Soy Un Perdidor, I’m A Loser Baby

In the late 1980s and early 1990s, Beck was a homeless musician in New York City. He returned to his hometown of Los Angeles in 1991 due to financial struggles.

Described by his biographer Julian Palacios as having “no opportunities whatsoever”, Beck worked low-wage jobs to survive, but still found time to perform his songs at local coffeehouses and clubs. In order to keep indifferent audiences engaged in his music, Beck would play in a spontaneous, joking manner…

“I’d be banging away on a Son House tune and the whole audience would be talking, so maybe out of desperation or boredom, or the audience’s boredom, I’d make up these ridiculous songs just to see if people were listening. ‘Loser’ was an extension of that.”

Tom Rothrock, co-owner of independent record label Bong Load, expressed interest in Beck’s music and introduced him to Carl Stephenson, a record producer for Rap-A-Lot Records.

“Loser” was written and recorded by Beck while he was visiting Stephenson’s home. Although the song was created spontaneously, Beck has claimed to have had the idea for the song since the late 1980s; he once said;

“I don’t think I would have been able to go in and do ‘Loser’ in a six-hour shot without having been somewhat prepared. It was accidental, but it was something that I’d been working toward for a long time.”

Beck played some of his songs for Stephenson; Stephenson enjoyed the songs, but was unimpressed by Beck’s rapping. Beck attempted to emulate the rapping style of Public Enemy’s Chuck D. According to Beck, the line that became the song’s chorus originated because “When [Stephenson] played it back, I thought, ‘Man, I’m the worst rapper in the world, I’m just a loser.’ So I started singing ‘I’m a loser baby, so why don’t you kill me’…”

Whilst pouring through all my archives of trading reference material I came across “advice from a loser”. I’d not read it for a while, since 2006, but thought I’d share it with our group as overall the points raised are very poignant. I’ve edited it slightly for ease of reading and to protect the identity of the original author, unfortunately I can’t give you an update as to his progress, but the experiences he shared I’m sure many of us can relate to..

Ego, no trading plan (or having one and not sticking to it), impatience, lack of discipline, too much risk, not learning from mistakes..the trader made all the mistakes but took far too long to remedy them and the majority (as he rightly points out) could have been easily rectified. The desire to take short cuts is something many fledgling traders have to contend with. It’s impossible to put a time scale on how long it takes to move through all the gears to arrive at a state of: efficiency, proficiency and consistent profitability, but one things for sure, that time scale has to be measured in years not months.

We’ll cover the confession today and in the second part of this two part article tomorrow we’ll cover some of the suggested remedies and advice offered up to our struggling trader.

Oh and by the way, if you’ve now got the Beck song playing in your head for the rest of the day I make no apology..

Confessions of a Day Trading Loser

Part 1
“I just want to pass on some of my experiences to you from the last two years. Firstly, I’ve failed. I’ve lost thousands of pounds making all the mistakes and broken all of the rules for successful trading. I read all of the rules so many times, in almost every trading book and article, but I was very stubborn with a huge ego so I ignored them all and it cost me. These are the key reasons for my failure:

Ego
Until now I have always been very successful in everything I do. The possibility of failure never even occurred to me. Therefore I gave the markets no respect. I always new best.

Fools Rush In
After a period of a single year part time day trading, maybe a few trades a week, I was the man, I knew it all. So I gave up a highly paid job in the city to day trade full time. Did I really know what I was doing? No.

Size
Why trade small when I can trade 20 contracts each time and risk thousands on each trade? Maybe it would have been better with just 1 contract to begin with. Sure, I would not make my millions. But I would not lose so much. Now I am down to trading 1 contract because that’s all I can afford.

Trading Plan
Plan? What plan? I was ripping it up and creating two new ones each month. Are they of any use ? Absolutely, I think that 70% of them weren’t bad. But how would I know? I never stuck by any of them, other than in hindsight.

Discipline
Everyone trader knows the key to being a successful trader (apart from having a good trading plan) is discipline. Run your profits Stop your losses, plan your trades trade your plan, stick to your rules 100% of the time. Could I stop a loss? Never. Could I stop a profit? Always.

Learn From Your Mistakes
I always learned from mistakes. Until the next time I made the same mistake, time after time after time…

Well, that’s me. I’m out of the game at the moment. I have zero confidence, little money left and I am quite depressed. I start my new 9-5 job on Monday for less money than I gave up 2 years ago and it’s all my own fault.

I don’t want to put anyone off but it’s essential that you know the realities of what you’re getting into. Trading can be a great lifestyle choice but it’s not easy money. The market can be very unforgiving and doesn’t suffer fools. Make sure you know what you are doing before you commit any of your cash and start small. Build on success patiently and consistently over time whilst you gain experience. For what it’s worth and in my humble opinion the most effective way to follow a trading plan and apply strict discipline is 100% automation.

Will I be back? I dont know is the honest answer, but if I do I’ll be humble, disciplined and 100% automated.”

FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/soy-un-perdidor-im-a-loser-baby/

Market Commentary by FXCC - MF Global Went Postal

Ever added to a losing position? No, me neither. There we are talking about risking no more than 1% of our capital per trade and a former Goldman Sachs co chairman treats his company and crucially OTHER PEOPLE’S MONEY like a pot at a Las Vegas poker table and goes full tilt and all in. Now we can talk about the comparisons not being equitable, they’ll be using a sophisticated funky algo, we ‘at best’ use Expert Advisors, but the principle is still the same, they ‘bet the farm’.

Apparently Jon Corzine, the CEO of MF global bet $11.5 billion on European sovereign debt in his bid to rebuild profits at MF Global Holdings Ltd., almost twice the net amount disclosed to investors, and relied on short-term hedges that left the firm exposed to larger losses if they couldn’t be rolled over. Now how does that differ from the rogue investors at Societe Generale, or UBS? In terms or morals and ethics they’re in the same ball park, but as a former New Jersey senator and governor Corzine will no doubt have all his ducks in a row legally and escape critique and punishment…won’t he?

Corzine joined MF Global in March 2010 with a plan to remake the company into an investment bank in the image of Goldman Sachs Group Inc., where he had been co-chairman before entering politics, He ratcheted up his wager on the debt of countries including Italy and Spain, booking gains along the way, according to filings. The short-term hedges matured before the bonds, meaning the net amount at risk could increase if investors lost confidence in either European sovereigns or MF Global and new hedges couldn’t be bought.

Poor risk management had hurt MF Global before Corzine’s arrival. The company’s shares fell 40 percent in two days in February 2008 after it lost about $141 million on unauthorised wheat trades by an employee in Memphis, Tennessee.

Let’s give the floor and allow the last comments from Josh Galper the managing principal at Finadium, a Concord, Massachusetts, investment research and consulting firm. Josh believed Corzine’s strategy might have ultimately proven “very profitable” had the firm been able to hold the trades to maturity. The firm’s collapse stemmed from a cash shortage, with trading partners and lenders seeking more collateral after the credit downgrade, rather than actual losses on the bonds, Galper said.

“If MF Global had bought the same trade without leverage, there would have been no issue,” Galper said in an interview. Moving aside the funky algorithms MF will have used, versus the strategies retail traders employ, the same principles apply; leverage killed his bet and he had a margin call that killed the company…

Market Overview
Italy may be forced to pay above the 7 percent threshold that prompted Greece, Portugal and Ireland to seek aid when it auctions as much as 8 billion euros ($11 billion) in bonds today. The Rome-based Treasury aims to sell as much as 3.5 billion euros of a three-year bond, 2.5 billion euros of 2022 bonds and 2 billion euros in 2020 bonds. Italy had to pay more than 7 percent in debt auctions yesterday and on Nov. 25. Today’s results are due shortly after 11 a.m. Rome time.

Italian bonds have fallen today as the nation prepares to sell this debt. The 10-year yield rose 12 basis points to 7.35 percent as of 8:34 a.m. in London. Similar-maturity Spanish yields rose 1 basis point to 6.59 percent, while, while French yields rose 4 basis points to 3.65 percent.

The Stoxx Europe 600 Index slid 0.7 percent at 8:59 a.m. in London, following a 3.8 percent jump yesterday. Standard & Poor’s 500 Index futures were little changed, erasing an earlier gain of 0.7 percent. German 10-year yields decreased two basis points to 2.28 percent and Treasury 10-year yields rose one basis point to 1.99 percent. The euro pared an earlier increase against the dollar and yen. Copper fell 1.3 percent in London, while oil retreated from a one-week high in New York.

Bank shares were the biggest contributors to declines on the Stoxx 600, which snapped a two-day advance. Germany’s DAX Index retreated 0.8 percent, France’s CAC 40 lost 1.2 percent and the U.K.’s FTSE 100 Index slipped 0.7 percent. Moody’s said it’s considering lowering debt ratings for European banks amid the potential removal of government support.

Moody’s have made a significant announcement were the ratings of all subordinated, junior-subordinated and Tier 3 debt ratings of 87 banks in countries where the subordinated debt incorporates an assumption of government support. They were all placed on review for downgrade the ratings company said in a statement today. The subordinated debt may be cut on average by two levels and the rest of the debt by one grade, it said.

Market snapshot at 10:00 am GMT (UK time)

Asian markets rallied in overnight and early morning trade, the Nikkei closed up 2.3%, the Hang Seng closed up 1.21% and the CSI closed up 1.37%. The ASX 200 closed up 1.08%. European bourse indices have, with the exception of the DAX, fallen moderately after yesterday’s intense rally. The STOXX is currently down 0.26%, the UK FTSE is down 0.27%, the CAC is down 0.37% and the DAX is up 0.35%. The SPX equity index future is currently up 0.4%. ICE Brent is down $0.10 per barrel at 108.92 and spot gold is down circa $3.78 an ounce at 1708.

The euro was little changed at $1.3327 at 8:53 a.m. London time, after gaining 0.6 percent yesterday. The currency fell 0.2 percent to 103.73 yen after rising as much as 0.5 percent. The yen climbed 0.2 percent to 77.79 per dollar.

Economic calendar data releases that may affect the afternoon session sentiment

Tuesday 29 November

14:00 US – S&P/CS Home Price Indices September
15:00 US – Consumer Confidence November
15:00 US – House Price Index Q3

House prices feature heavily today. A Bloomberg survey gives a median consensus of -3.0% year-on-year for the composite-20, from a previous reading of -3.8% for the Case Schiller index. A survey by Bloomberg predicts a change of -0.1% month on month unchanged from last months figure for the Q3 figure.

Consumer confidence is expected to rise, A Bloomberg survey of economists forecasts a figure of 44, as compared with the previous reading of 39.8.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/mf-global-went-postal/

Every Exit Is An Entry Somewhere Else - By FXCC

“Anyone can see an entry, the real skill is exits and over a lifetime of trading you’ll never get them right and you’ll never be 100% happy with them..”

