The market lost $25 billion today, reflecting more than a 2 per cent drop in New York on Friday. The All Ordinaries Index dropped 106 points to 5,949 and the ASX 200 slipped 100 points to 5,920. On the Sydney Futures Exchange, the September share price index contract lost 89 points to 5887 on a volume of 17,254 contracts. CommSec chief equities economist Craig James says the market is likely to be volatile for some time. US markets in turmoil US equity markets ended in turmoil on Friday, after a senior executive of mortgage underwriter Bear Stearns said that the "fixed income market turmoil was the worst in 22 years''. "Investors are still unsure how many skeletons there are in the closet in the US sub-prime mortgage market," he said. "Until they get certainty about the state of that market then we are going to see further jitters. "We certainly saw that in terms of the Australian share market today, down in the order of 1.75 per cent." It was a bad day for the banks. Australia's biggest investment bank, Macquarie Bank, continued to be dragged down by concerns over the mortgage market in the United States. It lost 6.6 per cent to $70.05. Global investment company Babcock and Brown dropped about 4 per cent to $24.02. The other major banks also dropped in value amid speculation the Reserve Bank will raise interest rates on Wednesday. TheNational Australia Bank k shed 63 cents to $37.37 and the Commonwealth Bank slipped 51 cents to $52.80.
US data also was on the weak side, with jobs figures fanning worries about the strength of the economy.
Saturday, May 31, 2008
Australian stock market Crashes - Loses $25b
AUSTRALIA'S Mortgage Crisis 2008 May
AUSTRALIA'S mortgage crisis is deepening and for the first time threatening to produce "affluent stress" - financial grief among higher income families - as new figures show that more than 700,000 households will come under some mortgage pressure by June. About 300,000 are expected to fall into the worst "severe stress" category, possibly leading to forced sales and foreclosures, as consumers struggle under the weight of higher interest rates and rising living costs. The major banks, faced by higher funding costs, are expected to again raise their variable mortgage rates by about 15 basis points, putting even more households under severe mortgage stress. The dire predictions are contained in the latest JP Morgan/Fujitsu Mortgage Industry Report. It says more than 700,000 households will come under "mild" stress, the symptoms of which include borrowing on credit cards to make mortgage repayments. Bank profits are now expected to come under pressure. "The real question is, if the RBA does not move interest rates, can the banks actually increase their home loan rates?" he said. The probability of a further RBA rate rise in May has now dropped sharply.The Australian Securities and Investments Commission released an alarming report that showed that a number of fringe lenders and mortgage brokers were refinancing consumers into loans they could not afford. The report found some fringe lenders would allow borrowers to enter into a cycle of unaffordable loans in which they defaulted and refinanced several times until the equity in their home was exhausted. Mortgage broker numbers are tipped to halve from 10,000 to 5000 in the next two years.
Dollar strengths against the Euro and the Yen
by Benny Menashe The Dollar was steady in the early trading, holding near a three-month high against the Yen, after a positive revision of the US economical data leaded investors to speculate that the Federal Reserve will raise interest rates this year. The Dollar traded at 105.35 against the Japanese currency at 7:00am GMT. US short-term interest rate futures reveal that investors believe that the Fed will keep interest rates on hold at 2 percent in June and raise them later this year. A trader from a major Japanese bank reveal Reuters that technical signals will turn bullish if the Dollar manages to break the next resistance level of 106 Yen; if this happens, the Dollar can raise to 108 and then to 110 Yen. The jump in US bond yields and the slump in oil prices on Thursday also boosted the greenback against the Euro; the Dollar traded at 1.5532 against the Euro at 7:00am GMT. Oil prices movements have a great impact on the Dollar, as hiking oil prices usually leads to concerns that US consumers and businesses won’t be able to overcome the credit crisis. The Euro’s depreciation was also supported by the release of retail sales in Germany, Euro Zone’s strongest economy, that unexpectedly drop for a second month in April, supporting speculation that the ECB will cut interest rates in a near future. “The dollar looks strong”, said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital. “With the market turmoil calming down, people are focusing on inflation risks. Falling oil prices are positive for U.S. growth, bringing some relief to people.” UK Consumer Confidence dropped yesterday to the lowest level since Margaret Thatcher quit the office in 1990. The Pound traded at 1.9781 against the Dollar and at 0.7845 against the Euro at 7:00am GMT. The British currency is appreciating versus the Euro on speculation policy makers will keep interest rates on hold in June at 5 percent, in order to fight inflation. However, investors believe that the Bank of England will be forced to cut interest rates until the end of the year, as the economy is showing signs of slow down; the Pound is forecasted to drop to a record low against the Euro by year-end, to 81 pence, wrote Michael Klawitter, a currency strategist at Dresdner. Concerning economic data for today, investors will be paying attention to the release of CPI Flash Estimate y/y in the Euro Zone, which is expected to rise 0.2 percentage points, having a positive effect on the nation’s currency. Also, Canadian GDP is expected to boost the Canadian Dollar, as is forecasted to rise 0.2 percentage points from last month. To finish, US Personal Spending m/m is predicted to push the Dollar down, as is expected a drop of 0.2 percentage points from April, to 0.2 percent.Dollar strengths against the Euro and the Yen
