Thread: OcaFX.Com - Financial News and Analysis

OctaFX.Com -ECB bond plan gets cheered in markets
World stocks push even higher after European Central Bank announces new bond-buying plan










LONDON (AP) -- Markets rallied Thursday as investors cheered a package of measures from the European Central Bank that is designed to ease Europe's debt crisis and secure the future of the euro currency.


Stocks, well as the euro and the price of oil, have enjoyed a bumper five weeks after ECB president Mario Draghi said the central bank would do "whatever it takes" to save the euro.


On Thursday, it seems Draghi met expectations in the markets. — stocks powered ahead alongside the bond prices of countries such as Italy and Spain.
Draghi confirmed that the central bank was creating a new bond-buying program, called Outright Monetary Transactions. The so-called OMT, which will replace a previous mothballed program, will see the ECB buying government bonds with maturities of one to three years. It will have no limits.


Countries that have their bonds bought will have to accept policy conditions that will be partly monitored by the International Monetary Fund. The bond purchases will not increase the money supply in the 17-country eurozone.
"The ECB did not disappoint in its decision to start a vast bond purchase programme," said Marie Dimon, senior economic adviser at Ernst & Young.
In Europe, Germany's DAX was up 2.7 percent at 7,153 while the CAC-40 in France surged 2.7 percent to 3,497. The FTSE 100 index of leading British shares was 1.6 percent higher at 5,750.


The euro, meanwhile, was flat at $1.2593.
In the U.S., the Dow Jones industrial average was up 1.4 percent at 13,227 while the broader S&P 500 index spiked 1.3 percent to 1,422.
The program announced Thursday is intended to keep the lid on the short-term borrowing rates of countries like Italy and Spain, giving them time to enact debt reduction measures and economic reforms. The borrowing rates of both countries fell further in response to Draghi's statement.


Many analysts remain skeptical that the plan will ease the overall crisis in the long-run as Europe's economy is headed for recession and governments have a lot of debt to tame.


"Don't depend on the OMT as a cure-all for what ails continental Europe," said Guy LeBas, chief fixed income strategist at Janney Capital Markets.
As well watching developments in Europe, investors are also keeping an eye on a raft of U.S. economic data ahead of Friday's closely watched nonfarm payrolls report for August. Thursday's weekly jobless claims and a private payrolls report from ADP indicate that Friday's figures may be better than anticipated.
Earlier, stock markets in Asia wavered before posting modest gains.
Japan's Nikkei 225 closed marginally higher at 8,680.57. Hong Kong's Hang Seng added 0.3 percent to 19,209.30. South Korea's Kospi gained 0.4 percent to 1,881.24, boosted by tech shares.


Mainland China's Shanghai Composite Index rose 0.7 percent to 2,051.92 while the smaller Shenzhen Composite Index added 1 percent to 859.30.






Sep 06, 2012 14:12
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OctaFX.Com - Asia stocks rally on Europe central bank debt plan
British Pound At Risk Amid Weakening Labor Market, Slowing Trade


BANGKOK (AP) -- Asian stock markets surged Friday, boosted by a highly anticipated European plan to lower the borrowing costs of debt laden Spain and Italy.


Markets shot higher after the European Central Bank announced it was creating a new bond-buying program under which the bank will buy government bonds with maturities of one to three years. There will be no limits to the amount of purchases it can make.


The program — the ECB's most ambitious yet in efforts to halt Europe's financial crisis — is intended to keep the short-term borrowing rates of countries such as Italy and Spain at manageable levels, giving them time to enact debt reduction measures and economic reforms.


Large-scale purchases of short-term government bonds by the ECB are expected to drive prices up while pushing down their interest rates, making it less expensive for financially strapped countries to borrow.


Japan's Nikkei 225 index surged 2 percent to 8,850.49. Hong Kong's Hang Seng jumped 2.4 percent to 19,663.92 and South Korea's Kospi bolted up 2.4 percent to 1,926.42. Australia's S&P/ASX 200 rose 0.2 percent to 4,322.30. Benchmarks in Singapore, Taiwan, Indonesia, New Zealand and Thailand also rose.


Mainland Chinese shares soared. The benchmark Shanghai Composite Index jumped 4.2 percent to 2,138.02 while the smaller Shenzhen Composite Index added 4.2 percent to 895.27.


