Daily Market Roundup by FXCC - October 10 am

No Middle East ‘Sugar Daddy’ on the Horizon to Rescue the Eurozone Crisis

Dexia bank, the bank with a global credit risk exposure of $700 billion (more than twice Greece’s total default ‘risk’ loss) is being watched closely for signs that Europe might be capable of decisive action to resolve its banking crisis. Dexia, who used short-term funding to finance long-term lending, experienced credit evaporating as the euro zone debt crisis worsened, the bank has considerable exposure to Greece.

Dexia, whose shares have been suspended since last Thursday after a confined and combined 42% fall, appears to have finally taken the necessary steps to become fully nationalised. Belgium has now received approval from France to buy up to 100 percent of Dexia SA’s Belgian retail arm as part of proposals to dismantle the French-Belgian lender. Belgium and France may agree to guarantee 60 percent and 40 percent of the refinancing of circa €120 billion of bonds and loans held by Dexia. Proceeds from the sale of Dexia’s profitable units will go to mitigate losses of Dexia’s remnants.

The mention of the next G20 meeting on November 3rd to be hosted by Sarkozy in Cannes, as a deadline for sorting many of the Eurozone’s ills, may have been uttered more by accident than design. In their eighth meeting in a relatively short spell France’s Sarkozy and Germany’s Merkel have once again had a “cordial meeting” after which (once again) the soothe saying appeared coherent but no details of the “package” have been announced. The group of 20 finance ministers meet in Paris Oct. 14-15 before a G-20 summit in Cannes in November.

“We’re not going into details today we’re looking to introduce an entire package,” Chancellor Angela Merkel.

The continual reticence may still have Greece’s imminent default at the heart of the issue. Greece is expected to run out of cash in early November. Inspectors from the European Commission, the IMF and the European Central Bank, the “troika”, are still assessing whether Athens has fulfilled the criteria for more aid. Agreement was supposed to be reached last week, similarly the ‘markets’ were told a week back that Greece only had eight days to survive, suspicions are now surely heightened that Greece will default once the bank’s have their contingency plans secured thereby limiting the damage.

“We are working closely with the troika which is currently in Greece and we expect them to present a sustainable solution for Greece that keeps it in the euro zone and also ensures the financial stability of the euro zone,” Merkel said.

If the two leaders can agree on a way forward, the experience of the past two years has shown that they could struggle to get the other 15 countries in the euro zone on board in a timely fashion and if reports are correct, that Slovakia refuses to ratify the expansion of the EFSF, this may throw the Eurozone into a tailspin as all 17 countries have to agree to agree, one defector kills the entire plan.

If the Eurozone is looking for help from the Middle East they could be left feeling very disappointed. Qatar are unlikely to come to the aid of the European banks’ and the area’s crisis according to reports from the main newswires. Barclays was rescued during the height of the 2008-2009 crisis with the Qatar sovereign wealth fund (QIA) making a profit of circa £600 ml on a combined £1.8 billion temporary investment. However, QIA has an exposure of circa $20 billion in private European countries’ companies and are unlikely to increase that level. Abu Dhabi’s SWFs could be similarly hampered given it had to step in to rescue Dubai’s property crash of 2010. Saudi has committed huge sums to a domestic social rebuilding programme in order to prevent social unrest from gathering pace so are equally unlikely to seek out bargain investments.

Looking towards the London session, as is customary at the start of trading over recent weeks, the global macro economic situation completely dominates the narrative ‘landscape’. Micro events such as data releases are being dwarfed by the importance of the continual crisis. The UK FTSE equity index future is currently down 0.3% and the SPX future is up 0.2%. Although a week is a long time in trading the markets will not have ‘forgotten’ that (rather conveniently) Italy’s and Spain’s credit ratings were downgraded late on Friday afternoon by Fitch Ratings.

