Monday, March 31, 2008

Euro Consolidates Gains, 1.60 Next?

Having closed above 1.5740, the EURUSD price action has consolidated in a tight 130-pip range. The pair showed a Hanging Man bearish reversal pattern following the close above the previous top, suggesting the up move was exhausted for the time being. The subsequent downside has been limited however, with the pair looking to be consolidating above resistance-turned-support at 1.5730. Having failed to violate the up trend, the EURUSD retains a bullish bias. On balance, US economic data turned from bad to mixed last week, so price action may continue to lack a clear direction until Friday’s Nonfarm Payrolls release. Though we will continue to Buy Euros, the lack of a strong signal means we will keep a close eye on price action and cut losses quickly as we look for a test of the psychologically significant 1.6000 figure.

The British pound extended its losses today

The British pound extended its losses today, hitting an intraday low of 1.9883.

UK economic data was mixed with the GfK consumer confidence report and Nationwide house prices falling short of expectations. The current account did improve, but not enough to offset the bearish sentiment. The quarterly pace of GDP growth in the fourth quarter was unrevised, but the annualized pace of growth was lowered from 2.9 to 2.8 percent. Like the US, the UK economy is very vulnerable especially since consumer confidence hit a 15 year low. The Financial Times is also worried about the health of UK lenders. All three of the country’s largest banks hiked mortgage rates yesterday, putting further pressure on home

Friday, March 28, 2008

British Pound Could Fall Further if Disaster Hits UK Mortgage Lenders

According to an article in the UK Times, Nationwide, the country’s second largest mortgage lender is planning to turn away business.

We wonder why a mortgage lender would resort to this unless trouble was brewing in house. The Times argues that Nationwide is attempting to gain greater control over the amount that it lends and is doing so by increasing the rates on its tracker deals by more than 50bp. Efforts such as these are exactly why central banks including the UK and the US are struggling to contain the credit crisis. Despite interest rate cuts and liquidity injections, banks and mortgage lenders have reluctantly offered new loans while scrutiny has increased for potential borrowers, making it difficult for everyone. The liquidity crisis has hit the UK and US housing markets in more ways than one. If a mortgage lender announces major losses or even worse, is forced to fold shop, the British pound could easily slip. The news from Nationwide completely erased the British pound’s earlier gains which were driven by stronger economic data. The CBI retail sales survey rebounded this month, while fourth quarter total business investment beat expectations. More UK numbers are due for release today with Nationwide house prices, current account for the fourth quarter and the final Q4 GDP numbers due for release. Expect decent volatility in the British pound.

Thursday, March 27, 2008

ECB not to cut rates anytime soon! - Traders Buy Euros

US Dollar Slides as ECB President Trichet Denies Future Rate Cuts

US dollar pessimism heightened as fresh data hampered the growth outlook for the troubled economy. As market participants sold off risky assets, including forex carry trades, the Swiss franc and Japanese yen gained against the US dollar. Against the European counterparts, the greenback dropped versus the euro as ECB President Trichet’s commentary suggested little chance of a rate cut in the near-term, while the British Pound trailed behind. Conversely, the US dollar picked up against the New Zealand and the Canadian dollar, while the Australian dollar inched up to hold near the 0.9200 level.

Bank of England to Cut Rates?

Although there was no UK economic data released yesterday, the market now believes that the Bank of England is on track to cut interest rates next month. In a testimony before legislators, King admitted that given current market conditions, the central bank is more predisposed to cutting interest rates even though they are in no hurry to follow in the footsteps of the Federal Reserve who has taken historic measures in an attempt to stabilize the credit markets. Bank of England member Sentence also reminded the markets about the difficult times ahead for the UK economy. He argues that although concerns for a recession are overstated, consumer spending should continue to weaken.

Traders still buying Euros

The British pound has extended its gains against the US dollar but it continues to underperform the Euro.

Wednesday, March 19, 2008

Speculative property development in the UK has seized up amid rapidly worsening credit conditions,

Speculative property development in the UK has seized up amid rapidly worsening credit conditions, according to industry insiders.
The launch next week by Assetz, the property investment group, of a fund to bail out builders struggling to raise debt finance is being seen as the latest sign of deteriorating conditions, which have worsened even in the past fortnight
The fund will aim to close the gap - normally between 10 to 15 per cent - between the developer's fixed level of equity and the diminishing level of bank finance. It will come at a price - in this case, between 50 and 65 per cent of the profit from the development, in addition to 15 per cent annual interest on the initial loan. But Stuart Law, chief executive of Assetz, said: "This is not greedy. I've not had a developer bat an eyelid yet."
The appetite for cash even at this level of premium underlines just how desperate the situation has become for many developers. The health of the debt markets is key to the property sector, both commercial and residential, since developers and investors both rely on high levels of borrowing.
Certain companies are halting speculative development in the commercial sector, while the residential market is also being affected, particularly in the unlisted sector.
A finance director of a large unlisted commercial property developer, who asked not to be named, told the Financial Times that he had been trying, but failing, to secure debt to carry out the next phase of a scheme in London.
A leading real estate banker added: "There is no market at all for speculative development funding. You need a letting, a track record and your own equity, otherwise you might as well not bother."
Further testament to the sector's difficulties - and the speed with which conditions have deteriorated - came from a developer of high-end London residential buildings. In the past fortnight alone, he said, the market for development finance had frozen up as banks retreat from further bad news, which meant they did not wish to risk further exposure to residential property.
Assetz is not the only fund seeking to take advantage of the situation. Jones Lang LaSalle Corporate Finance, for example, is working on a scheme that would buy residential development land from distressed house builders to move it off their balance sheets.
"I've seen the market tighten over the past three months to the point that development finance has all but dried up," said Tony Edgley, international director for Jones Lang LaSalle Corporate Finance, who added that basic construction finance was still available but from a limited number of banks and at reduced levels.
Up to last summer, gearing of above 80 per cent was common but now borrowers for both development and investment say the average loan-to-value ratio has been tightened for smaller deals and withdrawn completely for larger ones.
The problems are mostly in the unlisted sector, as quoted companies tend to have large undrawn debt facilities. But the Financial Times understands that listed developers, too, are in the market for finance to build large commercial schemes. The difference is that they are not broadcasting the fact.
"The majority of listed companies have got pretty good balance sheets this time," said John Burns, chief executive of Derwent London, who pointed to its own £370m of undrawn bank facilities. "But its 100 per cent correct to say that if facilities aren't in place then loans for speculative development won't be available."