Many traders reach a ‘paralysis’ stage in their trading, they feel and honestly believe they’re doing everything correctly; their psyche is sound, they’re only risking 1% per trade (therefore their money management technique is spot on) and they’re patiently waiting for their set up to occur before they “pull the trigger”, but they’re not “winning”. The key reason they’re not winning is “that Goddam market just ain’t behaving”, at least not in the way they’d like it to. Guess what? That feeling of; “I’ve ‘placed my bet’ and I’m now at the mercy of the market” never leaves us, we have to accept that the only control we have is trade management for the lifetime of the trade.

However, we can exercise elements of control, we can adjust: our stop, our trailing stop, our target, we can close the trade at any time, but we can’t control price. This is why it’s crucial to exercise control and constant vigilance of what we can control, including exits.

All experienced traders will testify to the feeling of having left too much on the table when exiting a trade, and legendary forex traders will always claim that they “never got their exits right and never will”. It’s part of the paradox of the industry and profession and as such it’s incumbent on us to take a professional and actuarial attitude towards exits by attempting to find a rational exit strategy, keeping R:R at 2:1, (winners versus losers) is as good as it gets. The skills of; entry, money management and the beginnings of developing a strong psyche can be learned and or taught in a relatively short space of time. Only the market can ‘teach’ you exits and having to accept that you’ll never get them right it is fact one of the biggest challenges traders need to face up to.

There is a very misleading saying in the Forex community that appears to have become embedded as folklore; “never let your winners turn into losers”. However, as with many aspects of trading, it’s never that straightforward, if we logically reverse that process how would you deal with a trade that was in the red for days, that finally goes into profit, would you close it immediately? As a swing trader it can be normal for a trade to be in the red for days and then eventually move into profit. There is undeniably a certain truth to the folklore saying and we’ll revisit it later on in this article.

When and how you exit your trades, depends on your trading plan, all proficient exit techniques have something in common, they are done according to your plan, emotions should have no influence. It doesn’t matter what system you use, the same principles should always apply. Most fledgling traders focus singularly on the entry signal and optimising the entry price, if price on the chart looks more likely to move in the direction indicated by the signal they take the trade. This reaction should never change if the trader is 100% committed to their set-up and ‘edge’. In this article we’ll discuss what I term “two exit trading”, firstly two cast iron exit basics that we should all adhere to and secondly a two exit strategy that can alleviate some of the potential disappointment in not getting all of the trend movement.

Two Exit Trading
Forex traders often exit a Forex trade positively then look on as price travels another 100 pips in the ‘right’ direction. Similarly it’s common to witness price retrace back to your entry point or into minus territory as traders attempt to squeeze the last 5 pips out of a good FX trade. Knowing when to “cash in” a forex trade can be one of the most challenging aspects of Forex trading. However, there can be a more profitable and less stressed method of trading by identifying two exits before opening the position, have a stop exit and a target exit. The stop exit can also be a trailing stop exit.

The ‘full’ stop is the price nearest to the entry level which completely neutralises the entry signal, whatever was originally visible in the chart as a probable direction indicator has now been made void. At this point traders must close the entire position, there should be no doubts second guesses or exceptions, the trade must be closed.
The target is the price level which, based on a combination of experience or TA, price is likely to reach. At that point traders should take all the profit and look for a new position. Remember old adage that it’s “much easier to find new positions than to manage old ones”. If you set a target psychologically you should be in a happy place irrespective of whether or not the trade then makes new highs as your trade, as that part of your plan has worked out perfectly.

Hesitation and the tendency to hold on to a losing position, in the hope that it might turn around and prove you right, is one of the most common trading errors. The only rational response to a loss on any trade of more than the one per cent risked is to exit and to potentially re-enter if the market turns favourably in the other direction.

The trading rule of “cut losses, let profits run” encourages traders to quit losing trades before losing too much, and ensures that the trend is over before getting out. This may involve coming to terms with unexpectedly strong emotional reactions to the inevitable losing trades. In forex trading the exit strategy really is arguably everything. Many fledgling traders spend all their time developing a winning system, once done they may employ a strict stop loss policy to minimise their losses. However they neglect the exit strategy at the onset due to enjoying the experience of profitability.

Two Part Exit Trading
One of the most effective strategies traders favour is the two part exit strategy. This is a strategy used to some success when swing trading off a 2-4 hr strategy, and it’s arguably the main reason why this system is so profitable.

Trading, for example, the AUD/USD, EUR/USD, EUR/JPY and USD/JPY pairs using this method the exit strategy is set in stone. Once the trade is in profit by 50 points close half the position and let the other half “run”, moving the stop loss up to the break-even point. the suggestion for USD/JPY is to take half off at 30 pips.

In adopting this method traders can guarantee profits from most of the profitable trades they enter, the benefits are for a “free trade” position with the second half of the position, therefore traders can hold out for the possible really big gains from the comfortable position of knowing that they’ve secured a minimum should the trade reverse.

The only complexity to what is a simple concept is deciding where to exit the second half of the position when trades are profitable, gut instinct is not necessary as using technical indicators, perhaps in conjunction with: support and resistance levels, large ‘looming’ round numbers, or significant moving averages can be used.

There can be another cautious addition to the slight complexity of this method, traders could take two trades, one at full position size the other at half position size. Once the initial target is reached the second trade, at half the position size, is left to ‘exhaust’ until the price action or preferred indicators suggest the trend is finished.

Summary
When entering Forex trades the trading signals are aligned ticking all the entry criteria, the entry is the straightforward part of the process. When price moves in its predicted direction the trade enters an area where the trade is dependent of the volatility of the trade move to succeed. Using the half off method, and for added caution perhaps using half position size, by taking two identical trades at the outset, can be a satisfying way to ensure that the trader captures most of the trend. Even relatively inexperienced traders can easily adopt and adapt this technique to enjoy success.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/every-exit-is-an-entry-somewhere-else/

Daily Market Roundup by FXCC - November 29 am

“It isn’t easy for an idea to squeeze itself into a head filled with prejudice.”

The adage “the market can stay irrational longer than you can stay solvent” may have been in traders’ minds during the two trading sessions on Monday, or perhaps they considered the quirky alternative; “the market can stay solvent longer than you can stay irrational”, whichever version you choose it was an interesting Monday..

We all have our biases and prejudices were trading is concerned, in the Monday market commentary we’d suggested that a rally based on rumours of an IMF bailout and optimistic shopping figures in the USA didn’t appear to be a solid base for a sustained recovery given the overall mood with regards to the European crisis. But then the solvency/irrationality ‘equation’ hits you and as someone who preaches the “trade what you see, not what you think” mantra perhaps I should know better, particularly if a ‘short squeeze’ has caused the rally.

However, the fact that such a complex beast as ‘the markets’ can be moved by a rumour in Italy’s version of the UK’s Daily Mail and by manic USA shopper numbers, made up of shoppers prepared to pepper spray the competition in the queue in order to buy two dollar waffle makers, makes for nervous predictions and decision making. When sobering news, that should have acted as a moderating force in the market, is largely ignored by investors and speculators, it’s only natural to be concerned.

A snapshot of the late Monday afternoon early Tuesday morning reveals the news that “the markets” absorbed without affecting the bullish direction…

EFSF
Klaus Regling, the head of the European Financial Stability Facility (EFSF), is expected to tell eurozone finance ministers meeting in Brussels on Tuesday evening that the scheme to quintuple the firepower of the fund by underwriting initial losses on eurozone bond-buying by China and sovereign wealth funds in the far and Middle East has failed to attract enough interest.

Moody’s Warning
The Moody’s ratings agency predicted that a euro exit by any country would trigger a cascade of sovereign defaults across the eurozone. Jean Pisani-Ferry, director of the influential Bruegel thinktank in Brussels, said that “real businesses” as well as the financial markets were now “pricing in a break-up scenario … If disaster expectations build up and a growing number of players start positioning themselves to protect themselves from it, the consequences could become overwhelming.”

USA Loses Stable Outlook Rating
The U.S. lost its last stable outlook from the three biggest credit-ranking companies after Fitch Ratings lowered the nation to negative following a congressional committee’s failure to agree on deficit cuts.

Fitch’s outlook on the U.S., which it still assigns its top AAA grade, reflects “declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path will be forthcoming,” making the probability of a downgrade greater than 50 percent over two years, the company said yesterday in a statement. Standard & Poor’s and Moody’s Investors Service said Nov. 21 that the so-called super-committee’s inability to reach an agreement didn’t merit downgrades because the inaction will trigger $1.2 trillion in automatic spending cuts.

France To Go On Negative Watch
French newspaper La Tribune is reporting that France will be placed on negative watch, threatening it’s AAA status, inside days. Standard & Poor’s (S&P) may well announce “shortly” adjust the AAA rating of France as “negative outlook” before a critical bond auction on Thursday.

Italy’s Credit Rating Is Cut To BB By Rating Agency Egan Jones

“Italy will probably have to provide additional support to its banks and will see some pressure on its economy. We expect that Italy’s banks will continue turning to the ECB and Italy for support. In 2012, the Republic of Italy needs to finance EUR320B of debt and is likely to experience increasing yields and restricted access without external intervention. As of this weekend the yields on the 6 month notes were 6.5%; rates have been rising despite ECB purchases. The major issue is whether the IMF will become involved and if so, whether the face value of the debt will be cut. Italy cannot support all of its debt.” And what is probably worse is that according to what are likely very optimistic projections, EJ sees Italian debt/GDP rising from 127% in 2011 to 157% in two years. Indicatively, the cutoff ratio for a CCC-rated sovereign credit in Egan Jones’ view is 150% debt/GDP.”

IMF Deny Support
Although an IMF mission was expected in Rome within days, Bloomberg reported that the newspaper cited figures without attribution and the IMF denied the assertion via email. As of Nov. 17, according to the IMF’s website, the body has only about $390 billion available to lend. The paper also said that the IMF had several options to increase its firepower, including coordination with the European Central Bank.

OECD Predict Falling GDP
The Organisation for Economic Cooperation and Development said today that growing doubt about the survival of Europe’s monetary union has caused global growth to stall and represents the main risk to the world economy. The 34 OECD nations will expand 1.9 percent this year and 1.6 percent next, down from 2.3 percent and 2.8 percent predicted in May, the Paris-based organisation said in a report.

Market Overview
Global stocks rose for the first time in 11 days and commodities climbed after U.S. Thanksgiving weekend retail sales jumped to a record and speculation grew that European leaders will do more to tame the debt crisis. The euro rose, while Treasuries reversed earlier losses.

The MSCI All-Country World Index added 3 percent at 4 p.m. in New York, snapping its longest slump since 2008, and the Standard & Poor’s 500 Index rallied 2.9 percent to halt a seven- day losing streak. The euro strengthened 0.6 percent to $1.3312 after climbing as much as 1.2 percent. Ten-year Treasury yields were little changed at 1.97 percent after jumping as much as 11 points. The cost of insuring European government debt fell for the first time in eight days. Oil rose 1.5 percent.