The euro has weakened against the yen for a sixth straight week, matching the string of losses which finally ended in June 2010. The 17-nation currency fell versus most of its major counterparts amid increased speculation Greece will default, deepening the region’s debt crisis. Higher-yielding currencies, such as the Brazilian real and Mexican peso, rose as stocks advanced after reports showed employment in the USA economy rose more than forecast.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/october-10-am/

Market Commentary by FXCC - Moody’s Downgrade UK Banks the Day After QE is Announced

Ahead of the G20 summit scheduled for November EU ministers and policy makers will come under increasing pressure to create and ultimately ratify an agreement in relation to the direction and shape the overall Eurozone rescue package will take.

Simon Maughan, head of sales and distribution at MF Global Ltd. in London, said in a Bloomberg Television interview yesterday:

A blanket recapitalization of banks, in some cases, over- capitalising those banks, would be the only thing that’s going to restore confidence at this juncture

Speculation that EU leaders will finally agree a comprehensive recapitalization plan has boosted the Bloomberg Europe Banks and Financial Services Index by nine percent over the past two days. The euro looks set for its first five-day gain versus the dollar in three weeks. Bank stocks have dropped circa 30 percent this year as investors became concerned that financial firms will have to write down their holdings of Greek, Italian, Spanish and Portuguese government bonds.

Policy makers are wrestling with the concept of how to leverage the EFSF (stability fund) to as much as €1 trillion. the obvious solution would be for the facility to operate like a bank and borrow from the ECB, using bonds it purchases as collateral. However, Jean-Claude Trichet, president of the central bank in his parting speech, said yesterday that leverage wasn’t “appropriate.”

Banks, independent of any sovereign rescue fund, would need to raise about 148 billion euros in the event of a 60 percent write down on their holdings of Greek debt, 40 percent for Portugal and Ireland and 20 percent for Italy and Spain, Kian Abouhossein, a JPMorgan Chase & Co. analyst, wrote in a note to clients on Sept. 26. Deutsche Bank AG, Germany’s biggest lender, would need 9.7 billion euros more capital, Commerzbank AG 5.1 billion euros and France’s Societe Generale SA 6 billion euros, Abouhossein said.

What is becoming increasingly clear is that a coherent policy must be in place before the G20 meeting. Allowing Greece to default and how to manage the fallout, are questions that have been avoided for more than a year. It costs $6 million plus a year to insure $10 million of Greek securities for five years, with credit-insurance prices pointing to a 91 percent chance of default. As the German chancellor and French president prepare to meet in two days for their eighth summit in 20 months, Merkel has stated her belief that Europe must have contingency plans for the default that investors see as a sure thing. Sarkozy, whose French banks have the most to lose, is unwilling to allow Greece to default.

Unlike most other European nations France is currently experiencing a political lean to the right partly as a consequence of the continual prevarication. The far right National Front in France, headed by Marine Le Pen, scored 16 percent in an early October Ipsos voting intention poll, behind Socialist challenger Francois Hollande at 32 percent and Sarkozy at 21 percent. In 2002, her father beat Socialist candidate Lionel Jospin with just 16.86 percent of the first-round votes. Sarkozy’s biggest fear is that Le Pen could knock him out in the first round of the two-round vote.

UK bank’s have come under intense scrutiny by Moody’s, this morning came the announcement that several bank’s have had their ratings cut. The timing and largesse of the latest round of QE will raise suspicions mentioned in our latest Between The Lines note that, (ignoring the sophistry by the UK govt mandarins), this latest round of QE was in fact a very well timed intervention preparation for further bank rescues. Moody’s Investors Service have cut the senior debt and deposit ratings of 12 U.K. financial institutions, concluding the government would be less likely to provide support for them if they became financially troubled.

Lloyds TSB Bank Plc, Santander UK Plc and Co-Operative Bank Plc had their ratings lowered one step by Moody’s, while RBS Plc and Nationwide Building Society were cut two levels. Seven smaller building societies were cut from one to five levels, the rating company said in a statement today. Clydesdale Bank was confirmed at A2, with a negative outlook.

