International Trading


 Of late the U.S dollar has experienced across the board downside pressure as the markets speculate over the size of the Federal Reserve’s second round of quantitative easing. Although, there are schools of thought argue the effects have been fully priced in, and that any disappointment on the size of asset purchasing will result in a dollar rally. After Ben Bernanke’s calculated speech on Friday the dollar has bounced off its lows as the prospect of a surprise diminishes, and the markets consider the validity of further dollar selling. 

• Yields on debt issued by some of the European Peripheral Nations have narrowed against the benchmark German bund, and the CDS market has eased. Improvements in the bond market coincided with ECB member Axel Weber’s hawkish rhetoric over the central bank’s role as buyers of debt resulted in EUR/USD temporarily breaching the 1.4000 handle at the end of last week’s trade. However, ECB president Jean-Claude Trichet failed to continue in a hawkish tone as he was quoted as saying that Weber’s views would be met with disagreement from other ECB members. The single currency is off the highs and is currently priced at 1.3900. 

• The Japanese Yen is the only major currency to trade slightly higher as the failed intervention by the Bank of Japan has led to a crisis of credibility for the central bank. After much jawboning, and a wasted $25bn the Yen continues to strengthen against the dollar. USD/JPY continues to grind higher despite the pair approaching the key 79.722 all time low. U.S dollar funded carry trades are growing in popularity as the Federal Reserve keep rates at all time lows, and eye further easing measures. 

• AUD/USD is trading off the parity highs as traders wait for the RBA minutes from October’s meetings. The RBA kept rates on hold at 4.50% as the stronger currency off-sets potential inflation. Australia and their currency have benefitted from China’s appetite for resources as they continue to out grow much of the developed world.

International Trading

International Trading

International Trading

International Trading

International Trading


Bulls did manage to break sharply the resistance barrier, strong positive trend is extended. While candles remain active above resistance and current trend line, look for buying opportunities. Just below trend line, bulls side is in danger.

• Download the whole report

International Trading

International Trading

International Trading

Market Commentary

Market Summary

• Precious Metals: Gold hit a new record high yesterday for the second time this week. Spot gold reached an intra-day high of $1277.70. Gold benefited from greater economic uncertainty as economic data was disappointing. British retail sales fell unexpectedly, for the first time in seven months. The Philly Fed index showed that factory activity in the U.S. mid Atlantic region contracted for the second straight month in September. Silver continued its rally to almost $21 an ounce, extending its winning streak to five days.
• Crude Oil: Crude oil fell nearly 2%, sliding for a third day. U.S. Midwest supply anxieties were eased further on news that a major Canadian pipeline carrying crude to the region would be back in service by Friday. Crude dropped to a session low of $74.11. Prices were also pressured by mixed U.S. data that confirmed that the economy remains on a slow growth path. The Federal Reserve Bank of Philadelphia said its general economic index rose to minus 0.7 in September from minus 7.7 in August.
• Currencies: The yen fell against the U.S. dollar on Thursday with the Bank of Japan silent after investors were reluctant to place bets against the yen, wary that the central bank may intervene again in the currency market. Prime Minister Naoto Kan reiterated on Thursday Japan would take decisive steps on yen strength, Jiji news agency reported, while Bank of Japan Governor Masaaki Shirakawa said he expected intervention would stabilize the forex market. The euro rose to its highest in more than a month against the dollar as strong demand at a Spanish bond auction reinforced confidence in Europe’s economic recovery.
• Indices: The S&P 500 slipped 0.04%, paring an initial drop of as much as 0.6%. This was as FedEx Corp.’s profit forecast trailed estimates and U.K. retail sales unexpectedly decreased. Alcoa Inc. and Bank of America Corp. lost at least 1.2% for the biggest declines in the Dow Jones. The losses were tempered by Hewlett-Packard Co. and Cisco Systems Inc., which rose at least 1.5%, helping the Dow to gain 22.10 points to 10,594.83. 

Key Events/Data To Look Out For:

• US: UOM sentiments. 
• Euro: Germany Producer Prices.

• Download Full Daily Gold Commentary

International Trading


Sep. 10, 2010 (Allthingsforex.com) – The consumer spending, industrial activity and inflation data from the world’s largest economy will guide the direction for equities, commodities and currencies in the week ahead.   

In preparation for the new trading week, here is a list of the Top 10 spotlight economic events that every currency trader should pay attention to.  

1.    EUR- Euro-zone Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Mon., Sep. 13, 5:00 am, ET.  

The industrial activity in the Euro-zone is expected to rise by 0.2% m/m in August from the 0.1% m/m decline in July. 

2.    GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., Sep. 14, 4:30 am, ET. 

August could be the first month in a long time when we could see the U.K. inflationary pressures below the Bank of England’s 3.0% ceiling as the inflation gauge is forecasted to reach 2.9% y/y from 3.1% y/y in July. 

3.    EUR- Germany ZEW Economic Sentiment Index, a leading indicator of economic conditions and business expectations in the Euro-zone’s largest economy, Tues., Sep. 14, 5:00 am, ET.

