Daily Market Round-Up by FXCC - February 24 am 2012

U.S. Jobs Going Postal

There’s a sad irony that on the day when the USA BLS (bureau of labour statistics) publishes their latest unemployment figures the U.S. postal service announces that the closure of nearly half of its mailing plants will take place over the next twelve months. The claim from the BLS is that only 5.4% of the workforce will be lost, roughly 36,000 jobs. However, most analysts will find that figure for lay-offs incredulous given the level of plant closures.

The number of Americans filing new claims for jobless benefits last week held at the lowest level since the early days of the 2007-2009 recession. Workers filed 351,000 initial claims for unemployment benefits, the same as the prior week, the Labor Department said on Thursday.

The data suggests that the cycle of layoffs may have run it course. But considerable issues still remain in the jobs market; 23.8 million Americans are either out of work or underemployed with no jobs for nearly three out of every four unemployed. A total of 7.50 million people were claiming unemployment benefits during the week ended February 4 under all programs, down 178,619 from the prior week.

U.S. Postal Service
The U.S. Postal Service, which predicts an annual loss of $18.2 billion by 2015, plans to eliminate 5.4 percent of its workforce by closing almost half its mail-processing facilities to decrease costs.

The service plans to shut 223 of its 461 mail-processing plants by February 2013, Postmaster General Patrick Donahoe said in a telephone interview today. The closings will cut about 35,000 jobs, said David Partenheimer, a spokesman.

Europe’s ‘Double-Dip’ Recession Is Now Inevitable
The euro zone economy is heading full steam ahead for its second recession inside three years and the wider European Union will stagnate, the EU’s executive said on Thursday, warning that the currency area has yet to break its vicious cycle of debt. The European Commission is forecasting that economic output in the 17 nations sharing the euro will contract by at least 0.3 percent this year, reversing the earlier optimistic forecast of 0.5 percent growth in 2012.

The growth forecast for the euro zone is more optimistic than the International Monetary Fund’s view that output in the area will dip 0.5 percent this year. The forecasts could worsen as they rely on the belief that EU leaders will resolve the sovereign debt crisis now in its third year which shattered investor confidence in a region regarded as one of the world’s safest havens.

European Banks Shattered By Greek Crisis
Credit Agricole reported a record quarterly net loss of 3.07 billion euros on Thursday performing worse than expected after a 220 million euro charge on its Greek debt. For 2011 as a whole, the bank took a hit of 1.3 billion euros on its Greek debt.

Credit Agricole chief executive Jean-Paul Chifflet;

We are in the worst economic crisis since 1929. We think 2012 is going to still be a tense period. We’re hoping that our results will be largely better than in 2011.

Europe’s banks have written down billions of euros from losses on Greek government bonds and loans, the deal agreed this week with its creditors will inflict losses of 74 percent on bondholders. Despite the bond swap deal, bondholders could suffer further hits if Greece’s economy fails to recover.

Market Overview
U.S. equities gained as reports on American jobs and housing beat projections, Treasuries erased losses after an auction of seven-year notes. Oil rallied for a sixth day, and copper declined.

The Standard & Poor’s 500 Index rose 0.4 percent to 1,363.46 at 4 p.m. New York time. The Dow Jones Industrial Average rallied 0.4 percent to 12,984.69, the highest level since May 2008. This extend the S&P 500’s rally in February to 3.9 percent. The index was poised for a third straight month of gains, the longest streak in a year, on higher-than-estimated economic data. Yields on 10-year U.S. Treasuries dropped one basis point to 2 percent. Crude added 1.5 percent, copper fell 0.7 percent and gold rallied 0.8 percent.

The euro advanced to the strongest level in more than 10 weeks versus the dollar as a report showed German business confidence rose to the highest level in seven months amid progress taming the region’s debt crisis.

The yen rose versus the dollar after the sale of seven year Treasury notes. Higher-yielding currencies appreciated as a measure of volatility among Group of Seven currencies dropped to the lowest in more than three years.

Commodity Basics
Oil rose a seventh day, the longest winning streak since January 2010, investors bet that fuel demand may climb after U.S. jobless claims held at a four-year low, German business confidence surpassed forecasts and USA/Israeli ‘sabre rattling’ continued. Oil also rose amid concern sanctions against Iran over the nation’s nuclear programme will disrupt supplies from OPEC’s second-biggest crude producer.

Oil for April delivery rose by 0.8 percent to $108.69 a barrel in electronic trading on the New York Mercantile Exchange and was at $108.61 at 10:45 a.m. Sydney time. The contract on Wednesday gained 1.5 percent to $107.83, the highest close since May 4. Prices are 5.2 percent higher this week and up 12 percent the past year.

Brent oil for April settlement advanced 72 cents, or 0.6 percent, to $123.62 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark contract’s premium to New York-traded WTI closed at $15.79. It reached a record of $27.88 on Oct. 14.

Forex Spot-Lite
The euro reached the highest level in more than 10 weeks versus the dollar before a German report forecast to show Europe’s largest economy expanded for an eighth quarter.

The 17-nation euro held gains versus most of its major peers before Group of 20 finance ministers meet in Mexico City this weekend where they may discuss committing additional resources to resolve Europe’s debt crisis. The greenback fell versus higher-yielding currencies including the Australian dollar before U.S. data that economists expect will show growth in new homes sales. Demand for the yen was limited on prospects Asian stocks will extend a global rally in equities.

The euro was unchanged at $1.3373 as of 8:36 a.m. in Tokyo from yesterday, and earlier touched $1.3379, matching the highest since Dec. 12. The shared currency was at 106.90 yen from 106.98 yesterday, when it rose 0.6 percent. The yen was at 79.94 per dollar from 80 yesterday. The Australian dollar rose 0.1 percent to $1.0730.