Forex Market Commentary and Analysis May 2008
EURO The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5520 level and was capped around the $1.5665 level. The common currency has now been given for three consecutive days and stops were reached below the $1.5560 level, representing the 38.2% retracement of the move from $1.6020 to $1.5280. Data released in the U.S. today added to the growing consensus that the U.S. economy may have averted the technical definition of a recession in Q1 as Q1 GDP was upwardly revised to an annualized +0.9% rate from the previous estimate of +0.6%. The Q1 GDP deflator printed at 2.6% and the Q1 core PCE price index ticked lower to 2.1% from 2.2%, still above the Federal Reserve’s perceived upper comfort zone limit of 2.0%. Also, weekly jobless claims were up 4,000 to 372,000 while continuing jobless claims printed at 3.10 million. PN/CNY The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥105.35 level and was supported around the ¥104.60 level. The pair reached its highest level since 14 May as traders refocused their attention on inflationary pressures in the U.S., growing confident that the U.S. will avert a technical recession. As expected, the Japanese government formally nominated Keio University economic professor Kazuhito Ikeo to become a member of Bank of Japan’s Policy Board. There are currently two vacancies on the Policy Board, including a deputy governorship for which Ikeo may have been nominated. The issue remains politically contentious, much as the March appointment of now-Governor Shirakawa. Policy Board member Kamezaki today said “As for future monetary policy, we must collect and analyze as much information as possible, including (data from) overseas economies such as in the U.S. and Europe, the global financial market, and moves in energy and (raw) material prices. April retail sales rise 0.1% y/y to ¥11.19 trillion. The Nikkei 225 stock index climbed 3.03% to close at ¥14,124.47. Dollar bids are cited around the ¥103.00/ 101.35 levels. STERLING SWISS The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0365 level and was capped around the CHF 1.0485 level. Data released in Switzerland today saw Q1 employment levels rise to 3.9 million from 3.88 million in Q4. U.S. dollar offers are cited around the CHF 1.0760 level. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6295 and CHF 2.0710 levels, respectively.
The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9675 level and was capped around the $1.9815 level. The pair retraced some of its intraday losses during the North American session. Data released in the U.K. today saw May CBU retail sales volumes print at -14, up from -26 in April while the prices sub-index surged to +56, reaching its highest level since May 1992. Bank of England Monetary Policy Committee member Blanchflower reported “Our forecast is that inflation will come down in the medium term, but our concern is that we wouldn't want economic activity to drop dramatically. If there's a sense we are moving to a recession, we will have to make sure we don't.” It was also reported that Nationwide May house prices were off a record 2.5%. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7850 level and was capped around the ₤0.7915 level.
Japan: Growth Will Slow Significantly in Q2
April industrial production, unemployment, household spending and consumer prices have been released. Both unemployment and household spending were much weaker than expected while industrial production confirmed the slowdown in industrial activity in recent months. Overall the figures suggest that growth will slow significantly in Q2 after strong 0.8% q/q growth in Q1. We might have to adjust our current expectation of 0.5% q/q down to 0.3% q/q as private consumption will be weaker than expected and inventories will be a drag on growth. Although inflation was better than expected, it will increase significantly in coming months.
Wednesday, January 16, 2008
The Top Eight Themes for Currency Markets in 2008
Published: Monday, 24 December, 2007, 03:34 AM Doha Time
By Rosalind Mathieson
SINGAPORE: One of the best things about 2008 could be that it isn’t 2007. It has been equally an exciting, scary and tiring second half of the year. And that is just at
Dow Jones, where we have a new owner. Jokes aside, there will be more than one currency trader keen to see the back of this year. Volatility may have provided the chance for some hardy investors to make good gains, but no doubt at the expense of a few sleepless nights. Markets are likely to stay unpredictable for some time, so it’s a little hard to say with confidence where we’ll be at this time next year. Still, this column has made some attempt to look into the crystal ball, coming up with our “top eight” themes for currency markets in 2008. Some of these themes will continue to play out from 2007, but there also some new (or renewed) ones.
Firstly, to the US dollar: It has been a good year to take a vacation to the states. The greenback started the year around 121 against the Japanese yen. It had a pretty good first half, rising to around ¥124 in June. But the wheels fell off in August, and it dropped to near the ¥109 mark at one point. Ouch.
