Overnight Points of Interest
2012 July 31 by Graham Parlane
Overnight
# European bourses appeared to get a touch of nerves ahead of Thursday’s ECB meet with the EuoStoxx600 falling 0.97%. Losses were milder stateside with the S&P500 falling 0.43%. The U.S session was notable for the ranges being the narrowest in 2 months.
# Comments from the German finance ministry dampening prospects for the ESM to be given a banking license saw the spread between peripheral bonds and core bonds widen. German yields fell on the nerves whilst Spanish yields rose, widening that spread by 20 basis points. (My understanding is if the European Stability Mechanism (ESM) is given a banking license then that bailout fund can get more clout by leveraging the funds at its disposal just as a commercial bank would).
# Spain’s budget deficit increased in June from 36.3b to 43.1b.
# Eurozone unemployment rate confirmed at a nasty 11.2% in June.
# Despite the underwhelming European data releases the EUR clawed back ground against all comers, lifting from 1.2280 to 1.2330 against the USD and retreating from record highs of 0.6613 back to 0.6570 against the NZD. A much awaited report from the Swiss National Bank (SNB) detailing their FX diversification program failed to live up to expectations showing that their move from EUR to the likes of AUD and SEK was in amounts far less than anticipated.
# U.S. data releases were generally OK with the Case-Shiller home-price index showing U.S. home prices rose in May for the second straight month whilst the Chicago purchasing manager’s index, a barometer of manufacturing health, beat expectations and rose in July.
# Despite the frenzied expectation of more monetary policy easing from both sides of the Atlantic Gold put in a disappointing performance falling from a high of US$1627 to $1611
Ahead
# China manufacturing PMI
# HSBC China HSBC Manufacturing PMI – Final
# EU & UK PMI Manufacturing
# US ISM Manufacturing
# Fonterra NZ dairy price auction
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 July 30 by Graham Parlane
Overnight
# It was a game of two halves as European bourses enjoyed strong gains whilst in the U.S. the enthusiasm waned with the indexes recording minor falls. The EuroStoxx600 rose a healthy 1.59% completely at odds with the S&P500 which recorded a 0.05% decline. Trading was slow and light however with the Olympics and the spectre of the ECB and FED meetings Thursday hindering activity.
# European data releases were once again poor with both the Business Climate Indicator and the broader measure of Economic Confidence coming in at levels consistent with continuing economic contraction. At -1.27 and 87.9 respectively the readings are suggestive of negative growth of about -1%
# The EUR underperformed as a result with the NZD/EUR recording a new lifetime high of 0.6615 (this level must really be starting to bite on kiwi exporters who continue business with the ‘traditional’ trading partners). For the EUR and indeed most markets the week ahead is all about whether the ECB, in its regularly scheduled monthly meeting, will take action to back up Draghi’s strong rhetoric of late last week.
# Italy sold €2.5b of 10-year and €2.2b of 5-year bonds at slightly lower yields relative to the previous auction. In a good result for the beleaguered country, Italy paid 5.29% for the 5 year money from a very elevated 5.84% a month ago.
# Once again U.S. data showed significant slowing with the 2nd tier US July Dallas Fed Mfg. Index coming in at a very worrying -13.2 against forecasts of 2.5 and a previous 5.8
Ahead
# NBNZ NZ Business Confidence
# Australian Building Approvals and Private Sector Credit
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 July 29 by Graham Parlane
Overnight
# Global equity markets enjoyed their 2nd strong day in a row to round out an eventful week. Thursday nights watershed “will do whatever it takes” comments from ECB president Draghi remained the driving force, sending the EuroStoxx600 up 1.26% and the S&P500 up a healthy 1.91%.
# European newspapers carried reports suggesting that the ECB will now soon take action to lower spiralling European borrowing costs which sent all ‘risk’ or ‘growth sensitive’ assets marching higher. The ECB have their monthly announcement on monetary policy this Thursday so the market will be in a frenzy of expectation.
# The NZD/USD was one of the better performers, climbing to 10 week highs above 0.8100 whilst reclaiming some of the recent losses against the AUD to 0.7730.
# Commodity prices rose but were relatively muted, failing to keep abreast of the currency and equity market moves. Copper rose 1%, Crude 0.8% and Gold 0.45%.
# U.S. Q2 GDP beat expectations, coming in at +1.5% y/y against an expected 1.4%. Further Q1’s +1.9% was revised positively to 2.0%. Despite the better than forecast result the trend does show a slowing of output and lifts market the expectations of further non-traditional (hocus pocus!) monetary policy response from the FED.
# The spread between core and peripheral European benchmark 10 year bonds again narrowed, with the ‘core’ yields rising and the ‘peripheral’ yields dropping. These moves are an unwind of the extreme fear apparent over the last few months suggesting the market has a new found faith in the ECB after Draghi’s comments.