Germany spurned investor calls to maximise financial firepower to calm markets, saying its fast-track proposals for EU treaty change are key to solving the euro-area debt crisis. Chancellor Angela Merkel will deliver a speech on the crisis to the lower house of parliament in Berlin on Dec. 2, previewing a Dec. 8-9 summit of European leaders that is due to discuss proposals for treaty change, Merkel’s chief spokesman, Steffen Seibert, told reporters today.

Italian bonds led gains among the securities of heavily indebted euro-area nations after French Budget Minister Valerie Pecresse said greater financial assistance may be available in exchange for tougher budget rules.

The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 0.6 percent to 79.226 as the dollar weakened against 14 of 16 major counterparts.

New Zealand’s dollar climbed against 14 of 16 peers, surging 1.9 percent against the U.S. currency, after Prime Minister John Key was re-elected with his party’s biggest mandate in 60 years.

Oil futures rose 1.5 percent to settle at $98.21 a barrel after earlier topping $100. Gasoline climbed 2.8 percent to $2.5181 a gallon and silver and copper climbed more than 3.3 percent to lead the S&P GSCI index of 24 commodities up 1.4 percent amid gains in 19 of the materials it tracks.

Economic Calendar Data Releases That May Affect Sentiment In The Morning Session

Tuesday 29 November

07:00 UK – Nationwide House Prices November
09:30 UK – Net Consumer Credit October
09:30 UK – Mortgage Approvals October
09:30 UK – M4 Money Supply October
10:00 Eurozone – Consumer Confidence November
10:00 Eurozone – Economic Confidence November
10:00 Eurozone – Industrial Confidence November

The confidence figures will be of particular interest, they’re released by the European Commission, Directorate General for Economic and Financial Affairs (monthly report). A survey of analysts by Bloomberg predicted a figure of -20.4, the same as last month’s figure for consumer confidence. A survey of analysts by Bloomberg predicted a figure of -7.6 for industrial confidence, from last month’s figure of -6.6.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/november-29-am/

Market Commentary by FXCC - Rumours Are Like Wildfire – You Are Burned Up Before You Know It

It’s becoming increasingly difficult to comment on the various rumours emanating from the new ‘technocracy’ put in place in Europe. On Friday of last week the FT published their findings that the EFSF could not be enlarged anywhere near the capacity required to be the necessary ‘bazooka’, as a consequence the equity index markets fell and currencies duly adjusted.

On Sunday afternoon we had news from an Italian newspaper that the IMF was committed to lending Italy circa €600 billion over an a period of two years, covering their debt for such time ensuring they wouldn’t have to access the bond markets at punitive rates, such as 7%+. La Stampa even went so far as to suggest the loan had been agreed at 4%. However the IMF have this morning poured cold water on such a theory stating; “There are no discussions with the Italian authorities on a program for IMF financing”. The IMF are due in Rome this week to discuss Italy’s crisis, but no specific date has been given.

The reaction to the IMF rumour once markets opened yesterday evening was nothing short of spectacular, the equity future on the DOW has risen by circa 250 pips, the UK FTSE is up 1.78% and the DAX up 2.86%, on the strength of a rumour that the IMF have categorically denied. For many involved in speculation and investment there has never been a time were global markets are on such a knife-edge that they turn on the basis of such baseless rumours. These unfounded rumours used to relate to (and move) individual stocks, not markets in their entirety. This is surely an indication of just how on edge the players who move the markets are and why investors need to exercise as much, if not more, caution now as that required back in 2008-2009. The largest peace time monetary and fiscal crisis Europe has faced now ‘gyrates’ according to rumours and public relations exercises as opposed to action.

“People who spread rumours are like walking infections. The lying words from their mouths spread like disease from person to person. The only way to stop the disease is to keep your mouth shut.” – JOYCE HANSEN, One True Friend

Easing Us Into More Quantitative Easing
The UK (BOE) has recently eased by circa £75 billion, the ECB cannot, given its remit prevents it, the biggest bond dealers in the U.S. believe that the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy. This time by purchasing mortgage securities instead of Treasuries according to 16 of the 21 primary dealers of U.S. government securities that trade with the central bank interviewed in a Bloomberg News survey last week. JPMorgan is one of the five dealers who don’t forecast the Fed will begin a third round of asset purchases to stimulate the economy. The others are UBS AG, Barclays Plc, Citigroup Inc. and Deutsche Bank.

The Fed might buy about $545 billion in home-loan debt, based on the median of the 10 firms that provided estimates. Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter,

After cutting its target interest rate for overnight loans between banks to a range of zero to 0.25 percent, the Fed bought about $1.7 trillion of government and mortgage debt during QE1 between December 2008 and March 2010, and purchased $600 billion of Treasuries between November 2010 and June through QE2.

Europe Crisis
As European finance chiefs prepare to meet this week, and Italy seeks to raise as much as 8.8 billion euros ($11.7 billion) in bond sales, economists from Morgan Stanley, UBS AG, and Nomura International Plc say governments and the European Central Bank must step up their crisis response. Moody’s Investors Service said today the “rapid escalation” of the crisis threatens all of the region’s sovereign ratings. With only “one shot” to get it right, the ECB will await signs its price stability goal is under greater threat from economic weakness and concrete proof governments will ax their debts before it moves to cap yields with “big time” bond- buying, said Deutsche Bank chief economist Thomas Mayer.

“It’s too early to expect the ECB to jump in, but we are moving to a new climax,” Mayer said in an interview.

German Finance Minister Wolfgang Schaeuble said that European governments are struggling to enact a pledge to beef up the euro rescue fund, as he called for fast-track treaty changes to tighten budget discipline as the key to calming markets. Schaeuble again ruled out joint euro-area bonds or deploying the European Central Bank to fight the crisis, saying such a debate is conducted in “those countries that have to sort out their budget problems and chose to misunderstand that they have to make more efforts.”

“We must together set up institutions that secure trust in the euro,” he said. “Everything that detracts from that is damaging.” EU President Herman van Rompuy has been tasked with presenting EU leaders with proposals for treaty changes at their next summit in Brussels on Dec. 9, a spokeswoman for Merkel’s government said yesterday.

Market Overview
MSCI’s All Country World Index added 0.7 percent at 8:04 a.m. in London. Standard & Poor’s 500 Index futures rallied 1.8 percent, signaling the U.S. gauge may halt a seven-day losing streak. Treasury 10-year yields increased three basis points to 2 percent and the Dollar Index headed for the biggest decline in more than two weeks. New Zealand’s dollar strengthened 1.6 percent after Prime Minister John Key was re-elected. S&P’s GSCI Index of raw materials rebounded from a five-week low. S&P 500 futures expiring in December signal the equity index may rebound from a seven-day, 7.9 percent slump that was its longest losing streak since August. Retail sales totalled $52.4 billion during the holiday weekend and the average shopper spent $398.62, up from $365.34 a year earlier, the Washington- based National Retail Federation said yesterday, citing a survey conducted by BIGresearch.

The Dollar Index, which tracks the U.S. currency against those of six trading partners, dropped 0.5 percent, set for the largest slump since Nov. 11. The greenback slipped 0.1 percent to 77.68 yen and weakened 1.4 percent to 98.47 cents against its Australian counterpart.

The euro climbed 0.5 percent to $1.3298, rebounding from a four-week slump against the dollar. The 17-nation currency earlier rallied as much as 0.7 percent after La Stampa reported without saying where it got the information the International Monetary Fund is preparing a 600 billion euro ($799 billion) loan for Italy in case the debt crisis worsens. Two-year Italian note yields were 21 basis points higher at 7.87 percent, after reaching a euro-era 8.12 percent.

Market snapshot at 10:30 am GMT (UK time)

Asian markets rallied in overnight early morning trade, the Nikkei closed up 1.56%, the Hang Seng closed up 1.97% with the CSI closing up 0.13%. The ASX 200 closed up 1.85%. European bourse indices have rebounded strongly from their recent lows, the STOXX is up 3.67%, the UF FTSE is up 2.18%, the CAC is up 3.68%, the DAX is up 3.14% and the MIB is up 3.41%. Brent crude is up $2.47 a barrel, spot gold is up $31.31 per ounce. The SPX daily equity index future is up 2.27%. The EUR/USD has risen by 1.11%, cable is up 0.9%, the Aussie is up 2.28.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/rumours-are-like-wildfire-you-are-burned-up-before-you-know-it/

Daily Market Roundup by FXCC - November 28 am

Evacuate The Dance Floor

The Sunday Telegraph has reported that Britain’s Foreign Office is advising the majority of its overseas embassies to draw up plans to help expats should the collapse of the Euro turn explosive, a senior minister has revealed that Britain is now planning on the basis that a euro collapse is matter of time. British embassies in the eurozone have been told to; “draw up plans to help British expats through the collapse of the single currency”, amid new fears for Italy and Spain.

As the Italian government struggles to borrow at sustainable rates and Spain is “considering” seeking an IMF international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible. Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis. The Treasury confirmed earlier this month that contingency planning for a collapse is now under way. A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.

“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Telegraph.

Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest. Diplomats have also been told to prepare to help tens of thousands of British citizens in eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash.

If eurozone governments defaulted on their debts, the European banks that hold many of their bonds would risk collapse. Some analysts say the shock waves of such an event would risk the collapse of the entire financial system, leaving banks unable to return money to retail depositors and destroying companies dependent on bank credit.

The Financial Services Authority this week issued a public warning to British banks to bolster their contingency plans for the break-up of the single currency. Analysts at UBS, an investment bank earlier this year warned that the most extreme consequences of a break-up include risks to basic property rights and the threat of civil disorder.

“When the unemployment consequences are factored in, it is virtually impossible to consider a break-up scenario without some serious social consequences,” UBS said.

Bonds and Rating Downgrades
Italy’s borrowing costs soared to their highest levels since Rome joined the euro on Friday as Hungary’s rating was ‘junked’. The foreign and local-currency bond ratings of Hungary were cut one step to Ba1 from Baa3, the company said in a statement yesterday. Moody’s assigned a negative outlook. The country is rated the lowest investment grade at Standard & Poor’s and Fitch Ratings.

Belgium, still without a government after 19 months, found that its credit rating was cut by S&P on Friday after the market closed. Whilst ratings downgrades are hardly surprising lately Belgium hadn’t experienced a downgrade for 13 years. The country’s credit rating has been cut down by one step to AA by Standard & Poor’s. The London-based agency pulled the country’s ratings down from AA+, citing a lack of policy consensus and slowing growth. Belgium now joins the ranks of the Czech Republic, Kuwait and Chile in terms of currency ratings. The country last had its credit standing lowered in December 1998 by Fitch Ratings. Friday’s ratings blows, after Greek, Portuguese and Irish bailouts, and with Italy, Spain and France also now under pressure, underlined a sharp escalation of the debt crisis at the end of a week that even saw Germany struggle to raise funds.

