Just as I have expected, US stocks were well bidded before and just after the release of the ISM manufacturing and New Home Sales data. The Dow traded as high as +60 following getting stuck in the negative zone (-80 at its lowest) as European stock indices were in a dour mood earlier today.
However, it retraced all gains and went back into the red (-20) at the point of writing, as I expected. But my order to sell at 9660 wasn't touched because it just fell out of the offer price. D*mn the huge spread. I got a feeling we won't close too much in the red today anyways (> -40 pts Dow), as buyers will eventually come into the market on bargain hunting, pushing up prices in this still illiquid market.
Well, its true that with these data, the US appears to be well on the cusp of emergence of recession. But then, so is the Eurozone.
So why the massive stock sell off today? Its because of the suspicion that stock valuations are getting ahead of themselves and that we may not recover as promptly as once thought, given the high unemployment in the US and the EZ. To recover quickly, consumption needs to recover at a good pace but that remains to be seen and u/e and credit flow are the bigger headwinds.
Still, the market is trading on news day after day while waiting for more volume/liquidity to return to the market to push us out of the current trading ranges we're seeing (in FX and stocks).
Have a good day ahead!
Showing posts with label Snippets of the day. Show all posts
Showing posts with label Snippets of the day. Show all posts
Tuesday, September 1, 2009
Tuesday, July 21, 2009
Main Street looks good
The earnings from corporate America so far have been better than expected and the outlook announced by some of these firms add to optimissm that the global economy isn't so bad afterall.
The worst is truly over.
These major firms beat expectations, pushing the stock indices higher pre NY open:
Caterpillar - construction
Coca Cola - consumer
Merck - pharma
Du Pont - chemicals
Whether or not analysts have put the earnings bar too low is one thing (they might have been too much on the conservative side), but at the moment, stock valuation at current prices do look attractive.
Goldman Sachs and some other banks raised their year end target for the S&P 500 to slightly above 1000.That's an additional upside of 4.4% from here (957.05 at print).
It looks like we're leaving the Mar crash well behind.
The worst is truly over.
These major firms beat expectations, pushing the stock indices higher pre NY open:
Caterpillar - construction
Coca Cola - consumer
Merck - pharma
Du Pont - chemicals
Whether or not analysts have put the earnings bar too low is one thing (they might have been too much on the conservative side), but at the moment, stock valuation at current prices do look attractive.
Goldman Sachs and some other banks raised their year end target for the S&P 500 to slightly above 1000.That's an additional upside of 4.4% from here (957.05 at print).
It looks like we're leaving the Mar crash well behind.
Thursday, July 16, 2009
We're slowing down
I don't have to say again what happened in the last 2 days.
Earnings announced thus far have outperformed very well, sending stocks and higher yielding currencies higher against the dollar and yen. If you were long in this market, good for you.
Today, there had been a wet blanket thrown into the mix - the CIT group's impending bankruptcy filing. Talks with government officials broke down, apparently because the company could not find a way to restructure and save itself going forward.
I'd say its politics. Afterall, they let Lehman, GM, Chrysler go, what's more a relatively small company like CIT.
A lender to many small and medium sized businesses, CIT's bankruptcy represents the wider tough credit picture the US economy is facing - which puts a drag on the recovery process.
This is a different problem from that which the bulge bracket investment banks face. The small and medium sized business are the largest group of employers in the US. If these businesses could not get credit, more people will get laid off.
The market mysteriously lost its euphoria. During the asian trade, the Dow traded negative.
Also because I believe the market's 3% surge during last night's trade was also to price in JP Morgan's better than expected Q2 earnings announced just today. True enough, when JPM's news was out, its stock actually fell on profit taking.
From here there are plenty of choppiness to be expected as some big firms have yet to announce earnings.
I'd advise against going too long from here.
Earnings announced thus far have outperformed very well, sending stocks and higher yielding currencies higher against the dollar and yen. If you were long in this market, good for you.
Today, there had been a wet blanket thrown into the mix - the CIT group's impending bankruptcy filing. Talks with government officials broke down, apparently because the company could not find a way to restructure and save itself going forward.
I'd say its politics. Afterall, they let Lehman, GM, Chrysler go, what's more a relatively small company like CIT.
A lender to many small and medium sized businesses, CIT's bankruptcy represents the wider tough credit picture the US economy is facing - which puts a drag on the recovery process.
This is a different problem from that which the bulge bracket investment banks face. The small and medium sized business are the largest group of employers in the US. If these businesses could not get credit, more people will get laid off.
The market mysteriously lost its euphoria. During the asian trade, the Dow traded negative.
Also because I believe the market's 3% surge during last night's trade was also to price in JP Morgan's better than expected Q2 earnings announced just today. True enough, when JPM's news was out, its stock actually fell on profit taking.
From here there are plenty of choppiness to be expected as some big firms have yet to announce earnings.
I'd advise against going too long from here.
Monday, July 13, 2009
Wild swings
What a day to start off the week
During the asian and early europe session, risk aversion was the call of the day as doubts about the global economic recovery came flooding back into the market. GBPUSD, a reasonably correlated currency pair with stocks, fell to as low as 1.6032 from an open near the 1.62 level, a 170 pips fall.
The over 2% fall in the Nikkei 225 started the ball rolling as PM Aso lost in the Tokyo election, which is widely seen as a national poll verdict for the ruling party. It seems the ruling party will be heading out of the government, sooner or later.
USDJPY once crashed to 91.72 (yes again), bringing down the EURJPY and GBPJPY crosses about 100 and 250 pips! at their lowest.
Then came Ms Meredith Whitney, the analyst who once famously predicted that Citi will cut their dividend payout at the onset of the whole credit crisis last year. She appeared on Bloomberg and CNBC interviews and said Goldman Sachs will outperform expectations. That lent support to risk appetite and gave optimissim that the banks are healing.
The Dow traded feebly within the first hour and then surged higher. At print (Spore time 11:44pm) it trades +130 pts. GBPUSD is just 40 pts short of its open, after recovering much of its losses on the day.
The optimissim is good, however, for it to last, more meaningful hard data has to be seen before we can conclude the US, the world's largest consumption market, has the recovery legs.
I think tomorrow's US Advance Retail Sales is an important econ indicator. The market expects an increment of 0.5%.