# In a show of apparent unity with the ECB, German Chancellor Angela Merkel and French President Francois Hollande expressed their ongoing determination “ to do all they can to safeguard the Euro”.
# Not everyone shared the markets enthusiasm with leading think tank Open Europe being reported in the UK Telegraph as saying a full blown bailout of Spain is impossible. Joining them was Goldman Sachs Jim O’Neil who said there was nothing further Spain could do and it was now down to Germany to embrace the previously rejected Eurobonds (recall Markel’s ‘not in my lifetime” quote some weeks ago).
The week ahead – Plenty!(major releases in bold)
:30 July: NZ building permits; JN IP; Italy sells bonds; EU economic confidence; US Dallas Fed index; 31 July: NZ NBNZ business confidence; JN jobless rate; AU home sales; AU building permits; EU German unemployment; EU CPI; US PCE; US consumer confidence; 1 August: China PMI; China HSBC manufacturing PMI; EU & UK PMI manufacturing; US ADP employment; US ISM manufacturing; NZ dairy price auction; 2 August: US FOMC decision; NZ ANZ commodity prices; AU trade balance; AU retail sales; UK BoE meeting; EU ECB meeting; US factory orders; Monti & Rajoy meeting; 3 August: CH non-manufacturing PMI; EU retail sales; EU & UK PMI services; US non-farm payrolls
Today
# NZ Building consents
# Spanish ‘flash’ GDP
# Italian 10 year bond auction
# U.K. Consumer Confidence
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
NZD/EUR & AUD/EUR – The Draghi Put
2012 July 27 by Graham Parlane
All
The NZD and AUD have been displaying ‘topping’ signals against the EUR as suggested in my piece of Wed 25th (NZD and AUD – Now the weakest?). Whilst I got the direction of the NZD/USD and AUD/USD spectacularly wrong, the NZD/EUR and AUD/EUR are still displaying all the hallmarks of being exhausted on their upside moves that have occurred over the last 2 ½ months.
With Mario Draghi’s stunning “ECB will do whatever it takes to preserve the euro”, adding, “believe me, it will be enough” comments I’d suggest that the drive to diversify into NZD and AUD will not be there in the near term. Further the EUR currency, given its bleak outlook and low interest rates had been used heavily as a funding currency for the ‘carry trade’. Now surely with these comments this flow will be reversed. In other words we now have the ‘Draghi Put’ where you can buy EUR knowing that the ECB ‘has your back’!!!!
Now the USD pairs have been very difficult of late, think risk on/risk off every other day, so these look like a lovely place to be in right now.
AUD/EUR – Made a ‘reversal’ day Monday after significant uptrend. Should be able to see 0.8300 even if this period only turns out to be a consolidation of the recent up move.
AUDEUR – click here to view chart
NZD/EUR displays very similar traits.
Regards Graham
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 July 26 by Graham Parlane
Overnight
# ECB President lit a fuse under global stock markets sending European bourses rocketing higher. The Spanish Ibex exchange led the way with an incredible 6.0% jump (Italy +5.62%) propelling the broad EuroStoxx600 to a 2.47% rise. The U.S. exchanges followed suit with the S&P500 up a solid 1.65%.
# ECB President Draghi, frustrated by the risk premiums the market has imposed on the likes of Spain and Italy, came out with some fighting words. Commenting that the super high yields were hampering the proper functioning of policy Draghi said “ the ECB will do whatever it takes to preserve the euro”, adding, “believe me, it will be enough”.
# Yields on benchmark 10 year bonds in Spain and Italy sharply reversed course, Spanish yields dropping whopping 0.45% to 6.93% and Italian yields a similar 0.39% to 6.06%.
# The slightly less dovish than expected RBNZ statement yesterday meant the NZD performed particularly well in the ‘risk on’ environment that was last night. The NZD/USD jumped 2.2% to a high of 0.8030 in the process outperforming the AUD to see the cross up from 0.7650 to 0.7710. The RBNZ noted that while obvious global risks were present, underlying inflation was, ”expected to settle near the mid-point of the target range over the medium term” strongly suggesting that there was no likelihood of the rate cuts that the market had partially priced in.
# A great result in the weekly U.S. jobless claims, with benefits requests falling sharply. US Weekly Jobless Claims dropped to 353k against f/c 380k previously revised up 2k to 388k.
# Further, U.S Durable Goods Orders kept the better tone intact, rising 1.6% for June against expectations of a 0.4% forecast.
# However the U.S. housing sector, which had been a bright spot in recent months, failed to run with the crowd falling 1.4% m/m when a 0.2% rise was expected.