Things may start to look better though for the buck in 2008. The cheaper currency has helped US exports, underpinning the economy. Continued gains in U.S. Treasurys shows central banks around the world are willing to keep funding America’s twin deficits.
The Federal Reserve may have a few more interest rate cuts up its sleeve, but it is unlikely to take drastic action unless the US economy slows much faster than it is now.
Theme number two is the carry trade: which should find renewed interest in 2008. To be sure, such trades don’t like volatile markets, but central banks in Australia and New Zealand and the like don’t look set to start slicing rates aggressively, and Japan is not in a position to be hiking anytime soon. Investors should still be able to make a profit from selling lower-yielding currencies like the yen and parking money in markets that pay higher rates.
Theme number three is currency pegs: The weakness in the dollar, and the rate cuts by the Fed, have spurred much chatter about the countries in Asia and the Middle East that peg their currency to the greenback.
That has especially been the case given nations in the Middle East are battling inflation and are less able to cut interest rates to keep their currency pegs in alignment. So far, though, the Saudis have shown little stomach to unhitch the riyal and without their lead, other Gulf nations are unlikely to race to depeg. The possibility of a dollar recovery in 2008 could also keep them at bay.
The “R” word may continue to loom over currency markets in the early part of 2008, but as a strong batch of strong data last week on retail sales and consumer and producer prices showed, the US economy isn’t for now tipping toward recession. Consumer sentiment is holding up despite prolonged weakness in the housing market and as long as that remains the case, the recession talk will remain just that.
Theme four therefore: The US economy is slowing but doing surprisingly OK. A soft landing in the US would be good for Asia, as currency markets realise the decoupling argument is a little tenuous. Asia and Europe wouldn’t escape the fallout from a major US slowdown. A “recoupling” of the “decoupling” theory may help underpin Asian currencies as people embrace the soft landing outlook for the US and embark on growth trades.
Theme five is the familiar bogeyman under the bed: Inflation. High food and energy prices will remain a risk in 2008. Food scarcity will increasingly become an issue, potentially a social one as poorer people are forced to pay more for cooking oil, rice and other essentials.
Central banks in Asia will have to remain alert to the threat of inflation. That means tolerating some appreciation in their currencies, even if it compromises some of the export competitiveness. It’ll be a fine line to walk.
Theme six will be the noise surrounding Presidential elections in the US: Currency traders can expect a pickup in the rhetoric on China with the Democrats likely to play the “yuan card” heavily. US Treasury Secretary Henry Paulson has been taking a measured line on China but he’ll come under more pressure to produce concrete results via even faster gains in the yuan than we’ve seen in recent months. “China bashing” on the trade front will also be inevitable.
The main thing for markets to remember, though, is that punitive measures are unlikely and Beijing has shown little interest in acting just because the rest of the world says it should.
China itself is theme number seven: Much will depend on how much it acts to slow the economy and curb the stock market, with Beijing recently flagging tighter policy ahead. Part of that tighter policy will probably include further gains in the yuan – as officials realise this is in their own interest. But don’t look for China to provide markets with another “big bang” revaluation in its currency or a shift towards a greater currency basket. Change will remain incremental.
Rounding out the top eight for currency markets in 2008 will be sovereign-wealth funds: The balance of power in markets will increasingly shift their way, so keep an eye on developments in the sector.
SWFs are already starting to nose their way into equity investments and they no doubt will be looking to deploy more resources next year into other asset classes, including higher-yielding debt and currencies.
One of the biggest issues for markets will be working out where these funds are parking their money. It’s not as though they need to make it publicly known, unless they are buying a public company.
Most central banks however have made it clear they don’t intend to diversify existing reserves away from the US dollar. Rather, new reserves may be spread across different currencies, including the euro.
It wouldn’t be in their own interest to bail out of the dollar wholesale. They’d only be hurting themselves in terms of the prices they’d get. Taken together, what do these eight themes mean?
They suggest market noise will blow into the early part of the year, but that a semblance of calm may return in the second half of 2008. The US economic outlook is OK, though not super, and Asia should continue to grow. Asian currencies are set to keep gaining, in part on demand for carry trades against the yen, while the US dollar could find itself on a firmer footing against the majors.
Caveats to this view: The US economy tanks, China miscalculates and over-tightens, or spurs a panicked bubble burst in the stock market, or oil goes over $100 and stays there. And, as former US defence secretary Donald Rumsfeld so famously said, there are known knowns, known unknowns, but also unknown unknowns. Still, the new year will give markets a chance for a fresh start. – Dow Jones Newswires
(Rosalind Mathieson is the Managing Editor for Dow Jones Markets News in Asia. She has 13 years of experience as a political and financial reporter and editor, having worked previously at Australian Associated Press in Sydney and Canberra.)
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