Month: June 2012

By Central Bank News

By Central Bank News
    The Financial Stability Board, the global financial reform body that was created by Group of 20 leaders without a formal legal status, does not believe it needs the legitimacy of an international treaty to carry out its work right now, the FSB said in a report to the G20.
    Instead, the FSB, whose legitimacy has been questioned, said it could be given a legal form by creating an association under Swiss law and a draft of the articles should be formulated.
    The FSB, which is widening its steering committee to make it more representative, said it would not levy membership fees but continue to rely on the Bank for International Settlements (BIS) for funding.
    And in a move that should appease critics of its lack of transparency, the FSB said it “should adopt a structured mechanism for public consultation on FSB policy proposals; it should also engage in dialogue with market participants and other stakeholders, including through round-tables, hearings and other appropriate events.”


    Click to read “Report to the G20 Los Cabos Summit on Strengthening FSB Capacity, Resources and Governance.”


    www.CentralBankNews.info

By The Sizemore Letter

The Greek election came and went without much in the way of market reaction.  It would appear that “Mr. Market” is tired of hearing about Greece and has now moved across the Mediterranean to Spain.

But for all the wailing and gnashing of teeth over the country’s finances, even Spain is a relatively minor problem if tackled correctly.  At 69%, Spain’s current debt load as a percentage of GDP is actually lower than that of Germany, France or the United Kingdom.  And even if the planned bank bailout from earlier this month adds another $100 billion, total indebtedness will be roughly in line with these Western European peers.  

Should Spain need a full sovereign bailout due to its short-term funding needs—and it is looking increasingly likely that it will—a Spanish bailout would be affordable under the existing bailout mechanisms in place.  Unless Europe’s leaders are even more inept than the most cynical of us could imagine, it won’t be Spain that derails the European project. 

No, the real crisis that will eventually determine the fate of the European Union is not Spain and it’s certainly not Greece.  It’s Italy.

With a GDP of $2.2 trillion, Italy is the 8^th largest economy in the world, slightly smaller than Brazil but larger than Russia, Canada or India.  But the Italian government bond market is the 3^rd largest in the world, after only the United States and Japan. 

Italy’s outstanding government debt amounts to 120% of GDP, making Italy the most indebted of all industrialized countries save Japan or Greece.  When it comes to spending money they don’t have, it would seem that Italy’s politicians can compete with the best in the world.  And given Italy’s lackluster growth rates of the past two decades, the country’s ability to pay those debts should be called into question.

Spain and Italy are on odd sort of mirror image.  Before the crisis, Spain’s government was considered to be a model of responsibility, and its government debt load was among the lowest in Western Europe.  Spain’s current predicament was not brought on by government spending run amok but by a real estate bubble and bust that wrecked the country’s large banking sector.  In Italy’s case, the private sector is fine.  The country’s banks are, for the most part, in decent health and conservatively financed.  It is wanton government spending that called Italy’s credibility into question.

The issue of timing is also very different.  Spain’s short-term outlook is desperate; the country is struggling to close a yawning budget deficit without killing an economy that is already on life support, but its longer-term outlook is not particularly bad.  In Italy’s case, it is the short-term picture that isn’t particularly bad.  Excluding debt service, the country’s current budget is close to being balanced, and its immediate borrowing needs are modest.  But without growth, Italy’s debts become harder and harder to pay. 

But while we have two very different countries with two very different sets of problem, we have one crisis—a crisis of confidence.

The bond market is indicating a pronounced lack of confidence in Spain and Italy and in the European Union itself, as we can vividly see by the rising bond yields on Spanish and Italian debt.  A couple points should be made about this, however. 

Contrary to popular notion, the “bond market” is not an all-knowing, all-powerful collective intelligence that sifts through the economic data and prices the respective bonds accordingly.  It is a collection of emotional buyers and sellers who react to each other far more than to fundamental data. 