Market Commentary by FXCC - The UK Is Flirting With A Double Dip Recession

Official figures have confirmed that the UK economy slipped by 0.2% for the fourth quarter of 2011. Household spending was up 0.5% quarter on quarter, the highest since the second quarter of 2010. Government spending, meanwhile, was ahead by 1% over the previous three months. Benefiting from a weaker pound exports were up by 2.3%.

The economy has recovered barely a half of the 7 percent of output lost during the 2008-2009 recession, only Japan and Italy are further behind among Group of Seven nations and unemployment is at a 16-year high of 8.4 percent and rising..

Stats Snapshot

UK gross domestic product (GDP) in volume terms decreased by 0.2 per cent in the fourth quarter of 2011
Output of the production industries fell by 1.4 per cent, within which manufacturing fell by 0.8 per cent
Output of the service industries was unchanged, while output of the construction industry fell by 0.5 per cent
Household final consumption expenditure increased by 0.5 per cent in volume terms in the latest quarter
In current price terms, compensation of employees fell by 0.3 per cent in the fourth quarter of 2011

Could the German GDP figures differ from that previously announced in mid February?

The gross domestic product (GDP) of Germany fell by 0.2% in the fourth quarter, after increasing 0.6% between July and September, according to the Federal Statistical Office. German growth rate slowed to 1.5% in the fourth quarter after 2.6% last quarter, hampered by a slowdown in foreign trade and consumption. Exports fell 0.8% in the quarter, after growing 2.6% last quarter. Net trade has shaved 0.3 percentage points in the fourth quarter. The German budget deficit fell to 1.0% of GDP in 2011 against 4.3% in 2010.

Market Overview
Global stocks advanced for a second day, oil gained and the yen weakened versus all its major peers. The MSCI All-Country World Index rose 0.3 percent as of 8:00 a.m. in London while the Stoxx Europe 600 Index added 0.4 percent. Standard & Poor’s 500 Index futures climbed 0.3 percent. The yen fell 0.7 percent against the euro, reaching the weakest level since November. Oil increased 0.6 percent to $108.45 a barrel and copper declined for a third day. The cost of insuring against default on European corporate debt fell.

The yen reached 107.86 per euro, the weakest since Nov. 7. The currency was poised for a weekly drop against its 16 major peers after swings in currencies from Group of Seven nations fell to the least since 2008, spurring demand for higher yields.

FX Volatility
If forex traders have noticed that the market appears to be slow moving over the past week or so then there’s a reason, the implied volatility of three-month options on G-7 currencies as tracked by the JPMorgan G7 Volatility Index fell as low as 9.76 percent yesterday, the least since Aug. 8, 2008, as option traders scaled back risks of large exchange-rate moves.

Lloyds Losses
Lloyds Banking Group Plc has reported that its full-year net loss grew on a weakening U.K. economy, missing analysts’ estimates, and said income will drop this year. The net loss was 2.8 billion pounds compared with a loss of 320 million pounds for 2010, the London-based lender said in a statement today missing the 2.41 billion pound estimate of 14 analysts surveyed by Bloomberg.

Market snapshot at 10:15 am GMT (UK time)

The main indices of the Asia Pacific markets closed in positive territory. The Nikkei closed up 0.54%, the Hang Seng closed up 0.12% and the CSI closed up 1.60%. the ASX 200 closed up 0.48%. European bourse indices are in positive territory in the morning session. The STOXX 50 is up 0.88%, the FTSE is up 0.14%, the CAC is up 0.61 and the DAX is up 1.01%. The Athens exchange, the ASE, leads the board this morning up by 1.14%. Brent crude is flat at $123.60 per barrel whilst WTI is up to $108.29. Comex gold is down $4.2 an ounce. The SPX equity index future is up 0.29%.

Commodity Basics
Iran, the second-biggest member in the Organization of Petroleum Exporting Countries, produced about 3.5 million barrels of oil a day last month, according to analysts’ estimates compiled by Bloomberg. Saudi Arabia had output of 9.7 million barrels a day and Iraq had 2.8 million.

Oil advanced a seventh day, the longest winning streak since January 2010, on signs of economic recovery from the U.S. to Germany and concern escalating tension with Iran threatens crude supplies. Futures climbed from the highest close in more than nine months and headed for a third weekly gain.

Oil for April delivery increased as much as 0.8 percent to $108.70 a barrel in electronic trading on the New York Mercantile Exchange and was at $108.33 at 8:46 a.m. London time. The contract yesterday gained 1.5 percent to $107.83, the highest close since May 4. Prices are 4.9 percent higher this week and up 11 percent the past year.

Brent oil for April settlement advanced 7 cents to $123.69 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded WTI was at $15.36, compared with $15.79 yesterday. It reached a record of $27.88 on Oct. 14.

Forex Spot-Lite
The yen slid versus all its major peers as foreign-exchange volatility at its lowest in more than three years prompted buying of higher-yielding currencies.

The euro reached its strongest level in more than 10 weeks against the dollar before a German report forecast to confirm resilience in Europe’s largest economy. The greenback slid against New Zealand’s dollar before U.S. data predicted to show new homes sales increased. The won rose after a report showed South Korean consumer confidence climbed to a three-month high.

The yen fell 0.6 percent to 107.61 per euro as of 7:01 a.m. in London, poised for a 2.9 percent drop since Feb. 17, the third-straight weekly decline. It touched 107.70 per euro, the lowest since Nov. 7. Japan’s currency slid 0.6 percent to 80.51 per dollar, and reached 80.54, the weakest since July 11. The euro was at $1.3369 from $1.3373 yesterday after earlier touching $1.3380, its highest level since Dec. 12.