Q2 earnings are very important to watch this week as well. Goldman Sachs are out tomorrow (14 jul) before the bell and the rest are as follows for this week:
Intel - 14 Jul - after mkt - estimate: +3.5 / share
JP Morgan Chase - 16 Jul - estimate: +0.153 / share
IBM - 17 jul - +2.01 / share
Citi - 17 jul - -0.321 / share
GE - 17 jul - +0.24
BoA - 17 jul - + 0.088
I'd not bet big ahead of these important releases.
During the asian and early europe session, risk aversion was the call of the day as doubts about the global economic recovery came flooding back into the market. GBPUSD, a reasonably correlated currency pair with stocks, fell to as low as 1.6032 from an open near the 1.62 level, a 170 pips fall.
The over 2% fall in the Nikkei 225 started the ball rolling as PM Aso lost in the Tokyo election, which is widely seen as a national poll verdict for the ruling party. It seems the ruling party will be heading out of the government, sooner or later.
USDJPY once crashed to 91.72 (yes again), bringing down the EURJPY and GBPJPY crosses about 100 and 250 pips! at their lowest.
Then came Ms Meredith Whitney, the analyst who once famously predicted that Citi will cut their dividend payout at the onset of the whole credit crisis last year. She appeared on Bloomberg and CNBC interviews and said Goldman Sachs will outperform expectations. That lent support to risk appetite and gave optimissim that the banks are healing.
The Dow traded feebly within the first hour and then surged higher. At print (Spore time 11:44pm) it trades +130 pts. GBPUSD is just 40 pts short of its open, after recovering much of its losses on the day.
The optimissim is good, however, for it to last, more meaningful hard data has to be seen before we can conclude the US, the world's largest consumption market, has the recovery legs.
I think tomorrow's US Advance Retail Sales is an important econ indicator. The market expects an increment of 0.5%.
Q2 earnings are very important to watch this week as well. Goldman Sachs are out tomorrow (14 jul) before the bell and the rest are as follows for this week:
Intel - 14 Jul - after mkt - estimate: +3.5 / share
JP Morgan Chase - 16 Jul - estimate: +0.153 / share
IBM - 17 jul - +2.01 / share
Citi - 17 jul - -0.321 / share
GE - 17 jul - +0.24
BoA - 17 jul - + 0.088
I'd not bet big ahead of these important releases.
Thursday, July 2, 2009
NFP day
Of course the mother of all econ data - the US non farm payroll numbers, which came out much worse at -467k vs expectations for a - 300 plus k reading and killed the market.
US stocks are trading -2%.
Reading into more details, the depressing thing about it is that the service sector lost alot more jobs than in previous months. As the service industry make up a bulk of the world's biggest economy, this is a big hit and will put to rest hopes for a quick rebound in the US economy.
Even the federal government fired more than they hired.
I'd be watching the next few months' service industry sacking rate to gauge the strength of the recovery.
Comparing with fx however, risk aversion flows into the dollar is not as drastic, surprisingly. The Euro and Sterling Pound are trading just under 1% lower against the greenback, compared with close to -2% in stocks. Only the NZD is trading lower by more than 1% against the dollar.
Reason being, the weakening US economy does not bode well for a strong dollar. Also, next week the US Treasury will be issuing close to USD 80 bn worth of treauries, further weakening the fiscal position of the US.
This of course, though is not as high as the record USD 104 bn issue last week, is still a huge auction by any measure. Afterall, its all accumulative, like our own credit card debts.
Going forward, I believe there should be a continuing of dollar buying in the next few days as the market reverberrates from the shock of the NFP fallout. But this would be limited for the reasons mentioned above.
Over the medium term, I see the majors strengthening against the dollar.
Yen looks likely to be the safe haven of choice. Japan afterall sits on massive savings and has surplus supported by investment income. Selling cross yen pairs (e.g. EURJPY, GBPJPY, AUDJPY, NZDJPY) in the event of risk aversion would be ideal.
US stocks are trading -2%.
Reading into more details, the depressing thing about it is that the service sector lost alot more jobs than in previous months. As the service industry make up a bulk of the world's biggest economy, this is a big hit and will put to rest hopes for a quick rebound in the US economy.
Even the federal government fired more than they hired.
I'd be watching the next few months' service industry sacking rate to gauge the strength of the recovery.
Comparing with fx however, risk aversion flows into the dollar is not as drastic, surprisingly. The Euro and Sterling Pound are trading just under 1% lower against the greenback, compared with close to -2% in stocks. Only the NZD is trading lower by more than 1% against the dollar.
Reason being, the weakening US economy does not bode well for a strong dollar. Also, next week the US Treasury will be issuing close to USD 80 bn worth of treauries, further weakening the fiscal position of the US.
This of course, though is not as high as the record USD 104 bn issue last week, is still a huge auction by any measure. Afterall, its all accumulative, like our own credit card debts.
Going forward, I believe there should be a continuing of dollar buying in the next few days as the market reverberrates from the shock of the NFP fallout. But this would be limited for the reasons mentioned above.
Over the medium term, I see the majors strengthening against the dollar.
Yen looks likely to be the safe haven of choice. Japan afterall sits on massive savings and has surplus supported by investment income. Selling cross yen pairs (e.g. EURJPY, GBPJPY, AUDJPY, NZDJPY) in the event of risk aversion would be ideal.
Wednesday, July 1, 2009
Day with fair weather
As mentioned in my previous post, China's PMI, which many expected should surpass expectations, did just that and added some more positivity into the market.
To that, european data was not too shabby as well, helping the majors rally against the dollar, besides JPY.
In the US session, US ISM manufacturing and pending home sales were acceptable as well and pointed to slowing contraction in the economy, lifting stocks.
At print, the Dow is up 100 pts.
I hope you have been long on the higher yielding currencies.
Tomorrow will be a data-full day, including Non Farm Payrolls, expectations are for a -370k reading.
Trading should be rangey ahead of that release.
To that, european data was not too shabby as well, helping the majors rally against the dollar, besides JPY.
In the US session, US ISM manufacturing and pending home sales were acceptable as well and pointed to slowing contraction in the economy, lifting stocks.
At print, the Dow is up 100 pts.
I hope you have been long on the higher yielding currencies.
Tomorrow will be a data-full day, including Non Farm Payrolls, expectations are for a -370k reading.
Trading should be rangey ahead of that release.
