listen to music, talk to passengers, daydream, relax a bit, yet unconsciously make sure we are alert and ready enough to take evasive action should danger arise. We manage our journey as we would a trade, but it is impossible to imagine that we could enjoy an unbroken concentration period of 4.5 hours at a time, it is surely beyond the ability of the human condition.

If you’re not breaking your rules, not violating your trading plan, which you’ve taken a great deal of care to craft, then does an attention span issue actually exist? All things considered my best reply was that he was suffering from two issues which many of us go through, the “is this it?” issue and the ‘guilt trip’.

The “is this all that’s involved in trading?” question and issue is one aspect of trading that we all face at some stage once we’re moving into the conscious competence corner of our personal trader development. Trading is not “hard work”, even the mechanics of taking a massive amount of trades only takes seconds per trade, manual it isn’t, laborious it can be, but physically taxing it never will be. When you have confidence in your trading edge and you’ve developed your set of rules to follow, in order to ensure that your trade management and profit/loss taking is in correct order to maximise gains and minimise risks, what more do you have to do? Your set up occurs, you pull the trigger, you manage the trade, what could be simpler and how much concentration does it really take?

If we’re aiming to reach a state of mind were we unconsciously and competently take our trades then surely we’ve earned the right to switch off, surely trading has become such a part of our being that it’s become an action that requires very little in the way of concentration or exertion? There’s no compulsion to feel guilt at finding such a profession and developing competency, this is a thinking and doing business, the exertion extends to maintaining a healthy trading psyche by way of an all round disciplined approach to all aspects of your profession.

If you weren’t intellectually curious as an individual how could you possibly progress as a trader? That curiosity must extend to taking in as much alternative views and information as possible but there’s only so much forex news we can all absorb without feeling weighed down by the massive volume. As someone who reads and absorbs massive amounts of economic news on a daily basis I regularly take breaks. I constantly research the FT, Reuters, Bloomberg, Dow Jones etc., the online editions of the UK newspapers’ business sections and various forums and monitor my charts and set ups. This absorption in economic news fundamentally underpins my ability to deliver comment and part of my job description is to make clients aware of what’s happening in the market. However, it would be impossible to concentrate on news releases 24-7 and if I did the comment delivered would be cold, robotic, stale and lack insight. Similarly any trader too absorbed in the mechanics of trading could miss the bigger picture in the FX landscape as it evolves.

We’ve all micro managed and over managed trades to then witness them rebound on us, we’ve all stared at, for example, our EUR/USD chart attempting to stare up or stare down price, often being too intense, too focused which can hinder your performance. Perhaps it’s worth individual traders taking on board these suggestions to maintain focus on our industry whilst waiting for set ups.

Take Breaks
Step away from the monitor/s for 2 or 3 minutes every hour, this can improve your precision of thought and indirectly your trading. Stretch, take a few deep breaths. Time your breaks around news releases, or market opening times, if you’re trading off one hour charts why not take a break after each candle has formed, perhaps ten minutes into the new candle formation.

Become A Member Of A Currency Trading Forum
Self employed FX trading is an isolated occupation. Relatives and friends have little understanding of the industry you are in. As a member of an online forex forum you can be part of a community, this can feel similar to having the physical company of work colleagues. You may make valuable contacts, you may be grateful for the support of other members when you struggle with trading. You can pick up alternative trading strategies and stay up to date on developments in the world of currency trading through membership in a forum.

Read Fx News Updates
At the end of each day and at the start of your trading day be certain to inspect a forex calendar and news broadcasts for news or reports that are likely to affect sentiment throughout the course of the day.

Get A Life, Keep Your Previous Life
If forex trading takes over every facet of your life you are doing something wrong, burnout will inevitably ensue. Keep to scheduled times with your family, friends, trips, time for sports or activities. The time that you then engage with the market and in front of your computer screen will be more productive.

Exercise
Exercise maintains the mind. Regarding exercise as part of your overall trading plan can prove to be a very effective counter measure versus the stresses we face. Many traders will testify to the light bulb moments they’ve had when on a cross trainer in the gym, or swimming lengths, or out in the fresh air on a road or mountain bike. Ironically you’re far more likely to find your trading solution when away from your trading environment as opposed to sat in front of your monitors.

Forex traders must be goal oriented, you have to set targets, this is a performance business. There are three parameters that can be extremely useful when setting goals.

Targets must be realistic. – If you set unrealistic targets it will undermine your confidence, you’re setting yourself up to fail.
Your targets must be attainable – Not only must your goal be realistic, it must also be achievable. Set short term goals. Start with small targets that are fairly easy to achieve and continue to grow your horizons as you gain confidence and your trader skills improve.
Your targets must have measurability – A target that cannot be measured isn’t a target. If your rather simplistic goal is to be wealthy, how can you measure your progress? You need to set a specific value amount in order to know how close you are to achieving your target. This helps measure changes to your strategies. If you measure your moves in euro amounts, you can tell what worked and what didn’t. When beginning a trading career no target should be considered too small, targets should be realistic, achievable and measurable. Your goals can grow as your trader evolution takes shape. Successful Forex traders set specific, measurable goals and move towards them with confidence.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/being-mentally-fit-and-focused-when-trading-fx/

How Heikin Ashi, the Averaged Candlesticks, Can Help You to Avoid Noise in the Forex Markets

There are many Japanese candlestick purists who will dismiss Heikin-Ashi candles as being; too simplistic, misleading and in some cases amateurish. The most common complaint is that HA lags in a direct comparison with Japanese candles and that lag causes late entry when looking for price action. The counter argument would be that similar to all other indicators HA should be used in conjunction with other charting methods and used correctly (within the parameters of its intended use) to ensure traders are getting the best out of the indicator.

It’s worth dwelling on that main criticism for a moment, the supposed lagging issue. Whilst undoubtedly there’s some merit in that highlighted ‘fault’ HA often encourages the trader to stay with the trend to the end, and whilst the lagging price action criticism is valid, once entered the trade by using HA the trend is more often than not likely to be present and not false. Other phenomena are less likely using HA, for example, whipsaws given that HA is one of the finest tools available for filtering out market noise. HA is one of the clearest mechanisms for showing trends and reversal available. Similar to the Ichimoku charts, the Heikin Ashi was a relatively unknown trading tool and price indicator that has recently enjoyed a rise in popularity, despite being accessible since its introduction some two decades previous. That increased awareness and popularity may be due to the prevalence of the HA option on many charting packages.

Unlike regular Japanese candles, Heiken-ashi doesn’t define the: open, high, low and close on each candle. Instead values are calculated for each candlestick based on the dominant forces in the market using averages. For example, if sellers are clearly dominating, Heiken-ashi candlesticks will be bearish, even if the price bar closes higher than it opened. These Heiken-ashi candles are arguably the perfect tool for traders who like following trends to their full extent. Heikin-ashi’s look of simplicity makes trends easier to recognise and as a consequence in many instances far easier to make decisions from.

Experienced retail traders accept that the majority of their profits are generated when markets are trending, predicting trends correctly is therefore crucial. Many traders use candlestick charts to help them locate such trends amid erratic market volatility, the ability of HA to filter out noise is one of its huge advantages over and above other price indicators. The Heikin-Ashi technique, meaning “average bar” in Japanese, undoubtedly helps improve the isolation of trends.

There are several simple formations with HA that provide signals, help to identify trends and therefore trading opportunities:

Hollow candles with no lower shadows indicate a strong uptrend. Hollow candles signify an uptrend
One candle with a small body, surrounded by upper and lower shadows, is a strong indication of a possible trend change
Filled candles indicate a downtrend
Filled candles with no higher shadows identify a strong downtrend

These easy to spot examples of easily identifiable candle formations and signals illustrate that identifying trends and trading opportunities can be far simpler with HA. The trends are not frequently interrupted by false signals and as a consequence are easier to identify. Using these simple single candle formations for the three main market events we look for in order to thrive as traders is very straightforward; bullish, bearish and reversal conditions are covered here.

Forex Trading Articles - Heikin Ashi Candlesticks

Spotting Bullish Candles
When the market is bullish, Heikin-Ashi candles have larger bodies and long upper shadows but no lower shadow, examples will demonstrate this. Almost all of the candles have big bodies, long upper shadows and no lower shadow.

Spotting Bearish Candles
When the market is Bearish, Heikin-Ashi candles have big bodies and long lower shadows but no upper shadow, examples will demonstrate this. Almost all of the candles have big bodies, long lower shadows and no upper shadow.

Reversal Candles
Reversal candles in the Heikin-Ashi charts look like Doji candlesticks. They have no or very small bodies, but long upper and lower shadows.

Heikin-Ashi is suitable for trading all currency pairs, many traders find volatile pairs such as GBPJPY and EURJPY far easier to trade using HA. It can prove to be an extremely reliable indicator for intraday trading and scalping across the lower time frames such as: 15min, 5min and 1min. However, it’s main benefits can be best derived from looking to trade trends across the higher time frames such as daily and 2-4 hours. Heikin-Ashi is also a superb trading tool for fledgling traders. Heikin-Ashi can enhance traders’ patience encouraging the take up of good and profitable trade setups given its ability to eliminate market noise.

In addition to showing the relative strength of a trend HA identifies key turning points in price action and reacts in a similar way to a moving average. Incorporating the session activity into a single candlestick (open, close, high and low), HA smooths over erratic fluctuations in the currency markets and eliminates the spikes that may be sparked by volatility or a sudden jump in price, confirmed and committed chartists can often obtain a clearer picture of market activity and can therefore make more informed trading decisions.