Visa stages largest US IPO

By Anuj Gangahar in New York
Published: March 18 2008 22:45 Last updated: March 18 2008 23:46
Visa Inc, the world’s largest credit card network, on Tuesday set a record for US initial public offerings by raising $17.9bn, providing a welcome windfall to several prominent US banks.
Visa had decided to go ahead with the offering in spite of recent nervousness in equity markets and the continuing threat of a global economic slowdown. Tuesday’s pricing came after financial shares rallied strongly on hopes that the worst of the recent credit market turmoil might be over.
The company’s shares priced at $44 per share, which was above the pre-IPO range of $37 to $42. They will begin trading under the ticker “V” on the New York Stock Exchange on Wednesday.
If the company decides to float its share overallotment – an additional 40.6m shares – the IPO would raise as much as $19.65bn, almost double the $10.6bn record for a US listing set by AT&T in 2000. The proceeds from the IPO will help leading banks boost their profits at a time when credit market problems have reduced revenues from many of their traditional activities.
JPMorgan Chase, which this week agreed to buy Bear Stearns for just $2 per share in a fire sale engineered by US regulators, stands to make a gain of about $1.2bn as Visa’s largest selling shareholder. Bank of America will make about $600m and Citigroup $300m. The banks will cash in about half their stakes.
Analysts said Visa and rival MasterCard are insulated from rising defaults and late payments because, unlike American Express and Discover Financial Services, neither of them actually extends credit to cardholders. The banks that issue the cards take the credit risk.
Some analysts had said the company’s US bank shareholders may have put pressure on the company to proceed after the banks suffered heavy writedowns as a result of the US credit crisis.
About $3bn of the proceeds will go into a fund to protect investors from legal claims. Visa faces legal actions alleging anti-competitive practices.
JPMorgan and Goldman Sachs are the lead underwriters of the issue. Bank of America, Citigroup, HSBC, Merrill Lynch, UBS and Wachovia also worked on the flotation.

Investors bet on rival Bear bids

By Ben White and Francesco Guerrera in New York
Published: March 18 2008 21:09 Last updated: March 18 2008 23:28
Investors on Tuesday increased their bets that other bidders would emerge for Bear Stearns or that JPMorgan Chase would be forced to improve its offer, driving shares in the beleaguered investment bank to nearly three times the price at which JPMorgan agreed to take it over.
Investors were betting that opposition from some shareholders, such as Joseph Lewis, the UK-born billionaire whose stake in Bear is believed to be about 9 per cent, and some of Bear’s employees – who own about a third of the shares – could force the takeover price to be raised. JPMorgan agreed to pay $2 a share but Bear’s stock closed on Tuesday at $5.91, up 23 per cent, after trading as high as $8.50 during the day.
If the JPMorgan offer goes through, Bear’s shareholders will suffer huge losses on the value of their investments. Mr Lewis’s stake, for example, is believed to be more than $1bn below its value last year. Jimmy Cayne, Bear’s chairman and former chief executive, has also taken big paper losses on his holding.
Tavistock, Mr Lewis’s investment vehicle, declined to comment but people familiar with Mr Lewis’s thinking said he con-sidered JPMorgan’s offer derisory and would oppose it when Bear’s shareholders voted on the deal in the next two months.
The people familiar with Mr Lewis denied press reports that the billionaire was looking for other bidders, saying he thought JPMorgan would end up buying Bear but that he would agitate for a higher price.
JPMorgan executives have expressed confidence that the deal would be approved. They argue that there are few other buyers able to take on the firm’s $300bn balance sheet and persuade the Federal Reserve to extend the $30bn credit line to fund Bear’s illiquid assets that JPMorgan secured during frantic negotiations at the weekend.
Under the terms of the deal, if Bear’s board recommended an-other offer, the company would have to issue 20 per cent of its share capital to JPMorgan at $2 a share, which would give JPMorgan a big say in a rival takeover.
JPMorgan has also won an agreement to buy Bear’s Madison Avenue building for $1.1bn, even if the deal falls through.

Sterling falls victim to market stresses

By Peter Garnham in London
Published: March 18 2008 18:54 Last updated: March 18 2008 18:54
Sterling has joined the dollar as one of the biggest casualties of the credit crisis.
The pound recovered some ground on Tuesday when global equities showed signs of stability, after global equity markets tumbled following the rescue of Bear Stearns, the US investment bank. The came after it on Monday experienced its biggest one-day fall since its ejection from the European exchange rate mechanism in 1992.
The pound dropped to a record low of £0.7912 against the euro and plunged nearly two cents against the dollar. On a trade-weighted basis, the pound fell nearly 2 per cent, taking it to its weakest level since January 1997.
Analysts said worries over the health of the global financial sector and the resulting weakness in UK financial stocks were the catalyst for the move and that the currency was likely to continue to come under pressure.
Hans Redeker at BNP Paribas, said: “Sterling is likely to feel the full force of the stress in financial markets given UK economy’s exposure to the financial sector.”
Concerns over the UK financial sector have been weighing heavily on the pound in recent months. Sterling has fallen more than 4 per cent against the dollar since it hit a 26-year peak above $2.10 last November, lost more than 12 per cent against the euro, and tumbled nearly 18 per cent against the yen.
Markets expect the Bank of England to deliver interest rate cuts of 100 basis points by the end of the year to stave off the effects of the credit crisis.
A close relationship has developed between the outlook for the UK financial sector and the performance of the pound, particularly against the euro.
Simon Derrick at Bank of New York Mellon said it was significant that the start of the pound’s aggressive downward trend against the euro started on September 13, the day it became clear that the Bank of England had been providing emergency funding to Northern Rock, the recently nationalised mortgage lender.
Mr Derrick said there had been a 90 per cent correlation between the performance of the pound against the euro and the persistent outflows of foreign capital from UK equities as monitored by the Bank of New York Mellon.

