Market Commentary by FXCC - Hedge Funds Are Surviving On A Low Calorie Diet By Taking A Bite Of Apple

“A hedge fund is an investment fund that can undertake a wider range of investment and trading activities than other funds, but which is only open for investment from particular types of investors specified by regulators. These investors are typically institutions, such as pension funds, university endowments and foundations, or high net worth individuals. As a class, hedge funds invest in a diverse range of assets, but they most commonly trade liquid securities on public markets. They also employ a wide variety of investment strategies, and make use of techniques such as short selling and leverage…”

Hedge funds are for clever people right? They must employ the best Harvard, MIT or Cambridge educated maths genius quants. These guys must be the sharpest tools in the box, constantly tethered to their lab coding up algos in ‘hydron collider style’ bunkers buried deep in the side of mountains. Whilst their boss strokes his white cat laughing at us mere mortal retail traders who dream of riches as we put our “expert advisors” on the back end of our meta trader platform..

Or they could just be buying Apple shares from their iPhone..

Imagine that, the best and the brightest, the elite, the masters of the known financial universe just buy Apple stock and ride it. Nearly 30% of hedge funds owned Apple stock in the last quarter of 2011. Now you may be thinking what I’m thinking; that it’s a plot, a clever plan. One day, in unison and perfect fusion, they’re going to dump the stock at some time in 2012. It crashes back down to $200, retail investors panic, the funds buy it up and make a few billion as it rides back up to $500+..We’re obviously guilty of watching ‘Billy Ray Valentine’ in Trading Places too many times. Nope, there’s no sophist trickery at play here, hedge funds have been buying Apple ” ‘cos it always goes up, innit..”

A record 216 hedge funds were holding Apple stock at the end of 2011. At the end of Q3 209 hedge funds owned Apple, at the end of Q2 it was 181, at the end of Q1 it was 173..the pattern is clear. What is also clear is that as Apple goes, so does the entire hedge fund space…

Goldman Sachs notes:

30% of fundamentally-driven hedge funds hold at least one share of AAPL. One out of five hedge funds has AAPL among its ten largest long positions. When among the top ten holdings, AAPL represents an average of 8% of total single-stock long equity exposure. In aggregate, hedge funds own only 4% of AAPL market cap with 1.6% average position across all funds.

According to SEC regulations, all hedge funds must report what domestic stocks they own on a quarterly basis. The SEC gives funds 45 days from the end of the period to file the documents with the SEC. The fourth quarter ends Dec. 31, and hedge funds prefer to reveal information ‘at the death’ so they wait until the last day. Therefore, many funds reported their holdings earlier this week. What was really shocking is the number of funds which own Apple stock. Apple was the most widely held stock among hedge funds, according to research by HSBC. After the recent data was release, Apple is an even more “crowded trade.”

Beware The ‘Value Trap’
Jim Chanos is a legendary short seller, he first called Enron a fraud and called the Chinese bubble, once gave a presentation about value traps. These are stocks which seem to be cheap but in reality are losing bets. Chanos mentioned that many people will buy into a stock because they see other investors did, however, almost every stock has a great investor with significant money invested in the company. Chanos cited this example as a “value trap”.

Some fund managers have billions of dollars to allocate and are very limited in what they can buy. Apple being the largest stock in the world is therefore incredibly liquid and allows for a large investment and equally easy exit..

Perhaps the most crucial detail retail investors ignore is price. Apple now trades at a price earnings ratio of 14, even less minus its massive cash hoard, the stock is trading at around $516 today, it’s been as low as €315 last June. In 13-F fillings, money managers don’t have to reveal what date or price they bought at.

*The author of this article has no position in Apple, other than being a zombie for the iPad, the iMac and will soon be getting out of his HTC by being upgraded via T-Mobile with a new iPhone 4S..

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.

Market Commentary by FXCC - Will It Be Open Season On The Banks As Reporting Season Starts?

The Greece debacle has (temporarily) been quietly shifted from the front page of both financial and popular news, it’s now left to the Greeks to cope with the impossible, inter-generational, insoluble financial burden their unelected technocrats have agreed to on their behalf. The indirect bank and bondholder bailout, that’s been agreed in order that Greece can pay the bondholders and banks back, has come into effect. Attention may now switch to other more ‘crunching’ issues as bank season reporting, (particularly focused on Europe), gets into full swing.

Whilst the mainstream media may amplify the bonuses issue there is an altogether much darker issue at play for European banks – profitability, and two banks who’ve reported results overnight and this morning have published disastrous figures.

Royal Bank of Scotland has announced that losses have widened to £2bn in 2011, whilst confirming it paid out £390m in bonuses to investment bankers. The UK taxpayer is currently sitting on £20bn of losses on its 82% stake, despite the 2% rise in the shares to 28p by 8.30am GMT.

France’s third largest bank, Credit Agricole, has revealed figures significantly worse than analyst expectations; it reported a greater than estimated loss in the fourth quarter after setting aside money at its Greek consumer banking network and writing down investments. The shares dropped after the net loss widened to 3.07 billion euros from a deficit of 328 million euros a year earlier. That missed analysts’ estimates for a 2.7 billion-euro loss.

Credit Agricole fell 4.2 percent, to 4.80 euros and was at 4.88 euros at 9:02 a.m. in Paris trading reducing the gain this year to 12 percent. BNP Paribas, France’s biggest bank, has risen 18 percent this year, Societe Generale, the second largest bank lender, has advanced 32 percent.

With the ECB considering the date at which it’ll unleash it’s next LTRO, (long term refinancing operation) it can’t come soon for some banks, particularly France’s three biggest who had (still have) massive exposure to the Greek situation. But they’re not alone in needing to repair their tattered balance sheets, the insatiable thirst Italian banks displayed for liquidity, in the first round LTRO, is likely to be repeated.

German Business Confidence Is Rising
The Munich-based Ifo institute has reported this morning that its business climate index, based on a survey of 7,000 executives, climbed to 109.6 from 108.3 in January. That’s the fourth straight gain and the highest reading since July. Economists predicted an increase to 108.8.

Germany’s Bundesbank said on Feb. 20 that the outlook for the economy has “improved perceptibly,” even though “risks relating to the sovereign-debt crisis remain.” The Bundesbank in December forecast growth will slow to 0.6 percent this year from 3 percent in 2011 before accelerating to 1.8 percent in 2013. Germany’s benchmark DAX share index has gained 16 percent this year, outperforming all its major European peers.

Market Overview
European equities have risen for the first time in three days whilst the euro strengthened after German business confidence climbed more than forecast. U.S. equity index futures and commodities gained.

The Stoxx Europe 600 Index climbed 0.3 percent at 9:10 a.m. in London. Standard & Poor’s 500 Index futures added 0.4 percent. Italian 10-year bond yields rose six basis points to 5.57 percent. The euro appreciated 0.5 percent to $1.3319. The Dollar Index, which tracks the U.S. currency against those of six trading partners, dropped 0.3 percent.

Market snapshot as of 10:20 am GMT (UK time)

Asia-Pacific markets experienced mixed results in the overnight early morning session, the Nikkei closed up 0.44%, the Hang Seng closed down 0.78% and the CSI closed up 0.34%. The ASX 200 closed down 0.16%. European bourse indices have enjoyed modest gains in the European session, the STOXX 50 is up 0.01%, the FTSE is up 0.34%, the CAC is up 0.14% and the DAX up 0.31%. The MIB is down 0.67% whilst the Athens exchange, the ASE is the leading rise amongst the European indices currently up 0.96%. ICE Brent crude is up $1.07 a barrel at $123.97, Comex gold is up $9.50 an ounce. The SPX equity index future is currently up 0.27%.

Commodity Basics
Iran produced 3.5 million barrels of oil a day in January, according to analysts’ estimates compiled by Bloomberg. Saudi Arabia, the biggest member in OPEC (the Organisation of Petroleum Exporting Countries), had output of 9.7 million barrels a day.

Brent crude rose to its highest level in nine months after German business confidence surpassed forecasts, increasing optimism that steps to resolve Europe’s debt crisis will be successful. Brent oil for April settlement was up 89 cents at $123.79 a barrel on the ICE Futures Europe exchange in London at 9:40 a.m. GMT. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $17.26. It reached a record of $27.88 on Oct. 14.

On the New York Mercantile Exchange, crude for April delivery was at $106.53, up 25 cents. The contract rose yesterday to $106.28, the highest close since May 4. New York futures have risen 3.2 percent this week on speculation that tensions with Iran over its nuclear program will threaten supplies. Prices have gained 8.6 percent in the past year.

Gold for immediate delivery gained 0.2 percent to $1,780.07 an ounce by 9:40 a.m. in London. It’s up 14 percent this year and reached a record $1,921.15 on Sept. 6.

Forex Spot-Lite
The euro strengthened versus the dollar and the yen after a German report showed business confidence rose more than economists forecast. The dollar dropped versus 13 of its 16 major counterparts. The 17-nation currency strengthened 0.5 percent to $1.3315 at 9:11 a.m. London time and climbed 0.3 percent to 106.74 yen.

Daily Market Round-Up by FXCC - February 23 am 2012

Is The Dow Jones Industrial Average And The SPX Overbought?

