A Kiwisaver provision allowing members to direct half their retirement money towards paying their mortgages was flawed but necessary in the downturn, brokers say.
Some are challenging the Government's decision, passed under urgency, to cancel the mortgage diversion clause at a time many homeowners are finding it hardest to meet their loan payments.
Nick McCorkindale, a director of the Mr and Mrs Kiwisaver fund and a mortgage broker, said few people had taken up the option - but for the few who did, it could be critical.
"Canning it, when there's so much financial stress for so many people, is not the smartest thing, to my mind," he said. "Though effectively it is a loophole, for some people it could be the difference between still saving a bit, or pulling out of retirement savings entirely."
For John Flack, 53, mortgage diversion will provide significant assistance in paying his $230,000 mortgage on a home in Auckland's Mt Albert. Flack's partner David had a stroke last year, so the couple are now reliant on Flack's income as a chef at Meccano in Mechanics Bay.
So, the day before the Budget, he filed an application with Kiwibank to divert $50 of his fortnightly $100 Kiwisaver contribution to top up his mortgage payments.
"The Kiwisaver fund I'm in is performing so badly that I got a letter from them, saying they were basically going down the toilet," he said. "It's my money. Why should I put it into that fund, when I could be paying off the mortgage?" Flack put his application in just in time - but he was disappointed for others who, from tomorrow, will miss out.
The Inland Revenue Department has said that only 600 of the million Kiwisaver members had taken up the mortgage diversion - but that may be because most people did not realise it was an option.
Bruce Patten, senior mortgage adviser to Loan Market, said his company did not believe there were significant benefits to mortgage diversion, because some lenders chose not to support it. But the main reason for the lack of uptake was because Kiwisaver fund providers weren't advising home-owners that they could put some of the money into their mortgages.
However, Staples Rodway Tax director Matt Baker says the mortgage diversion scheme was flawed because there were too many variables involved for it to be beneficial.
It was a complicated "money-go-round", he said, so banks and Kiwisaver funds did not want the hassle of providing it.
It was of benefit only to people who earned more than $104,000, he said, because they could divert half their contribution to the mortgage and still claim the full tax savings tax credit from the balance.
"Basically it was a no-brainer to abolish it - far too much hassle for only a small percentage of people who would benefit,"
Visiters Data
Saturday, May 30, 2009
Budget 09: Mortgage option too good to last
US auto industry's future hangs in the balance
THE US automobile industry faces a day of reckoning on tomorrow, with the looming bankruptcy of General Motors and an expected court ruling on the sale of Chrysler to a group led by Italy's Fiat.
The once mighty US auto industry is reeling, prompting massive intervention by President Barack Obama's administration to prevent total collapse and a new body blow to a national economy already in recession.
The Government's rescue plan for GM could put as much as 72.5 per cent of the country's biggest automaker under state ownership, according to documents filed by GM on Thursday.
Government-backed restructuring in bankruptcy court for GM, once the world's largest automaker, appeared all but certain ahead of a Monday deadline imposed by the Obama administration on the company to submit a viable restructuring plan or file for bankruptcy.
Meanwhile, a US bankruptcy court judge in New York is widely expected to approve a deal between Chrysler and Fiat on Monday. The third biggest US automaker has declared bankruptcy and is seeking a tie-up with Fiat in a plan presented as the only way to save the company from liquidation.
Developments at Chrysler could provide a valuable example for GM in its retructuring.
The United Auto Workers (UAW) union said on Friday its members ratified a deal to allow GM to radically cut costs and its debt load, clearing the way for a quick exit from an expected bankruptcy filing.
The deal, which will cut GM's labour costs by between $US1 billion ($1.28 billion) and $US2 billion ($2.55 billion) a year, is one of the final pieces of what is expected to be a massive pre-packaged bankruptcy plan for the number one US automaker.
The troubled automaker also announced plans to retool an idled US plant to build small cars it had originally planned to import, and two more US assembly plants could potentially be saved.
Union leaders said they would be pressing Ford and Chrysler to also build small cars in the United States.
The bankruptcy filing could also be sped up by a deal struck in the early hours of Saturday that sees Canadian parts maker Magna and its Russian backers taking over GM's Opel.
The deal for GM's European operations, which came after marathon talks and was brokered by the German government, amounted to a major development in the global rearranging of the auto industry.
GM employs about 50,000 people throughout Europe and Magna plans to cut about a fifth. But while Magna is likely to slash around 2500 jobs at its four plants around Germany, government sources stressed that all four factories in the country will remain open, a pledge repeated by Magna bosses after the talks.
In testimony on Thursday, Chrysler chief executive Robert Nardelli said US regulatory approval for the partnership with Fiat was "well on its way". He had predicted it could take place as early as Friday, but by yesterday no deal had yet materialised.
The Government says a new Chrysler company could be born within days of approval for the bankruptcy.
If presiding judge Arthur Gonzalez rules against Chrysler it faces a grim future, with a worst-case scenario being Fiat abandoning the tie-up and the US automaker going into liquidation, with massive job losses.
Legal appeals are expected if Mr Gonzalez rules in favor, meaning possible new delays. Fiat has said it might back out if the transaction is not completed by June 15.
A White House spokesman said on Friday that "Chrysler is a hopeful example for GM".
But analysts warned that the implications of the fallout of GM's bankruptcy restructuring on the fragile economy are unclear.
"The GM bankruptcy filing is now viewed as inevitable on June 1, and this process will probably raise more questions than it answers," said Brian Bethune at IHS Global Insight.
"Which plants will be shut down, what brands will survive, which dealers will have to fold up operations, and what will be the impact on the supplier base - which is already reeling from recessionary conditions in the industry?"
Australian gold output seen up in 2009
May 31 (Reuters) - Australia's annual gold production is set to rise for the first time in 12 years in 2009 as new mines start up and existing operations expand in response to the precious metal's price soaring towards $1,000 an ounce.
The country's output of the precious metal rose 3 percent in the first quarter this year from the same quarter a year earlier to 54.5 tonnes or 1.75 million ounces, gold industry consultancy firm Surbiton Associates said in a report released Sunday.
Although first quarter output was little changed from the December quarter, Surbiton said production should rise through the remainder of the year, barring any unforeseen mine closures.
It did not give a forecast production figure for 2009 but said it should exceed the 219 tonnes produced in 2008.
On Friday, the gold price rose to a three-month high, trading around $966 an ounce, as the dollar weakened against the euro amid fears over rising U.S. government debt.
Surbiton director Sandra Close said firming gold prices might encourage more exploration for gold in Australia, setting the scene for further production expansion. In recent years China's rising gold output has knocked Australia out of the world's top-three gold producers. Last year Australia was fourth, behind China with 282 tonnes, the United States with 229 tonnes and South Africa with 220 tonnes.
In Australia, first quarter output was boosted by OZ Minerals Ltd's (OZL.AX) start-up of its Prominent Hill gold-copper project in South Australia.
Apex Minerals Ltd (AXM.AX) reopened the Wiluna mine in Western Australia and ATW Gold Corp (ATW.V) started production at its Burnakura mine, also in Western Australia.
Close said the biggest boost to output would come with the mid-year commissioning of Newmont Mining Corp's (NEM.N) low-grade Boddington project in Western Australia.
Being developed at a cost to $2.6-$2.9 billion, Boddington is expected to produce about 1 million ounces per year for the first five years of operation.
In the first quarter, Surbiton said Newcrest Mining Ltd's (NCM.AX) Telfer mine was the country's top producer, producing 162,035 ounces. Second-placed was the Superpit mine on the outskirts of the outback mining town of Kalgoorlie. Jointly owned by Newmont and Barrick Gold Corp AB.TO, it produced 158,000 ounces.
