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Daily Forex Brief London: Friday 16th March 2012

No hurry to worry

For once, markets are approaching the end of the week in a relative state of calm. Oil prices have eased around 4% from the highs seen earlier in the month, global equities have more than recovered from the modest correction and the sell-off in higher yielding currencies (Brazil and Australia, among others) has stabilised, at least for the time being. The other notable event was the further fall in the VIX index to levels not seen since mid-2007. In other words, investors are putting a much lower premium on uncertainty. Now, this can be seen as both a good thing and a bad thing, given that it was the under and mis-pricing of risk that was partly a factor in the financial crisis in the first place. But for now, investors appear content to at least breathe a sigh of relief and not to worry about the latest twist and turn in Greece. Enjoy it, as it won't last forever.

Also in today's Daily Forex Brief:

• China's growing pains
• Rate race
• Another bubble bursting – this time down under

 

Daily Forex Brief London: Wednesday 15th March 2012

Well Fed markets

The US Federal Reserve pulled off a difficult balancing act last night, sounding both more upbeat on the economy, but also keeping open the option of further easing measures and maintaining the commitment to keep rates low until the end of 2014. The expectation of growth was altered from "modest" to "moderate", a seemingly small adjustment but a sign of the Fed's cautious optimism that the recent run of good data is more than likely to be sustained. It also noted the easing of strains in financial markets, whilst acknowledging the "notable" decline in the unemployment rate which remains "elevated" in its view. The interesting thing is that, even with reduced chances of further QE, markets are increasingly shifting their focus onto economy, so Asian stock were able to follow through on the strong gains seen yesterday in European and US markets. But FX remains more circumspect. It's interesting to note the declining correlation between AUD/JPY and stocks, from 0.90 to just above 0.70 now (rolling 3mth vs. S&P500). It's a sign that FX is disconnecting from the wider risk-on/risk-off ebb and flow in other markets.

Also in today's Daily Forex Brief:

• China further eases lending standards
• Yen weakness not down to BoJ
• Green shoots in the UK

Daily Forex Brief London: Wednesday 14th March 2012

Well Fed markets

The US Federal Reserve pulled off a difficult balancing act last night, sounding both more upbeat on the economy, but also keeping open the option of further easing measures and maintaining the commitment to keep rates low until the end of 2014. The expectation of growth was altered from "modest" to "moderate", a seemingly small adjustment but a sign of the Fed's cautious optimism that the recent run of good data is more than likely to be sustained. It also noted the easing of strains in financial markets, whilst acknowledging the "notable" decline in the unemployment rate which remains "elevated" in its view. The interesting thing is that, even with reduced chances of further QE, markets are increasingly shifting their focus onto economy, so Asian stock were able to follow through on the strong gains seen yesterday in European and US markets. But FX remains more circumspect. It's interesting to note the declining correlation between AUD/JPY and stocks, from 0.90 to just above 0.70 now (rolling 3mth vs. S&P500). It's a sign that FX is disconnecting from the wider risk-on/risk-off ebb and flow in other markets

Also in today's Daily Forex Brief:

• China further eases lending standards
• Yen weakness not down to BoJ
• Green shoots in the UK

Daily Forex Brief London: Friday 9th March 2012

A great result for Greece

Greece announced the details of the largest sovereign debt restructuring in history this morning, with private sector bond-holders finally recognising that the deal on the table was probably a much better one than they were likely to get by holding out. According to a statement from the Greek government, the participation rate of investors in the debt swap was extremely high at 95.7%, no doubt encouraged by the threat of collective action clauses being imposed. Some EUR 152bln of Greek-law bonds were tendered, together with EUR 20bn of foreign-law bonds. Athens ought to be very pleased with this outcome. The aim of the restructuring exercise was to reduce the EUR 206bln of Greek debt held by the private sector by 53.5%, in order to put Greece onto a more sustainable debt footing. Importantly, high participation is a key condition for the EU to approve the EUR 130bln bailout. ISDA is set to meet later today to discuss this 'potential credit event'. Although the take-up has been well above expectations, the single currency has actually softened slightly, with some traders taking profits on long positions accumulated over the last couple of days. Apart from the way that the euro responds to this Greek debt-restructuring, observing how the bond markets of Europe's other fiscal miscreants perform over coming days will also be instructive. Despite some real concerns in recent weeks over the extent of private sector participation, in the end this outcome surpassed even the most optimistic expectations.


Also in today's Daily Forex Brief:

• Yen on the back foot once more
• Brazil backs more sober global outlook
• SNB faces a tougher year ahead.
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