QE & LTRO & Technical Analysis of EUR/USD

hello,

On the current situation on EUR/USD I have written several times recently.

Link 1; 8th December

Link 2; 11th December

Link 3, about LTRO; 17th December

Fed just starting to finish the third round of quantitative easing !

Analyzing examples of two previous programs QE1, QE2 and QE3 present, of which the current during a similar to the first, you can see interesting relationships.

chart 1. 10Y US Gov Bond Yield

Now both the QE1 and QE3 observed massive increase yield, among others, U.S. 10-year bonds. But what was closer to the end of the asset purchase program, the yield did not rise as rapidly as because investors able to discount this fact.

In turn, when the total end of QE1 yield fell sharply. If history is to repeat, it's been probably increase of yield, but in the long term may be limited. Meanwhile, being closer to the end of QE, the yield should stabilize and then decline <chart1>.

What does it impact on the currency? Well, the EUR/USD pair is correlated with yield of 10Y and the first end of QE the EUR/USD started to fall in price already five months before the end of the QE program <chart 2>.

chart 2. EUR/USD and 10Y US Gov. Bond Yield

The situation on the EURUSD finally begins to be clear. Naturally helped, the decision to reduce QE by 10 billion USD. Correlations between the EURUSD and the FRA market and with yield of 2Y US Gov Bond begin to show the same thing (and during the bullish EURUSD was not the case). As a result. differences in yields, the chart shows we have 2Y change in favor of the dollar and indicate the current level of just below 1.36 in the relatively near future, just as the market contracts FRA18x24 <chart 3>.

chart 3. 2Y US Gov. Bond Yield & EUR/USD 

chart 4. 2Y US Gov. Bond Yield & EUR/USD

In the long term, the potential is even greater, because the difference in yields indicates around 1.33 <chart 4>.  I expect that the ECB will not tolerate short interest rates at a level above 20 bps (month LIBOR for the euro, despite the slight withdrawal is still 20.7 bps against 16.45 bps for the USD)which should support realization of this potential in the coming weeks.

Technical analysis:

I think that an additional comment is redundant but  If you have any questions or comments please be free to write to me, always :)

chart 5. EUR/USD Daily, 2013-12-22

chart 6. EUR/USD H4, 2013-12-22

Economists surveyed by Bloomberg believe that the Fed will limit the QE for the next 7 sessions of 10 billion USD. In December of next year is expected final cut 5 billion, which will lead to zero QE program.


regards,
oscarjp

The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinion offered herein reflects oscarjp-chrimatistikos current judgment and may change without notice. Users acknowledge and agree to the fact that, by its very nature, any investment in shares, stock options and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.

Yield & QE & Technical Analysis of fSP500 Index

hello,

In recent times, the topic about U.S. bond Yield occurs quite often due to increased activity of the Fed. I mean of course start the tapering. 

Moreover, the Yield can now be associated with the American stock exchange, where we see new highs and attempt to answer the question of whether cutting QE will end the boom or can only possibly lead to short-medium correction.

chart 1. SP500 Index

Looking at the major "summits" of the SP500 Index, which were created in 2000 (point 1) and 2007 (point 2) I saw a recurrent pattern of the yield curve of U.S. bonds. Well, in both cases, short-term yields overlap with long-term yields, announcing a reversal of the trend on Wall Street.

chart 2. yellow line yield curve in 2000, green line today

chart 3.  yellow line yield curve in 2007, green line today 

Currently, the yield curve is very far from it, in order to achieve short-term yields levels of long-term and what's more, after the decision of the Fed short-term yield fell even more, supporting the current upsurge.

chart 4. yellow line yield curve week ago, green line today

Therefore the upward trend is not threatened at the moment, but in the near future I would expect medium correction. An important level, according to my analysis seems to be the level of 1830 points, where according the long term picture is a good chance to start a correction. For more information directly on the chart below.

chart 5. fSP500 Index H4, 2013-12-22

regards,
oscarjp

The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinion offered herein reflects oscarjp-chrimatistikos current judgment and may change without notice. Users acknowledge and agree to the fact that, by its very nature, any investment in shares, stock options and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.

Carney (BOE): Barring shocks, QE has come to an end

Hi,

Is the words Carney (BOE) will continue on Wednesday by Ben Bernanke?