# Commodities generally under performed with the CRB Index rising a miserly 0.23%.
# In a blow to NZ exporters, the Economist magazine issued an update on their ‘Big Mac Index’ which looks to explain exchange rate values through the price of the ubiquitous McDonalds Big Mac burger. In New Zealand, a Big Mac costs US$4.00 and the Kiwi is now around 10% undervalued compared to around 8% undervalued in 2007 they suggested. Conversely in Australia, a Big Mac costs US$4.68 and The Economists noted the Australian dollar is now overvalued by 8% compared to being undervalued by 14% in 2007. These comparisons could make buying the NZDAUD, after the promise it showed overnight, a good idea!
Ahead
# U.S. Q2 GDP
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 July 24 by Graham Parlane
Overnight
# The European situation continued to deteriorate with a terrible set of European manufacturing PMIs sustaining the current fear. The EuroStoxx600 fell 0.47% (Italy down 2.32%, Spain down 3.58%) and the S&P500 down 0.9% (the Dow recorded its third straight triple digit decline).
# The composite EU PMI index moved further into contractionary territory. The 44.1 reading was consistent with a three year low and well below expectations of 45.2.
# EU Officials- Greece seen missing debt reduction targets.
# Spanish 10 years bonds ended at new highs at 7.62% and the Italian equivalents ended higher at 6.59%.
# In the U.S. things weren’t a lot better with the Richmond Fed index falling to a -17 vs. -1 expected a level described as “disastrous” by PIMCO’s legendary Bill Gross. The S&P500 at one stage was down 1.7% on this news before recovering some ground late in the piece on a Wall Street Journal report that the Federal Reserve is moving closer to taking additional action to boost the economy.
# The Treasury Department sold $35 billion two-year notes at a record-low yield of 0.22% Tuesday.
Ahead
# NZ Trade Balance
# Australian CPI
# German IFO Business Climate
# U.K. GDP
# U.S. New Home Sales
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Charts of interest – Eur complex
2012 July 23 by Graham Parlane
All
A very interesting development in the EUR currency complex overnight. Despite the obvious turmoil in Europe and the Moody’s ‘outlook negative’ ratings change for Germany the EUR has hung very tough. Could Putin’s reaffirmation of the Eurozone as an investment destination have been a catalyst (surely not enough on its own?) or has the EUR bashing simply reached a zenith for now?
Whatever the reasons the chart displays are warning of a change.
Exhibit 1 – The EUR/USD. Despite extreme bear news the EUR/USD is displaying caution in the down move.
EURUSD – click here to view chart
Exhibit 2 – The EUR/AUD. The pair has been trending lower for 1300 points in almost a straight line. However, in potential confirmation of the EUR/USD chart above, the EUR has traced out a key day reversal against the AUD. The two chart developments together strengthen the idea that EUR selling may be exhausted.
EURAUD – click here to view chart
I’ll be buying a dip in the EUR/AUD with a stop loss against the low and watching the next 24 hours for confirmation of the EUR/USD doji.
Regards G.
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 July 23 by Graham Parlane
Overnight
#Global equity markets took another significant hit as markets pondered the likely final outcome of the Euro area experiment. Italy and Greece returned to the headlines along with the rapidly decaying scene in Spain. The Athens exchange led with a massive fall of 7.1% pushing the EuroStoxx600 down 2.49% and the S&P500 down 0.89%.
# In a sure sign of panic on the part of the authorities, Italy and Spain announced a reactivation of short selling bans on equities.
# A 2nd Spanish region asked for assistance prompting the 10 year bond to record another record high above 7.5% deeply in ‘bailout zone’. Italy, not to be outdone, came to the fore as chatter emerged that the Sicily region may also be in trouble.
# The VIX, a proxy for risk aversion, leapt from 16 to 21%.
# Commodities were hit again, Copper recording its 2nd 3% down day in a row whilst Crude fell a chunky 4%. Gold and Silver hung tough recording only mild moves again supported from some quarters by the reasoning that with Span and Italy largely regarded as ‘too big to fail’ that the response must be more money printing from authorities. Whether Gold and Silver can hang on for that event or whether a large clean out comes first remains to be seen.
# The EUR/USD hit fresh 2 year lows whilst EUR/JPY fell to 11 year lows. The NZD was again one of the weaker performing currencies again shedding ground against the AUD to 0.7680.
# Russia announced that it will maintain EUR reserve levels which served to stabilise the EUR. Indeed, in what might be a significant technical development, the strongly trending (lower) EUR/AUD , which has fallen 1300 points in a fairly straight line since mid-May, traced out a ‘key day’ reversal.
