Month: May 2013

By MoneyMorning.com.au

Well, it looks like the major financial institutions can’t learn a lesson. They’re neck deep in yet another financial scandal of global proportions.

U.S. and international securities regulators investigating manipulation of LIBOR, the world’s most important set of benchmark interest rates, have uncovered another price-rigging scheme, this one in the $379 trillion market for interest rate swaps.

$379 Trillion, not Billion. Trillion.

The Commodity Futures Trading Commission (CFTC) has already issued subpoenas to Wall Street’s biggest banks and is interviewing a dozen former and current brokers from the Jersey City, NJ, offices of ICAP Plc.

For investors in the big banks, new revelations may put an end to the upward push to the groups’ stock prices, whose earnings of late have been helped by reductions in reserves meant as a cushion against future asset hits and litigation expenses.

Blackbeard’s Legacy

According to a former broker from London-based ICAP’s Jersey City swap desk, nicknamed ‘Treasure Island’ for the huge commissions and pay packages traders there are accustomed to, brokers routinely manipulated prices on behalf of bank clients to benefit bank trading desks.

On the other side of the banks’ trades are tens of thousands of counterparties who may have lost hundreds of billions of dollars as a result of having to pay more interest, or may have received less interest, on swaps whose prices were manipulated.

ICAP, formerly Intercapital Brokers, initially hit regulators’ radar as part of the LIBOR scandal.

According to the July 7th, 2012 print edition of the Economist,

‘Court documents filed by Canada’s Competition Bureau have also aired allegations by traders at one unnamed bank, which has applied for immunity, that it had tried to influence some LIBOR rates in cooperation with some employees of Citigroup, Deutsche Bank, HSBC, ICAP, JPMorgan Chase and RBS.’

Far from being in a shady corner in the world of derivatives, interest rate swaps are a mainstream financing tool used by tens of thousands of corporate treasurers worldwide.

Interest rate swap prices are used to set the value of over $550 billion of commercial real estate collateralized bonds and are used to calculate pension annuity values and benefits.

Big Banks in Big Trouble, Again?

Mega-banks primarily facilitate interest rate swaps by initially taking the other side of customers’ trades and are responsible for establishing pricing of these instruments in conjunction with a handful of brokers.

Similarly to how LIBOR is calculated, the ISDAFIX, the benchmark series of rates used to price interest rate swaps for U.S. dollar denominated swaps, is convened by a ‘panel’ of banks.

The panel, according to the International Swaps and Derivatives Association consists of: Bank of America Corp., Barclays, BNP Paribas SA, Citigroup Inc., Credit Suisse AG, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Mizuho Financial Group Inc., Morgan Stanley, Nomura Holdings Inc., Royal Bank of Scotland, UBS and Wells Fargo & Co.

The banks submit their quotes for a range of maturities to ICAP through a secure screen connection. ICAP then forwards those data points to Thompson Reuters, who calculates the actual swap rates. Rates are then disseminated to over 6,000 viewers.

An Easy Con in an Era of Regulation

Manipulation of rate pricing is easy. ICAP posts rates, supposedly based on transactions and bid and offer quotes it receives and enters manually into what’s known as the 19901 screen (named for the Reuters screen page number).

Banks don’t have to submit their own rates as part of the panel; they can use the suggested rates ICAP posts. Or they submit their own rates to ICAP to be forwarded to Thompson Reuters who calculates the final numbers.

ICAP sits in the middle, entering by-hand prices and rates from the transactions that occur through their brokerage desk, which average a staggering $1.4 trillion a day.

Not only can banks ask ICAP brokers to post whatever quote benefits the bank’s internal trading book, whether it’s to affect a positive mark-to-market closing price for accounting and profit and loss (bonus) calculations, or manipulate an entry price on a new trade with a counterparty, they allegedly ask ICAP brokers to delay entry of actual transactions until after ISDAFIX rates are disseminated.

The delay can easily create a beneficial entry price on a trade that would otherwise be priced based on fresh data. Manipulation of prices and rates has huge profit and loss and mark-to-market implications in terms of capital reserve ratios and other bank balance sheet metrics.

Of course, these allegations have yet to become indictments, and nothing may come out of any of this but a few little fines and some slapped wrists. And if the past is actually prologue, we can rest assured that no criminal charges will ever be tossed into the casino, since none ever are.

After all, the tumbling dice always favor the house, and we know whose house it is.