Yesterday's data from the euro area economy shows that economic growth in the two largest economies of the zone begins to delaminate. PMIs for the economy of France show that the country can not cope with the problems (it is hardly surprising looking at the role of trade unions and labor market flexibility) and begins to increasingly gravitate and so weak recovery in the euro area. Indices for the German economy has shown once again that the euro zone's biggest economy looks pretty good.

However, in the context of the situation in the euro zone more and more importance should be rising short-term market interest rates. Looking at them, and on weak data from France can not be excluded that the ECB will want to continue strongly to support the economy through further monetary stimulation. ECB at the last meeting was not enough "pigeons". Hence, it is possible that at the next meeting of the ECB "hit with redoubled force".

LTRO:

Concerning the translation paradox of the strong euro in the post <here>. I suggested then falling liquidity in European interbank market, which resulted in an increase in short-term market interest rates (despite the intentions of the ECB).

Investment and Retail banks every week have the opportunity to repay the funds borrowed earlier from the ECB's under the operation LTRO1 and LTRO2. So far repay these funds in symbolic sums (about 3-7 billion EUR) per week. Now, however, the argument appeared to accelerate this process. Well, the ECB intends to carry out stress tests of European banks before they take supervises them in November next year. To do well in these tests, the banks started to reduce balance sheets and pay back the loan faster. The ECB just announced that tomorrow the banks repay the loan in the amount of 22.65 billion EUR. What's more, banks will have more opportunity to repay in next week and traders in the market interest rate may fear even greater repayment, as banks may wish to improve balance sheets before December 31. Such large repayment carry with obvious consequences: lower supply of deposits put pressure on the interest rate, and for that some banks may borrow short term to make the repayment. As a result, month LIBOR for EUR is 5 bps over the U.S.despite the fact that still just talked about negative rates in the euro zone.

If the situation calms down by itself (which is very likely in late December or early January), the ECB will add additional liquidity to prevent unwanted tightening of monetary policy.

In addition, the ECB will download from the market even 152.3 billion EUR under sterilization purchase bonds under the SMP program. ECB assumed recovery of more than 180 billion EUR. The lower amount means that the banks with the ECB funding measures are not willing to, indicating that liquidity problems and further raises short-term rates LIBORu in EUR and Euribor.

U.S. CPI:

Today we met data about inflation in the U.S. for November, as measured by the CPI. Inflation in monthly terms virtually non-existent, while in annual terms amounted to exactly 1.22%, rising from 0.9%. It is, however, a smaller increase than the market expected (1.3%). 

On the other hand, core inflation, although unchanged on an annual basis, was 0.15% on a monthly basis, while the market is not expected to change. It is clear that lower inflation is the result of a total lack of changes in food prices on a monthly basis. The strength of demand reflects better core inflation from April is in a very narrow range of 1,64-1,77%!

But keep in mind that the Fed also looks at the dynamics of the retail price. Here data for November yet we do not have, but in October the base PCE was 1.1% y/y in April here we were in the range of 1,11-1,22% (1.11 in October). Absence of inflationary pressures in the United States emphasize the import prices, which, after a decline of 0.6% m/m in October, decreased by 0.7% m/m in November. This is in part the effect of cheaper oil, but in a year on a negative territory prices are also imports from Japan (-3.2%).

Inflation may start to fall due to high inventories, which the company wants to sell off. Remind that the last great result GDP was largely the result of rising of inventories.

trade safe tomorrow,
regards,
oscarjp

14. Summary of the trades (December 1st, 2013 - December 16th, 2013)

hello,

In the first half of December, missing of my side precise recommendations regarding future movements in selected markets. Which does not mean that there were none.

Unfortunately, the individual signals appear during the day and I'm not able to directly publish them on the blog. A publishing them after completing a scenario would not be unusual.

In the analyzed period, I focused mainly on describing the current events in the financial markets. Still relevant scenarios were presented on November 17 where I tried to show that the wave growth is close to completion and the start of the correction is only a matter of time.

scenarios

December 12, presented another analysis of trying to discourage investors to invest in the Polish market, at least to 3 February 2014.

more info

and update my forecasts published Dec. 13

scenarios - continuation

table 1.

at the moment, I still think that we are in the correction in the financial markets. Which will continue even in the first half of January 2014.