Wall Street surged Thursday after the plan was announced. The Standard & Poor's 500 index soared to its highest level since January 2008, and the Dow Jones industrial average hit its highest mark since December 2007.
"Hong Kong market is in a very good mood today because of the rally from the Wall Street which is triggered by the ECB new unlimited bond purchasing program announced last night," said Jackson Wong, vice president of Tanrich Securities in Hong Kong.
"Now investors are getting more confidence that the ECB might be able to handle the current situation again. The euro went up above $1.26 and the ten-year bond yield of Italy and Spain went down significantly."
Spain's interest rate on its 10-year bond was down 0.3 percentage points at 6.12 percent after the ECB announcement. Italy's 10-year rate was down 0.1 percentage points at 5.33 percent.


And in an encouraging sign for the American job market, a report from the payroll processor ADP said Thursday that businesses added 201,000 jobs last month, the most reported by the survey since March.


Separately, the Labor Department said the number of people applying for unemployment benefits fell by 12,000 last week to 365,000. That figure won't affect the August jobs report, due out Friday, but could be a sign of better hiring this month.


Japan's powerhouse export sector — with many companies heavily dependent on European sales — enjoyed strong gains. Honda Motor Corp. rose 4.4 percent, and Toshiba Corp. jumped 6 percent. Heavy equipment maker Komatsu Ltd. added 4.9 percent.


Gains in South Korea, meanwhile, were driven by tech shares. Samsung Electronics Co. rose 4.4 percent and LG Electronics added 2.7 percent. SK Hynix Inc. soared 7.7 percent.

Chinese property shares soared. Hong Kong-listed Evergrande Real Estate Group surged 7.1 percent and Shanghai-listed Poly Real Estate was 6.6 percent higher.


Benchmark oil for October delivery was down 63 cents to $94.90 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 17 cents to finish at $95.53.
In currencies, the euro fell to $1.2635 from $1.2643 late Thursday in New York. The dollar fell to 78.92 yen from 78.95 yen.




Sep 07, 2012 02:44
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OctaFX.Com -German media warns unlimited ECB aid could ruin euro











BERLIN (Reuters) - Germany's conservative newspapers on Friday accused ECB chief Mario Draghi of writing a "blank cheque" to troubled euro zone states that could put the entire currency at risk, with top-selling Bild warning his policies could make the euro "kaputt".
The Italian president of the European Central Bank unveiled a new plan on Thursday to lower the borrowing costs of euro zone states like Spain and Italy by buying their bonds.


Germany's central bank opposes the ECB's move. Chancellor Angela Merkel has supported Draghi while insisting Bundesbank chief Jens Weidmann's public criticism of the bond-buying has been useful too.
For the country's conservative newspapers, many of which have taken an increasingly euro-sceptic stance as the three-year-old euro zone debt crisis wears on, Draghi's latest measures went too far.
"Help without end for crisis countries," said Bild on its front cover, adding that Draghi had signed a "blank cheque" and that his policy endangered the independence of the ECB. It cited German politicians saying the ECB had gone beyond its mandate of safeguarding the stability of the currency.
"Draghi sets off Germany's alarm bell," was the headline in the conservative daily Die Welt.
Business daily Handelsblatt, which often voices concern at the financial burden of the bailouts on German taxpayers and business, had a cover story on "the Rise, Fall and Resurrection of the Bundesbank" and gave prominence to Weidmann's warnings.


Inside, Handelsblatt criticized "the democratic deficit of the euro rescuers" - and linked the ECB's chosen path to next week's ruling by Germany's Constitutional Court on the legality of the euro zone's new bailout mechanism and budget rules.


The Frankfurter Allgemeine Zeitung, a sounding board for Germany's monetary hawks, wrote that "the border between monetary and fiscal policy has been blurred" and called the argument that bond-buying was within the ECB's mandate "far-fetched".


Finance Minister Wolfgang Schaeuble, attending an awards ceremony for Draghi late on Thursday, reiterated the government line that using monetary policy to solve the euro zone's fiscal problems could not be a permanent solution.
But senior Merkel MPs like her deputy floor leader Michael Fuchs insisted the ECB was acting within its mandate, telling Reuters:


"As long as there is conditionality, it is okay."










Sep 07, 2012 07:37
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OctaFX.Com -Analyst Interview: Christopher Vecchio on the Fed, Canadian Dollar Strength




The big question of the week is if the Fed will launch QE3. What do you think? If the Fed will indeed act, how could they explain their actions? Yields are already very low.


Moving beyond the headlines you see from the media, we need to consider what Chairman Bernanke said at the Jackson Hole Economic Policy Symposium: that nontraditional monetary tools have worked in the past, and the Fed is still open to using them, but there is growing concern among policymakers that implementation of programs previously used might have diminishing returns.


That last part is key for the narrative right now, with US equity markets at multi-year highs and Treasury yields hanging around near all-time lows: what more will unsterilized bond purchases do?


