Eid Al−Fitr holidays in Saudi Arabia until Wednesday
Friday, September 10, 2010
, Posted by Usman Ali Minhas at 9:01 AM
Overview
Another quiet week with most instruments holding in small ranges. Currencies were mixed again, so-called commodity currencies gaining against the greenback while European ones lost a little ground, the Singapore dollar setting a new record 1.3392 as did EUR/CHF 1.2765. Yields backed up a little further, many admittedly from extreme lows, Brazilian government debt among the bigger movers. Stock indices rallied too, a combination currently referred to as ‘risk on’, Helsinki to its best level (2,374) in exactly two years, Mumbai (18,823) its highest since January 2008, and Jakarta a new record (3,239). ICE Cotton up again at 93.85 cents per pound, over two standard deviations above the long term mean, likewise Coffee at 194.85 cents, and CBOT Corn at 459 ¾ cents per bushel, its best since October 2008. Creditors have approved plans to restructure $24.9B of Dubai World’s debt.Political and Economic Developments
Canada raised it key interest rate by 25 basis points to 1.00% but South Korea surprised by keeping theirs unchanged at 2.25%, as did Malaysia (2.75%) and Indonesia (6.50%). The UK’s Trade deficit hit a new record £8.667B, £4.916B including invisibles, imports growing at 20% and exports at 7%. UK Manufacturing expanded at 4.9% Y/Y, its highest level since 1994’s spike, while Industrial Production is running around it long term average of +1.9% Y/Y.New Zealand’s Earthquake Commission estimates re-building costs in the region of NZD $4B, reinsurance companies and the government’s EQC disaster fund bearing the brunt of this. The 7.1 quake hit Christchurch before dawn on Saturday, the strongest shake since 1931 triggering a state of emergency. Last week one of the countries largest finance houses, South Canterbury Finance, called in the receiver owing 20,000 investors about NZD $1.7B.
This year’s hurricane season, which runs until the 30th of November, is forecast to be the worst since 2005 and Katrina because of the La Niña weather anomaly.
Underlying Themes
Government stimulus packages and zero interest rate policies have taken borrowing rates for some to record lows. Benchmark German 2, 10 and 30-year Bunds an unprecedented 0.43%, 2.089% and 2.578% respectively; likewise French OATs and many Index-Linkers. For others the story is bleak indeed, benchmark ten-year Greek, Irish and Portuguese sovereign debt hitting new record spreads of 976, 392 and 364 over Bunds. Debt pariahs like Argentina have agreed to IMF scrutiny in order to try and re-enter international lending circles, while US states dream up ever more complex ways to fund budget deficits. UK average August credit card interest rates are 16.70% while overdrafts stand at 19.10%, highest since the series began in 1995. US credit card balances shrank by $4.4B in the month to July, taking the cumulative amount since 2008 to $129.7B leaving outstanding balances at $827.8B. Against this background one might be surprised were a debtor to query his creditor’s thinking, but that is what Japan’s finance minister did. He wants China to ‘clarify their objectives’ in buying 2,300B yen’s worth ($27B) of Japanese Government Bonds this calendar year, suggesting it is one of the reasons the currency is trading at a multi-year low of 83.34 to the USD. Note: this financial year the government will issue 162,414B yen’s worth of JGBs.What to watch for next week
Eid Al-Fitr holidays in Saudi Arabia until Wednesday, eve of Yom Kippur in Israel Thursday, and Japan’s Respect the Aged Monday the 20th. Tuesday the 14th the Democratic Party of Japan holds a leadership election (too close to call), Saturday the 18th parliamentary elections in Afghanistan then Sweden on Sunday. Monday the 13th Eurozone July Industrial Production, US August Monthly Budget Statement and German Wholesale Prices due from this day. Tuesday UK August RICS House Price Balance, Nationwide Consumer Confidence, CPI, Tokyo Condominium Sales, US Retail Sales, July Business Inventories and September ZEW Surveys for Germany and the Eurozone. Wednesday UK July Average Earnings, August Unemployment, EZ16 CPI and Q2 Employment, US August Import Price Index, Industrial Production, Capacity Utilisation and September Empire State Manufacturing Survey. Thursday Japan July Tertiary Industry Index, EU27 New Car Registrations, Trade Balance, UK August Retail Sales, US July Net Long-term TIC flows, August PPI and September Philadelphia Fed Survey. Friday EZ16 July Current Account, Construction Output, German August PPI, US CPI and September University of Michigan Confidence Survey while the Swiss National Bank decides on rates (target expected unchanged at 0.25%).Positioning and Technical Analysis
Expect more cautious moves, especially in instruments that are trading at extremes. Differentiate between really good stuff and those merely masquerading as something similar. The longer the property fall-out continues, and the longer some are forced to pay penal rates of interest, the less viable many businesses (and individuals) will become. Also factor in sudden sharp swings at extremes.
Have a nice weekend!