Ahead
# HSBC China Flash manufacturing PMI
# RBA Gov. Stevens speech to The Anika Foundation entitled ‘The Lucky Country”
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 July 22 by Graham Parlane
Overnight
# A worsening of the Spanish situation drove markets Friday. Spain’s Ibex exchange fell a whopping 5.82% pulling the EuroStox600 down 1.41% and the S&P500 down 1.01%.
# Fears that Spain would join Greece, Ireland and Portugal in needing a bailout intensified after the Valencia Region of Spain said it would apply to Madrid for financial help. Adding to the pressure on Spanish bonds is ambiguity on when and how the EFSF/EMS will deal with the issue of capitalizing Spanish banks and who is ultimately liable if losses are incurred.
# Over the weekend new reports from Spanish newspaper El Pais suggested another six regions (including Catalonia) will soon do the same.
# Further undermining sentiment, the Rheinische Post carried a report saying that the CSU, one of Merkel’s opposition partners, would back a Greek euro-exit.
# The ECB advised that Greek bonds ineligible as collateral from July 25.
# Spanish 10 year bond yields rose to new Euro era highs of 7.31% whilst the spread over Germany blew out to over 600 points for the first time ever. Italian yields moved in sympathy, the 10 year yield there moving from 5.99% to 6.31%.
# Surprising no one, the EUR/USD slipped to fresh 2 year lows below 1.2150 whilst many other currencies hit new life-time highs against the beleaguered common currency.
# Key commodities sold off in response to the Spain-led spike in risk aversion with NY Copper falling over 2.5% on the day – the biggest daily fall in a month. Crude retreated from its recent strong run falling 1.3% whilst Gold was stable, underpinned by expectations that the intensifying Eurozone debt crisis will inevitably force the ECB to engage in some form of QE.
# A Wall Street Journal article on Friday suggested that some members of the BOJ (including the governor) feel the strong JPY is helping economic growth. This story is a complete 180 degree turn on the long held belief that Japanese authorities want a weaker JPY and could have a significant impact if confirmed.
The week ahead
# 23 July: AU PPIs; US Chicago Fed index; 24 July: CH HSBC manufacturing PMI; AU RBA’s Stevens speaks; EU manufacturing/services PMIs; US Richmond Fed index; US house prices; 25 July: NZ trade balance; AU CPI; EU German IFO; UK Q2 GDP; US new home sales; 26 July: NZ RBNZ OCR review; NZ finance minister speaking; US durable goods orders; US jobless claims; US pending home sales; 27 July: EU German CPI; US Q2 GDP; US Michigan consumer confidence
Today
# Australian Producer Price Index
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
NZ Bank Bills – A Lesson
2012 July 20 by Graham Parlane
All
Bank bill futures were introduced to enable hedging of interest rate risk.
For example, if your mortgage was fixed for 5 years at 6% and suddenly it became clear to you that mortgage rates were going to fall to 3% then obviously you don’t want to sit around for the next few years paying twice as much as need be. Hence bank bill futures.
Here is the abridged explanation of how they work. If the interest rate is at 6.0% then the bank bill future will be 94.0 (being 100 less the interest rate i.e. 100 – 6 = 94). Thus in the example above if you had $10 mio of debt locked in at 6% and thought rates were headed for 3% then you could BUY the bank bill future at 94.0 in 10 lots (face value $10 mio) and when the rates get to 3% your futures contracts would have appreciated from 94 to 97 (100 – 3 = 97) fully offsetting the (book) loss on your fixed borrowing. Genius in its simplicity!
Now, you don’t need the underlying debt to trade these things, so we can use these vehicles to speculate in the market, as a number of my clients already do.
The NZ cash rate is at 2.50%. Inflation is at 1% being the bottom of the RBNZ’s mandated inflation band (1-3%). Inflation is forecast to be equally as tepid in Q3, the release of that data being 3 months away.
Now in my opinion there is no way that the RBNZ are going to raise the cash rate while inflation is nearly falling out the bottom of the band. Indeed if this low inflation environment was to persist for a few more quarters then one would argue that they would need to cut rates. However that too is unlikely because if/when the Canterbury rebuild gets underway in earnest then price pressures are expected to emerge.
Now these futures contracts can flit around all over the place but they must come back to the anchor (the cash rate) on their maturity date. Indeed it was only 6 weeks ago that the front month contract had nearly 0.5% of rate cuts priced into it on the danger that the European crisis posed to our economy. I think this could happen again.
To whit the clincher………………….Dr Bernanke is his testimony to congress this week said that “Europe is no closer to a long-term solution, and therefore periods of on-going financial instability are inevitable”.
To be fair the hurdles to either hiking or cutting in NZ are high thus a ranging environment is sitting there waiting to be taken advantage of.
Regards G.
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities