Thursday, 31 May 2012

Interbank Foreign Exchange Rates

                          Latest       Previous   %Chg    Daily    Daily   %Chg 
Dollar Rates                               Close            High      Low  12/31 
USD/JPY Japan            78.42-46       78.30-33  +0.16    78.65    78.32  +1.98 
EUR/USD Euro            1.2349-52      1.2362-65  -0.11   1.2368   1.2324  -4.70 
GBP/USD U.K.            1.5374-78      1.5402-10  -0.19   1.5409   1.5368  -1.07 
USD/CHF Switzerland     0.9720-24      0.9713-17  +0.07   0.9744   0.9712  +3.73 
USD/CAD Canada          1.0347-52      1.0326-31  +0.20   1.0362   1.0320  +1.37 
AUD/USD Australia       0.9690-94      0.9732-36  -0.43   0.9734   0.9650  -5.06 
NZD/USD New Zealand     0.7516-22      0.7529-34  -0.16   0.7536   0.7486  -3.31 
Euro Rates 
EUR/JPY Japan            96.85-90       96.81-85  +0.05    97.10    96.80  -2.70 
EUR/GBP U.K.            0.8032-35      0.8024-28  +0.09   0.8033   0.8018  -5.01 
EUR/CHF Switzerland     1.2008-12      1.2009-13  -0.01   1.2013   1.2010  -1.33 
EUR/CAD Canada          1.2780-88      1.2766-73  +0.11   1.2783   1.2754  -3.39 
EUR/AUD Australia       1.2741-48     1.2698-705  +0.34   1.2775   1.2686  +0.38 
EUR/DKK Denmark        7.4287-332     7.4292-333   0.00   7.4335   7.4244  -0.06 
EUR/NOK Norway         7.5572-648      7.5606-72  -0.04   7.5667   7.5534  -2.38 
EUR/SEK Sweden         8.9834-914     8.9835-912  +0.00   8.9928   8.9662  +0.79 
EUR/CZK Czech Rep.      25.707-46     25.681-752  +0.04   25.753   25.606  +0.51 
EUR/HUF Hungary       300.66-1.38    300.46-1.14  +0.07   300.99   300.90  -4.47 
EUR/PLN Poland        4.3886-4040     4.3834-943  +0.17   4.3965   4.3796  -1.59 
Yen Rates 
AUD/JPY Australia        76.00-06       76.20-27  -0.27    76.47    75.80  -2.80 
GBP/JPY U.K.            120.56-66      120.60-70  -0.03   121.04   120.61  +0.89 
CAD/JPY Canada           75.75-83       75.79-87  -0.05    76.08    75.78  +0.61 
NZD/JPY New Zealand    58.94-9.02     58.95-9.02  -0.01    59.19    58.81  -1.39 
Other Dollar Rates 
USD/CZK Czech Rep.      20.815-44     20.773-828  +0.14   20.862   20.716  +5.46 
USD/HUF Hungary       243.46-4.00      243.04-55  +0.18   243.97   243.36  +0.24 
USD/DKK Denmark         6.0152-78     6.0095-117  +0.10   6.0296   6.0086  +4.87 
USD/NOK Norway         6.1191-242     6.1157-200  +0.06   6.1359   6.1096  +2.43 
USD/PLZ Poland         3.5536-654     3.5457-541  +0.27   3.5608   3.5452  +3.26 
USD/RUB Russia         33.419-524     33.306-416  +0.33   33.640   33.280  +4.11 
USD/SEK Sweden          7.2741-92     7.2666-717  +0.10   7.2905   7.2616  +5.77 
USD/ZAR S. Africa      8.5073-224     8.5156-272  -0.08   8.5647   8.4964  +5.29 
USD/CNY China           6.3667-88     6.3685-706  -0.03   6.3715   6.3684  +0.77 
USD/HKD Hong Kong       7.7610-16      7.7617-27  -0.01   7.7634   7.7612  -0.07 
USD/MYR Malaysia       3.1777-878     3.1682-748  +0.35   3.1880   3.1742  +0.17 
USD/INR India           56.078-93      56.033-48  +0.08   56.078   56.093  +5.77 
USD/IDR Indonesia         9302-63         9400-0  -0.72     9392     9300  +3.32 
USD/PHP Philippines    43.445-646     43.326-570  +0.22   43.605   43.526  -0.69 
USD/SGD Singapore       1.2865-72      1.2882-90  -0.14   1.2906   1.2864  -0.74 
USD/KRW S. Korea    1179.39-80.00  1179.29-81.80  -0.07  1182.99  1180.00  +1.65 
USD/TWD Taiwan         29.839-940      29.829-90  +0.10   29.879   29.870  -1.24 
USD/THB Thailand       31.778-836     31.793-856  -0.05   31.881   31.828  +0.66 
USD/VND Vietnam        20595-1252       20805-70  +0.41    20595    21252  -0.54 
USD/BRR Brazil          2.0215-46      2.0219-50  -0.02   2.0255   2.0234  +8.44 
USD/MXN Mexico        14.4206-434    14.3643-731  +0.44  14.4662  14.3320  +3.48 
USD/ARS Argentina      4.4642-716     4.4657-730  -0.03   4.4676   4.4710  +3.69 
Source: ICAP Plc. 
(END) Dow Jones Newswires
May 31, 2012 22:50 ET (02:50 GMT)