Financial theory would tell you that bond prices change to reflect changes in the underlying fundamentals.  But as any good trader knows, that relationship also goes the other way.  Price movements take on a life of their own and change the fundamentals.  A country that could easily finance its expenses at 4% interest may find it difficult to do so at 6%.  The country thus becomes “riskier” and now requires an even higher interest rate to compensate investors for the risk…which in turn makes the country riskier still.  The predictive power of the market is often no more than self-fulfilling prophecy.

Let’s return to Italy.  Italy was able to amass its gargantuan debts precisely because the bond market priced yields so attractively.    But what the bond market giveth, the bond market taketh away, and now Italian 10-year yields have crept up to crisis levels close to 6%.  In Spain, the yield has crept above 7%.

So, how is this vicious cycle broken?

Frankly, it’s not easy.  You need a “big bazooka” blast to shock the bond market into reverse.  In the case of Europe, you would need either a public commitment from the European Central Bank or one of the bailout facilities to buy as many bonds on the open market as it took to lower yields to a sustainable level. 

Germany has resisted this approach, rightly pointing out that doing so takes away the incentive to cut government spending.  Angela Merkel seems to believe that the only way to convince the problem states of Europe to get their houses in order is to threaten them with bond market oblivion. 

Unfortunately, there are limits to how far this exercise can go, and we are quickly reaching those limits.  Germany needs to commit itself to stabilizing the Eurozone, and it needs to do so quickly.

As bearish as this article might seem, I am actually quite bullish on select European stocks.  The crisis has created some fantastic opportunities to buy Europe’s best multinational blue chips and prices we may never see again. 

I trust that as dense as Europe’s leaders may seem to be at times, they do know better than to cut off their noses to spite their faces.  When faced with the destruction of the Eurozone,  they will do what needs to be done.  Today, this means aggressive bond buying by the ECB and some sort of EU oversight over the national budgets of its member states. 

It will happen…eventually.  In the meantime, we watch and wait.

Related posts:

• Bargain Hunting in Spain

From an Elliott wave perspective, there was a good reason for the June 15 rally

By Elliott Wave International

There were few “fundamental” reasons to be bullish on U.S. stocks on Friday morning (June 15).

If anything, the news that the U.S. unemployment rose in 18 states in May sounded downright bearish. But stocks rallied anyway — for a seemingly unlikely reason, explained the pundits: Because all the bad news lately makes it likely that the Fed will step in again.

(Just as a side note, how many times did the Fed “step in” in 2007-2009 while the DJIA was dropping from over 14,000 to below 6,500? But hey, that’s ancient history, and besides — “it’s different this time,” right?)

From an Elliott wave perspective, there was another reason for the June 15 rally: the S&P 500 had some unfinished technical business on the upside. Here’s what the editor Tom Prindaville wrote on Friday morning in EWI’s U.S. Intraday Stocks Specialty Service (try it free now, during June 14-21 FreeWeek):

S&P 500 (Intraday)
Posted On: Jun 15 2012 9:30AM ET / Jun 15 2012 1:30PM GMT
Last Price: 1331.33

Trade pushed beyond the 1319.74 level yesterday…[which] is significant because it implies that, minimally, the S&P wants to take a closer, more deliberate look at 1338, and the overall proportionally of the recent Elliott wave action backs that up. For today, persistence atop 1319.74 is needed to see the very near-term trend up with a minimum upside target of 1338.32.

The S&P 500 closed trading on June 15 at 1342.84, exceeding the bullish price target U.S. Intraday Stocks Specialty Service gave on Friday morning by 4 points.

Find out where the S&P, NASDAQ and DJIA are likely headed next — FREE Now thru 12 noon on June 21 Try our U.S. Intraday Stocks Specialty Service forecasts of the S&P 500, DJIA and NASDAQ free for a week. No strings attached, no credit card required. Get the details and instant, FREE online access now >>

By TraderVox.com

Tradervox (Dublin) – The loonie has dropped against the US dollar after concerns rose about economic growth in the country is slowing. The country’s exports to the US declined as oil exports dropped last month due to slowing economic recovery in the US, Canada’s largest exporter. The Canadian dollar dropped for the third day as Federal Reserve officials meet to discuss monetary policy where they are expected to extend the twist program.