Friday, March 14, 2008

Euro vs US Dollar Hit Record High As Investors Lose Confidence In Fed

The US dollar got crushed as many financial institutions questioned the Fed’s success in reviving liquidity in the credit markets. The Swiss franc and the Yen picked up the most against the crumbling dollar as both currencies retraced yesterday’s losses to hold near record highs as weary investors dumped their holdings of carry trades. Against the European currencies, the euro strengthened against the US dollar to touch another record high of 1.5573, with the British pound appreciating to hold above 2.02. The commodity currencies also picked up modest gains as oil prices surged to a new record high of $110.01.

British Pound Hits 2 Month High

The British pound rallied 230 pips to a 2 month high against the US dollar today.

As we expected, the trade deficit narrowed in the month of January as the weakness of the sterling against the British pound drove up the volume of good sold to EU countries. The pound weakened against the Euro which tells us that the move in the GBP/USD may be due just as much to the strength of the British pound as the weakness of the US dollar. EUR/GBP on the other hand continues to gain strength as the monetary policy and economic data of the Eurozone come in stark contrast to the US and UK.

Darling's First Budget gets the Thumbs down - Sell Pounds

UK Business leaders believe Alistair Darling's first Budget will make the economic slowdown worse and the Chancellor's reputation among them has sunk to a new low, the Independent reports. A survey of 100 prominent businessmen and women by ComRes found that three in four rejected Darling's central claim that his strategy would help Britain weather the global economic storm. Some 73 per cent said they believed the Budget would contribute to an economic downturn in the UK, while 23 per cent thought it would not, the paper says.

Buying Euros - great way to make money!

Another record breaking day for the euro as it broke above $1.56 against the dollar yesterday. Poor data from the US helped the single currency break new highs as the relentless march of the euro continues. Against the pound, the euro gained about 20 pips from the previous days session and the euro looks to finish the week breaking new highs against a few majors. This morning we have seen German Consumer Price Index figures come in line with expectations at a rise of 0.5%. Food and energy have been among the largest contributors to push inflation up.

Data at 10.00am: Eurozone CPI MoM expected at 0.3% from –0.4% previous.

Strong Pound makes a change!

The pound stayed in tight ranges yesterday as it continued to look strong against an ever decreasing dollar but remained weak against the buoyant euro. Yesterday’s BoE inflation report weighed heavily on the pound as expectations of inflation, a crucial issue for the rate-setting Monetary Policy Committee, continued to reach new records last month. The MPC fears that recent steep increases in food and fuel prices will lead individuals and companies to expect higher inflation which will stoke up wage demands and encourage companies to raise prices, making this strengthening in inflationary pressure a self-fulfilling prophecy.

No data today.

The dollar plummeted to record lows yesterday

The dollar plummeted to record lows yesterday as retail sales figures confirmed that the US is in recession and concern intensified about spreading distress in the hedge fund sector. Retail sales came in negative 0.6% from an expected 0.2% rise. In a turbulent day of trading, the US dollar tumbled against the Yen, breaking through the Y100 to the dollar for the first time since 1995, before recovering to Y100.79. The greenback dropped to a record low against the euro as it broke the $1.56 barrier—at which point Goldman Sachs estimated that the eurozone had overtaken the US as the worlds biggest economy measured by market exchange rates before easing slightly. The dollar was also down to a record low for the year against sterling as it hit over $2.03. The Fed’s Open Market Committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0.50%. However, in the past few weeks investors have been questioning whether another rate cut will help the economy.

Data at 12.30: Consumer Price Index MoM expected at 0.3% from 0.4% previous .
At 2.00pm we have the University of Michigan Conference and then the Fed’s Chairman ‘Bernanke’ to speak at 5.00pm.

Monday, March 10, 2008

Is the Fed going to Cut Rates TODAY?

Paul Ashworth, of Capital Economics, said: "We now think the Fed will be even more aggressive in cutting interest rates to try to turn the economy around. Up to now, the Fed has argued that the economy would experience nothing worse than a brief period of very slow growth. That is clearly no longer a tenable position. The time for half measures is past. "As such, we see the Fed rapidly cutting interest rates to 1pc by the middle of this year, through a combination of big cuts at its scheduled meetings and probably inter-meeting cuts as well. Indeed, there is a possibility that the Fed will seek to get ahead of the game by announcing an emergency rate cut before the markets open on Monday."

Canadian Dollar firmer on better Employment data.

Canadian employment data on Friday highlights the strength of the domestic economy and labour demand especially as jobs were concentrated in full time employment. GBPCAD was trading 1.9922

Australian Dollar sold off against the Pound

The Australian and New Zealand Dollar got sold off against the Pound on Friday night/Monday Morning after growing fears of a global slowdown and over inflated commodity prices. Key economic releases are closer to the end of the week when we get Australian employment data and New Zealand retail sales both on Thursday and US retail sales (Thrs)and CPI. GBPAUD was trading 2.1744 and GBPNZD was trading 2.5400

New Zealand Housing Prices Cooling! Expats this may be your chance to bag a bargin.

Growth in New Zealand house prices eased for the sixth straight month in February as rising mortgage rates further cooled the once-robust market. The Reserve Bank of New Zealand (RBNZ) raised its cash rate by a total of 100 basis points to 8.25 percent last year on concerns about strong domestic spending, particularly in the housing market.

Euro Buying pushes the rate up - As inflation fears continue.

European Central Bank Vice President Lucas Papademos said the pick-up in inflation has been ``unsatisfactory,'' suggesting he sees little room for policy makers to cut interest rates. While current monetary policy is ``contributing to the achievement of price-stability objectives,'' the likelihood is that the annual inflation rate ``would remain at a level significantly higher than 2 percent over a protracted period of time before it moderates,'' Papademos told reporters at a conference in Paris today.