Thursday, May 28, 2009
Oil prices hit six month high of $63
Crude oil price rose to a six-month high on Wednesday touching $63 per barrel on the back of a report that United States petrol supplies fell for a fifth week amidst growing optimism that the worst of the recession is over.
This is good news for Nigeria that pegged its 2009 budget on $45 per barrel and which has been battling with declining production because of crisis in the Niger Delta.
Oil price rose to above $63 per barrel in both London and New York and Saudi Arabia’s oil minister, Ali al-Naimi, was quoted as saying, oil demand had started to recover.
Crude price rose above its 200-day moving average for the first time since September, a sign that prices may rally further.
Crude oil for July delivery rose as much as $1, or 1.6 per cent, to $63.45 a barrel in electronic trading on the New York Mercantile Exchange. That’s the highest since November 13, 2008. Oil reached $63.12 at mid-morning trading in London
“It looks like we won’t see any significant deterioration in demand anymore, hence Organisation of Petroleum Exporting Countries is bullish,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “But, we still need to see improving gasoline demand in the US.”
The US Conference Board’s sentiment index surged to 54.9, more than forecast and the biggest increase since 2003, the New York-based research group said yesterday.
OPEC, responsible for 40 per cent of global crude supply, is likely to keep output quotas unchanged for a second time this year as recovering oil prices forestall the need for new cuts, according to a Bloomberg survey published on May 22.
The OPEC has “no need” to cut oil production because there are signs of a recovery in demand, Saudi Arabia’s Ali al-Naimi told reporters on Thursday in Vienna, where the group meets today.
Yen Weakens as Japanese Investors Purchase More Overseas Assets
The yen fell the most in eight weeks against the dollar and declined versus the euro on speculation Japanese investors will buy more overseas assets on signs the global recession is easing.
The yen weakened versus all 16 of the most-traded currencies after Japan’s Ministry of Finance said the nation’s investors boosted purchases of foreign bonds to the most in a month. Australia’s dollar rose toward a seven-month high against the U.S. currency on optimism the world economy is recovering, reviving demand for higher-yielding securities. New Zealand’s dollar gained after Standard & Poor’s raised its outlook on the country’s debt rating.
“Signs that the worldwide slump is waning are making Japanese investors more comfortable in putting money into higher-yielding assets,” said Tsutomu Soma, a bond and foreign- exchange dealer at Okasan Securities Co. in Tokyo. “S&P’s upgrade of New Zealand’s credit-rating outlook is likely to whet their appetite.”
The yen dropped 1.7 percent to 96.97 per dollar as of 8:05 a.m. in London from yesterday in New York, the biggest drop since March 31. It earlier fell as much as 1.8 percent. The yen declined to 134.01 per euro from 131.83 yesterday, after falling to 134.26, the lowest since May 11. The dollar traded at $1.3821 per euro from $1.3825.
Australia’s currency gained 0.2 percent to 77.69 U.S. cents and advanced 1.8 percent to 75.31 yen. New Zealand’s dollar strengthened 0.6 percent to 61.79 U.S. cents and rose 2.3 percent to 59.91 yen.
Best Performer
New Zealand’s dollar is the best performer against the yen this month, gaining 7.5 percent. The nation’s 10-year government bonds offer 4.41 percentage points more yield than similar- maturity Japanese debt.
The so-called kiwi reversed earlier declines versus the greenback after S&P raised the outlook on the country’s sovereign debt rating to stable from negative, saying today’s budget showed the “government in sound position.”
The yen also fell the most in a week against the euro as the Nikkei 225 Stock Average reversed earlier losses to gain 0.1 percent, boosting demand for riskier assets.
“Equity markets of emerging economies, including Asia, are holding a relatively firm undertone, which means risk appetite is still reasonably strong,” said Akira Takeuchi, a Tokyo-based currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The yen will be sold against higher-yielding currencies.”
Japanese investors bought 641.1 billion yen ($6.61 billion) more overseas bonds and notes than they sold in the week ended May 23, the biggest net purchases in a month, according to a report released by the Ministry of Finance today.
Investment Trusts
Nomura Asset Management Co., a unit of Japan’s largest brokerage firm, reopened its higher-yielding bond fund to new investments yesterday. The net assets of the fund, which includes holdings such as Brazilian real-denominated debt, rose to 287.9 billion yen from 45.3 billion yen in January, according to Nomura’s Web site.
Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Japanese retail sales fell for an eighth month in April, reducing the appeal of the nation’s currency. Sales slid 2.9 percent from a year earlier after dropping a revised 3.8 percent in March, the Trade Ministry said in Tokyo.
General Motors
The dollar traded near a one-week high against the euro on speculation General Motors Corp. may file for bankruptcy this week, renewing demand for the relative safety of the greenback.
A General Motors bankruptcy filing became almost certain after the world’s largest automaker failed yesterday to persuade enough bondholders to take equity in a streamlined company in exchange for $27 billion of debt. The debt-for-equity swap offer by GM failed to win the required 90 percent approval of bondholders by the time it expired last night.
“GM’s insolvency looks practically inevitable, which would likely cause risk aversion,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This could spark buying of the dollar.”
Demand for the euro may weaken before a government report that economists say will show German unemployment rose for a seventh month as company orders slumped in the worst recession in half a century.
The jobless rate increased a seasonally adjusted 64,000 in May, sending the adjusted jobless level to 8.4 percent from 8.3 percent, according to a Bloomberg News survey of economists before the Federal Labor Agency report today.
“Given renewed concerns about the banking system and the economy there following the rapid run-up of late, the euro may be sold back toward $1.37,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest bank.
Gold edges down on dollar, ETF unchanged
Gold inched down on Thursday, posting its third straight day of losses, as a steady dollar dulled some of bullion's sheen, but it remained within the previous session's range on weaker equities.
Market participants said gold was moving inversely to the U.S. dollar, and that any bounce in the currency was likely to weigh on the precious metal, as investors view gold as a currency hedge.
"(Gold's direction at the moment) really depends on how the dollar pans out, especially after the bout of selling on concerns that the U.S. credit rating may be affected by the large amount of debt the U.S. has," said Adrian Koh an analyst at Phillip Futures.
Moody's Investors Service affirmed its top credit rating for the United States on Wednesday, but warned that if the U.S. failed to reduce current debt levels once economic growth returns, the credit grade could eventually come under pressure.
Gold was at $946.85 per ounce at 11:06 p.m. EDT, down 0.1 percent from New York's notional close of $948.10.
U.S. gold futures for June delivery were at $946.70, down 0.7 percent from settlement on the COMEX division of the New York Mercantile Exchange.
The dollar held steady against the euro on Thursday, having pulled up from five-month lows hit against the single European currency last week due to short-covering.
The dollar rose 0.4 percent against the yen to 95.69 yen.
A spike in U.S. Treasury yields triggered a selloff in equity markets on Wednesday, as investors feared rising funding costs might delay a potential recovery in the world's largest economy.
Phillip Futures' Koh said he believed gold had the potential to move higher from a technical point of view.
"I am still positive on gold should we head higher and break above the previous highs of $960," he said.
"However, for that to happen, the $940 support will have to hold and if it doesn't, then we may see a continuation of the retracement in gold prices," he said.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings stood at 1,118.76 metric tons as of May 27, unchanged from the previous day.
Gold markets appear to have largely factored in news that General Motors Corp (GM.N) appears close to a bankruptcy filing, which would be the largest ever for a U.S. industrial company.
On Wednesday, GM said a bond exchange offer had failed to win support from investors holding $27 billion of its debt.