Dean Popplewell who is the chief strategist at Oanda Corp indicated that the Fed is under pressure to do something proactive otherwise the market will lose risk appetite. At the start of trading today, the Canadian dollar had increased to C$1.0193 but was unable to move beyond the C$1.0200. This will create a triple bottom which has the potential to spur “short-term buying interest” for the US dollar against the loonie. George Davis suggests that this sets up the potential to test the C$1.0268. George Davis is the Chief Technical Analyst RBC Capital Markets in Toronto.

Concerns about Greece exiting the euro zone declined after pro-bailout party won the election; however, concerns about Spain and Italy have continued to dog the market. According to Jeremy Stretch of Imperial Bank of Commerce in London, there are a lot of Canadian data to be released this week which might cause a lot of uncertainty in the direction taken by the USD/CAD pair. There are economists who are predicting that Statistics Canada will provide reports showing a slowing economic growth in the country this week as they release wholesale and retail sales.

It is expected that wholesale sales data will show a decline from 0.4 percent in March to 0.2 percent in April. This has caused the Canadian dollar to decrease against the US dollar by 0.3 percent to CS$1.0243 at the close of business in Toronto.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 19 June 2012, 08:30 EDT

THE U.S. DOLLAR gold price hovered around $1630 an ounce during Tuesday morning’s trading in London – in line with where it ended last week – while stocks and commodities were also broadly flat ahead of the latest Federal Reserve policy meeting.

The silver price traded in a tight range just below $29 an ounce – 1.7% up on Monday’s low.

Over in India, traditionally the world’s biggest gold buying nation, local press report that the Rupee gold price set a fresh record in Delhi Tuesday, as the Rupee fell against the Dollar on international currency markets.

“There has been very light buying from India, but it’s really quiet there,” says one Singapore-based dealer, adding that there has been a pickup in scrap gold bullion sales from Thailand.

“I guess there’s a kind of wait-and-see attitude because there’s a lot of uncertainty in the market.”

“For the moment,” adds Lynette Tan, investment analyst at Phillip Futures in Singapore, “we expect policy decisions from the Fed to influence the gold price more than risk appetite linked to the Euro crisis.” 

The Federal Open Market Committee meets today and tomorrow to decide any changes to US monetary policy.

“We would be quite surprised if we saw no [Fed policy] easing this week,” says a note from Jan Hatzius, chief US economist at Goldman Sachs.

“We believe that an extension of Operation Twist could well be insufficient on its own and could thus be followed by additional easing action before long,” added Hatzius, suggesting the Fed could consider a “sufficiently large program” of mortgage-backed securities purchases.

However, “the agency MBS market might have more trouble accommodating the Federal Reserve this time” says a note from Barclays. The Barclays economists point out that the Fed will be keen to avoid its actions creating “dislocations” in markets, meaning it could include more US Treasury bond buying in any new round of quantitative easing.

Here in Europe, Spain saw its borrowing costs rise to over 5% for one year – up from 1.985% last month – when it auctioned €2.4 billion of 12-Month bills on Tuesday. A further €639 million of 18-Month bills were sold at an average yield of 5.1%, up from 3.3% at the last similar auction.

Benchmark Spanish 10-year yields eased slightly following the auction, but remained above 7% by Tuesday lunchtime in London. 

European leaders announced last week that Spain plans to borrow up to €100 billion from Eurozone rescue funds to finance the restructuring of its banking sector, with stress test results due to be published later this week.

“It is not at all clear whether Spain’s rescue package will help bring about the definitive clean-up of its banking sector,” says Nicholas Spiro, managing director of consultancy Spiro Sovereign Strategy, which specializes in sovereign credit risk.

“Spaniards, like the markets, fear the €100 billion credit line is the prelude to a full bailout accompanied by much stronger conditionality.”

Elsewhere in Europe, investor sentiment in Germany has turned decidedly bearish in recent weeks, according to the widely-followed ZEW Indicator of Economic Sentiment. The indicator has fallen by 27.7 points – the biggest fall since 1998 – from 10.8 last month to -16.9.