“Announcements made, as well as actions already taken by U.K. authorities, have significantly reduced the predictability of support over the medium to long term,” Moody’s said in the statement.

Asian markets have enjoyed a two – three day rally, the Nikkei closed up 0.98% and the Hang Seng closed up 3.11%. The Australian index, the ASX 200, made considerable gains closing up 2.29% but remaining 11.26% down year on year. In European markets the STOXX is currently up 0.51%, the FTSE is flat, the CAC is up 0.42% and the DAX up 0.31%. The daily SPX future index is currently down 0.3%. Brent Circe is down $103 a barrel and gold is up $2 an ounce. Sterling has bounced back after yesterday’s sell off due to the latest round of QE being announced. Versus the dollar It is now ahead of where it was pre yesterday’s announcement and has enjoyed a similar recovery versus the Swissy, yen and the euro. Similarly the euro has made gains versus the dollar, yen and the Swissy. The dollar has fallen versus all the majors (including the Aussie dollar) with the exception of yen.

There is a raft of economic data releases to be mindful at 13:30 gmt including the latest NFP figures.

13:30 US – Change in Non-farm Payrolls Sept
13:30 US – Unemployment Rate Sept
13:30 US – Average Hourly Earnings Sept
13:30 US – Average Weekly Hours September
15:00 US – Wholesale Inventories August
20:00 US – Consumer Credit August

A Bloomberg survey of analysts yielded a median estimate of 59,000 jobs to be added from a previous estimate of no change prior. The median figure from a Bloomberg survey of analysts was a rate of 9.1% unemployment, unchanged from last month’s figure. Economists surveyed by Bloomberg yielded a median forecast of 0.2% month on month from -0.1% for an hourly earnings increase. The year on year figure predicted was 3.7% from 3.6% previously.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/moodys-downgrade-uk-banks-the-day-after-qe-is-announced/

Daily Market Roundup by FXCC - October 6 pm

Quantitative, Qualitative or Just Desperate?

The same headline phrase was constantly repeated on the mainstream media tv and radio channels on Thursday after the BoE MPC announced it was reverting back to the last trick in it’s toolbox, more quantitative easing. “The Bank of England has announced it is to inject £75 billion directly into the UK economy by way of QE in an effort to stave of the UK entering into a ‘double dip’ recession..” Moving aside the fact that (similar to the USA) the UK only moved out of recession ‘technically’ through the previous QE programme and zirp which hasn’t created the jobless recovery many market sages thought possible, there’s one other aspect of the media description which is equally wrong; the £75 billion will not be “injected into the economy”, it is quite simply the start of a bank bailout programme by any other description.

The positive to come from the announcement is that the BoE has attempted to get ahead of its curve and obviously wasted no time in reacting to internal (for their eyes only) intel highlighting just how many days the likes of RBS and Lloyds TSB had left until they did a ‘Dexia’. Actually doing a ‘Dexia midnight runner’ would be difficult given the fact that the UK (already) state owned banks mightn’t have much collateral to even put into a bad bank. What is for sure is that the latest round of QE will not reach main street, it’ll be temporarily used to provide liquidity and avoid questions of solvency with regards to UK banks. Indirectly money may reach certain preferred businesses, the amount may even total £75 billion, however, that’s an admission that the bank’s shutters are down and they’ll only lend in equal amounts to tax payer bailouts.

The European Central Bank is providing governments and banks more time to recapitalize as Greece edges closer to default. The ECB said on Thursday it will reintroduce year-long loans, giving banks access to unlimited cash through to January 2013 and resume purchases of bonds to encourage lending. The European Commission is pushing for a coordinated capital injection into banks and German Chancellor Angela Merkel said policy makers “shouldn’t hesitate” if it turns out financial institutions are undercapitalised. The euro strengthened against the dollar and yen on the speculation a reintroduction of loans to banks by the European Central Bank will support crisis-ridden markets.