Shah Gilani
Contributing Editor, Money Morning

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From the Archives…

The Market Rebounds, but We’re Still Not Selling…
26-04-2013 – Kris Sayce

Is This the Last Hurrah for the Australian Dollar?
25-04-2013 – Murray Dawes

Here’s Proof the Silver Bullion Market is Alive and Well
24-04-2013 – Dr. Alex Cowie

Stand By for the Recession Rally in Resource Stocks: Take Two
23-04-2013 – Dr. Alex Cowie

A New Take on Hard Asset Investing
22-04-2013 – Kris Sayce

Enhance your trading confidence with a 2-minute lesson on how to combine Moving Average Convergence Divergence with other technical tools.

By Elliott Wave International

“Guessing or going by gut instinct won’t work over the long run. If you don’t have a defined trading methodology, then you don’t have a way to know what constitutes a buy or sell signal. Moreover, you can’t even consistently correctly identify the trend.”

-Jeffrey Kennedy

Jeffrey Kennedy is an accomplished teacher and a Senior Analyst here at EWI. Yet he often says that the Wave Principle alone is not a trading methodology. It does not tell you how much trading capital you can afford to risk, or specific guidance about which entry or exit levels are best suited for your trading style or where to set your protective stop.

Kennedy also says that along with risk management and emotional discipline, the right technical tools are a vitally important part of supporting your wave count.

To enhance trading confidence, Jeffrey’s 3 favorite technical tools are Japanese candlesticks, RSI, and MACD. (read Part 1 on Japanese Candlesticks and Part 2 on RSI ). Today’s lesson shows you how MACD can help identify trading opportunities with an example from USDCAD.

This 2-minute video and overview of MACD are adapted from Jeffrey’s Elliott Wave Junctures educational service (which empowers subscribers with information on nearly every aspect of trading. Try it risk-free for 30-days >> ).

Moving average convergence divergence (MACD) is a momentum indicator developed by Gerald Appel. It consists of two exponential moving averages, the MACD line and Signal line. The difference between these two lines yields an additional indicator, MACD Histogram.

Since these studies evaluate momentum, they work optimally in trending markets. When combined with reversal candlestick patterns, MACD and MACD Histogram can increase confidence in these patterns as well as continuation of the larger trend.

MACD divergence occurs when prices move one way and MACD moves the other. Bearish divergence forms when prices make new highs and MACD does not. Conversely, new price lows without lower MACD readings is bullish divergence. These conditions aid traders in identifying potential changes in momentum and trend.

MACD is constructed using two lines referred to as the MACD line and the Signal line.

When the MACD line appears to penetrate the Signal line, but fails to do so, a hook forms. The significance of a hook is that it coincides with countertrend price moves.

MACD is excellent technical tool provided you know how to use it and what to look for.

Learn the Best Technical Indicators for Successful TradingThis free report from Elliott Wave International will teach you how to incorporate technical indicators into your analysis to improve your trading decisions.You’ll learn which technical indicators are best for analyzing chart patterns, which are best for anticipating price action, and which are best for spotting high-confidence trade setups. You’ll also learn how technical indicators can be used to complement Elliott wave and other technical methods. Get your technical indicators report now >>

By The Sizemore Letter

Watch me discuss General Motors’s earnings and the outlook for the auto sector with InvestorPlace’s Jeff Reeves.

Auto sales have enjoyed a nice bounce in 2013, with sales the strongest they’ve been in six years, but is it sustainable?

I argue that much of the sales surge is “catch up” buying that was postponed during the financial crisis.  The average age of cars on American roads has been stretched out to 11 years.  At some point, old vehicles have to be replaced, and that is what we are seeing.

Longer term, the picture for mass-market autos is not particularly good.  Quality improvements have stretched out the useful life of the average car, which means longer time between purchases.  And Echo Boomer (a.k.a. Generation Y) consumers are not embracing auto ownership to the same extent as past generations.  Modern communications and the internet have made a lot of routine driving unnecessary,  and America is re-urbanizing–which means more public transportation and less driving.

If there is a bright spot, it would be the luxury market, which is less affected by economic worries, enjoys higher profit margins, and has great exposure to emerging markets.

Stocks discussed in this video: $GM, $F, $DDAIF

Related video: Are Automakers a Buy in 2013?

SUBSCRIBE to Sizemore Insights via e-mail today.