The International Monetary Fund announced Monday that the amount of additional funding pledged by governments has risen from $430 billion to $456 billion.

The additional funds “Will be drawn only if they are needed as a second line of defense”, IMF managing director Christine Lagarde said.

Eurozone governments “will take all necessary policy measures to safeguard the integrity and stability of the Euro area, including the functioning of financial markets and breaking the feedback loop between sovereigns and banks”, according to a leaked draft of the communique from the G20 meeting in Mexico, which continued Tuesday.

“Trader concerns are being confounded by the apparent idleness at the G20,” says one trader quoted by the Wall Street Journal.

“What was hoped would be a definitive meeting of the world’s most powerful economies devising a solution to the slowing global growth story, unfortunately looks to be plagued with the same sort of inertia that led Eurozone policy makers to stand by as the crisis mushroomed.”

Here in the UK meantime, consumer price inflation eased to 2.8% last month – down from 3.0% in April – according to consumer price index data published Tuesday. This is the first time CPI inflation has fallen below the Bank of England’s upper tolerance of 3% since 2009.

Across the Atlantic, CME Group, which operates New York’s Comex exchange, has announced plans to allow holders of short-dated gold options to exercise into gold futures positions at expiry, with effect from the start of next month – though CME tells Reuters it has no plans to extend this to longer-dated instruments. Currently, all gold options holders are only able to settle for cash.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Central Bank News

By TraderVox.com

Tradervox (Dublin) – The US dollar fell against the euro and the yen as Federal Reserve commenced on a meeting to discuss the monetary policy as speculation the Fed may change the current monetary policy to accommodate further stimulus measures rose in the market. The euro has continued with its gain as the G20 members meet in Mexico to focus on how to respond to the crisis in Europe. The euro advance has been limited by the enormous debt crisis in the region as Spain’s borrowing cost continues to rise. The Australian dollar also advanced against the US dollar for the fourth day after reports indicated that the recent cut in interest rate by the RBA was as a result of finely balanced discussions.

According to Jefferies & Co. and JPMorgan Chase & Co. the Fed might extend Operation Twist which is supposed to expire this month. However, according to Yuki Sakasasi of Barclays Capital in New York, the mere extension of the Operation Twist Program will disappoint the market as investors are looking for something more aggressive. If this happens, the dollar might gain as investors sell off their risk. The US dollar has continued to decline after results from Greek Election showed that pro-bailout party won the election increasing risk appetite in the market.

The Group of 20 nations’ leaders meeting Los Cabos in Mexico has also initiated speculations that leaders will agree on a coordinated response to the euro crisis.  The IMF has already pledged $456 billion that will be used as “second line of defense” as it seeks to get a better solution to the crisis in Europe.

The dollar has dropped by 0.3 percent against the euro to trade at $1.2613 at the start of the London session after it had declined to as low as $1.2748 yesterday, which is the weakest since May 22. Against the yen, the US dollar dropped by 0.3 percent to exchange at 78.88 yen.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Source: ForexYard

News that pro-austerity political parties won in the Greek election held over the weekend gave the euro a boost against both the USD and JPY during overnight trading yesterday. That being said, ongoing worries regarding the Spanish banking sector outweighed the news out of Greece, and by mid-day trading the common currency had already given up all of its earlier gains. Turning to today, in addition to any developments out of the euro-zone, traders will also want to pay attention to the US Building Permits figure at 12:30 GMT. Should the figure come in below the forecasted level, it could raise expectations that the Fed will move to initiate a new round of quantitative easing, which may turn the dollar bearish.

Economic News

USD – Dollar Benefits from Spanish Banking Worries

The US dollar saw gains against several of its main currency rivals during trading yesterday, as ongoing concerns regarding Spain’s banking sector drove investors to safe-haven assets. In addition, investors remain worried about what the makeup of the new Greek government will be, despite the win of pro-austerity political parties on Sunday. The GBP/USD fell close to 100 pips over the course of the day, eventually reaching as low as 1.5636 by mid-day trading. Against the AUD, the dollar gained more than 60 over the course of European trading. The AUD/USD eventually settled at the 1.0060 level during the afternoon session.