There’s additionally been talk about the Fed implementing some sort of open-ended bond-buying program that keeps the pedal on balance sheet expansion until certain benchmarks in key economic indicators (growth, inflation, labor market) meet predefined levels. Perhaps this is an option; given Chairman Bernanke’s modus operandi in recent years – limited balance sheet expansion and definitive targets for maturity extension programs (QE-Twist) – this would represent a new form of quantitative easing that the Fed hinted at in the July 31 to August 1 meeting Minutes.


I’d like to think that the Fed would implement an entirely different type of program, aimed more specifically at helping the housing sector and the labor market. This would have to fit in the scope of the United States’ consumer-based economy. Anything that would boost disposable income – especially in the face of tax hikes should the fiscal cliff come at the beginning of the near year – would be most beneficial. Although it’s a bit of a counterfactual argument, I tend to think that previous large scale asset purchases (LSAPs) (QE1) and unsterilized bond purchases (QE2) have had little influence over labor market conditions. Many tend to think this is the case as well; that’s part of the reason Chairman Bernanke had to defend nontraditional policy responses at Jackson Hole.


Spain is taking its time with asking for aid, perhaps it is wary of having to undertake more austerity measures. Do you see a possibility that Spain will receive a "soft bailout" or "precautionary program" as the ECB mentioned?
I think that the German ratification of the European Stability Mechanism (ESM) leaves void any risk-positive catalysts out of the Euro-zone over the coming weeks. The idea that Spain will receive some ‘white glove’ sort of treatment beyond the already agreed upon framework is asking a bit much from a reluctant core (still) at this point (though we do note that tones have softened in Germany and in Holland). This concept of conditionality is obviously a big concern because it means that any bond-buying the European Central Bank wants to undertake will not come without international budgetary oversight – just like in Greece. If Spain doesn’t agree to new measures, then it won’t receive bailout funds, and the ECB will stay on the sidelines, pushing borrowing costs back up. It remains to be seen how long the market buys cheap talk from Spanish Prime Minister Mariano Rajoy that Spain will seek help if yields rise, but I doubt it will be more than a few weeks maximum.


Japan has published more disappointing figures, including lower growth and a lower than expected current account. Do you see the yen suffering from weak figures? Or will its moves remain prone to risk on / risk off moves?
While the Japanese Yen is under pressure in its own right given weak economic data, the big picture is that of the big three safe havens (alongside the Swiss Franc and the US Dollar), the Japanese Yen is the best option available. This keeps the focus on the Yen as a proxy to ‘risk-on’ or ‘risk-off’ news. Keeping it short and simple, if the Fed doesn’t undertake a massive bond-buying program that diminishes yields on the Treasuries underpinning the US Dollar, the Bank of Japan will relieve a massive sigh of relief. If the Fed does a QE3-type program (see prior comments), I’d expect the BoJ to be very vocal and active in the markets with its own currency dilution response.
EUR/CHF woke up from the dead and began moving. Is it a result of the euro's rise? Or could the SNB also be behind this move? Do you see the Swiss franc returning to trading independently of the euro?


Rumors were floating around late last week that the Swiss National Bank was readying to raise its floor to 1.2200 in response to the ECB’s new debt monetization scheme (using sterilized bond purchases to lower borrowing costs in Italy and Spain), as the perceived uptake of peripheral debt would pressure the Euro and boost demand for the Swiss Franc.


Although the EURCHF has traded lower in the past few days since the initial spike up towards 1.2200, the SNB’s decision will force a decisive move in either direction: the EURCHF, in my opinion, will be sitting comfortably above 1.2200 or back riding 1.2000 by the end of the day Thursday. A removal of the floor seems unlikely at present time, but it is not something to be ruled out in the future if the crisis eases; the SNB’s foreign currency reserves are heavily weighted towards the Euro and some diversification would do the bank some good.
The Canadian dollar enjoyed rising oil prices, strong employment figures and also hopes of QE3. What could risk the strength of the loonie?At present time…nothing. The Canadian Dollar is a fundamentally strong currency, with both fiscal and monetary policymakers offering prudent guidance that has kept the country well-insulated from financial shocks in the US, Europe, and China over the past four-years. With recent housing data coming in better than expected amid slowing inflation rates, there’s clearly scope for further strength in the Canadian housing sector that could in return buoy the labor market. Right now, the only thing far enough out in the future to consider would be a dramatic ending to the US fiscal cliff situation, as the US as


Canada’s largest trading partner would likely slow imports, damaging the Canadian economy. Fiscal cliff aside, there are few things standing in the way for a strong finish to the year by the Canadian Dollar.