So the Dow Jones reached 13,000 on Tuesday and then reverted to the obvious underpinning mean average (moving average). No surprise there, the 13,000 must have been market stop hunting paradise for market makers given it was such an obvious target. If I traded indices (perish the thought) a sell order looking for 20-30 pips at 13,000 would have been the obvious trade..

But given the raft of positive news that’ll come our way from the U.S. of A between now and the USA election in November we can be fairly sure that 13,000 will be tested and breached, (perhaps several times) in the run up..right? After all the main index never falls in the run up to the election, does it?

Actually reports show that the U.S. main index performance during a presidential election year doesn’t historically look much different than any other year. Over the past 29 presidential election years, since The Dow Jones index was first published in 1896, the index has delivered an average return of 7.18%. That’s only slightly below the average of 7.35% seen in a non-election year.

However, elections definitely have huge market consequences. When a new (non-incumbent) president takes office, the average return for the calendar year has been 7.48%; whereas the return has been a meagre 1.13% in years when an incumbent president starts a new term. Now Barack Obama inherited a maelstrom of financial problems in 2008, but in 2009 the market recovered and despite several major sell offs during his term the DJIA and the S&P recently reached pre 2008 crash highs. But could 2013 prove to be the real test, could even a 1.13% return be optimistic?

As to which party the market smiles upon more when its president takes the seat in the Oval office will take many by surprise. The average DJIA return when a Democrat was president has been 8.78% a year versus 6.30% annually when a Republican lived in the White House.

The BGOV Barometer shows that, over the five decades since John F. Kennedy was inaugurated, $1,000 invested in a hypothetical fund that tracks the Standard & Poor’s 500 Index only when Democrats are in the White House would have been worth $10,920 at the close of trading Tuesday.

That’s over nine times the dollar return an investor would have enjoyed from following a similar strategy during Republican administrations. A $1,000 stake invested in a fund that followed the S&P 500 under Republican presidents, starting with Richard Nixon, would have grown to $2,087 on the day George W. Bush left office.

Market Overview
U.S. equities fell a day after the Standard & Poor’s 500 Index failed to hold at an almost four year high, as sales of previously owned houses missed estimates and data from Europe and China heightened economic concern. The S&P 500 retreated 0.3 percent to 1,357.66 at 4 p.m. New York time. The Dow Jones Industrial Average lost 27.02 points, or 0.2 percent, to 12,938.67 after the 30-stock gauge rose above 13,000 yesterday for the first time since 2008.

Futures traders are pricing in the biggest increase in U.S. equity hedging costs since 2010 after the S&P 500 rose within 2 points of erasing last year’s slump. April futures on the Chicago Board Options Exchange Volatility Index closed at 25.15 yesterday, or 6.96 points higher than the level of the gauge, according to data compiled by Bloomberg. The gap widened to 7.02 points on Feb. 17. The last time two-month futures were that high in relation to the index known as the VIX was July 2010.

The S&P 500 has surged 24 percent since Oct. 3 due to domestic confidence and optimism Europe will resolve the debt crisis. Now, traders are increasing hedges to protect against losses.

Commodity Basics
Oil reached a nine-month high yesterday as International Atomic Energy Agency officials were denied access to an Iranian military base and said negotiations over the country’s nuclear program “couldn’t finalise a way forward.”

Oil for April delivery fell as much as 39 cents to $105.89 a barrel in electronic trading on the New York Mercantile Exchange and was at $105.93 at 10:50 a.m. Sydney time. The contract yesterday gained 3 cents to $106.28, the highest close since May 4. Prices are 8 percent higher in the past year.

Brent oil for April settlement advanced $1.24, or 1 percent, to $122.90 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark contract’s premium to New York-traded West Texas Intermediate closed at $16.62. It reached a record of $27.88 on Oct. 14.

Forex Spot-Lite
The dollar maintained gains from yesterday versus the majority of its most-traded counterparts on concern oil prices at a nine-month high will restrain global growth, increasing demand for haven assets.

The U.S. currency yesterday climbed versus 10 of its 16 major peers as a report showed European services and manufacturing output shrank in February. The Ifo institute will today release its business climate index for Germany, Europe’s largest economy. The greenback halted a five-day gain versus the yen before a U.S. report forecast to show initial claims for jobless benefits rose from a four-year low.

The greenback traded at $1.3248 per euro as of 8:32 a.m. from $1.3249 in New York yesterday. It was at $1.0620 versus Australia’s dollar from $1.0638 yesterday, when it rose 0.2 percent. Against New Zealand’s currency, it traded at 82.83 U.S. cents after yesterday gaining 0.6 percent to 82.93. Japan’s currency was little changed at 80.34 yen per dollar after falling yesterday to 80.40, the weakest level since July 11. It fetched 106.43 per euro from 106.38 yen.

Forex Trading Article by FXCC - Forex Fundamentals, A Quick Reference Sheet

Trading in the foreign-exchange market (forex) relies on the same two basic forms of analysis that are used in the stock market, fundamental analysis and technical analysis. The use of technical analysis in forex reflects much the same as fundamental analysis; price reflects all news and the charts are the objects of analysis. Unlike companies countries have no balance sheets or profit and loss, many analysts question if fundamental analysis, in it’s original form, can be conducted on a currency.

Fundamental analysis looks to establish the intrinsic value of an investment, applying this methodology in forex trading requires observing the economic conditions that affect the valuation of a nation’s currency. Here are some of the major fundamental factors that affect the movement of a currency.

Economic Indicators
Economic indicators are reports released by the government or a private organisation that detail a country’s economic performance. Economic reports are the means by which a country’s economic health is directly measured, many factors and policies will affect a nation’s economic performance.

Reports are released at scheduled times, providing indicators of whether a nation’s economy has improved or declined. In forex, as in the stock market, any deviation from the norm can cause large price and volume movements.

Some of these economic reports, such as the unemployment numbers, are well publicised. Others, like housing stats, receive little coverage. Each indicator serves a particular purpose. Here are four major reports, some of which are comparable to particular fundamental indicators used by equity investors:

The Gross Domestic Product (GDP)
The GDP is considered the broadest and arguably best measure of a country’s economy, as it represents the total market value of all goods and services produced in a country during a given year. GDP is considered a lagging indicator, traders focus on the two reports that are issued in the months before the final GDP figures; advance and preliminary reports. Significant revisions between these reports causes volatility.

Retail Sales
Retail-sales reports measures total receipts of retail stores in any given country. The measurement is derived from a diverse sample of retail stores in a nation. The report is useful as it’s a timely indicator of consumer spending, adjusted for seasonal variables. It’s used to predict the performance of other important lagging indicators, and to assess the immediate direction of an economy. Revisions to advanced reports of retail sales causes significant volatility. The retail sales report can be compared to the sales activity of a publicly traded company.

Industrial Production
This report illustrates the change in the production of factories, mines and utilities within a nation. It reports ‘capacity utilisations’, the degree in which the capacity of each of these factories is being used. Ideally a nation should see an increase of production whilst being at its maximum (or near maximum) capacity utilisation.

Traders using this indicator are concerned with utility production, which can be volatile since the utilities industry, and the trading of and demand for energy, is heavily affected by changes in weather. Significant revisions between reports can be caused by weather changes, which causes volatility in the nation’s currency.

Consumer Price Index (CPI)
The CPI is a measure of the change in the prices of consumer goods across over 200 different categories. This report, when compared to a nation’s exports, can be used to monitor if a country is making or losing money on its products and services. To monitor the exports can be tricky as the prices of exports often change relative to a currency’s strength or weakness.

Some other major indicators include:

The purchasing managers index (PMI)
Producer price index (PPI)
Durable goods report
Employment cost index (ECI)
Housing starts
Michigan Consumer Confidence Survey

How Do Forex Traders Put These Reports To Work?
Economic indicators establish a country’s economic state, changes in the conditions reported will directly affect the price and volume of a country’s currency, however, the indicators listed above are not the only factors that affect currency price. There are third-party reports, technical factors, and many other issues that can drastically affect a currency’s valuation.

A Few Tips For Conducting Fundamental Analysis In The Forex Market

Keep an economic calendar ready that lists the economic indicators release date whilst being aware of the future as markets can move in anticipation of a certain indicator or report due to be released at a later time.
Be aware of the economic indicators that are being discussed most in the financial media at any given time. Such indicators are often catalysts for large price and volume movements, when the U.S. dollar is weak, inflation is often one of the most watched indicators.
Bloomberg produce expectations based on questionnaires sent to leading economists in any given specialised field. Be aware of these market expectations for the data and pay attention as to whether expectations are met. It’s often more important than the data itself. Occasionally, there’s a drastic difference between the expectations and actual results, if there is be aware of the possible justifications for this difference.
Never react too quickly to the news, numbers are released and then revised. Paying attention to these revisions may be a useful tool for seeing the trends and reacting more accurately to future reports. The adage is; “don’t trade the news, trade the reaction to the news.”