U.K. stocks completed their biggest two day gain since 2008 as the Bank of England expanded its bond-purchase plan and investors speculated European Union policy makers will finally contain the region’s debt crisis. The FTSE 100 Index advanced 189.9, or 3.7 percent, to 5,291.26 at the close in London extending yesterday’s 3.2 percent climb for the largest two-day increase since December 2008. The gauge lost 14 percent in the third quarter, its biggest drop since 2002, amid concern Greece’s debt woes will spread to other countries in the region and that the global economy is stalling.

In other European markets the STOXX closed up 3.18%, the CAC closed up 3.41% and the DAX up 3.15%. The US SPX closed up 1.8 percent. The Russell 2000 Index of smaller U.S. stocks extended a three-day advance to 11 percent, its best since 2008. A jobs report which came in slightly ahead of expectations and testimony from Tim Geithner in which he stated that;

The direct exposure of the U.S. financial system to the countries under the most pressure in Europe is very modest. Our firms, and this is true across the largest institutions in the United States, again are in a much stronger position if you look at their capital levels, levels of leverage, how they’re funded.

Morgan Stanley was at one point down 47 percent this year through Monday and Tuesday. Bank of America, based in Charlotte, North Carolina, was down 57 percent. Both banks’ share price improved by circa 5% on Thursday.

The spreading protests against Wall Street show that the American people are angry about worsening economic disparities, Vice President Joe Biden stated on Thursday in Washington.

Let’s be honest with each other. What is the core of that protest? The core is the bargain has been breached with the American people. The American people do not think the system is fair, banks are part of the problem in the economy. At a minimum they are tone deaf.

Looking towards the London morning session the UK FTSE equity index future is currently up 0.7%, the SPX equity index future is flat. The data releases that could affect market sentiment in the London session include the following;

09:30 UK – PPI Input September
09:30 UK – PPI Output September

For the UK input PPI figures a Bloomberg survey of analysts yielded a median estimate of a month on month figure of 1.2%, as compared with the last figure of -1.9%. The year on year figure predicted was 17.1% from 16.2% previously. For UK output a Bloomberg survey of analysts forecast a year on year figure predicted was predicted to be 6.2% from 6.1% previously. The month on month figure predicted was 0.2% from 0.1% previously. The ‘core’ month on month figure predicted was 0.1% from 0.2% previously. The ‘core’ year on year figure was expected to be 3.7% from 3.6% previously.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/october-6-pm/

Traders, You Have to Go There to Come Back

I had an interesting experience recently, I shared my computer screens with a contact during a ‘web ex’ meeting and demonstration. If you’re not familiar with this type of on line demonstration it’s fascinating; you join an online meeting were you share the information displayed on the screen/s and if you give your permission the other party can control your desktop, or alternatively you can lead and control the session.

He was demonstrating a public relations contact database to me as I’d quite simply got bogged down in a part of the programme, the solution proved to be child like in it’s simplicity making me feel a touch silly. Anyhow, his time and mine wasn’t completely wasted as we both learned something new; I learned how to create media prospect lists in a quicker way, how to merge the lists, export them to excel, to then share with others in FXCC etc., what he learned was more by accident than design…

During the demonstration the mechanical set up I constantly use for trading the euro (and the alert connected to it) sounded. The eur/usd chart instantly appeared. Naturally this interrupted our on line meeting which to be fair was nearing the end.

My contact was immediately taken aback, “whoah Paul, what is that?”. I wasn’t sure at first if the sound alert that had spooked him, in fact it was the chart showing eur/usd with all the various: indicators, trend lines etc. on it, together with the flash of data that had intrigued him, suddenly he got a glimpse into the world we operate in.