AceTrader: Market Moving News
Gbp/usd - 1.5961...There has been little reaction so far to MPC member Blanchflower's comments that the world should not assume the worst of the global economic crisis is over. Cable retreated fm fresh '09 high at 1.6087 in NY y'day in part due to risk aversion with the Dow falling 173 points. Offers seen in the region of 1.6010-1.6030 while bids fm Middle East names are tipped at 1.5910/20...
Eur/usd - 1.3844...Euro has recovered after testing o/n low at 1.3823 with some traders seen squaring short positions after y'day's selloff. In addition, Japan stock markets have recouped early losses n DJI futures are now slightly higher, relieving some of the downside pressure on the single currency. Bids are noted at 1.3820 n 1.3790/00 (for profit taking purposes) while offers are likely to emerge at 1.3860/70 n 1.3900...
Usd/jpy - 95.87...Dlr has risen this morning in part due to fixing-related demand n also on technical buying (st specs successfully triggered stops at 95.50/55). A mixture of offers n stops at 96.00/10 is in focus with more stops noted at 96.25/30. On the downside, fresh bids are lined up in the region of 95.00-95.20 with stops likely to emerge below 95.00. Although the Nikkei-225 opened lower, the index rebounded to end the morning session only 7 points lower...
Wednesday, May 27, 2009
Dollar Relinquishes Gains, Equities Stabilize
The greenback relinquished some of its previous session’s gains against the majors, easing to 1.3640 versus the euro and 1.5226 against the pound. US equities recovered slightly from yesterday’s dip, with the Nasdaq climbing by nearly 2% and the S&P 500 up by over 1.3%.
Weekly jobless claims edged higher, rising to 637k from the previous week at 601k. Meanwhile, April PPI edged up more than expected to 0.3% reversing a 1.2% decline in the previous month. The April core PPI increased by 0.1% from a flat reading in the previous month while easing to 3.4% versus 3.8% a year earlier.
Traders will look ahead to Friday’s data, which consists of the May NY Fed manufacturing survey, April CPI, April industrial production, March TIC flows and the May University of Michigan consumer confidence survey. The May NY Fed manufacturing survey is forecasted to improve to -12.5 from -14.65 in April. Industrial production in April is estimated to post a 0.7% decline in April versus a 1.5% fall in the previous month. The April headline consumer price index is seen posting a flat reading from a 0.1% decline a month prior, while the annualized figure is estimated to decline by 0.4%. The core readings of CPI are estimated to hold steady, up 0.2% m/m and up 1.8% y/y.
JPY Tumbles on N.Korean Nuclear Test
The foreign exchange market remained confined within a narrow range at the start of the week amid holiday-thinned trading with the US and UK markets closed. The yen fell sharply overnight as a result of heightened geopolitical risk following reports of North Korea testing nuclear weapons, prompting a slide in the yen to the 95.18-level.
The US market re-opens on Tuesday with the economic calendar consisting of the March Case-Shiller home price index, May Richmond Fed manufacturing and the May Conference Board’s consumer confidence survey. The Case-Shiller home price index is estimated to decline by 1.8% in March, compared with a 2.2% fall in the previous month while falling by 18.5% on an annualized basis versus an 18.6% fall a year earlier. The Conference Board’s consumer confidence survey in May is seen improving slightly to 42.0, up from 39.2 in April.
Greenback Slumps on Equity Rally
The greenback relinquished gains against the euro and Aussie on the Tuesday session as UK and US markets returned from holiday. The US equity bourses lauded earlier upbeat economic reports, with a sharp unexpected rise in the Conference Board’s May consumer confidence survey to its highest level in 8 months at 54.9, versus a revised 40.8 a month earlier – triggering a sharp rally in the Nasdaq, up 3.45% and the Dow Jones, advancing by over 2.5%. The Richmond Fed manufacturing survey reversed some of its previous month’s declines, as the composite index edged up to 4 in May versus -9 in April, while the manufacturing shipments component improved to 9 from -3 and the services index held steady at -29.
However, not all the reports were positive, with the S&P Case-Shiller home price survey reinforcing current downward pressure on the housing market. The S&P Case-Shiller index in March slumped by 2.2% on a monthly basis and plunged by 18.7% on an annualized basis.
Tuesday, May 26, 2009
Poland Jobless Rate Falls In April
Poland's jobless rate decreased to 11% in April from 11.2% in March, the Central Statistical Office said Tuesday. Economists expected the rate to be 11.2%. The jobless rate decreased for the first time in five months in April. During the month, the number of registered unemployed persons declined to 1.71 million from 1.75 million in the preceding month
Read More »»
China's $440 Bn Stimulus For Green Energy
China is planning a stimulus package of $440 billion (three trillion yuan) on expanding using renewable energy, state media said in a report Monday, as the highly energy-hungry coal-dependent country seeks to rely more on cleaner energy solutions to power its growth.
An official said the government solicited views from local economic planning agencies and relevant companies about the draft plan, that would more than treble a goal of 30 gigawatts announced in 2007 in a renewable energy development plan to touch over 100 gigawatts by 2020.
Zhou Xi'an, of the State Energy Administration, said last week that China, which now depended on coal for nearly 70 percent of its total energy consumption, aimed to increase the share of renewable energy, excluding hydropower, to six percent of its overall energy use by 2020, from the current 1.5 percent.
He said the new plan that would partly focus on wind power would be submitted to the State Council, or Cabinet.
The move on the latest stimulus plan came after China announced measures to support autos, petrochemicals and eight other sectors as part of a $584-billion package unveiled in November to tackle the financial crisis.
One of the world's largest greenhouse gas-emitters alongside the United States, China has also set a goal to cut energy consumption per unit of gross domestic product by 20 percent and pollution by 10 percent by next year from the 2005 levels.
Eurozone New Orders Decline In March
Tuesday, the Eurostat said in a report that the industrial new orders dropped 0.8% month-on-month in March, after a flat reading in February, revised from 0.6% fall estimated initially. The new orders in March came in line with economist's expectations.
Year-on-year, industrial new orders declined 26.9% in March, after falling a revised 34.2% in February. Economists had predicted a decline of 30.6%.
Tuesday, the Eurostat said in a report that the industrial new orders dropped 0.8% month-on-month in March, after a flat reading in February, revised from 0.6% fall estimated initially. The new orders in March came in line with economist's expectations.
Polish Retail Sales Rise In April
Poland's retail sales at current prices rose 1% year-on-year in April, reversing a 0.8% fall in the previous month, the Central Statistical Office said Tuesday. Economists expected sales to decline 0.3%.
Month-on-month, retail sales grew 5% in April, slower than an 11.8% growth in the preceding month. Economists were expecting sales to rise 4%.
Meanwhile, the retail sales at constant prices dropped 0.7% year-on-year in April compared to a 1.8% fall in March.
Monday, May 25, 2009
Is it Really a ‘Job-Rich' Recession
In the early 1990s and early 2000s in the US, we saw what were called ‘jobless recoveries'. The labour market then was unusually slow to pick up in the aftermath of the recession. In this global recession, the labour market in Singapore seems to be showing a contrary trend. To be sure, the labour market is a lagging indicator. Employment growth in Singapore lags GDP growth by around two quarters. On the way up, corporates are usually slow to add to headcount, preferring to increase overtime hours for existing workers until the macro recovery firms. On the way down, human resource management simply cannot be as precise as just-in-time inventory management. The demand shock tends to be absorbed first by the profit cushion before the wage cost containment exercise starts.