By www.CentralBankNews.info     The Czech National Bank (CBN), which earlier today left its policy rate unchanged at 0.05 percent, said interest rates will remain at the current level of technically zero “over a longer horizon until inflation pressures increase significantly,” repeating its forecast from March.
    The Czech Republic’s central bank also repeated that it was “ready to use foreign exchange interventions if further monetary policy easing becomes necessary.”
    In its new economic forecast, the CNB cut its growth forecast for this year and next but raised its inflation forecast slightly.
    However, the CNB does not expect an increase in inflationary pressures and sees no tangible risks of such an increase, with market interest rates easing slightly this year and then rising in 2014.
    Headline inflation is expected to be slightly below the central bank’s 2.0 percent target this year and next year with monetary-policy relevant inflation close to the bank’s lower tolerance band this year (the CNB has a one percentage point tolerance band) and then slowly return to target next year.
    In the new forecast, headline inflation in the second quarter of 2014 is forecast at 1.8 percent, up from the previous forecast of 1.7 percent, and for 1.9 percent in third quarter 2014, up from 1.8 percent.
    In March, inflation in the Czech Republic was steady at 1.7 percent from February.

   
    The Czech economy is forecast to shrink by 0.5 percent this year, up from the previous forecast for a 0.3 percent decline, due to fiscal consolidation and a gradual recovery in external demand.
    In 2014 the Gross Domestic Product is forecast to grow by 1.8 percent, down from the previous forecast of 2.1 percent.
    In the fourth quarter of 2012, the Czech GDP shrank by 0.2 percent, its sixth quarterly contraction in a row, for an annual fall of 1.7 percent, up from a fall of 1.5 percent in the third quarter.
    In 2012 the Czech economy shrank by 1.2 percent.

    www.CentralBankNews.info

By www.CentralBankNews.info
    The European Central Bank (ECB), which earlier today cut its main policy rate by 25 basis points to 0.50 percent, will continue to provide banks with all the money they need “for as long as necessary,” and wants to channel money to smaller businesses by creating a new market for asset-backed securities.
    The ECB, which was widely expected to cut its main refinancing rate due to a deepening recession, declining inflation and rising unemployment, said it still expects the economy to “stabilize and recover gradually in the second half of the year,” repeating its forecast from recent months.
    ECB President Mario Draghi admitted the risks surrounding this outlook remain on the downside, with the possibility of weaker-than-expected domestic and global demand along with slow or insufficient structural reforms.
    “These factors have the potential to dampen confidence and thereby delay the recovery,” Draghi told a press conference, echoing his comments from April 4.
    The ECB cut its rate due to low medium-term inflationary pressures, continued weak economic sentiment, and said the move should support prospects for economic recovery.
    “Against this overall background our monetary policy stance will remain accommodative for as long as needed,” Draghi said.

    Speculation had intensified in recent days that the ECB would cut rates following news that the inflation rate for the 17 nations sharing the single currency fell to 1.2 percent in April, the lowest since February 2010, and well below the ECB’s target of inflation that is below but close to 2 percent.
    The ECB forecasts inflation of 1.6 percent this year and 1.3 percent in 2014.
    At last month’s ECB meeting, Draghi had also said that the bank was keeping a close eye on economic data for its impact on monetary policy and was ready to act. He had also said the ECB was looking at various instruments and tools to stimulate economic activity.
   In order to ensure that euro zone banks have enough funds to meet demand for loans, Draghi said the ECB would continue to conduct its main refinancing operations (MROs) as fixed rate tenders with full allotment for as long as necessary, and at least until July 8, 2014.
     In addition, the ECB’s three-month, longer-term operations (LTROs) would be allotted until the second quarter of 2014 as fixed rate tenders with full allotment.
    But despite the ECB’s generous financing in recent years, banks are still saddled with non-performing loans and demand for credit remains weak due to slowing economic activity.
    In order to try and channel funds more quickly and directly to smaller European businesses, the ECB has started discussions with other European institutions “on initiatives to promote a functioning market for asset-backed securities collateralized by loans to non-financial corporations,” Draghi said.
    Despite Draghi’s hopes for economic improvement in the second half of this year, there are few signs of improvement. The unemployment rate in the euro zone rose to 12.1 percent in Mach from 12.0 percent, the highest level since Eurostat, the European Union’s statistics office, started collecting the data in 1995.
    And Gross Domestic Product in the euro zone shrank by 0.6 percent in the fourth quarter of 2012, its fifth quarterly contraction in a row, for an annual decline of 0.9 percent, up from 0.6 percent in the third quarter.
    Economist forecast a further contraction in the first quarter of this year.
   To boost confidence and help growth prospects, Draghi called on euro area governments to “intensify the implementation of structural reforms at a national level,” continue their fiscal consolidation efforts and bank recapitalization, along with “swift implementation of the banking union.”
    Despite the recent trend toward austerity measures, which cut the average euro area government deficit to 3.7 percent of GDP from 4.2 percent in 2011, average government debt has risen to 90.6 percent of GDP from 87.3 percent, Draghi said.
     “Structural reforms should target improvements in competitiveness and adjustment capacities, as well as aim to increase sustainable growth and employment,” Draghi added.
    Reflecting the recent agreement between struggling Cyprus and the European Union, the ECB will again accept debt and other instruments guaranteed by Cyprus as collateral for ECB funds, subject to special haircuts, the ECB said.