I decided to show you one of my analyzes on fFTSE100 Index, which unfortunately did not appear on my blog because of the fact that the signal appeared when I was at work, but that brought in a nice profit today.

chart 1. fFTSE100 Index, H4, 2013-12-16

chart 2. fFTSE100 Index, H4, 2013-12-16

regards,

oscarjp

total fail of the European Union

hello,

Greek Prime Minister Samaras today confirmed the information that has long circulated on the market. Greece, will ask the international lenders for partial debt cancellation, just as happened in 2011. Details still do not know, do not know also whether it was about as big cut as in 2011 (74%). In this rather Troika will not agree.

The key to this issue is a matter of achieving primary budget surplus by Greece. Eurostat will assess at this angle in April next year. Samaras does not hide that he would like to debt reduction achieved by the spring of next year, even before the elections to the European Parliament, which will be held in May next year. It is difficult to guess on what basis Samaras thought that before the parliamentary elections, whoever agrees to cut the debt of Greece. Samaras ruled out while the third signing the program bailout.

One sentence: we do not want to save more, we want more to borrow and later cut our debt because we can not pay it.

another country, which awaits a similar scenario:

IRELAND:

"Ireland's government debt, as a percentage of the value of the economy, jumped more than any other European country's in 2013 year."

"The stark data from Europe's statistics office Eurostat shows that the country's debt-to-GDP ratio surged 7.7 percentage points in the first quarter."

"Ireland's debt-to-GDP ratio stood at 125.1 pc in the first quarter. Figures released by the Central Statistics Office last week showed that the quarterly deficit amounted to 13.8 pc – far in excess of the 7.6 pc target that the Government must meet this year as laid down under European rules."

PORTUGAL:

"Portugal’s debt will increase to 127.8 percent of gross domestic product this year from 124.1 percent in 2012, more than the country’s statistics institute reported six months ago."

"The National Statistics Institute said in a March 28 report that debt was forecast to be 122.4 percent of GDP in 2013 after reaching 123.6 percent in 2012. The budget deficit last year was 6.4 percent of GDP, the same as reported in March, the Lisbon-based institute said today in a statement about the European Union’s excessive-deficit procedure."

"The budget deficit narrowed to 7.1 percent of GDP in the first half from 7.8 percent in the first half of 2012 as tax revenue increased, the institute said in another report. The deficit narrowed to 6.1 percent in the 12 months through June from 7 percent in the 12 months through March."

ITALY:

"Italy’s debt will reach a postwar record this year as the recession-hit country borrows to contribute to bailouts and pay arrears to suppliers."

"The public debt will rise to 130.4 percent of gross domestic product in 2013 from 127 percent last year"

SPAIN:

"as Reuters reports, Spain's debt-to-GDP has hit 93.4% - the highest level in more than a century."

Unfortunately, I say this with great sorrow but the European Union has has suffered the total defeat. None of the existing tools, with the aim of improving the economic situation of all the eurozone countries do not have the desired effects.

In case of return of fear on the markets, the rapid rise in bond yields could result in loss of ability to repay current liabilities, which could lead to the loss of liquidity by these countries, and without the intervention of the ECB's lead to bankruptcy.

In case of limitation of QE on Thursday and start tapering by the Fed, I think most will drain money from the markets characterized by the greatest debt.

what's your opinion ? if you d not agree with me - say it :)

regards,

oscarjp

my targets for all - continuation

hello,

Before you start read this post please read this first <my targets for all> because then you notice how all the analyzes proved to be correct :)

In the previous analysis showed possible levels of moving upward to the end and start of the correction. Now, you can assess yourselves what happened in the markets. In any case, the market is not broke levels that indicated by me in the post of 17 November.

For next week are not scheduled any statements. We are waiting a single speeches of the heaviest weight.

Monday (16th December):
15:00 - Mario Draghi will speak about monetary policy in Brussels. Later, about 17.15 will speak about the risks in the banking system.