The lag effect not withstanding, at first blush, the quarterly net employment decline in 1Q09 (-1,000 preliminary) looks a tad resilient amid what is likely the worst recession in Singapore's recorded macro history. In 1Q09, the overall unemployment rate reached 3.2% (versus the high of 4.8% during SARS in 2003) and the resident unemployment rate stood at 4.8% (versus the high of 6.3% during SARS). Analyzing net employment trends against output growth trends for the eight quarters before and after the start of the recessions in the 1997, 2001 and 2008 cycles lead to the same findings:
1) In the four quarters since the recession started in 2Q08, GDP growth has averaged -3.3%Y. This is about 1-4pp lower than in the 1997 (+1.0%Y) and 2001 (-2.2%Y) cycles. However, quarterly net employment has seen an average increase of +36,850 versus +4,675 in 1997 and -25 in 2001.
2) In the four quarters since the recession started in 2Q08, quarterly manufacturing growth has averaged -14.1%Y, 3-16pp lower than in 1997 (+2.4%Y) and 2001 (-11.0%Y). However, the average quarterly net employment decline of -3,050 was marginally better compared to -4,050 in 1997 and -3,800 in 2001. Specifically, net employment in the petroleum and chemical industry (quarterly average of +2,633 in the three quarters since the start of the 2008 recession) appears to have been better than expected compared to historical trends (+67 and 0, respectively, in the three quarters since the start of the recession in the 1997 and 2001 cycles), although average growth momentum has been slower (-5.3%Y versus +11.6%Y in 1997 and +2.4%Y in 2001).
3) In the four quarters since the recession started in 2Q08, quarterly services growth has averaged +1.4%Y. This is higher than the average of -0.2%Y in the 1997 cycle but lower than the +1.6%Y average in 2001. However, the average quarterly net employment increase in this cycle was much higher at +25,050 compared to +6,075 in 1997 and +9,350 in 2001. Specifically, community, social and personal services (which include education, public administration, health and other social services), business and real estate services, transport, storage and communications, hotels and restaurants, and wholesale and retail saw more resilient job loss elasticity compared to past recessions.
Making Sense of the Labour Market ‘Paradox'
Prima facie evidence points to a more resilient labour market and what looks like a phenomenon in a few other Asian economies as well. The factors driving the resilience will have implications for what pans out later.
In our view, the lagged nature of capex expansion explains what looks like a relatively resilient net employment trend for now. Although the demand shock post Lehman was swift and sharp, putting a drag on headline growth, aggressive capacity expansion plans commissioned during the bull years in the not-too-distant past are being completed even now. Historically, hiring has been strongly tied to capacity additions/capex trends rather than GDP growth per se. Indeed, through our channel checks, we note that hiring in pockets of the economy has not been driven by stronger end demand (demand growth has been poor, as data suggest). Rather, we are seeing hiring in areas where previously commissioned capex plans have now come onstream. Tying in with our findings in 2) and 3) above, recruitment in pharmaceuticals/healthcare/chemicals was on the back of new plants having been completed. Recent new retail malls have also supported retail hiring, and the same story applies for the hotel segment with new supply additions. Strong construction activity due to these capex plans has also supported employment in the construction sector, lending strength to the headline jobs data.
Interestingly, while capex momentum has supported recruitment in the interim, it has not stopped labour market adjustments from being borne out in terms of compensation. Despite what looks like relatively slower job losses, real monthly earnings have still seen worse declines compared to the 2001 cycle. This is supportive of the fact that hiring is driven by previously committed capacity expansion plans rather than end demand, which tends to be inflationary.
Macro Implications
Slower job losses should support confidence and backstop the final phase of the macro slowdown, where a rise in unemployment spills over to domestic demand. The problem is that the consumers themselves seem to have low conviction, either because they expect more job losses in the pipeline or because income growth is a more important factor in spending patterns. Indeed, retail sales momentum has reached the lows seen in the 1998 crisis, when domestic confidence took a hit.
Policy measures such as Skills Programme for Upgrading and Resilience (SPUR) and the Job-Credit Scheme were rolled out late last year and earlier this year, respectively, and with only 1Q09 jobs data available, the jury is still out on how effective these measures have been. However, if the seeming resilience of the labour market is being supported merely by the lagged nature of capex, and not by other structural factors such as stronger corporate balance sheets supporting stronger employment ability, we suspect that the labour market disconnect would be temporary and job losses could soon catch up when the capex recession invariably intensifies
Rates to Test New Lows, Fiscal Deterioration Main Medium-Term Risk
GDP outlook bleaker, compounded by bad 1Q results: The Czech National Bank revised down its expectations for both GDP and inflation, and now sees an overall GDP contraction of 2.4%Y (previously -0.3%), followed by a more pronounced upturn in 2010 (+1.4%Y, up from +0.9% previously). Note that the weaker-than-expected 1Q GDP release, published after the cut-off date, introduces significant risks to the forecast: assuming an unchanged quarter-on-quarter profile, GDP growth in 2009 would be almost a full percentage point below the recently published forecast. Note also that the CNB assumes (correctly, in our view) that the car scrappage incentives are simply borrowing from future growth rather than adding to the overall level of GDP.
On the inflation side, the bank maintains that the overall macro environment remains pro-inflationary (due to lagged effects of previous FX depreciation), but the economy has clearly turned anti-inflationary, with abundant slack and weak labor markets pushing down domestic inflationary pressures. Overall, a weaker FX, a higher inflation starting point but a weaker economy imply higher inflation in 2009, but lower inflation in 2010. Also, regulated prices are expected to exert a major anti-inflationary effect in 2010, with regulated price growth turning negative for most of 2010.
Fiscal deterioration is main medium-term risk: During our conversations, it transpired that the fiscal risk is the one most currently underestimated by the markets. True, the Czech Republic continues to have low government debt (33% of GDP this year) and has run very small fiscal deficits over the recent period. However, the expected change in the deficit is dramatic, with the gap likely to widen by nearly three percentage points, to 4.3% of GDP in 2009 (and further to 5.4% in 2010), according to the central bank. We note that the European Commission has similar projections. True, the CNB assumes that some anti-cyclical fiscal easing will be put in place this year that has not been approved yet, but this assumption seems very reasonable to us. And it is unlikely that any fiscal tightening gets approved before the parliamentary elections later this year. In short, it seems as though the Czech Republic will have the most expansionary fiscal stance in 2009 in Central Europe (indeed, the only one, albeit marginally). This is good for growth, but less so for budgetary dynamics. The Czech authorities we met also appear concerned regarding fiscal deterioration elsewhere (Western Europe) and believe that the wall of government bond supply set to hit markets in the coming quarters may both crowd out private investment and make it difficult for the Czech Republic to finance its own deficit. This should continue to pressure long-term yields, we think.
More rate cuts possible, rates to test 1%; no QE in sight: Rates are already at an all-time low, and our view prior to the trip was that rates had reached a bottom. We now see risks tilted towards more near-term cuts. The 1Q GDP data were a clear downside surprise, and several on the CNB will revise down their growth outlook, we believe. Senior board members like Singer and Hampl have also signaled over recent days that the door remains open for further rate cuts. We warn that any further easing will be limited and rates are unlikely to be cut by more than a further 50bp at most (1% trough). Note that the current inflation forecast is consistent with 3M PRIBOR at 1.7% by year-end (currently 2.1%), so the bank expects further falls in interbank rates. These can come via either a drop in the liquidity premium, or a fall in base rates, or both. The central bank does seem to assume some fall in the liquidity premium, but it has already made it clear that it does not see the gap between 3M interbank rates and official rates as a sign that monetary policy is ineffective. On the contrary, it sees it as a reason to ease rates more. And given the macro backdrop, we believe that the CNB will err on the side of more rather than less easing. Importantly, we saw significant resistance to any suggestion of quantitative easing, which the CNB views suspiciously due to its potential monetary and inflationary consequences, and officials seem very skeptical as to its merits.