-The State Bank of Vietnam Friday set the exchange rate for the U.S

                        Friday                Thursday 
   Official USD/VND rate: VND20,828             VND20,828 
   Vietcombank rate:      VND20,840-VND20,890   VND20,840-VND20,890 
   Gold shop rate:        VND20,870-VND20,890   VND20,860-VND20,890 
HANOI (Dow Jones)--The State Bank of Vietnam Friday set the exchange rate for the U.S. dollar at VND20,828, unchanged from Thursday.
Rates offered by major commercial banks led by Vietcombank are steady, while gold shops have slightly raised their selling rate.
"Forex trading activity in the interbank market is lackluster because of weak corporate demand for the greenback as many trading firms still report slow sales of imported materials and goods," said a foreign exchange dealer with a Hanoi-based commercial joint stock bank.
Many domestic firms have reportedly said they faced rising inventories in May because of weak consumption caused by ongoing recession, the dealer said.
Dollar demand from importers of staple items declined after the import value of gasoline fell 13.3% on year to $3.98 billion over January-May, while automobile imports fell 36% to $845 million during the same period, said the dealer, citing government trade data released this week.
Another dealer with Ho Chi Minh City-based ACB Bank said though Vietnam reported a trade deficit of $700 million in May, the deficit was only $632 million for the January-May period compared with a deficit of more than $6.25 billion booked for the same period last year.
"These figures show that Vietnam has faced no immediate dollar shortage, and I expect the exchange rate to be flat in the near term," the dealer said.
Currency dealers with banks and gold shops in Hanoi and Ho Chi Minh City forecast the free market rate to move in a range of VND20,870 to VND20,900 over the weekend.
-By Nguyen Pham Muoi, Dow Jones Newswires; 84-4-35123041;
(END) Dow Jones Newswires
May 31, 2012 22:30 ET (02:30 GMT)

HSBC's China

0240 GMT [Dow Jones] HSBC's China PMI, a competing measure to the official PMI which is better regarded by many analysts, declined to 48.4 in May, compared to 49.3 in April and an earlier preliminary reading of 48.7. The series has been in contractionary territory below 50 for seven straight months, in contrast to the official CFLP PMI, which posted a rise to 53.3 in April before falling to 50.4 in May. The April CFLP PMI reading has been widely viewed with suspicion in markets, as other April data was weak across-the-board. In a note on Thursday, Capital Economics said the HSBC PMI is more reliable due to better seasonal adjustment and a higher sampling of small, private-sector firms. The HSBC index "is more representative of the manufacturing sector as a whole," Capital Economics said. "It is also independent of official control." ( 

China official May PMI drops sharply to 50.4 from 53.3 in April

-- Currencies in Asia-Pacific region fall on weak data
-- Economists says economy will bottom out in the second quarter
BEIJING -- China's official Purchasing Managers Index fell significantly to 50.4 in May from April's 53.3, showing an accelerated slowdown in the world's second-largest economy that calls for more stimulus policies.
The gauge for nationwide manufacturing activity was also lower than the median forecast of 51.5 from 10 economists polled by Dow Jones Newswires. Nine out of the 10 economists predicted a higher PMI than the real figure.
A PMI reading above 50 indicates an expansion in manufacturing activity, while a reading below 50 indicates contraction.
After the weak data was announced, the Australian dollar fell to 0.9644 against the U.S dollar, its lowest level since Oct. 5, 2011. Other regional currencies including the New Zealand dollar and Singapore dollar were all lower because of the China PMI.
Due to weak overseas demand and domestic investment, China's economic growth will likely bottom out in the second quarter, before Beijing's supportive policies begin to take effect in the second half of the year, economists said.
"As risks of a hard landing have increased, Beijing should issue more policies to stabilize economic growth," said Li Huiyong, an economist at Shenyin & Wanguo Securities.
"The quicker interest rates are cut the better," he said.
Meanwhile, Standard Chartered economist Li Wei expressed some skepticism at the big drop in the PMI. The high April figure is suspect given that other data were weak across the board that month, and flawed seasonal adjustment methods may be the culprit, Li said.
"I think the slowdown is all being reflected in May, so I'm a little bit concerned about some over-correction in the data," he said.
Nonetheless, Li said there is no doubt underlying economic conditions are weak and economic data may not begin to reflect the stimulus until August or September.
-Liu Li and Aaron Back contributed to this article, Dow Jones Newswires; 8610-8400-7713;
(END) Dow Jones Newswires
May 31, 2012 21:35 ET (01:35 GMT)

