Closed Positions:
GBPJPY
1. Sell At 242.28 + 380 Pip
GBPUSD
1. Sell At 2.0282 + 70 Pip
=====================
Result: + 450 Pip
Using PRINCE TRADING SYSTEM
TOTAL TRADED: + 3,919 Pip
Because I Will have my Vacation All positions are closed.
See You on the next time.
Have A nice trading to All
Prince
Friday, 10 August 2007
All Position Closed
Thursday, 9 August 2007
ECB Offers Unlimited Cash
ECB Offers Unlimited Cash as Bank Lending Costs Soar
The European Central Bank, in an unprecedented response to a sudden demand for cash from banks roiled by the subprime mortgage collapse in the U.S., loaned 94.8 billion euros ($130.2 billion) to assuage a credit crunch.
The overnight rates banks charge each other to lend in dollars jumped to the highest in six years. The so-called dollar London interbank offered rate rose to 5.86 percent today from 5.35 percent and in euros gained to 4.31 percent from 4.11 percent.
The ECB's response to the fastest increase in the dollar bank rate since June 2004 signals that lenders are reducing the supply of money as losses triggered by the U.S. mortgage slump spread worldwide. BNP Paribas SA halted withdrawals from three investment funds today and Dutch investment bank NIBC Holding NV said it had lost at least 137 million euros on subprime investments, reversing evidence yesterday that credit markets were stabilizing.
``Liquidity in the market has completely dried up as investors aren't recycling their money back because of subprime concerns,'' said Saher Bin Jung, a trader on the commercial paper desk at Commerzbank AG. ``Levels have shot up dramatically since yesterday as issuers are trying to entice investors back.''
The ECB said today it provided the largest amount ever in a single so-called ``fine-tuning'' operation, exceeding the 69.3 billion euros provided on Sept. 12, 2001, the day after the terror attacks on New York.
Stocks, Treasuries
The announcement added to investor nervousness, pushing Europe's Dow Jones Stoxx 600 Index down 1.9 percent, while the Standard & Poor's 500 Index futures expiring in September lost 20.9 to 1,483.0. U.S. Treasury notes gained for the first time in four days as investors sought the safest assets, cutting yields on two-year notes by 16 basis points, or 0.16 percentage point, to 4.50 percent.
BNP Paribas, France's biggest bank, stopped investors withdrawing from funds with 2 billion euros of assets because it couldn't ``fairly'' value their holdings after concern over U.S. subprime mortgage losses roiled credit markets.
Three-month dollar Libor rose to 5.5 percent from 5.38 percent.
Federal Reserve spokesman David Skidmore declined to comment on the increases in overnight money-market rates.
Wednesday, 8 August 2007
GBPUSD 8th August evening
GBPUSD Positions Up Date:
Close Positions:
1. Sell At 2.0340 +44
2. Sell At 2.0322 +22
3. Sell At 2.0231 -60
=================
Result: +6
Total Trade: +3,299 Pip
Yen Falls as Asian Stocks Gain
Yen Falls as Asian Stocks Gain, Australia Raises Interest Rate
Aug. 8 (Bloomberg) -- The yen fell against the euro as Asian stocks rose and the Federal Reserve said the U.S. economy can withstand mortgage defaults, encouraging investors to buy higher-yielding assets with funds borrowed in Japan.
The currency fell the most against the Australian dollar, a favorite of so-called carry trades, after that nation's central bank raised its benchmark rate to 6.50 percent today. The &cls;Standard and Poor's 500 Index&cle; posted its best two-day gain since 2003 after the Fed said a six-year economic expansion won't be undone by a credit-market slump.
``With stock prices rising, the yen should be weaker,'' said Satoshi Okagawa, head of the foreign-exchange forward trading group at Sumitomo Mitsui Banking Corp. in Tokyo. ``All in the markets are caring about stocks, which represent risk appetite.''
The Japanese yen declined to 163.49 per euro at 1:38 p.m. in Tokyo from 163.25 late in New York yesterday. It also fell to 118.93 against the dollar from 118.83.
The yen dropped against 12 of the 16 most-active currencies as the Morgan Stanley Capital International Asia-Pacific Index of shares rose 0.6 percent. The S&P 500 climbed yesterday as investors took the Fed's statement as a sign turmoil in the credit markets won't limit global growth.
The Australian dollar has gained 0.8 percent versus the yen this month. It rose to 101.83 yen today from 101.57 in New York yesterday. The Reserve Bank of Australia increased its benchmark rate from 6.25 percent, widening the advantage in yield for two- year Australian debt over Japanese government bonds to 5.40 percentage points from 5.37 points on Aug. 6.
New Zealand's dollar, another favorite of the carry trade with a key rate of 8.25 percent, was at 90.46 yen.
`Surprisingly Weak'
Japan's currency also extended this month's losses to 0.8 percent against the euro after machinery orders, a key indicator of corporate spending plans, fell a seasonally adjusted 10.4 percent in June from the previous month. The median of 40 estimates in a Bloomberg News survey was for a 1.1 percent drop.
``The data were surprisingly weak,'' said Masaki Fukui, a senior economist and currency analyst at Mizuho Corporate Bank Ltd. in Tokyo. ``Today's data cannot support the Bank of Japan to raise rates this month. It's yen negative.''
The yen may move between 115 and 120 per dollar in one month, Fukui said.
The Bank of Japan will hold a two-day policy meeting starting on Aug. 22. The central bank last increased borrowing costs by 0.25 percentage point in February to 0.5 percent, the lowest among major economies. The benchmark rate is 4 percent in the euro region.
The yield premium investors earn on 10-year U.S. Treasury notes over similar-maturity Japanese bonds widened to 3.05 percentage points from 3.03 points yesterday and 2.90 points at the end of last week.
Subprime Mortgages
Fed policy makers repeated that inflation is still a risk after keeping rates at 5.25 percent. The ``economy seems likely to continue to expand at a moderate pace,'' the rate-setting Federal Open Market Committee said.
Gains in the dollar may be limited by speculation losses on U.S. subprime mortgages will prompt the Fed to lower interest rates this year.
The U.S. currency has fallen 3.6 percent against the yen in the past month on concern housing-market weakness will slow economic growth. Fed Funds futures also show traders increased bets on at least one rate cut by December to 49.5 percent odds from 6 percent a month ago.
``The U.S. subprime problems won't be solved any time soon, as housing prices are still falling,'' said Yuji Kameoka, a senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``This is a continuing correction of the housing market bubble and will keep adversely affecting U.S. consumption,'' pushing down the dollar to 115 yen by year-end.
German Exports
The euro may strengthen on speculation a German report today will show exports rebounded in June, adding to evidence Europe's largest economy is resilient to higher borrowing costs.
Europe's single currency may extend this year's 4 percent gain versus the yen on prospects the European Central Bank will raise interest rates at a faster pace than the Bank of Japan. The yield spread between two-year German and Japanese bonds was 3.29 percentage points today, above the average of 3.13 points in the past year.