Heikin Ashi is smoother because instead of using a simple low and high of the session to calculate individual candles, the Heikin Ashi takes the prices per bar and averages them to create a “smoother” session. This is fundamental to its successful use as the currency markets in particular tend to provide more volatility and market noise than in other markets. By using a pre-defined formula in each individual trading session to construct the consecutive candles, the HA chart is far more reflective of the underlying price action;

Heikin Ashi Formula

Close = (Open+High+Low+Close)/4
Open = [Open (previous bar) + Close (previous bar)]/2
High = Max (High,Open,Close)
Low = Min (Low,Open, Close)

With this formula HA is isolating price whilst excluding currency market volatility and noise. The resulting pattern not only gives the trader a more visually appealing perspective but one that can help in identifying the overall trend. With a smoother picture, arguably a more simplified one, traders can improve trading the overall trend by combining the Heikin Ashi with other indicators. As with any other chart application, it’s advisable to discover other indicators that potentially compliment your individual trading style when adding on the HA application. This will help traders to establish the market’s directional bias, help identify clearer entries, support and resistance and offer further confirmation of the trade’s potential to be profitable.

Whilst some traders move from Japanese candle sticks to HA many experienced traders would suggest perfecting a HA technique first. As has been illustrated in this article armed with the ability to consistently identify only four formations and three key market events should give the HA trader enough feedback to make informed and therefore profitable decisions. The HA technique can be adopted fairly quickly in direct comparison to the learning process involved with Japanese candle sticks.


Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/how-heikin-ashi-the-averaged-candlesticks-can-help-you-to-avoid-noise-in-the-forex-markets/

Why Trading Against the Trend is like Picking Up Pennies in Front of a Steam-Roller

Once you’ve traded for some time you’ll have a library of trading anecdotes, some are personal, some are second hand or third party. Whilst supporting my youngest Son playing football at a tournament this summer I got into conversation with another Dad. It’s not ignorance on my part but I rarely ask other parents (or people I meet) what they do, if they want to divulge it or directly ask me the question then fine, but it’s not a question I ask or information I volunteer. To be honest a lot of folk ask the question to establish where you fit in with their culture, their perceptions and pre-conceptions. If asked I simply state that I’m a foreign exchange currency trader and market analyst, that generally does the trick; blank stare, potential conversation killed and to be honest I’m cool with that.

However, this parent probed a little more with the standard; “oh, I’m going to Spain in a few weeks, any idea what the euro’s gonna do?” I stifled the mental yawn, (lost count of the times I’ve had this question posed to me) and my reply, whilst smiling through gritted teeth, was short and to the point; “no idea to be honest”. He looked puzzled so I thought I’d add a bit more meat on the bone; “look, here’s the thing, sterling versus euro is currently in a down trend, the trend has lasted approx. a week, could be entering a period of consolidation were it eventually turns in sterling’s favour but honestly your guess is as good as mine, I follow trends, I don’t make (or trade) predictions, not mine or anyone else’s”..That’s where the exchange stopped, he still appeared puzzled, perhaps he thought I’d be a market wizard, ready to impart some secret prediction on where the euro was headed, but no, I’ll always be the sorcerer’s apprentice, and that sorcerer, the market, always has plenty of tricks and spells up its sleeve…

Recognising a trend, trading with a trend, trading against the trend, staying out of a range, trading both ranging and trending markets..these decisions come down to one crucial issue; do you want to fight the market or work with it? Whilst there are many successful ‘mean reversionists’ out there in our FX trading community the overall ‘job’ we do can be exacting enough. Why anyone would choose to compound that degree of difficulty, as opposed to choosing the path of least resistance, will always remain a mystery as it’s an anathema to many traders, particularly swing and position traders. However, surely day traders and or scalpers could greatly enhance their results if they trade only with the trend as opposed to against it and the market? Just take the trades in line with the trend and pass on those against, always look for higher time frames to determine direction.

How to identify a trend should be a straight forward exercise, if you prefer to trade forex off, for example, a 1hr time frame then using exactly the same method you trade off 1hr you use to determine whether (or not) the trend is established or beginning to become established on: the 2 hr, the 4 hr and perhaps the daily time frame. If so (and if you trade with that trend) then the probability of your individual trade being successful and more importantly profitable is greatly enhanced.

Many experienced and successful traders, (the two adjectives always go hand in hand) refer to four rules that should be part of every traders trading strategy and written into the bullet proof evolving trading plan each trader should work from.

Trade with the trend
Cut losses short
Let profits run
Manage risk

Trading with the trend relates to the decision of how to initiate trades. You should always trade in the direction of recent price movement. You should hardwire that rule into your ‘trading being’ as even if you are a day trader, perhaps trading off 15 minute time frames looking for circa 20 pip gains, statistically you are far more likely to have winners with the trend as opposed to trading against it. Mathematical analysis of market price data in the past proved that price changes are primarily random with a small trend component. This scientific fact is extremely important to those who intend to pursue trading and forex trading in a rational, scientific manner. Any attempt to trade short-term patterns and methods, not based on trend, are arguably statistically far more likely to fail. Successful traders use a method that gives them a statistical edge. This edge must come from the tendency of price to trend. In the long term you can only make money by trading in synch with these market trends; when prices are trending up, you should only buy, when prices are trending down, you should only sell.

This important principle to trading success is well-known, so why do so many traders constantly violate it? As ‘consumers’ we appear to be wired to search for bargains, we therefore obsess and try to buy at the very bottom, or sell at the very top before new trends become established. Winning traders have learned to wait until a trend is confirmed before taking a position consistent with that trend. The key principle is to to ignore attempting to predict markets and simply trade the trend. When you trade in the direction of a trend you are following the markets and market price rather than predicting price and the vast majority of unsuccessful traders spend their trading careers looking for better ways to “predict the market”. If you develop the discipline to measure and identify trends, using intermediate to long-term time frames, whilst always trading in the direction of the trend, you’ll be on the right path to profitable trading.

The alternative to trend following is predicting. This is a trap that nearly all traders fall into particularly when they first discover trading as a potential profession. They look at the markets and conclude that the best way to be successful is to learn how to predict where markets will go in the future. Anticipating trends is an impossible task, and trends are where the bulk of profits are to be harvested. You can only define the concept of trend in relation to a particular time frame, your preferred time frame, a key part of any trading plan is deciding which time frame to use for making decisions. It’s easier from a psychologically viewpoint to keep the time frame short as trading with the trend can be difficult to develop as a skill, the larger losses if you’re wrong can be very off putting for fledgling traders. But undoubtedly the best results come from longer-term trading.

The received wisdom is that markets trend twenty percent of the time and range in consolidation eighty percent of the time. The skill is defining where the trend starts and where it stops. When your market trends you get in at the right time, ride that trend, then exit at the correct point. Therefore your profits should offset the losses you take during ranging periods. As traders we have to accept that we don’t know when the market’s going to trend and when it’s going to range. In fact, it’s foolish to predict anything it does. Don’t trade predictions, react to the market. To increase your chances of success, the time frame to measure trends should be at least daily. You should only enter trades in the direction of the price trend clearly visualised and displayed on a daily chart, how long that trend should be established on your daily chart before you enter obviously varies and that’s down to the individual trader. Working ‘backwards’ can you clearly see the trend on your one-two hour time frame and the four hour time frame? Then the chances are that you’re trading with the trend.

It really is that simple to make a key decision with regards to your overall trading plan, experienced traders on occasion give themselves a mental slap to remind themselves of the basic fact that the probability of any given trade’s success is greatly enhanced by trading with the trend. If this article has found you as a fledgling trader struggling with the concept then you may have learned in the ten minutes taken to read this article information and a lesson many traders have taken months, years and significant losses to learn.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/why-trading-against-the-trend-is-like-picking-up-pennies-in-front-of-a-steam-roller/

Daily Market Roundup by FXCC - The European Rag and Bone SPIVS do the Asian Tour whilst collecting Air Miles

Assumption, can make an ASS out of U and ME…

It would appear that the solution for the Eurozone crisis, released to the markets which the mainstream media lapped up like a child whose Christmas list had been ticked to the letter, has been juiced. Underpinning the detail and process was an assumption and expectation that China and Japan would jump at the opportunity of buying up some form of Eurobonds in order to protect one of their major trading partners. Japan is the latest to issue a snub. Presumably with a bow, not a full bow just a dismissive “get the hell out of here, are you on western drugs?” type bow.

It’s coming to something when you ask China to bail you out on the basis that you’ll have to help otherwise we won’t be able to import your goods in the volumes we have anymore. China may raise one eyebrow, look at the latest iPhone sales and think; “you will, no one else can deliver the ‘stuff’ we manufacture at the cost and if there’s a global recession us buying up debt that you’ll never pay back isn’t going to help, particularly if (as part of the plan) you all appear wedded to your ideals of austerity..” But to then ask Japan, a country that has been through (arguably is still knee deep in) its third decade of stagnation/stagflation, whose debt to GDP ratio is circa 220% and who is battling to suppress the value of its domestic currency (yen) given speculators have deemed it as safe a haven as the Swiss franc, which in turn is killing its ability to engineer an export lead recovery is stretching credibility and believability too far. However, that’s where we’re at.

Japan has told the head of Europe’s bailout fund and ‘motel travelling salesman’ Klaus Regling on Monday that it would continue to buy its bonds, however, like fellow potential sales prospect China, won’t commit to putting cash into any special purpose vehicle to boost the rescue fund’s firepower. European Financial Stability Facility (EFSF) Chief Executive Klaus Regling was in Tokyo after failing to court China over the weekend. His trip comes ahead of the G20 leaders’ summit in Cannes on Thursday and Friday that policymakers hope will secure pledges of more money to help resolve the debt crisis. European leaders are looking to countries with engorged foreign exchange reserves, such as China, Japan and the BRICS economies, to provide the extra financial firepower to strengthen the fund to circa 1 trillion euros from it’s base of circa 200 billion euros. The fear is that Europe’s largest banks may only raise a tenth of the total capital shortfall estimated by regulators, fuelling concerns that policy makers’ plans to bolster the region’s lenders could fail. European Union leaders have insisted that European banks increase the ratio of “highest quality” capital they hold by the end of June, creating a shortfall of 106 billion euros ($150 billion).

