Daily Afternoon Report 28/11/2012 | Forex Trading Analysis

Greece bailout agreement, most of the responding chatter has already been exhausted, and we have been left in today’s European session without a major fundamental story to guide trading. Data showing U.S. consumer confidence at a four-year high also provided a modest boost for the dollar, though a looming budget crisis tempered optimism about the American economy and kept dollar gains in check.

The agreement to provide aid for Greece did not help the market sentiment. In fact, that agreement may fail as the International Monetary Fund did not accept its terms. The inability of the US politicians to find a compromise and avoid the fiscal cliff did not help traders’ confidence either.

The Australian dollar fell against the Japanese yen and the US dollar yesterday and remained soft today. Like its Canadian counterpart, the Aussie managed to strengthen versus the euro.

Daily Morning Report 27/11/2012

 The dollar weakened against the world's major global currencies on Tuesday after IMF and EU policymakers agreed to reduce Greece's debt-reduction target by EUR40 billion to 124% of gross domestic product by 2020, an accord needed by IMF to free up aid. Greece will cut debt burdens down further to 110% by 2022, while EU and IMF policymakers agreed to trim interest rates on Greek loans, extend their maturity by 15-30 years, and grant the country a 10-year interest repayment deferral. Greece is set to avoid default.

 In Spain’s Catalonia region separatist parties won the majority of the public vote in elections held over the weekend, which tempered the euro's rally. Catalonia accounts for nearly a fifth of Spain's economic activity and provides the most tax revenue to the central government.

 Later US are to release official data on durable goods orders, a leading indicator of production, as well as industry data on house price inflation. US consumer confidence data will also be published and FED chairman is to deliver brief remarks at the National College Fed Challenge Finals, in Washington DC.

Live Chart GBP and JPY

USD and CHF live Chart

German Economic Expectations Fall Again

MANNHEIM--German economic expectations in June fell at the fastest rate in more than a decade, reflecting the view that Greek repeat parliamentary elections only provided a brief respite and that the situation in the euro zone is "still precarious," the Center for European Economic Research, also known as ZEW, said Tuesday.
The economic expectations index fell to -16.9 in June from May's unrevised 10.8. The last time the decline in the indicator was this great was in October 1998. Experts in a poll by Dow Jones Newswires had expected a fall to 2.8 for June.
The widely watched ZEW index fell again in June after improving sharply in recent months. After declining for nine months on the deepening of Europe's sovereign debt crisis, the index turned negative in June after turning positive in February.
ZEW said the decline is a warning that optimism over Germany's economy is still premature as its main trading partners are experiencing an economic downturn.
The current conditions index fell to +33.2 from May's unrevised 44.1. Experts had forecast a reading of 39.0 for June.