``Growth in the euro area is robust,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. ``The ECB is likely to hike in September and perhaps once more this year. It's supportive of the euro,'' which may rise to $1.3770 and 163.75 yen today, he said.
Bernanke Looks
Bernanke Looks Beyond Market Tumult to Focus on Inflation Risks
Aug. 8 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke isn't blinking in his battle against rising prices even as tumult in financial markets threatens to slow growth.
Fed officials said higher inflation is ``the predominant risk'' when they kept their benchmark interest rate at 5.25 percent yesterday. They rebuffed calls for a more balanced assessment that may have presaged a rate cut. In doing so, they also broke with former Chairman Alan Greenspan, who elevated the role of financial market stability in setting policy.
``They see the paramount task as keeping inflation low and keeping inflation expectations anchored,'' said Brian Sack, a former adviser to senior Fed officials on policy strategy who's now an economist at Macroeconomic Advisers LLC in Washington.
Bernanke's unwillingness to budge comes after price increases slowed for four straight months, to the lowest since he took office. The Fed chief emphasizes the institution's forecasts over coming quarters, while Greenspan tended to stress current conditions when markets weakened, enabling rapid shifts in policy.
U.S. stocks lost about $1.26 trillion in market capitalization since benchmark indexes reached records in July as banks restricted credit because of rising defaults on subprime mortgages. Volatility climbed to the highest since April 2003 this week, according to the VIX index, a gauge tied to the S&P 500 index compiled by the Chicago Board Options Exchange.
``The signal from the Fed was unmistakable: turbulent markets, in and of themselves, will not be sufficient to force their hand,'' said Peter Kretzmer, senior economist at Banc of America Securities LLC in New York.
`Baptism of Fire'
The 1987 stock-market crash was Greenspan's ``baptism of Fire,'' he said at a New York exposition June 1. While some advised him to wait to see the impact on the economy from a 23 percent slide in the Dow Jones Industrial Average, Greenspan said he concluded quickly that the U.S. was on the edge of ``fairly pronounced dangerous positions.'' He then said he would provide ``liquidity'' to the banking system.
In 1998, the Greenspan Fed lowered the benchmark rate three times as emerging market turmoil roiled Wall Street, and raised it on three occasions the next year. In January 2001, the Fed enacted an emergency rate cut just seven weeks after saying the risks were ``weighted mainly toward'' inflation pressures.
Bernanke, 53, and his colleagues have kept the federal funds rate unchanged for a year, the longest freeze in nine years.
Futures Trading
Traders yesterday reduced their expectations for a rate cut in the coming two months. Investors see a 58 percent chance the Fed will lower its benchmark rate by the end of October, down from 84 percent the previous day, based on futures on the Chicago Board of Trade. A reduction by year's end is still a certainty, futures indicate.
Unlike Greenspan, Bernanke isn't going to provide short- term financing to help ease a slump in asset prices, said Joe Carson, director of research at Alliance Bernstein LP in New York. It's too early to know if Bernanke's strategy will be successful, he said.
``Wall Street is looking for an easy solution to these problems,'' Carson said. Monetary ``policy is not going to help out.''
At least 70 mortgage firms have halted operations, gone bankrupt or sought buyers since the start of 2006. Large banks are also cutting back on their appetite for risky financings of corporate takeovers. At Bear Stearns Cos., two hedge funds failed in June and the firm's chief financial officer said Aug. 3 that the fixed-income market is in the worst shape in 22 years.
The Fed said yesterday that it still expects a ``moderate'' expansion. Policy makers added that ``solid growth in employment and incomes and a robust global economy'' will help.
Growth Rate
The government said on July 27 that the U.S. economy expanded at a 3.4 percent annual pace in the second quarter, the fastest in more than a year, after a revised gain of 0.6 percent in the three months ending March.
Economists and Fed officials anticipate a slacker expansion in the second half. For the year, Fed governors and presidents expect growth, on average, of about 2.25 percent to 2.5 percent, Bernanke told Congress last month. The projections are about a quarter-point below the previous round in February, mainly because of the weakness in homebuilding.
Price increases have slowed for four straight months under the Fed's preferred gauge, which excludes food and energy costs. The core personal consumption expenditures price index rose 1.9 percent in June after a revised 2 percent gain in May, the Commerce Department said July 31.
Financial volatility did change Fed officials' sense of the risk around the forecast. ``Downside risks have increased somewhat,'' the statement said.
``It is a step away from tightening, it is not a step toward easing,'' said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. ``Greenspan was more of a tinkerer. Bernanke is `stay the course until you tell me not to.' And the `you' is not the bond market, it is the economy.''
GBPJPY 8th August
Close Positions:
GBPJPY
1. Sell at 240.58 + 15 Pip
2. Sell at 240.41 + 2 Pip
====================
Result: + 17 Pip
Open Position:
GBPJPY
1.Buy at 240.32
Position Update 8th August
Positions Up date:
GBPJPY
1. Sell at 240.55
2. Sell at 240.41
GBPUSD
1. Sell at 2.0340
2. Sell at 2.0322
3. Sell at 2.0231
Total Trade Result : + 3,293 Pip
Tuesday, 7 August 2007
Fed Lack of Transparency
Fed Lack of Transparency Keeps Traders in Dark as Stocks Drop
Aug. 7 (Bloomberg) -- The Federal Reserve trails other central banks in openness, hamstringing it in times of market turmoil, and may not catch up even if Chairman Ben S. Bernanke's campaign to improve communications succeeds.
Fed policy makers, who meet in Washington today to set interest rates, are nearing the end of more than a year of talks on how to increase transparency. The Fed is behind five of eight major counterparts, including the European Central Bank and Bank of England, according to a paper by two European economists.
The differences were stark last week, when ECB President Jean-Claude Trichet hit the airwaves and held an unscheduled press conference while colleagues spoke to newspapers amid the biggest global stock sell-off since 2003. Bernanke was invisible, and because the Fed's top officials are so tightly scripted, any break from tradition may have panicked as many investors as it reassured. The statement today may at most contain brief comments on heightened economic risks, analysts said.
``It's one less degree of freedom,'' said Chuck Lieberman, a former New York Fed economist who's now chief investment officer of Advisors Capital Management LLC in Paramus, New Jersey. ``The very act of providing some assurance might scare the market'' because it would be unusual, he said.
The Federal Open Market Committee will keep its benchmark rate at 5.25 percent for the ninth straight meeting, according to all 96 economists surveyed by Bloomberg News. The statement is scheduled for 2:15 p.m. in Washington.
Still Trailing
While European, Japanese and U.K. central bankers hold press conferences and conduct on-the-record interviews, Bernanke's efforts are unlikely to produce that degree of transparency, Fed watchers said. America's central bank hasn't set a date for concluding the communications review.
Any changes will be ``pretty minor,'' said Adam Posen, a former Fed economist who has collaborated with Bernanke. The Fed may increase the frequency of and information contained in its economic forecasts, falling short of adopting an explicit inflation goal, economists including Posen predict.