Wednesday (18th December):
20:30 Presentation by Ben Bernanke, after the Fed meeting. Expectations are huge and no matter what decision will be made at a meeting of the instance will be the most important event in the context of the next month.

chart 1. fSP500 Index

chart 2. fFTSE 100 Index

chart 3. fCAC40 Index

chart 4. fDAX30 Index

chart 5. fWIG20 Index

chart 6. fDJIA Index

regards,
oscarjp

The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinion offered herein reflects oscarjp-chrimatistikos current judgment and may change without notice. Users acknowledge and agree to the fact that, by its very nature, any investment in shares, stock options and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.

polish Stock Exchange and plan for the coming weeks

hello,

I decided that today I will share with you some important information about directly Polish Stock Exchange. Within the framework nationalization of the Open Pension Funds (OFE), known in Poland as a second pillar of collecting money for yourself retirement which I wrote on my blog a few times. As a reminder: <link 1> and <link 2>.

Recently, we have been given more  interesting information that the Open Pension Funds (OFE) will have to convey to the Social Insurance Institution (ZUS) 51.5 percent of assets from their portfolios of 3rd September 2013.

Below, I present the structure of the assets of Open Pension Funds as at 3rd September 2013.

table 1. structure of assets of Open Pension Funds

All values ​​in the tables are expressed with the polish zloty and in percentage. Current rates: USD/PLN 3.04 and EUR/PLN 4.18 Unfortunately, for funds Amplico OFE and AXA OFE data were not available. Fortunately, these funds are not big enough and relevant so skipping them will not significantly affect the results presented below.

To summarize table number 1:

The total amount of assets of all funds is 162,133,123,067.00 PLN

                     51.5 percent of this value is 83,498,558,379.51 PLN

83,498,558,379.51 PLN so much money, Open Pension Funds will have to transfer to the account of the Social Insurance Institution on 3 February 2014

From the beginning of December of current year on the Polish stock exchange began its a correction. In the table number 2 below I present the structure of fund assets as of November 29 just before the start of that correction.

table 2.  structure of assets of Open Pension Funds

Easy to see that all the funds in the period from September 3 to November 29 increased the share of equities in their portfolios. Including the shares were purchased for close to 10 billion polish zloty. Over the first 12 days of December Polish WIG20 Index fell 7.85 percent already. During this time, Open Pension Funds sold shares.

Why ?

83,498,558,379.51 PLN so much money, Open Pension Funds will have to transfer to the account of the Social Insurance Institution on 3 February 2014

table 3.  structure of assets of Open Pension Funds

Table No. 3 showed total assets at December 11. You can easily calculate that the funds have sold shares of Polish Companies for over 3.6 billion polish zloty. As of December 11, total assets in bonds amounted to 69 billion zloty, this means that the funds need even sale stock for about 14.5 billion zloty.

Between December 11 and February 3 is 54 days out of which only 35 business days. Average sales per day is 413 million zloty. In addition, it is worth noting that we have a period approaching Christmas and New Year's Eve with the result that the market liquidity will be limited. Average turnover value on the market in Poland in the last five days was: 953 million zloty. Half of which is the sale by the Open Pension Funds.

My recommendation:

if you are planning to invest in stocks this year is certainly avoid the Polish stock exchange !!!

I hope that as a clear and accessible manner  I explained Current situation and I hope that everything is quite understandable. If while reading my post you have any questions. Please feel free to write, surely answer all questions.

best regards,

oscarjp

The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinion offered herein reflects oscarjp-chrimatistikos current judgment and may change without notice. Users acknowledge and agree to the fact that, by its very nature, any investment in shares, stock options and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.

Federal budget and EUR/USD

hello,

After heavy negotiations, Republicans and Democrats to come to agreement regarding the federal budget and should be finally approved later this week.

Liquidated be cut worth 63 billion dollars (85 billion from within Sequester).

What is important, and what I wrote in an earlier post <more info> that this plan does not include the extension of unemployment insurance. December 28 expires special aid program in the U.S. for the unemployed. If it is not extended is about 1.3 million unemployed Americans will lose benefits (in the coming months even 800 thousand). A large part of the people in this group may simply abandon the search of job and disappear from the workforce. The result? The decline in the unemployment rate by 0.25% to 0.5%! Of course, this does not mean that the economy will benefit, just the way it works statistics.

The plan is smaller than originally deficit for the next two years (about 23 billion USD), while there will be no tax increases.

EURUSD just rubbed against 1.38 level, despite fairly widespread opinion that 2014 should be the year of the dollar. The question is, why is this happening?

chart 1. EUR/USD & short rate

Responses should look at what is happening in the market interest rate in Europe. Chart at the top (source Bloomberg), shows that the 1M LIBOR for EUR is higher than the U.S. dollar for the first time since March 2012! It also means that since the introduction of the LTRO by the ECB for the first time liquidity in the European interbank market begins "to dry" - something did not foresee the ECB. In addition, Draghi has not helped the whole history to indicate that the ECB currently has no plans to LTRO, and the market also found (although Draghi did not say) that negative rates are not a threat.