    www.CentralBankNews.info

By WallStreetDaily.com

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When HTC (2498) launched the new smartphone in its “One” lineup in February, the outlook didn’t look very promising.

As we said at the time, “in terms of Android-powered handsets, HTC hasn’t been able to hold a torch to Samsung’s (BC94) hit Galaxy devices.”

But considering that the company now expects second-quarter revenue to jump 64%, to nearly $2.4 billion, it seems that the beleaguered smartphone maker could have hit a home run with the new handset.

A quick glance at HTC’s chart shows that investor interest is starting to heat back up. Shares have increased 26% since mid-March.

Article By WallStreetDaily.com

Original Article: Did This Beleaguered Smartphone Maker (Finally) Hit a Home Run?

By www.CentralBankNews.info     Romania’s central bank kept its policy rate steady at 5.25 percent and will continue to provide adequate liquidity to banks but narrowed the symmetrical corridor around its standing facilities by 100 basis points to plus/minus 3 percentage points to “moderate interest rate volatility on the money and banking markets.”
    The National Bank of Romania (NBR), which has held its key rate steady since a 25 basis point cut in March 2012, said the interest rate on its Lombard facility would be lowered to 8.25 percent from 9.25 percent while the deposit rate would rise to 2.25 percent from 1.25 percent, effective May 3.
    During its meeting, the central bank’s board approved the quarterly inflation report, which will be released on May 8, and compared with the previous report, the “updated forecast indicates an improved short-term disinflation outlook, anticipating the return of the inflation rate inside the flat target band in the second half of 2013, against the persistence of the negative output gap,” the bank said.
    Romania’s inflation rate eased to 5.25 percent in March, from 5.65 percent, above the NBP’s upper target range. The central bank targets annual inflation of 2.5 percent, plus/minus one percentage point.
    “Monthly increases in consumer prices in February and March 2013 stood at historically low levels, reflecting the reduction in inflation expectations,” the central bank said.

    The NBR’s shift from firm to adequate liquidity management has improved liquidity in money markets and helped bring interbank rates closer to the NBR’s policy rate, the bank said.
    It said interbank rates and yields on government securities have dropped and the average level of rates in three-month ROBOR, a benchmark for private sector financing, fell to 4.57 percent in April from 6.04 percent in December 2012.
    Despite recent strains in international financial markets, the NBR said spillover effects to Romania had been contained with a resumption of capital inflows and an appreciation of the leu.
    “The main risks and uncertainties surrounding the updated projection refer to the volatility of capital inflows targeting the Romanian economy amid an external environment featuring fluctuations, as well as to the persistent structural rigidities across the Romanian economy…,” the NBP said.

    www.CentralBankNews.info
   
 

By www.CentralBankNews.info Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

London Gold Market Report
from Adrian Ash
BullionVault
Thurs 2 May, 08:10 EST

LONDON PRICES for gold and silver both ticked higher Thursday morning, recovering half of Wednesday’s 2.4% and 4.6% falls respectively.

European stock markets reversed earlier losses and commodities also bounced after the European Central Bank decided – as widely expected – to cut its key interest rate to a new all-time low of 0.5%.

Priced in the Euro both gold and silver were little changed as the single currency bounced back towards yesterday’s 2-month highs.

“The Chinese market opened again overnight,” says dealer Marex Spectron in a note after the Labor Day holidays, “but little in the way of gold buying was seen.”

Shanghai premiums “crashed out to $10” above London benchmark prices in fact according to another trading house, “having opened today at $25, down from a recent high of $65” per ounce.

“[This] certainly sends a signal that physical buying has seen some kind of peak, and the price may need to lower to re-kindle demand.”