Kansas City Fed President Thomas Hoenig said in May that ``advancing how we use the minutes'' of Fed meetings was one of the options under discussion. A conclusion is ``a ways off,'' he said May 15 in Denver.
Beginning in 1994, the Fed under former chairman Alan Greenspan started announcing rate decisions and issuing statements explaining them. That was copied by other central banks, including in Australia and New Zealand.
The Fed's counterparts have kept innovating and now the U.S. central bank is the only one among the Group of Seven nations that doesn't hold regular press conferences. It has given no indication the practice is under consideration.
`A Ways to Go'
``The Fed over the last five to seven years has been moving in the right direction but still has a ways to go,'' said Tom Schlesinger, who researches the Fed as executive director of the Financial Markets Center in Howardsville, Virginia.
Openness such as the ECB showed last week would be unthinkable at the Fed, where the chairman and vice chairman tend to restrict public availability to appearances that are scheduled weeks or months in advance.
The Fed's relative lack of clarity is a challenge because, unlike the ECB, it's charged with achieving full employment as well as stable prices, said Sylvester Eijffinger, a professor at Tilburg University in the Netherlands and co-author of the study ranking central banks. It ``leads to some confusion in terms of communication,'' he said.
No Cure-All
Transparency isn't a cure-all. Wim Duisenberg, Trichet's predecessor, was faulted for confusing markets with mixed messages on interest rates and contributing to a slump in the euro. And Bernanke himself tripped up with off-the-cuff remarks to a reporter in April last year.
Bernanke, 53, told CNBC reporter Maria Bartiromo at a Washington party markets had misinterpreted remarks to Congress that had suggested the Fed was finished raising rates. Bonds tumbled when CNBC reported the conversation May 1, 2006. Bernanke later said the incident was a ``lapse in judgment.''
Public comments by top Fed officials can help soothe investors. By chance, Bernanke was scheduled to testify before Congress on Feb. 28, a day after the biggest one-day slide in the Standard & Poor's 500 index in four years.
Soothed Market
Bernanke said then that financial markets were ``working well'' and growth was still likely to accelerate. The S&P 500 rallied 0.6 percent, taking back some of the 3.5 percent drop the previous day.
Last week, the index capped its worst three-week sell-off since February 2003 and the lack of scheduled events meant that this time, investors had no reassuring words from the Fed chief. Neither Bernanke nor Vice Chairman Donald Kohn has spoken in public since July 19, leaving commentary to lower-ranking officials such as Governor Randall Kroszner, who said the ``real economy does not yet seem to be affected.''
``Some sort of statement from the Fed that they stand willing to provide additional liquidity might help confidence,'' said James Nixon, a former forecaster for the ECB and BOE who is now an economist at Societe Generale SA in London. Trichet ``went some way to calm the market.''
Position Update
Close Sell Positions.
Result:
1. Sell 241.90 +86
2. Sell 240.58 -45
===============
Nett: +41
Total Trade: +3,343 Pip
Open Positions:
GBPJPY
1. Buy at 240.98
GBPUSD
1. Sell at 2.0340
2. Sell at 2.0322
Monday, 6 August 2007
Bad of UK Data
Well as News report that I have posted before, seem UK's Manufacturing Production release dropped to its slowest rate in two years.
confirmed close all Buy Position around 2.0344 and also Open Sell at 2.0340
Result:
1. Buy at 2.0298 +40
2. Buy at 2.0294 +44
3. Buy at 2.0252 -12
=================
Total: +72
Result Total +3,302 Pip
Open Positions:
GBPJPY
1. Sell at 241.90 + 260 Pip
2. Sell at 240.58 + 128 Pip
GBPUSD
1. Sell at 2.0340 +40 Pip
UK manufacturing employment growth
UK manufacturing employment growth dropped to its slowest rate in two years, in the three months to July, a survey by the Confederation of British Industry, CBI, revealed, Monday. The survey showed that the growth in demand for goods had eased in the quarter to July. New orders grew for the third successive quarter, though slower than in the previous six months, while manufacturing output growth slowed in the quarter to July. The CBI is the UK''s leading business organization, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. The Regional Trends Survey, conducted by the CBI and Experian, were extracted from the 576 replies to the CBI''s Industrial Trends Survey in July. In the three months to July, fully half of UK manufacturers were working at full capacity, the survey revealed. As a result, job cuts in the manufacturing sector slowed to 5,000, much lower than the average of 30,000 job cuts every quarter since 2003. Four of eleven UK regions actually saw gains in employment. Job losses were heaviest in the West Midlands, London and the South East and the South West. Export growth had slowed down among most of the regions, the report said. Manufacturing costs increased in the quarter to July, reversing an earlier decline, pushed mainly by the high price of oil. However, firms were confident of increasing prices to offset rising costs, the survey found.The Northeast region witnessed robust growth in orders, output, employment and investment intentions while prices for both domestic and exports markets were strong. The metals and engineering industries in the West Midlands region was singled out by the survey for strong performance."The manufacturing sector''s revival is continuing, though the rate of growth has slowed somewhat. With more firms now working flat out than at any time since early 2006, there has been a very welcome effect on jobs," said Doug Godden, head of economic and fiscal policy at the CBI.
Dollar Falls to Four-Month Low Against Yen
Dollar Falls to Four-Month Low Against Yen on Growth Concerns
Aug. 6 (Bloomberg) -- The dollar fell to a four-month low against the yen and traded near a record low against the euro on speculation hedge fund losses and a slowing economy will prompt the Federal Reserve to cut borrowing costs this year.
The currency also declined against the Swiss franc after a weaker-than-forecast U.S. jobs report caused traders to increase bets on lower interest rates as soon as October. The yen climbed versus the New Zealand dollar and the British pound as a slump in Asian stocks pushed investors to repay Japanese currency loans used to purchase higher-yielding assets.
``The dollar will fall further,'' said Koichi Yoshikawa, head of currency trading at BNP Paribas in Tokyo. ``People had funded their investments with yen and Swiss francs under good credit conditions. This money stream is turning around, which means a weaker dollar and a stronger yen.''
The dollar dropped to 117.63 yen at 12:45 p.m. in Tokyo from 118.05 on Aug. 3 and reached 117.19, the weakest since March 29. It weakened to 1.1840 Swiss francs, from 1.1907. The U.S. currency also fell to $1.3816 per euro from $1.3773, close to an all-time low of $1.3852 touched July 24. It may fall to 117 yen today, Yoshikawa said.
Federal Fund futures show traders see an 84 percent chance the Fed will cut its 5.25 percent benchmark rate by October, up from 14 percent a month earlier. The Labor Department said on Aug. 3 that job growth slowed to 92,000 in July, compared with 126,000 in June and the median forecast in a Bloomberg survey of 127,000.
The pace of leveraged buyouts has slowed more than 33 percent since June, data compiled by Bloomberg show. Investors are cutting back on riskier assets such as the loans and bonds that fund LBOs after being burned by losses from U.S. subprime mortgages.