END) Dow Jones Newswires May 31, 2012 22:19 ET (02:19 GMT)

0219 GMT [Dow Jones] Korea government bonds are higher, helped by continued risk aversion amid worries over the euro zone debt crisis, while data tips weaker growth in China and the U.S. "Yields of local bonds, like those on U.S. Treasurys, are already trading at very low levels, but there is no clear momentum yet to revive risk appetite in the market," says Kim Se-hun, a fixed-income analyst at Daishin Securities. "The bullish run for local bonds is expected to continue in June. The three-year yield may fall near the BOK's policy rate of 3.25%" in the near term, he adds. The three-year yield is down 2 bps at 3.30%, the five-year yield is down 3 bps at 3.40% and the one-year yield is down 4 bps at 3.65%. Lead June bond futures are up nine ticks at 104.74. 

Daily Forex Brief London: Thursday 31st May 2012

More blood on the streets of financial markets yesterday and overnight, with risk assets reversing still further and safe haven currencies and bonds smelling like roses. Interestingly, while the dollar remained very much in favour and money poured into US treasuries, it was actually the Japanese yen that shone even more brightly. Indeed, USD/JPY is now below 79, which no doubt will both alarm and disappoint Tokyo in equal measure. Although bond yields for Europe's fiscal miscreants soared, the price action in the single currency was more measured, as it drifted gradually down below 1.24, a fresh 2yr low. High-beta currencies such as the Aussie fared worse –it fell below the 0.97 level overnight. In general, May has been a dreadful month for emerging currencies – for instance, the likes of the Russian ruble and the Polish zloty have suffered a 10% decline thus far, while the Indian rupee has dropped to a record low. Likewise, commodities have been hard hit – Brent crude fell to USD 103.34 overnight, down more than 3% over the past 24 hours, while the copper price lost another 2.5%.

Wednesday, 30 May 2012

Daily Forex Brief London: Wednesday 30th May 2012

Assets prices were not unlike a volcano yesterday – all quiet on top, but a bubbling cauldron of fire and friction underneath. Although most now accept that the end is nigh for Greece in terms of continuing participation in the eurozone, events in Spain are moving so incredibly quickly that the centre of global systemic risk has now shifted indelibly to Madrid. Yesterday's news that retail sales in Spain collapsed by 16% in real terms in the year to April confirmed that this is another European economy in freefall. Almost everywhere you look in southern Europe the news is disturbing. Unsurprisingly, confidence in the single currency continues to ebb away; the euro dropped to a new 2yr low of 1.2457 overnight. In the month of May alone, the euro has fallen by almost 6%. Once more it is the dollar and the yen that are winning the forex popularity contest, while G4 bonds continue to set new record lows in yield. Gold is still really struggling (see below for a more detailed discussion) – it fell to USD 1,545 overnight. Oil prices are still plunging, providing further evidence that global demand has waned markedly in the current quarter. Brent crude fell below USD 107 last night, a fall of almost USD 20 in less than two months. That old investment adage 'sell in May and go away' has once again been remarkably prescient.

Tuesday, 29 May 2012

Daily Forex Brief London: Tuesday 29th May 2012

At yesterday's hastily convened press conference Spanish Prime Minister Rajoy poured some cold water over weekend reports of a EUR 19bn bailout for Bankia, claiming that no decision had yet been taken. Rajoy further contributed to the climate of fear and uncertainty by asserting that Spanish banks did not need recuing (a claim which he surely will regret in due course), while arguing that Spain's debt sustainability problem needed to be resolved. He also argued that the EFSF and ERM ought to be able to recapitalise European banks directly, rather than needing to go through national governments. Unfortunately, Rajoy's latest missive only conflagrated existing paranoia regarding Spain's increasingly desperate financial predicament (see below). The Pandora's Box that is the dodgy loans on the balance sheets of Spanish banks is now spilling forth into full view, and it is every bit as bad as many of us suspected.