Wednesday, June 24, 2009
Euro-easy day
Econ data from the US out today:
1) new home sales poorer than expected as foreclosures keeps supply of homes elevated and prices suppressed, making resale homes more attractive
2) durable goods orders better than expected, turning in a positive number vs a negative one expected - lending hope that the economy will see better capital investments and business spending going forward as the economic decline continues to ease
Stocks initially fell on the release of the first piece of news but recovered to trade about 1% in the positive territory after the release of the second.
I guess the stock market needed a reason to be bought and so 2) was the boost.
In FX however, we have seen some choppiness with the movement of the majors. EURUSD traded higher earlier in the day, touching a high of 1.4139 before retreating back into the 1.40 handle as the ECB manages to lend out a higher than expected amount of funds - to the tune of just Eur 442 bn for one year at the rate of 1%.
This program is unprecendented and is aimed at flooding the banking system with cash so as to improve liquidity and encourage lending. The last time the ECB did this was in Dec 08, the midst of the crisis. Note that the cenbank also said they would not lend at such good terms again.
And the response by the financial sector was better than expected. Eur 300 bn was the initial estimate for the take up. As a bank, I'd say, why not? Its cheap money and I might as well borrow whatever I can first, then think of ways to make a return on it.
However, even as the system is flooded with supply of Euros, it does not mean that the value of the Eur will necessarily fall, as banks are still reluctant to lend to businesses. M3 money supply growth is in fact still decelerating.
Yes forward looking data in the EZ are good, but we will monitor the hard economic data when they are out in the coming weeks, as well as private sector lending to see how much more Euros got into the system.
In Dec when the ECB launched this program, the Eur didn't suffer, and there's no reason for it to now either!
I'd be looking to buy EURUSD on dips as a medium term strategy, playing with the economic growth story and the fed's easy monetary policy.
1) new home sales poorer than expected as foreclosures keeps supply of homes elevated and prices suppressed, making resale homes more attractive
2) durable goods orders better than expected, turning in a positive number vs a negative one expected - lending hope that the economy will see better capital investments and business spending going forward as the economic decline continues to ease
Stocks initially fell on the release of the first piece of news but recovered to trade about 1% in the positive territory after the release of the second.
I guess the stock market needed a reason to be bought and so 2) was the boost.
In FX however, we have seen some choppiness with the movement of the majors. EURUSD traded higher earlier in the day, touching a high of 1.4139 before retreating back into the 1.40 handle as the ECB manages to lend out a higher than expected amount of funds - to the tune of just Eur 442 bn for one year at the rate of 1%.
This program is unprecendented and is aimed at flooding the banking system with cash so as to improve liquidity and encourage lending. The last time the ECB did this was in Dec 08, the midst of the crisis. Note that the cenbank also said they would not lend at such good terms again.
And the response by the financial sector was better than expected. Eur 300 bn was the initial estimate for the take up. As a bank, I'd say, why not? Its cheap money and I might as well borrow whatever I can first, then think of ways to make a return on it.
However, even as the system is flooded with supply of Euros, it does not mean that the value of the Eur will necessarily fall, as banks are still reluctant to lend to businesses. M3 money supply growth is in fact still decelerating.
Yes forward looking data in the EZ are good, but we will monitor the hard economic data when they are out in the coming weeks, as well as private sector lending to see how much more Euros got into the system.
In Dec when the ECB launched this program, the Eur didn't suffer, and there's no reason for it to now either!
I'd be looking to buy EURUSD on dips as a medium term strategy, playing with the economic growth story and the fed's easy monetary policy.
Tuesday, June 23, 2009
The spin around in FX
The early hours in europe trading saw the major currencies trading lower against the dollar as the 'greenshoot' theory of global economic growth was continually thrown into doubt.
FX traded along with tepid movements in risk assets like stocks as the Eur, Gbp and Aud were on the defensive.
However, following the release of the Jun EZ PMI data, which saw a weaker than expected result, the EURUSD surged from just under 1.39 to 1.4088 at print (a whopping 188 pips higher), or 1.64% higher on the day.
Along with it, the other majors are trading positive against the dollar as well.
Funny how the Eurusd turned out because from the PMI data, the services sector in europe is still in the doldrums and Q2 growth is expected to still be poor. Why did Eurusd jump?
I feel today's move is less dependent on the econ data released. Rather, the cenbanks and key option levels could be very well at play here.
The Swiss cenbank SNB may be in the market to keep EURCHF above the psychologically important 1.50 mark so as to keep the swissie more competitive (Spot - 1.5020). This is very much in line with the SNB's recent rhetoric to stay the strength of the safe haven swissie.
Yes no doubt the USDCHF has declined but as all other currencies have gone up against the dollar, the SNB will have to put its attention unto capping the CHF strength against the currencies of other nations it trades much with, namely the Eurozone.
And when the cenbank like the SNB moves, they can usually be quite effective.
With this out of the picture, it feels like another almost directionless day as stocks (the dow) bounce between the positive and negative territories.
Tomorrow is the FOMC announcement. All eyes will be on that.
Right now it also feels that the market is positioning itself for a statement by the fed that they will continue with the loose monetary policy, keeping the dollar under pressure. Hence, the majors are higher. We'll see.
FX traded along with tepid movements in risk assets like stocks as the Eur, Gbp and Aud were on the defensive.
However, following the release of the Jun EZ PMI data, which saw a weaker than expected result, the EURUSD surged from just under 1.39 to 1.4088 at print (a whopping 188 pips higher), or 1.64% higher on the day.
Along with it, the other majors are trading positive against the dollar as well.
Funny how the Eurusd turned out because from the PMI data, the services sector in europe is still in the doldrums and Q2 growth is expected to still be poor. Why did Eurusd jump?
I feel today's move is less dependent on the econ data released. Rather, the cenbanks and key option levels could be very well at play here.
The Swiss cenbank SNB may be in the market to keep EURCHF above the psychologically important 1.50 mark so as to keep the swissie more competitive (Spot - 1.5020). This is very much in line with the SNB's recent rhetoric to stay the strength of the safe haven swissie.
Yes no doubt the USDCHF has declined but as all other currencies have gone up against the dollar, the SNB will have to put its attention unto capping the CHF strength against the currencies of other nations it trades much with, namely the Eurozone.
And when the cenbank like the SNB moves, they can usually be quite effective.
With this out of the picture, it feels like another almost directionless day as stocks (the dow) bounce between the positive and negative territories.