Consequently, the German short-term securities are sold out, pulling the short-term interest rate in EUR up, which in turn translates into a strengthening of the euro, as the cash flows to the euro, where deposits are getting higher profitability.

chart 2. EUR/USD & spread GER2Y - US2Y

What's next?

Current situation is not sustainable in the long term. The ECB will not tolerate a lack of liquidity and the increase in market interest in Europe. The question is whether the Bank will be able to offer additional liquidity before the January meeting? American yield will rise after the Fed meeting, but more on the average dates (FRA18x24) and the long end. I believe that normalization of interest in the European market is a prerequisite to ensure that the exchange rate returned to the level suggested by the FRA market (around 1.355 in the medium term and in the longer 1.33).

regards,
oscarjp

The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinion offered herein reflects oscarjp-chrimatistikos current judgment and may change without notice. Users acknowledge and agree to the fact that, by its very nature, any investment in shares, stock options and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.

The most interesting opinions representatives of the Fed about monetary policy today

hello,

Today, the only interesting events in my opinion were speeches by Fed regarding Current Issues of the economic situation in the United States, and monetary policy. In addition, it is worth noting that these are the last planned statements by the Fed until the meeting of the FED and the statement of the Ben Bernanke on 17-18 December.

Lacker, FED of Richmond:

- GDP growth next year, only slightly more than 2%;

- immediate improvement in the labor market rather unlikely;

- I expect a discussion about reducing the QE next week;

- inflation back to 2% over the next year or two;

- is unrealistic to change by FED pace of the purchases from time to time, it is difficult to define the criteria for cutting QE3.

Fischer, FED of Dallas:

- business should take advantage of low interest rates now;

- QE3 cost significantly exceeds its advantages;

- Fed should cut at the earliest opportunity (17-18 of December :));

- I am opposed to moving the threshold of raising interest rates.

Bullard, FED of St. Louis:

- Fed must be credible with the objective of inflation;

- markets should be able to "digest" the cut QE3 in the near future;

- the stock market is not far from the traditional foundations I do not see bubbles in financial markets;

- inflation, a negative surprise;

- growth of the labor market may slow down;

- cut should be small with such a low inflation.

Key sentence:

"A small taper might recognize labor market improvement while still providing the Committee the opportunity to carefully monitor inflation during the first half of 2014." 

still something:

In December a Bloomberg survey, economists involved cutting waiting QE3 in December rose with 17% in November to 34% in December. 26% of respondents expected the first cut in January. 40% of respondents still expected to cut until March 2014, no one expected to start cutting QE3 later than March. The survey has covered 35 economists and analysts.

regards,

oscarjp

why the EUR/USD does not want to fall?

hello,

On Wednesday, yield of German 10Y Gov. Bond shot up to 1,814% from 1,733%, while the highest level since Oct. 22. On Friday, we had a maximum of 1.89. Before closing exchanges yield managed to fall and ended the week at 1.84

Also strongly increased the yield of German 2Y to 0.167% found at the highest level since Oct. 29. In the afternoon yield for the same securities was already 0.218%

German bonds were once a safe haven for capital at a time when in Europe has not happened preferably. Currently, have clearly improved the situation and the probable lack of action by the ECB after Thursday's meeting results in sale of German bonds, and this is reflected into an increase in their yields and strengthening of the euro.

In addition, Spain sold bonds 5Y Gov. Bond highest price since July 2005. Yields declined to 2.72%. During the same auction in November was 2.87%. You can see that the capital securities will more and more southern countries.

Yield of U.S. 10Y Gov. Bond reached 2.87% on Thursday, the highest level since Sept. 18. Interestingly, in recent times there is a sizeable "steepening" of the curve for the dollar: yields at the long end - rise, while a short end is not.