Monday, 28 May 2012

Daily Forex Brief London: Monday 28th May 2012

The weekend polls in Greece have shown the pro-bailout parties gaining ground, with two showing that they could receive enough of the votes to form a viable coalition. This has given the euro a modest lift in Asia trade, allowing a break above the 1.26 level, up from the 1.2496 year low carved out last week. Still, it's another three weeks until we will have the election results, so the road ahead remains fairly daunting for the single currency. We also have the Irish referendum on Thursday of this week on the European Fiscal Treaty. Meanwhile, as the Spanish government moves to inject fresh capital into Bankia, there are also moves to greatly enhance the deposit guarantee scheme protection offered to savers in European banks. These modestly encouraging developments, together with the fact that last week was the worst of the year for the single currency, increase the risk of some short-covering rallies this week, but there can be little arguing that underlying sentiment remains decidedly fragile.

Sunday, 27 May 2012

UK banks improve stability and see assets at record levels

The UK is the leading centre for international banking and home to several of the largest global banks. Its banking sector assets were up 3% in 2011 to a record £8,119bn according to TheCityUK report Banking 2012. Although profitability has declined about 10% during the year, banks in the UK have made significant progress in repairing balance sheets, improving capital and funding and are in a better position than other large European countries on a variety of measures.chris

Banks have, according to the report, reduced reliance on wholesale markets to fund lending, with loan-to-deposit ratios declining 4% on average in 2011 to 102%. Deposits in the UK have grown faster than loans since 2009, narrowing the funding gap to 8% of lending in 2011 from 24% at the outset of the credit crisis. UK banks have also reduced leverage ratios, to just over 20 times in 2011 from over 40 times three years earlier, with leverage set to decline further as banks transition to higher capital requirements under Basel III. However, credit availability and lending remains constrained, in common with other developed countries.

The UK banking sector’s direct exposure to vulnerable sovereign debt in Greece, Portugal, Italy, Spain and Ireland totalled around £15bn at the end of Q3-2011. UK banks have larger exposures to the private sectors in these countries of over £190bn. This was considerably less than, for example, France and Germany, which had overall exposures of over £400bn and £300bn respectively, and more than four times the UK’s direct holdings of vulnerable sovereign debt.

The UK had the second largest banking sector assets in the world, after the US, in 2011. Foreign banks held 48% of the total, a higher proportion than in most other large countries. The UK is the leadingcentre for international banking, and home to several of the largest global banks. Its 19% share of cross-border bank lending was the highest in the world. The 251 foreign banks physically located in the UK is more than in any other centre. The UK is also one of the most important centres for private and investment banking and Islamic banking.

Figures for the global industry show that assets of the largest 1,000 banks grew by 6.4% in 2010/11 to a record $101.6 trillion, with the highest growth registered in China. TheCityUK forecasts a further 6% increase in industry assets during 2011/12. Banks from emerging market countries have on the whole been less affected by the economic slowdown, and are expected to drive growth in the coming years. In Europe, the increase in sovereign risk in some countries and concerns about government debt levels have spilled over into the banking system, raising the cost of borrowing for many banks and depressing their market capitalisation. According to the report, banks around the world have over $3.5 trillion in wholesale funds which will need to be refinanced in 2012 and 2013. This is made more difficult in some European countries by an increase in funding costs and sharp rise in bank debt yields resulting from an increase in sovereign risk.

Investment banking

Global investment banking revenue totalled $70.3bn in 2011, down slightly on the previous year. Fee revenue of $42.1bn generated during the first half of 2011 represented the strongest start to a year in four years. However, business activity then slowed. The $15.7bn fee revenue generated in Q1-2012 was down a fifth on the same period in 2011.

Business activity from mergers and acquisitions advisory work has fallen considerably since the start of the economic slowdown, and accounted for 27% of revenue in 2011. Equity underwriting, fixed income underwriting and syndicated loans business each accounted for around a third of the remaining business. The US was the source of 54% of business, its highest share in five years. Europe’s share declined during this period to a quarter from close to 40%, partly a result of sovereign risk concerns in some countries. Asia accounted for around a fifth of the total, nearly double its share four years earlier.

Companies in the UK were the source of $3.3bn of global revenue in 2011, down 15% on the 2010 figure. This represented around 4.6% of global fee revenue making it the fourth largest market behind the US, China and Canada. Although the UK was the source of around a fifth of European investment banking fee revenue, around a half of European investment banking activity was conducted through London. The majority of investment banks are either headquartered or have a major office there. The largest international banks in the UK each employ several thousand people.