Microsoft Unveils 'Surface' Tablets

Microsoft unveils tablet it hopes will take on iPad


--Tablet runs on version of Windows 8 operating system
--Surface to be priced similarly to other tablets, company says
LOS ANGELES -- Microsoft Corp. (MSFT) unveiled on Monday a family of tablets that run the upcoming version of its Windows operating system, a move that comes as the software company races to catch up with Apple Inc. (AAPL) and Google Inc. (GOOG) in mobile computing.
At an event in Los Angeles, Microsoft Chief Executive Steve Ballmer introduced the company's Surface family of tablets. The devices, which feature magnesium bodies and built-in stands, run versions of Microsoft's Windows 8 operating system.
Mr. Ballmer said the Redmond, Wash., company recognized the importance of integrating software and hardware, a strategy that is the hallmark of rival Apple.
"With Windows 8, we didn't want to leave any seam uncovered," Mr. Ballmer said. "We wanted to give Windows 8 its own hardware companion.
"The surface is a PC. And the Surface is a tablet. The Surface is something new." Mr. Ballmer later said.
The Surface family comes with a magnetically attachable cover that has a built-in accelerometer. The inside of the cover is a full keyboard that recognizes the device when it is attached. The Surface's stand, called the Kickstand, snaps into place with an audible click. It has connection for charging and linking the tablet to peripherals and it will come with a Netflix (NFLX) application.
The Surface "works great for entertainment," said Steven Sinofsky, head of Microsoft's Windows division.
Microsoft has built a software business with $70 billion in annual revenue and left the computer hardware to allies such as Hewlett-Packard Co. (HPQ), Dell Inc. (DELL) and others. Now Microsoft will be going after tablet customers too.
A Dell spokesman said the company "remains a committed partner of Microsoft" and is continuing to develop a "full slate" of Windows 8 products.
H-P didn't immediately respond for comment.
"Don't focus too much on Microsoft competing with other PC vendors," said retail analyst Ross Rubin of NPD Group in a Tweet. "They all have the same main competitor in Apple."
The Surface is a compact 9.3 millimeters thin and weighs 1.5 pounds, very similar to Apple's iPad at 9.4 millimeters and 1.44 pounds for the model with WiFi. Besides the kickstand and detachable keyboard cover, the cover also has a trackpad.
Apple didn't immediately respond for comment on the Microsoft device.
Microsoft said the Surface would be priced comparably to other tablet computers and available simultaneously with release of Windows 8. It will appear first in the Microsoft Store online and through company retail locations.
Gartner analyst Carolina Milanesi said Surface will go on sale to capture the maximum benefit of the holiday gift season. Doing a prominent press event so far in advance is aimed at rallying applications developers behind the new platform.
"They now have a six month window to get developers they have on the PC side to join them on Windows 8 and this tablet," she said.
The Surface and other tablet versions of Windows will run on low-power chips designed by ARM Holdings PLC (ARMH). Windows 8 Pro versions of the Surface are aimed at enterprise computing customers and will run on chips made by Intel Corp. (INTC).
Microsoft made the announcement at the center of the music, film and television world, which Microsoft has already embraced to deliver content to its popular Xbox 360 game console. The Microsoft tablet will run the tablet version of Windows 8, called Windows RT. Windows 8 is the next edition of the company's flagship computer-operating system, which will for the first time run on both desktop computers and tablet devices.
Windows 8 is Microsoft's best hope for competing with devices running Google's (GOOG) Android operating system and with Apple's iPad and iPhone products. Microsoft has almost no presence in the tablet market, which is expected to double in size, with sales of 118.9 million units this year, according to research firm Gartner Inc. Apple's iPad is expected to account for a little less than two-thirds of those sales and Android machines for nearly a third.
Microsoft has spent the past two years developing Windows 8. The company is putting the finishing touches on the software before shipping it to manufacturers, which will load it on devices slated to hit stores in October or November, in time for the holiday-sales season.
Many companies have tried to compete with Apple's iPad with tablets based on the Google Android operating system, but few products have sold well. In smartphones, Android phones collectively have a majority of the market, but Apple's iPhone remains a dominant hit.
Microsoft has long manufactured keyboards, mice and other accessories, but hasn't always succeeded with consumer devices. Xbox has become the best selling gaming station, but its Zune music player, designed to compete with Apple's iPod, never caught on with music buffs. Its KIN mobile phone died a quick death shortly after it appeared in 2010. Handset maker Nokia Corp. (NOK) is now is leading phone partner.
-Ian Sherr contributed to this story. 

China Yuan Official Central Parity Rates for Friday

The China Foreign Exchange Trade System published the following official central parity rates for major currencies against the yuan Friday:

 
            Friday    Thursday 
USD/CNY     6.3089     6.3191 
HKD/CNY     0.81312    0.81446 
JPY/CNY*    7.9509     7.9687 
EUR/CNY     7.9596     7.9362 
GBP/CNY     9.8040     9.8016 
AUD/CNY     6.3136     6.2818 
CAD/CNY     6.1628     6.1422 
CNY/MYR     0.50366    0.50200 
CNY/RUB     5.1300     5.1263 
 
*per 100 yen 
 

The daily central parity rate for the yuan versus the U.S. dollar is the weighted average of prices given by market makers. The highest and lowest offers are excluded from the calculation.
In each daily trading session, the central bank allows the dollar/yuan rate to move no more than 1% above or below the central parity rate, and the yuan/ringgit and yuan/ruble to move no more than 5%. It allows other currency pairs to move as much as 3% above or below the central parity rate.

2012.06.12 07:50:18 Interbank Foreign Exchange Rates At 03:50 EST / 0750 GMT

                         Latest       Previous   %Chg    Daily    Daily   %Chg 
Dollar Rates                               Close            High      Low  12/31 
 
 
USD/JPY Japan            79.62-64       79.43-46  +0.24    79.69    79.18  +3.53 
EUR/USD Euro            1.2494-96      1.2481-83  +0.10   1.2521   1.2452  -3.59 
GBP/USD U.K.            1.5501-04      1.5484-89  +0.11   1.5522   1.5464  -0.25 
USD/CHF Switzerland     0.9610-12      0.9620-24  -0.11   0.9644   0.9592  +2.54 
USD/CAD Canada          1.0303-08      1.0313-18  -0.10   1.0324   1.0292  +0.94 
AUD/USD Australia       0.9895-97      0.9862-66  +0.32   0.9917   0.9852  -3.06 
NZD/USD New Zealand     0.7714-16      0.7688-93  +0.32   0.7732   0.7672  -0.79 
 