Is Inflation Running away in the UK - Wages go up but not enough!

Take-home pay this year is expected to fail to keep pace with the rise in the cost of living, a comprehensive pre-Budget survey for price comparison website u-Swith.com suggests, the Times reports. British workers will be taking home an extra gbp 44 a month on average after this year's pay rises, but families are facing an increase of gbp 148 a month in essential living costs, it says. The survey suggested suggested that the average pay rise in Britain this year would be 3.4 per cent, compared with a 9 per cent rise in household bills.
10 March 2008 10:52:03

Euro

On Friday, the dollar staged a slight recovery against the euro and yen, after dropping to record lows on the poor U.S. labour data. The euro rose as high as $1.5465 on the jobs data, and has yet to plateau, say currency analysts, after a two-week rally marked by successive historic highs. This week, a survey by the Centre for European Economic Research, or ZEW, is expected Tuesday to show more nervous sentiment among German financial analysts and institutional investors in March as fears of a U.S. recession increase. economists surveyed by Dow Jones said.

Figures out today: 0800 German Trade balance / 0845 French Industrial Production / 1030 EA Sentix Investor Confidence.

Figures out today: 0800 German Trade Balance / 0845 French Industrial Production / 1030 EA Sentix Investor Confidence

Pound

Sterling led the rally against the USD on Friday moving quickly through the $2 level and moving as high as 2.0217 briefly. Having dropped to 1.30 against the Euro the Pound recovered to a high of 1.3150 before settling at 1.3120. Alistair Darling's first budget statement provides the highlight for the UK economic calendar this week, but economists say he will have little room to introduce fiscal measures to stimulate growth.

Figures out today: 0930 UK PPI / Industrial & Manufacturing production

Pound:

Sterling led the rally against the USD on Friday moving quickly through the $2 level and moving as high as 2.0217 briefly. Having dropped to 1.30 against the Euro the Pound recovered to a high of 1.3150 before settling at 1.3120. Alistair Darling's first budget statement provides the highlight for the UK economic calendar this week, but economists say he will have little room to introduce fiscal measures to stimulate growth.

Figures out today: 0930 UK PPI / Industrial & Manufacturing production

US Dollar

The USD sank to fresh lows against the Euro on Friday as Non-Farm Payrolls data came in dramatically lower than expected. The survey showed the US economy shed 65,000 jobs in February. Any doubt that the US is in the throes of a recession has been squelched. The fear now is that poor employment figures will start weighing on the economy as an additional burden on top of the collapse of the real estate market and tightening credit conditions. This is known as a ‘negative feedback loop’ as financial market strains lead to a weaker economy, which in turn leads to more financial turbulence. Wall Street initially rallied on the news as they expect the Federal Reserve to dramatically cut the Fed Funds rate. Goldman sees two 50 bps cuts at the next two Fed meetings while HSBC has lowered its Fed funds target to 1%.

Figures out today: 15:00 US Wholesale Trade

Friday, March 7, 2008

Pound above £2.000 against the US Dollar

Sterling had a fairly good day yesterday as it gained back 50 pips against the single currency and over 1 and
a half cents against the greenback, after the Bank of England kept rates on hold at 5.25%. They released no
statement after, unlike the ECB who had their normal press conference. The BOE hawks remain deeply concerned
about rising inflation expectations, but the weakening UK economy remains the bigger risk now. UK
rates look set on a heading for 4.5% by the end of the year, according to David Brown, chief economist at
Bear Stearns.
No data today.

What a day for the euro as it hit another record of $1.5395 yesterday and above $1.54 today

What a day for the euro as it hit another record of $1.5395 yesterday and above $1.54 today against the
greenback. This was the seventh session in eight after the ECB kept interest rates steady and offered no hints
that it may be planning rate cuts. Comments from ECB President Jean-Claude Trichet triggered the move for
the euro against the dollar as he said he was confident the ECB’s current monetary policy “will contribute” to
reining in inflationary risks and supporting economic growth. This left the market in no doubt where the ECB’s
priorities lie when it comes to their view on inflationary risks.
Data at 11.00am: German Industrial Production expected at 0.3% from 0.8% previous.
Speakers: ECB’s Constancio at 9.00am

The dollar had another bad day at the office yesterday

The dollar had another bad day at the office yesterday, as it continued to come under heavy pressure from a
basket of currencies, notably the euro. Comments by the ECB President sent the greenback spiralling as it
became clearer that the ECB are happy to hold on interest rate cuts, while the Federal reserve, which has
been slashing interest rates in recent months to boost a sagging economy, keeps signalling the likelihood of
further interest rate cuts this month. We mentioned this yesterday, but it seems there a lot more talk about
“emergency” Fed rate cuts doing the rounds yesterday afternoon and this morning. There is some speculation
it may happen this afternoon if we have very weak data from the US, with key Nonfarm Payrolls & Unemployment
Rate figures due at 1.30pm
Data at 1.30pm: Nonfarm Payrolls expected at 30k from –17k & Unemployment expected at 5.0% from
54.9% previous

BOE Announces rates at 5.25% unchanged from prior, as widely expected.

BOE Announces rates at 5.25% unchanged from prior, as widely expected.

ECB Interest Rate out at 4.00% as expected.

ECB Interest Rate out at 4.00% as expected.

US Strong Dollar policy in the interest of the US

Trichet repeats his comments that were the ineffectual the other day and will be so today. He has cut growth and raised inflation forecast for this and next year. This should see eur-usd higher. His comments two days ago ``In the present circumstances, I consider very important what has been affirmed and reaffirmed by the U.S. authorities, including the secretary of the Treasury and the president of theUnited States of A merica, according to whom a strong-dollar policy is in the interests of the United States,'' Trichet told reporters at a meeting of euro-area finance ministers in Brussels a couple of days ago. It would seem to us he is not that unhappy with the move higher in the euro.