Concern has grown rapidly that the euro currency, in the absence of a game-changing European Central Bank decision to mount a gigantic financial rescue, could be close to breaking point. Europe’s monetary union may unravel sooner than the region’s leaders can mobilise to ensure the sovereign-debt crisis doesn’t overwhelm the currency, a UBS AG foreign exchange strategist wrote.

“Financial markets continue to move faster than politicians,” Mansoor Mohi-uddin, head of foreign exchange strategy for UBS, wrote in today’s note. Markets are starting to “price in the endgame” for the currency, he said.

European bonds slumped after Germany failed to draw bids for 35 percent of the offered amount at an auction of 10-year bunds this week, stoking concern the region’s debt crisis is infecting even the safest sovereign securities. The dissolution of the currency would force Germany and other countries’ banks to take losses on their sovereign bond holdings and burden them with the need to raise even more capital, the Singapore-based analyst wrote. German Chancellor Angela Merkel’s desire for closer fiscal union in Europe could weaken that country’s position if funds needed to be transferred to strengthen the monetary union, Mohi- uddin wrote. He said next week’s meeting of European finance ministers and the auction of 8 billion euros worth of Italian bonds are expected to be a key measure of the euro’s strength.

Italian yields are now in the territory that forced Greece, Italy and Portugal to seek international bailouts and an auction Tuesday of up to 8 billion euros (£6.86 billion) of 10 year BTP bonds will be a crucial test. Friday, Italy paid a euro lifetime high yield of 6.5 percent to sell new six-month paper, a level which analysts said cannot be maintained for long without pushing a public debt amounting to 120 percent of gross domestic product out of control. Italy, Europe’s second biggest manufacturing power, would be far too big for existing bailout mechanisms and default on its 1.8 trillion euro debt would probably destroy the euro.

A team from the International Monetary Fund is expected in Rome this week to evaluate the state of the economy, a mark of growing concern about the effect of the crisis on the world economy. The euro slid for a fourth week, dropping 2.1 percent to $1.3239 yesterday versus the dollar, the longest losing streak in 18 months. Also, the 17-nation currency fell for a third week against the yen as Belgium’s credit rating was downgraded. The currency fell 1.1 percent to 102.91 yen.

The EFSF
The European Financial Stability Facility may insure bonds of troubled countries with guarantees of between 20 percent and 30 percent of each issue to be determined in light of market circumstances, according to EFSF guidelines to be considered by finance ministers this week.

The proposal to attach guarantees of up to 30 percent of future EFSF bond issuances’ worth may create a threefold expansion of the 440 billion-euro ($583 billion) fund, according to the guidelines distributed to lawmakers in Berlin. The EFSF’s pool of potential aid would also be increased by setting up so- called credit investment funds with private investors to buy the bonds of euro-region states that struggle to sell their debt.

French President Nicolas Sarkozy has said that the bailout fund might be worth $1.4 trillion after European governments agreed last month on steps to leverage existing guarantees as much as fivefold. European leaders are next due to hold a summit on Dec. 8-9. The new instruments may need to be supplemented further, German Finance Minister Wolfgang Schaeuble told reporters in Berlin on Nov. 25 following talks with Dutch Finance Minister Jan Kees de Jager and Finnish Finance Minister Jutta Urpilainen.

Leaders will seek a “separate path” of help from the International Monetary Fund to boost the EFSF, Schaeuble said. IMF help must be “substantial enough to help Italy and Spain,” de Jager told reporters, saying that talks on creating credit investment funds had run into “problems.”

German Finance Minister Wolfgang Schaeuble said that he’s confident the euro can and will be saved and will go on to become the most stable currency in the world.

Europe is witnessing a “crisis of confidence” that must be overcome by means of more strictly enforced budget rules in the euro area, Schaeuble said in an interview today on ARD television in Berlin. European Union treaty change could give the EU Commission a role in enforcing budget limits in member countries, he said.

Switzerland’s central bank remains ready to act if the franc’s strength worsens the outlook for the economy, governing board member Thomas Jordan said. Swiss National Bank Vice President Jordan told the Geneva-based Le Matin Dimanche newspaper in an interview published today.

Since Sept. 6 we have been saying that we were ready to take further measures if the economic outlook and the risk of deflation require it. The franc is still highly valued. In a very dangerous and volatile environment the cap has reduced the risks to the Swiss economy and eased the deflationary pressure.

The SNB on Sept. 6 imposed a limit of 1.20 francs versus the euro to combat the threat of deflation and help exporters after the Swiss currency gained as much as 33 percent during the preceding twelve months and reached an all-time high against the euro on Aug. 9.

Jordan didn’t say which measures the SNB would be willing to take. SNB spokesman Walter Meier confirmed the contents of the interview and said that it was conducted on Nov. 21.

Switzerland’s economy is entering a difficult phase, with a very low and possibly even slightly negative growth rate, In addition to the franc’s strength hampering the country’s exports, the global economy is slowing which causes demand to decline. We think that the franc will weaken further with time.

The Swiss franc, sought as a safe haven as the debt crisis engulfed the euro area, has been trading in a range of 1.2012 to 1.2474 versus the shared currency since the introduction of the cap and was at 1.2319 on Friday. Against the dollar, the franc was at 93 centimes.

China
China’s sovereign wealth fund may give “indirect” support to Europe through investments without being the nation’s main route for any aid, said Jesse Wang, the executive vice president of China Investment Corp.

“The fund wouldn’t be the main channel if China helps tackle the sovereign-debt crisis. However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support. As a commercial entity, CIC is seeking reasonable returns with controllable risks. CIC is under no obligation to follow the government’s policy orders in its operations because it’s a commercial entity. If the government carried out certain policy moves, CIC usually wouldn’t participate because it has different operational targets and risk-taking capabilities.”

On Germany’s failure to sell all the 10-year bonds offered at an auction Nov. 23, he said:

“One shouldn’t rush to some decisive judgment about the sales or worry that the debt crisis has spread to the core euro zone.” He cited an investment in the exploration and production business of Paris-based GDF Suez SA, Europe’s largest natural-gas network operator, as an example of what appeals. Asked if China will buy European bonds, he said the Chinese government is studying “which way and through which products” to support the region.

Monday 28 November

Economic calendar data releases that may affect market sentiment.

09:00 Eurozone – M3 (Money supply) October
15:00 US – New Home Sales October

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

Daily Market Roundup by FXCC - November 24 am

“Even if I knew that tomorrow the world would go to pieces, I would still plant my apple tree.” – Martin Luther, German scholar.

Germany was THE news on Wednesday, so much so that those commentators searching for the dislocating ‘Lehman moment’ wondered if we’d finally experienced it. The fact that Germany’s latest bond auction was “technically uncovered” is a huge issue and no one should underestimate the ‘tipping point’ this represents. For those who’ve used the kicking the can down the road metaphor the can has been kicked down the blind alley and finally hit the wall. Many financial news outlets and market commentators described the bond failure on Wednesday as “a disaster”, for once that description might not prove to be an understatement.

But that was only one issue relating to Germany the other, as mentioned in our previous notes, was German Chancellor Angela Merkel’s unequivocal and absolute resolution versus the ECB becoming the lender of last resort.

“The European currency union is based, and this was a precondition for the creation of the union, on a central bank that has sole responsibility for monetary policy. This is its mandate. It is pursuing this. And we all need to be very careful about criticising the European Central Bank. I am firmly convinced that the mandate of the European Central Bank cannot, absolutely cannot, be changed. I find it extraordinarily inappropriate that the European Commission is suggesting various options for euro bonds today – as if they were saying we can overcome the shortcomings of the currency union’s structure by collectivising debt. This is precisely what will not work.” – Angela Merkel..

Despite being portrayed as the obstinate obstacle to the supposed potential healing process, is Ms. Merkel actually the only sane voice of reason amongst the European elite politicians? Her dignified and calm navigation of the crisis, whilst so many are now rabidly salivating at Germany’s abject refusal to ‘print and be damned’, is admirable. Is the German stance in fact the correct medicine the system actually needs?

“How soon ‘not now’ becomes ‘never’.” “Peace if possible, truth at all costs.” – Martin Luther.

Germany failed to get bids for 35 percent of the 10-year bonds offered for sale, elevating borrowing costs in Europe higher and the euro lower on concern the region’s debt crisis is driving away investors. Total bids at the auction of securities due in January 2022 amounted to 3.889 billion euros, out of a maximum target for the sale of 6 billion euros, according to Bundesbank data. Six of the last eight bond sales by Germany have been “technically uncovered,” with fewer bids than the maximum amount on offer, Norbert Aul, a rates strategist at RBC Capital Markets in London, said in an e-mailed note.

Under the German auction system, the central bank retains securities at sales for the secondary market. In today’s offering, the debt agency allotted 3.644 billion euros of the securities, leaving the Bundesbank to retain 2.356 billion euros, or 39 percent of the supply. That’s the highest proportion of unsold debt at a 10-year sale since 1995, according to Bloomberg data. The securities were sold at an average yield of 1.98 percent. In the secondary market, the rate rose to 2.13 percent.

Banks and investors are reducing holdings of European government bonds as the debt crisis spreads. Kokusai Asset Management Co.’s Global Sovereign Open, Japan’s biggest mutual fund, sold its entire holdings of Italian government bonds by Nov. 10, a report from the fund showed. BNP Paribas SA and Commerzbank AG said in earnings reports this month they’re unloading sovereign bonds at a loss.

German bonds have returned 8.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French bonds have gained 0.9 percent and Belgian securities have dropped 3.3 percent, the indexes show.

Market overview for Wednesday 23rd November

The S&P 500 lost 2.2 percent to 1,161.79 at 4 p.m. in New York. The MSCI Emerging Markets Index extended its longest slide since 2009. Oil lost 1.9 percent, while the euro weakened to a six-week low after Germany failed to find buyers for 35 percent of the bonds offered at an auction. Ten-year German yields climbed 23 basis points and France’s rose 16 points.

The S&P 500 extended its November tumble to 7.3 percent. Stocks in the index are valued at less than 12 times estimated earnings, compared with 14.7 times at the end of last year. The index ended the session down 15 percent from a three-year high at the end of April and 26 percent below its record in 2007. The benchmark gauge of U.S. equity has rebounded 5.7 percent from its 2011 low in October, trimming a gain of as much as 17 percent. Financial shares in the S&P 500 have fallen 13 percent as a group to lead the market’s November slide, with Goldman Sachs Group Inc. and Bank of America Corp. trading at their lowest prices since the bear-market bottom in March 2009.

Crude fell 1.9 percent to $96.17 a barrel in New York. Gold for December delivery lost 0.4 percent to $1,695.90 an ounce as the stronger dollar decreased demand for the precious metal as an alternative investment, while copper futures retreated 1.7 percent.

Italian 10-year bond yields rose 15 basis points to 6.97 percent even as the ECB bought the nation’s debt, according to three people with knowledge of the transactions, who declined to be identified because the trades are confidential. A spokesman for the ECB in Frankfurt declined to comment today.