In fact, just before the Fed's decision of 18 September 10Y yield Gov. Bond was 2.85% and FRA18x24  was 1.05% . Now, it is respectively 2.88% and 0.71%! This explains why We still do not see the strengthening of the dollar. But if the Fed actually reduced the QE, FRA rates also would increase and the dollar strengthened.

regards,
oscarjp

HFT on the Dow Jones Index Future

The entire event took place during the publication of Non-Farm Employment Change and Unemployment Rate from the U.S. market. The movement shown in the chart lasted literally a moment. The One second at the same time would take forever.

After the publication of the data, Index increased from 15,875 points to 16,061 points (up 1.17 percent) and then decreased to 15,840 levels (a decrease 1.38 percent).

chart 1. Dow Jones Future Index, 2013-12-06

This type of market situations are very dangerous for traders who invest large financial levers. Within a few milliseconds can lose all of its assets in the portfolio. It is difficult to advise anything, you have to remember to always use a stop loss, so that we always know how much money will lose maximum in case that the market does not go our way.


regards,
oscarjp

currency wars - Yuan is building a strong position in trade

Currency of the Republic of China has overtaken the euro and became the second most popular used to finance commercial transactions.

In a recent report, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), participation of the Chinese currency in international trade finance transactions (eg letter of credit) rose in October to 8.7 percent from 1.9 percent in 2012. Yuan ahead in this respect, the euro, whose share fell at the same time from 7.9 percent to 6.6 percent. The participation of U.S. dollar still is not at risk and amounted in October 2013 81 percent.

Yuan is most often used to finance international trade transactions mainly by companies in China. They represent 54 percent of world trade, another 21 percent of transactions attributable to Hong Kong and 5 percent for Singapore, the 2 percent for Germany and Australia.

The recent plenum of the Communist Party of China accepted the reform program providing for, inter alia, liberalization of the capital market, which is likely to increase the popularity of the yuan in global markets. It is worth mentioning that in recent months the Republic of China signed an agreement allowing direct exchange of yuan to British pounds and Singapore Dollars.

One of the strategic objectives of the Chinese authorities is to make the yuan a global reserve currency with a similar status as the U.S. dollar.

Is expected that by the end of 2015 the participation of the yuan in international trade will increase to 30 percent.

regards,

oscarjp

13. Summary of the trades (November 16th, 2013 - November 30th, 2013)

hello All,

As a preliminary point, I would like to apologize to all who were waiting for my two-week summary of the transactions posted to my blog. Unfortunately I could not find the time to sort my blog. But fortunately we have the weekend so that we can all catch up. What I am doing at the moment. :)

In a previous statement I left open two transactions on EUR/USD. Both the stop loss at 1.3570. At the moment the market surpassed my levels and ended the week at 1.37 levels which is a complete surprise to me. There is now a big sale of the U.S. dollar along with rising yields on 10Y German bonds. More about this phenomenon I wrote in an earlier post <relation between EUR/USD & FRA US and EU & BOND MARKET> and I will try to describe it in the next that will appear in this weekend.

Summary of trades

As previously mentioned, aggregating transactions on EUR/USD bring a total of 112 pips profit and trade based on the futures contract on the SP500 which was closed with a profit of 261 pips. <trade>

trade safe,

best regards,

oscarjp

ADP Non-Farm Employment and Useful Information before friday which no one speaks

hi,

ADP: 215 thousand.; Expected 173 thousand. Previous reading was revised up from 130 thousand. to 184 thousand.

December 28 expires special aid program in the U.S. for the unemployed. If it is not extended is about 1.3 million unemployed Americans will lose benefits (in the coming months even 800 thousand).!

A large part of the people in this group may simply abandon the search of job and disappear from the workforce. The result? The decline in the unemployment rate by 0.25% to 0.5%! Of course, this does not mean that the economy will benefit, just the way it works statistics.

As for the program itself, it was first introduced during the crisis. Normally, unemployment insurance was granted for 26 weeks, then increased it to 99 weeks. So far benefits have already been issued to 225 billion USD. Last on the program is spent less and less due to the reflection of the U.S. economy.

EURUSD are too high in relation to the spread FRAs depicting expectations for interest rates, but on the other side the FX market is also affected by the bond market. Here, in turn, we see a clear correlation between the difference in interest rates on German and U.S. bonds and the exchange rate of the EURUSD. In contrast to the FRA market, bond market indicates a stabilization EURUSD still at high levels and while every currency pair quotes more aligned with the bond market than the market FRA. Only the correlation change or change in the bond market will be able to affect a different approach to the EURUSD.