London's standing as a leading financial centre under fire

Britain's standing as a leading financial centre is in danger of being undermined by ill-thought-out changes to tax and regulation, the Treasury was warned yesterday by the Association of British Insurers

Rumours of an emergency US Fed Rate Meeting tonight

A lot of talk about potential "emergency" Fed rate cut or more money market structural changes (or both) was doing the rounds yesterday afternoon and again this morning in Asian time zone. Speculation rife that it could be this afternoon after NFP data (particularly if the data reflects the negative ADP number released on Wednesday) or on Monday

Bank of Japan leave rates unchanged

The Bank of Japan's Policy Board left monetary policy unchanged at 0.50% Friday, following a two-day meeting. BoJ leaves economic assessment unch, tone more downbeat, cuts IP-profits view.

Another Major US homes lender near bankruptcy - Housing crisis continues

Thornburg, the American mortgage lender, was teetering on the brink of bankruptcy last night as a key creditor demanded that it liquidate assets after failing to put up $28 million (£13.9 million) in extra collateral. Thornburg’s escalating credit crisis coincided with new data showing that foreclosures on American properties hit a record in the fourth quarter of 2007.

Trichet - does he still have an ace up his sleeve

If Trichet is going to say something about the Euro, in an attempt to slow its trajectory, it has to be VERY timely. It's like having limited ammunition and the verbal bullet to slow Euro vs US Dollar needs to be spot on or such remarks will fail to get the desired response, if at all. This is clearly a function of diminishing returns where the first time a significant comment is made it has maximum impact but less so thereafter. In this context, expectations were arguably running too high that he would say something different about the Euro. After all, he specifically talked about the US Dollar earlier this week at the Ecofin meeting (and repeated this yesterday). Also, does he really want to be seen complaining about the Euro at an ECB meeting (and a day before payrolls)? It is somewhat of a conspiracy theory but perhaps he wants to use more of an international setting to talk about the Euro, such as this weekend's BIS meeting. This is what he did in January 2004 when he first used the `brutal' language. The press conference on Monday at 11.30am will be interesting. With this in mind however, Trichet knows once again that his silence will deafening.

Aversion to Risk Deepens Credit Woes

By FLOYD NORRIS
The credit markets came under renewed stress Thursday as investors sought absolute safety and even moved away from debt issued by Fannie Mae and Freddie Mac, the government-sponsored mortgage lending enterprises.
The intensifying credit crisis came as one regulator, Timothy F. Geithner, the president of the Federal Reserve Bank of New York, said that some banks had moved from being too willing to take on risks to being reluctant to take any chance of losing money, a move that was making the crisis worse.
“The rational actions taken by even the strongest financial institutions to reduce exposure to future losses have caused significant collateral damage to market functioning,” Mr. Geithner said in a speech to the Council on Foreign Relations. “This, in turn, has intensified the liquidity problems for a wide range of bank and nonbank financial institutions.”
Those liquidity problems intensified Thursday as a new increase in the number of mortgage foreclosures was reported and two financial companies that had relied on borrowed money said they were unable to raise the cash demanded by their lenders.
Both Carlyle Capital, a company sponsored by the Carlyle Group, a major private equity fund, and Thornburg Mortgage, the second-largest independent mortgage lender in the United States after Countrywide, said they had been unable to meet the demands and had defaulted on some obligations. Their stock prices plunged.
The credit market jitters were blamed for a sharp drop in stock prices, with the Standard & Poor’s 500-stock index falling 2.2 percent. Financial stocks were the hardest hit, with an index of such shares falling to its lowest level in more than four years. Fannie Mae shares fell $2.57, or 10.6 percent, to $21.70, and Freddie Mac shares dropped $1.50, or 6.7 percent, to $20.14. Both are at their lowest level in more than a decade.
As the economy grew through most of this decade, much of the growth was fueled by borrowing, both by individuals taking out mortgages and by investors who sought high returns through highly leveraged investments. Some of those investments are now unraveling because lenders will not lend enough money to enable investors to hold on to them. That reluctance forces the sale of investments, which lowers prices and makes lenders even less willing to risk their capital.
“Leverage is acceptable in a stable economic environment, but not in an economic crisis,” Geraud Charpin, a strategist at UBS, wrote last week.
At the end of last year, Carlyle Capital had $21.76 billion in assets, of which $21.69 billion had been pledged as collateral against loans. It had borrowed $31 for every dollar of equity, and even a $150 million line of credit from its parent, the Carlyle Group, was not enough to keep it out of trouble as lenders demanded more collateral to back up their loans.
Fannie Mae and Freddie Mac, whose debt has been viewed as almost as safe as that of the government itself, have played an essential role in keeping the mortgage markets functioning. That is because many mortgage companies have gone out of business and investors have been unwilling to buy mortgage-backed securities unless the government, or one of the enterprises, guaranteed the mortgages.
The difference between the yield on long-term debt guaranteed by Fannie Mae and that of similar Treasury debt rose to its largest level in more than 20 years, providing a new sign of the nervousness that has affected financial markets.
In Congressional testimony, William B. Shear, an official with the Government Accountability Office, warned that Fannie and Freddie, “with more than $6 trillion in outstanding obligations,” could pose “significant risks to taxpayers” if they ran into difficulty.
Each of the two enterprises has a $2.25 billion line of credit with the Treasury, but that is a small fraction of what they owe. Mr. Shear said it was “generally assumed on Wall Street that assistance would be provided in a financial emergency.”
With the trading levels indicating that some traders were no longer as confident of that assumption as they had been, rumors swirled that the Treasury Department was preparing to issue an explicit guarantee of the debts of government-sponsored enterprises, or G.S.E.’s, to calm the market. A Treasury spokeswoman denied those rumors.
“The rumor of an explicit government guarantee for the G.S.E.’s speaks to the gravity of the current situation,” said Margaret Kerins, a strategist at RBS Greenwich Capital.
The index of yields on Fannie Mae guaranteed loans rose to 5.96 percent on Thursday, an increase of 13 basis points from the previous day. (A basis point is one-hundredth of a percentage point.) At the same time, the yield on 10-year Treasury bonds fell 9 basis points, to 3.58 percent.
The difference in the two yields, of 2.38 percentage points, was the largest since 1986 and was more than twice the difference of a year ago, before credit fears began to grow.
The credit crisis began last year with indications of rising defaults on subprime mortgage loans, a problem that bankers and regulators said could be easily contained. But it gradually spread as confidence declined in the financial engineering that has remade the financial system in recent years.
The bond rating agencies have been forced to reduce the ratings on some structured finance products — many of them ultimately backed by mortgage loans — from AAA to very low levels. That has damaged the credibility of the agencies at the same time that it has made investors wary of taking on any risk.
Many of those structured finance products had been guaranteed by bond insurers like MBIA and Ambac, and the fact that they could face significant claims has led to concerns about their solvency.
An effort to bail out Ambac with guarantees from banks foundered on the reluctance of banks to commit capital they might need for other purposes, and a plan announced Wednesday for the company to raise additional capital by selling stock was greeted with hostility by investors, causing its share price to lose nearly a third of its already depressed value in the last two days.
Concerns have also grown about a recession, with economists forecasting an increase in the unemployment rate when February’s job figures are released Friday. On Thursday, the Federal Reserve reported that the net worth of households fell in the first quarter, the first time that had happened since 2002.
The Mortgage Bankers Association reported that the proportion of borrowers more than 30 days delinquent rose to 5.82 percent, the highest since 1985. The situation was worst among subprime borrowers who had taken out adjustable rate mortgages, but the proportion of prime mortgages that were delinquent also rose, to 3.24 percent.