Tomorrow is the FOMC announcement. All eyes will be on that.
Right now it also feels that the market is positioning itself for a statement by the fed that they will continue with the loose monetary policy, keeping the dollar under pressure. Hence, the majors are higher. We'll see.
Monday, June 1, 2009
The rally just doesn't end.
What could have built up to a day of non-event, the market re-wrote the script the moment Europe and London came into the office.
This might have got to do with China's Apr PMI reading which came in better than expected. Also, exports have turned positive for the first time since mid 2008, which means global demand has started to pick up.
The green shoots are taking root. And stocks love that story. Who cares if GM has filed for bankruptcy? The Dow is trading +180 points at print.
The USD was dumped across the board yet again. I can't say which currencies because there are just too many of them. Basically, normalcy is really being priced into the fx market AND the market is expressing concern for inflation for the longer term.
Gold, silver, oil - alternatives of store of value agst the USD have seen really good bids recently. Gold's high today is 988, just USD 12 shy of the 1,000 target.
Next week, we will have the 10 and 30 yr US treasury auctions and success of this is important to the ability of the US government to fund its massive stimulus plans.
If the market cannot absorb the increased supply of treasuries as well as wished, then, expect the dollar to be further pressured on an expectedly weaker US economic recovery. Stocks would have reason to be capped for the moment as well.
For fx this week, we are seeing an increase in non-commercial short dollar contracts, which means more players are riding on the upward trend of the higher yielding currencies against the dollar.
It'll be really interesting to see how far this can go. And it'll take a really brave man to bet against the tide.
This might have got to do with China's Apr PMI reading which came in better than expected. Also, exports have turned positive for the first time since mid 2008, which means global demand has started to pick up.
The green shoots are taking root. And stocks love that story. Who cares if GM has filed for bankruptcy? The Dow is trading +180 points at print.
The USD was dumped across the board yet again. I can't say which currencies because there are just too many of them. Basically, normalcy is really being priced into the fx market AND the market is expressing concern for inflation for the longer term.
Gold, silver, oil - alternatives of store of value agst the USD have seen really good bids recently. Gold's high today is 988, just USD 12 shy of the 1,000 target.
Next week, we will have the 10 and 30 yr US treasury auctions and success of this is important to the ability of the US government to fund its massive stimulus plans.
If the market cannot absorb the increased supply of treasuries as well as wished, then, expect the dollar to be further pressured on an expectedly weaker US economic recovery. Stocks would have reason to be capped for the moment as well.
For fx this week, we are seeing an increase in non-commercial short dollar contracts, which means more players are riding on the upward trend of the higher yielding currencies against the dollar.
It'll be really interesting to see how far this can go. And it'll take a really brave man to bet against the tide.
Wednesday, May 6, 2009
Snippets of the day - Wed 6 May 09
This morning in asian trade, news flashed across the Reuters screen saying that BoA might need USD 34 bn more in capital.
Coming as a surprise, the market promptly sold Dow futures, the Euro and cross yen pairs in a short flight to safety.
The worry of poorly capitalized US banks is the centrefold of the stress test result, which will be officially announced on Thur. If a majority of the 19 major US banks need to raise a lot more capital, then risk aversion will return for sure.
But, for political reasons, I doubt this will be the way the US government will put it across. They'd make it less of a problem than it really is.
After all, the government said no banks will need more public money after this test, and by the experience of the whole crisis, only seriously ill banks need public funds.
Fed Chairman Bernanke also said 'most banks are well capitalized'.
But still, this Thur's announcement should pose as a potential event risk. I won't be taking a position in stocks until I can see where sentiments are heading.
However, the sell off in the morning didn't last as euphoria once again overtook the asian stock markets. Judging from past weeks' statistics, foreign money had been pouring into asian stock markets and this doesn't look like stopping.
Maybe Asia is where growth will recover first.
Most bourses rallied higher impressively.
Coming as a surprise, the market promptly sold Dow futures, the Euro and cross yen pairs in a short flight to safety.
The worry of poorly capitalized US banks is the centrefold of the stress test result, which will be officially announced on Thur. If a majority of the 19 major US banks need to raise a lot more capital, then risk aversion will return for sure.
But, for political reasons, I doubt this will be the way the US government will put it across. They'd make it less of a problem than it really is.
After all, the government said no banks will need more public money after this test, and by the experience of the whole crisis, only seriously ill banks need public funds.
Fed Chairman Bernanke also said 'most banks are well capitalized'.
But still, this Thur's announcement should pose as a potential event risk. I won't be taking a position in stocks until I can see where sentiments are heading.
However, the sell off in the morning didn't last as euphoria once again overtook the asian stock markets. Judging from past weeks' statistics, foreign money had been pouring into asian stock markets and this doesn't look like stopping.
Maybe Asia is where growth will recover first.
Most bourses rallied higher impressively.
Monday, May 4, 2009
Snippets of the day - Mon 04 May 09
The rally just wouldn't quit.
Stocks have been rallying for the past 7 weeks and has surprised even the most bullish investors. Today, the Hang Seng and STI indexes surged more than 5%.
Tokyo is out until Wed for the Golden Week holidays, so forex liquidity is lesser, but that did not stop the Euro and Pound from climbing higher against the dollar on continued stock outperformance.
Both the EURUSD and EURJPY stopped short of somewhere near 100 pips higher from the open. AUDUSD surged to a 7 month high at near 0.74.
However, around GMT 0420 onwards, the rallies took a turn for the worse and eventually gave up all gains hours later as traders took profit. ECB member Weber's statement that the EZ banking system needs more 'cleaning up' and downgrading of EZ growth forecasts by the EC compounded sentiments.
But, I don't think now is the best time to jump right into the carry trades on this correction as we will see announcements from the stress test results, BOE and ECB this week.
Still too much uncertainty.
The ECB might surprise everyone by announcing more than expected QE measures, though I doubt that will happen. What is likely to happy though, are milder measures that include an expansion of the repo agreements etc.
Stocks have been rallying for the past 7 weeks and has surprised even the most bullish investors. Today, the Hang Seng and STI indexes surged more than 5%.
Tokyo is out until Wed for the Golden Week holidays, so forex liquidity is lesser, but that did not stop the Euro and Pound from climbing higher against the dollar on continued stock outperformance.