“The Japanese government will continue to buy the EFSF bonds that we have been issuing over the last 10 months and we will continue to be in contact about future operations,” Regling told reporters after a meeting with Takehiko Nakao, Japan’s vice finance minister for international affairs. Presumably this tour by the Eurozone envoy didn’t get in the way of the decision by Japanese officials to smash the value of their currency.

The US dollar exploded versus the yen by the most in three years on Monday, hitting a three-month high after Japan stepped into the FX market to curb the yen’s rise, although traders doubted the move would have a long-lasting impact. The dollar, recently hit by the continuous speculation of inevitable further quantitative easing by the Federal Reserve, spiked by more than 4 percent at one point to 79.55 yen, after hitting another all-time low of 75.31 yen on early in Asian trade. Finance Minister Jun Azumi said Tokyo stepped into the market at 10:25 a.m. local time and would keep intervening until it was satisfied with the results. Tokyo’s second foray into the currency markets since its record selling of 4.5 trillion yen ($59.4 billion) when it intervened on August 4, follows weeks of warnings by government and central bank officials.

Azumi told a news conference.

I have repeatedly said that we would take decisive steps against speculative moves in the market. Unfortunately it (the market) has not reflected our economic fundamentals at all. I have been frequently in contact (with other countries), I have always conveyed Japan’s stance and interests at senior official levels.

Azumi said that while Monday’s intervention was a solo act he was in a continuous contact with his international counterparts.

In USA news the biggest bond gains in almost a decade has increased returns on Treasuries above equities over the past 30 years, the first time that’s happened since before the Civil War. Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500. The U.S. savings rate has tripled to 3.6 percent since 2005 and has averaged 5.1 percent since the depth of the financial crisis in December 2008, compared with 3.1 percent for the previous 10 years, according to government data.

U.S. government debt is up 7.23 percent this year, according to Bank of America Merrill Lynch’s U.S Master Treasury index. Municipal securities have returned 8.17 percent, corporate notes have gained 6.24 percent and mortgage bonds have risen 5.11 percent. The S&P GSCI index of 24 commodities has returned 0.25 percent. While 10-year Treasury yields rose 10 basis points, or 0.10 percentage point, last week to 2.32 percent, they are down from this year’s high of 3.77 percent on Feb. 9. The price of the benchmark 2.125 percent note due August 2021 fell 27/32, or $8.44 per $1,000 face value, in the five days ended Oct. 28 to 98 10/32, according to Bloomberg Bond Trader data.

Speculators boosted their bets on higher commodity prices by the most since August as improving prospects for growth in the U.S. and Europe sent prices toward their biggest rally in more than two years. Money managers boosted their combined net-long positions across 18 U.S. futures and options by 13 percent to 831,421 contracts in the week ended Oct. 25, Commodity Futures Trading Commission data show. The Standard & Poor’s GSCI Index of 24 raw materials has jumped 10 percent in October, on track for the biggest gain since May 2009.

Markets
Asian markets suffered in overnight, early morning trade. The Nikkei closed down 0.69%, the Hang Seng closed down 0.77% and the CSI closed down 0.51%. the ASX 200 closed down 1.27%. In European markets at 9.50am GMT the STOXX is down 1.9% the FTSE 1.22% the CAC down 2.13% and the DAX down 1.67% the SPX equity index future is down circa 1%. Brent crude is down $36 a barrel and gold is down $27 an ounce.

Data releases that may affect market sentiment in the afternoon sessions

The National Association of Purchasing Management, Chicago Affiliate (monthly) is the only release of note this afternoon. A survey of Purchasing Managers across the states of Illinois, Indiana and Michigan, that aims to measure the business conditions. The survey covers such areas as new orders, inventory levels, production, supplies and employment. The answers are used to compile a ‘diffusion index’. 50 is used is a benchmark figure; a figure greater than that indicates expansion, whereas contraction is reflected by a figure below 50. A Bloomberg survey of analysts yielded a median estimate of 59.0. Last month’s index showed a figure of 60.4.


Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/the-european-rag-and-bone-spivs-do-the-asian-tour-whilst-collecting-air-miles/

Daily Market Roundup by FXCC - October 31 am

Anyone prepared to bet that the Eurozone crisis is over? George Soros isn’t…

George Soros, who achieved fame when he bet against sterling remaining within the Exchange Rate Mechanism in the 1990s, believes the 50 percent “haircut” for private bond holders agreed last week as part of the overall bailout package will only reduce Greek debt by 20 percent. In Soros’ opinion it’s insufficient to stop an economic decline in Greece ultimately causing greater social unrest. His words come as the eurozone appears to be heading for further economic trouble, investors have started to express scepticism about the rescue deal announced in the early hours of Thursday morning.

The Greek authorities are now bracing for a broader campaign of civil disobedience as a nation infuriated by austerity and incensed at the engagement of EU and IMF measures take matters into its own hands. Announcing the measures the finance ministry warned that failure to pay the tax would automatically result in power supplies being disconnected. The public are incensed versus this unpopular property tax. The finance ministry says that the levy, whose lifespan is as yet unspecified, will raise about €2bn by the end of the year. The civil disobedience movement began in 2010 with Greeks refusing to pay road tolls and has seen ministries and government buildings being taken over in a wave of strikes and protests, has now grown to such an extent that even elected local officials support it.

With thousands of electricity bills yet to be printed, unionists at the public power corporation, DEH, who recently took over the company’s printing press, have threatened to step up action. A spokesman for the union said; “we are not going to do the government’s dirty work. Electricity is a social commodity, not a means to collect taxes. We will do everything to ensure that unemployed people, poor people do not have their electricity cut.”

In the UK a group of leading economists, numbering up to one hundred, have pointed out the failure of the UK chancellor’s ideologically driven austerity measures and asked for a plan B to be adopted. They’re demanding the government consider a host of measures proposed by a body of academics and economists brought together by the left-leaning think tank Compass. The proposals, in a manifesto entitled “Plan B: a good economy for a good society”, will be launched in London on Monday. They include:

An immediate halt to cuts, to protect jobs in the public sector.
A new round of quantitative easing to finance a “Green New Deal” to create thousands of new jobs.
Benefit increases to put money into the pockets of those on lower and middle incomes and give a boost to spending.
A financial transaction tax to raise funds from the City to pay for investment in transport, energy and house building.

Compass;
“The UK jobless total is now at its highest for over 17 years, while growth has all but stalled. Despite the increasing risk of a double-dip recession, which will inevitably result in even greater unemployment and falling living standards, the government refuses to change course. Indeed if the government persists with Plan A the deficit could rise not fall. It’s time for a Plan B.We urge the government to adopt emergency and common sense measures for a Plan B that can quickly save jobs and create new ones. An emergency recovery plan could include reversing cuts to protect jobs in the public sector, directing quantitative easing to a green New Deal to create thousands of new jobs, and increasing benefits to put money into the pockets of those on lower and middle incomes and thus increase aggregate demand. This could in part be paid for by the introduction of a financial transactions tax.”

Europe should not expect China to rescue it from its debt crisis, however, Beijing will do what it can to help “a friend in need”, state-run news agency Xinhua said in a commentary on Sunday. The head of Europe’s rescue fund has sought to encourage China to invest in the rescue fund facility, the main selling point being that investors may be protected against a fifth of initial losses and that the investment bonds could eventually be sold in yuan. Though China has expressed confidence that Europe can survive its crisis, it has made no public offer to buy more European government debt.

Xinhua, in an English-language commentary, said China could not stand by while its largest trading partner foundered.

“Beijing’s good-will gesture is a good response to those who see China as a threatening rival to Europe. Despite differences in politics, economy and culture, China and the EU are still good friends and partners. However, amid such an unprecedented crisis in Europe, China can neither take up the role as a savior to the Europeans, nor provide a ‘cure’ for the European malaise. Obviously, it is up to the European countries themselves to tackle their financial problems. But China can do within its capacity to help as a friend.”

French President Nicolas Sarkozy came under fire from opposition leaders for seeking China’s help to resolve the euro area’s debt crisis. Martine Aubry, the general secretary of the Socialist Party, in the Sunday newspaper, Journal du Dimanche;

It’s shocking, The Europeans, by turning to the Chinese, are showing their weakness. How will Europe be able to ask China to stop undervaluing its currency or to accept reciprocal commercial accords?

Eurozone leaders may struggle to maintain the waves of euphoria which caused the euro to enjoy its biggest one-day gain in more than a year, scrutiny will now inevitably deepen on the latest attempt to stem the region’s turmoil. Euro leaders have claimed victory before, in March as a “comprehensive” strategy was unveiled, while Luxembourg Prime Minister Jean-Claude Juncker said the July 21 accord on the second bailout for Greece and more powers for the rescue fund was the “final package, of course.”

“The very best you can hope for is it buys you time,” said Capital Economics’s chief European economist. “It avoids an imminent catastrophe and means Greece should be able to meet its obligations in the near future, and it may restore a bit of confidence. But it won’t prevent the debt crisis overall from rambling on and indeed escalating.”

The focus has now shifted from Brussels as Group of 20 leaders prepare to meet in Cannes, France, Nov. 3-4 and European officials seek contributions from countries with bulging reserves such as China, Brazil and Japan to a prospective fund. European Central Bank President Jean-Claude Trichet said in an interview in a German newspaper on Sunday that the euro zone sovereign debt crisis was not over and that it was too early for the all-clear signal.