Thursday, March 6, 2008

Bank of Japan still worried about growth.

Bank Of Japan is still worried with upward growth momentum weakening, the BOJ's board is expected to remain on hold at the policy-setting meetings this week and in the coming months, but they are closely checking downside risks to sustained economic expansion. 1 Euro is worth 159.00 Japanese Yen.

South African Rand is still very weak at above 15 Rand to the Pound

Concerns over the direction of the South African economy are also weighing on sentiment towards domestic assets and the Rand is failling to find friens and is trading at 15-50 Rand to the Pound. GBPZAR 15.50 trading last.
05 March 2008 17:06:32

Bank of Canada Cuts Rates 0.50% - but Canadian's still dont want to buy homes!

The number of Canadians intending to buy a home is at the lowest level since 2002, according to RBC Royal Bank's annual homeownership survey released Tuesday.The survey results indicated that overall those who "planned to buy a home" within the next two years has declined five percentage points to 23%. The number "very likely" to buy a home has fallen from 9% in 2007 to 7% in 2008 -- the lowest level since the survey began 15 years ago.

Plan those US Holidays Now as the Pound trades higher today!

Plan those US Holidays Now as the Pound managed to trade higher after fresh buying from the 1-9730 low aganist the US Dollar. If the Pound can manage to push though 1.9950 it opens the path to 2.000. It also may spread so relief to those looking to buy Euros as the Pound has been unloved for some time. This although could all be undone by the Bank of England cutting rates on Thursday.

The euro had another good day against the dollar yesterday

The euro had another good day against the dollar yesterday, sustained by weak US data and anticipated support from the European Central Bank. The euro rose to $1.5305 before dropping back to $1.5285. The markets are expecting ECB President—Jean Claude Trichet to express little concern about the weakening dollar in his statement after the ECB monetary policy meeting later today. Against sterling the euro rose to 0.7682, another record high for the single currency. Looking forward, the ECB is expected to leave its refinancing rate on hold at 4.0%, with the markets closely monitoring the press conference straight after the rate decision, for any change in rhetoric from Jean-Claude Trichet on their tough anti-inflation stance.
Data at 12.45: European Central Bank Rate Decision expected to be unchanged at 4.0%

Sterling benefited from a continuing weak dollar

Sterling benefited from a continuing weak dollar yesterday as cable tried to test the $2.00 level again. The pound gained nearly 2 cents against the greenback, but fell against the euro, getting forever dangerously close to the €1.30 level. Figures yesterday showed that prices in the British service sector rose to a record high in February. Activity in the sector rose for a third consecutive month from 52.5 in January to a five month high of 54 in February. Looking towards today, The Bank of England should keep rates on hold to quell persistent inflationary pressures, despite mounting evidence that an economic slowdown is taking hold, according to the Times MPC.


Bank of England rate Decision expected to remain unchanged at 5.25%

The dollar was smashed yesterday

The dollar was smashed yesterday as it took hits from all sides and hit all time lows against the euro. The key $1.5300 was breached against the single currency, and the dollar lost nearly 2 cents against sterling. At around 4.00pm, news also trickled through that US Treasury Secretary Hank Paulson had added to the overall bearish sentiment towards the US currency. The Fed’s beige Book report was released yesterday evening and it indicated growth at the start of the year was sluggish and accompanied by rising price pressures. With the credit crunch steadily worsening and no bottom to the housing slump in sight, the Federal Reserve appears poised to deliver another steep interest-rate cut in two weeks time. But be aware, they may go early on this, as we saw back on January 22nd.

Fed should cut rates by to much and not worry about inflation

The global credit crisis creates big downside risks to an already softening economy that require bold action from the U.S. central bank, Cleveland Federal Reserve President Sandra Pianalto said on Wednesday. Under these circumstances, the Fed should err on the side of doing too much, despite signs of rising inflation, Pianalto said.

