Month: June 2011

This afternoon’s publication of the US’s final gross domestic product (GDP) and GDP Price Index suggests that forecasts for both are largely on track. While digesting news about durable goods orders and assessing risk sensitivity, many investors found in today’s GDP reports an added reason for optimism ahead of this week’s close.

Considering the marked decline in manufacturing across the US and Europe, and factoring in expectations for a weak second quarter, the spot on growth forecast of approximately 2% for US GDP may in fact help several investors choose risk over caution in the next week or two, helping the ailing economies of the Western world make a modicum of gains going into the early summer months.

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This afternoon’s early reports from the US regarding its durable goods orders for June gave some cause for consternation. On the one hand, both the nominal and core reports underlined growth from the previous month’s steep declines. On the other hand, the more impactful core report came in below forecasts.

While it is true that the nominal report showed growth in durable goods orders well beyond forecasts (a hearty 1.9% growth), the core report, which factors out the more volatile transportation items, revealed stagnation in other sectors of durable goods orders. The murky growth of only 0.6%, below the 1.0% expected, furrowed more than a couple eyebrows as traders assessed the level of risk appetite in the American markets.

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Following the retail sales and consumer spending reports of the past few weeks would leave many to believe that most nations are undergoing similar bearishness. This does not seem to be the case in Italy, however.

Italian retail sales, published this morning at 9:00 GMT, revealed surprise growth of approximately 0.4% for the month of June. Forecasts were calling for a decline of about 0.1%, but today’s reading reveals sudden strength in the consumer outlook in the southern European country. This figure has also added to the recent upswing in risk appetite connected with Germany’s Ifo business report.

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The German Ifo (Information and Forschung) Business Climate report was published earlier this morning, surprising many investors with a modest uptick beyond expectations. Most analysts, myself included, had expected the report to show a stronger downtick than even the forecast 113.6. The actual reading of 114.5 in fact beat last month’s reading of 114.2!

Explaining such random optimism is difficult from the short-term view this blog tends to take. Given the large sample size of 7,000 survey respondents, the Ifo report could have caught some of the optimism from earlier in the month and only recently hit the snag of the Greece bailout concern. It could also be that recent reports on confidence are expected to rise following the impending dismal second quarter. Either way, the report has helped many investors turn to higher yielding currencies and the EUR seems to be on the rise as a result.

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The Boeing-Airbus Dogfight

by Tony D’Altorio, Investment U Research
Friday, June 24, 2011

The sounds of combat in the air were heard over Paris this week…

No, it wasn’t a re-enactment of a World War II air battle. It’s just the annual Paris Air Show.

The annual event marks yet another skirmish in the decades-long battle between the two behemoths of the aerospace industry – Boeing (NYSE: BA) and Airbus. (Airbus is a subsidiary of the European Aeronautic Defense and Space Company (PINK: EADSY), or EADS.)

The newly intensified battle is for the largest part of the civilian airliner market – the short-haul segment, which includes aircraft with between 90 and 240 seats.

Boeing – Airbus Competition Heats Up

The competition intensified in December when Airbus offered an upgraded version of its A320 family of aircraft – the A320neo. This updated version is attractive to airline companies for one main reason: It offers a 15-percent cut in fuel consumption compared to Airbus’ current models.

This is enticing in an age of high jet fuel prices for airline companies. Especially since fuel accounts for more than one- third of an airline’s operating costs.

Oil prices are up 40 percent so far this year, causing some airlines to raise fares up to seven times since the beginning of the year. Most companies expect the price of oil to stay above $100 per barrel in the long term, which makes fuel-efficient jets appealing.

Boeing won’t release a decision on whether it will upgrade its 737 or design a whole new plane until at least the end of the year.

If Boeing decides to design a new plane, the decision will be a costly one, with a price tag of at least $10 billion- before cost overruns. This would also tie up a large portion of Boeing’s engineering resources.

Boeing expects the final outcome to be at least 20 percent more fuel efficient than Airbus’ A320neo, which should draw business away from its competitor.

This upcoming decision is crucial for Boeing, and will determine if it will remain locked in competition with Airbus…

Global Airline Industry Outlook Remains Positive

The 737 and A320 families of aircraft account for about half of all commercial jets flying today. And there are over 4,300 of these jets on backlog.

The outlook for both firms is positive. Both should benefit from continued growth in the airliner business despite the current gloom about a “soft patch” in the global economy.

It’s forecast that airline traffic will grow at least four percent per year over the next 20 years. It looks like the Asia-Pacific region will have the fastest growth over this time frame.

As reported by my colleague, Justin Dove, Boeing recently projected in its annual market outlook that the number of commercial aircraft will more than double by 2030. It also expects passenger traffic to nearly triple, due to the Asia-Pacific region.