Both the EURUSD and EURJPY stopped short of somewhere near 100 pips higher from the open. AUDUSD surged to a 7 month high at near 0.74.
However, around GMT 0420 onwards, the rallies took a turn for the worse and eventually gave up all gains hours later as traders took profit. ECB member Weber's statement that the EZ banking system needs more 'cleaning up' and downgrading of EZ growth forecasts by the EC compounded sentiments.
But, I don't think now is the best time to jump right into the carry trades on this correction as we will see announcements from the stress test results, BOE and ECB this week.
Still too much uncertainty.
The ECB might surprise everyone by announcing more than expected QE measures, though I doubt that will happen. What is likely to happy though, are milder measures that include an expansion of the repo agreements etc.
Monday, April 20, 2009
Snippets of the day - Mon 20 Apr 09
Earlier in the Asian trade today, currency movements gave the market a taste of what was to come in the overnight market.
Higher yielding currencies were sold in droves.
At print, the EURUSD lost 96 pips or 0.74%, the GBPUSD an even larger 234 pips or 1.58%.
EURJPY was down 262 pips or 2.03% and the GBPJPY 421 pips or 2.88%.
The Dow is tradding 221 pts or 2.72% lower.
Earlier in the day, UK Investment and Trade minister Davies said that export competitiveness via a cheaper GBP could pull the UK out of the recession, sending the GBPUSD and crosses spiralling lower.
He said the exact same thing on Friday but he was in Hong Kong. Today he is in Singapore.
You could make the same point in two different places, like holding a concert.
Again.. the market reacted. And EURGBP surged higher for the first time in days.
I guess the FX moves today pre-empted the selloff in stocks.
Being in the office staring at the interbank rates, I could almost feel risk aversion rearing its ugly head again. Just a few days ago, the NYSE CEO said the recent stock surge was not sustainable as 'real money' through the likes of pension funds are not yet back in the market.
Perhaps he is right. There will be a further stock correction coming in the next few days if so.
B0A announced better than expected earnings but this was a non-event as the market already priced in the 'good news'.
The mini bull run could very well be over.
Higher yielding currencies were sold in droves.
At print, the EURUSD lost 96 pips or 0.74%, the GBPUSD an even larger 234 pips or 1.58%.
EURJPY was down 262 pips or 2.03% and the GBPJPY 421 pips or 2.88%.
The Dow is tradding 221 pts or 2.72% lower.
Earlier in the day, UK Investment and Trade minister Davies said that export competitiveness via a cheaper GBP could pull the UK out of the recession, sending the GBPUSD and crosses spiralling lower.
He said the exact same thing on Friday but he was in Hong Kong. Today he is in Singapore.
You could make the same point in two different places, like holding a concert.
Again.. the market reacted. And EURGBP surged higher for the first time in days.
I guess the FX moves today pre-empted the selloff in stocks.
Being in the office staring at the interbank rates, I could almost feel risk aversion rearing its ugly head again. Just a few days ago, the NYSE CEO said the recent stock surge was not sustainable as 'real money' through the likes of pension funds are not yet back in the market.
Perhaps he is right. There will be a further stock correction coming in the next few days if so.
B0A announced better than expected earnings but this was a non-event as the market already priced in the 'good news'.
The mini bull run could very well be over.
Tuesday, April 14, 2009
USDSGD blindsiding
Some market players had been blindsided by the MAS' latest monetary guidance released early this morning.
On the back of collapsed exports demand, the market had expected the MAS to devalue the SGD in a more aggresive form, some were even hoping for a path of depreciation of the SGD to help exports (70% of GDP).
However, the MAS' stance was different. Their published statement emphasized their focus on maintaining domestic price stability, and to do that, the SGD is kept at a zero appreciation path and the trading band in which the SGD trades in was re-centred to the current SGD NEER level which they deemed appropriate to keep prices stable.
And as a parting shot at the end of the statement, it says 'there is therefore no undue reason for SGD weakening'.
Upon the news release, USDSGD fell approx 200 pts to 1.4950 from 1.5150 in thirty minutes, clearing all stops along the way.
I got stopped out.
To be fair, the WSJ praised the MAS for taking a more prudent step this time. Even though Singapore's exports have been severely curtailed by the economic crisis, not allowing a sharper depreciation of the keeps investments in Spore more attractive. Afterall, the city state is a fund management hub in S.E. Asia, with USD 800 bn AUM.
Furthermore, competitive devaluation of the currency will not guarantee an increase in exports.
When I have a view on the USDSGD, I'd post something.
On the back of collapsed exports demand, the market had expected the MAS to devalue the SGD in a more aggresive form, some were even hoping for a path of depreciation of the SGD to help exports (70% of GDP).
However, the MAS' stance was different. Their published statement emphasized their focus on maintaining domestic price stability, and to do that, the SGD is kept at a zero appreciation path and the trading band in which the SGD trades in was re-centred to the current SGD NEER level which they deemed appropriate to keep prices stable.
And as a parting shot at the end of the statement, it says 'there is therefore no undue reason for SGD weakening'.
Upon the news release, USDSGD fell approx 200 pts to 1.4950 from 1.5150 in thirty minutes, clearing all stops along the way.
I got stopped out.
To be fair, the WSJ praised the MAS for taking a more prudent step this time. Even though Singapore's exports have been severely curtailed by the economic crisis, not allowing a sharper depreciation of the keeps investments in Spore more attractive. Afterall, the city state is a fund management hub in S.E. Asia, with USD 800 bn AUM.
Furthermore, competitive devaluation of the currency will not guarantee an increase in exports.
When I have a view on the USDSGD, I'd post something.
Wednesday, April 8, 2009
Huge swings in EURJPY & GBPJPY
The 200 pt swings in forex these 2 days have been breathtaking.
I have observed that the Asian trading sessions do tend to extend the sentiments from the US close the previous night.
Take the overnight NY session for example, following the IMF saying that total toxic assets might hit USD 4 trn earlier in the day and Alcoa's poorer than expected Q1 earnings after the close compounding investor sentiment, Dow futures and higher yielding currencies declined.
Then Sydney, Tokyo and Spore opened a few hours later, picked up the ball and kept it rolling in the same direction. Stocks were sold, and crosses like EURJPY and GBPJPY, classic barometers of risk taking, fell about 280 points from high to low. (see chart)
Hang Seng, following the Dow's 2.34% decline, tumbled 3% and Nikkei about 2%.