The dollar strengthened against all 16 major peers and the Dollar Index, a gauge of the currency against six major counterparts, rose 0.9 percent to 79, the highest on a closing basis since Oct. 4.

The euro weakened against 10 of 16 major peers, falling 0.6 percent against the yen and slipping for a fourth straight day versus the Swiss franc, the longest run of declines in more than two months.

The pound declined 0.6 percent to $1.5538 as Bank of England minutes from this month’s meeting showed policy makers were unanimous in their decision to keep the target for asset purchases this month, as some officials said an increase in stimulus may be needed in the future. British bonds advanced, pushing 10- and 30-year gilt yields to record lows.

Economic calendar data releases that may affect the morning market sentiment

09:30 UK – GDP Q3
09:30 UK – Index of Services September
09:30 UK – Total Business Investment Q3
11:00 UK – CBI Industrial Trends Survey November

Analysts surveyed by Bloomberg gave a median quarterly prediction of 0.5% for UK GDP, the same as the previous quarter. Year-on-year the figure was also predicted to be 0.5%, also remaining unchanged from the previous figure.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/november-24-am/

Daily Market Roundup by FXCC - Six Degrees Of Separation Now Shrunk To Three Or Four, But For Bank Contagion It’s One

Six degrees of separation refers to the idea that everyone is approximately six steps away, by way of introduction, from any other person on Earth. A chain of, “a friend of a friend” statements can be made, on average, to connect any two people in six steps or fewer. It was originally set out by Frigyes Karinthy and popularised by a play written by John Guare.

Due to technological advances in communications and travel, friendship networks could grow larger and span greater distances. In particular, Karinthy believed that the modern world was ‘shrinking’ due to this ever-increasing connectedness of human beings. He suggested that despite great physical distances between the globe’s individuals, the growing density of human networks made the actual social distance far smaller.

As a result of this hypothesis, Karinthy’s characters believed that any two individuals could be connected through at most five acquaintances. In his story, the characters create a game out of this notion. He writes:

“A fascinating game grew out of this discussion. One of us suggested performing the following experiment to prove that the population of the Earth is closer together now than they have ever been before. We should select any person from the 1.5 billion inhabitants of the Earth—anyone, anywhere at all. He bet us that, using no more than five individuals, one of whom is a personal acquaintance, he could contact the selected individual using nothing except the network of personal acquaintances.”

This idea both directly and indirectly influenced a great deal of early thought on social networks. Karinthy has been regarded as the originator of the notion of six degrees of separation.

In 2001, Duncan Watts, a professor at Columbia University, attempted to recreate an original experiment on the Internet, using an e-mail message as the “package” that needed to be delivered, with 48,000 senders and 19 targets (in 157 countries). Watts found that the average (though not maximum) number of intermediaries was around six.

A 2007 study by Jure Leskovec and Eric Horvitz examined a data set of instant messages composed of 30 billion conversations among 240 million people. They found the average path length among Microsoft Messenger users to be 6.6 (some now call the theory, “the seven degrees of separation” because of this).

It has been suggested by some commentators that interlocking networks of computer mediated lateral communication could diffuse single messages to all interested users worldwide as per the 6 degrees of separation principle via Information Routing Groups, which are networks specifically designed to exploit this principle and lateral diffusion.

There have been new search techniques developed to provide optimal or near optimal solutions. The experiments are performed using Twitter, and they show an improvement of several orders of magnitude. The optimal algorithm finds an average degree of separation of 3.43 between two random Twitter users, requiring an average of only 67 requests for information over the Internet to Twitter. A near-optimal solution of length 3.88 can be found by making an average of 13.3 requests. – Wikipedia

Facebook’s data team released two papers in November 2011 which document that amongst all Facebook users at the time of research (721 million users with 69 billion friendship links) there is an average distance of 4.74. Probabilistic algorithms were applied on statistical metadata to verify the accuracy of the measurements. It was also found that 99,91% of Facebook users were interconnected, forming a large connected component.

Users on Twitter can follow other users creating a network. According to a study of 5.2 billion such relationships by social media monitoring firm Sysomos, the average distance on Twitter is 4.67. On average, about 50% of people on Twitter are only four steps away from each other, while nearly everyone is five steps away. In another work, researchers have shown that the average distance of 1,500 random users in Twitter is 3.435. They calculated the distance between each pair of users using all the active users in Twitter…

Yesterday a great deal of media column inches was dedicated to Facebook’s claim that they’d reduced the six degrees to below four, however, it would appear that their claim could be simply a public relations stunt given their social media tool lags behind Twitter’s empirical results. For the banking fraternity no such degree of separation exists, the inter relationship and contagion is immediate.

It’s fascinating to watch how the mainstream news is managed, it’s as though the short attention span of the general populous is groomed by a higher authority. Over recent weeks the main news items across many of the networks in Europe concerned Libya, Italy and Greece, casting a jaundiced eye over the tv news yesterday evening not one of the subjects were mentioned, neither was Iraq or Afghanistan, Egypt received a two minute spot despite tens of protestors being killed for objecting to the current interim military rulers. The only reference to the Eurozone crisis was Germany’s bond offering being circa 35% under subscribed, a complicated issue lost on many of the viewers. Similarly the looming general strike, due to take place in the UK on November 30th, was given no coverage despite the huge impact it will have, not least to the economic data the current coalition government obsess over.

Despite the advances and benefits of Twitter and Facebook in relation to communication, most clearly demonstrated by the Arab spring uprisings, the observation is that the mainstream news has never been more dumbed down with its delivery and content, the creation of the celebrity industrial complex being concrete evidence. Should this banking, sovereign debt crisis and social unrest explode when the austerity measures, (created by governments to ring fence the wealth of the political, banking and other elite groups), really take hold you have to wonder how the general populous will cope. The education on who, what, when, where, and why in the western media has been noticeably absent, the end result could be hysteria and panic given the degree of separation between banks and retail customers is only one..

Market Overview
U.S. financial markets are closed today for the Thanksgiving national holiday. German private consumption expanded 0.8 percent from the second quarter, the German Federal Statistics Office has reported. Gross domestic product advanced 0.5 percent from the previous three months, the office said, confirming an initial estimate published on Nov. 15, that was an acceleration from the 0.3 percent growth recorded in the second quarter.

The 17-nation shared currency climbed from a six-week low versus its U.S. counterpart as Germany’s Federal Statistics Office said company investment jumped in the third quarter, contributing to a 0.5 percent increase in output. The yen pared gains after Standard & Poor’s said Japan’s lack of progress in tackling its public debt burden puts it at risk of a credit-rating downgrade.

The euro rose 0.2 percent to $1.3373 at 8:06 a.m. London time, after slipping to $1.3320 yesterday, the lowest level since Oct. 6. The currency traded at 103.16 yen from 103.15. The yen climbed 0.2 percent to 77.14 per dollar, after earlier rising as much as 0.4 percent.

The shared currency tumbled 1.2 percent against the dollar yesterday after Germany received insufficient bids at a bond auction, fuelling concern that Europe’s sovereign-debt crisis is driving away investors from the region’s assets.

Market snapshot as of 9:15 am GMT (UK time)

Overnight and early morning saw mixed results from Asia. The Nikkei closed down 1.80%, the Hang Seng closed down 0.4%, the CSI closed up 0.19%. The main Australian bourse index the ASX 200 closed down 0.17%.

European markets have experienced mixed results in the early part of the morning session, the STOXX 50 is currently up 1.28%, the UK FTSE up 0.37%, the CAC up 1.37%, the DAX is up 1.31%. Brent crude is up circa 96 pips and gold is up $6 an ounce. The SPX equity future is currently up circa 1%.

Economic calendar data releases that may affect the sentiment for the afternoon session

There are no significant data releases for the afternoon given the USA market is closed due to the national Thanksgiving holiday.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/six-degrees-of-separation-now-shrunk-to-three-or-four-but-for-bank-contagion-its-one/

Market Commentary by FXCC - Dexia And The Midnight Runners

I was determined to get another opportunity to use the “Dexia line”, thank you Mr Market. Two issues caught the eye overnight, firstly that the Dexia rescue has failed and secondly that a quiet bank run, for the elite not for us proles, is happening before our very eyes.

Dexia’s temporary salvation has failed, France would need to back stop it further as the former Belgian bank has little chance of a further Belgian rescue given how that country’s rating has deteriorated and as a consequence its access to cheap money from the bond markets is blocked. However, given France has so many insolvent domestic banks to prop up this could finally be the tipping point leading to a downgrade in France’s AAA rating.

The Fed has been experiencing a surge in deposits as has the ECB, could this be another canary in the goldmine that trust is not exactly sound in the system and that ‘money’ has nowhere left to fly other than the only secure place left. The Fed is now discussing a new stress test, if it follows the low pain threshold set by previous tests it’ll have all the test capabilities of congratulating a toddler after his first ‘potty poo’. Early indications suggest that if the Fed were to shock test a selection of half a dozen banks in the USA they’d find that many fall short and require tens of billions which investors are unlikely to stump up, that rumoured next round of QE can’t come quickly enough. The Fed said it would publish next year the results of the tests for six banks that have large trading operations: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.

In the Fed’s hypothetical stress scenario, unemployment would spike as high as 13 percent while U.S. gross domestic product would fall by as much as 8 percent. The heightened stress tests are part of a larger supervisory test the Fed will conduct on the capital plans of 31 firms with at least $50 billion in assets.

The tests will apply to 19 banks who have previously been through the process and 12 more financial firms considered less complex. The test each bank faces will be based on its size and complexity. The banks must submit their capital plans to the Fed by January 9, 2012. The Fed said that it plans to respond to banks by March 15. It was not clear when the results would be published.

Anyhow, that’s enough doom and gloom, let’s look forward to Black Friday, that traditional time of year in the USA when shopping peaks. As many as 152 million people will hit the stores on Black Friday, up 10 percent from last year, according to the NRF. Black Friday is the point at which many retailers start to go into the black, we’ll leave the madness of this economic model for another day. It’s the traditional pre Xmas blow out, timed after the USA Thursday Thanksgiving, when the U.S. citizens give thanks for..whatever they think the USA stands for; hope, change, democracy bombs etc..

The bargains rain down, according to a retail analyst (Storch) shoppers who bought every item listed in a recent Toys “R” Us circular would save $12,500, compared with $11,000 last year. The only fly in the ointment with that, apart from not having a house big enough to fit all the bargains in, is that this Black Friday comes at the time when USA consumer confidence is on its knees. On Oct. 30, the Bloomberg Consumer Comfort Index reached the second-lowest level in 26 years of data. Amid slumping confidence, customers at Best Buy Co., Gap and Toys “R” Us all said they would spend less this holiday season than last, according to a poll conducted last month by BIGresearch, a Worthington, Ohio-based researcher.

Consumer spending, which accounts for about 70 percent of the USA economy, grew at a 2.3 percent annual rate, little changed from the 2.4 percent initial estimate. Holiday sales may rise 2.8 percent this year, or about half of last year’s 5.2 percent gain, according to the National Retail Federation. The Washington-based NRF will release Thanksgiving weekend sales numbers on Nov. 27.