The ZEW survey could provide an early warning sign of a slowdown in the largest economy in the Euro-zone with a reading of 10.0 compared with 14.0 in the previous month.  

4.    USD- U.S. Retail Sales, an important gauge of consumer spending measuring the total receipts at retail establishments, Tues., Sep. 14, 8:30 am, ET.

In light of some of the recent glimpses of hope from the labor market, the U.S. retail sales could instill optimism in the market after what is expected to be another positive month with sales at retail establishments up by 0.3% m/m in August following the 0.4% increase in July.

5.    EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation in the Euro-zone and the European Union’s equivalent to the CPI- Consumer Price Index, Wed., Sep. 15, 5:00 am, ET. 

Inflationary pressures in the Euro-zone are expected to remain subdued at 1.6% y/y in August, down from 1.7% y/y in July. 

6.    USD- U.S. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Wed., Sep. 15, 9:15 am, ET. 

Manufacturing activity, which has been a leader of the U.S. economic recovery, is forecasted to show a smaller rise in industrial output by 0.2% m/m, compared with the 1.0% m/m increase in the previous month. 

7.    NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Sep. 15, 5:00 pm, ET.   

Due to the uncertain outlook and the threat of a global economic slowdown, the Reserve Bank of New Zealand could decide that it would be prudent to keep the current 3.0% benchmark interest rate level unchanged at this meeting, while still leaving the door open to further rate hikes in the months ahead. 

8.    CHF- Swiss National Bank Interest Rate Announcement, Thurs., Sep. 16, 8:00 am, ET. 

With inflation no longer a threat to the economy and the EUR lingering near all-time lows vs. CHF, the bank’s policy makers would be likely to keep monetary policy accommodative at the record low rate of 0.25%. Traders should keep an eye on any statements or remarks from the bank’s policy makers following the announcement for signs of the Swiss National Bank’s willingness to continue intervening in the currency market to curb the strength of the Swiss franc.   

9.    USD- U.S. CPI- Consumer Price Index, the main measure of inflation in the world’s largest economy, Fri., Sep. 17, 8:30 am, ET.

The report could confirm the expectations for subdued inflationary pressures in the U.S. as the month-over-month index of consumer prices rises by 0.3% m/m and the Core CPI registers a small 0.1% m/m increase in August.   

10.   USD- U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Sep. 17, 9:55 am, ET.

The outlook of U.S. consumers could show a slight improvement with consensus forecasts pointing to a reading of 69.5, up from 68.9 in the previous month. 

International Trading


More than a decade ago, investors speculated wildly in dot-com stocks. You don’t need me to remind you how that ended.

Then a half-decade ago, investors went hog wild in real estate. That didn’t work out so well, either.

Now there’s another feeding frenzy going on. It’s not quite as visible as when you had speculators lined up outside of subdivision sales offices in the middle of the Phoenix desert. But it sure as heck is happening.

I’m talking about the feeding frenzy in fixed income.


Bond Funds Hoovering Up Cash as Stocks Stagnate

How much money is chasing fixed income investments? Let me share some startling numbers with you …

• In the month of July, a net $10.4 billion flowed out of equity mutual funds, according to the Investment Company Institute. We saw those outflows despite a sizable rally in the markets, one that drove the Dow up by more than a thousand points.
  Taxable bond funds, meanwhile, saw net INFLOWS of $26.2 billion. That’s more than $845 million a day!
• Was this a short-term trend? Some kind of anomaly? Not in the least! Year-to-date, equity funds have seen net outflows of $1.7 billion … while bond funds have absorbed a whopping $162.6 billion in net new cash.
• But here’s the real shocker: In the two years through this June, investors dumped a massive $480 billion into bond funds. That’s just shy of the $497 billion they poured into stock funds in 1999 and 2000 … right before the dot com bubble burst and stocks imploded!

The chart below shows just how divergent fund flows have been — and how persistent they’ve been, through stock market rallies and stock market sell offs.




Fed’s “War on Savings” Forcing Investors’ Hands

Some of the inflows stem from simple performance chasing. Just like they chased dot-com stocks … then real estate … investors are flocking to fixed income because it’s “working.”

In fact, the average high yield (or “junk”) bond fund has returned 7.9 percent year-to-date, according to Morningstar. That compares to 0.15 percent for the average domestic stock fund.

But the big story, as I see it, is that the Federal Reserve is waging an undeclared “War on Savings.”

Fed policymakers like to highlight the fact that low rates keep mortgages and corporate loans cheap. But those same low rates are also decimating the portfolios of millions of savers who rely on coupon payments to cover living expenses.


I mean, the average 1-year certificate of deposit yields just 1.25 percent according to Bankrate.com, while the average bank money market account yields just 0.8 percent. Five-year CDs yield only 2.5 percent, while benchmark corporate bond ETFs like the iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD) are yielding around 4 percent.

What’s happening as a result?

Savers are being forced to stretch for yield. They’re buying longer and longer-term debt, from lousier and lousier borrowers. Or in investment terms, millions of investors are now shouldering rising levels of interest rate risk and credit risk, all thanks to the Fed.