Summary
There are many economic releases and there are more private reports that can be used to evaluate the fundamentals of forex. It’s important to take time to look at the numbers and to understand what’s being translated and how these reports affect a nation’s economy. When properly used these reports and indicators of a country’s or state’s performance are a priceless resource for currency traders.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/forex-fundamentals-a-quick-reference-sheet/

Forex Article - Are Forex Traders Born And Not Made?

Are Forex Traders Born And Not Made, Or Do We Need To Get The Chemistry Right?

There was a fascinating article published by Reuters and others yesterday concerning gambling addiction. Whilst musing over the results the synergy between gambling and trading becomes obvious. The question that many of us have asked; “am I cut out for this?” may have more in common with your brain chemistry than you’ve previously given credit. The scientific report suggests that there is a chemical in an area of the brain, norepinephrine, which if evident in larger quantities makes people less risk averse and as a consequence they feel less emotional pain when taking a loss.

This experiment and study throws up many questions in relation to our trading world. For example, could traders take a drug, similar to beta blockers, in order to inhibit certain behaviour which could be harming their trading? Or should nature simply take it’s course? Are we either equipped for the industry and profession or not and would tinkering around the edges dramatically alter the right state of mind necessary? And for those amongst us who believe we have the balance right, would we want to actually make the ‘pain’ of a loss lessen, or could that blurring of pain actually reduce our edge?

Pain Is Essential To Trading
I’d suggest that the pain of losses is essential. Whilst that pain lessens over time (due to familiarity and experience) to become the slight numbing many of us are familiar with, none of us could testy to ‘enjoying’ taking a loss. Yes there’s the Mark Douglas type attitude we could all key into; “that loss means the next winner is just around the corner” but the reality is that we all hate losing, if we didn’t you’d begin to question whether were made of the right stuff to trade.

Rationalising losses, by ensuring the money management section of your trading plan is never breached, eventually becomes second nature. But in markets such as we’ve experienced over the past 48 hours, whilst the Greek issue has been high on the agenda, your losses may be slightly higher particularly if you’re an intra day trader. Would you want a chemical that soothes these losses or you want to be fully awake, cognisant and aware of what’s happening in the market place in order that you can be ready to act? I’ll take reality any day..

The Experiment
A neurotransmitter, or chemical messenger, called norepinephrine, or noradrenaline, is central to the response to losing money. Those with low levels of norepinephrine transporters had higher levels of the chemical in a crucial part of their brain, leading them to be less aroused by and less sensitive to the pain of losing money, the researchers found. People with higher levels of transporters and therefore lower levels of norepinephrine or noradrenaline have what is known as “loss aversion,” where they have a more pronounced emotional response to losses compared to gains.

For the study, a team of researchers at the Kyoto University graduate school of medicine in Japan, scanned the brains of 19 healthy men with positron emission tomography (PET) scans after they had completed a gambling task.

Loss aversion can vary widely between people, the researchers explained. While most people would only enter a two outcome gamble if it were possible to win more than they could lose, people with impaired decision making show reduced sensitivity to financial loss.

Julio Licinio, editor of the Molecular Psychiatry journal which reviewed and published the brain study;

Pathological gambling that happens at regular casinos is bad enough, but I think it’s also happening a lot now at Casino Wall Street and Casino City of London. We like to believe we all have free will and make whatever decisions we want to, but this shows it’s not so easy. Many people are predisposed to make certain kinds of decisions.

Derek Hill, a professor of medical imaging science at University College London was intrigued by the findings;

This research uses sophisticated brain scanning to improve our understanding of the way that our appetite for risk is linked to the way that chemical messengers operate in the brain. It is quite preliminary work, but has many intriguing implications. This sort of imaging could in future be used to help test drugs to treat people who indulge excessively in risky behaviour.

Alexis Bailey, a lecturer in neuropharmacology at Britain’s University of Surrey, said scientists need to analyse pathological gamblers to confirm whether they have higher levels of chemical transporters than non-gamblers.

Also there is a need to investigate if noradrenaline transporters are also increased in brain regions traditionally associated with decision making and emotional aspects of aversion such as the prefrontal cortex and amygdala.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/are-forex-traders-born-and-not-made/

Forex Market Commentary by FXCC - Greeks Refuse To Lie Down And Take The Austerity Medicine

How does that phrase go again; “you can fool some of the people some of the time, not all of the people all of their time”? Ah-ha! Here it is; ” You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.” Apparently it’s attributed to Abraham Lincoln the 16th president of USA (1809 – 1865)..

The day after the ink has dried on the overall troika deal as the Dutch finance minister finally found his swipe card to get into his ensuite room, raid the mini bar and get to the airport, the small matter of the remainder of the inter generational crisis management can now be left to the troika ‘lite’. The body he insisted on being there permanently as part of the overall deal. But the Greek populace, unlike the troika, the IMF and Euro Group, is not waking up from a congratulatory back slapping party, their sobriety has been unbroken throughout this three year ordeal and their day to day reality has been made much harsher by the revised austerity measures recently put in place as part of the overall deal.

Evidence of the unrest is everywhere, the Greeks are not receiving the same sanitised perception managed news reel the rest of Europe, the UK and the USA is being force fed in order to believe that the tortuous financial engineering has provided a solution. There are already stark warning signs for ‘ordinary’ Greeks as to the impact and immediate power of austerity.

According to the statistics bureau ELSTAT, more than three million of Greece’s population of 11 million, or 27.7 percent, were close to poverty or social exclusion in 2010, at the very start of the crisis. Things have become much worse since…

Klimaka, a non-governmental group formed in 2000 and backed financially by the health, foreign affairs and labor ministries, aims to help those who have lost the most. In Athens, the profile of a homeless person has changed with the economic crisis, said Effie Stamatogiannopoulou a professional nurse of Klimaka;

Before, the categories of people on the streets were immigrants, alcoholics and drug addicts. In the past two years however our data show a 25 percent increase of homeless people who have no such problems but are simply unemployed.

The latest figures confirm this trend: 20 percent of the active population is unemployed and almost half of those, 48 percent, are younger than 25. Klimaka estimates that 20,000 people live in the streets of Athens nowadays. Prior to the crisis homelessness and ‘street living’ was a rarity in Athens.

Today various rallies and protests are taking place in Athens and Thessaloniki.

The two biggest unions in Greece ADEDY and GSEE unions have called a rally set for 16:00 EET (2pm GMT) outside Parliament in Athens.
Insurance Fund employees to rally at 12:00 EET (10am GMT) outside OEK Patission and Solomou in Athens.
PAME Communist workers group will begin a rally at 17:00 EET (3pm GMT), starting from Omonia and converging with union protest outside Parliament in Athens


A second rally is being organised in Thessaloniki begins at 18:30 EET (4.30pm GMT) at the Venizelos statue.

Polish Solidarity
Grzegorz Kolodko, the former deputy prime minister and minister of finance of Poland, has come out firmly against the rescue package. Kolodko teaches at Kozminski University in Warsaw and argues that Greece’s economy cannot possibly return to strong growth in the face the measures that are being applied. Greek Society is being pushed to its limits and Kolodko advocates wiping out 80% of Greece’s external debt, combined with an EU loan at zero interest rate;

“In three years of austerity Greece’s debt has risen from 113 per cent of gross domestic product to 163 per cent. Homelessness has jumped by 25 per cent. Unemployment has risen to 21 per cent, among the highest in the industrialised world, with 48 per cent of young people out of work. It is naïve to think they will watch TV, not demonstrate or fight in the streets. This policy is senseless.

The easiest solution would be for the European Central Bank to buy new issues of Greek government bonds, but its hyper-liberal statutes and German ethos will not allow it to do so. The ECB has off-balance sheet resources of €3.3tn, equivalent to the current value of its seniority. If it is only used properly, the issue of eurozone sovereign debt can be resolved.”

Market Overview
China’s manufacturing could shrink for a fourth month in February, indicating the world’s second biggest economy is vulnerable to a deeper slowdown as Europe’s crisis caps exports and the housing market cools. The preliminary 49.7 reading of an index from HSBC Holdings Plc and Markit Economics published today compares with a final 48.8 in January. A number below 50 points to a contraction..

European stocks fell for a second day and commodities declined after data was published showing that the region’s services and manufacturing output shrank. The Stoxx Europe 600 Index had lost circa 0.6 percent at 9:30 a.m. in London. Futures on the Standard & Poor’s 500 Index slipped 0.1 percent. Copper retreated 0.6 percent. The German 10-year bund yield decreased three basis points to 1.95 percent, snapping a four-day advance. The dollar appreciated as much as 0.7 percent to 80.30 yen.

A gauge of euro-area services and manufacturing output dropped to 49.7, London-based Markit Economics said, below the 50.5 forecast by economists in a Bloomberg survey. The Dollar Index rose 0.2 percent, while the yen weakened versus all 16 most-traded peers monitored by Bloomberg, falling 0.5 percent against the euro. Copper dropped for the first time in three days. Oil in New York declined 0.4 percent to $105.82 a barrel, the first drop in a week.