Consumer spending on gold and jewelry in Shanghai more than doubled last weekend from the same Labor Day holiday in 2012, according to the Commission of Commerce.

Hong Kong retailers report being “swamped” by gold-buying tourists from the Chinese mainland – now the world’s 2nd largest gold consumer nation – seeking to enjoy the city’s lower premiums above international wholesale prices.

In the developed West, sales of newly-produced American Eagle gold coins last month hit a 3-year high the US Mint said Wednesday.

The Austrian Mint says it sold 10 times as many gold Philharmonic coins as it did in April last year.

“[But] truth is,” says a London bullion bank dealer in an email, “the hedge fund world has been busy placing barriers [for the gold price] at around $1490,” with portfolio managers using the week’s earlier rally to exit positions in exchange-traded trust funds.

Estimating that a further 124 tonnes of exchange-traded trust fund holdings are still showing a loss for investors, “As long as those gold bars at stake are not cleaned out we will face a bearish bias,” he adds.

“It’s the end of an era,” Bloomberg quotes Michael Haigh, New York’s head of commodities analysis for Société Générale.

“ETF flows and hedge fund flows have gold changing direction for the first time in a long, long time. Prices are going to be dropping.”

Meantime on the data front, both Eurozone manufacturing and UK construction activity slowed their contractions in April, new PMI numbers from Markit said.

Ahead of tomorrow’s key US non-farm payrolls data, the private-sector ADP report came in below expectations, while US central bank the Federal Reserve left its key interest-rate at 0.25% and kept its quantitative easing program at $85 billion per month.

“Household spending and business fixed investment advanced,” the Fed’s policy statement said, “and the housing sector has strengthened further, but fiscal policy is restraining economic growth” – an escalation of its previous calls for more deficit spending by the government.

“While for the moment,” says a report from the fund managers at Blackrock Gold & General – now celebrating its 25th year – “the recovery in the US, the associated strengthening of the Dollar and the lack of imminent inflation are taking centre stage, we believe gold’s journey is far from over.”

Amongst other factors, says Blackrock, “the risk of rising inflationary pressures in the medium term, and the regular reminders of the structural imbalances within the financial system…should continue to drive the gold price in the coming years.”

Eurozone government bonds meantime rose in price Thursday, nudging yields lower except on Greek and Portuguese debt.

Interest rates on 2-year French and Italian bonds both fell to record lows.

Asked if they would support using Italy’s gold reserves – the world’s 3rd largest national hoard – as collateral for new bonds at cheaper rates, 52% of the public and 61% of business leaders said yes, according to a survey conducted for the World Gold Council.

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

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 www.CentralBankNews.info     The European Central Bank (ECB) cut the rate on its benchmark refinancing facility by 25 basis points to 0.50 percent, as widely expected, along with a 50 basis point cut on the rate on its marginal lending facility to 1.0 percent. The rate on its deposit facility will remain steady at 0.0 percent, the ECB said in a brief statement.
   ECB President Mario Draghi will comment on the decision by the ECB council at a press conference later today.
    Speculation had intensified in recent days that the ECB would cut rates following news that the inflation rate for the 17 nations sharing the single currency fell to 1.2 percent in April, the lowest since February 2010, and well below the ECB’s target of inflation that is below but close to 2 percent.
    Economic recession, growing unemployment and recent comments by ECB council members also fueled speculation of a rate cut. Last month Germany’s Jens Weidmann, head of the Bundesbank, said the ECB would only cut rates if the economic situation worsened and then both Draghi and Klaas Knot of the Netherlands central bank said the economic situation was not improving.
    Last month at the ECB’s press conference, Draghi said the bank was keeping a close eye on economic data for its impact on monetary policy and was ready to act. He also said the ECB was looking at various instruments and tools to stimulate economic activity.

    The unemployment rate in the euro zone rose to 12.1 percent in Mach from 12.0 percent, the highest level since Eurostat, the European Union’s statistics office, started collecting the data in 1995.
    The euro zone’s Gross Domestic Product shrank by 0.6 percent in the fourth quarter of 2012, its fifth quarterly contraction in a row, for an annual decline of 0.9 percent, up from 0.6 percent in the third quarter. Economist forecast a further contraction in the first quarter of this year.
    Global policy makers have also put pressure on the ECB to stimulate the economy with the International Monetary Fund’s managing director, Christine Lagarde, last month saying the ECB still has room to manoeuvre and could cut rates.

    www.CentralBankNews.info