While further near-term easing is our new base case, we continue to think that the CNB will be the first central bank in Central Europe to start reversing the rate cuts, tightening rates in early 2010. While this is in part predicated on our ECB view (75bp of hikes next year), we also note that the CNB is the most proactive central bank in the region, and we think that it will not hesitate to start taking rates to a more neutral level if our forecast of a recovery later this year and in 2010 materializes. We therefore forecast Czech rates up to 2.25% by end-2010.
Risks to our view: CZK, wages on the upside; growth on the downside: The CNB has been highly sensitive to the exchange rate. Two months ago, senior board members were talking about rate increases to stem CZK weakness. Thus, no forecast of Czech rates is immune from risks from the FX side. We think it is unlikely that CEE currencies undergo the same sort of stress that we saw in the first quarter: we are past the worst point for growth, risk appetite has improved and investors better understand the true funding needs of the region and the degree of official support which is available. Even if an episode of risk-aversion were to take place, we think there is now a much greater understanding that the Czech Republic is in a structurally superior position to any of its CEE peers (in terms of stability of banking system, vulnerability of borrowers to FX swings, external debt profile). As a result, the koruna should remain relatively more insulated, we believe. We see CZK moving broadly sideways (with a bias to strengthen) until year-end and resuming its appreciating trend versus EUR in 2010 (24.50 by year-end).
Dollar slides to 2009 low versus euro
The euro rose to $1.3996 on Friday, after passing the key $1.40 mark to touch $1.4049 earlier. That was up from $1.3904 in late North American trading Thursday.
The dollar index /quotes/comstock/11j!i1:dx\y (DXY 80.19, -0.60, -0.74%) , a measure of the greenback against its major counterparts, fell to the lowest level since December. It traded at 80.045 from 80.554 late Thursday.
The index has lost about 3.6% this week, the worst performance since March. The euro has gained about 3% versus the U.S. currency and the British pound is up more than 4%.
"We've turned to a more dollar-bearish environment," said Nic Pifer, head of global fixed income at RiverSource Investments, who helps oversee $4.6 billion. "As markets start to loosen up again and risk appetite comes back into vogue -- in high-yield debt, emerging markets and equities -- that safe-haven demand for the dollar has dissipated."
Trading volume across most markets was light ahead of a three-day weekend in the U.S. and U.K.
"In the near-term, the stars are aligned against the U.S. dollar," said foreign exchange strategists at Brown Brothers Harriman in a note.
"If the news stream is good, we are told investors are less risk averse and do not need the dollar's security. If the news stream is poor, we are told the U.S. is in horrific shape and the budget deficit and Fed's balance sheet will swell even more" to the detriment of the dollar.
"It is difficult to see what will break this psychology in the coming weeks," they added.
The British pound also rose to its highest level since November versus the U.S. currency, shaking off a Standard & Poor's report Thursday saying the ratings agency might downgrade the U.K.'s AAA credit rating. The pound traded at $1.5925 from $1.5848 late Thursday.
The dollar inched up against the Japanese yen, at 94.77 yen compared with 94.34 yen Thursday. Japanese officials said they wouldn't intervene in the currency market to keep down the recently sizzling Japanese unit. See full story.
Several analysts' notes earlier also acknowledged reports about concern that the U.S. will maintain its AAA credit rating, after the U.K.'s top-tier rating was given a negative outlook by Standard & Poor's on Thursday.
"I don't think institutional investors are all that concerned over what S&P may do in the future," said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union.
"We would have to see a continuing onslaught of real deterioration in the U.S. financial situation for its rating to come under threat," he said. "The dollar's issues are mostly related to quantitative easing and how inflationary that might be. Also, risk aversion has lessened considerably" in recent months.
Minutes of Fed policy makers' last meeting released Wednesday indicated a possibility that the Fed would buy more Treasury or mortgage-related debt. Those kinds of programs to keep borrowing costs low for consumers, companies and home buyers are considered quantitative easing and negative for the currency
Sunday, May 24, 2009
Argentina Stocks, Bonds Give Up Early Gains But End Higher
Argentine stocks ended the week flat, giving up gains posted through much of the session as investors pocketed profits ahead of the long weekend. Monday is the May 25 national holiday in Argentina. Argentina's Merval Index held just enough of the earlier gains to end in positive terrain. The index closed 0.09% higher at 1,562.40 points. The slightly higher close on Friday marked five straight days of the Merval closing higher. Local shares "tracked New York in the last hour of trade, losing most of the gains," brokerage firm Portfolio Personal said in a market note. Volume was low at 44.3 million Argentina pesos ($12 million). Bonds also posted moderate gains on continued risk appetite among investors and expectations that the government is poised to launch a much-anticipated debt swap for its dollar-denominated Boden 2012 bonds. The Boden 2012 rose 0.79% in price terms to ARS235.60, to yield 39.53%. The benchmark peso-denominated bond closed unchanged at ARS56.70, to yield 19.58%. The government is expected to offer Boden 2012 holders an early payment on that bond's $2 billion coupon of principal and interest due in August and to exchange other payments falling due between 2010 and 2012 with a new, longer-dated bond. Bonds were rocked in late 2008 and during the first quarter on fears that the government could default on future Boden payments. But with those concerns fading, the Boden has seen its yield drop from 60% in early April to below 40%.
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Dollar ends week in the lowest level for 2009
Greenback finished the week in the lowest level for 2009 against European currencies. To CAD and AUD is the lowest since September. Today dollar also lost ground falling across the board to new multi-month lows. The dollar index reached the lowest level since December. Markets in the U.S. fell modestly today in a light session ahead of Memorial Day holiday, getting in the negative side in the final minutes of trades. Dow Jones finish down 0.18% and Nasdaq lost 0.19%. General Motors stocks collapsed 25% on fears that the car maker would enter soon in bankruptcy. EUR/USD rose in the week 4% and ended above 1.4000 (highest since December). The pair has been rising after bottoming on Monday at 1.3425. Since then the pair has been moving in an up trend. Against the Pound, the Euro rose today but not enough to erase weekly losses.GBP/USD is ending the week above 1.5900. With today increase of 0.33% from opening price, the Pound has completed five consecutive days of gains against the Dollar. During the American session the pair tested the 5-month high at 1.5940 reached during the European session but failed to break above. USD/CHF has ended the week below 1.0800 for the first time since December. The pair also fell the five days of the week completing a rally of almost 400 pips. Today the pair has fallen 0.66% from opening price. The Dollar could only make progress against the Yen rising modestly 0.49% but not enough to recover of weekly losses. This is the third consecutive week with negative results for the Dollar. Yen lost across the board during the week but in a smaller scale compared to the greenback
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UPDATE: UK Darling: Cautious That Worst Of Downturn Is Over
U.K. Chancellor of the Exchequer Alistair Darling acknowledged Sunday it isn't yet clear whether the worst of the U.K. recession is over. "I'm pretty cautious on that. I believe that we will see a return to growth by the end of the year. I said that in the budget and I haven't changed my view on that but...there is a lot of uncertainty out there," he told the British Broadcasting Corp.'s Politics Show. Among the list of potential hurdles Darling gave are the problems in European economies, like Germany and Spain, and the continued "difficulties" in the U.S. economy. He also said the U.K. economy will continue to face problems like rising unemployment. And Darling said he has continued concerns about the financial system in Europe. He said "we still have some European banks where I think there are still problems that need to be sorted out." "So there is a lot of uncertainty out there...I think we've got some way to go yet," he said. However Darling said the strong fiscal and monetary actions taken in many countries, "will make a difference." The Office for National Statistics said Friday that the U.K. economy contracted 1.9% in the first quarter - the third straight quarter of shrinking output. The government expects the economy will shrink 3.5% this year but will start to recover later this year. Some better-than-expected data earlier this month also bred optimism that the pace of economic contraction was decelerating. However, many private forecasters, as well as international organizations like the International Monetary Fund, think a recovery will take more time to begin than the government predicts and will be more fragile once it starts.