Americans have become mission shoppers, according to Bill Martin, the chief executive officer of the Chicago-based research firm Shoppertrak. Many consumers research what they want online, buy it and then leave, Martin said last month.

Market Overview
Global stocks hit their lowest in six weeks on Wednesday and crude prices fell after and manufacturing in regional heavyweight Germany contracted for a second straight month in November, and at a faster rate, as export demand slumped. Safe-haven U.S. Treasuries, German Bunds and gold were in demand as investors fled riskier assets.

World stocks measured by the MSCI All-Country World Index fell 0.5 percent to their lowest level since October 10. The global gauge was down for the eighth straight session, its longest losing run since late July and early August when the two-year-old euro zone debt turmoil spread to Italy. It has lost 13.6 percent this year.

China’s manufacturing may contract in November by the most since March 2009 as home sales slide, adding to evidence the world’s second-biggest economy is slowing, a preliminary purchasing managers’ index showed today. The reading of 48 reported by HSBC Holdings Plc and Markit Economics for November compares with a final number of 51 for October. A number below 50 indicates contraction.

The euro was down 0.4 percent at $1.3456 after a newspaper said France, Belgium and Luxembourg were in talks on how to provide temporary state debt guarantees for failed financial group Dexia stirring worries France will face a further fiscal burden. The dollar, which has been benefiting from recent investor unease, rose 0.3 percent against a basket of major currencies after hitting its highest in six weeks.

Brent crude dropped 0.7 percent to trade just above $108 a barrel, while copper prices slipped 0.3 percent to above $7,300 a tonne. Gold added 0.1 percent after rising 1.1 percent the previous session. The precious metal has risen nearly 20 percent this year, on track for its 11th straight year of gains.

Market Snapshot at 9:50am GMT (UK time)
Asian markets, particularly those in or reliant on China, performed badly in the overnight early morning session. The Nikkei closed down 0.4%, the Hang Seng closed down 2.12%, the CSI down 0.98%, the TWSE down 2.77% and the KOSPI down 2.36%. the ASX 200 closed down 1.98%. The European bourse indices are mainly flat or down marginally, the STOXX is up 0.05%, the UK FTSE is down 0.21% the CAC is down 0.3%, the DAX up 0.36%. The equity index future for the SPX is currently down 0.48%.

Currencies
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currencies of six major U.S. trading partners, gained as much as 0.4 percent to 78.549, the most since Oct. 10.

The 17-nation euro dropped versus the yen ahead of reports forecast to show that manufacturing in Germany and France, Europe’s two biggest economies, weakened this month. The pound was only 0.2 percent from a month low against the dollar before the Bank of England releases its November meeting minutes. The U.S. currency advanced most of its major peers as Asian stocks dropped, while Australia’s dollar slid after a preliminary reading of a Chinese industrial output gauge declined.

The pound weakened for a third day against the dollar, reaching its lowest level in six weeks, before the Bank of England releases minutes of this month’s policy meeting. The Bank of England held the ceiling for asset purchases at 275 billion pounds ($429.5 billion) at its Nov. 10 meeting. The bank, which expanded so-called quantitative easing by 75 billion pounds last month, said the current purchases will take another three months to complete and the “scale of the program will be kept under review.”

The pound dropped 0.1 percent to $1.5624 from yesterday, when it fell to $1.5582, the weakest level since Oct. 12. The pound has lost 3.6 percent over the past 12 months, the third-worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

The Australian dollar extended declines against the greenback after the HSBC Flash Manufacturing PMI for China, Australia’s biggest trading partner, fell to 48 this month, predicting the biggest contraction since March 2009. That compares with a final reading of 51 in October.

Economic calendar data that may affect the sentiment of the afternoon session

12:00 US – MBA Mortgage Applications Nov 18
13:30 US – Durable Goods Orders October
13:30 US – Personal Income October
13:30 US – Personal Spending October
13:30 US – PCE Deflator October
13:30 US – Initial and Continuing Jobless Claims
14:55 US – Michigan Consumer Sentiment November

A Bloomberg survey forecasts Initial Jobless Claims of 390K, compared with the previous figure released which was 388K. A similar survey predicts 3621K for continuing claims, compared with the previous figure of 3608K.

Economists surveyed by Bloomberg yielded a median forecast of 64.5 for the Michigan report, compared with the previous release of 64.2.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/dexia-and-the-midnight-runners/

Daily Market Roundup by FXCC - November 23 am

Shhh..I’m a Deficit Denier

On Thursday the UK’s ONS (official national statistics) released the latest budget deficit figures and the current coalition greeted the new figures with the kind of relish last witnessed when the UK Chancellor received hearty pats on the back from his front benchers in Parliament for announcing the reduction of the civil service by 25%, or in human cost 750,000 secure jobs.

Net borrowing excluding support for banks fell to 6.5 billion pounds from 7.7 billion pounds a year earlier, the Office for National Statistics reported. The shortfall was in line with the median of 13 forecasts in a Bloomberg News survey. So that’s good news then eh? Well hardly, not when you consider the full picture as revealed by the respected publication Global Finance.

Global Finance is a monthly magazine founded in 1987 by publishing entrepreneurs Joseph Giarraputo and Carl Burgen. Giarraputo continues as Publisher and Editorial Director. Its mission is to help corporate leaders, bankers and investors chart the course of global business and finance. It’s not an iconoclastic publication, it’s a painstakingly accurate data driven content magazine devoid of sensationalism. Within the content is a dynamic series of tables illustrating just how well UK ‘plc’ is actually doing and it’s not pretty…

If you do some simple sums it’s a xxx rated horror show that the Stephen Kings of the economics world would baulk at composing, here’s a snippet; you know those debt versus GDP figures that the UK mocks the rest of Europe for? You know the ones; Greece is 160%, Italy is 120% and the UK’s is…drum roll…a staggering 466% at the last count in 2009-2010. They kept that quiet eh? Not Global Finance, they simply quietly and efficiently compile and translate data, nope they as in “the UK government”. The truth, and we obviously can’t handle the truth, is that the UK is a basket case, only slightly behind ruinous and dubious Japan.

With the UK it breaks down like this, in 2009-2010 the UK had the following debt;

Government debt – 59%
Non financial debt – 110%
Households – 103%
Financial institutions – 194%

The less than grand total = 466%

Putting some perspective on this is simple; the UK’s financial debt versus GDP is the worst on the planet. Household debt is the second worst on the planet, and non financial debt comes in fourth. With a bit of clever ‘Enron’ style accounting the UK government apparatchiks and administration makes it appear that the UK’s debt to GDP is a credible 59%, however, that doesn’t include issues such as quantitative easing used to rescue UK state owned banks.

As to the overall debt of the UK it’s beyond conventional management, so much so that the piddling reduction of circa £1 billion announced on Tuesday would be like an individual debt junkie crowing he had ten grand of savings, whilst he has one million of debts he can’t possibly service on his UK median income of £23k. And that’s the deficit right there, it’s a piddling ‘credit card’ debt that’s irrelevant to the big picture of a debt versus GDP of 466%. Oh alright I know, I’m being deliberately gloomy, ok let’s be kind and take off household debt and leave only the govt debt..there that looks better, it’s now only circa 350%, still above that of ‘bad boy’ Italy and AAA threatened France even with household debt stripped out..oh dear..

Anyone here’s the link for Global Finance, it’s worth bookmarking. I put these bookmarks in a folder, I call it the “anti B.S. folder”, you may prefer to choose a different title.

Anti-Bs Folder

Overview
The S&P 500 fell for a fifth day, losing 0.4 percent to close at 1,188.04 at 4 p.m. in New York after briefly turning higher amid signs the Federal Reserve was discussing more stimulus efforts. The Stoxx Europe 600 Index lost 0.7 percent. Spain’s two-year note yield surged to the highest since 1997, while Belgium’s 10-year yield reached a nine-year high. Ten-year Treasury yields slipped three basis point to 1.93 percent.

The S&P 500 slid to its lowest level since Oct. 7 and has slumped 5.2 percent so far this month, led by an almost 11 percent tumble in financial companies. Financial firms were the biggest drag on the S&P 500 today, slipping 0.9 percent as a group. Goldman Sachs Group Inc. lost 2.1 percent to $89.40, its lowest price since March 2009.

The yield on Spain’s 10-year bond rose five basis points to 6.61 percent, the highest on an end-of-day basis since 1997. The government also offered six-month bills at an average yield of 5.227 percent, compared with 3.302 percent last month.

Spain needs a euro-region accord to “save and guarantee the solvency” of its debt amid surging bond yields. Maria Dolores de Cospedal, deputy leader of the People’s Party;

Spain cannot continue financing itself at 7 percent. So an agreement through a joint euro-zone operational strategy to save and guarantee our sovereign debt has to come from the European institutions.

Germany rejected calls to do more to counter market turmoil as Spain’s financing costs surged and pressure mounted on Greek political leaders to submit written commitments to austerity measures.

“We haven’t any new bazooka to pull out of the bag,” Michael Meister, finance spokesman for German Chancellor Angela Merkel’s Christian Democratic party, said.

European Commission President Jose Barroso said he expected the Italian government under Prime Minister Mario Monti to succeed in narrowing its budget deficit and bolstering the economy. Michel Barnier, the European Union’s financial-services chief, said he was putting finishing touches on a draft law on creditor write downs at failing banks.

The euro strengthened against 10 of 16 major peers, rising 0.2 percent to $1.3514 after climbing as much as 0.6 percent. The Swiss franc strengthened 0.4 percent against the dollar and 0.2 percent versus the euro, rising for the third consecutive day. The yen depreciated against 12 of 16 major peers monitored by Bloomberg, and the Dollar Index was little changed at 78.249.

Economic calendar data releases that may affect sentiment in the morning session

Wednesday 23 November

09:00 Eurozone – PMI Manufacturing November
09:00 Eurozone – PMI Services November
09:30 UK – Bank of England Minutes
09:30 UK- BBA Mortgage Approvals October
10:00 Eurozone – Industrial New Orders September

A Bloomberg survey yielded a median estimate of 46.5 for the eurozone PMI manufacturing compared to a previous figure of 47.1.

Analysts expect New Orders to come in at -2.7% (MOM), according to a Bloomberg survey, as compared with the previous figure of 1.9%. The median expectation for the annualised change is 6.1% from a previous figure of 6.2%.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/november-23-am/

Daily Market Roundup by FXCC - Ctrl+Alt+Del

There’s been many theories and solutions offered up as to the escape route for the current insoluble financial malaise, those of us with memories that extend beyond the previous year’s X-Factor winner will have noticed the subject of Iran creeping back into the MSM’s (main stream media) agenda lately and how the drumbeat started in a similar fashion to create the illegal invasion and occupation of Iraq. Perhaps this isn’t the space to get geo political, however, these macro economic fundamental issues will directly affect our business and moreover our opportunity to draw down a living from our market place.