Sep 13, 2012 04:00 AM
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OctaFX.Com -Euro Falls Most in 8 Days - Time to Buy the Dip?


The Euro has lost the most versus the US Dollar (ticker: USDOLLAR) in eight days. Is this the start of a larger pullback or a good buying opportunity? Here are two reasons for why the EURUSD might bounce:


Pros that favor a Euro bounce against the US Dollar
Euro correction in line with what was expected, important EURUSD level at 1.30 offers support


The US Dollar downtrend is intact, and we favor selling as retail crowds remain heavily long


We can’t ignore risks that this could be the start of a long-awaited EURUSD correction, however, and we see two key reasons for which this could be the start of a larger US Dollar bounce.

Cons against buying into the Euro/US Dollar decline

US Dollar may continue to strengthen as Aussie and Euro lead way lower
The US S&P 500 nears a possible reversal, and highly-correlated EUR could decline


We ultimately view a break below the $1.30 mark as somewhat unlikely, and indeed favorable reward to risk on a long position is enough of a reason for this author to take a long EURUSD position against the key level.






Sep 18, 2012 01:45 PM
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Sep 20, 2012
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OctaFX.Com -Italy, Greece insist on safeguarding eurozone
Italy, Greece insist on safeguarding eurozone as Greece tries to finalize critical cuts








ROME (AP) -- The leaders of Italy and Greece are insisting on the "absolute need" to preserve the eurozone, as Greek politicians struggle to put together an austerity package critical to the country's financial survival.
Italy's Premier Mario Monti met Friday with Greek Prime Minister Antonis Samaras on the sidelines of a political conference in Rome.


A statement from Monti's office said the two leaders reiterated their conviction of "the absolute need to safeguard the integrity of the eurozone, stabilize markets and proceed in the process of European integration."


Samaras' coalition government has yet to agree on the final list of €11.5 billion ($15 billion) worth of cuts so the country can get bailout cash. Without the money, Greece might default and abandon the euro, unleashing new financial gloom across the continent.
Monti was later meeting the leaders of Ireland and Spain.
Meanwhile, Greece's bailout creditors said they are taking a "brief pause" of about one week in talks regarding the country's new austerity program, saying that "good progress" has been made so far.


The officials from the so-called troika of the International Monetary Fund, the European Union and the European Central Bank, also said in a statement that they will continue contacting the Greek officials from their headquarters during that time. The announcement followed talks with Greek Finance Minister Yiannis Stournaras.


An official at the ministry said the departure of the troika representatives from Athens is not significant since they had not initially planned to stay beyond the end of the week.


The debt inspectors from the IMF, EU and ECB have been meeting senior Greek officials since early September, ahead of a crucial progress report that will determine whether Greece keeps receiving vital rescue loans.


But weeks of deliberations among the three parties in Greece's fragile, conservative-led governing coalition have failed to produce an agreement on the final list of cutbacks.


The Greek official, who spoke on condition of anonymity, said Athens hopes to have the list ready by the time the troika inspectors return. He said an agreement was reached earlier this week with the troika on some €9 billion ($11.7 billion) worth of cutbacks — which will include an estimated €1.1 billion ($1.4 billion) from raising the average retirement age from 65 to 67.
He said that in addition to the €11.5 billion cutbacks, which will mostly come from pension and salary cuts, the troika also wants Greece to increase its state revenues by some €2 billion over the next two years.


Greece has depended on international rescue loans since May 2010, and in return imposed a harsh austerity program that saw incomes slashed, taxes repeatedly hiked and the retirement age increased to 65. The belt-tightening, amid a deep recession and high unemployment, has sparked a wave of strikes and often violent demonstrations.




Sep 21, 2012 10:10 AM
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OctaFX.Com - Australian Dollar Correction Could Be Over if Risk Trends Permit












The Australian Dollar had a mediocre week, shedding -1.17% against the top performer, the Japanese Yen, while gaining +0.26% against the worst performer, the Euro. The AUDUSD dropped back by -0.89% as price action was largely dictated by two main themes: a US Dollar rebound; and deteriorating sentiment on China.


With respect to the first point, it looks like the initial reaction to the Federal Reserve’s unlimited quantitative easing program was largely priced in, and an overextended market from a technical perspective warranted a pullback. In terms of the second, data was mediocre at best out of China, but commodity prices tied to Chinese growth – Copper and Iron Ore – were relatively steady. We believe that base metals will be a strong guide for the Australian Dollar (considering that Iron Ore is Australia’s top commodity export), and as long as they remain strong, with the Fed priming the liquidity pump, the Australian Dollar could strengthen going forward. However, this may not be that week, we now hold a neutral outlook for the Aussie until global risk trends pick up.