``The subprime problem and concern about the economy damage U.S. credit markets,'' Yoshikawa said.
Carry Trades
Japan's currency got a boost as a 2.7 percent decline in the S&P 500 Index spilled over to Asian stock markets, encouraging investors to pare so-called carry trades. The Morgan Stanley Capital International Asia Pacific Index of shares dropped 1.2 percent.
The yen climbed against 15 of the 16 most-active currencies. Only the Swiss franc, another popular funding currency, gained more. The yen has risen 5.2 percent against the dollar since Bear Stearns Cos. said June 22 two of its hedge funds that made bets on subprime loans collapsed.
Easy to Buy
New Zealand's dollar, a favorite of carry trades because of its 8.25 percent benchmark rate, dropped 0.6 percent to 89.21 yen. Australia's currency, where the key rate is 6.25 percent compared with Japan's 0.5 percent, slid 0.4 percent to 100.54. The pound dropped to 240.20 from 240.95 on Aug. 3.
``It's easy to buy the yen today,'' said Akio Shimizu, chief manager of foreign exchange trading at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. ``The subprime problem means traders will want to avoid risk and buy back the yen.''
Japan's currency may rise to 117 against the dollar and 161.20 per euro today, he said.
Volatility implied by yen currency options expiring in one month with a strike price near the current level rose to 10.45 percent, the highest in 14 months. Traders quote implied volatility, a measure of expected price swings, as part of pricing options.
Higher volatility may discourage carry trades as it exposes these bets to more currency risk. The yen has gained 3.3 percent against the dollar since one-month volatility started rising from 5.725 percent on June 5, the lowest since Bloomberg began compiling the data in 1995.
``We're seeing increased options demand on expectations the dollar will fall more against the yen,'' said Ryousei Ishida, senior vice president of foreign exchange options at Mizuho Corporate Bank Ltd. in Tokyo. ``Volatilities have room to rise further. There's been a lot of negative news out of the U.S.''
Federal Reserve
The dollar fell for a third day against the euro on speculation Fed policy makers will voice concern about slowing economic growth at a meeting tomorrow, where it will probably leave rates unchanged.
``With the subprime woes intensifying, the Fed might make a reference to this in their statement,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``This would fuel Fed rate-cut expectations by year-end. It's negative for the dollar,'' which may decline to $1.3852, a record low, and to 117.20 yen today.
The currency also slid for a second day against the yen as the difference in yield between benchmark two-year U.S. and Japanese bonds narrowed today to 3.42 percentage points, the least in more than two years.
Saturday, 4 August 2007
Latest Result Up Date
Result Up Date From 24th July 2007:
GBPJPY:
+ 2,450
- 20
+ 20
+ 140
--------
+2,590 Pip
Still Open Position
1. sell at 241.90 = +80 Pip
From 25th July 2007
GBPUSD:
+665
- 15
- 10
-------
+640 Pip
Still Open Positions
1.Buy at 2.0298 = +116
2.Buy at 2.0294 = +120
3.Buy at 2.0352 = + 58
-------------------------
Total: = +294
All Trade made + 3,230 Pip
So Far so good. Have a nice trade to all of You.
Prince
Friday, 3 August 2007
GBPJPY 3 Ausgust
Sell New at 241.90 and close all Buy Position.
Result:
1.Buy at 240.55 130 Pip
2.Buy at 240.94 80 Pip
3.Buy at 242.53 -75 Pip
Result Total: 140 Pip
GBP and GBPJPY 3 August
GBP
Add New Buy at 2.0352.
Open Positions:
1.Buy at 2.0298
2.Buy at 2.0294
3.Buy at 2.0352
GBPJPY
Add new Buy at 242.53
Open Positions:
1.Buy at 240.55
2.Buy at 240.94
3.Buy at 242.53
Thursday, 2 August 2007
Yen Strengthens as Sharper Currency Swings Deter Carry Trades
The yen strengthened against the dollar and the euro as sharper swings in exchange rates prompted traders to cut investments in higher-yielding assets paid for by borrowing the Japanese currency.
The yen was the best performer among the 16 most-active currencies against the dollar today as subprime mortgage losses pushed fund managers to pare so-called carry trades. A measure of volatility in dollar-yen reached the highest in five months.
``The currency market remains choppy and driven by sentiment,'' said Gundy Cahyadi, an economist at IDEAglobal in Singapore. ``Chances the high-yielders will rebound in a big way today will be limited.''
The yen climbed to 162.30 versus the euro at 7:50 a.m. in London compared with 162.58 in late New York yesterday. It also advanced to 118.71 against the dollar from 118.96.
Volatility on one-day dollar-yen options reached 19.005 percent today, the highest since March 14, from 12.755 percent yesterday. Rising volatility may discourage carry trades as it implies bets will be exposed to greater exchange-rate fluctuations.
The yen also advanced 0.3 percent against the Australian and New Zealand dollars, popular carry trade currencies. Australia's dollar was at 101.50 yen from 101.80 yen, and New Zealand's dollar was at 90.85 from 91.15 yen.
The Bank of Japan's 0.5 percent benchmark rate compares with 5.25 percent in the U.S., 8.25 percent in New Zealand and 6.25 percent in Australia.
Repatriation Flows
Japanese investors sold 2.1 billion yen in overseas bonds and notes, while buying 47.4 billion yen in foreign short-term securities, the ministry said. Total holdings were cut for a third week, with net sales of 3.4 billion yen.
The currency also gained on speculation Japanese investors are converting income after Italy paid 14 billion euros ($19.1 billion) in coupon and principal on government debt yesterday, according to Societe Generale SA in Tokyo.
The yen has weakened 3.3 percent against the dollar in the past year as the lowest borrowing costs among major economies encouraged investors to borrow in Japan to buy higher-yielding assets.
American International Group Inc., the world's biggest insurer, may be sitting on losses of as much as $2.3 billion from securities backed by subprime mortgages, analysts said. Bear Stearns Cos., the manager of two hedge funds that collapsed last month, blocked investors from pulling money out of a third fund as losses in the credit markets expand.
``Confidence among investors hasn't clearly been restored, as there are still concerns over the subprime issue,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``They're probably looking to scale back carry trades, which may lift the yen'' to 118.40 against the dollar and 161.70 per euro today, he said.
Interest Rates
The euro may be supported by speculation European Central Bank President Jean-Claude Trichet will today signal an interest- rate increase as soon as next month after policy makers keep rates at 4 percent today.
The currency may extend this year's 3.5 percent advance against the dollar as the yield spread between two-year German and U.S. bonds narrowed this week to the least in 2 1/2 years. The British pound may gain for a fourth day as the Bank of England will raise borrowing costs to 6 percent by year-end after holding them at 5.75 percent at today's meeting, a Bloomberg News survey shows.
September Hike
``Trichet is likely to reaffirm expectations of a September rate hike,'' said Masashi Kurabe, currency manager at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. ``The euro may go higher'' to $1.3720 and 163.50 yen today, he said.