In an interview in Sunday’s Bild am Sonntag newspaper, Trichet said that he was confident that euro zone governments would be able to restore financial stability provided the bloc’s Stability Pact rules are comprehensively enforced. Trichet said the agreements reached by European Union leaders this week need to be put in action quickly. He said the ECB will carefully track the progress of governments’ reform measures and said the time had now come to “see some action.”

Global consumer confidence remains weak in the third quarter of 2011, more than 60 percent of consumers saying it’s not a good time to spend, and one-in-three North Americans saying they have no spare cash, a survey showed on Sunday. The economic outlook, followed by lack of job security, became consumers’ biggest concern in the third quarter, overtaking worries about rising inflation, according to the quarterly survey by global analytics and information company Nielsen.

The Nielsen Global Consumer Confidence Index dipped just 1 point in the third quarter from the second quarter to 88 points. A reading below 100 indicates consumer pessimism over the economic outlook. Consumer morale in the euro zone remains especially weak, notably in France, were the region’s debt crisis deepened during the summer. Confidence in Greece, at the centre of the crisis, actually rose, but it was still the fourth-weakest of markets surveyed. Confidence was lowest in Hungary. One-in-five Europeans have no extra cash to spend. Confidence in European powerhouse Germany was better than much of Europe and the United States, but like the U.S. its reading dipped 1 point from the second quarter.

Nielsen;
“The third quarter was volatile and challenging for global economies and financial markets amid stagnant U.S. unemployment figures and a worsening euro zone debt crisis. A recessionary mindset is growing among consumers as more than half say they are currently in a recession, up 4 percentage points from last quarter and 7 points from the start of the year. The result is continued spending restraint for discretionary expenses, which is expected to continue into next year.”

The survey, taken between August 30 and September 16 and covering 28,000 consumers in 56 countries, showed 64 percent of consumers globally saying it was not a good time to spend.

The yen reached a record against the dollar in early Asian trade. The Japanese currency rose to 75.34 per dollar, before trading at 75.63 at 7:30 a.m. in Sydney. The yen not only rose to a record against the dollar but climbed versus the euro, traders speculating Japan’s officials are wary of selling the local currency in a bid to support the nation’s exporters.

Japan’s currency topped the previous record set last week after the Bank of Japan added 5 trillion yen ($66 billion) to their asset-purchase program. The dollar was 0.7 percent from its lowest in more than seven weeks against the euro before a report that economists said will show business activity in the U.S. weakened in October. Demand for the dollar is also dented amid speculation the Federal Reserve will be forced to embark on a third round of asset purchases in November.

The yen rose as to 75.35 per dollar, a post World War II record, before trading at 75.68 at 6:35 a.m. in Tokyo from 75.82 in New York on Oct. 28. The yen climbed 0.2 percent to 107.07 per euro. The dollar traded at $1.4148 per euro from $1.4147 after falling as low as $1.4247 on Oct. 27, the least since Sept. 6.

Economic calendar and key releases for the London and European morning sessions.

09:30 UK – Net Consumer Credit September
09:30 UK – Mortgage Approvals September
09:30 UK – M4 Money Supply September
10:00 Eurozone – CPI Estimate October
10:00 Eurozone – Unemployment Rate September

A Bloomberg survey predicts 2.8%, from last month’s 3.0% for Eurozone inflation. Those polled by Bloomberg gave a median forecast of 10.0%, for core Eurozone unemployment which would be unchanged from last month’s figure.

Source: FX Central Clearing Ltd. (FXCC BLOG).
http://blog.fxcc.com/october-31-am/

Daily Market Roundup by FXCC - October 28 am

Breathe, Release, Repeat and Party Like it’s 1974

Isn’t the sense of relief contagious? It really is like a massive weight lifted off your shoulders. It’s taken months to reach this situation and the unbridled joy I’m experiencing is difficult to explain and contain. Forget the cobbled together €1 trillion fund, I’m actually relieved that I’ve finally got a reprieve from having to start most market commentaries with the words; “Greece, contagion, Merkozy, bailout fund, Eurozone sovereign debt crisis”..well maybe just one more time, then we can finally put it to bed. Oh, and the reference to 1974 isn’t a clever nod in the direction of Brent crude and the 70′s oil crisis, Brent rising by a massive 4.3% on Thursday was fascinating in one sense, witnessing the mainstream media talking heads do cartwheels of celebration as markets rose exponentially, whilst embedded inflation just took a massive leap, was nevertheless an interesting observation.

Greece and Italy, the two countries and economies that have been at the centre of the financial maelstrom and crisis, have spoiled the euphoria by having officials voice doubts in relation to the deal and question its overall viability. In Greece, opposition politicians and citizens fear further painful austerity and a decade or more of recession, showing little enthusiasm for a plan for banks and insurers to accept the 50 percent loss on their Greek government bonds. In Greece, citizens hit by several rounds of austerity, including hefty pay and pension cuts, tax hikes and services cuts responded with similar criticism to the EU deal. Prime Minister George Papandreou said the agreement meant that the country’s debt burden would be sustainable, but people on the streets saw little reason to celebrate.

After avoiding the worst of the Euro financial crisis over recent years, Italy has moved to the centre of the debt crunch focus this year as its bond yields soared to near unsustainable levels. Only intervention from the European Central Bank prevented them from sliding out of control. Investors have concerns over Italy’s chronic growth and the sustainability of its 1.9 trillion euro debt, which at 120 percent of GDP is second only to Greece’s in the euro zone.

US stocks surged by circa 3 percent on Thursday as the agreement by European leaders to help contain the region’s two-year debt crisis lifted the market mood. Optimism that a deal would be struck to prevent widespread financial distress has fuelled the market’s rebound in October. The S&P 500 is up more than 13 percent this month, on pace for its biggest monthly gain since October 1974. The Dow Jones industrial average was up 339.51 points, or 2.86 percent, at 12,208.55. The Standard & Poor’s 500 Index was up 42.59 points, or 3.43 percent, at 1,284.59. The Nasdaq Composite Index was up 87.96 points, or 3.32 percent, at 2,738.63.

The day’s gains lifted the S&P 500 above the 200-day moving average for the first time since the beginning of August. It was the strongest day for volume since October 4, and the rise above the 200-day moving average may pull more long-term buyers into the market over coming days and weeks. 11.95 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq on Thursday, well over last year’s daily average of 8.47 billion.

All 10 S&P sectors rose by more than 1 percent. Materials and energy shares were among the top gainers as the resolution in Europe set aside fears with regards to how weak growth might impact demand. Crude oil rose a massive 4.3 percent. U.S. gross domestic product grew at a 2.5 percent annual rate in the third quarter, up from a 1.3 percent pace in the prior three months, the Commerce Department said on Thursday. That took output back to pre-recession level. Consumer spending grew at a 2.4 percent rate in the third quarter, the strongest since the fourth quarter of 2010, while business investment spending shot up at a 16.3 percent pace, the most in more than a year. The jobs market is showing little improvement. Data from the Labor Department on Thursday showed new claims for state unemployment benefits only fell 2,000 last week to 402,000, a level that suggests little progress.

European markets surged as a consequence of the agreement reached in the early hours of Thursday morning. The Stoxx index closed up 6.08% to a 12-week high as banks led the gains. BNP Paribas SA and Deutsche Bank AG, the biggest lenders in France and Germany, advanced more than 15 percent. The FTSE closed up 2.89%, the CAC closed up 6.28%, the DAX closed up 5.35%.

The 10-year German bund yield jumped 17 basis points to 2.21 percent, while the 10-year Spanish yield fell 15 basis points to 5.33 percent. That drove the difference in yield with German debt down by 32 basis points to 3.12 percent, the lowest since Oct. 14. Even after today’s gains, the bonds of some of Europe’s most-indebted countries are still trading near their historical lows. Greece’s two-year yield slid 285 basis points to 76.91 percent on Thursday, compared with an average of 27 percent in the past year. Italy’s 10-year yield, which averaged 4.93 percent in the past 12 months, fell five basis points to 5.87 percent.

There was a note of caution and a true moment of clarity through the euphoria from Michael Darda, the Stamford, Connecticut-based chief economist and chief market strategist at MKM Partners LP. He nailed the issues and cut straight through the spin when he told Bloomberg Television;

If we’re not seeing the sovereign debt markets turn around, that is a red flag. Equity markets have gotten optimistic here. One of the things that bothers me is the euro-zone debt markets have not registered the same degree of optimism, and that’s really the core of the problem.

Currencies
Naturally the Euro catapulted to monthly highs on news of the overall rescue package. The euro surged to $1.4187 and climbed as much as 2.5 percent to $1.4247. The currency strengthened versus eight of its 16 major peers, rallying 1.8 percent versus the yen. The Dollar Index, which tracks the U.S. currency against those of six trading partners, slid 1.7 percent to 74.96. The yen rose to a record versus the dollar for the fourth time in five days on speculation Bank of Japan measures will fail to contain the currency’s rally. The central bank expanded its credit and asset-purchase programs (QE) to a total of 55 trillion yen ($724 billion) from 50 trillion yen to damp the currency’s appreciation, which harms its exporters. It also kept the overnight lending rate at zero to 0.1 percent.

The Aussie gained 3.2 percent to $1.0730 after rising to $1.0753, the highest since Sept. 1, as the European agreement and U.S. growth spurred demand for higher-yielding assets. South Africa’s rand increased 2.7 percent to 7.7222 versus the dollar. Canada’s dollar rose through par with the USA dollar. Canada’s currency climbed as much as 1.5 percent to 98.92 cents per U.S. dollar, the strongest level since Sept. 20, and traded at 99.09 cents, up 1.3 percent, at 5:02 p.m. in Toronto. One Canadian dollar buys $1.0092.