We spent the next twenty minutes discussing forex trading, in fact the meeting completely turned on it’s head, it now became me demonstrating and explaining; the charts, my indicator set up, how the daily pivot, support, resistance, the 200 MA, the time of day, depth of market and volume leads me to the decision to pull the trigger and enter the market.

My twenty minute demonstration was a filtration of many years of experience condensed into what works for me as a dedicated full time trader, it has taken years of bruising and testing to arrive at a point in time where I’ve discovered my edge and yet having arrived at the unconscious competence stage of trader development I can easily demonstrate it to a contact inside twenty minutes.

That’s not to say a lot of the info. I provided was intelligible to someone with little or no experience in our industry, undoubtedly a lot of my description would have been Greek to him, however, I’m able to demonstrate what works for me inside twenty minutes, perhaps less time to an experienced trader. This led me to a conclusion that perhaps we should all test our edge to see if a complete novice could understand it inside a twenty minute pitch? Surely we should be able to explain the basics of what we ‘do’ inside such a time frame (excuse the pun). If we can’t does the question need to be asked, “is it too complicated?”

My contact became excited by the concept of forex trading and trading in general, particularly as he saw me close a trade in profit and effortlessly swing in the opposite direction to again be in profit fairly quickly, it all looked and sounded so simple, if only every day was like that.

My thoughts also turned back to when I started trading, how daunting it was, how much research I undertook, the thousands of hours conversing on forums, researching articles, devouring information in books, talking to my broker, I wondered if there was a short cut, whether or not my public relations contact could cut out all my experiences (good and bad) and simply arrive where I’m at in a fraction of the time? No, is the answer, yes he could no doubt mechanically shadow my trades, or react to alerts we may send him, but there really are no short cuts in this business, you really do have to go there to come back.

You have to embark on an odyssey, a voyage of discovery in order to return to a safe harbour full of tales of wonder and excitement. You must live the full trader experience in order to condense and reduce your trading to simple components to become that weather beaten match hardened trader, omitting it would mean a vital part of your trader psyche has not had the time to develop. That development insulates you from the further tests the markets will undoubtedly throw at you as your journey continues, for however long you may decide to continue trading.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/traders-you-have-to-go-there-to-come-back/

Market Commentary by FXCC - No Tequila Sunrise for Those who Bet on the Peso versus the Dollar

Stocks have risen for a second day on Thursday as anticipation has grown that policymakers will finally take steps to support European banks under threat from the impact of a possible Greek default. German Chancellor Angela Merkel stated on Wednesday that Germany was ready to recapitalize its banks if needed, European finance ministers appear to be on the same page with measures to safeguard banks in the face of an imminent Greek default. However, Ms. Merkel states that Europe’s rescue fund will only be used as a last resort to save banks and that investors may have to take deeper losses (haircuts) as part of a Greek rescue package. Chancellor Merkel’s comments were her most explicit yet on the banks’ role in fighting the debt crisis since the spillover from Greece began to threaten France and Italy.

Time is running out. Troubled banks need to first seek capital on their own and national governments will help if that’s not possible. If a country cannot do it using its own resources and the stability of the euro as a whole is put at risk because the country has difficulties, then there’s the possibility of using the EFSF.

If you’ve had a difficult trading period during the volatility experienced over the past two months and seen your account balance fall then spare a thought for Covepoint Capital Advisors LLC. The hedge fund fell 38 percent in September after their commitment that emerging-market currencies would gain against the U.S. dollar. The decline left the firm’s biggest fund with a loss of circa 25 percent for the year. The $824 million Covepoint Emerging Markets Macro fund had 84 percent of its assets in currencies, with a fifth of the portfolio invested in Mexico. The Mexican peso, Brazil’s real and the South African rand have plunged at least 14 percent versus the dollar since August on concerns that slow US and European growth will hurt export-reliant countries. Hedge funds focused singularly on emerging markets lost an industry average of 4.9 percent this year through to August, compared with the decline of 1.9 percent by the broader industry, according to Hedge Fund Research a Chicago-based research firm.