The euro traded at $1.3669 from $1.3667 yesterday, and the pound was at $2.0319 from $2.0325.
Interest-rate futures show investors are betting the ECB will lift rates at least once more this year. The implied yield on the December Euribor futures was at 4.49 percent, up from 4.48 percent yesterday. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB key rate since 1999.
The dollar may extend losses on speculation a government report tomorrow will show U.S. companies added fewer jobs in July. The Labor Department will report U.S. employers added 127,000 nonfarm jobs, down from 132,000 a month earlier, according to a Bloomberg News survey of economists. The jobless rate is forecast to stay at 4.5 percent.
``Dollar-bearish sentiment is still prevailing amid concern over U.S. subprime issues,'' said Akihiro Tanaka, a senior dealer in Tokyo at Resona Bank Ltd. ``Jobs data won't help boost the dollar, even though data are better than expected. It rather has a further downside risk.''
The dollar may fall to 118.50 yen today, Tanaka said.
U.K. Pound Little Changed Before Bank of England Rate
U.K. Pound Little Changed Before Bank of England Rate Deci
The pound was little changed before a Bank of England rate-setting meeting at which policy makers are expected to hold borrowing costs at a six-year high.
The U.K. currency held near a three-week low against the dollar as investors shun high-yielding currencies on concern losses on U.S. subprime mortgages will damage global economic growth. The BOE is forecast to leave key rates at 5.75 percent, while interest-rate futures indicate it will raise borrowing costs a quarter percentage point by the end of this year.
``We had a few sluggish U.K. numbers over the last couple of weeks but that in itself won't upset the Bank of England,'' said Paul Robson, a currency strategist at Royal Bank of Scotland Group Plc in London. ``The BOE is widely expected to leave rates on hold.''
Against the euro, the pound traded at 67.29 pence as of 7:24 a.m. in London, from 67.25 late yesterday in New York, and at $2.0311, from $2.0325.
The U.K.'s largest mortgage lender HBOS Plc will release house-price data for July at 8 a.m. in London. Economists surveyed by Bloomberg News forecast the average value of a home rose 0.3 percent, from 0.4 percent the month before.
The implied yield on the December interest-rate futures contract was at 6.17 percent yesterday. The contract settles to the three-month London inter-bank offered rate for the pound, which has averaged about 15 basis points more than the bank's key rate in the past decade.
U.K. bonds closed little changed yesterday. The yield on the 4 percent note maturing September 2016 was 5.20 percent.
Trichet, Poised to Raise Rates, Follows Bundesbank
Trichet, Poised to Raise Rates, Follows Bundesbank
European Central Bank President Jean-Claude Trichet
July 31 (Bloomberg) -- The European Central Bank might be run by a Frenchman; its heart and soul belong to Germany's Bundesbank.
ECB President Jean-Claude Trichet faces political pressure to stop raising interest rates, and some of his own policy makers query the extent of the inflation threat in Europe. Still, investors are betting he'll push borrowing costs higher, upholding the legacy of Germany's central bank, which celebrates its 50th anniversary tomorrow.
``Some ECB council members are sounding more cautious about further rate increases, but I'd still bet on the Bundesbank cabal winning the argument,'' said Charanjeev Chana, an economist at Stone & McCarthy Research Associates in London. ``We still expect rates to rise twice more by the end of the year.''
The Bundesbank's inflation-fighting zeal remains at the heart of European monetary policy even after the bank ceded control of rates to the ECB in 1999. German memories of rampant inflation after World War I, and Adolf Hitler's subsequent rise to power, forged the Bundesbank's resolve to achieve stable prices and made it a role model for central banks across Europe.
``The Bundesbank tradition was completely adopted by the ECB,'' said Klaus Baader, chief European economist at Merrill Lynch & Co. in London. ``And Germany is the biggest economy in the euro zone, which tends to give the Bundesbank president more clout on the ECB council.''
`Hyperinflation'
``Hyperinflation'' gripped Germany in the 1920s after the government printed banknotes to finance World War I and fund reparation payments to the Allies after the country's defeat in 1918.
Prices spiraled out of control and confidence in the Weimar Republic, Germany's first full-fledged democratic system, was undermined. By the end of 1923, prices were doubling every 49 hours, and one U.S. dollar was worth more than a trillion German marks.
``Nothing rendered the German people so embittered, so full of hatred, so ready for Hitler, as inflation,'' former Bundesbank and ECB Chief Economist Otmar Issing said in 2004, quoting Austrian writer Stefan Zweig.
To ensure hyperinflation never returned, the government created the Bundesbank on Aug. 1, 1957. It was charged with ``safeguarding'' the stability of the deutsche mark, which had been established in 1948 and became a bedrock of Germany's economic recovery.
De-Facto Anchor
The mark also became the de-facto anchor to which other European currencies were tied after the collapse in 1971 of the Bretton Woods fixed exchange-rate system.
With the introduction of the euro in 1999, ``there had to be a reason for markets to attach credibility to the ECB,'' said James Nixon, an economist at Societe Generale in London. ``The Bundesbank provided one.''
The ECB adopted the principles that earned the Bundesbank respect. Both argue that price stability is the overriding aim of monetary policy, a stance that contrasts with the U.S. Federal Reserve's dual mandate to both fight inflation and foster job creation.
The ECB, like the Bundesbank, also says its decisions should be independent of government interference and take money-supply developments into account.
Doubts Raised
Those principles are now being questioned as the Frankfurt- based ECB prepares to raise rates for the ninth time since late 2005. The ECB's benchmark is already at 4 percent, a six-year high, and inflation has stayed below the bank's 2 percent ceiling for 11 straight months.
Bank of France Governor Christian Noyer has raised doubts about the accuracy of inflation signals sent by money-supply data, while Portugal's Vitor Constancio has said the appreciating euro may curb any inflation threat.
``This may be viewed as part of the ECB detaching itself from the old Bundesbank line, but the fact that Trichet defended the monetary strategy so strongly sent a very powerful message,'' said Thorsten Polleit, an economist at Barclays Capital in Frankfurt.
Trichet used a speech in June to laud the Bundesbank's ``acceptance of the ultimately monetary nature of inflation,'' and said ignoring money growth would entail ``excessive and unreasonable risks.''
French Attack
Trichet and the Bundesbank have also been united in defending the ECB after French President Nicolas Sarkozy called for governments to have a say in monetary policy.
The ECB's independence is enshrined in law and to question it is ``not acceptable,'' Trichet said. Bundesbank President Axel Weber dismissed Sarkozy's comments as ``noise.''
The Bundesbank has also supplied the ECB with a string of so- called hawks. Weber is the toughest inflation fighter on its 19- member governing council, according to a ``hawkometer'' compiled by Stone & McCarthy. He's topped the index in 10 of the past 14 months. ECB Executive Board member Juergen Stark, a former Bundesbank vice president, regularly rates among the top three.