The Dollar Index daily chart has reached the 200-day moving average at 75.78. The Index dropped 0.6 percent to 75.77 at 6:18 a.m. in New York, after falling to 75.60, the lowest level since Sept. 8. The last time it traded at 74.88 was Sept. 6.

Economic calendar data that may affect morning session sentiment.

There are no significant data releases that will affect sentiment in London and European markets, we’ll cover in more detail in the mid morning commentary these releases that may affect sentiment at or after the NY open.

13:30 US – Personal Income September
13:30 US – Personal Spending September
13:30 US – PCE Deflator September
14:55 US – Michigan Consumer Sentiment October

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/october-28-am/

Daily Market Roundup by FXCC - Taking a Knife to a Gunfight, the Trillion Euro Sticking Plaster

Ultimately the EU ministerial roadshow had to release a plan, even if many commentators believed it to be woefully inadequate they had to be seen to be doing something. The €1 trillion combined rescue package will create the right kind of headlines through the mass media channels to ensure that Joe Public and the rest of Europe’s voters believe that the crisis is over, many informed analysts will suggest we’re simply at the end of the beginning as the overall issue of the Eurozone sovereign debt crisis has been crisis managed but not solved.

European leaders finally persuaded bondholders to take 50 percent losses on their Greek debt and boosted the firepower of the rescue fund to €1 trillion euros. Measures include the recapitalization of European banks, a bigger role for the International Monetary Fund, a commitment from Italy to do more to reduce its debt and a signal from leaders that the European Central Bank will maintain bond purchases in the secondary market.

Nicolas Sarkozy stated that the euro region’s bailout fund will be leveraged by four to five times, and investors have agreed to voluntary write down 50 percent of Greek debt. Sarkozy is due to speak to Chinese leader Hu Jintao to ask for support from the Asian nation in the bailout effort. U.S. data to be published on Thursday may show the world’s largest economy expanded last quarter at the fastest pace this year.

Europe’s leaders summonsed the banks’ representative, Managing Director Charles Dallara of the Institute of International Finance, in order to break the deadlock to cut Greece’s debt to 120 percent of gross domestic product by 2020 from a forecast of about 170 percent next year.

Charles Dallara, the managing director of the IIF;

On behalf of the private investor community, the IIF agrees to work with Greece, euro area authorities and the IMF to develop a concrete voluntary agreement on the firm basis of a nominal discount of 50 percent on notional Greek debt held by private investors with the support of a 30 billion euro official package. The specific terms and conditions of the voluntary PSI (private sector involvement) will be agreed by all relevant parties in the coming period and implemented with immediacy and force. The structure of the new Greek claims will need to be based on terms and conditions that ensure (net present value) for investors fully consistent with a voluntary agreement.

French President Nicolas Sarkozy;

The summit allowed us to adopt the components of a global response, of an ambitious response, of a credible response to the crisis that is sweeping across the euro zone.

Herman Van Rompuy, the president of the European Council;

The leverage could be up to one trillion (euros) under certain assumptions about market conditions and investors’ responsiveness in view of economic policies. There is nothing secret in all this, it is not easy to explain but we are going to more with our available money, it is not that spectacular. Banks have been doing this for centuries, it has been their core business, with certain limits.

Damien Boey, equity strategist at Credit Swisse in Sydney.

While the headlines look good, the devil is in the details. It’s great news that they’ve managed to increase the bail-out fund to 1 trillion euros plus agree on some sort of haircut arrangement for the private investors in Greek debt. The problem is, we don’t actually know how they are planning to increase the bail-out fund size from 440 billion euros to a trillion. On top of that, there are some questions as to whether one trillion euros in itself is enough.

Markets
Stocks climbed to an eight-week high, the euro strengthened and Treasuries dropped on the news that the European leaders finally agreed on a plan to expand the bailout fund. Metals and oil led a rally in commodities. The MSCI All Country World Index gained 1.8 percent at 4:06 p.m. in Tokyo, set for the highest close since Aug. 31. Asian Pacific markets were boosted by the Eurozone news, the Nikkei closed up 2.04%, the Hang Seng closed up 3.27% and the CSI up 0.22%. The Australian index the ASX 200 closed up 2.49% the SET up 2.39%.

European markets have received a massive positive jolt due to the bailout fund news, at 10:20am GMT the STOXX is up 3.77%, the UK FTSE is up 1.97%, the CAC is up 3.80%, the DAX is up 3.58% and the main Italian bourse the MIB is up 3.81%. The SPX equity index future is up circa 1.2%, Brent crude is up $117 a barrel and gold is down $15 an ounce.

Currencies
The euro rose to a seven week high versus the dollar after the news broke that European leaders have agreed to expand a rescue fund for indebted nations and reached an accord with lenders on write downs for Greek debt. The euro appreciated above $1.40 for the first time since September. The dollar and yen fell as stocks rallied, damping demand for safer assets. The Australian dollar rose versus all of its major counterparts as commodity prices increased. Canada’s dollar rose above parity with USA dollar.

The euro had gained 0.8 percent to $1.4021 at 9:15 a.m. GMT after rising to $1.4038, the strongest level since Sept. 8. currency advanced 0.4 percent to 106.40 yen. The dollar declined 0.4 percent to 75.90 yen. The Dollar Index, which IntercontinentalExchange uses to track the U.S. currency versus those of six major U.S. trading partners, slid 0.7 percent to 75.665, after dropping to 75.595, the lowest since Sept. 8. The Australian dollar reached its highest level in almost seven weeks against the U.S. currency as investors bought higher-yielding assets. The Aussie gained 1.8 percent to $1.0588, after rising to $1.0594, the highest since Sept. 9. The Canadian dollar, the Loonie, climbed 0.8 percent to 99.66 cents versus the USA dollar. The yen has appreciated 12 percent over the past six months, the best performance among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The dollar has gained 2.8 percent and the euro has fallen 3.1 percent in the same period.

The pound fell its most in two weeks versus the euro as European Union leaders agreed to expand the rescue fund, damping demand for the perceived safety of the British currency. Sterling depreciated 0.5 percent to 87.51 pence per euro at 8:42 a.m. GMT, after falling as much as 0.7 percent, the largest decline since Oct. 10. Sterling rose 0.2 percent to $1.6009. It strengthened to $1.6042 yesterday, the highest level since Sept. 8. The pound has weakened 0.7 percent in the past month and 4.1 percent in the previous year, according to the Bloomberg Correlation-Weighted Currency Index.

Data releases to be mindful of at or shortly after NY’s opening include the following;

13:30 US – GDP Annualised 3Q
13:30 US – Personal Consumption Expenditure 3Q
13:30 US – Initial and Continuing Jobless Claims
15:00 US – Pending Home Sales September

For USA GDP figures Economists polled by Bloomberg gave a median prediction of 2.5%, from the previous release of 1.3%. The GDP Price Index was predicted to be 2.4% from 2.5% prior to this. A Bloomberg survey forecasts Initial Jobless Claims of 401K, compared with the previous figure released which was 403K. A similar survey predicts 3700K for continuing claims, compared with the previous figure of 3719K.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/taking-a-knife-to-a-gunfight-the-trillion-euro-sticking-plaster/

Daily Market Roundup by FXCC - October 27 am

Greece is just so last year whilst Italy is too big to fail

You don’t have to dig too deep to discover the real worry amongst EU ministers. Whilst they’re being extremely coy with regards to ‘allowing’ or actively encouraging Greece to default, that decision has probably already been made. If not then the gambit of pushing banks as far as possible should uncover the banks’ collective breaking point. Losses of 70% are now being mentioned and deservedly so. As to how any authorities allowed Greece to borrow money off the bond markets at 150% in an arena that is supposed to be regulated is scandalous, but it isn’t correctly regulated. If such lenders and..ahem..’investors’ suffer a total loss as a consequence of such unbridled greed then it’ll be hard to shed a tear. However, only Germany appears to be acting as a people’s champion insisting that these losses are not socialised onto European citizens.

The real worry now is Italy. The pathetic and insulting gestures (in letter form) it has made in relation to austerity measures will not go far enough. Italy is currently paying 4% more than Germany to borrow over ten years and that spread will widen dramatically if there is no comprehensive solution put in place, it is the new Greece and only clever public relations and misdirection have caused the mainstream media to be ignorant of that fact. We now have a situation were a country will be described shortly as “too big to fail”…

Berlusconi has committed to raise €5 billion euros annually from asset sales, increase the retirement age and relax labour laws to convince European leaders Italy can reach its budget goals.

We are aware of the need to present a comprehensive plan of reforms. We are aware that our debt is too high and our growth too limited. The asset-sales plan will be completed by Nov. 30.

The letter of intent he paraded in Brussels fell short of the comprehensive plan European leaders had sought. Disagreement within his Cabinet over pensions in particular has prevented Italy from complying with EU requests to deliver a blueprint to tackle the euro-region’s second largest debt at the Brussels summit.

In the letter Berlusconi’s cabinet pledged to increase the retirement age to 67 years by 2026. The premier pledged to overhaul labor laws in a country where most young workers have no job security and older workers can’t be fired, how this will dovetail with Euroland’s human rights compliance remains to be seen. The target of 5 billion euros of revenue a year from asset sales will have little impact on a debt of almost 1.9 trillion euros, 120 percent of gross domestic product. Other than pension change and asset-sales, the 14 page letter contained few new proposals. Berlusconi defended his government’s handling of the economy, saying Italy’s budget deficit of 4.6 percent of GDP last year was in line with Germany’s and that the country already had a surplus that would help bring down the debt from next year.

Berlusconi’s Cabinet on Aug. 5 passed an austerity plan aiming to balance the budget in 2013. The announcement of those measures prompted the ECB to begin buying Italian bonds on Aug. 8, helping bring yields down from euro-era records, the country’s 10-year bond now yields almost 6 percent, compared with the Aug. 5 peak of 6.4 percent before the ECB started under-writing the debt.