This time, without a recommendation, are waiting for tomorrow's ECB chief press conference, and of course U.S. labor market on Friday

regards,

oscarjp

PMI, ISM with comment

hello everybody :)

On Monday we met PMI readings for all euro area countries. The results below:

Poland - PMI (November): 54.4 points; expected: 53.6 points; previous: 53.4 points. Highest since April 2011.

Spain - PMI (November): 48.6 points; expected: 51.1 points; previous: 50.9 points. Lowest since June.

Switzerland - PMI (November): 56.5 points; expected 55.0 points; previous: 54.2 points.

Italy - PMI (November):  51.4 points; expected 50.9 points; previous: 50.7 points. Best since June 2011.

France - PMI (November): 48.4 points; expected: 47.8 points; previous: 49.1 points.

Germany - PMI (November): 52.7 points; expected: 52.5 points; previous: 51.7 points. Best since June 2011.

Eurozone - PMI (November): 51.6 points; expected: 51.5 points; previous: 51.3 points. 

UK - PMI (November): 58.4 points; expected: 56.3 points; previous: 56.0 points.

Denmark - PMI (November): 58.1 points.

Greece - PMI (November): 49.2 points; previous: 47.3 points.

US - PMI (November): 54.7 points; previous: 54.3 points

US - ISM (November): 57.3 points; expected: 55.0 points; previous: 56.4 points. The highest level since April 2011.

Employment sub-index 56.5 points in October was 53.2 points. Production and orders grove up over 60 points. Prices paid by manufacturers down from 55.5 to 52.5

This is undoubtedly good news for the U.S. economy. When it comes to the real economy, it is as high ISM is a good estimate for the beginning of next year. ISM has a positive effect on, among other things getting better situation on the real estate market - the construction of houses represent an increase in orders for machinery construction. Employment Index also was positive. Importantly, the Index rising six months in succession and is the longest such series since 2009

regards,

oscarjp

insider trading - where is the line of propriety ? part 5

hello,

The European Commission on Wednesday punished eight financial institutions for a total amount of 1.7 billion euros for participating in illegal cartels in the derivatives market. It's about collusion regarding EURIBOR and LIBOR.

"On Wednesday, the Commission decided in two cartel cases in the financial sector. Reached a settlement with eight financial institutions that violated EU antitrust rules, and punished them for these violations. Combined punishment amounted to 1.7 billion euros, the highest penalty that the European Commission imposed a for breach of antitrust rules "- said at a press conference in Brussels, EU Competition Commissioner Joaquin Almunia.

Four banks participated in the cartel on derivative instruments (interest rate derivatives) that are denominated in euros. These were: Barclays, Deutsche Bank, Societe General and RBS.

and

Five banks (RBS, UBS, Deutsche Bank, JPMorgan, Citigroup) and one broker (RP Martin) participated while in bilateral cartels related to derivative instruments denominated in Japanese yen.

In total, the largest punishment accounted for Deutsche Bank, more than 725 million euros.

In relation to the institutions that have not agreed to a deal, are being further investigated. Those who agreed with the EC, received the discount in punishment. Penalties do not pay Barclays and UBS, because the first revealed the existence of cartels Commission. It's just as if I stole a car, confessed to the deed and has not been punished. Total idiocy.

"We found that in a cartel relating to derivatives based on the euro participating banks coordinate among themselves affect the rate of EURIBOR. Discussed also confidential commercial information that should not be discussed with the participants of the market" - said Almunia.

In the case of derivatives based on the banks manipulated the yen JPY LIBOR rates and TIBOR.

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regards,

oscarjp

Can Abenomics save the Japanese economy?

hello,

The central banks of the U.S., euro area, Japan and the UK all used a similar method to fight with crisis, lowered interest rates to values ​​close to zero, started to provide free loans to financial institutions and began to buy from banks, hedge funds, etc. assets at very high prices, far higher than market prices.

We live in times where money is printed more than the daily press. Is the printing of money will bring the desired effect?

Saxo Capital Markets’ new infographic explores the efficacy of Japan's prime minister's dangerous experiment to stimulate economic growth.