Companies in the financial sector have consistently been the source of the highest share of investment banks’ business over the past decade, both globally and in the UK. Their 22% global share was ahead of energy and natural resources (20%) and industrials (15%), which both saw a 6% increase in revenue to $14.1bn and $10.8bn respectively. Other fee generating industries included consumer and retails (10%) and technology and healthcare (7% each).

Contribution to the economy

The UK banking sector is a crucial and integral part of its economy. Net exports of UK banks totalled£25bn in 2010 helping to offset the trade in goods deficit. The UK banking industry contributed £56bnto the economy in 2010, equivalent to 4.8% of GDP, or over half of the 8.9% generated by the financial sector as a whole. Foreign direct investment into the UK banking sector more than doubled over the past decade to reach £63.3bn in 2010. During this period outward direct investment grew more than five-fold to £83.4bn.

Banks located in the UK provide employment for 454,200 people. London accounts for 31% of this, followed by North West 10%, Yorkshire 10%, Scotland 9%, the South West 8% and the South East 8%. Other cities outside of London with large employment in banking included Edinburgh (15,100), Leeds (14,500) and Birmingham (12,500).

By Chris Cummings, Chief Executive of TheCityUK

Friday, 25 May 2012

Daily Forex Brief London: Friday 25th May 2012

Markets approach the end of what has been a pretty difficult week. The single currency has made news lows for the year (vs. the USD) and markets have no more faith in the ability of eurozone leaders to quell speculation around a Greek exit as anti-bailout parties retain their lead in the Greek election opinion polls. We've also seen the capitulation of the single currency, something which we talked about earlier this month, where the euro has been the weakest currency in a period of dollar strength, rather than the more traditional high-beta currencies, such as the Aussie. The price action on the single currency this week means that we run the risk of short-covering activity into the weekend. Also, the Swiss franc is worth keeping a small eye on after yesterday's volatility (at least compared to recent activity), which was mostly on the back of - so far - denied rumours of further measures to quell currency strength.

Thursday, 24 May 2012

Daily Forex Brief London: Thursday 24th May 2012

Probably not by accident, yesterday's Brussels dinner party of EU leaders ended too late for the European press to pass judgement. There was a weight of expectations, which was largely misplaced given this was an informal meeting to pave the way for the main summit of leaders at the end of next month. The same differences remain on common bonds and the financial transaction tax (UK opposing) and more subtle differences on the growth agenda. Of course, everyone would like more growth but delivering it alongside a program of continued austerity is naturally a different matter and, for now, it remains the impossible dream for European leaders and a balance which Europe (and indeed others) has yet to achieve. In the FX markets, after the push lower through the 1.26 level into the European close yesterday, EUR/USD has held steady overnight, but activity elsewhere shows that dollar-dominance remains the underlying theme.

Wednesday, 23 May 2012

Daily Forex Brief London: Wednesday 23rd May 2012

The dollar index made a new high for the year yesterday, 3.8% higher than the level seen at the start of the month. This follows on from two sessions of downward pressure on the dollar, which was more down to the extent of short positioning on some of currencies under pressure for most of the month. As we start the European session, EUR/USD itself is not that far off the lows for the year at 1.2624 as EU leaders meet for an informal summit in Brussels. Germany is looking increasingly isolated with its austerity - with no Plan B stance - and continues to rule out any sort of common debt for the eurozone. This summit is designed to shape the plans around the next formal summit at the end of June, so don't expect any major statements, but the surrounding comments will be key in shaping the debate ahead of that meeting. For now, currencies look set to reflect the theme of dollar dominance once again, with stock markets seen heading lower in Europe after the recent breather.

Tuesday, 22 May 2012

Daily Forex Brief London: Tuesday 22nd May 2012

The price action seen on both Friday and also yesterday reflects the fact that, it's all about positioning in the FX markets for the moment. This has been most evident on the euro, not only in the weekly CFTC data which is reflecting a record amount of speculative shorts, but also in the price action. The single currency has pulled away from a threatened break of the year's low, not that surprising after a run which saw EUR/USD up on only two of the last fourteen trading days. The Aussie has also corrected from the recent lows, partially reversing a downtrend of similar style as seen in EUR/USD. Even though the relationship between the two has broken down a little of late, stocks also look set for a second day of gains after the recent down-run. The underlying themes remain in place, namely continued concerns surrounding Greece and the other peripheral eurozone nations, so the current correction should not be aligned with a perception that things are improving underneath, because they are not.