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Thursday, May 21, 2009
Deflation: Worst-Case Scenario or Already Here?
In following up on last week’s post (”Inflation or Stimulus: An In-depth Look At the Fed’s Response to the Credit Crisis“) on the possibility of inflation, I want to focus today’s post on the opposite phenomenon: deflation.
As evidenced by the huge expansion of government borrowing and Fed Quantitative easing, it is deflation which is currently the paramount concern of policymakers. While falling prices would seem to represent an ideal solution to the current economic downturn, deflation is actually quite pernicious if left unchecked. To elaborate: “When prices fall across the board, businesses and consumers postpone purchases because they expect lower prices later, or worry their incomes will decline or don’t want to acquire assets that will fall in value. Shrinking demand forces sellers to cut prices further, triggering a vicious cycle.” Deflation is also detrimental to consumers with liabilities, which remain the same even as incomes are falling.
Now that we understand what deflation looks like, let’s examine its likelihood. In fact, the current economic environment represents a perfect breeding ground for deflation. For example, both consumers and businesses are using stimulus and bailout checks to pay down debt, rather to increase spending. In addition, businesses are selling out of inventory rather than ramping up production, due to uncertainty for the future. Bond yields are rising, making it more expensive - and hence less likely - for companies to borrow and invest.
And what about the data? The Retail Price Index, “RPI - which turned negative for the first time in almost 50 years in March - is expected to fall from minus 0.4% to minus 1% in April.” The Consumer Price Index, meanwhile, “declined by 0.7 percent year-over-year in April, the largest 12-month drop since 1955.” It’s hard to take this data seriously, however, given the “seasonal adjustments” and “stripping of so-called volatile energy prices, and using the dubious ” ‘owners equivalent rent,’ OER, to measure consumer housing expenses” in order to conceal the actual decline in property values. In short, the actual decline is probably much worse, especiall given the steep drop in commodities from 2008. At least Fed Chairman Ben Bernanke is satisfied, and was most recently quoted for his belief that “the risks of deflation were receding.” Bernanke remains committed to pumping money into the economy via its purchases of government bonds. It still has a ways to go in making good on its promise to buy more than $1 Trillion in securities.
While it’s easy to blame the Fed, it’s also hard not to begrudge it some sympathy for having to toe a very thin line between deflation and hyperinflation. In the event that its successful in forestalling a decline in prices, it will have just enough time to catch its breath before drawing all of the new money out of the economy so as to prevent inflation from taking hold and another bubble from forming in asset prices.
Outlook is Positive for Australia, but Less so for Australian Dollar
The economic outlook continues to improve for Australia. Most recently, both the government and the Central Bank released five-year growth forecasts, both of which show a modest recovery in 2010. “By 2011-12, the commodity-rich economy will again be firing on all cylinders with growth of 4.5%, well above the long-term growth rate of around 3%.”
This positive development coincided with the release of similarly upbeat economic data: “Retail sales surged 2.2 percent in March from the previous month, four times as much as economists forecast. Home-loan approvals jumped 4.9 percent, the sixth consecutive gain.” Meanwhile, unemployment shrank for the first time in months, and consumer confidence is once again rising. While the economy is forecast to shrink by .75% in the current fiscal year, this compares favorably with other industrialized countries.
The sudden turnaround can be attributed to a couple factors. First of all, the pickup in China’s economy is stimulating demand for natural resources, which had been slack for the last year. If not for simultaneously falling commodity prices, Australia might have even achieved positive economic growth for the year.
The government’s stimulus plan and spending initiatives have also played a role, although the extent cannot be measured accurately for a few months. “The government claims that measures in its budget will inject a further A$8.8 billion into the economy in 2009-10, adding to around A$50 billion in fiscal measures already announced since October 2008.”
The outlook for the Australian Dollar, meanwhile, is not so rosy. The 425 basis points in cumulative rate cuts that the Royal Bank of Australia (RBA) effected over the last year have lowered the interest rate differential with other industrialized countries. While the RBA has indicated that it will pause before cutting rates further, interest rate futures reflect the expectation that rates will be lower twelve months from now. “Economists say the RBA is open to cutting interest rates again if consumer and business confidence appear threatened, but for now it is content to let monetary and fiscal stimulus measures take hold.”
To be sure, the uptick in risk tolerance has been good for the Australian Dollar, igniting a 25% rise since March. The currency now stands at a 7-month high against the US Dollar. But the increasingly modest differential is now causing some analysts to question whether it is a reasonable risk to take, especially against the backdrop of volatility and a high correlation with global stock prices. “What’s the point of picking up a 3 percent interest-rate differential by being long Aussie and short Japan in a world where the exchange rate can move by that much in two days?” Asks One analyst rhetorically.
This same analyst is actually recommending investors to use the Australian Dollar as a funding currency, and go long on higher-yielding currencies, such as the Brazilian Real. This particular trade would have netted a respectable 5.9% return in 2009. How quickly the roles have reversed!
Euro Continues to Rise, but Technical Obstacles Exist
Over the last couple months, the Euro has thoroughly outperformed the Dollar, which recently fell to a five-month low on a trade-weighted basis. Over the same period, global stock and commodity prices have also risen quickly, which is not a coincidence.In other words, investors are allocating capital on the basis of risk, rather than in accordance with (economic) fundamentals. For example, “ICE’s Dollar Index and crude oil have a correlation of minus 0.61 in the past two months, compared with minus 0.26 since the start of the year,” as rising oil prices and the declining Dollar feed back into each other.
Meanwhile, “Implied volatility on major currencies, which reflects investors’ expectations of currency swings, fell to 13.96 percent yesterday, from…17.22 percent at the end of March. A drop in volatility tends to signal less demand for options to protect investors from currency swings.” This indicator is now at its lowest level since the days preceding the Lehman Brothers bankruptcy and subsequent stock market collapse. One would normally expect a correlation between risk and return, but in this case, rising returns have been accompanied by lower risk.
Even more unbelievable is that this decline in risk is taking place against the backdrop of declining economic fundamentals. “Risk appetite in the currency market is nothing short of impressive considering the fact that the Fed reduced their growth forecasts,” said one analyst. However, “The euro-area economy will contract 4.2 percent this year, according to the International Monetary Fund, more than the projected 2.8 percent contraction in the U.S. and 4.1 percent slump in the U.K.” If investors were focusing on this divergence in economic growth, one would expect the Euro would be falling.
One hypothesis is that inflation-conscious traders are flocking to the Euro, since the ECB remains vigilant about fighting inflation, even in the face of declining prices and aggregate demand. After cutting rates to a record low 1% earlier this month, the ECB unveiled its own version of a quantitative easing plan, involving the purchase of 60 billion euros worth of low risk securities. But this is a pittance, both relative to the size of the EU economy (it represents a mere .6% of GDP) and compared to the Trillion Dollar Fed program. This led one analyst to call the ECB’s plan “chicken feed.” While all of this is noteworthy, it’s unlikely that this is having a meaningful effect on forex markets, which still remain focused on (avoiding) deflation.