There is one ultimate tool left in the toolbox the PTB (powers that be) have to wrestle control back of the inevitable disorder and disharmony within the western populous, it’s called the re-set button. We’ve all experienced that situation were your pc has crashed and there’s only one solution left, control + alt + delete, re boot and start again hoping there’s no corruption to the hard drives and the noises emanating from France’s leader in particular are troublesome to say the least.

SARKOZY WRITES LETTERS CONCERNING IRAN’S NUCLEAR PROGRAM
SARKOZY SAYS IRAN’S PROGRAM IS A ‘SERIOUS AND URGENT’ THREAT
SARKOZY SAYS NEW SANCTIONS WOULD FORCE IRAN TO NEGOTIATE

Why trouble yourself with a pesky trivial matter such as an AAA rating when you’re on “save the world” duty? Why trouble yourself when there’s high class entertainment on the menu? In the midst of a full blown economic crisis, as governments scrape to find missing billions, the price per night of French President Nicolas Sarcozy’s suite in Cannes for the G20 summit was a little provocative to say the least, but he wasn’t alone in demonstrating largesse;

Sarkozy: 39,000 Euros,
Obama: 35,000 Euros,
Berlusconi: 29,000 Euros,
China’s Hu Jintao: a very thrifty 11,600 Euros ($16,000) per night.

This figure doesn’t include room service, and yes, we all shudder to think what kind of bill Silvio racked up and moreover who he stiffed the bill on given he knew his inevitable departure would come the following week.

France AAA Credit Rating
Investors aren’t waiting for Standard & Poor’s or Moody’s Investors Service to strip France, Europe’s second-biggest economy, of its top credit rating. The extra yield demanded to lend to AAA-rated France for 10 years was 154 basis points more than the German rate yesterday. The French 10-year yield is at 3.4 percent, about midway between top-rated Holland and Belgium, which is graded one level lower at Aa1 by Moody’s. French borrowing costs are more than a percentage point above the AAA-rated U.K.

President Nicolas Sarkozy has unveiled two sets of budget cuts since August to preserve the credit rating and try to calm jittery markets. Two-year yields on French debt have climbed 59 basis points to 1.7 percent since Sept. 1, while the rate on German bunds of similar maturity fell 24 points to 0.4 percent.

Moody’s warned France could lose its prized AAA-status if the debt crisis in Europe worsens. Worries about France’s growth prospects and its exposure to peripheral sovereign debt have seen the country dragged into the heart of the debt crisis. This saw spread between French and German 10-year government bonds rise about 200 basis points for the first time since the launch of the euro last week.

Moody’s senior credit officer Alexander Kockerbeck said:

Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications.

Bill Blain, a strategist at Newedge Group in London, who recommends buying U.K. government debt;

France isn’t trading like a AAA. The market has made its judgment already.

Market Overview
MSCI’s global equity index added 0.3 percent at 8:21 a.m. in London and the Stoxx Europe 600 Index climbed 0.5 percent. Standard & Poor’s 500 futures were up 0.3 percent, after earlier gaining 0.6 percent. German 10-year bond yields increased three basis points to 1.94 percent.

About $3.3 trillion has been wiped out from global equity market values this month. Standard & Poor’s and Moody’s Investors Service kept the U.S.’s credit rating unchanged after Congress’s special debt-reduction committee failed to reach an agreement, setting the stage for $1.2 trillion in automatic spending cuts. Data today may show euro-area consumer confidence fell to a two-year low, while the World Bank said developing East Asia will grow at a slower pace next year.

The Stoxx 600 rebounded from a three-day, 5.2 percent drop that dragged the gauge yesterday to the lowest level since Oct. 5. The measure is valued at 9.9 times estimated profits, compared with a five-year average of 12 times, according to data compiled by Bloomberg. Germany’s DAX Index added 0.7 percent, France’s CAC 40 gained 0.8 percent and the U.K.’s FTSE 100 increased 0.5 percent.

Currencies
The yen weakened 0.5 percent to 104.20 per euro and traded 0.2 percent lower at 77.03 versus the dollar. The yen fell against 15 of its 16 major peers. The euro rose 0.3 percent to $1.3523. The currency earlier fell to $1.3469 before a report today forecast to show that consumer confidence in the 17-nation region fell this month to a two-year low. Spain sells bills after 10-year yields climbed 17 basis points to 6.55 percent yesterday.

Commodities
Copper for three-month delivery rose 1.9 percent to $7,445 a metric ton on the London Metal Exchange, following a three-day, 5.4 percent slump. Tin futures added 2 percent and aluminum gained 1 percent. Immediate-delivery gold rose as much as 0.9 percent to $1,692.45 an ounce after falling 2.7 percent yesterday, the most in two months. Oil rallied 0.7 percent to $97.60 a barrel in New York, the first increase in four days

Market snapshot at 9:45 am GMT (UK time)

After Asian markets closed the results were mixed, the Nikkei closed down 0.4%, the Hang Seng closed up 0.14% and the CSI closed down 0.01%. The ASX 200 closed down 0.72%, now down 11% year on year. The STOXX is currently up 0.38%, the UK FTSE up 0.41%, the CAC up 0.63% and the DAX up 0.44%. The Athens main exchange index is up 1.62% down 53.51% year on year.

Economic calendar data releases that may affect sentiment in the afternoon session

13:30 US – GDP Annualised 3Q
13:30 US – Personal Consumption Expenditure Q3
15:00 Eurozone – Consumer Confidence November
15:00 US – Richmond Fed Manufacturing Index Nov
19:00 US – Minutes of FOMC Meeting

Economists polled by Bloomberg gave a median prediction of 2.5% for the GDP Price Index, which is the same as the previous release. The quarter on quarter annualised GDP figure was also expected to remain unchanged at 2.5%.

Analysts surveyed forecast a figure of 2.4% for PCE, which is the same change as the previous month. Core PCE is expected to be 2.1% (for the quarter), which is the also the same figure as the last release.

A survey of analysts predicted a figure of -21, from last month’s figure of -19.9 for the Eurozone consumer confidence.

A Bloomberg survey gives a median consensus of -1 from -6 previously for the Richmond fed manufacturing index.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/ctrl-alt-del/

Daily Market Roundup by FXCC - November 22 am

The Super Committee Isn’t Too Super Is It?

“Failure among the supercommittee to reach an agreement could send the S&P 500 down 9.5 percent from last week’s closing level to 1,100, The failure would reflect poorly on Congress. It would showcase as was the case in August the inability of elected officials to act in the long-term best interest of all Americans.” – Goldman Sachs Group Inc. equity strategist David Kostin.

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline,” – panel co-chairmen Representative Jeb Hensarling of Texas and Senator Patty Murray of Washington.

A special debt-reduction committee in the U.S. Congress has failed to reach agreement, extending the deeply entrenched partisan gridlock into the 2012 election year and setting the stage for the $1.2 trillion in automatic spending cuts.

Both parties have blamed each other for the stalemate, Democrats saying Republicans wouldn’t relent on taxes and Republicans accusing Democrats of rejecting an offer to raise revenue along with spending cuts. Some lawmakers were already looking at ways to lessen the effects of the across-the-board cuts triggered by the panel’s failure that will begin in 2013.

USA AA+ Rating
Standard & Poor’s said it would keep the U.S. government’s credit rating at AA+ after a congressional committee that was supposed to break partisan gridlock and cut the budget deficit didn’t reach an agreement.

S&P stripped the U.S. of its top AAA grade on Aug. 5, but decided that the supercommittee’s failure didn’t merit another downgrade for the country because the failure will trigger $1.2 trillion in automatic spending cuts. While the firm expects the Budget Control Act to “remain in force,” easing those spending limits may cause “downward pressure on the ratings,” S&P analysts Nikola Swann and John Chambers said today in a statement.

The S&P 500 Index of U.S. stocks plunged 6.7 percent on the first trading day after the downgrade, while government bonds rallied as investors sought safety.

Market Overview
The Standard & Poor’s 500 Index lost 1.9 percent to close at a six-week low of 1,192.98 at 4 p.m. in New York. The MSCI All-Country World Index sank 2.3 percent in its first six-day slump since August. Yields on 10-year Treasury notes fell four basis points to 1.97 percent, while the cost of insuring against default on European government debt approached a record high. The euro slipped 0.2 percent to $1.3496 after weakening as much as 0.7 percent. The Dollar Index rose 0.3 percent.

The S&P 500 extended last week’s 3.8 percent decline, its worst drop in two months. Stocks maintained losses even after the National Association of Realtors said sales of previously owned homes in the U.S. unexpectedly rose 1.4 percent to a 4.97 million annual rate, a sign falling prices may be luring buyers into the market.

Today’s drop pushed the S&P 500 below levels representing the top of a so-called trading range that prevailed in the two months after the U.S. was stripped of its AAA credit rating by S&P on Aug. 5. Rallies after the downgrade brought the S&P 500 to closing highs of 1,204.49 on Aug. 15, 1,218.89 on Aug. 31 and 1,216.01 on Sept. 16, data compiled by Bloomberg show.

Europe
The Stoxx Europe 600 Index sank 3.2 percent, extending last week’s 3.7 percent decline, as almost 45 stocks dropped for every one that rose. All 19 industries in the benchmark measure retreated more than 1.8 percent, with mining stocks falling 6.1 percent to lead the drop.

Spain’s benchmark IBEX 35 Index of stocks slumped 3.5 percent to a two-month low. Spanish Prime Minister-elect Marian Rajoy faced mounting pressure to unveil his cabinet and plans for reducing the euro-area’s third-largest deficit as borrowing costs neared records after the People’s Party yesterday ousted the ruling Socialists, winning the biggest parliamentary majority in a Spanish election in almost 30 years.

Spain’s 10-year yield increased 17 basis points to 6.55 percent and the gap between Spanish and German borrowing costs widened 23 basis points to 464 basis points, near a euro-era record.

France’s 10-year bond was up less than one basis point at 3.47 percent. The Italian yield advanced two basis points to 6.66 percent, leaving the difference in yield with benchmark German bunds seven basis points wider at 474 basis points. The French-bund spread rose 5.5 basis points to 156 as 10-year bund yields decreased five basis points to 1.92 percent.

The cost for European banks to fund in the U.S. currency climbed to the highest since December 2008. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, increased to 139 basis points below the euro interbank offered rate, from 130 at the end of last week.

Commodities
Copper sank 2.9 percent, zinc tumbled 2.5 percent and lead retreated 3.2 percent as all but six of 24 commodities tracked by the S&P GSCI Index declined, sending the gauge down 1 percent. West Texas Intermediate oil for January delivery slipped 0.8 percent to settle $96.92 a barrel in New York before paring losses in extended trading.

Bank of America

Bank of America Corp. dropped the most in the Dow Jones Industrial Average and touched levels last seen in March 2009 as investors speculated on how much faulty mortgages will cost the lender.