Covepoint oversees $1.1 billion, they predicted that the U.S. Federal Reserve would stimulate growth by initiating a third round of asset purchases – quantitative easing. They also predicted that efforts by China to make the yuan more widely available would erode the dollar’s value. However, emerging stocks have risen, due to marginal U.S. job growth and optimism that Europe will step up measures to contain its debt crisis.

The MSCI Emerging Markets Index climbed 2.2 percent to 854.56 as of 2:31 p.m. in Singapore, its biggest advance since Sept. 27. The Kospi Index in South Korea and Thailand’s SET rose more than 5.2 percent. The Hang Seng closed up 5.6 percent. The Nikkei closed up 1.66%. the UK FTSE is currently up circa 1.7%, the CAC is up 2.39% and the DAX is up 2.41%. The daily SPX index future is currently up circa 1.5%.

Whilst the focus will be on crises management the UK’s bank of England and Europe’s ECB will announce their interest rate decisions today. Whilst the expectations are for a unified hold on interest rates there is plenty of market chatter suggesting more rounds of asset purchase (quantitative easing) could be imminent. If not announced today then as a medium term coordinated plan, in order to help stem the haemorrhage, it’s simply a matter of when as opposed to if given the limited options available.

The economic data releases that could impact on the afternoon sessions include the following;

12:45 Eurozone – ECB Rate Announcement
13:30 US – Initial and Continuing Jobless Claims

A Bloomberg survey forecasts Initial Jobless Claims of 410K, compared with the previous figure released which was 391K. A similar survey predicts 3725K for continuing claims, compared with the previous figure of 3729K.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/no-tequila-sunrise-for-those-who-bet-on-the-peso-versus-the-dollar/

Daily Market Roundup by FXCC - October 5 pm

Black Swan, Unemployment and Anonymous

The UK Conservative party’s annual conference came to an end on Wednesday. Rumours have been circulating that the UK coalition government is about to cave into intense lobbying pressure and reduce the fifty percent rate of tax as, in the opinion of many Conservatives, it doesn’t actually provide a great deal of extra revenue. The suspicion is that a higher rate of tax also detracts entrepreneurs from setting up new business ventures. Both of these beliefs are unlikely to stand up to scrutiny. To imagine that an entrepreneur will be put off setting up a new venture due to concerns over the higher rate of tax is absurd. Similarly the fifty percent tax rate, applicable for those earning over £150k per annum, could actually generate up to £7 billion per annum according to the UK tax payers’ alliance. Not an insignificant sum when the UK is being lectured by its Prime minister to cut up its store and credit cards and live within austere means.

The USA democratic party is pushing forward with a ‘millionaire’ tax, and unlike the UK coalition govt. they’ve ‘done their sums’ properly. With luminaries such as Warren Buffett attempting to obtain support amongst his elite contacts for increased taxes on the wealthy this phenomena could gain traction. According to the maths an extra five percent tax on those earning $1 million a year would generate an extra $450billion a year. A massive sum that could underpin some crucial public works in the USA. President Obama’s jobs plan revealed in early September would cost circa $477 billion, the wealthy elite could therefore take pride that their extra tax contributions boosted employment opportunities in the system that has enabled them to benefit to such an extent. Senate Democratic leaders announced the proposal today as lawmakers press for a showdown over how to boost the economy. Majority Leader Harry Reid, a Nevada Democrat, said today the 5 percent tax would indeed generate up to $450 billion. Democrats dared Republicans, who reject tax increases, to block the plan.

Anonymous, a group of hacker-activists behind attacks on corporate and government websites, have vowed to erase the New York Stock Exchange “from the Internet” on Oct. 10. The group posted a message on YouTube declaring war on the world’s largest stock exchange in retaliation for the mass arrests of Wall Street protesters. The message didn’t elaborate whether the threat only referred to an attack on the NYSE website, which would have no effect on trading. Anonymous has launched several denial of service attacks on websites over several months, including actions in December against the sites of MasterCard Inc. and Visa Inc.