Monday, 21 May 2012

Daily Forex Brief London: Monday 21st May 2012

It's Monday and the shifting sands of the European mindset are moving (not for the first time) towards the issuance of common bonds as a means of overcoming the sovereign crisis. This is one of the changes in momentum that has emerged from the weekend's meeting of G8 leaders, together with giving the EFSF the ability to re-capitalise banks. It's a sign that there is stronger desire to see an alternative to the hard-line German stance of austerity, with few after-thoughts. Furthermore, the German Chancellor will find it increasingly difficult to resist this shift, especially when it is being endorsed at the international level. The wider issue is that at no point have European leaders really seized the initiative on the crisis, compromising by doing just as much as they believe necessary to stop things getting worse, rather than going all in to turn things around. Imagine where we would be if Greece had restructured its debt back in May 2010, a decent firewall was set-up and a shift towards common bonds was put into train. Most likely, we'd be in a better place than we are now. The single currency recovered on Friday, despite the weaker tone to stocks. This is partly a function of the extent of the short-positioning that has built up in the single currency, which could mean that a push below the year's low at 1.2724 could prove a little tougher than some expect.

Thursday, 17 May 2012

Daily Forex Brief London: Thursday 17th May 2012

Nearly five years into the global credit crunch, you get a feeling for when something has reached the point of no return, when no amount of reassurance, promises or policies will fight the tide of markets. This is not to define markets as pure 'speculators', rather rational individuals and entities that are removing deposits from Greek banks, reducing their exposures to all types of market risk and doing their best not to be crushed by a moving train that is Greece. As well as reports of large-scale withdrawals from Greek banks, we have had (unconfirmed and then denied) reports that the ECB is also refusing liquidity requests from Greek banks, pushing them to the Greek central bank because of the lack of recapitalisation undertaken. We've seen sharp increases in forward Libor-OIS spreads, the measure of interbank liquidity risk that was so watched during the early days of the crisis. From being taboo in official circles, a Greek exit is now more openly discussed rather than dismissed outright. At the same time, after two years of fire-fighting the Greek and wider sovereign crises, there are no policy responses that can credibly stem the tide. We've had two large scale EU/IMF rescue packages, a tortuous 'voluntary' private sector-restructuring and vast lending form the ECB (with ever lower collateral standards applied). The more credible response now from the authorities would be measures to stem contagion elsewhere, particularly with respect to bank deposits in other eurozone countries now that permitted cross-border lending between deposit-guarantee schemes will not be workable. Contagion remains the biggest single risk, given that a Greek exit will mean that what was previously presented as irreversible and unthinkable will have become reality. This is where efforts now need to be focused otherwise the single currency will be left horribly exposed by a Greek exit. Furthermore, all efforts to 'save' Greece from here on in will have been wasted and at the cost of failing to deal with the contagion issue. Policy-makers face a critical choice over coming days. Let's hope they choose the right track.

Wednesday, 16 May 2012

Daily Forex Brief London: Wednesday 16th May 2012

News that ongoing talks amongst politicians in Greece have failed to come up with a coalition government and that new elections will need to be called, has triggered renewed fears that a Greek exit from the eurozone might not be too far away. In response, risk assets are again on the defensive with both traders and investors seeking sanctuary in the US dollar. Overnight, the dollar index stopped just short of its highest level for the year, reaching 81.45. The euro was singled out for especially harsh treatment, falling to 1.27; EUR/GBP dropped to 0.7960, a 3½ year low. Bond yields amongst Europe's southern fiscal miscreants surged once more; the Italian 10yr yield has reached 6.0% for the first time since the end of January. Latam currencies were also savaged; the Mexican peso for instance has dropped 6% against the dollar in just the past two weeks while the BRL is down more than 4%. Likewise, commodities fell hard – the gold price has opened up in London this morning down near USD 1,530 an ounce while WTI is close to USD 92 a barrel. Asian equities have been buffeted; the Kospi and Hang Seng fell 3%. There is very little prospect of the Greek uncertainty ending any time soon. The Greek President has been alerted by the head of the central bank that depositors are increasingly anxious about the safety of their savings and are pulling money out of local banks. Clearly, Greek citizens are not sufficiently reassured by the deposit guarantee scheme which exists in the country. It supposedly guarantees individual deposits with any bank or financial institution up to EUR 100K. The Greek deposit guarantee scheme can also (supposedly) borrow from other schemes around Europe in the event that it has insufficient available funding. No doubt the likes of Germany et al would be aghast if Greece were to put in such a request. Nevertheless, the risk of a significant bank run in Greece is now very real.