I have observed that the Asian trading sessions do tend to extend the sentiments from the US close the previous night.
Take the overnight NY session for example, following the IMF saying that total toxic assets might hit USD 4 trn earlier in the day and Alcoa's poorer than expected Q1 earnings after the close compounding investor sentiment, Dow futures and higher yielding currencies declined.
Then Sydney, Tokyo and Spore opened a few hours later, picked up the ball and kept it rolling in the same direction. Stocks were sold, and crosses like EURJPY and GBPJPY, classic barometers of risk taking, fell about 280 points from high to low. (see chart)
Hang Seng, following the Dow's 2.34% decline, tumbled 3% and Nikkei about 2%.
This momentum from the NY to asia trade is actually good for traders who are willing to leave their positions to tag along the 'flow'.
When London came in, there seems to be a magical calm settling into the market. Stock futures recovered in positive territory, and EURJPY & GBPJPY bounced up at least 200 pts from their lows.
The moves are pretty sweet, and when you sense that the market may be oversold, taking the opposite position can be rather rewarding.
When London came in, there seems to be a magical calm settling into the market. Stock futures recovered in positive territory, and EURJPY & GBPJPY bounced up at least 200 pts from their lows.
The moves are pretty sweet, and when you sense that the market may be oversold, taking the opposite position can be rather rewarding.
Tuesday, March 31, 2009
Snippets of the day - Mon 31 Mar 09
The market yesterday saw:
- Pres Obama's warning that GM and Chrysler will have only another 60 days to prove they can be viable or face the possibility of restructuring via bankruptcy protection send stocks lower - with the Dow ending 3.2% lower
- Chrysler is made to pursue a shotgun marriage to Fiat within 30 days with the latter taking no more than a 30% equity stake in Chrysler
- Currency moves were somehow muted during the NY session after higher yielding currencies made losses of over 1% during the asian trading hours
- Even though the EZ Mar Industrial and Consumer Sentiment deteriorated sharply, marking an all time low in the EU Commission Data, and Hungary's sovereign rating was downgraded, the EURUSD recovered in the NY trading session and traded above the support of 1.31
- Needless to say, the EURUSD saw good bids today and now trades above 1.3250. One way street up
- Today, we had Japan's unemployment rate that came in worse than expected at 4.4% vs estimates of 4.2%. USDJPY too, moved one way street up, trading at least 150 pips at print
- Pres Obama's warning that GM and Chrysler will have only another 60 days to prove they can be viable or face the possibility of restructuring via bankruptcy protection send stocks lower - with the Dow ending 3.2% lower
- Chrysler is made to pursue a shotgun marriage to Fiat within 30 days with the latter taking no more than a 30% equity stake in Chrysler
- Currency moves were somehow muted during the NY session after higher yielding currencies made losses of over 1% during the asian trading hours
- Even though the EZ Mar Industrial and Consumer Sentiment deteriorated sharply, marking an all time low in the EU Commission Data, and Hungary's sovereign rating was downgraded, the EURUSD recovered in the NY trading session and traded above the support of 1.31
- Needless to say, the EURUSD saw good bids today and now trades above 1.3250. One way street up
- Today, we had Japan's unemployment rate that came in worse than expected at 4.4% vs estimates of 4.2%. USDJPY too, moved one way street up, trading at least 150 pips at print
Monday, March 23, 2009
The Hoo Haa surrounding Geithner's Toxic Assets Plan
What a boost.
The Dow is up 300 pts at print. The S&P500 is up about 4%.
And it looks like the market likes what they are hearing from Geithner on his Toxic Assets Plan that is aimed at removing bad assets from banks' balance sheets so that they will start lending again.
The plan that may cost up to USD 1 trn is actually not as complicated as it seems.
For friends who don't have the time to read up too much detail on the plan, allow me to attempt to break it down for your understanding.
1. the plan has two parts - one part deals with traditional loans (corporate and consumer loans etc) that are expected to be decline in performance due to the poorer economy and the other part, which was the bain of the whole crisis, deals with securities backed by mortgages, commercial real estate etc.
2. on the part on traditional loans - the Federal Deposit Insurance Corporation or FDIC for short will provide half the capital to private investors who want to purchase these loan assets, with the rest coming from their own coffers of course. The FDIC will also guarantee financing for the investor, if he wants to obtain it, up to 6 times the capital they have put in - this is in effect, a form of leverage.
(as these assets are more transparent, investors like pension funds and insurance companies are encouraged to take part)
3. on the part on securities backed by mortgages and commercial real estate - as many as 5 private asset managers will be given the mandate to raise private capital to buy these assets from the banks.
(I read in the FT it might take up to May '09 for choosing the asset managers so this might take more time to pan out.)
The Treasury will then match the private funds dollar for dollar and too, guarantee financing in the form of debt of up to 100% (notice this as compared to the above is substantially less leverage).
The benefits of the plan that are much touted are as below:
1. Banks' bad assets will be removed
2. The risks are now shared between private investors and the taxpayer instead of just the taxpayer
3. Efficient pricing on the assets comes as private investors are invited to price and bid for the assets - the banks benefit as well
Still confusing? I thought of an analogy for it.
Its like investing in horses, and using money from your super-rich grandfather who would love to see you own a horse farm.
Say you use your own money to invest in ponies, hoping they'd grow into strong horses and make you a return.
Then your grand-dad comes along and offers you cheap loans to buy more ponies and tells you to buy ponies from some farms that he controls.
So the ideal scenario some time down the road is that, your ponies grow up big and strong and you make money, and also you get to pay off your debts to your grandad.
It's supposed to be a win-win situation.
The Dow is up 300 pts at print. The S&P500 is up about 4%.
And it looks like the market likes what they are hearing from Geithner on his Toxic Assets Plan that is aimed at removing bad assets from banks' balance sheets so that they will start lending again.
The plan that may cost up to USD 1 trn is actually not as complicated as it seems.
For friends who don't have the time to read up too much detail on the plan, allow me to attempt to break it down for your understanding.
1. the plan has two parts - one part deals with traditional loans (corporate and consumer loans etc) that are expected to be decline in performance due to the poorer economy and the other part, which was the bain of the whole crisis, deals with securities backed by mortgages, commercial real estate etc.