Market Snapshot
Asia-Pacific markets enjoyed positive returns in the early morning session. The Nikkei closed up 0.96%, the Hang Seng closed up 0.33% and the CSI closed up 1.37%. the ASX 200 closed up 0.04%. European bourse indices have fallen marginally in the early part of the European session. The STOXX 50 is down 0.63%, the FTSE is down 0.27%, the CAC is down 0.35% and the DAX down 0.81%. The Athens exchange the ASE is down 2.81% down circa 51.66% year on year. ICE Brent crude is down 0.41% this morning still at over $121 per barrel. Comex gold is down $3.20 an ounce. The SPX equity Index future is currently down 0.08%.

Commodity Basics
Oil has traded close to its highest level in nine months on speculation that Iran will disrupt supplies, countering concern that global demand will falter. Futures were little changed after sliding as much as 0.5 percent. The International Atomic Energy Agency said talks over Iran’s nuclear program failed, while an Iranian general threatened military action. U.S. oil stockpiles climbed 1.5 million barrels last week, according to a Bloomberg News survey.

Brent oil for April settlement was down 18 cents at $121.48 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $15.09. It reached a record $27.88 on Oct. 14.

Forex Spot-Lite
Futures traders increased wagers that the euro will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed last week. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain (net shorts) was 148,641 on Feb. 14, compared with 140,593 a week earlier.

The dollar rose to a seven-month high of more than 80 yen on speculation signs of growth in the U.S. economy will reduce the case for more so-called quantitative easing by the Federal Reserve. The dollar rose 0.6 percent to 80.24 yen at 9:12 a.m. London time, after trading at 80.30 yen, the strongest level since July 12. The greenback is poised for its longest series of daily advances since April. The euro advanced 0.5 percent to 106.07 yen, after reaching 106.33 yen, the highest since Nov. 14. The 17-nation currency was little changed at $1.3222.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/greeks-refuse-to-lie-down-and-take-the-austerity-medicine/

Daily Forex Market Roundup by FXCC - February 22 am 2012

The ECB Announces The Last Of Its Blow Out Money Sales

We’re not entirely sure what happened to the “on deposit” stories that were doing the financial news-rounds in late 2011, remember how it was?

The ECB would offer three year virtually unlimited loans to banks at a 1% coupon, they termed it LTRO, (long term refinancing operation). The banks would then immediately deposit the same borrowings with the ECB as they distrusted their counter parties that much they couldn’t possibly lend it to them by doing you know, normal clever ‘banking stuff’.

Therefore the perfect symmetry and social uselessness of the desperate insolvent banks, who scrambled over each others’ rotting zombie like corpses for the loans, was contained in a perfect if not surreal loop; central bank lends at 1%, bank gives it back on deposit to earn (at best) 0.5% interest, that’s banking for you, in the ‘new paradigm’ 2011-2012 style.

The ECB has announced that the window is closing, the next auction (the second) will be the last and if the total lent is the rumoured one trillion euros then the ECB’s plan may work. Supply may exceed demand, they may not be able to give the money away suggesting that the system is healed. That’s if by healed we judge that the banks will be that awash with liquidity therefore solvency should not be an issue…at least for a year or two..

The ECB wants to keep pressure on governments to improve their defence of the euro zone with better economic policies and by bolstering their European Stability Mechanism (ESM) firewall which will come into being by mid-year. Making hundreds of billions of euros easily available to banks over a three-year period risks fuelling a credit binge that some central bankers worry could increase inflation whilst fostering a central bank dependency culture. Some at the ECB believe banks should now be redoubling their efforts to raise fresh capital, as UniCredit recently did through its rights issue, and fear the ECB’s help will create zombie banks reliant on central bank support;

If you are flooding the market with cheap refinancing then there comes a point when you are preventing the market from working, because nobody is going to borrow from another bank at X percent if they can borrow from the ECB at Y percent.

The ECB channelled nearly half a trillion euros in cash at the first operation on December 21. A Reuters poll of over 60 economists showed a mid-range expectation for it to allot another 492 billion euros next week, some analysts expect a trillion to be taken.

If banks used the first LTRO to plug their funding needs and fend off a credit crunch, ECB officials hope they could use the second more aggressively to buy higher-yielding bonds, especially from Italy which needs to recycle circa €105 bn of bonds before the end of April.

While ECB officials expect the second LTRO to give a boost to lending as well as bond-buying, they are nonetheless worried about banks becoming dependent on the ECB or heightened liquidity provision leading to irresponsible banking decisions.

Market Overview
U.S. equities shed their earlier session gains, a surge in oil dragged down transportation and consumer shares while Greece’s approval for a second bailout failed to spur enough confidence to keep the Standard & Poor’s 500 Index at an almost four-year high.

The S&P 500 rose 0.1 percent to 1,362.21 at 4 p.m. in New York after earlier climbing as much as 0.5 percent to top its highest closing level since June 2008. The Dow Jones Industrial Average shrank its earlier advance after climbing above 13,000 for the first time since May 2008. The Stoxx Europe 600 Index lost 0.5 percent. The 10-year U.S. Treasury yield jumped six basis points to 2.06 percent. WTI Oil reached a nine-month high near $106 a barrel as Iran said it stopped selling to France and Britain.

Commodity Basics
Iran stopped selling oil to France and Britain on Monday, preempting a European Union ban. EU nations bought a combined 18 percent of Iran’s exports of crude and condensates, or 452,000 barrels a day, in the first half of 2011, according to the U.S. Energy Department. France purchased 49,000 barrels a day and the U.K. 11,000 barrels.

Brent oil for April settlement increased $1.63, or 1.4 percent, to $121.68 a barrel on the London-based ICE Futures Europe exchange.

Forex Spot-Lite
The Dollar Index, which tracks the U.S. currency against those of six trading partners, fell 0.3 percent. The Australian dollar weakened against all 16 of its major counterparts, losing 0.8 percent versus the U.S. currency, after minutes of the nation’s most-recent central bank policy meeting showed there is scope for monetary easing.

The yen fell 0.1 percent to 79.74 at 5 p.m. in New York, after touching 79.89 yesterday, the weakest since Aug. 4. The euro declined less than 0.1 percent to $1.3234 after reaching $1.3293, the highest level since Feb. 9. Europe’s currency rose 0.1 percent 105.54 yen after earlier rising to 106.01 yen, the most since Nov. 14.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/february-22-am-2012/

Forex Trading Article by FXCC: Fundamentalism For The Forex Trader

Fundamental analysis of a business involves analysing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management.

When analysing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Fundamental analysis is performed on historical and present data with the goal of making financial forecasts.

Eurozone, The Fundamental Lessons
We’ve experienced a significant unforeseen and unintended consequence as a result of the prolonged Eurozone issues and hopefully many FX traders will have immediately picked up on it. For many traders, who were not previously plugged into the news and aware of how macro economic news affects the markets, then the past year has provided a constant stream of superb unmissable examples as to who, how and why the markets move..

Over the past twenty four hours we’ve witnessed a superb illustration of the euro moving in perfect synergy with the prevarication and apparent indecision of the Euro group and troika. The shadowing of price, as the news ebbed and flowed, was almost balletic. As opinions varied in the media as to the eventual result of the troika/Euro group (and the clock ticked down) there was a visible reaction to all currency pairs containing the Euro as the counter party. That reaction reached a fascinating ‘crescendo’ yesterday evening and early this morning.

The euro fell versus the dollar in the NY Monday afternoon session as optimism evaporated that a deal would be reached. That fall was magnified at 11 pm GMT as the planned meeting failed to take place. The euro then experienced a sharp spike up from 2:40 to 3:15 am GMT as news broke that a deal had been finally reached. As the morning session began (and analysts got to work) sobriety overtook optimism, the euro fell as many investors deduced that this agreement is only the first step to recovery. Since which time the currency has recovered to be printing at a price of 13270 up circa 60 pips or 0.47% on the day. The pair is near on parity with yesterday’s high and only 23 pips short of the daily high.

However, if we move away from shorter term charting, to look at perhaps the two hour chart over the past week, we can gather a far superior viewpoint of the fundamentals that have been in play. On the 13th of Feb. the euro began to experience a significant fall of over 200 pips to dip below 13000, from which it recovered as of midday on the 16th of Feb. to reach 13276 midday yesterday. Both of these ‘swings’ over the past week can be directly related back to the overall events concerning the Eurozone issues as they unfolded last week.

13th Feb – 15th Feb
Athens had been left scarred by the social unrest around the Greek parliament on Sunday 12th. Cutting minimum wages, slashing public spending and sweeping lay offs in the public sector fuelled the anger. Eurozone finance ministers closely monitored the situation in Greece before making further decisions on the bailout package due to be presented at Wednesday’s meeting. They’d rejected a previous set of measures proposed by Athens, and were demanding an extra 325m euros in savings. The Eurozone ministers subsequently cancelled the meeting scheduled for Wednesday 15th the Greek finance minister stating that the troika was shifting terms of €130bn bailout deal as part of move to force country out of eurozone.

16th Feb – 20th Feb
On the 16th it was announced that the extra budget cuts had been found. Hopes rose that the European Union would agree a fresh €130bn bailout on Monday (yesterday) to save Greece from defaulting on its debts after politicians in Athens said they were close to a deal with their single currency partners.