New Zealand dollar is exceptionally and unjustifiably high

Reserve Bank of New Zealand Governor Alan Bollard said on Thursday the country's currency was high largely as a result of a slide in the U.S. dollar. "Against the U.S. dollar we think the New Zealand dollar is exceptionally and unjustifiably high," Bollard told a media briefing. The New Zealand dollar hit a 23-year post float high of $0.8215 last week against the US Dollar. It gained around a quarter of a cent to just above $0.8000 after the RBNZ kept its cash rate in hold at 8.25 percent as expected on Thursday. GBPNZD is trading 2.4850

Wednesday, March 5, 2008

Canadians more wary of buying a home




OTTAWA -- The number of Canadians intending to buy a home is at the lowest level since 2002, according to RBC Royal Bank's annual homeownership survey released Tuesday.
The survey results indicated that overall those who "planned to buy a home" within the next two years has declined five percentage points to 23%. The number "very likely" to buy a home has fallen from 9% in 2007 to 7% in 2008 -- the lowest level since the survey began 15 years ago. The survey authors suggest there are signs of a slowdown in the housing market as the number of Canadian dollar buy now rather than waiting until next year fell from 58% in 2007 to 52% in 2008.
"I'm not surprised by the results. We've had a really long, strong real estate market and this is not a dramatic drop." said Catherine Adams, RBC Royal Bank's vice-president, home equity financing. "It's really just saying things are starting to cool down. People are ... being a bit more cautious."
Ms. Adams suggested that Canadians remained optimistic about the housing market -- but that they were merely less optimistic than last year. "I think it's a healthy economy, it's a very healthy real estate market, very healthy mortgage lending practices within Canada." said Ms. Adams. According to the RBC survey, 56% of respondents also anticipate house prices will rise. In 2007 that figure was 59%. More respondents also believe their mortgage rates will change. A total of 46% believe rates will rise compared with 43% in 2007. However, the numbers who anticipate a cut in the cost of their home loan rose seven percentage points to 23% in Tuesday's survey. Survey respondents in Quebec bucked the downward trend with those likely to buy a home in the next two years rising two percentage points to 21%. The numbers very likely to buy a home were at 9% in Saskatchewan and Manitoba followed by Alberta at 8%. Around 7% of respondents in B.C., Ontario and Quebec said they were very likely to purchase a home in the next two years with just 5% in Atlantic Canada saying they expected to be in the market for a home.
The online survey is based on a randomly selected representative sample of 3,023 adult Canadians. With a representative sample of this size, the results are considered accurate to within plus or minus 1.8 percentage points, 19 times out of 20

Macquarie axes mortgage business




March 05, 2008 09:05am


MACQUARIE Group is to wind back its retail and wholesale Australian residential mortgage origination services due to higher funding costs. In a statement to the market this morning, Macquarie said its subsidiary, Macquarie Securitisation, also was reacting to “current conditions in the global mortgage securitisation market''. Macquarie said it “would wind-back its Australian residential mortgage origination services for both retail and wholesale customers due to the significant increase in the cost of funding mortgages.'' The Head of Macquarie's Banking and Financial Services Group, Peter Maher, said the Bank would “substantially reduce'' origination of new residential mortgages in Australia from March 7, 2008, but would continue to provide full service to existing customers.Macquarie customers in Australia currently hold 95,000 facilities with the bank. ”There will be no impact on these customers and we will continue to provide to them the range of existing customer services including mortgage variation services,'' Mr Maher said.”It will be business as usual for our existing customer base.''He said new mortgage business would still be written albeit at much reduced volumes. Mr Maher said Macquarie's mortgage portfolio represented around 2.5 per cent of the total outstanding housing loans market in Australia. The portfolio is funded mainly by wholesale securitisation markets. ”As noted by numerous market participants, deteriorating conditions in these markets over the past six months have resulted in a sharp rise in the cost of funding mortgages and significant reductions in the availability of funding from both the domestic and international mortgage securitisation markets,'' Mr Maher said.Macquarie Group chief financial officer Greg Ward said the decision would not be significant to Macquarie's overall financial position. ”We have previously advised the market that in full year 2007, the retail and wholesale residential mortgage businesses represented less than 1 per cent of Macquarie Group profits,'' Mr Ward said. ”The impact of the decision to wind-back the business is not financially material. We have also previously advised that the mortgages business has no sub-prime exposure, default rates are low and the credit quality of the portfolio is good.''

What a day for the euro!

What a day for the euro! The single currency was on a charge against the greenback and hit an all time high against the dollar to touch $1.5276, and against sterling the euro rose to 0.7557. But then speakers from the ECB, including Jean-Claude Trichet, President of the central bank, fired some warning shots across the bows of foreign exchange markets, as their relentless assault on the dollar continues to drive the euro to these records highs , which is threatening to eurozone growth. Rising European unease over the euros' gains was emphasised by Jean-Claude Juncker, chairman of the Eurogroup. He said after yesterdays meeting, “I am starting to become increasingly concerned and vigilant”. More comments which seemed to show not everyone in the eurozone is happy with the state of the euro were highlighted by the IMF’s managing director Dominique Stauss-Kahn, who seemed to blame ECB neglect of growth prospects and determination to focus on fighting inflation for the euros' strength.
Data at 10.00am: PPI expected at 0.8% from 0.1% previous, GDP expected at 0.4% unchanged.

Price Pressures for Bank of England

The Bank of England’s concerns over price pressures were fuelled yesterday as a key indicator of the price of goods leaving factories showed the British manufacturers had increased prices at a record rate last month. The index rose to 59.9 last month, the highest since figures were first collected in 1999. Any figure above 50 indicates increasing pricing pressures. This data will undoubtedly highlight the central banks concerns over inflation, and thus confound the market view that they will leave interest rates on hold later this week.
No data today.

The dollar and euro trade punches


The dollar and euro seemed to trade punches yesterday in a very volatile day on the currency markets. The greenback initially fell in its fifth straight session against the euro hitting an all time low at $1.5275, but then staged a storming comeback in mid afternoon, clawing back 2 cents against the single currency. It was a similar story against sterling as a 1 cent loss earlier in the day was soon made back before the close. The ISM’s headline index of manufacturing activity in February dropped to 48.3, its lowest level since April 2003. In further bleak news for the US economy, official figures showed that construction spending tumbled by 1.7% in January, in its sharpest drop for 14 years.
No data today but plenty of speakers: Fed Chairman Bernanke to speak at 2.00pm, Fed’s Fisher & Mishkin to speak at 6.00pm.