The threat is disputed by some members of Anonymous, who said on Twitter that it hadn’t been sanctioned. A posting on Anonnews.org said it was almost impossible to verify the operation because of the nature of Anonymous as an organisation “free of hierarchical structure.”

Nassim Taleb, author of the best-selling book “The Black Swan,” said today in a news conference in Kiev that the current global market turmoil is worse than 2008 because countries such as the U.S. have larger sovereign-debt loads.

Definitely, we face a bigger problem now and we will pay a higher price. The structure of the problem has still not been understood. We haven’t done anything constructive in three and a half years. Nobody wants to do anything drastic now.

Taleb popularized the term “black swan”, which derives from the once widespread Western belief that all swans were white until explorers discovered the black variety in Australia in 1697. He argued that unforeseen events with a large impact on markets actually occur more frequently than statistical analysis predicts, thereby justifying the high cost of hedging against disasters.

U.S. employers announced the most job cuts in two years in September, led by reductions at Bank of America Corp. and the military. Announced firings jumped 212 percent, the largest increase since January 2009, to 115,730 last month from 37,151 in September 2010, according to Chicago-based Challenger, Gray & Christmas Inc. Cuts in government employment, led by the Army’s five-year reduction plan, and at Bank of America accounted for almost 70 percent of the announcements. The drop in services employment, was however, at odds with a separate report from payrolls processor ADP showing overall private payrolls rose by 91,000, above economists’ expectations for an increase of 75,000. ADP said most of the gains, which exceeded August’s count of 89,000, came from the service sector.

Stocks rallied and commodities snapped their three-day slump as U.S. economic data topped estimates and optimism grew that European leaders will finally recapitalize banks. Energy shares lead the gains as oil surged following an unexpected drop in supplies. The SPX rose 1.8 percent to close at 1,144.03 at 4 p.m. New York time, adding to yesterday’s 2.3 percent surge to mark the biggest two-day gain in a month. The Stoxx Europe 600 Index climbed 3.1 percent, halting a three-day tumble. The S&P GSCI Index of commodities increased 2.8 percent as oil surged 5.3 percent to $79.68 a barrel, rebounding from the 7.9 percent plunge over the previous three sessions. The UK FTSE equity index future suggests an opening slightly up in the London session, the index is currently up 0.5%. the SPX future is down circa 0.3%.

Economic data releases that may affect sentiment in the morning sessions in London and Europe include the following;

09:30 UK – Index of Services July
12:00 UK – MPC Rate Announcement
12:45 Eurozone – ECB Rate Announcement

The prediction is that both the UK and ECB base rates will be kept at the same levels. There were rumours developing early in September that the ECB were considering lowering the base rate, however, given the surprise rise in European inflation revealed last week, the rate rising a full half percent from 2.5-3%, any reduction in the base rate is highly unlikely.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/october-5-pm/

Market Commentary by FXCC - Deutschland über alles, or leading us up a blind alley?

What would be the biggest news in relation to the ongoing Eurozone crisis? We’re not talking Greece default here, or the troika finally sending white smoke up the chimney from their secretive Vatican like refuge as they play out their version of the College of Cardinals meeting in conclave to elect a new pope, (bailout). How about a real earth shattering bomb being dropped. Here’s one, Germany leaving the Euro. Surely that would be unthinkable given the incalculable cost and intellectual effort that has underpinned the creation of the united states of Europe over the past decade or more? Not so according to the USA hegemonic hyper power complex..