With oil prices rising and the euro-region economy growing at close to the fastest pace since 2000, Weber and Stark are arguing for higher rates.
``Trichet seems to be listening,'' said Chana. ``The ECB acts pre-emptively to prevent inflation, and that's a Bundesbank trait.''
The ECB will raise its key rate to 4.25 percent in September, according to all 13 economists in a Bloomberg News survey. Some expect the bank to signal the move after its policy meeting on Aug. 2.
For now, the ECB remains driven by a doctrine best summed up by former Bundesbank President Karl Otto Poehl.
``Inflation is like toothpaste,'' he said in 1980. ``Once it's out, it's difficult to get back in again. So the best thing is not to squeeze too hard on the tube.''
Bear, Lehman, Merrill Trade as Junk
Bear, Lehman, Merrill Trade as Junk, Derivatives Show (Update1)
By Caroline Salas
The exterior of the New York Stock Exchange
July 31 (Bloomberg) -- On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.
Bonds of U.S. investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody's Investors Service show.
The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year.
``The market is being driven by fear,'' said Mark Kiesel, who oversees $80 billion of corporate debt at Newport Beach, California-based Pacific Investment Management Co., manager of the world's biggest bond fund.
Credit-default swaps tied to $10 million of bonds sold by Bear Stearns, the second-largest underwriter of mortgage bonds, were quoted as high as $145,000 yesterday, from $30,000 at the start of June, indicating growing investor concerns. The swaps traded today at $85,000, according to broker Phoenix Partners Group in New York.
The contracts, financial instruments based on bonds and used to speculate on the chances of default, imply a rating of Ba1, one level below investment grade and six lower than Bear Stearns' A1 ranking, according to New York-based Moody's.
`Wall of Worry'
Prices of credit-default swaps for Goldman, the biggest investment bank by market value, Merrill, the third largest, and Lehman, the No. 1 mortgage bond underwriter, also equate to a Ba1 rating, data from Moody's credit strategy group show. Bonds of New York-based Goldman and Merrill are rated Aa3, seven levels higher than swaps suggest. Lehman is rated A1, the same as Bear Stearns.
About 1 percent of the thousands of companies followed by Moody's have a gap of more than five levels between their actual and implied rankings, analyst Tony Smith said in a July 19 report titled ``Broker Securities Climb a Wall of Worry.''
Spokesmen for the firms declined to comment or didn't return phone calls. High-yield, or junk, bonds are rated below Baa3 by Moody's and BBB- by Standard & Poor's.
Credit-default swaps are the fastest-growing part of the derivatives market. Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.
Losing Value
Investment-grade bonds of brokerage firms lost 0.47 percent on average since June, while securities with similar ratings returned 0.19 percent, according to Merrill indexes. Finance companies are the biggest part of the corporate bond market, accounting for 40 percent of the $2 trillion of debt outstanding, according to New York-based Morgan Stanley, the second-biggest investment bank by market value.
Investors demand an extra 1.25 percentage points in yield to own the bonds of brokers instead of Treasuries, up from a low of 0.64 percentage point on Jan. 29. The wider spread represents an extra $6 million in annual interest for every $1 billion they borrow.
Lehman sold $1.5 billion of 6 percent notes due in 2012 earlier this month at a price to yield 1 percentage point more than Treasuries with a similar maturity. The company sold five- year debt with a 0.62-percentage-point spread on Jan. 9.
The difference adds up to $5.7 million a year in extra interest. The price of the new securities fell to 99.8 cents on the dollar to yield 1.38 percentage points more than Treasuries yesterday, according to Trace, the bond-price reporting system of the NASD.
Skittish Investors
Investors grew more skittish about the credit markets this month as mortgage defaults increased and at least 40 bond and loan sales faltered. U.S. foreclosures rose 58 percent in the first half of 2007 from a year earlier, as more homeowners fell behind on payments, according to a report yesterday by RealtyTrac Inc., an Irvine, California-based seller of foreclosure data.
Concerns escalated last week after banks including Goldman, Bear Stearns and New York-based JPMorgan Chase & Co., the No. 3 U.S. bank, were left holding $10 billion of loans they provided for the buyout of Chrysler, a unit of Stuttgart, Germany-based DaimlerChrysler AG, by Cerberus Capital Management LP in New York.
JPMorgan was among at least eight banks holding about $10 billion of loans for Nottingham-based Alliance Boots Plc, the U.K.'s biggest pharmacy chain being purchased by Kohlberg Kravis Roberts & Co.
Fewer Cylinders
Financing leveraged buyouts and bundling subprime mortgages and bonds into other securities called collateralized debt obligations generated about $21 billion in fees last year, data compiled by Freeman & Co., Thomson Financial and JPMorgan Chase show.
``The brokers were hitting on all cylinders,'' said Chuck Moon, who manages $30 billion as head of investment grade credit at Hartford, Connecticut-based Hartford Investment Management Co. ``Now there are a couple of cylinders in question.''
Bond and credit-default swap prices suggest Wall Street firms are no safer for debt investors than companies teetering on the edge of investment grade, including mining company Freeport- McMoRan Copper & Gold Inc. in Phoenix and Stamford, Connecticut- based copy machine maker Xerox Corp.
Pimco Buys
Credit-default swaps tied to $10 million of Freeport's bonds cost about $115,000 and those linked to Xerox's debt trade at $96,000, according to CMA Datavision. Xerox bonds are rated Baa3 by Moody's and BBB- by S&P. Freeport's are ranked Ba3 by Moody's and BB+ by S&P.
That may be a signal to buy, said Moon. Bonds of brokers are ``attractive'' because yields have widened so much compared with Treasuries, he said, declining to comment on whether he's adding them.
The growth in credit-default swaps allows finance companies to hedge more of their risks than a decade ago, Moon said. ``I don't think it's a disaster because, quite frankly, the institutions have become more sophisticated about their risk management practices.''
Pimco bought bonds of banks and brokers in the past two weeks, expecting them to sustain earnings growth and benefit from global mergers and acquisitions, Kiesel said. Profits at Bear Stearns will rise to $14.53 a share this year and $15.66 in 2008 from $14.27 in 2006, according to the average estimate in a Bloomberg survey of 16 analysts.
Reasons to Buy
Merrill's MOVE Index, a measure of expectations for Treasury volatility, reached 92.6 on July 26, up from a low this year of 51.2 on May 15. Merrill reported a 31 percent rise in second- quarter profit on July 17, while Lehman's earnings rose 27 percent to a record.
``We have been adding, I wouldn't say we've been power- lifting,'' Kiesel said. ``You want to leave some powder dry as you've got an unprecedented amount of high-yield supply that's hitting the market. That's a train coming down the tracks. So stepping in front of that takes some guts.''
Banks have agreed to provide bonds and loans for buyouts including the $25.6 billion takeover of Greenwood Village, Colorado-based credit-card processor First Data Corp. and the $45 billion acquisition of energy company TXU Corp. of Dallas. If they can't find investors for the debt, the banks may have to provide it themselves.