2. on the part on traditional loans - the Federal Deposit Insurance Corporation or FDIC for short will provide half the capital to private investors who want to purchase these loan assets, with the rest coming from their own coffers of course. The FDIC will also guarantee financing for the investor, if he wants to obtain it, up to 6 times the capital they have put in - this is in effect, a form of leverage.
(as these assets are more transparent, investors like pension funds and insurance companies are encouraged to take part)
3. on the part on securities backed by mortgages and commercial real estate - as many as 5 private asset managers will be given the mandate to raise private capital to buy these assets from the banks.
(I read in the FT it might take up to May '09 for choosing the asset managers so this might take more time to pan out.)
The Treasury will then match the private funds dollar for dollar and too, guarantee financing in the form of debt of up to 100% (notice this as compared to the above is substantially less leverage).
The benefits of the plan that are much touted are as below:
1. Banks' bad assets will be removed
2. The risks are now shared between private investors and the taxpayer instead of just the taxpayer
3. Efficient pricing on the assets comes as private investors are invited to price and bid for the assets - the banks benefit as well
Still confusing? I thought of an analogy for it.
Its like investing in horses, and using money from your super-rich grandfather who would love to see you own a horse farm.
Say you use your own money to invest in ponies, hoping they'd grow into strong horses and make you a return.
Then your grand-dad comes along and offers you cheap loans to buy more ponies and tells you to buy ponies from some farms that he controls.
So the ideal scenario some time down the road is that, your ponies grow up big and strong and you make money, and also you get to pay off your debts to your grandad.
It's supposed to be a win-win situation.
Wednesday, March 18, 2009
Snippets of the day Tue 17 Mar 09
-Positive day overall for trading on NY trade on Tue
-Positive for securitization market, Nissan’s USD 1.3bn TALF eligible auto ABS deal was 4-5 times oversubscribed
- Feb housing starts posted surprise 22.2% jump to 583k units vs 477k in Jan
o From extreme levels however, so take this with a pinch of salt
-Dow higher by 2.5%
-IMF revises down global growth to –0.6% from –0.5% for ’09. US to shrink –2.6%, EZ by 3.2% and Japan –5%
-FX had been rangey
-USDJPY stayed within 98 handle
-German ZEW Investor Index higher than expected
o ECB: ‘first signs of hope seen’
-EURUSD finally pushed higher to close above 1.30
o Positive short term technical indicators for the pair as follows:
§ Chaikin money flow index in +ve territory
§ MACD (short dated) touches +ve territory as well
-Spore Feb NODX fell 23.7% more or less in line with expectations, however USDSGD fell to close under 1.53 in NY trade following EUR strength
-Positive for securitization market, Nissan’s USD 1.3bn TALF eligible auto ABS deal was 4-5 times oversubscribed
- Feb housing starts posted surprise 22.2% jump to 583k units vs 477k in Jan
o From extreme levels however, so take this with a pinch of salt
-Dow higher by 2.5%
-IMF revises down global growth to –0.6% from –0.5% for ’09. US to shrink –2.6%, EZ by 3.2% and Japan –5%
-FX had been rangey
-USDJPY stayed within 98 handle
-German ZEW Investor Index higher than expected
o ECB: ‘first signs of hope seen’
-EURUSD finally pushed higher to close above 1.30
o Positive short term technical indicators for the pair as follows:
§ Chaikin money flow index in +ve territory
§ MACD (short dated) touches +ve territory as well
-Spore Feb NODX fell 23.7% more or less in line with expectations, however USDSGD fell to close under 1.53 in NY trade following EUR strength
Tuesday, March 17, 2009
Snippets of the day - Mon 16 Mar 09
During the NY trading session last night, we saw continued poor economic data in the manufacturing space.
US Feb Industrial Production fell lower than expected while the March Empire Fed State Mfg Index fell to its all time low. The Dow, though closed just 7 pts lower as the market has already discounted such poor economic data results.
News that will actually move the markets these days are extraordinary news e.g. auto-makers, AIG bailouts, level of credit card defaults, CMBS related losses because the stock markets have already priced in an extreme scenario.
With regards to forex, we saw yesterday that the US TICs data showed a surprise reversal in capital flows in the US in Jan 09. There had been an outflow of USD 43 bn from the US vs a USD 34.7bn inflow in Dec 08.
For the first time in 6 months, foreigners actually sold US corporates and Americans bought foreign bonds.
Indeed, private investors sold more T-bills than they bought, ending months of USD repatriation.
The safe haven demand for the USD had been curtailed as investors have started to seek riskier assets elsewhere. Recent price movement of the USD also showed the Dollar Index failing to make new highs.
The USD will face further weakening if the above mentioned outflows continue to persist going forward.
Watch this space.
US Feb Industrial Production fell lower than expected while the March Empire Fed State Mfg Index fell to its all time low. The Dow, though closed just 7 pts lower as the market has already discounted such poor economic data results.
News that will actually move the markets these days are extraordinary news e.g. auto-makers, AIG bailouts, level of credit card defaults, CMBS related losses because the stock markets have already priced in an extreme scenario.
With regards to forex, we saw yesterday that the US TICs data showed a surprise reversal in capital flows in the US in Jan 09. There had been an outflow of USD 43 bn from the US vs a USD 34.7bn inflow in Dec 08.
For the first time in 6 months, foreigners actually sold US corporates and Americans bought foreign bonds.
Indeed, private investors sold more T-bills than they bought, ending months of USD repatriation.
The safe haven demand for the USD had been curtailed as investors have started to seek riskier assets elsewhere. Recent price movement of the USD also showed the Dollar Index failing to make new highs.
The USD will face further weakening if the above mentioned outflows continue to persist going forward.
Watch this space.
Tuesday, February 24, 2009
Snippets of the day - 23 Feb 09
- On the bank aid plan, which now is entitled 'Capital Assistance Program', US government officials will implement the stress tests starting from 25 Feb 09.
- In response to speculation on nationalization of Citi and BOA in the Wall Street Journal yesterday, government officials rejected that saying previous TARP injections into the banks will only be converted into common equity only as needed to keep banks well capitalized.
- CNBC reported yesterday that AIG is expected to post USD60bn in write downs on assets including commercial real estate - and that AIG will meet government officials this Sunday to request for aid, causing a sharp sell off in the stock markets.