The accepted wisdom is that the Euro project is beyond monetary and fiscal union, we’re constantly reminded that it’s a “political project” which is why most of the seventeen European nations committed to the Euro cannot and will not withdraw. However, will there come a time when the German coalition government ‘do the math’ and reach the conclusion that the crisis has reached such an economic tipping point that it’s in their interest to remove itself from the mechanism, (using that phrase that’s now entered our lexicon), in an “orderly fashion”? Rather than simply accepting the notion that Germany cannot or will not have anyone of authority or with considerable expertise actually crunched the numbers? There are plenty of fringe politicians occupying a space to the right of what they perceive to be a massive socialist programme who would delight in Euroland and in particular the euro currency’s failure, none more so than in the right wing enclaves deeply embedded in the USA govt in all its tentacles and factions.

There are several authoritative commentators who appear to be pushing hard the notion that Germany could exit from the Euro, most notably Pippa Malmgren who is suggesting that deep in their heartland Germany has got to the stage were the printing presses are being dusted down and ready to go. Perhaps she can give us the Google maps reference? Nowhere in her commentary did she mention the words “wheel barrow” or “Weimar republic”. Should this theory be respected, does it stand up to close scrutiny or, (allowing a conspiracy to fly for a moment), has Germany become that frustrated with the lack of credible solutions put forward by the ECB, the EU and the troika that creating a bit of mischief was considered a worthwhile experiment to finally encourage decisive decision making, or is there a more plausible reason for her kite flying?

Ms. Malmgren’s bio screams credibility. She served as financial market advisor in the White House and on the National Economic Council from 2001-2002, where she was responsible for financial market issues. She founded Malmgren and Company, in London, England in 2000 and was previously the Deputy Head of Global Strategy at UBS and the Chief Currency Strategist for Bankers Trust. She headed the Global Investment Management business for Bankers Trust in Asia. She has a B.A. from Mount Vernon College and a M.Sc. and Ph.D. from the London School of Economics. She completed the Harvard Program on National Security. The World Economic Forum named Dr. Malmgren a Global Leader for Tomorrow in 2000. She is also a member of the Council on Foreign Relations, Chatham House, the Economic Club of New York and the Institute for International Strategic Security.

Perhaps the most startling revelation in her c.v. is her Council of Foreign Relations membership. Despite its harmonious branding this ‘council’ exists to promote USA hegemony singularly, therefore Ms. Malmgren’s views are not those of an intellectually curious economist, the CFR always has agendas. Whilst not previously entirely obscure her notoriety will now be escalated, and we can expect to hear more over the next few weeks and months as the CFR use her media space to put the boot into the Euro. Would the USA benefit from having the euro crumble, leaving it’s reserve currency status virtually intact? A Euro collapse would provide a pressure release valve for the USA admin. from two directions; firstly being such an enormous event would give the USA admin carte blanche to re set their own fiscal and monetary policy back to zero. Secondly, they (the USA admin.) get to use their favourite time honoured trick of creating ‘bogey mania’ to deflect attention from their own world class mismanagement during the past decade.

As a progress sheet it will be fascinating to watch how many of Ms. Malmgren’s predictions come to pass over the next few months if not years. Could it get past stage three when plenty of respected economists believe a Greek default would provide a fantastic opportunity for the rest of Euroland to get it’s financial house in order and as such the Euro will rise considerably versus the dollar? Here is her ‘news’ and developments to expect in the coming days and weeks:

Greece defaults
Germany protects German banks but other countries cannot do the same thus quickly provoking multiple sovereign defaults and or bank failures, all of which may easily lead to a payments crisis in the global banking system.
Derivatives are particularly at risk in terms of operation and execution.
The Euro falls in value especially against the US dollar.
The Germans announce they are re-introducing the Deutschmark. They have already ordered the new currency and asked that the printers hurry up.
The Euro falls even more on any news that Germany is withdrawing from the Euro.
Legal wrangling begins as to the legality of Germany’s decision. Resolution takes years.
Germany insists that the Euro continues to exist even they do not use it any longer.
They emphasise that European unification will continue and suggest new legal instruments to strengthen European Unification including new EU Treaties.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/deutschland-uber-alles-or-leading-us-up-a-blind-alley/