Tuesday, 15 May 2012

Daily Forex Brief London: Tuesday 15th May 2012

Yet another bad hair day for risk assets yesterday amidst continuing concerns over a myriad of issues, including the unstable political situation in Greece and ongoing question marks around whether it will remain in the eurozone, the dire state of Spanish banking and sovereign finances, and a sense that the losses registered by the CIO unit at JPMorgan could turn out to be much greater than already disclosed. Also contributing to the uncertain mood was Moody's announcement that it was downgrading 26 Italian banks and worries over whether Greece will pay the holders of a EUR 436m floating rate note which matures today. Gold, a traditional safe-haven in times of distress, has lost its lustre, falling to its lowest level for the year at USD 1.550 an ounce (more on gold below). Instead, it is the greenback that is the preferred destination of those fleeing risk, with the dollar index already up by 2% so far this month. For the dollar bulls, should we see a sustained break of the mid-January high of 81.50 (in the dollar index) then this would provide further encouragement. Indeed, it could justifiably be argued that, against the backdrop of dreadful financial and economic conditions in large parts of Europe, and with China in the midst of a very bumpy landing, the dollar really ought to be performing better than it has done. Another currency that continues to attract buying interest is the pound, with cable steadfast at around the 1.61 level and EUR/GBP now comfortably under 0.80. The single currency fell to 1.2815 overnight, but it has been a remarkably measured sell-off rather than blind panic. Even for the Aussie, which has been under sustained fire all month, the decline through parity was not one of capitulation, notwithstanding the evident determination over recent weeks of traders to eliminate their long positions.

Monday, 14 May 2012

Daily Forex Brief London: Monday 14th May 2012

Unfortunately, in financial markets at least, it is rarely the merry month of May. Last week was another sea of red, with equity markets on the slide, high-beta currencies heading south and core G4 bond yields declining. Spanish equities were singled out for the harshest treatment, falling another 3%, with the financials again hard hit. The Aussie is back at parity, the euro is under 1.29, and cable is near 1.6050. German 10yr bund yields fell below 1.5%, at the same time as the 10yr yield in Spain rose above 6.0%. Apart from the deteriorating political situation in Greece and the equally disturbing Spanish banking predicament, markets were rattled by the massive loss recorded by one of the units of J.P.Morgan. Overnight, the mood stabilised slightly after China decided to reduce the bank reserve requirement (RRR) by 50bp (see below). Worryingly, many of those forces which were so unsettling last week are still in play, including growing speculation that Greece may well leave the euro before too long

Friday, 11 May 2012

Daily Forex Brief London: Friday 11th May 2012

The week is ending in a similar fashion to which it began, namely with markets broadly in retreat from risk. There's little reason to feel that today will be much different. The focus is on Spain and its expected announcement of just how bad the government believes the bad loans situation is for the banking sector there. Meanwhile, Greece is still trying to stitch together a government from the results of the weekend's election. But the verdict in markets for the week as a whole has been a distinct lack of belief in the course that is being taken in Europe, with regards to France and its intended push for growth, together with Greece and its appetite for continued austerity as well as Spain's banking situation. Overnight, we've also seen slightly softer than expected retail sales and production data in China, although inflation was broadly as expected at 3.4%.

Thursday, 10 May 2012

Daily Forex Brief London: Thursday 10th May 2012

The euro's break below the 1.30 level has been sustained overnight and it's notable that the dollar has risen in all but two of the past nine sessions, looking at the dollar index chart. The political events in Europe, both in France and Greece, have served to enhance the more risk-averse trend that was already in place last week. Furthermore, in Europe we are seeing fresh signs of stress in the banking sector, such as widenings in cross-currency basis swaps and also Libor-OIS spreads. These both reflect greater concerns with regards to the fragility of the European banking sector, but at present there are few signs that the ECB is keen to get stuck in, already having undertaken two 3Y injections of liquidity. We've also seen disappointing trade data from China overnight (a bigger balance but also a slowdown in both exports and imports). Meanwhile, Asian equities are declining for a sixth consecutive session, the MSCI Asia (ex-Japan) index is now around 7% up on the year, having stood 16% higher at the end of February. Reality is biting hard and not only in Europe

Tuesday, 8 May 2012

Daily Forex Brief London: Tuesday 8th May 2012

After the initial weakening of the single currency on the back of the weekend's political developments in both France and Greece, the euro crawled back through most of Monday's session, although volumes were naturally muted by the London holiday. In France, there is a new President keen to rebalance the agenda in Europe towards growth and away from yet more austerity. In Greece, there is a mad scramble to try and form a government from the results of the latest election, which at present looks to be a tall order. Now, the task of forming a new government has fallen to the leader of the Syriza party, who is seeking to re-negotiate the bail-out terms. Meanwhile, writing in the FT today, the head of the German Bundesbank (Weidmann) has, in no uncertain terms, made clear that the ECB is not set to bow to pressure from anyone to do more to help. Not surprisingly, he is clear about the limits of what the ECB can achieve and shows no signs of giving ground to any fresh-faced European leaders. Politically at least, we are heading for a turbulent few weeks in Europ