Markets
The SPX closed up 1.3% on Wednesday, surprising orders for durable goods and improved new home sales helped bolster sentiment. In European markets fortunes were mixed, the STOXX closed down 0.38%, the UK FTSE closed up 0.5%, the CAC closed down 0.15% and the DAX closed down 0.51%. the UK could be benefitting from its isolationist stance versus its European neighbours who have adopted the euro currency. The equity index future for the FTSE is currently up circa 1% as of 1.10 am GMT.

Currencies
The euro fell as European leaders failed to reach agreements with banks for bondholder losses as part of a second Greek bailout and stability for Italy. Demand for the currency was harmed due to confidence in the Eurozone economic outlook dropping in October to the lowest in almost two years. The dollar held up versus the yen, Japanese Finance Minister Jun Azumi hopes for positive news from a Bank of Japan meeting today with regards to weakening the currency. The euro dropped 0.2 percent to $1.3876 as of 8:01 a.m. in Tokyo and fell 0.2 percent to 105.69 yen from 105.93 in New York yesterday, when it rose 0.1 percent. The dollar traded at 76.21 yen after yesterday rising 0.1 percent to 76.18. The pound fell versus the dollar, arresting its previous five days of gains, whilst gilts rose amid concern Europe’s leaders will be unable to find a solution to the euro-region debt crisis. The pound was 0.6 percent weaker at $1.5909 at 4:52 p.m. London time after strengthening to $1.6042, the highest level since Sept. 8. Sterling was little changed at 87.03 pence per euro after weakening to 87.22 pence. The euro slid 0.5 percent to $1.3844. The pound has depreciated 0.2 percent in the past month, extending a 12-month decline to 3.5 percent, according to Bloomberg Correlation-Weighted Indexes.

Economic calendar data that may affect sentiment in the morning session in London and Europe

09:00 Eurozone – M3 (Money supply) September
10:00 Eurozone – Consumer Confidence October
10:00 Eurozone – Economic Confidence October
10:00 Eurozone – Industrial Confidence October

Consumer confidence is expected to remain static vis a vis last month. A survey of analysts by Bloomberg predict a figure of -19.9. Economic confidence is predicted to fall, Economists gave a median forecast of 93.8, from last month’s 95. Similarly industrial confidence is expected to fall, a survey of analysts by Bloomberg predicted a figure of -7 from last month’s figure of -5.9.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/october-27-am/

Daily Market Roundup by FXCC - EU Officials Move Past Perception Management Into Damage Limitation

One issue Tim Geithner nailed on Tuesday was to suggest that the posturing and prevarication of the EU has to stop. He stated that the predicament was; “the biggest challenge to growth worldwide, we want to see details, not just the objectives, and the primary burden falls on the Europeans.” The time for talk is over, the only colourful ‘management speak’ language acceptable from here on in is; a bullet proof blueprint, combined with a roadmap containing a lay out of milestones and proof of how they’ll be reached and dealt with once the destination/s is/are reached.

The blue sky thinking whilst painting pictures in the same sky needs to stop, the perception management technique has no further to go now shoes such as Italy are beginning to drop. The announcement from Italy this morning that its premier Berlusconi is arranging to step down, in order to allow a general election to take place in early 2012 may temporarily soothe the markets until the full ramifications and motives are analysed. This could be translated as a dereliction of the current parliament’s duty rather than a noble act of democracy.

Berlusconi is apparently arriving in Brussels today with a letter of intent for his fellow EU officials from his government that the reforms agreed in the summer months will now go much further. Berlusconi’s letter outlines Italy’s plan for reforms demanded by its EU partners as a condition for buying its bonds, but questions still linger as to whether or not these enlarged commitments will be enough to restore market confidence. The euro zone’s third biggest economy is now finally routed at the centre of the debt crisis as investors finally become increasingly concerned with regards to its poor growth projections and continual political instability. Italy needs to issue some €600 billion in bonds in the next three years in order to refinance maturing debt. A sobering thought is that Greece only has a figure of approx. half that as outstanding bond debt to its debtors..

EU officials, European diplomats and finance ministers have lowered their expectations of a breakthrough when the 17 euro zone leaders meet later today, despite the Franco-German assurances only weeks ago that a “comprehensive solution” to the economic turmoil would be found by the end of October. There is only general consensus on the need for €110 billion euros to be injected into the European banking system to help it withstand a Greek debt default and wider financial contagion, there is no clarity or detail on either of the other two critical parts of the plan.

There are two key stumbling blocks, the first involves leveraging the region’s €440 billion euro bailout fund, known as the European Financial Stability Facility to ‘insure’ against further losses by contagion and discovery, (figures suggested for the total package vary between €2-3trillion). The other block is reducing Greece’s debt burden by deepening the losses private investors, major banks and insurance companies must take on their Greek bonds. An agreement of 21% was loosely drawn up in the summer months, the write down necessary to move past Greece and onto Italy, Spain and potentially France (given the parlous state of it’s banks) now is up to 60%. The concern could be that this level of write down and loss could set a benchmark of sorts and in further discovery could be the percentage ‘hits’ Italy’s bond holders may have to take if a solution is not found..

EU leaders will consider two methods for scaling up the EFSF, one by using it to offer guarantees to purchasers of new euro zone debt, and the other using part of its capacity to set up a special purpose investment vehicle that would attract money from sovereign wealth funds and other investors to buy debt. They might also agree to combine both options. As to who the SWFs would be, given China and the other BRICS countries are showing no appetite for assistance, remains to be seen.

Markets
Asian/Pacific markets had mixed fortunes in overnight early morning trade, the Nikkei closed down 0.16%, the Hang Seng closed up 0.52% and the CSI closed up 1.0%. The ASX 200 closed up 0.35% and the SET is down 0.54%. European bourses have been equally mixed, at 10.00 am GMT the STOXX is down 0.24%, the FTSE is up 0.06%, the CAC is up 0.07% and the DAX down 0.04%. The SPX daily index equity future is up circa 0.5%, Brent crude is down $35 and spot gold is up $10 an ounce.

Currencies
The yen once again rose towards its post-World War II high versus the dollar, concern that Europe’s leaders will struggle to find solutions to the debt crisis has boosted demand for the safer assets. The Swiss franc also gained as its safe haven status was enhanced. The Dollar Index fell toward a six-week low amid speculation a weakening economy will cause the Federal Reserve to start a third round of asset purchases, quantitative easing. Australia’s dollar slid after a report revealed that its inflation has slowed. The yen rose 0.3 percent to 75.88 per dollar at 9:30 a.m. London time, after strengthening to a record 75.74 yesterday. The currency gained 0.2 percent to 105.62 per euro. The franc advanced 0.5 percent to 87.34 U.S. cents. The dollar fell 0.1 percent to $1.3926 per euro after weakening to $1.3960 yesterday, its lowest point since Sept.

Economic data releases that may affect sentiment in the New York ‘sessions’

12:00 US – MBA Mortgage Applications
13:30 US – Durable Goods Orders September
15:00 US – New Home Sales September

The housing markets data released yesterday was disappointing, predictions are that applications and new home sales will not dramatically affect sentiment. Durable goods orders could affect sentiment given the dichotomy of very low consumer confidence is at odds with retail spending in the USA which is still strong. Analysts surveyed by Bloomberg gave a median forecast of -1.0%, compared with the last release which was -0.1%. Excluding transportation, the expectation is 0.4% (previous = -0.1).

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/eu-officials-move-past-perception-management-into-damage-limitation/

Daily Market Roundup by FXCC - October 25 pm

Can You Kick It? Yes You Can

There’s many of us market commentators and analysts as sick of using the same tired metaphors as we are of listening to (or reading) reports with regards to the EFSF, the troika, the EU etc. Just when you think this can has no more metal left on it to kick down the road the various powers find another delaying tactic.

Only now as we approach the ‘zone of the end game’ are “the markets”, the intelligence that must be obeyed, finally waking up to the fact that the collective big brains involved in the decision making have all the smarts of the Conservative MPs in the UK Government who effectively killed their careers on Monday evening by voting yes to a referendum on Europe that was never going to happen…doh..

The relationship with politics shouldn’t ever be underestimated, the UK public got that tired of hearing former premier Tony Blair use the words “weapons of mass destruction” they’d have gladly voted in a heartbeat to send their first born on an invasion to Saturn rather than hear him mention the initials WMD one more time. Perhaps the ‘great and good’ of the EU decision making process hope that the public will get that tired of these meetings that they’ll simply switch off to the impact, however, that’s presupposing that the majority had any interest or understood either the various mechanisms or impact. What has come as a surprise is how collectively stupid the markets are, particularly if they failed to recognise that the real elephants had left the room and were busy crashing down the foundations; Italy and the F in the effin PIIGS, France were always the bigger issue, not Greece.

It’s akin to watching a good friend, who has very little to offer, get away with standing up his drop dead gorgeous girlfriend with an inane excuse by text and her texting back that she understands. She totally accepts that watching footy in the pub with his mates is better than taking her out, despite the €200 she spent on her hair, the €300 on her new dress and she’s sorry to have come between him, his mates and lager and she’ll make sure to pick her moments better next time and she’ll make it up to him. He reads the text, chuckles and shows it to you and you shake your head wondering “how on earth…?” That’s how collectively naive and lacking in overall intelligence the markets are, the markets never lie, but they can be lied to particularly when they actively encourage it.

Now Wednesday’s D-Day approaches all bets are off, the meeting of meetings to underscore all the other meetings, conference calls and Skype messaging is partly suspended, suspended in disbelief or jello it matters not, ‘they’ can’t agree to the only workable solution this blog pointed to some weeks back; a mega bailout of circa €3 trillion. Anything else is putting sticking plaster over a wound that needs surgery, ‘they’ know it, we know it, the markets may need to play catch up.