Pimco is still ``underweight'' in corporate debt, meaning it owns a smaller percentage than is contained in their benchmark index. The firm is a unit of Frankfurt-based insurer Allianz SE.
Marking Down
Bear Stearns analyst Ian Jaffe raised his recommendation on broker debt to ``overweight'' from ``underweight'' on July 13 because risk premiums increased and the economy is growing. Jaffe, who is based in New York, declined to comment.
CreditSights Inc., an independent bond-research firm in New York, also says investors should buy broker bonds.
``We've been probably the earliest and biggest critics of the brokers for the proprietary trading risks they're taking and the private-equity lending,'' said David Hendler, the head financial services analyst at CreditSights. ``We're saying the fear and spreads don't make sense.''
Banks face losses from acquisition-related debt because they typically sell the bonds and loans later at a discount. Treasury Secretary Henry Paulson, a former Goldman chairman and chief executive officer, described the credit markets decline as a ``wakeup call'' for banks in a July 26 interview.
`Got a Problem'
``They've got a problem,'' said Daniel Fuss, vice chairman of Loomis Sayles & Co. in Boston, which manages $22 billion in bonds. ``It's pretty bad. They're going to have to go back to the private-equity people'' to renegotiate their lending commitments, he said.
The perception of the risk on Bear Stearns bonds has risen more than its competitors on concerns that a decline in new securities backed by home loans will reduce earnings. Sales of mortgage bonds may tumble by a third to $556 billion in the second half of this year compared with the first six months, Lehman debt strategists said in a July 30 report.
Bear Stearns last month was forced to extend $1.6 billion in credit to one of two hedge funds that collapsed from bad bets on securities backed by mortgages to people with poor or limited credit.
`Fearful Behavior'
``You're getting paid for their concentrated exposure to mortgage risk,'' CreditSight's Hendler said. ``A lot of investors are trying to gauge subprime risk and how it affects their direct exposures. There is a lot of negative, fearful behavior.''
Credit-default swaps tied to $10 million in bonds of Goldman Sachs, the world's most profitable securities firm, rose to a high of $125,000 yesterday, according to Phoenix Partners. The default swaps traded at $69,000 today, Phoenix data show.
``Fundamental credit research does not mean anything at all in this environment,'' said Scott MacDonald, director of research at Aladdin Capital Management in Stamford, Connecticut. ``People are just trying to get out of the way.''
USD Volatility
US Dollar: Volatility Continues to Rise as Equities See another Roller Coaster Ride
August is typically a month where most people expect quiet summer ranges. However this year, even those who have the luxury of enjoying the entire month off may not be sitting pretty. Volatility has rocked the markets and no asset has been spared including stocks, bonds and oil prices. The Dow went from being up close to 100 points to down over 70 before settling back up 150 points. Oil prices also hit fresh all time highs before reversing sharply. This rollercoaster price action pushed the Chicago Board Options Exchanges’ market volatility index or VIX to a 1 year high today. Although it later retraced, the last time we saw the VIX at that level was back in 2006, which was also when we saw the biggest case of carry trade liquidation in 20 years. The drawdown in carry trades at the time was 13 percent, double what we have seen so far. There is no real explanation for the late afternoon recovery in US equities. Instead, hedge funds have reported more losses. Bear Stearns announced today that they have blocked withdrawals from a third hedge fund and there were also reports that Caxton Associates was being forced to cut exposure due to margin calls from JPMorgan Chase and Goldman Sachs. As for economic data, ADP reported much weaker private sector employment, Challenger reported more layoffs while manufacturing growth slowed nationally in the month of July. Even though the ADP number was quite bad, they overshot private sector employment by 50k last month, which suggests that the drop in July could simply be a reversal. The one piece of good news was the rise in pending home sales. After falling by 3.7 percent in May, sales increased by 5 percent to a 3 year high. Unfortunately sales were still below year ago levels and was offset by the fact that mortgage approvals hit a 5 month low, indicating that the housing market has yet to stabilize. There were also rumors today that Beazer homes may have to report bankruptcy. Although denied, we would not be surprised if bankruptcies become the trend. In the meantime, any rebound in the Dow and carry trades will probably have a difficult time recovering even half of its recent losses.
British Pound Rallies into BoE Rate Decision
The Bank of England is expected to leave interest rates on hold tomorrow, but the rally in the British pound over the past few days suggests that some traders may be holding out for a surprise move. Compared to the rest of the world, the UK economy is certainly standing on stronger footing. Today, manufacturing PMI surged to a 3 year high, which comes in sharp contrast to the deterioration in the US ISM index. Output prices hit the highest level in 15 years, indicating that inflation is still a big concern while employment rose to a 3 year high. Even if they do not raise rates, this suggests that Bank of England Governor King will continue to hold onto his hawkish bias when he delivers their Quarterly Inflation report next week.
ECB: No Surprise Press Conference Expected
Despite the volatility in the rest of the foreign exchange market, the Euro traded in a tight range. Slower manufacturing sector growth in Germany and France did not stop the final Eurozone PMI numbers from coming out stronger than expected. This however should have little impact on the ECB’s interest rate decision tomorrow. They are expected to leave rates unchanged at 4.00 percent. There is a slim chance that the central bank could hold a surprise press conference but given the volatility in the global equity markets, we think that this is extremely unlikely. However if they do, this means that inflation is such a big concern that they cannot afford to relax. It would also signal that they fully plan on raising interest rates when they return from their holidays in September. Alternatively, if they do not hold a press conference, then that could mean another rate hike will not come until October.
Canadian, Australian, New Zealand Dollars Holds Onto Gains
The Canadian, Australian and New Zealand dollars all rebounded strongly today. The CAD rallied throughout the European and US trading session despite the reversal in oil prices. Most of this movement was related to flow since there was no economic data released and comments from Finance Minister Flaherty last night was bearish. He said Canada was seeing a little spill over from the US sub-prime mortgage crisis. The Australian and New Zealand dollars are also stronger thanks to the sharp increase in Australian retail sales last month and a nice rise in the manufacturing PMI index. Originally expected to increase by 1.0 percent, sales rose 1.4 percent. The Australian trade deficit however came under the weight of the stronger Aussie as exports decreased while imports increased. There are no further releases from Canada, Australia, and New Zealand until Friday.
Short Term Reversal in the Yen Crosses
The Yen crosses reversed sharply on the back of the rebound in the Dow. The biggest winners were CAD/JPY, NZD/JPY and AUD/JPY. The long wicks on each of the yen crosses suggest that we could see a further rebound over the next 24 hours especially since the Dow found support today at the same level that it did back in June, which makes this a potential triple bottom. Carry trades thrive in a low volatility environment. Although the VIX hit a 1 year high intraday, it closed up marginally. Bottom pickers need to be careful however since intraday surprises in the Dow have become the norm. All it takes is another major blowup by a hedge fund or mortgage lender and a technically sound scenario could become completely invalidated. Keep watching the Dow in the meantime since the Yen crosses are moving in lockstep with the equity index. For a clue on how the US market could behave, watch Asian stocks tonight.