Euro Rates 
 
EUR/JPY Japan            99.49-52       99.14-19  +0.35    99.78    98.74  -0.05 
EUR/GBP U.K.            0.8059-61      0.8059-62  -0.01   0.8080   0.8053  -4.69 
EUR/CHF Switzerland     1.2007-12      1.2008-12   0.00   1.2012   1.2008  -1.33 
EUR/CAD Canada          1.2874-80      1.2871-79  +0.01   1.2891   1.2856  -2.68 
EUR/AUD Australia       1.2624-28      1.2649-58  -0.22   1.2653   1.2610  -0.55 
EUR/DKK Denmark         7.4321-34      7.4310-49   0.00   7.4361   7.4262  -0.04 
EUR/NOK Norway         7.5383-418     7.5439-506  -0.10   7.5489   7.5262  -2.65 
EUR/SEK Sweden          8.8500-42    8.8933-9003  -0.50   8.8982   8.8494  -0.72 
EUR/CZK Czech Rep.      25.628-46     25.584-643  +0.09   25.646   25.538  +0.16 
EUR/HUF Hungary         296.09-36      297.30-97  -0.47   297.68   295.84  -5.99 
EUR/PLN Poland         4.3169-222     4.3470-543  -0.71   4.3558   4.3152  -3.31 
 
Yen Rates 
 
AUD/JPY Australia        78.79-82       78.33-42  +0.55    79.03    78.10  +0.75 
GBP/JPY U.K.            123.43-50      122.98-03  +0.36   123.69   122.59  +3.28 
CAD/JPY Canada           77.24-30       76.98-07  +0.33    77.43    76.77  +2.57 
NZD/JPY New Zealand      61.42-47       61.06-13  +0.58    61.61    60.82  +2.74 
 
Other Dollar Rates 
 
USD/CZK Czech Rep.      20.509-24     20.497-543  -0.02   20.566   20.404  +3.87 
USD/HUF Hungary       236.97-7.18      238.19-70  -0.57   238.85   236.28  -2.49 
USD/DKK Denmark         5.9480-88      5.9537-59  -0.11   5.9692   5.9360  +3.68 
USD/NOK Norway          6.0330-56      6.0440-86  -0.20   6.0511   6.0210  +0.97 
USD/PLZ Poland          3.4549-90      3.4827-82  -0.82   3.4943   3.4484  +0.29 
USD/RUB Russia          32.824-48     32.677-743  +0.39   32.899   32.624  +2.13 
USD/SEK Sweden          7.0827-58      7.1252-98  -0.61   7.1333   7.0710  +2.97 
USD/ZAR S. Africa      8.4080-102     8.4641-758  -0.72   8.4728   8.3784  +3.98 
 
USD/CNY China          6.3699-720      6.3623-44  +0.12   6.3775   6.3706  +0.82 
USD/HKD Hong Kong       7.7578-84      7.7601-09  -0.03   7.7603   7.7582  -0.11 
USD/MYR Malaysia       3.1793-858     3.1663-728  +0.41   3.1847   3.1726  +0.16 
USD/INR India        55.988-6.003     55.610-700  +0.61   56.070   55.673  +5.60 
USD/IDR Indonesia         9443-93         9405-5  +0.67     9443     9430  +4.82 
USD/PHP Philippines  42.871-3.112   42.919-3.020  +0.05   42.883   43.080  -1.96 
USD/SGD Singapore       1.2837-44      1.2860-67  -0.18   1.2868   1.2822  -0.96 
USD/KRW S. Korea    1168.39-70.80   1170.39-2.80  -0.17  1173.39  1168.30  +0.78 
USD/TWD Taiwan      29.899-30.000     29.899-960  +0.07   29.949   29.950  -1.04 
USD/THB Thailand       31.605-726      31.628-88  +0.02   31.699   31.626  +0.21 
USD/VND Vietnam        20822-1473     20945-1015  +0.80    20822    21473  +0.52 
 
USD/BRR Brazil          2.0621-86      2.0607-72  +0.07   2.0637   2.0578 +10.70 
USD/MXN Mexico        14.0779-860    14.0891-979  -0.08  14.1151  14.0410  +0.97 
USD/ARS Argentina      4.4831-904     4.4859-932  -0.06   4.4897   4.4878  +4.13 
 
Source: ICAP Plc. 

Daily Forex Brief London: Thursday 31st May 2012

Dollars, yen and G4 bonds smell of roses

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%.

Daily Forex Brief London: Wednesday 30th May 2012

Stay away in May

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.

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.

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

www.thecityuk.com