Back in the USA Tim Geithner has voiced his concerns, from a safe distance this time, as opposed to visiting the 17 leaders of the Eurozone to be told “we’re taking no lectures from you”. The U.S. Treasury Secretary said on Tuesday that finding a solution to the European debt crisis in the next several days is imperative because that predicament is the “biggest challenge to growth worldwide. We want to see details, not just the objectives, and the primary burden falls on the Europeans.” While direct U.S. exposure to the most troubled European nations is limited, Treasury officials have said U.S. bank exposure to large European lenders is significant.

The kicking the can down the road metaphor has been illustrated by the USA finding another solution to the vast amount of homeowners who are ‘underwater’ (in negative equity) with their mortgage versus home value. The USA admin is proposing to enlarge their HARP facility creating further relief to enable mortgage payers to stay in their homes. However, mortgage holders may not be easily fooled, this exercise is not the altruistic social enterprise it claims to be, the mainly state owned banks, who created the sub prime market, are at pains to avoid more losses, the legal system could begin to crack under the strain of a further round of repossessions and with QE3 looking a ‘slam dunk’ a further deterioration in home values could negate a significant worth of the next round. Therefore it’s best if the powers go to any lengths to keep folks in their debt..oops..in their homes.

The USA suffered a mixed bag of economic reports on Tuesday, consumer confidence unexpectedly dropped to its lowest level in two-and-a-half years in October, while house prices were unchanged at low levels in August, suggesting the consumer is still struggling and in an economy 70% dependent on consumerism this news is unwelcome. The Conference Board’s index of consumer attitudes fell to 39.8 from a upwardly revised 46.4 the month before. Analysts had expected a reading of 46.0. The expectations gauge was also at its lowest level since March 2009, just before the economy officially crawled out of recession. The S&P/Case Shiller composite index of house prices in 20 USA metropolitan areas was flat compared with the month before on a seasonally adjusted basis, frustrating expectations for a gain of 0.1 percent. On a seasonally adjusted basis, prices fell in 14 of 20 cities, with Atlanta and Las Vegas among the biggest losers, according to the data. The annual rate of decline slowed, however, with prices in the 20 cities down 3.8 percent compared with a year-over-year decline of 4.1 percent the month before.

Markets
The Standard & Poor’s 500 Index tumbled the most in three weeks, losing 2 percent to 1,229.05 as of the 4 p.m. close in New York. The Stoxx Europe 600 Index dropped 0.7 percent while the euro slipped from a six-week high, weakening 0.2 percent to $1.3901. Ten-year Treasury yields fell 13 basis points to 2.11 percent. Other European markets fell as a consequence of the EU leaders cancelations and indecision, the FTSE closed down 0.41%, the CAC down 1.43% and the DAX down 0.14%. The MIB closed down 1.06% and is now down over 25% year on year.

Currencies
The euro declined 0.2 percent to $1.3908 after rising to $1.3960. The euro has declined 2.5 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, which tracks ten developed-market currencies. The dollar has gained 3.3 percent over the same period, and the yen has risen 12 percent. Once again the yen touched a post-World War II high versus the dollar and rallied versus most of its other major counterparts as Europe’s debt turmoil spurred demand for the obvious refuge.

The yen was little changed at 76.09 versus the dollar at 5 p.m. New York time after rallying to a record 75.74. Japan’s currency advanced 0.2 percent to 105.83 against the euro. Bank of Japan policy makers will discuss measures to roll back the impact of the strong yen at a two-day meeting beginning Wednesday. Measures may include expanding a 50 trillion yen ($660 billion) asset purchase program by 5 trillion yen and purchase bonds with maturities longer than two years. Canada’s dollar fell 1.3 percent to C$1.0167 versus the U.S. currency after the Bank of Canada said the nation’s economy will grow more slowly than projected and removed their previous commitment to withdrawing stimulus. The target lending rate was held at 1 percent. IntercontinentalExchange Dollar Index, which tracks the USA dollar versus the currencies of six major U.S. trading partners including the euro, yen and sterling, rose 0.1 percent to 76.252.

There are no economic data releases to be mindful of for the morning London session and European session. Naturally any such releases would be dwarfed in importance by the huge macro economic decisions that still have to be ratified.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/october-25-pm/

http://blog.fxcc.com/high-probability-forex-trading/

What’s meant by high probability trading differs from trader to trader. If someone asked you to explain what you understand as “high probability trading” what would be your answer? For most traders the obvious answer would be; “only taking trades that have a high probable chance of success”. When taking that answer a stage further we could add another condition; only taking trades that have a high probability success factor as part of our trading plan.

But wouldn’t we all take trades that were high probability trades? There can’t be many traders amongst us that would state “hey, I specialise in taking low probability trades”.

As with most trading decisions logic and probability are the key factors, emotion doesn’t take a back seat, in fact it doesn’t even get into the car. One of the over looked benefits of looking for trades that only match a certain criteria is that the trader’s emotional control is maintained, we are only concerned with data driven results and expectancy, the trade either matches the criteria or it doesn’t, if it doesn’t we pass. While many traders wonder when to get into a position, whether to add to a position, when to lock in gains, or cut losses, traders using high probability trading methods and strategies have a massive advantage in never having to consider these questions. As primarily ‘data-driven’ traders high probability traders only focus on the facts, not news, not rumours, not the fears and anxieties in the financial media, or trader indecision, just the facts as interpreted by our charting packages.

Traders should efficiently and methodically consider the value of their HPSU (high probability set up) system and its probability of success based on risk to reward ratio. The simplest way to do this is to take your trading setup, apply the probability percentage, and then add up the wins and losses after a significant number of trades, perhaps as many as 100 trades. In looking for high probability trades we’re aiming for positive returns on a pre-defined ‘set up’ that should have been thoroughly analysed and back tested in order to ensure positive expectancy.

How you can ensure you are only taking HPSUs (high probability set ups) as opposed to those that fall out of that scope should be relatively straight forward for the disciplined trader who sticks resolutely the their trading plan. Like an aircraft pilot before take off you simply go through a series of detailed checks before take off leading to flight management. Were trading is concerned we have a set of conditions that have to be met in order to take the trade, if one or more of those conditions isn’t met we sit on our virtual runway patiently waiting for clearance.

We’re looking to limit losses as part of our HPSU.

Look after the bottom line and the top line takes care of itself

Being out of the market is in fact a position

I’d rather be out of the market wishing I was in, rather than in wishing I was out

These three trading maxims perfectly encapsulate and illustrate the benefits of trading in a highly disciplined manner, discipline that will be heightened by utilising a HPSU only. If the strategy eliminates many losing trades by demanding total condition compliance then the set up ‘works’. In many of the indicator/levels based trading methods I’ve developed (and used successfully) there are several conditions that have to be met before the trade is taken, if any of those conditions are not met then the trigger finger remains still.

Using a HPSU to swing trade many of us will testify to waiting days for our set up to occur, many of us will also testify to the many times were we’ve become impatient and entered too soon to then, for example, become entrenched in a period of consolidation. However, there’s as many of us that will openly admit to feeling a peculiar sense of satisfaction when taking a loss, if that loss was part of the expected performance of our trading plan which has been respected.

I’ve discussed HPSUs with traders who operated set ups containing so many conditions you began to wonder how they ever took a trade, others were relatively straight forward but there were some constant similarities in all traders; whilst their P&L statements weren’t spectacular they were consistently profitable. Their patience was heightened due to having to wait for all conditions to be met, their trading state of mind was therefore more secure, they were more relaxed, more focused, their money management was tight and they treated the market with the right amount of respect.

A complex HPSU could be considered as one that requires several indicator based conditions, patterns and certain price action visible to be met before a trade is taken. A simple one could involve not going long unless the pivot has been crossed in the session and then R1 breached, or vice versa using S1. We’re not trying to capture every market move, neither are we obsessed with being in at the ‘b of the bang’ of every move, we’re looking to filter and optimise our technique by the effective use of all the materials and tools at our disposal such as indicators, patterns, price action and levels. Whilst less is often more were trading is concerned the patient, careful, considerate, less spectacular trader, who adopts a professional attitude towards every aspect of trading, is far more likely to succeed.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/high-probability-forex-trading/

Market Commentary by FXCC - Wednesday’s Child is Full of Woe

Despite the Wednesday decision deadline looming large “the markets” are showing no signs of panic, the presumption from investors being that a satisfactory solution will be found. Despite the suggestion being aired by EU officials, that banks holding Greek debt may have to take up to 60% haircut on their bonds and other investments, the rationale appears to be that this level of losses would be contained and manageable.

Luxembourg’s Jean-Claude Juncker, who is leading the group of euro-area finance ministers, said yesterday that talks on private-sector involvement in a second aid package for Greece are focusing on losses of 50 percent to 60 percent. Italian, Portuguese and Spanish lenders will bear the brunt of a €100 billion plan to recapitalize European banks, while their counterparts in the U.K., Germany and France may avoid raising additional funds.

European policy makers meeting in Brussels tomorrow, in further talks on tackling the euro zone crisis, may force banks to boost their core Tier 1 capital to 9 percent of risk-weighted assets. UniCredit SpA, Italy’s largest bank, Banco Comercial Portugues, Portugal’s second-biggest, and Banco Bilbao Vizcaya Argentaria, Spain’s second largest, are amongst the banks analysts expect may have to raise the most capital.

German lawmakers secured a full parliamentary vote on any euro zone crisis measures negotiated, a move that risks delaying Europe’s response to its two-year debt problems. However, a further huge spanner could be thrown in the mechanics of the solution..