Recent data suggests the Japanese economy is recovering from its deflationary cycle, with inflation at its highest for a half a decade. Japan’s consumer price index (CPI), which identifies the change in prices of consumer goods and services over a specific period, reveals an upward trend in consumer costs. Is this a sign of Abenomics in action? Next year’s consumption tax increase means the BOJ’s fiscal stimulus is expected to continue during 2014 to target the 2% inflation rate, despite the promising figures in the CPI release. Do you think Abenomics will work? Will the ‘three arrows’ of Abe’s radical policy experiment boost Japan’s real economic growth in the long-term? What will be the consequences of Abenomics on trading opportunities?

chart 1. Abenomics Infographic; 2013-12-01

The early effects of the reform programme have triggered a surge in the Japanese stock market, accelerated by the anticipation of growth revival. So far, so good for the markets and traders. But how will Abenomics accommodate public debt of over 200% GDP, and will Abe’s radical policies inspire a long-term economic recovery in Japan?

Infographic explores the efficacy of amed after, and engineered by, Shinzō Abe, Japan’s prime minister, to stimulate economic growth.

Abenomics is based on the untested formula of monetary easing, fiscal stimulus and structural reforms. In early 2013, Abe promised to increase public spending across Japanese infrastructure and renewable energy, committing $116 billion to reignite Japan’s struggling economy. This short-term stimulus aims to boost GDP and job creation by building business confidence and inspiring private investment.

A new inflation target of 2%, conceived by Abe and enacted by the Bank of Japan, prompted a massive quantitative easing programme worth $1.4 trillion. This stimulus measure was introduced with the aim of buying up government debt in a battle to counter deflation. Monetary easing has resulted in a weakening of the yen to the point of a rise in inflation. A devalued yen is a boon to Japanese exports, as manufacturers can sell more goods to a more receptive foreign market. As a result, the Nikkei stock index has rallied by gaining more than 40%, driving stock price increases and, consequently, invigorating business growth. Japan’s lower currency has dipped against the US dollar, with forecasts suggesting wages, prices, employment and business investment will all rise.

The third, and potentially most critical, strategy of Abenomics is the unrolling of proposed structural reforms. Abe’s move to revamp Japan’s healthcare field, energy policies and IT industry is an overhaul in key industry sectors to maintain economic growth beyond short-lived QE lifts and fiscal spending. To what extent does Japan’s financial stability hinge on these structural reforms? Abe’s decision to join negotiations on the Trans-Pacific Partnership (TPP), a regional free trade agreement, may be crucial to elevating the ratio of Japan’s international trade from 20% to 70%, under the free trade agreements.

A series of initiatives to lay the groundwork for future growth includes schemes to help Japanese engineering companies to sell more nuclear power plants and high-speed trains abroad as well as a domestic-based proposal to increase female numbers in the workforce.

For Abenomics to succeed, Japanese households will need to reverse the recent deflationary trend of excess saving and encourage consumers to spend more. In the infographic, Mads Koefed, Head of Macro Strategy at Saxo Bank, suggests that ‘the new experiment in Japan has boosted consumer sentiment and that has now resulted in consumers spending more of their money’. Will a more optimistic outlook translate into a revival for the world’s third largest economy? It is premature to gauge the success of Abenomics at this stage, and there are question marks over the proposed structural reforms. Fears remain over Japan’s alarming national debt, and an eventual rise in interest rates would add a greater burden on the government, undercutting reform measures. Will an offshoot of Abe’s remedies to Japan’s macroeconomic problems inflict a greater debt load?

Further problems await Japan: the unsustainable ratio of the elderly to the working population, fallout should fiscal stimulus fail, and snowballing costs for imports. This symptom of a weakened yen is exemplified by Japan’s post-Fukushima nuclear programme, which relies heavily on imports. Although Japan’s aggressive monetary easing programme has helped the yen devalue against the US dollar, Abe’s monetary easing plans threaten to distort the financial markets. The Bank of Japan’s purchases of financial assets have created significant uncertainty in the bond markets, with Japan’s 10-year government bond unexpectedly rising to a record high in May 2013.

Abe’s structural reforms carry with them several risks. The domestic agriculture sector could suffer from increased marketplace competition should tariffs on imports be removed. Any agreements with the TPP would mean greater dependency on government support among Japanese farmers, adding a further load on finances.

Data published in late November indicates that household spending has risen 0.9% in October (from 2013 figures), but is this a long-term ascent, leading to stable economic growth?

regards,
oscarjp