** I think massive commercial real estate defaults is really going to be the next shoe to drop. The US government will have to pay close attention to this and support the CMBS market so as to ensure all their previous efforts to save the financial sector will be successful **
- The Dow and S&P500 both closed more than 3.4% lower on Mon 23 Feb, now trading at Oct '07 levels.
- USDJPY touched a high of 94.95 yesterday as Japanese non bank lender SCFG filed for bankruptcy as investors fled to safe haven USD.
- EURUSD's recovery to 1.29 in London trade was shortlived as ECB Barroso, in response to media speculation, says that there's 'no chance' of joint bond issues by richer nations to aid financially weaker states. Austria's AAA rating being scrutinized also compounded the EUR and the pair closed lower in the 1.26 handle.
- Meanwhile, GBPUSD was traded higher into the 1.44 handle on announcements that nationalized Northern Rock will resume mortgage lending in '09.
- In response to speculation on nationalization of Citi and BOA in the Wall Street Journal yesterday, government officials rejected that saying previous TARP injections into the banks will only be converted into common equity only as needed to keep banks well capitalized.
- CNBC reported yesterday that AIG is expected to post USD60bn in write downs on assets including commercial real estate - and that AIG will meet government officials this Sunday to request for aid, causing a sharp sell off in the stock markets.
** I think massive commercial real estate defaults is really going to be the next shoe to drop. The US government will have to pay close attention to this and support the CMBS market so as to ensure all their previous efforts to save the financial sector will be successful **
- The Dow and S&P500 both closed more than 3.4% lower on Mon 23 Feb, now trading at Oct '07 levels.
- USDJPY touched a high of 94.95 yesterday as Japanese non bank lender SCFG filed for bankruptcy as investors fled to safe haven USD.
- EURUSD's recovery to 1.29 in London trade was shortlived as ECB Barroso, in response to media speculation, says that there's 'no chance' of joint bond issues by richer nations to aid financially weaker states. Austria's AAA rating being scrutinized also compounded the EUR and the pair closed lower in the 1.26 handle.
- Meanwhile, GBPUSD was traded higher into the 1.44 handle on announcements that nationalized Northern Rock will resume mortgage lending in '09.
Monday, February 23, 2009
Snippets of the day - 20 Feb 09 Fri
- Announced today in asian trade -one of Japan's listed non bank lender FCSG filed for bankruptcy under the weight of USD 3 bn debt on bad loans to small and medium companies. This is the tenth listed co bankruptcy filing so far this year.
As we witness Japan's economy slamming into a wall, USDJPY shook up and rocketed to as high as 94.93 from 93 in asian trade as investors dumped the JPY for safe haven USD.
- today we also learnt of how terrified the stock market is of nationalisation - more specifically, the US government buying up all of and owning Citigroup and Bank of America. as news of state ownership surfaced on last Friday's NY trading, stocks were dumped like hot potatoes.
the Dow closed just 100 pts lower las Friday, after it had been trading more than 200 pts lower on the day - soothed by statements from the white house saying they think 'banks in private hands are the correct way to go'
- nationalisation is scary because it wipes out shareholder value and effectively only promises creditors residual ownership of the firm or any returns when and if it does happens. fortunately for the market, obama's officials later came out to say they do not believe in a permanent nationalisation - that breathed some hope into the market
nonetheless, senator Dodd announced; even if there were state ownership of banks, it would be temporary - hence he hinted that at this stage, it cannot be ruled out.
- then in asian trading today, wsj reported that the US government might convert the preferred shares of BoA and Citi into common equity, this piece of news lent the markets a boost.
why?
even though this dilutes common stock, it allows the common shareholders to continue to have ownership of the banks (resulting in better shareholder value, or whatever is left of it) as compared to total nationalisation.
to do this also will improve the banks' TCE - a more conservative measure of a bank's health compared with Tier 1 ratios - and that will put the banks in a better position for the stress tests for Geithner's bank aid plan in the days later.
- the forex market reacted strongly.
stocks traded a tad higher in asian-london trade.
EURUSD surged to a high of 1.299 in london trading (but was sold off to 1.2720 at the time of writing).
GBPUSD traded up to 1.466 (1.4532 at writing).
- however, the Dow is trading 90 pts lower right now as i write - i think there is still plenty of uncertainty in the market at the moment. and until we hear of more concrete steps by the US government to steady the financial ark in a big way, investors are sick of holding on to risky assets and hoping for the rain to stop.
Dow looks to drop through last Nov lows.
As we witness Japan's economy slamming into a wall, USDJPY shook up and rocketed to as high as 94.93 from 93 in asian trade as investors dumped the JPY for safe haven USD.
- today we also learnt of how terrified the stock market is of nationalisation - more specifically, the US government buying up all of and owning Citigroup and Bank of America. as news of state ownership surfaced on last Friday's NY trading, stocks were dumped like hot potatoes.
the Dow closed just 100 pts lower las Friday, after it had been trading more than 200 pts lower on the day - soothed by statements from the white house saying they think 'banks in private hands are the correct way to go'
- nationalisation is scary because it wipes out shareholder value and effectively only promises creditors residual ownership of the firm or any returns when and if it does happens. fortunately for the market, obama's officials later came out to say they do not believe in a permanent nationalisation - that breathed some hope into the market
nonetheless, senator Dodd announced; even if there were state ownership of banks, it would be temporary - hence he hinted that at this stage, it cannot be ruled out.
- then in asian trading today, wsj reported that the US government might convert the preferred shares of BoA and Citi into common equity, this piece of news lent the markets a boost.
why?
even though this dilutes common stock, it allows the common shareholders to continue to have ownership of the banks (resulting in better shareholder value, or whatever is left of it) as compared to total nationalisation.
to do this also will improve the banks' TCE - a more conservative measure of a bank's health compared with Tier 1 ratios - and that will put the banks in a better position for the stress tests for Geithner's bank aid plan in the days later.
- the forex market reacted strongly.
stocks traded a tad higher in asian-london trade.
EURUSD surged to a high of 1.299 in london trading (but was sold off to 1.2720 at the time of writing).
GBPUSD traded up to 1.466 (1.4532 at writing).
- however, the Dow is trading 90 pts lower right now as i write - i think there is still plenty of uncertainty in the market at the moment. and until we hear of more concrete steps by the US government to steady the financial ark in a big way, investors are sick of holding on to risky assets and hoping for the rain to stop.
Dow looks to drop through last Nov lows.
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