British Poun Rallies
British Pound Rallies into BoE Rate Decision
The Bank of England is expected to leave interest rates on hold tomorrow, but the rally in the British pound over the past few days suggests that some traders may be holding out for a surprise move. Compared to the rest of the world, the UK economy is certainly standing on stronger footing.Today, manufacturing PMI surged to a 3 year high, which comes in sharp contrast to the deterioration in the US ISM index. Output prices hit the highest level in 15 years, indicating that inflation is still a big concern while employment rose to a 3 year high. Even if they do not raise rates, this suggests that Bank of England Governor King will continue to hold onto his hawkish bias when he delivers their Quarterly Inflation report next week.
US Dollar Mixed
Forex - US dollar mixed early in Asian session as new leads awaited
SYDNEY (Thomson Financial) - The US dollar was softer against the yen but firmer against the euro early in Asian trading hours Thursday as financial markets around the world remained focussed on the sub-prime mortgage problems in the US, despite the mild rebound on Wall St Wednesday.The mixed messages from economic data in the US and Europe are leaving traders with little alternative but to sit on the sidelines to wait for stronger new leads or further fallout from US stockmarkets.
At 10.15 am here (0015 GMT), the dollar was at 118.73 yen, down from 118.96 yen in late trading in New York Wednesday. The euro was at 1.3660 dollars, down from 1.3668 dollars in New York.
The greenback had been hurt in New York trading by the latest US ADP employment survey, which showed a gain of just 48,000 in July, possibly indicating a weaker non-farm payrolls report Friday. Commonwealth Bank senior economist Michael Workman said the ADP report was not a reliable indicator of payrolls in recent months and did not include government employment.
The US Institute for Supply Management's manufacturing index fell to 53.8 index points in July from 56.0 in June. Analysts said the survey did not alter the prospect of moderate expansion continuing in the US manufacturing sector.
US pending home sales jumped 5.0 percent in July, the market having expected a drop of 0.5 percent, following the fall of 3.7 percent in June.
'It was the first month in four to record positive growth and provided a welcome break from the continued run of excruciatingly weak US housing data of late, amid ongoing bad news on the sub-prime front,' Workman said.
'The July upside in pending sales signals the prospect of a rebound in existing home sales in July after three consecutive monthly falls.'
Comments by US Treasury Secretary Henry Paulson also supported the greenback. He said the US domestic economy was strong enough to weather the recent sell-offs in financial markets.
Look At This Pattern
Look at this picture, what will happen??
Just wait and see......
have a nice trade....
Wednesday, 1 August 2007
Sterling Rebound
Pound reverses gains after strong PMI; Focus on waning risk appetite
LONDON (Thomson Financial) - The pound quickly reversed short-lived gains after an unexpectedly strong UK manufacturing PMI report this morning as the market turned its attention back to credit concerns and the recent sudden drop in risk appetite.The purchasing managers' index on UK manufacturing activity from the Chartered Institute of Purchasing and Supply jumped to a three-year high of 55.7 in July from 54.7 in June, revised up from the previous estimate of 54.3.
The reading was way above the consensus forecast of analysts polled by Thomson Financial News, who had predicted a fall to 53.8.
The pound initially rose to a high of 2.0238 against the dollar just after the data from 2.0221 but soon fell back, and at 10.10 am was trading at 2.0218 usd. The euro meanwhile was trading at 0.6749 stg, still down from 0.6751 just before the PMI data were released but off an earlier low of 0.6743.
'Cable (sterling/dollar) has failed to elicited any benefit from July's much better-than-expected UK manufacturing sector PMI, due to the fall in risk appetite' shown by the fall in equity markets, said Robert Howard at Thomson IFR Markets.
Nevertheless, the strong survey will put a rise in Bank of England interest rates to 6.00 pct in the autumn firmly back on the cards.
'Not that the bond or the forex markets are used to paying much attention to the data in the current environment, but if anything, today's report could rekindle rate hike speculation,' said Jodie Tiller at CIBC Markets.
How Bad Of ADP??
Dollar wobbles as ADP report suggests weak US non-farm payrolls
LONDON (Thomson Financial) - The dollar had a wobble after indications that the crucial US jobs report due Friday will come in weak.In data out this afternoon, the ADP national employment report showed US companies added 48,000 jobs in July, far lower than the 100,000 expected by analysts.
The report excludes government jobs, which rose by 22,000 -- suggesting that non farm payrolls due Friday will still fall short of the 135,000 predicted.
The data led some analysts to revise down their forecasts for Friday's headline figure.
'Considering the ADP's 66 pct track in predicting the direction in private payrolls reported by the US Department of Labor, today's disappointing figure causes us to downgrade our forecast for non-farm payrolls to 80,000 from June's 132,000,' said Ashraf Laidi at CMC Markets.
The ADP report dented the dollar which had otherwise been enjoying a decent performance amid safe haven type bids against a backdrop of rising risk aversion across the board.
Sentiment in wider markets dived after reports of more hedge funds in trouble amid the continuing fall-out in US sub-prime mortgages. To make matters worse, American Home Mortgage Investments said that it could not meet debt service obligations. Shares of the company, which makes mortgages and bundles them into securities, plummeted by over 90 pct. The benchmark DJIA index slumped over 100 points overnight.
'The dollar continues to trade well at times of equity market stress,' said Daniel Katzive at UBS.
The yen meanwhile was well off day highs after the rout on stock markets.
The Japanese unit has been benefiting from increased aversion to risk, which in turn led to an unwinding in carry trades, where players take advantage of low interest rates in the second biggest economy to invest where yields are higher, such as New Zealand and Australia.
'When currency traders are closely watching equities, the intra-day correlation between the rising yen and falling equities is playing an increasingly vital role in repricing risk in forex markets,' said Laidi at CMC Markets.
The Australian and Kiwi dollars were among the biggest losers, while the euro and pound also came under pressure. The Swiss franc, another funding currency for carry trades, also enjoyed good gains while the dollar found fresh safe haven type flows.
'High yield/emerging market currencies have, as would be expected, suffered most heavily, with the dollar catching a bid almost by default,' said Steve Pearson at HBOS.
Elsewhere, the pound got a short-lived boost from unexpectedly strong UK manufacturing PMI report.
The purchasing managers' index on UK manufacturing activity from the Chartered Institute of Purchasing and Supply jumped to a three-year high of 55.7 in July from 54.7 in June, revised up from the previous estimate of 54.3.
The reading was way above the consensus forecast of analysts polled by Thomson Financial News, who had predicted a fall to 53.8.
The strong survey will put a rise in Bank of England interest rates to 6.00 pct in the autumn firmly back on the cards.
'Not that the bond or the forex markets are used to paying much attention to the data in the current environment, but if anything, today's report could rekindle rate hike speculation,' said Jodie Tiller at CIBC Markets.
London 1308 GMT London 0810 GMT
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