Asia Becomes Largest Regional Market for Commercial Aircraft

Boeing also notes that Asia overtook the United States and Europe last year as the largest regional market for commercial aircraft and expects that region to extend its lead in the years ahead.

That means airlines will need $4 trillion worth of new planes, or 33,500 jets, to meet the expected demand. Much of the growth will occur in the short-haul plane market.

It’s expected that there will be demand for about 25,000 of these types of jets over the next two decades, mostly in Asia. This is equal to 70 percent of the expected jet deliveries over this time frame.

Most of the orders for Airbus’ fuel-efficient A320neo at the current Paris Air Show are from Asian carriers such as Air Asia.

This makes Boeing’s decision whether to design and build a whole new narrow-body jet even more important.

Good investing,

Tony D’Altorio

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The dollar was both up and down during the European trading session after Moody’s put a number of Italian banks credit ratings on review.

A failed test of the 1.4200 level and the euro continued to build on yesterday’s rebound with the EUR/USD climbing as high as 1.4300 and taking out a number of stops on its way higher before falling back to 1.4200 after Moody’s said it may downgrade 13 Italian banks. The warning comes on the heels of last week’s warning of a potential cut to the Italian government’s credit rating due to weak growth forecasts and the potential fallout from the Greek debt crisis. The 1.4200 is the current line in the sand for the EUR/USD and a weekly close below this level would be significant for pushing momentum in favor of euro bears. 1.4115 is the next support followed by 1.4070.

Cable is trading at its opening day level after a failure to breach the March pivot. BOE Governor Mervyn King’s comments today were not largely shrugged off by the market and cable has kept its head above water today. Traders should eye the 1.5935 level. A break here and the GBP/USD could decline to the late January low at 1.5750.

The yen has erased all of yesterday’s losses to the dollar but remains locked in a range between 81.40 and 80 for the past two weeks. I’ve expected the yen to perform better given the declines in global equities and general risk-off environment. The yen is stronger in the crosses but versus the USD/JPY has been stagnant.

The data piece to close out the week is the core durable goods orders for the month of May. While consensus expectations are for a comfortable 1.0% rise, a surprise to the downside will likely bring a bid to the US dollar as this would show a further decline in the US economy.

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Source: ForexYard

The series of flash manufacturing and service data released by Europe yesterday painted a grim picture for the manufacturing sector of the euro zone. Analysts expect the USD to see further upside as interest rate differentials between the US and Europe drop from sight and traders harp on the stagnation in Europe for the second quarter of 2011.

Economic News

USD – US Dollar Soars as Global Risk Aversion Spikes

The US dollar was seen trading higher yesterday as traders began to seek riskier assets after concerns about global growth began to dampen investor outlook. The EUR/USD was seen meeting resistance near 1.4400 yesterday and plummeted towards 1.4275 in late trading. Analysts expect the USD to see further upside as interest rate differentials between the US and Europe drop from sight and traders harp on the stagnation in Europe for the second quarter.

The series of flash manufacturing and service data released by Europe yesterday painted a grim picture for the manufacturing sector of the euro zone during the second quarter of 2011. Analysts are forecasting a significant downturn, especially as Crude Oil prices remain near $90 a barrel, despite recent bearishness, gouging companies dependent on exports and combustion-engine operation.

With moderately heavy news day expected Friday, traders are sure to see heightened volatility. Most significantly, the US will be publishing its core durable goods orders, which will likely portray the state of the American manufacturing sector alongside Europe’s yesterday. Given recent events, many traders appear to be favoring long positions on the greenback due to heightened risk aversion.

EUR – EUR Takes Beating as Investors Flee Risk

The euro was seen trading significantly lower yesterday despite a dovish report suggesting a lingering low interest rate in the US. Following yesterday’s ominous manufacturing reports in the euro zone, traders appeared more concerned with the potential Greece implosion and a sluggish second quarter. The EUR/USD was seen trading towards 1.4275 as a result.

While interest rate differentials between the US and Europe came into view this past week, the higher yielding assets like the GBP and EUR appear positioned to lose significant value as traders choose to focus on growth concerns and sovereign debt. The growth in risk aversion may have many investors choosing to store their value in lower yielding currencies, like the USD and JPY.

As for Friday, the euro looks to be anticipating an evaluation of its recent downturn against the other major currencies with mild bias to the downside. The euro zone will be publishing a few economic events on today’s calendar. Traders should try and follow the significant publication of Germany’s Ifo Business Climate report, since it will act as a gauge of business sentiment in the euro zone’s largest economy.

AUD – AUD Seen in Decline as Risk Aversion Climbs

The Australian dollar (AUD) was seen trading lower versus most other currencies yesterday after news began to shift many traders back into safer assets. The Aussie has been a top performer these past several months considering many traders bank on a strengthening of the AUD due to a rise in Chinese demand for Australian raw materials.