Amid attempts by Brussels to defuse the tension that has been building between Greece and Germany it appeared that the austerity stricken southern European country had found the additional budget cuts being demanded by the rest of the eurozone. “We are almost there,” one source said. The news came after European markets were closed but the Dow Jones index rallied by 123 points to close at a four year high encouraging risk on were the euro was concerned. This optimism, for the eventual rescue rubber stamped in the early hours of this morning and as previously highlighted frayed nerves were evident on our charts as the news leaked out of Brussels and the deal was eventually agreed.

Whilst not the purest of fundamental analysis examples this brief snap shot of a single currency pairs behaviour, in relation to the most critical of fundamental decisions in recent times, perfectly illustrates the overwhelming power and superiority of FA above TA. Price did not ‘bounce off’ moving averages, the market didn’t concentrate on stop hunting around resistance and or support, it didn’t revert to the mean due to touching the upper or lower Bollinger band..price was dictated and shaped by the critical fundamentals in play at the most crucial economic time the seventeen nation Eurozone has witnessed since it’s creation. That ‘information’ in the form of intelligence was then translated onto our charts.

This article isn’t intended to decry the use of TA, (technical analysis) after all as the author of this and many articles for FXCC many readers will know that I’m as hard core a technical analyst and trader as you’ll find, ALL of my decisions are taken off the charts based on the alerts/set ups I’ve embedded in my charts, however, the crucial issue is that I understand why price moves, who is making it move and hopefully when that move and trend will end.

This article is in two parts. Part two will cover the very basics of Fundamental Analysis.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/fundamentalism-for-the-forex-trader/

Market Commentary by FXCC - Austerity? Check. Bailout? Check. Growth Plan? Err…

If there’s a metaphor for the Dutch finance minister being locked out of his hotel room upon his return after “exhausting” negotiations then others will have to supply it. There was a certain amount of irony at play given his call for a permanent presence by the troika in Athens for the duration of the austerity measures.

I’m sure the more forensic journalists and economists amongst us will wonder if his daily room rate will be above the €685 minimum monthly wage Greeks have now ‘signed up’ to in order to receive the second bailout, whilst the overall expenses are a (relatively) small matter it’s natural to be curious as to how much has been racked up by the politicians and representatives of the troika over the past two years whilst engineering a solution for the Eurozone crisis. Perhaps the official Eurostats dept. could supply the figures and detail who gets to pay.

What’s also curious is the observation that neither Merkel or Sarkozy were present to finally champion the deal, despite having been the flag bearers for Europe over recent months. Could they know that, despite the ‘good’ news, the plan is simply the first step on an extremely rocky road that Greece cannot possibly walk the length of?

The “markets” reaction to the agreement has been muted, the euro experienced a spike up shortly after the announcement but then retreated, the spike being evidence of ‘algo’ trading more then genuine sentiment driving the market up. The next hurdle for Greece is not the payments in return for dutiful adherence to the plan, it’s the general election looming in April when theoretically the plan could be ripped up six weeks after implementation. The technocratic coalition government cannot possibly hold tight during the election process, therefore the plan could ultimately be scuttled.

The focus has changed, no longer is fiscal prudence the obsession the survival of any semblance of democracy is the key issue. For those ‘ordinary’ Greeks, who recoiled as they witnessed their power usurped by technocrats, they have a chance to voice their concerns at the ballot box..surely nothing can prevent that? Martial law, a secret coalition agreement already entered into to delay elections until 2014?

This is an irony and coincidence to the overall situation way above the Dutch finance minister De Jäger being locked out of his room, the Greek people have an opportunity to finally have their say in the cradle and birthplace of democracy. If we’re looking for reasons as to why any celebrations have been put on hold by the overall powers who have constructed the deal then there is your answer. This ‘deal’ has a shelf life of six weeks which is why any debate on the full ramifications can wait given all parties know it’s unworkable and the headline rescue figure of €130 billion is a gross underestimate.

Market Overview
Most European indices were flat or fell whilst the euro pared gains versus the dollar as investors weighed up whether or not Greece’s bailout gives the country enough breathing space in order to fix its economy. The Stoxx Europe 600 Index slipped 0.1 percent at 9:30 a.m. in London. Standard & Poor’s 500 Index futures added 0.5 percent after the gauge climbed to the highest level since April on Feb. 17. The euro strengthened 0.2 percent to $1.3265, after appreciating as much as 0.4 percent. The Australian dollar weakened against all 16 of its most-traded peers. The 10-year U.S. Treasury yield rose four basis points to 2.04 percent. Copper increased for a second day.

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

With the exception of Japan Asia-Pacific markers enjoyed a positive early morning trading session. The Nikkei closed down 0.23%, the Hang Seng closed up 0.25% and the CSI closed up 0.86%. the ASX 200 closed up 0.82%. European markets have failed to rally after the news of the Eurogroup/troika finally agreeing a deal with the Greek coalition government. The STOXX 50 is down 0.15%, the FTSE is down 0.26%, the CAC is down 0.26%, the DAX is down 0.13% whilst the Athens exchange, the ASE is down by 1.0%. ICE Brent crude has dipped below $120 a barrel down $0.30 per barrel. Comex gold is up $15.40 an ounce.

Commodity Basics
Oil traded close to its highest price in nine months after euro-area finance ministers agreed on the second bailout for Greece, improving prospects for fuel demand. Futures in New York advanced as much as 2.1 percent from Feb. 17. Brent futures were little changed in London as Europe Union finance ministers awarded 130 billion euros today in aid to Greece.

Oil futures for March delivery on the NYMEX expire today, they advanced as much as $2.20 from the Feb. 17 closing price to $105.44, the highest intraday price since May 5. The contract was at $105.06 at 9:09 a.m. in London, while the more-actively traded April future gained $1.80 to $105.40. Prices are 12 percent higher than a year ago.

China, the biggest buyer of Iranian crude, cut purchases in January to the lowest level in five months after oil companies in the two nations failed to renew contracts. Crude imports were 2.08 million metric tons, circa 493,000 barrels a day, down 5 percent from a year ago and 14 percent from December.

Forex Spot-Lite
The euro climbed to a three-month high versus the yen after euro-area finance ministers agreed to award Greece a second bailout package to stave off a default next month.

The 17-nation currency was little changed versus the dollar after erasing an intra-day advance as Luxembourg Prime Minister Jean-Claude Juncker said the deal includes a 53.5 percent write-down for investors in Greek bonds, greater than a previous arrangement. The Australian dollar weakened after the Reserve Bank said in minutes of its Feb. 7 meeting that there is scope to ease monetary policy.

The euro rose 0.2 percent to 105.69 yen at 8:22 a.m. London time, after touching 106.01 yen, the most since Nov. 14. Europe’s common currency traded at $1.3247 after reaching $1.3293 earlier, the strongest level since Feb. 9. The dollar gained 0.2 percent to 79.80 yen. The so-called Aussie dollar slid 0.4 percent to $1.0711.

Daily Market Round-Up by FXCC - February 21 am 2012

Greece Is Put Into A Dutch Oven

There are two definitions for a Dutch Oven and both are equally fitting for the stunt the Dutch finance minister pulled during the final delicate negotiations over the details of the Greek bailout;

A Dutch Oven is a thick-walled (usually cast iron) cooking pot with a tight-fitting lid. Dutch ovens have been used as cooking vessels for hundreds of years. They are called “casserole dishes” in English speaking countries other than the USA, and cocottes in French.
A Dutch Oven is is a slang term for pulling a cover over someone’s head while in bed and creating flatulence, thereby creating an area of foul odour air in an enclosed space that must be inhaled. This is done as a prank, or by accident to one’s sleeping partner.

The Dutch finance minister has revealed that he wants a “permanent Troika presence” in Athens, in return for the second finance package. Jan Kees de Jäger made the comments, which temporarily threw the Greek crisis into fresh uncertainty, before the talks began in Brussels on Monday afternoon. He insisted that the European Union, the European Central Bank and the International Monetary Fund have a fixed role within the Greek capital in the years ahead.

Euro zone finance ministers inched towards approving the second bailout for debt-laden Greece on Monday helping resolve Athens’ immediate repayment needs but would not revive the nation’s shattered economy. Agreement on the 130-billion-euro rescue package on strict conditions would finally bring to an end months of uncertainty that has shaken the currency bloc, and avert Greece’s bankruptcy.

Officials are struggling to make the numbers crunch. EU sources said they had to find a further 6 billion euros to make the financing work, private investors might have to take bigger losses. After seven hours of talks, senior officials said ministers had found ways to cut Greece’s debt to between 123 and 124 percent of gross domestic product by 2020, but were pressing for more. Negotiators for private bondholders had offered to accept a bigger loss to help plug the funding gap. The often referred to haircut may now need to exceed 70%.

A report prepared for ministers by EU, European Central Bank and IMF experts, states that Greece would need extra relief to cut its debts to the official target of 120 percent of GDP by 2020.

There’s some glaring issues in the troika’s report into Greece;

Greece may not be able to deliver reforms at the pace required under the baseline scenario
The recapitalisation of Greece’s banks may need to be raised to €50bn. The previous estimate was €40bn.
The troika report found that the baseline scenario is that Greece’s debt-to-GDP ratio will only fall to 129% by 2020, not 120%.
Should Greece’s recession deepen, and structural reforms not be implemented, the ratio could still be at 160% in eight year’s time.