Tuesday, March 4, 2008

Strong Euro now threatening Eurozone growth


What a day for the euro! The single currency was on a charge against the greenback and hit an all time high against the dollar to touch $1.5276, and against sterling the euro rose to 0.7557. But then speakers from the ECB, including Jean-Claude Trichet, President of the central bank, fired some warning shots across the bows of foreign exchange markets, as their relentless assault on the dollar continues to drive the euro to these records highs , which is threatening to eurozone growth. Rising European unease over the euros' gains was emphasised by Jean-Claude Juncker, chairman of the Eurogroup. He said after yesterdays meeting, “I am starting to become increasingly concerned and vigilant”. More comments which seemed to show not everyone in the eurozone is happy with the state of the euro were highlighted by the IMF’s managing director Dominique Stauss-Kahn, who seemed to blame ECB neglect of growth prospects and determination to focus on fighting inflation for the euros' strength.

The Bank of England’s concerns over price pressures were fuelled yesterday as a key indicator of the price of goods leaving factories showed the British manufacturers had increased prices at a record rate last month. The index rose to 59.9 last month, the highest since figures were first collected in 1999. Any figure above 50 indicates increasing pricing pressures. This data will undoubtedly highlight the central banks concerns over inflation, and thus confound the market view that they will leave interest rates on hold later this week.

Australia rises rates again to 7.25%!!!!!!!

RBA raised the official cash rate by 25 Bps to 7.25%, a widely expected decision. Inflation likely to remain relatively high; inflation to moderate next year on slower demand, household demand for credit is slowing. GBPAUD 2.1305

Dollar reached a new all-time low against the Euro yesterday

Dollar reached a new all-time low against the Euro yesterday

The dollar and euro seemed to trade punches yesterday in a very volatile day on the currency markets. The greenback initially fell in its fifth straight session against the euro hitting an all time low at $1.5275, but then staged a storming comeback in mid afternoon, clawing back 2 cents against the single currency. It was a similar story against sterling as a 1 cent loss earlier in the day was soon made back before the close. The ISM’s headline index of manufacturing activity in February dropped to 48.3, its lowest level since April 2003. In further bleak news for the US economy, official figures showed that construction spending tumbled by 1.7% in January, in its sharpest drop for 14 years.

Monday, March 3, 2008

British Expats are back on top Down Under!

British Expats have overtaken Asian imigrants in Australia as more than 1 million Bristish Expats live down under. LIFESTYLE, weather, open spaces, jobs, food – take your pick. These are all reasons why Britons are packing their bags and heading to Australia in droves. This is forcing housing prices up as locals are fighting cash rich British expats for new housing. GBPAUD is trading at 2.1400

Pound Marks New Record Low Against Euro As Housing Slump Deepens

Pound Marks New Record Low Against Euro As Housing Slump Deepens

The British pound was unable to capitalize on the dollar’s weakness at the end of last week; and today’s data reminds us why: the UK economy is looking a lot like its US counterpart a year ago. An unfolding housing recession is perhaps the most blatant comparison being made between the two economies. The Nationwide House Prices indicator for February reported the fourth consecutive monthly decline in residential inflation – the worst trend from this series since the beginning of this decade. What’s more, the annual gauge cooled more quickly than expected for its worst reading since September of 2005. The sticky credit market is another factor that may cool the UK economy to a crawl. Banks have yet to pass on the BoE’s recent rate cuts, leading to the second fewest mortgage filings on record.

US Dollar - 1.50 Broken, Now What?

It finally happened. After three failed attempts over the past several months the Euro vs US Dollar broke the 1.5000 barrier and barreled to 1.5200 as the case for decoupling became clearer by the day. US economic data continued to disappoint sinking to a six year low while Euro Zone data produced mainly upside surprises. As we’ve said many times before, much to the consternation of euro bears the Euro Zone economy is not crumbling despite disadvantageous exchange rates, high energy costs and a restrictive monetary policy. The greenback on the other hand was further pummeled by Chairman Bernanke’s dour testimony which suggested that the Fed will continue to lower rates, irrespective of the massive inflationary risks building up within the US economy. The chairman repeatedly stressed the need for “balance” essentially telegraphing to the markets that the Fed is far more concerned with stimulating growth rather than controlling price pressures. The net effect of Dr. Bernanke’s rhetoric was more dollar liquidation as traders now fully expect a 50bp cut in March which would widen the spread between the dollar and the euro to 150bp in euro’s favour.

Dollar stages a slight fight back

The dollar had a slight fight back on Friday, with profit taking helping the greenback regain some of its losses. Today’s focus will be on the ISM manufacturing data which if it declines further while key European data remains firm, may push the greenback further towards $1.53 against the euro. If the ECB keep rates unchanged this week, and the Fed as expected, cuts rate on or before March 18th, we may see the dollar continue it’s slide still further. Michael Woolfolk at Bank of New York Mellon said “The dollar may bounce. The more the dollar falls… the more likely we’ll have a dollar correction, but it shouldn't be mistaken for a dollar bottom”. UBS says its short term forecast for the euro-dollar is as the high end of $1.50-$1.55 range.

UK Interest Rates are expected to remain unchanged this week

The Bank of England’s Monetary Policy Committee is expected to leave interest rates on hold this week, while manufacturing and services sector purchasing managers index data are likely to paint a mixed picture, economists said. The “shadow” monetary policy committee has voted 7-2 to keep bank rates on hold at 5.25% this month. A report in the Sunday Times said despite a 0.5% drop in house prices and evidence from the CBI that February was a struggle for retailers, this does not seem like a month when the Bank of England’s MPC should or will cut interest rates. The thinking is of May for the next one.

Euro still strong against Pound Sterling

The euro gave up some of its gains against the dollar on Friday, but is expected to have another strong week against the greenback. The ECB is expected to leave its key refinancing rate on hold at 4.00% at Thursday’s meeting and as usual, economists said they would pay close attention to the central bank’s press conference, at which it will outline the latest forecasts from its staff. The euro has dropped slightly against the dollar and yen, but is still strong against sterling.

Yen is at its strongest level for two years

The Yen was a major gainer as carrys trade were unwound due to uncertainty in the financial markets. The Japanese currency is at its strongest level against sterling in nearly two years