Chancellor Merkel will take a calculated risk on Wednesday by giving the German parliament a vote on the latest eurozone crisis measures, before she returns to Brussels to ‘sign off’ on any proposed deal. Members of German’s highly respected and deeply monetary conservative Bundestag demanded the right to scrutinise the package, including measures to “leverage” the €440bn European financial stability facility (the eurozone’s emergency rescue fund) before giving Ms Merkel a green light to agree anything at the second eurozone summit in four days.

With polls suggesting up to 80% of Germans are against baring the cost of any rescue package the German coalition will be resolute to ensure that investors bite the bullet and take the pain with regards to their disastrous Greek loans. Germany’s Economy Minister Philipp Roesler, who heads the FDP, told reporters yesterday;

Two conditions of the deliberations are vital for us: the upper limit of Germany’s 211 billion euros in guarantees can’t be increased and the EFSF mustn’t get a bank license. These conditions have been retained.

Deutsche bank, a lender that has little direct exposure to a potential Greek default, has released trading figures this morning. Germany’s biggest bank had net income of €725 million euros after a loss of €1.21 billion in the year earlier period on write-downs related to the purchase of Deutsche Postbank. Analysts estimated a quarterly profit of 343 million euros. UBS AG, Switzerland’s biggest bank, posted a smaller decline in third-quarter profit than expected after an accounting gain cushioned a $2.3 billion loss from unauthorised trading. Net income fell 39 percent to 1.02 billion Swiss francs, the Zurich-based bank said today, beating analysts’ mean estimate of 318 million francs.

Markets
Asia/Pacific markets experienced mixed fortunes in overnight, early morning trade, the Nikkei closed down 0.92%, but the Hang Seng closed up 1.05% and the CSI closed up 1.89%. The ASX closed down 0.64%. the Thai markets moved up sharply the SET up 2.88%. In Europe the STOXX is currently down 0.46%, the FTSE is flat, the CAC is down 0.51%, the DAX is down 0.33%. Brent crude is currently flat and gold is up $6 per ounce. The SPX equity index future is currently flat.

Currencies
The euro has (so far) halted its five-day gain versus the dollar and yen as Europe’s banks begin to show their claws and dig in with politicians on the size of losses they will have to accept on their Greek bonds, lowering the likelihood of a deal at a summit tomorrow. The euro was little changed at $1.3928 at 9 a.m. London time, after rising to $1.3957 yesterday, the highest value since Sept. 8. The euro was at 105.99 yen from 106 yen yesterday. The USA dollar was virtually unchanged at 76.10 yen. New Zealand’s dollar weakened versus all sixteen of its major counterparts. The kiwi declined 0.3 percent to 80.50 U.S. cents, halting its previous three days of gains. The Dollar Index, which IntercontinentalExchange uses to track the ISA dollar versus a basket of its peers, including sterling, the euro and yen, fell 0.1 percent to 76.064.

Economic calendar releases that may affect afternoon market sentiment

14:00 US – S&P/Case-Shiller Home Price Indices August
15:00 US – Consumer Confidence October
15:00 US – House Price Index August
15:00 US – Richmond Fed Manufacturing Index October

Moving aside the house price indices the major data releases include consumer confidence in the USA, a Bloomberg survey of economists forecasts a figure of 46.5, as compared with the previous reading of 45.4. The Richmond fed expectation is for a median consensus of -1 from -6 previously.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/wednesdays-child-is-full-of-woe/

Daily Market Roundup by FXCC - October 25 am

The Vatican, Spivs and the EFSF

I have to confess I’m a little bit spooked, in Monday’s between the lines (I tongue in cheek) posed the question “who was left to offer up an opinion on how to solve the Eurozone crisis?” I jokingly suggested the Pope..gulp..and today the Vatican publicises their opinion. If I go missing for a few days you’ll know the priory of Sion is on to me.

The Vatican has called for a radical reform of the world’s financial system, including the creation of a global political authority to manage the world’s economy. The aim is for a new world economic order based on ethics and the search for the common good. The proposal by the Vatican’s Pontifical Council for Justice and Peace, released on Monday, follows up on Pope Benedict XVI’s 2009 economic encyclical that denounced a profit-at-all-cost mentality as responsible for the global financial meltdown. The new document stresses “the economy needs ethics.” It suggested that the reform process begin with the United Nations as its point of reference.

Given how wealthy the Catholic church is perhaps the opinions are not as altruistic as first appears, perhaps the Vatican will revert to its historical routes and go all out Capitalist, issuing bonds, waging wars in the name of conversion, building up incredible reserves of wealth. Let’s hope they don’t discover oil in Rome and threaten to sell it in a new currency called the Vati, surely the USA and NATO have organised enough regime change for one decade..?

We haven’t seen the acronym SPIV floated around the world of high finance regularly for at least three years, 2008 was the last year the abbreviation was used regularly. Special purpose investment vehicles were used back in 2008-2009 to dump the junk and incredibly delinquent investments banks wanted to relieve themselves of and politicians agreed to bear the cost of such onto the unsuspecting public. The irony of the word SPIV in London slang was not lost on many market commentators back then, although a word that has largely disappeared from common use it meant a small time ‘wheeler-dealer’ who flew under the radar of the authorities. In the United Kingdom, a spiv is a particular type of petty criminal, who deals in stolen or black market goods of questionable authenticity, especially a slickly-dressed man offering goods at bargain prices. The goods are generally not what they seem or have been obtained illegally. The term spiv was particularly used during the Second World War and in the post-war rationing period for black-market dealers.

The euro zone could combine two proposals for increasing the firepower of its rescue fund – an insurance model and a special purpose investment vehicle. A ‘paper’ being floated by the EU said neither option would require politically-difficult changes to the existing European Financial Stability Facility (EFSF). Under the insurance model, the EFSF could boost market confidence in new debt issued by a struggling member state by guaranteeing a proportion of the losses that could be incurred in the event of default. The EFSF extends a loan to a member state, which would buy EFSF bonds in return. The bonds would be the collateral for a partial protection certificate to be held in trust for the state. Both the bond and the certificate would be freely tradable.

If the state defaults the investor would surrender the protection certificate to the trust and receive payment from the EFSF. This option couldn’t apply to states already receiving euro zone/International Monetary Fund bailouts, they are no longer issuing bonds on the primary market. Under the SPIV scheme, one or more vehicles would be set up either centrally or in a beneficiary member state to invest in sovereign bonds in the primary and secondary markets.

This proposal would be unlikely to help Greece, suspicions that the EU are simply searching for a way to soothe markets and get them prepared for Greece’s inevitable default looked heightened as Greek bank shares crashed in Monday’s two trading sessions. Greek bank shares shed more than 13 percent on Monday on fears that a deeper markdown on Greek government bonds held by the private sector would force lenders to seek state support to recapitalize. Talks of haircuts ranging from 40 to 50/60 percent on Greek government bonds could mean resorting to the capital support backstop, the Financial Stability Fund (FSF) for some banks. Attica Bank lost circa 22.1 percent and Eurobank was down 16.5 percent. National Bank of Greece SA and Alpha Bank SA tumbled more than 19 percent.

Markets
Stocks and commodities gained in NY and Europe after the Asian session earlier in day on Monday took the lead with reports showing China’s manufacturing may grow in October for the first time in four months and Japanese exports rose more than expected last month. The SPX closed up 1.29%. In European markets the STOXX closed up 1.35%, the CAC up 1.55%, the FTSE up 1.08% and the DAX closed up 1.41%. The equity index future for the FTSE & SPX is currently flat. Brent crude future is currently down $29 a barrel and gold is flat.

Currencies
The dollar fell versus all of its major counterparts in Monday’s trading sessions due to equities rallying on better than expected corporate earnings, commodities advancing also reduces the dollar demand as a refuge. The yen approached a record high versus the dollar after Japan’s exports rose in September more than forecast. Australia’s dollar climbed after a preliminary survey showed Chinese manufacturing may be the highest in five months. The yen increased 0.3 percent to 76.10 versus the dollar at 5 p.m. in New York after reaching a post-World War II record high of 75.82 on Oct. 21. The euro appreciated 0.2 percent to $1.3929 after earlier dropping 0.5 percent. The euro was static at 106 versus the yen. Australia’s dollar rose 1 percent to $1.0475.

Canada’s dollar approached its strongest level in over a month after reports suggesting China’s manufacturing may grow in October for the first time in four months. Canada’s currency advanced 0.3 percent to C$1.0030 per U.S. dollar at 5:01 p.m. in Toronto, having earlier touched C$1.0022, the strongest since Sept. 21, which was also the last time the currency traded at parity with the USA dollar. One Canadian dollar buys 99.63 U.S. cents. The loonie has weakened 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The greenback has declined 3.9 percent, and the yen has lost 3.2 percent of its value.

Sterling weakened versus most of its major peers tracked due to concern that U.K. economic growth is slowing. The pound was little changed at 87.14 pence per euro at 5:27 p.m. London time, after rising by 0.4 percent to 86.74. Sterling fell 0.1 percent to 121.52 yen and strengthened 0.2 percent versus the dollar to $1.5978. Sterling has dropped 1.2 percent in the past six months, according to the respected Bloomberg Correlation-Weighted Indexes, which tracks 10 developed-market currencies.

Economic data releases that may affect sentiment in London and European markets

09:30 UK- BBA Mortgage Approvals September
09:30 UK – Current Account Q2

Mortgage approvals are expected to be relatively static. Analysts surveyed by Bloomberg predicted 36,000 from a previous figure of 35,226. The UK current account deficit is not expected to alter by enough to affect sentiment, analysts surveyed by Bloomberg gave a median forecast of -9.0 billion pounds, compared with the last release which was -9.4 billion.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/october-25-am/