The troika suggests ways that the European Central Bank, and others, could bring Greek debt down to the 120% target. They are:

Restructuring accrued interest on Greek bonds, cutting the ratio by 1.5 percentage points.
A lower interest rate on existing bilateral loans. Cutting another 1.5 percentage points of the debt/GDP ratio.
Restructuring the Greek bond portfolios of the various eurozone central banks. That could cut the debt/GDP ratio by 3.5 percentage points.
The ECB could give up “profits” on its Greek bonds. That could save 5.5 percentage points.

Market Overview
Stocks rose for a fourth day and metals rallied after China’s central bank cut reserve requirements for lenders. Euro and Italian bonds gained as European leaders prepared to discuss a Greek rescue.

Standard & Poor’s 500 Index futures added 0.5 percent. U.S. markets were closed for a holiday on Monday and the yield on the 10-year Italian note fell 10 basis points. Copper broke a six-day losing streak in London. Oil climbed to a nine-month high as Iran said it halted some crude exports.

The yield on the Greek bond due October 2022 declined 54 basis points to 33.84 percent. The Spanish 10-year yield slipped 10 basis points, while the German 10-year bund yield rose four basis points.

Commodity Basics
Copper added 0.7 percent in London. Oil in New York jumped as much 2.1 percent to $105.44 a barrel, the highest price for a most-active contract since May 5. Iran will supply crude to “new customers” instead of companies in the U.K. and France, according to the oil ministry’s news website, Shana, citing Alireza Nikzad Rahbar, a spokesman.

Forex Spot-Lite
The euro climbed 0.9 percent versus the yen. The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 0.4 percent. The euro appreciated 0.8 percent to $1.3243.

Forex Market Commentary by FXCC - Is This What Constitutes 20-20 Vision For Greece?

There is one headline and discussion point, in relation to the Greece debacle, which constantly catches the attention IF you’re concentrating;

“At stake is a target of lowering the debt to a more manageable 120 percent of gross domestic product by 2020. EU and IMF officials believe that target, which assumes Greece will run a budget surplus next year, excluding the massive cost of its debts, will be missed. Under the main scenario of an analysis by the European Commission, the European Central Bank and the International Monetary Fund, estimates suggest that Greek debt will fall to only 129 percent of GDP in 2020.”

Therefore by employing the most optimistic metrics the primary Greek debt versus GDP ratio could fall to 120% by 2020 and this does not take into consideration other debts such as the burden of personal debt which could severely impact on bank reserves and liquidity/solvency requiring further rescues etc. The standard economic metric by which many countries are judged to still be healthy is a debt v GDP ratio not exceeding 65-80%, yet here we are, with the troika openly admitting that a figure approaching double the lower threshold is the best that can be achieved, but that’s apparently the basis upon which a rescue deal could be struck.

It’s incredulous to imagine that Greece can stick to the overall plan, even if it’s lined up each week like a dutiful schoolboy, asked if its household chores are taken care of and then doled out pocket money in order to pay the remaining skeleton civil servants their reduced wage and fill up the ATMs. There are bound to be bumps in the road between now and 2020 and as Greece inevitably catches colds it’ll be forced to take more punitive medicine. However, are Greeks signing up to a minimum of eight years of incredible and arguably unnecessary hardship, when the obvious answer from the outset was a planned orderly default?

As we watch Iceland emerge from its catastrophe of 2009 some journalists and economic commentators will point fingers and suggest that there were, still are, alternatives. But having made Greece the pinnacle and pivotal issue (as the rescue mission to save the euro and Eurozone) the wider powers that be in Europe may have created a rod too big for every Euro citizens’ back.

2020 looks a long way off and any thought that Greece will be transformed into anything other than a zombie state by such time is wishful thinking. It’ll continue to drag and paw at it’s cruel master, until at some stage the schoolboy may tire of dutifully queuing up and asking for the sustenance level handout..

Market Overview
Global equities rose for a fourth day whilst metals rallied as a consequence of China’s central bank cutting the reserve requirements for banks, while the euro strengthened before European leaders meet to discuss a Greek rescue. Oil reached a nine-month high due to Iran stating it’s ceased crude exports to Europe.

The MSCI All-Country World Index gained 0.4 percent as of 8:00 a.m. in London. The Stoxx Europe 600 Index climbed 0.6 percent and Standard & Poor’s 500 Index futures advanced 0.3 percent. The euro rose 0.5 percent to $1.3199. The yen weakened against 13 of its 16 major peers after Japan posted the biggest monthly trade deficit on record. Ten-year German bund yields added two basis points to 1.95 percent. Copper reversed its six days of losses, increasing by 1.4 percent, whilst oil rose 1.5 percent.

Market snapshot at 9:30 am GMT (UK time)

Despite publishing record trade deficit figures the main Japanese index, the Nikkei, closed up over 100 points or 1.02%. The Hang Seng closed down 0.31% and the CSI closed up 0.14%. The ASX 200 closed up 1.44%, the healthiest rise in the Asian Pacific region, responding positively to the news that China’s lowering of reserve requirements for banks may increase demand for the raw materials Australia exports and give an overall boost to their economy. European bourse indices have enjoyed a bounce in the first part of the morning session, the STOXX 50 is up 0.84%, the FTSE is up 0.54%, the CAC is up 0.73% and the DAX up 0.75%. The main Athens exchange is up 1.42% the leading ‘riser’ this morning. The SPX equity index future is currently up 0.36%, ICE Brent crude is up 0.97% over €120 a barrel, Comex gold is up $9.70 an ounce.

Commodity Basics
Brent oil for April settlement increased 0.97 percent to $120.53 a barrel on the London-based ICE Futures Europe exchange. Copper in London rose as much as 2.7 percent to $8,396.50 a metric ton. Zinc increased 1.9 percent to $1,982 a ton, nickel added 1.4 percent to $19,900 and tin climbed 1.6 percent to $23,850.

Forex Spot-Lite
The yen fell 0.2 percent to 104.79 per euro and earlier touched 105.75, the weakest since Nov. 14. Japan’s exports dropped 9.3 percent from a year earlier, the Ministry of Finance said today, compared with the median estimate among economists for a 9.4 percent decline. The euro gained for a third day against the dollar. The euro rose 0.5 percent to $1.3199.

German Chancellor Angela Merkel, Greek Prime Minister Lucas Papademos and Italian Premier Mario Monti expressed confidence on Feb. 17 that ministers will resolve open questions. Should they fail to back the bailout plan at the Brussels meeting, the issue could be pushed back to the next European Union summit on March 1.

Australia’s currency rose 0.5 percent to $1.0762 and New Zealand’s so-called kiwi gained 0.9 percent to 83.97 U.S. cents. The two nations, which count China among their largest export destinations, gained on prospects the reserve-ratio cut will also boost demand for commodities.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/is-this-what-constitutes-20-20-vision-for-greece/

Forex Market Commentary - As Iceland’s Economic Winter Thaws What Lessons Can Be Learned By Europe’s Policy Makers?

Iceland’s approach to dealing with the meltdown was to put the needs of its population ahead of the markets at every turn.

Iceland’s approach to dealing with the meltdown was to put the needs of its population ahead of the markets at every turn.

No it’s not a typo it’s an attempt to reinforce the one workable solution that has investment banks running scared, debt forgiveness. In any other business if you mess up, you fail, you lose. If lenders pumped their gravy train full of the wrong additives, to then cause a coronary in their system, then surely the fault lies at their feet and not individuals. The collective individualisation of loans and credit in Iceland did not cause their banking system to collapse, it was the massive growth in derivatives and securities that caused the system to derail a game in which Joe public, particularly in Iceland, had no skin in..

From the outset of the crash and during the various crises that have unfolded since 2008-2009 many economic commentators suggested that rescuing ‘main street’ ahead of Wall street was the only credible long term solution as any other method would bake in stagnation or worse stagflation and create an insoluble inter-generational debt burden. And here we are, three-four years later and despite the rescues, the bailouts, the various rounds of QE and the TARP (in the USA), the overall health of the western banking problem has not improved and has arguably worsened whilst a long term solution appears no closer.

The USA will point to decreasing unemployment, GDP rising, exports likewise, but it’s been at the expense of huge public debt. The USA is past 100% debt versus national GDP and it’s hunger for debt is as voracious as ever, on current projections it’s growing at an alarming rate of circa $2.4 trillion a year. Estimates suggest that for every two dollars of growth the USA achieves it’s actually being ‘bought’ by eight dollars of debt. Since Obama took office in 2008 the national debt has increased by an eye watering 50%, in loose maths from circa ten trillion to fifteen trillion with room to explode to 16.5 inside the next four-six months. But what’s of even more concern is just how quickly the USA has burned through the latest two trillion to simply keep their system trickling up, giving ever more to the top echelons of their broken society.