Bank of America fell 5 percent to $5.49 at 4:01 p.m. in New York, the lowest since March 11, 2009. The shares are down 59 percent this year, the worst showing in the 24-company KBW Bank Index. Faulty mortgages and foreclosures have already cost the Charlotte, North Carolina-based bank about $40 billion since 2007, according to data compiled by Bloomberg.

Economic calendar data releases that may affect the sentiment of the morning session

Tuesday 22 November

09:30 UK – Public Finances October
09:30 UK – Public Sector Net Borrowing October

A survey conducted by Bloomberg shows projections of -£1.0 billion from a previous figure of £19.9 billion for the UK public finances. A Bloomberg survey of analysts predicted a figure of £3.8 billion for the UK public net sector borrowing from a previous figure of £11.4 billion. Excluding interventions the figure was predicted to be £6.5 billion from a previous figure of £14.1 billion.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/november-22-am/

Are We Being Fooled By The Randomness Of Forex Markets When Chaos Theory Exists?

As forex traders we’re self conditioned to make trading decisions and ultimately take our forex trades based on two key principles, fundamental and technical analysis. The first principle, fundamental analysis, is (on the face of it) straightforward. FA requires very little depth of thought after a brief period of experience; if the news gets any worse with regards to the Eurozone crisis we can expect the euro to fall versus what are then considered ‘safe-haven’ currencies such as: yen, dollar, Swissy and the Loonie. The information delivered by way of policy announcement or data releases eventually finds its way onto our charts. Due to the state of the art platforms and charting packages we put faith in, in order to ply our trade, this ‘information bleed’ is incredibly quick. The human interaction and the sentiment regarding a currency vis a vis another currency is instantly displayed. However, the news release impact can often front run the bid and offer on our platforms.

Many of us upon discovering FX trading can be swayed by forceful opinions, especially if these opinions gather moss as they roll down the hill unchallenged eventually becoming deeply buried in a forest of folklore. One such opinion is that “indicators don’t work” a claim often repeated on trading forums. Whilst it’s fun to engage in put downs, citing the commendations of the brilliant mathematical minds who’ve created the indicators, to then politely ask what qualifications the forum member has to challenge such expertise, it may be more appropriate to ask for ‘proof’ that indicators don’t work. Nassim Taleb once stated that his major hobby is;

Teasing people who take themselves and the quality of their knowledge too seriously and those who don’t have the guts to sometimes say: ‘I don’t know..

Let’s consider Nassim Taleb, Henri Poincaré, randomness, probability, Edward Lorenz and his butterfly effect and how they relate to trading. Of particular note is one incredibly prophetic quote from Taleb when he asserts that option pricing is determined in a “heuristic way” by operators, not by a model, and that models are “lecturing birds on how to fly”.

I’ve provided some information in this article on both Taleb and chaos theory, as you read it’ll become quite obvious the links between the two subjects and how they directly relate back to trading, particularly when exploring and analysing the use and validity of the various models we place so much trust in. Hopefully this sparks some interest and leads readers into a new and expansive area of knowledge. It may not affect our fundamental decision, that’s not the objective. However, testing our own core trading beliefs, particularly ‘ingredients’ so core to our potential success as fundamental and technical analysis, can be an incredibly worthwhile exercise.

Nassim Taleb
Nassim Taleb is a Lebanese American who focuses on problems of randomness and probability. His 2007 book The Black Swan was described in a review by Sunday Times as one of the twelve most influential books since World War II. He’s a bestselling author and has been a professor at several universities, currently at the Polytechnic Institute of New York University and Oxford University. He’s a practitioner of mathematical finance. Taleb has been a hedge fund manager, a Wall Street trader and currently a scientific adviser at Universa Investments and the International Monetary Fund.

He criticised the risk management methods used by the finance industry and warned about financial crises. He advocates what he calls a “black swan robust” society, meaning a society that can withstand difficult-to-predict events. He favours “stochastic tinkering” as a method of scientific discovery, by which he means experimentation and fact-collecting instead of top-down directed research.

He calls for cancellation of the Nobel Memorial Prize in Economics, saying that the damage from economic theories can be devastating. He opposes top-down knowledge as an academic illusion and believes that price formation obeys an organic process. Together with Espen Gaarder Haug, Taleb asserts that option pricing is determined in a “heuristic way” by operators, not by a model, and that models are “lecturing birds on how to fly”. Pablo Triana has explored this topic with reference to Haug and Taleb and says that perhaps Taleb is correct to urge that banks be treated as utilities forbidden to take potentially lethal risks, while hedge funds and other unregulated entities should be able to do what they want.

Fooled by Randomness
Taleb’s first non-technical book, Fooled by Randomness, about the underestimation of the role of randomness in life, was published in 2001. The book was selected by Fortune as one of the 75 “Smartest Books of All Time.” The book’s name, Fooled by Randomness, has also become an idiom in English used to describe when someone sees a pattern where there is just random noise.

Taleb sets forth the idea that modern humans are often unaware of the existence of randomness. They tend to explain random outcomes as non-random. Human beings:
overestimate causality, e.g., they see elephants in the clouds instead of understanding that they are in fact randomly shaped clouds that appear to our eyes as elephants (or something else); tend to view the world as more explainable than it really is. So they look for explanations even when there are none.

Other misperceptions of randomness that are discussed include: Survivorship bias. We see the winners and try to “learn” from them, while forgetting the huge number of losers.

Skewed distributions. Many real life phenomena are not 50:50 bets like tossing a coin, but have various unusual and counter-intuitive distributions. An example of this is a 99:1 bet in which you almost always win, but when you lose, you lose all your savings. People can easily be fooled by statements like “I won this bet 50 times”. According to Taleb: “Option sellers, it is said, eat like chickens and go to the bathroom like elephants”, which is to say, option sellers may earn a steady small income from selling the options, but when a disaster happens they lose a fortune.

His second non-technical book, The Black Swan, about unpredictable events, was published in 2007. It sold, as of February 2011, close to 3 million copies and spent 17 weeks on the New York Times Bestseller list and was translated into 31 languages. The Black Swan has been credited with predicting the banking and economic crisis of 2008.

Taleb’s non-technical writing style mixes a narrative style (often semi-autobiographical) and short philosophical tales together with historical and scientific commentary. The sales of Taleb’s first two books garnered an advance of $4 million for a follow-up book on anti-fragility.

Chaos Theory
Chaos theory is the study of nonlinear dynamics, where seemingly random events are actually predictable from simple deterministic equations. In a scientific context, the word chaos has a slightly different meaning than it does in its general usage as a state of confusion, lacking any order. Chaos, with reference to chaos theory, refers to an apparent lack of order in a system that nevertheless obeys particular laws or rules; this understanding of chaos is synonymous with dynamical instability, a condition discovered by the physicist Henri Poincare in the early 20th century that refers to an inherent lack of predictability in some physical systems.

Henri Poincaré
Henri Poincaré was a mathematician and physicist, he made many original fundamental contributions to pure and applied mathematics, mathematical physics, and celestial mechanics. He was responsible for formulating the Poincaré conjecture, one of the most famous problems in mathematics. In his research on the three-body problem, Poincaré became the first person to discover a chaotic deterministic system which laid the foundations of modern chaos theory. He is also considered to be one of the founders of the field of topology.

The two main components of chaos theory are the ideas that systems, no matter how complex they may be, rely upon an underlying order, and that very simple or small systems and events can cause very complex behaviours or events. This latter idea is known as sensitive dependence on initial conditions, a circumstance discovered by Edward Lorenz (who is generally credited as the first experimenter in the area of chaos) in the early 1960s.

Edward Lorenz
Lorenz, a meteorologist, was running computerised equations to theoretically model and predict weather conditions. Having run a particular sequence, he decided to replicate it. Lorenz reentered the number from his printout, taken half-way through the sequence, and left it to run. What he found upon his return was, contrary to his expectations, these results were radically different from his first outcomes. Lorenz had, in fact, entered not precisely the same number, .506127, but the rounded figure of .506. According to all scientific expectations at that time, the resulting sequence should have differed only very slightly from the original trial, because measurement to three decimal places was considered to be fairly precise. Because the two figures were considered to be almost the same, the results should have likewise been similar.

Since repeated experimentation proved otherwise, Lorenz concluded that the slightest difference in initial conditions beyond human ability to measure made prediction of past or future outcomes impossible, an idea that violated the basic conventions of physics. As the famed physicist Richard Feynman pointed out, “Physicists like to think that all you have to do is say, these are the conditions, now what happens next?”

Newtonian laws of physics are completely deterministic: they assume that, at least theoretically, precise measurements are possible, and that more precise measurement of any condition will yield more precise predictions about past or future conditions. The assumption was that, in theory, at least, it was possible to make nearly perfect predictions about the behaviour of any physical system if measurements could be made precise enough, and that the more accurate the initial measurements were, the more precise would be the resulting predictions.

Poincare discovered that in some astronomical systems (generally consisting of three or more interacting bodies), even very tiny errors in initial measurements would yield enormous unpredictability, far out of proportion with what would be expected mathematically. Two or more identical sets of initial condition measurements, which according to Newtonian physics would yield identical results, in fact, most often led to vastly different outcomes. Poincare proved mathematically that, even if the initial measurements could be made a million times more precise, that the uncertainty of prediction for outcomes did not shrink along with the inaccuracy of measurement, but remained huge. Unless initial measurements could be absolutely defined – an impossibility – predictability for complex – chaotic – systems performed scarcely better than if the predictions had been randomly selected from possible outcomes.

The Butterfly Effect
The butterfly effect, first described by Lorenz at the December 1972 meeting of the American Association for the Advancement of Science in Washington, D.C., vividly illustrates the essential idea of chaos theory. In a 1963 paper for the New York Academy of Sciences, Lorenz had quoted an unnamed meteorologist’s assertion that, if chaos theory were true, a single flap of a single seagull’s wings would be enough to change the course of all future weather systems on the earth.

By the time of the 1972 meeting, he had examined and refined that idea for his talk, “Predictability: Does the Flap of a Butterfly’s Wings in Brazil set off a Tornado in Texas?” The example of such a small system as a butterfly being responsible for creating such a large and distant system as a tornado in Texas illustrates the impossibility of making predictions for complex systems; despite the fact that these are determined by underlying conditions, precisely what those conditions are can never be sufficiently articulated to allow long-range predictions.

Although chaos is often thought to refer to randomness and lack of order, it is more accurate to think of it as an apparent randomness that results from complex systems and interactions among systems. According to James Gleick, author of “Chaos : Making a New Science”, chaos theory is;

A revolution not of technology, like the laser revolution or the computer revolution, but a revolution of ideas. This revolution began with a set of ideas having to do with disorder in nature: from turbulence in fluids, to the erratic flows of epidemics, to the arrhythmic writhing of a human heart in the moments before death. It has continued with an even broader set of ideas that might be better classified under the rubric of complexity.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/are-we-being-fooled-by-the-randomness-of-forex-markets-when-chaos-theory-exists/