Turning to today, dollar traders will want to pay attention to the US Building Permits figure, set to be released at 12:30 GMT. While analysts are forecasting the figure to come in roughly at the same level as last month’s, traders will want to note that most US indicators have come in below expectations as of late. Should today’s news disappoint, the dollar may give up yesterday’s gains during the afternoon session.

EUR – Spanish Banking Worries Lead to Fresh EUR Losses

After shooting up around 100 pips against both the US dollar and Japanese yen in overnight trading yesterday, the euro proceeded to give back virtually all of its gains over the course of European trading. While the reaction to Greece’s election was largely positive among investors, Spanish debt worries continued to dominate market sentiment which led to the euro’s losses. After reaching as high as 1.2746 during the Asian session, the EUR/USD fell more than 160 pips, eventually hitting 1.2590. The EUR/JPY dropped close to 150 pips during European trading, eventually reaching the 99.30 level.

Turning to today, traders will want to continue monitoring any developments out of the euro-zone, particularly with regards to Spain’s debt issues. In addition, the German ZEW Economic Sentiment, set to be released at 9:00 GMT, may create some volatility for the euro. Analysts are forecasting today’s news to come in well below last month’s figure. If true, it may lead to fears among investors that the euro-zone debt crisis is spreading, which could result in additional euro losses today.

JPY – Safe-Haven JPY Sees Significant Gains

The Japanese yen saw gains across the board yesterday, as euro-zone fears drove investors to safe-haven assets. The AUD/JPY fell close to 100 pips during European trading, eventually reaching as low as 79.31 before staging a mild upward correction later in the day. The pair eventually settled around the 79.60 level. Against the USD, the JPY gained over 40 pips, eventually reaching the 78.85 level during the mid-day session.

Whether or not the yen can maintain its bullish trend today largely depends on news from the euro-zone. Traders will want to pay attention to news out of Spain in particular. Any signs that Spanish bond yields could continue going up may result in increased risk aversion, which will likely help the JPY.

Crude Oil – Crude Oil Tumbles amid Euro-Zone Fears

After opening the week on a positive note due to the election of pro-austerity political parties in Greece, crude oil proceeded to tumble over the course of the day. Analysts attributed oil’s bearish turn Spanish bond yields, which increased to over 7% yesterday. The price of oil slid from a high of $85.49 a barrel to as low as $82.34 in mid-day trading.

Today, oil traders will want to pay attention to any ongoing developments in Spain and Italy. Any negative announcements out of either of the two countries could result in additional losses for oil. Furthermore, if the German ZEW Economic Sentiment figure comes in below expectations, oil could extend its bearish run.

Technical News

EUR/USD

Long term technical indicators are providing mixed signals for this pair. On the one hand, the weekly chart’s MACD/OsMA seems like it is about to form a bullish cross. On the other hand, the daily chart’s Williams Percent Range is in overbought territory, indicating that downward movement could occur. Taking a wait and see approach for this pair may be the best choice.

GBP/USD

The Williams Percent Range on the daily chart is currently in the overbought zone, indicating that downward movement could occur in the near future. In addition, the Slow Stochastic on the same chart seems like it is about to form a bearish cross. Traders will want to pay attention to this indicator. If it forms the cross, it may be a good time to open short positions.

USD/JPY

The Bollinger Bands on the weekly chart are narrowing, indicating that this pair could see a price shift in the coming days. Furthermore, the Williams Percent Range on the same chart is hovering close to the oversold zone. Traders may want to go long in their positions for this pair.

USD/CHF

A bullish cross on the daily chart’s Slow Stochastic indicates that this pair could see an upward correction in the near future. This theory is supported by the Williams Percent Range on the same chart. Going long may be the best choice for this pair.

The Wild Card

EUR/AUD

The daily chart’s Relative Strength Index has dropped into the oversold zone, indicating that an upward correction could occur in the near future. Furthermore, a bullish cross has formed on the same chart’s Slow Stochastic. This may be a good time for forex traders to open long positions ahead of a possible upward correction.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.