So how has Iceland recovered so quickly and efficiently, in simplistic terms what did they do that other economies could re-produce? Simple, the ‘needs’ and privileges of the banking and political elite were rendered secondary to the needs of the wider population. Iceland re-set the debt clock to zero and put their people first, even going so far as to countenance the unthinkable: indicting certain high ranking banking officials who were, in the opinion of Iceland’s government to blame for the implosion.

Iceland, A Brief Economic Resume Since 2008
Since the end of 2008, Iceland’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.

Iceland’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organisation for Economic Cooperation and Development estimates. It costs the same to insure versus an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.

The island’s households were helped by an agreement between the government and the banks, (which are still partly controlled by the state), to forgive debt exceeding 110 percent of home values. A Supreme Court ruling in June 2010 deduced and ruled that loans indexed to foreign currencies were illegal, households no longer need to cover, for example, krona or euro losses. Without the relief, homeowners would have broken under the weight of loans, the ratio of debt to incomes surged to circa 240 percent in 2008.

Iceland’s $13 billion economy shrank 6.7 percent in 2009, it grew 2.9 percent last year and will expand 2.4 percent this year and 2013, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates. Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse.

Icelanders took to the streets after the economic collapse in 2008. Protests escalated in early 2009, police used teargas to disperse crowds throwing rocks at parliament and the offices of then Prime Minister Geir Haarde. Parliament is still deciding whether to press ahead with an indictment that was brought against him in September 2009 for his role in the crisis.

A new coalition, led by Social Democrat Prime Minister Johanna Sigurdardottir, was voted into office in early 2009. The authorities are now investigating most of the main protagonists of the banking meltdown. Iceland’s special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.

Larus Welding, the former CEO of Glitnir Bank hf, once Iceland’s second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.

In comparison with the U.S. no top bank executives have faced criminal prosecution for their roles in the subprime mortgage meltdown. The Securities and Exchange Commission said last year it had sanctioned 39 senior officers for conduct related to the housing market meltdown.

There is an irony were Iceland is concerned as it now emerges from it’s very brief economic winter, Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island’s

"unorthodox crisis policy response has succeeded"

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/as-icelands-economic-winter-thaws-what-lessons-can-be-learned-by-europes-policy-makers/

Daily Forex Market Roundup by FXCC - February 20 am 2012

The Outraged, Spain’s Indignados, Protest In Spain, Whilst Iran Turns The Tables On Europe

“Exporting crude to British and French companies has been stopped, we will sell our oil to new customers. We have our own customers. The replacements for these companies have been considered by Iran” – Iranian spokesman Alireza Nikzad was quoted as saying on the ministry website.

Iran has stopped selling crude to British and French companies, the oil ministry of Iran said on Sunday, in a retaliatory measure versus fresh EU sanctions on the Islamic state. The European Union decided in January to stop importing crude from Iran from July 1 over its disputed nuclear program. The European Commission believes that the bloc won’t be short of oil if Iran stopped crude exports, there’s enough stock for around 120 days..

Industry sources confirm that Iran’s top oil buyers in Europe were making substantial cuts in supply months in advance of the European Union sanctions, reducing flows to the continent in March by more than a third – or over 300,000 barrels daily. Iran was supplying more than 700,000 barrels per day (bpd) to the EU plus Turkey in 2011, industry sources said. By the start of this year imports had sunk to about 650,000 bpd as some customers cut back in anticipation of an EU ban. Iran said the cut will have no impact on its crude sales, warning that any sanctions on its oil will raise international crude prices.

EU’s new sanctions includes a range of extra restrictions on Iran going further than the U.N. sanctions agreed last month including a ban on dealing with Iranian banks and insurance companies and steps to prevent investment in Tehran’s lucrative oil and gas sector, including refining.

Spain Shows The Occupy Movement How To Protest
Hundreds of thousands of Spaniards packed town squares nationwide on Sunday protesting labor reforms the new conservative government believe will encourage economic growth. The measures allow companies to fire workers with impunity, exacerbating Europe’s highest unemployment rate, circa 50% amongst the youth.

The largest protests were in Madrid’s Puerta del Sol square, the home base of Spain’s indignados, angry youths who staged several months of demonstrations last year over unemployment and perceived government corruption. Tens of thousands also gathered in Barcelona, Valencia and more than 50 other cities and towns on Sunday..

Changes to Spain’s labor system, approved by the cabinet on Feb. 10, make it cheaper and easier for companies to lay off workers during a recession. Severance packages were cut by nearly a third and companies losing money will pull out of collective bargaining agreements. Employers have greater flexibility to alter workers’ wages, schedules and workloads.

Last month in Brussels, an open microphone caught the new prime minister Rajoy unawares, telling European counterparts he expects social unrest and a general strike in response to his reforms. Trade unions encouraged workers to demonstrate Sunday but they stopped short of calling for a workday general strike.

Greece Works Against The Clock To Finalise Debt Deal
Greece is battling against the clock to implement the drastic budget cuts needed to convince finance ministers from the eurozone to finally sign off its €130bn lifeline at Monday’s crucial meeting. Greece is less than five weeks away from the date when it has to meet debt repayments of €14.5bn, the government of Lucas Papademos worked over the weekend to fulfil conditions demanded by its “troika” of creditors, the EU, European Central Bank and the International Monetary Fund.

Forex Spot-Lite
The yen and dollar dropped versus most major peers in early trading after the People’s Bank of China announced a cut to banks’ reserve requirements in order to spur growth, boosting demand for higher-yielding assets.

The currencies of Australia and New Zealand, which have China among their largest export destinations, gained on prospects the move will increase demand for commodities. The euro advanced for a third day in series versus the U.S. currency before European finance ministers meet amid speculation they are closing on a second Greek aid package. The yen weakened to the lowest since Aug. 4 versus the greenback, Japan is forecast to report a trade deficit as exports fell in January.

The yen fell 0.7 percent to 105.26 per euro at 7:30 a.m. in Tokyo after touching 105.46, the least since Dec. 2. It slid 0.2 percent to 79.74 per dollar after reaching 79.84, the lowest since Aug. 4. The dollar lost 0.5 percent to $1.3203 per euro.

Australia’s currency rose 0.7 percent to $1.0779 and New Zealand’s gained 1 percent to 84.06 cents.

Source: FX Central Clearing ltd, (FXCC BLOG)
http://blog.fxcc.com/february-20-am-2012/

Market Commentary by FXCC - USA Flights Fall To Post 9-11 Confidence Depressed Volume

There are some unusual economic indicators that are always worth keeping a keen eye on, the Baltic Dry Index is an official gauge which is simply overlooked and misunderstood. However, it’s often worth considering ‘left field’ indicators as to the direction of the world’s largest economy. The latest measure of USA air traffic could prove to be just that..

U.S. airlines in 2011 operated the fewest number of flights since the hijack attacks on New York and Washington depressed air travel and accelerated the industry’s worst-ever financial downturn, government figures on Tuesday have revealed.

The Transportation Department said major airlines, their chief low-cost competitors and the biggest regional carriers, recorded 6.08 million departures last year. Takeoffs have not been that low since 2002, when they totalled 5.27 million.

The overall number of flights by U.S. airlines have steadily declined since 2008 when the recession dampened travel demand. Most recently, stubbornly high fuel prices have prompted airlines to further cut capacity to reduce costs and maintain higher fares.

When China Talks The USA Should Listen
Barack Obama asked Chinese leader-in-waiting Xi Jinping on Tuesday if Beijing could “play fair” in international trade and vowed to keep pressure on China to ‘clean up’ its human rights record. Xi’s meeting with Obama is part of a visit that could help the Chinese vice president improve USA relations with Washington for the next decade. U.S. However, leverage over Beijing is limited or non existent, because China is America’s largest foreign creditor.

Obama said, as he sat side by side with Xi in the Oval Office;

With expanding power and prosperity also comes increased responsibilities. We want to work with China to make sure that everybody is working by the same rules of the road when it comes to the world economic system, and that includes ensuring that there is a balanced trade flow.

Washington has urged Beijing to help reduce the U.S. trade deficit with China, which soared to a record $295.5 billion in 2011, heightening concerns in Congress about Chinese currency and trade practices that put U.S. firms at a disadvantage.

Chinese officials have organised Xi’s U.S. trip as a “rites of passage” in a once-in-a-decade leadership change. He is expected to become head of the ruling Communist Party later this year and then president. U.S. officials hope talks will help them gauge the policy Xi will pursue, but his views remain largely opaque to policymakers in Washington.

Greece Default Being Whispered Again
German Finance Minister Wolfgang Schauble said on Monday that the euro zone was “better prepared than two years ago” to deal with a Greek default, hinting that Athens’ days in the 17-nation bloc may well be numbered.

Euro zone finance ministers dropped plans on Tuesday for a meeting on Greece’s new international bailout, saying political party chiefs in Athens failed to provide the required commitment to reform. But as all sides push to seal the deal, there’s a growing belief that even the latest bailout, Greece’s second since 2010, might only delay the inevitable – bankruptcy/default and exit from the single currency. With the European Union’s patience with Greece close to breaking point, Eurogroup Chairman Jean-Claude Juncker said the ministers would hold only a telephone conference call before a regular meeting already scheduled for February 20.