If the Euro is to continue rising, it must overcome some technical obstacles. “The euro could hit a ceiling if the recent resilience of U.S. stock markets faces headwinds. ‘At some point…stronger nongovernment growth has to show up to sustain and justify these moves in equities.’ ” It’s interesting that the fear of Euro bulls is not that the EU economy won’t recover, but rather that US stock prices are overvalued. Given recent market movements, however, their concerns are reasonable, and “any disappointment [in corporate fundamentals] could provide an excuse to take profit [this] week — benefiting the dollar.”
Wednesday, May 20, 2009
News Breakdown for the week of May 17th
The staff at Forex Club would like to wish you a great trading week. To help you nail each of your trades, we’d like to give you this breakdown of the economic events occurring during the week of May 17th, 2009.On Monday, May 18th, US Department of Treasury Secretary Timothy Geithner will give a speech at 15:30 (GMT). Volatility is often experienced during his speeches. At 17:00 (GMT), the National Association of Home Builders will release its Housing Market Index for May, which may affect the USD. The Forecast is 16. The Reserve Bank of Australia’s governor Glenn Stevens will give a speech at 22:10 (GMT). His speech may determine a trend in the AUD.On Tuesday, May 19th, the Reserve Bank of Australia will hold its Meeting’s Minutes at 1:30 (GMT). The AUD may move in accordance to how hawkish the RBA is about the inflationary outlook for the economy. 8:30 (GMT) is going to be a traumatic time for the GBP. At 8:30 (GMT) the UK’s Consumer Price Index will be released, possibly affecting the GBP. The forecast is 0.4% for the (MoM) and 2.4% for the (YoY). At the same time, the Core Consumer Price Index will be released. Its forecast is 1.7%. Retail Price Index is also being released at this time. The forecast for the (MoM) is 0.2%, while the (YoY) forecast is -1.2%. Germany’s ZEW Economic Sentiment will be published at 9:00 (GMT), possibly affecting the EUR. The forecast is 20. At 12:30 (GMT) Housing Starts may cause the USD to move. The forecast is 520K. Japan will release its Gross Domestic Product Annualized at 23:50. Its forecast is -16.1%.On Wednesday, May 20th, the GBP may be affected by the Bank of England’s Minutes, which are occurring at 8:30 (GMT). The GBP will strengthen if the Bank of England is hawkish about the inflationary outlook for the economy. At 11:00 (GMT), the CAD may move due to the Bank of Canada’s Consumer Price Index Core and Consumer Price Index. High readings of results are seen to have a positive effect on the strength of the CAD. At 14:30 (GMT), the Energy Information Administration will measure the change in crude oil storage. The results for the EIA will have an effect on all currencies, but may have a more significant effect on the CAD. At 18:00 (GMT), the Federal Open Market Committee Meeting Minutes may have an effect on the USD.On Thursday, May 21st, the Purchasing Manager Index Manufacturing occurring at 7:30 (GMT) may have an effect on the EUR. Results above 50 signals are considered to be bullish, while lower results are considered bearish. The United Kingdom is releasing its Retail Sales at 8:30 (GMT). Higher results are seen as positive for the GBP. At 12:30 (GMT), the United States’ Unemployment Claims may have an effect on the currency. The forecast is 633K.On Friday, May 22nd, the Bank of Japan is releasing its Interest Rate Decision at 4:00 (GMT), which will have an effect on where the JPY moves. At 18:00 (GMT), Fed Governor Ben Bernanke is due to give a speech. Volatility is often experienced with the USD during his speeches.We hope you research each of the events listed above and use them to your advantage. As always, Forex Club would like to wish you a healthy week filled with successful trades.
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Looking for Greed to Banish Fear
Two basic emotions---fear and greed---dominate the stock market. When stock traders are fearful, they sell everything they can, take their money out of the stock market and run to the nearest U.S. Treasury. On the other hand, when investors are greedy, they buy everything they can using their own money, and then they try to buy everything they can using their broker's money. But how can you tell when investor sentiment is shifting from fear to greed? Answer: Watch margin debt levels
Buying Stocks on MarginBuying stocks using borrowed money from your broker is called buying stock on margin. Current SEC regulations allow you to borrow up to 50 percent of the value of a stock you wish to buy---assuming your broker feels you are worth the risk, that is---which gives you up to 2:1 leverage when you buy a stock.You can learn a lot about how confident stock traders are in the stock market by monitoring the level of margin debt in the market, and the easiest way to do that is by watching the NYSE Margin Debt numbers. NYSE Margin DebtEvery month, the New York Stock Exchange (NYSE) releases numbers showing how much money was borrowed on margin to buy stocks on the NYSE. As you can imagine, the amount of stock bought on margin is extremely large, but the total number fluctuates quite a bit based on how confident traders are. When stock traders are confident, they borrow more on margin. When stock traders are less confident, they borrow less on margin.
Tuesday, May 19, 2009
Interbank FX Announces New Partnership with Dow Jones
IBFX now offering customers instant access to global news in four languages via Dow Jones FX Select
Off-exchange retail foreign currency (Forex) broker Interbank FX (IBFX) announced today that it is partnering with Dow Jones to offer its customers high-quality real-time global news and information in four different languages via Dow Jones Newswire's new FX Select service. The news feed, which will be available to live account holders, will be delivered directly to the customer's trade terminal upon logging on to the IBFX MetaTrader platform. and works.
"Trading in the Forex market is risky and it is important for our customers to be well informed about market relevant events as they occur across the globe," said Todd Crosland, CEO and President of IBFX. "Through our partnership with Dow Jones, our customers will have timely access to the most significant global news to assist them in their fundamental analysis."
With Dow Jones FX Select, investors will have access to Dow Jones premium content, delivered in real time versus near time, allowing them to react faster to significant announcements and market events, along with exclusive insights from Dow Jones Economic Indicators, Dow Jones Forex Columns and Dow Jones Market Talk rolling commentary.
"The distribution agreement with Interbank FX highlights our commitment to provide global investors with local-language financial services and strengthens our presence in emerging markets, especially the Middle East, China and Russia," said Richard Hanks, Senior Vice President and Chief Commercial Officer, Dow Jones Enterprise Media Group. "Now, investors in 140 countries using the IBFX platform will be able to react faster with exclusive market intelligence and real-time information. And since IBFX is the first client for our new Forex service in Arabic, it represents a significant step forward for our international brand strategy."
IBFX has contracted for FX Select, DN Forex News in Arabic, DJ Chinese Forex Service, and DJ Forex Russian Service. FX Select will be rolled out in English on the IBFX platform in early February, with other languages to be integrated in 1st Q 2009.
"We strive to provide the best possible trading experience for our customers," said Crosland. "Partnering with Dow Jones is yet another example of how we continue to do just that."
Dow Jones FX Select will be available to all IBFX live account holders at no charge. Demo account holders will have access to a subset of incoming news
GAIN Capital's FOREX.com Launches Gold Trading
GAIN Capital, a global provider of online foreign exchange (forex) services, today announced that its FOREX.com division is now offering spot gold trading."The current economic climate is generating a lot of market interest in gold," said Tim O'Sullivan, chief dealer at GAIN Capital. "Short term traders are taking advantage of the daily volatility and longer term investors are buying gold as a store of value in these troubled economic times and as a hedge against inflation expectations." Gold climbed to an 11-month high of $1006.29/oz on February 20 before retreating back to $951.75/oz on February 25. Traders are now bracing for a continued technical showdown around the key $1000/oz level. "Spot gold is a natural product extension to our core forex offering," added Glenn Stevens, GAIN's Chief Executive Officer. "Three of gold's most powerful drivers are market factors that forex traders already follow closely: the strength of the U.S. dollar, the price of oil, and inflation expectations." Benefits of spot gold trading at FOREX.com:
Commission-free trading (pay only the bid/offer spread)
24-hour trading from Sunday 6 p.m. ET - Friday 5 p.m. ET
Low 2% margin requirement
Competitive dealing spreads, as low as .50 points
Small contract sizes available (1 contract = 10oz)
Dollar Unfazed by U.S. Slowdown Focus on a Worldwide Slowdown
The Dollar rebounded this afternoon against the EUR and GBP following initial weakness on poor economic news. The U.S. ISM non-manufacturing business activity index fell to 41.9 in January from 54.4. This was sharply below pre-release estimates of 53.0. This was the worst reading since the aftermath of the September 11, 2001, terrorist attacks. The magnitude of the break is a sure sign of contraction in the non-manufacturing sector.