The AUD was in a position to make solid gains yesterday after the vote of confidence in Greece helped many assume a rise in risk appetite was impending. Moves toward riskier currencies, however, failed to materialize as a string of manufacturing reports in the euro zone pushed many investors away from the region and into safe haven assets. As such, traders appear to be anticipating a mild downtick in the Aussie dollar prior to this week’s close.

Oil – Oil Price Dips Below $90 a Barrel

Crude Oil prices dipped yesterday, reaching as low as $89.80 in late trading. Interest rate differentials have dropped from sight while manufacturing data revealed intense weakness in Europe and this has so far led several large investors and analysts to consider a shift away from the EUR and physical assets in exchange for the safety of the USD and JPY.

As investors sought safety, the value of crude oil, which has been seen holding steady most of the week, dipped to a weekly low of $89.80 a barrel. A sudden jump in dollar values due to this week’s risk sensitive environment has helped many investors move hesitantly away from assets like oil. Should Crude Oil sentiment hold steady this week, oil prices may continue to take losses going into the week’s final hours.

Technical News

EUR/USD

Last week’s failure of the pair to close below the 100-day moving average should not dismay euro shorts. The late in the week rally failed to move above the 20-day moving average which may induce some traders to sell into any euro gains. Both monthly and weekly stochastics have turned lower and point to potential declines. Support is found at 1.4075 followed by the May low at 1.3970. The 200-day moving average may be a likely target and below that the rising trend line from the May 2010 low comes in this week at 1.3610. Resistance is found at Friday’s high of 1.4340 followed by 1.4500 and the early June high of 1.4690.

GBP/USD

Cable is on the verge of breaking the neckline of a head and shoulders top which comes in today at 1.6120. A breach at this level and a measured move from the chart pattern could take the GBP/USD lower to 1.5370. The likeliest target on the charts is the December low at 1.5350. On the way lower cable could encounter support at the May low of 1.6050 and the March low at 1.5940. To the upside the pair may see resistance at last week’s high at 1.6440 as well as 1.6550 off of the May high.

USD/JPY

The pair failed to establish a beachhead above the 81 yen level and proceeded to fall. This level will serve as initial resistance followed by the May 31st high at 81.75 followed by 82.20 and 82.57. Falling daily stochastics hint at further declines. Support comes in at the May low of 79.50 followed by the all-time low at 76.11.

USD/CHF

The USD/CHF rose to the May support which has turned into a resistance level at 0.8550, a phenomenon which often occurs in technical analysis. A break higher would run into the 50-day moving average which coincides with the falling trend line off of the February high at 0.8640. This may offer traders a good level to enter short into the long term downtrend. Additional resistance is located at the mid-May low at 0.8750 and the May high of 0.8950. To the downside the all-time low could be supportive at 0.8325.

The Wild Card

Oil

Spot crude oil prices fell sharply yesterday below $90 but failed to close below the psychological support level. However, momentum continues to build to the downside and the IEA’s announcement of the release of the strategic reserves may further drag crude oil prices lower in the near-term. A strengthening US dollar is also working against a rebound in oil. As such, forex traders may want to target the mid-February low at $84.00.

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.

By Dezan Shira

India’s inward investment rule went through a series of changes since economic reforms were escorted in two decades back. The expectation of the policy-makers was that an “investor friendly” command will help India establish itself as a preferred destination of foreign investors. These expectations remained largely unfulfilled despite the consistent attempts by the policy makers to increase the attractiveness of India by further changes in policies that included opening up of individual sectors, raising the hitherto existing caps on foreign holding and improving investment procedures. But after 2005‐06, official statistics started reporting steep increases in FDI inflows. Portfolio investors and round-tripping investments have been important contributors to India’s reported FDI inflows thus blurring the distinction between direct and portfolio investors on one hand and foreign and domestic investors on the other. These investors were also the ones which have exploited the tax haven route most.

Inward investments have been constantly rising since the sharp drop witnessed in 2009, following the global financial crisis. Hiccups apart, foreign investors see huge long-term growth potential in the country. As much as 75 percent of global businesses already present in the country are looking to considerably expand their operations going forward according to the Indian attractive survey by Ernst & Young. This also confirms that India is undergoing a changeover, both in terms of investor perception of its market potential, and in reality.

With GDP growth anticipated to surpass 8 percent yearly and the number of people in the Indian middle class set to triple over the next 15 years, with an equivalent impact on disposable income, domestic demand is expected to grow exponentially. India’s young demographic profile also helps it in providing an increasingly well-educated and cost-competitive labor force. These factors put India in a good position to attract an increasing proportion of global FDI.

About the Author

You can read the rest of this story about foreign direct investment in India at the India investment news site, India-Briefing.com.

For more information about fdi in India, contact Dezan Shira & Associates.