The last time the Fed slashed rates to the bone and forced investors to stretch for yield, banks responded by creating all kinds of higher-yielding — but ultimately crappy — investments. Think CDOs, CLOs, and the like. Yet the Fed is at it again, prescribing the same medicine … and many investors are lapping it up.

I don’t think this is a bubble that will burst tomorrow, next week or even next month. But it’s definitely a developing trend to watch — and to be concerned about. We’ve already seen two investment frenzies end in disaster in the past decade, and there’s a real risk this one will too.

If you want to stay out of harm’s way, my prescription is simple: Don’t be a yield chaser. Avoid longer-term, higher-risk bonds.

• Setback. Our picture of a W-shaped economic recovery after the Great Recession appears to be materializing. The expiration of the fiscal packages running into the billions and the reversal of the inventory cycle are now increasingly slowing the pace of global growth. Consideration is being given to new stimulus programs, first and foremost in the US.
• US. The slowdown there started as far back as this spring and will, moreover, be more pronounced than originally anticipated. There is the growing fear that the economy will slide back into recession. We would not go that far, but we are making a downward revision to our growth expectations for 2010/11 (pages 4-7).
• Fed. It is not only the US administration that intends to stimulate again. The central bank has announced its intention to prevent a further shrinking of its balance sheet. Consequently, we do not expect the first rate hike until the beginning of 2012.
• EMU. The European economy is holding up pretty well. This appears to confirm what ECB economists discovered as far back as 2009: The US cycle is feeding through to Europe less strongly and above all later than in former years. But here too, the slowdown is inevitable. The rapid pace of growth reported this spring cannot be maintained. For 2010/11, we expect GDP growth of 1.6% and 1.3%, respectively (pages 8-9).
• ECB. A slide back into recession is, however, improbable, with the result that the central bank could really lean back and continue its exit from the ultra-expansive monetary policy – were it not for the resurfacing concerns about the solidity of European banks and the rapid sovereign bond spread widening (cf. Weekly Comment, pages 2-3).
• Further topics:
  – Switzerland: House price inflation a concern for the SNB (page 10).
  – Commodities: Precious metals still on top (pages 14 & 17).
  – Data outlook: ZEW growth expectations trend lower; US consumers become more skeptical (page 20).
  – Market outlook: Bonds well supported; euro to weaken (page 26).

Under pressure again

• Download Full Friday Notes

U.S. Review

• This week’s data suggest that the economic dive that goes by the alias “double dip” remains a low probability outcome. This view is reinforced by policy presentations suggesting that any future weakness would be met with further monetary easing.
• The roots of the current negative sentiment are found in the disappointing economic and jobs outlook relative to historical patterns. Fiscal stimulus associated with the Kennedy and Reagan tax cuts appeared to be more powerful than today, but the credit context of those stimulus programs was quite different.

Global Review

• More countries released second-quarter GDP data this week, and the results were generally strong. The Australian economy grew nearly 5 percent at an annualized pace in the second quarter, and growth in final domestic demand in Canada was strong.
• Indicators thus far in the third quarter show that the global expansion continues as most purchasing managers’ indices remain in expansion territory. That said, the recoveries in some major economies remain fragile, and we do not expect a truly self-sustaining global expansion to take hold for some time yet.

• Download Full Weekly Economic and Financial Commentary

Summary and outlook

•  Global leading indicators continued to decline in August, showing further signs of slowing growth in H2. On the upside, both Chinese and US PMIs indicated that the slowdown remains moderate, so we can still look to the manufacturing sector as a growth engine. Additionally, Europe has continued to surprise on the upside, with Germany in particular looking strong. Commodity prices have recovered somewhat but overall still point to a slowdown, as the levels continue to be fairly low.
• We expect a further gradual slowdown of leading indicators in H2 10 and there is an increasing risk that global growth will slip below potential growth towards the end of the year. This points to continued high market volatility and downward pressure on bond yields as declining leading indicators spur fears of a double-dip.

Details

• Global PMI new orders fell again in August to 52.5, from 54.0 in July. This was the fourth decline in a row. This still points to growth slightly above trend, but if the PMI continues its decline, the slowdown is moving closer and closer.
• In the US, the ISM rose in August to 56.3, from 55.5. Our ISM model points to a gradual decline over the coming months and we expect it to reach 50-51 by year-end.
• In Euroland, the PMIs indicate that the US and Asian slowdown is beginning to drag down European growth. The ifo confirms that the German rebound is intact but, in spite of the strong growth momentum, some of the more forward-looking indicators send a warning of slowing ahead. Thus, except for the ifo Index, all major forward-looking indicators are pointing downwards. Scandi leading indicators are slightly softer but generally point to decent growth rates.
• Asia is sending mixed growth signals. The Chinese PMI showed some rebound in August, after a visit below 50 in July. Japanese industrial production and the PMI have also stagnated after several quarters of sharp increases. CEE indicators continue to indicate strong growth rates, but some signs of a slowdown are also emerging. Activity in Brazil has stagnated a bit, as the PMI continues to weaken and industrial production continues to decline.

• Download full Business Cycle Monitor with charts

International Trading