While this type of news would have recently sent the U.S. into a tailspin, the market remained relatively unchanged to bearish immediately after the release. Some attribute the mild reaction to the weak PMI index on Euro Zone services released earlier in the day. The final estimate of this number was revised to the weakest level in four and a half years to 50.6.
Today's reports can be interpreted twofold. While the weak U.S. ISM is another confirmation of a looming recession, the Euro Zone services figure is a sign that the U.S. economy is not alone in this slowdown. The poor showing in the U.S. ISM index is also a sign that the FED will continue its easing policy. May Fed Funds futures are implying a 96% chance that the FED will lower its target for overnight rates by a total of 75 basis points to 2.25% after the next two policy setting meetings in March and April. Tomorrow's focus will remain on U.S. economic data as the Fourth Quarter Preliminary Productivity figures will be released at 8:30 EST. Although the next FED meeting is not until March 18, Chairman Bernanke's willingness to act when deemed necessary might prompt the expected cut earlier.
In AUD news, the RBA raised rates by % to 7%, as expected. Following an initial bump against the U.S., the market failed to hold yesterday's gains and broke lower. In its official statement, the RBA said, "In the short term, inflation is likely to remain relatively high and will probably rise further in year-ended terms, though the Bank expects it to moderate somewhat next year." Australian rates remain among the highest of the major currencies. While key central banks have been aggressively cutting rates, the RBA has been steadily raising rates. The trading action today indicates, however, that this could be the last of the hikes. In addition, late chatter that the hike may be as much as 50 basis points may have caused the sell-off.
On Thursday, Feb. 7, the Bank of England (BoE) and the European Central Bank (ECB) are both set to make interest rate announcements. The BoE is expected to cut rates by % to 5.25%. Slowing in retail and manufacturing sectors are prompting this anticipated cut although talk circulated that BoE may decline to soften rates over impending inflation concerns. The ECB is expected to hold rates steady even in the face of softening growth. The market is expecting growth rates to diminish throughout the year as the US economy teeters on the brink of a recession. Watch for market talk today of a possible rate cut in the wake of the weak PMI Index on Euro Zone services
The sell-off in the EUR against the Dollar could be a sign that traders feel that the impending economic slowdown will be global in nature. Dollar bears remained on the sidelines as both the GBP and EUR sold off throughout the day. Traders will be watching U.S. economic data with caution as well as European economic releases for signs of weakness across the board. The USD rally is an indication that traders are willing to let monetary policy do its work on the U.S. economy.
Sharp declines in the U.S. equities markets forced traders to aggressively buy Dollars against the JPY and CHF. There is still some talk of a BOJ rate cut to curtail any bullish interest in the JPY.
This week's U.S. reports include Fourth Quarter Preliminary Productivity (2/6, 8:30 EST), December Pending Home Sales (2/7, 10:00 EST), December Consumer Credit (2/7, 15:00 EST) and December Wholesale Inventories (2/8, 10:00 EST). .
Monday, May 18, 2009
British Pound May Lose Ground Amidst Release of UK CPI, BOE Minutes
The British pound wrapped up the past week down against the US dollar and Japanese yen, but up versus the rest of the majors. Looking to GBP/USD specifically, the pair remained contained within the same rising channel it has traded within for nearly a month, despite the bleak fundamental outlook for the UK. That said, there will be a variety of triggers for a GBP/USD breakdown next week, as inflation data and central bank-related news tends to spur volatility.
On Tuesday, the UK’s consumer price index (CPI) reading for the month of April is expected to rise 0.4 percent, the third straight increase. However, the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall to a more than one-year low of 2.4 percent from 2.9 percent, keeping inflation within the central bank’s acceptable range of 1 percent - 3 percent, but above their 2 percent target. If CPI falls more than projected, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further. On the other hand, if CPI holds strong, the currency could rally in response.
On Wednesday, the minutes from the Bank of England's May 7 meeting may not be as market-moving as they've been in the past, as there has already been significant detail revealed about the mindset of the Monetary Policy Committee (MPC). Indeed, we already know that the BOE has decided to expand their quantitative easing program by 50 billion pounds to 125 billion pounds, that the drop in Q1 GDP of -1.9 percent was worse than expected, and that CPI will likely will be below the BOE’s 2 percent inflation target in the medium term. However, the growth and inflation outlook published in the BOE’s Quarterly Inflation Report suggests that the central bank may be open to expanding their quantitative easing program later on. If the minutes from the BOE’s most recent meeting reiterate this, the British pound could pull back very sharply.
Japanese Yen: Will Risk Flows Hold Up To A Severe Recession
The Japanese yen was one of the few currencies this past week to produce a consistent and aggressive move. Taking advantage of the unwinding of risky positions that were built up through most of March and April, the safe haven rallied 6.3 percent against the New Zealand dollar, 5.7 percent against the Australian currency and even managed a 3.3 percent advance against the greenback – the other safe haven currency. Looking ahead to next week, there will be two key, fundamental concerns for traders: the overall appetite for risk and the yen’s unwavering brand as the market’s harbor in uncertain seas.
The easier task is gauging the health of risk appetite. This past week, it was clear that optimism stalled. Without the threat of a major bank failure or shock to the credit market since the October market crash that followed the Lehman and AIG troubles, we have seen investors cautiously diversify away from risk-free assets like treasuries back into the more speculative asset classes like corporate bonds and equities. It is hard to miss the aggressive advance in key gauges like the Dow Jones Industrial Average and the DailyFX Carry Index . However, it is important to distinguish whether this is a rise in optimism or merely a return of investable funds to the market. In all likelihood, the bulk of this rebound can likely be attributed to capital finding its way back into the market in search of a competitive return. Investors wouldn’t attempt this if they were panicked; but if they believed the worst of the shocks are behind us, they would. However, this is different from a true rise in confidence where market participants have a major of their funds in the speculative arena and are trying to outpace the markets returns. With little hope for meaningful earnings, dividends, yields or capital returns through the rest of this year, traders will be standing with one foot out the door. All it will take is a possible financial crisis in the Euro Zone, US, UK, China or Japan and the whole world would reel in response.
While it is easy to determine the general level of sentiment in the market; it is a subtle and nuanced effort to measure an instrument’s relation to such a broad theme. Despite the significant deterioration in the Japanese economy over the past months, the yen has managed to retain its place as top refuge with few corrections. However, with each problem that arises from the Land of the Rising Sun (political, financial, economic), the less suited it seems for such a title. Indeed, we have to remember that this economy stagnated for more than a decade before this crisis as ill-conceived policy measures dampened a true recovery for the world’s second largest economy. Event risk over the coming days may feed such misgivings. Topping the list, is the preliminary revisions for the first quarter GDP readings. The initial 12.1 percent pace of contraction reported last month marked the worst slump since 1974. Should the plunge be revised down to 15.9 percent it would be the worst pace on record and likely signal a technical depression. Can an economy that is leading an economic malaise and will likely struggle to recover for years stand as a safe haven for capital? That is for the market to decide