Juncker said he was awaiting written undertakings from Greek party leaders on pushing through with the austerity package of pay, pension and job cuts, which parliament passed early on Monday as rioters torched dozens of buildings in central Athens. Juncker said this required more talks with the “troika” of Greece’s EU and IMF lenders.

I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program. It has appeared that further technical work between Greece and the troika is needed in a number of areas, including the closure of the fiscal gap of 325 million euros in 2012 and the debt sustainability analysis.

Market Overview
Most U.S. stocks fell as optimism that Greece will commit to budget cuts didn’t quite erase a decline in the Standard & Poor’s 500 Index. The euro arrested its losses whilst Treasuries and the dollar trimmed gains.

The S&P 500 slipped 0.1 percent to 1,350.5 at 4 p.m. in New York after falling as much as 0.8 percent in earlier trade. Ten-year Treasury yields fell four basis points to 1.94 percent, paring a six-point decline. Most commodities retreated, while natural gas surged 4.2 percent on forecasts for colder weather in the western U.S.

The S&P 500 is up 7.4 percent so far this year and has rebounded 23 percent from last year’s low amid better-than- forecast earnings and improving economic data. Earnings have topped analysts’ estimates at about 70 percent of the 342 companies in the S&P 500 that reported results since Jan. 9, according to data compiled by Bloomberg.

Commodity Basics
Oil fell in New York, futures declined as the Commerce Department reported that retail sales increased 0.4 percent in January, less than the 0.8 percent gain that was the median forecast of economists surveyed by Bloomberg News. Inventories rose 1.6 million barrels to 340.8 million last week, according to a Bloomberg survey. Demand is at a 12-year low. Oil for March delivery dropped 17 cents to settle at $100.74 a barrel on the New York Mercantile Exchange. It reached $101.84 earlier, the highest price since Jan. 19. Crude has gained 1.9 percent this year.

Prices were little changed after the American Petroleum Institute reported oil inventories rose 2.9 million barrels to 337.8 million last week. The March contract slid 4 cents to $100.87 a barrel at 4:37 p.m. in electronic trading. Brent oil for March settlement rose 23 cents to $118.16 a barrel on the ICE Futures Europe exchange. The March contract expires today. Brent for April fell 4 cent to $117.35.

Yesterday’s system crash that ended electronic trading was unexplained by CME Group Inc., parent of the Nymex. CME declined to disclose what caused the failure of the Globex crude and products markets, which ended electronic trading of futures and options about a half-hour before settlement.

Forex Spot-Lite
The Dollar Index, a gauge of the currency against six major peers, climbed 0.6 percent to 79.444. The yen fell 1.1 percent to a three-month low versus the dollar after the Bank of Japan said it would increase the size of its asset-purchase fund, damping demand for the Asian nation’s currency. The euro was down 0.5 percent to $1.3120 after slumping 0.8 percent earlier.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/usa-flights-fall-to-post-9-11-confidence-depressed-volume/

Market Commentary by FXCC - China Commits To The Eurozone As Storm Clouds Once Again Gather Over Greece

It’s quite fascinating to note that whilst there is a Chinese delegation visiting Washington to meet with Barack Obama a European delegation is visiting Beijing. Whilst in the USA the Chinese officials have been very vocal their support of Europe (and the euro in isolation) similarly the European delegation in Beijing have been met with equal support. Yet it’s proved impossible for American to obtain any commitment from China as to concessions on the USA debt, tariffs, or strength of the renminbi (yuan). The Chinese appear to have (diplomatically) nailed their colours to the mast. This commitment and Germany and France producing positive GDP figures has appeared to negate the potential impact a disorderly Greece default would have on the markets…

China will invest in euro zone government debt and has confidence in the euro, the country’s central bank governor stated Wednesday, whilst also calling on European leaders to produce more attractive investment products for China. China, which holds the world’s largest currency reserves, can provide help through avenues including the central bank and its sovereign wealth fund, said People’s Bank of China Governor Zhou Xiaochuan.

Any bigger role in solving the debt crisis would be via the International Monetary Fund and the European Financial Stability Fund, or EFSF. Zhou Xiaochuan said in a speech at the University of International Business and Economics in Beijing;

We also hope that the euro zone and EU can innovate their mechanisms to offer new products that are more helpful for Sino-Europe cooperation. At the G20, our state leaders promised European leaders that, amid the global financial crisis and the Europe sovereign debt crisis, China will not cut the proportion of euro exposure in its reserves. Some people had cast doubt or suspicion over the currency, but for the People’s Bank of China, we have always been confident in the euro and its future. We strongly believe European countries can work together to handle the challenges. They are able to solve the sovereign debt crisis. The PBOC firmly supports the ECB’s recent measures to address the difficulties.

Vice Finance Minister Zhu Guangyao, who is visiting the United States with leader-in-waiting Xi Jinping, also sought to reassure Europe of China’s support.

China’s commercial investment in Europe has continued, under the principles of safety, liquidity and appropriate returns. We have not adjusted out investment structure. That, it should be said, has been China offering its true trust and support at a crucial moment in European countries addressing their sovereign debt problems.

Greece Deal Suspended
Time is running out for Greece, it faces default if it can’t meet 14.5 billion euros in debt repayments due on March 20, some EU leaders are suggesting that Athens should leave the euro zone currency union.

Euro zone finance ministers have shelved plans for a meeting on Wednesday on Greece’s new international bailout, citing that party leaders in Athens failed to provide the required commitment to reform. European Union ministers downgraded the talks to a telephone conference call, killing any chance of approving a 130 billion euro bailout on Wednesday which Greece needs to avoid a messy bankruptcy/disorderly default. Greece had failed to say how it would fill a 325 million euro gap in budget cuts promised for 2012 and to persuade all party leaders to sign a commitment to implement austerity measures after an election expected in April.

European Council President Herman Van Rompuy said whilst in Beijing leaders would do all they could to keep the 17 country euro zone together;

At the heart of the project, is the peace, prosperity and democracy in the European Union. So don’t underestimate the strong political will to defend the euro zone and that’s the message we want to convey.

In China with European Commission President Jose Manuel Barroso, Van Rompuy is trying to secure investment for the ailing union, the two leaders are presenting a vision of a united, committed, stable bloc, committed to protecting all of its members and citizens.

Europe’s Economy Contracts
Europe’s economy contracted in the fourth quarter for the first time in 2 1/2 years as the region’s debt crisis undermined confidence and forced governments from Spain to Greece to toughen budget cuts. Gross domestic product in the 17-nation euro area fell 0.3 percent from the prior three months, the first drop since the second quarter of 2009, the European Union’s statistics office in Luxembourg said today. Economists forecast a drop of 0.4 percent, the median of 42 estimates in a Bloomberg News survey shows. In the year, the economy grew 0.7 percent.

Market Overview
Both Germany’s and France’s economies have performed better than economists forecast in the fourth quarter, despite the sovereign debt crisis ravaging economies of their smaller euro-area partners. GDP in Germany, Europe’s largest economy, fell 0.2 percent from the third quarter, beating economists’ median prediction for a 0.3 percent decline. The Federal Statistics Office in Wiesbaden also revised third- quarter growth to 0.6 percent from 0.5 percent. The French economy, Europe’s second largest, grew 0.2 percent in the fourth quarter, beating the median forecast for a 0.2 percent contraction.

European Equities climbed whilst commodities rallied to a six-month high after China pledged to invest in Europe’s bailout funds. Emerging-market shares gained the most in a week, while the dollar weakened.

The MSCI All-Country World Index added 0.6 percent at 9:20 a.m. in London, following a 0.4 percent drop yesterday. The MSCI Emerging Markets Index rose 1.1 percent. Standard & Poor’s 500 Index futures gained 0.5 percent. The Dollar Index fell 0.2 percent. The German 10-year bund yield rose one basis point and the similar-maturity Italian yield jumped eight basis points.

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

Asian Pacific markets enjoyed a very strong rally in the early morning session, the Nikkei closed up 2.30%, the Hang Seng closed up 2.14%, the CSI closed up 1.09% whilst the SET, the Thai main index closed up 1.81%. The Thai main market index has recovered remarkably since reaching its October 4th low of 855, at 1126 the index has recovered by circa 32%. The ASX 200 closed up 0.25%.

European indices have been buoyant in the morning session, the STOXX 50 is up 1%, the FTSE is up 0.32%, the CAC is up 0.97%, the DAX is up 1.22%, the ASE is down 2.23%. The SPX equity index future is up 0.62%, ICE Brent crude is $0.68 per barrel whilst Comex gold is up $9.80 an ounce.

Forex Spot-Lite
The euro strengthened 0.3 percent to $1.3175, and climbed 0.4 percent versus the yen. The pound weakened against 13 of its 16 most-traded peers before the Bank of England delivers its quarterly inflation report.

The pound fell versus the euro for a second day on speculation the Bank of England may signal it’s considering more bond purchases to stimulate the economy when it publishes economic and inflation forecasts today. The pound fell 0.4 percent against the euro to 83.99 pence at 10:00 a.m. in London, and was little changed at $1.5685, after dropping to $1.5645 yesterday, the least since Jan. 27.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/china-commits-to-the-eurozone-as-storm-clouds-once-again-gather-over-greece/