Friday, 4 May 2012

Daily Forex Brief London: Friday 4th May 2012

Markets face up to the US jobs data today in tentative mood, Asian stocks having softened by the greatest degree in nearly two weeks overnight and the past two days having seen high-beta currencies, such as the Aussie and Korean won the weakest performers of the majors. The recent trend in jobless claims, together with the ADP data earlier in the week, have tempered expectations of a strong set of numbers, with the market looking for a 160k gain in headline payrolls following the softer 120k increase seen in March. Nevertheless, in the wider picture, expectations of further QE from the Fed have also been cut back, so it would take a pretty weak payrolls number to shift this expectation and knock the dollar from its relatively steady tone of the past month.

Thursday, 3 May 2012

Daily Forex Brief London: Thursday 3rd May 2012

A swathe of dismal economic news cast a long shadow across Europe yesterday, beating the single currency lower by nearly 1%. The manufacturing PMIs in the periphery for April were uniformly dreadful, Spain down to 43.6 and Italy to 43.8 (from 47.9 in March). For the latter, the new order balance saw the biggest monthly decline for three years, from 45.7 to 39.2, suggesting that there's not much on the horizon to turn around the fortunes of the manufacturing sector anytime soon. There was also a modest downward revision to the provisional PMI readings for both France and Germany, by 0.4 and 0.1 respectively, to 46.9 and 46.2. As if that wasn't bad enough, the unemployment rate in Italy jumped to a 12yr high of 9.8% in March (9.4% was expected), Germany recorded the largest monthly increase in unemployment (19k) for nearly two years, and the unemployment rate for the euro-area rose to a 15yr high. Today's ECB meeting is therefore extremely timely. At the very least, with recession deepening in a number of Eurozone economies, Mario Draghi and his men must be considering how they can ease financial conditions further. With the US recovery looking more assured these days, it is no wonder that the single currency took yesterday's smorgasbord of shocking news rather badly. It was also worth noting the response of peripheral bond markets to this darker economic landscape – bond yields rose markedly in both Italy and Spain, while the spread to Bunds at the long end widened by around 15bp. Both the dollar and the yen gained from this renewed burst of risk avoidance, while the Aussie dipped back to 1.03.

Wednesday, 2 May 2012

Daily Forex Brief London: Wednesday 2nd May 2012

Genuinely positive stories on the economic front are relatively rare these days, with no fewer than ten of the EU's 27 economies in recession and Australia's central bank forced to cut rates by 50bp yesterday in part because the non-mining economy is contracting. Thankfully, both Germany and America continue to defy the global gloom. In the US, the manufacturing sector is expanding at a respectable pace, propelled by solid growth of both domestic and export orders. Strong automobile-demand is making a significant contribution to the upturn in manufacturing – auto sales in the first quarter were the highest for four years and auto production accounted for roughly one-half of the growth in GDP in Q1. In response to this latest batch of healthy data, the Dow Jones index last night reached its highest level since the end of 2007. Over in Europe, the German labour market continues to forge ahead, with employment up another 37K in March, the 25th consecutive MoM gain. Currencies remain generally becalmed although, with a myriad of important economic releases due over coming days, we can expect volatility to increase. Friday's payrolls figures are critical following last month's disappointment.

Tuesday, 1 May 2012

Daily Forex Brief London: Tuesday 1st May 2012

Last night's decision by the RBA to lower the cash rate by 50bp to 3.75% ought to be applauded. Faced with an economy which, outside the mining sector, is in recession and with inflation likely to be lower than expected, policy-makers rightly decided that financial conditions needed to be loosened considerably. Australia's central bank would also be concerned by the continued decline in property prices – according to the ABS, established house prices fell by a further 1.1% in the first quarter, the fifth consecutive quarterly decline. More rate cuts are likely to be in the pipeline, judging by the level of term interest rates and the shape of the yield curve. For shorter-term maturities, yields fell by as much as 20bp overnight with the 2yr yield now just 2.8%! Both 5yr and 10yr bond yields fell to record lows. The RBA will also be pleased by the response of the currency, with the Aussie down 1% to just above 1.03. Last night's sudden drop aside, it is worth recognising that the AUD's recent performance has actually been remarkably resilient considering the significant narrowing in interest rate differentials. As we were suggesting yesterday, the key driver for the currency is invariably global risk appetite rather than domestic fundamentals.