In terms of data out of Australia this week, there’s not much by way of the economic docket that could really provoke a breakout from its current trend: weak in the short-term, but strong in the medium- and long-term. There is one data release that is of interest, however. On Friday, the Private Sector Credit report for August will be released. According to a Bloomberg News Survey, credit grew at a pace of +0.3% on a monthly-basis, from +0.2% m/m in July. On a yearly-basis, credit growth was up by +4.3% in August from +4.2% y/y in the prior month. If Private Sector Credit is improving as predicted, the Australian Dollar could see a boost.


Looking at the calendar going into the first week of October, we note that there’s a Reserve Bank of Australia Rate Decision coming up on October 2. We thus suspect this will start to drive the Australian Dollar by mid-week. According to the Credit Suisse Overnight Index Swaps, there is a 62.0% chance of a 25.0-basis point rate cut, with 90.0-bps priced out over the next 12-months. Earlier this week, there was a 70.0% chance of a 25.0-bps rate cut, up from a 40.0% chance last Friday. These rate expectations ahead of the RBA are important to watch: if they show a greater likelihood of a rate cut, the Australian Dollar will depreciate.


Given the psychology surrounding the Australian Dollar and China right now, any positive signs out of either country could provide some much needed relief; and if US equity markets rally again, so too will the Aussie.








Sep 22, 2012 01:27 AM
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OctaFX.Com - British Pound Looks to Spain Event Risk, US Data for Direction












A limited stock of noteworthy homegrown event risk leaves the British Pound at the mercy of larger market themes in the week ahead. Broadly speaking, traders remain primarily concerned with quantifying the degree of slowdown in global economic growth over the coming quarters as well as financial stability in the Eurozone.


On the growth front, US economic performance is in the spotlight once again. Consensus forecasts continue to suggest output growth will accelerate in the world’s top economy this year, all the while Europe sinks into recession and Asia posts a meaningful slowdown. This means investors remain focused on establishing the extent to which a firmer US recovery can offset headwinds elsewhere in formulating a reading on global growth trends.


Data compiled by Citigroup suggests US economic data has tended to increasingly outperform expectations over the past three weeks. With Fed stimulus speculation no longer factor after this month’s FOMC outing, similar outcomes this time around are likely to be interpreted directly in terms of their implications for global output.


That means positive results are likely to be supportive for risk appetite and lift the British Pound against established havens like the US Dollar and Japanese Yen. By contrast, weakness can be expected against higher-yielding and sentiment-sensitive counterparts, particularly in the commodity bloc (Australian, Canadian and New Zealand Dollars). Needless to say, softer outcomes are likely to produce the opposite scenario.


Turning to the Eurozone, all eyes are on Spain. The government of Prime Minister Mariano Rajoy will present its 2013 budget to Parliament on Thursday and publish stress test results for the country’s banks on Friday. The former announcement may pave the way for a formal bailout request by the Eurozone’s fourth-largest economy, a colossal undertaking in its own right that will be made all the more noteworthy in that it activate the ECB’s new bond-buying scheme. The latter will be used to gauge whether the €100 billion EU aid package to rescue Spanish lenders will prove sufficient.


The British Pound continues to play the role of a regional alternative to the Euro at times of sovereign stress, with a Bloomberg index of the Pound’s average value showing a significant correlation with the Spanish 10-year bond yield (a measure of funding stress). That means another flare up of sovereign risk jitters triggered by Spanish event risk is likely to send Sterling higher against the single currency, and vice versa.


The risk appetite implications of Euro crisis developments are likely to follow the same dynamic as when US data is the catalyst du jour.








Sep 22, 2012 01:29 AM
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OctaFX.Com -Forget Euro and Pound - What About Local Currencies?









German Chancellor Angela Merkel maybe be trying her utmost to keep Greece in the euro, but a high school teacher from Bavaria may have found a better solution and is pitching the idea to Greek politicians.


Economics teacher, Christian Gelleri, started a local currency in 2003 with his students in the small town of Prien am Chiemsee, around 50 miles south of Munich. The currency has performed so well that on Wednesday he was invited to travel to the Greek region of Macedonia to show local politicians how it could keep them from leaving the euro.


"We see complementary local currencies as an answer to balance differences between regions within a currency zone," he told CNBC.com. "We have very big differences in the euro zone when you compare a region like Munich with Thessaloniki [in Greece]."


His idea doesn't stop at Greece and he believes it could prevent the euro zone break up in the long run.


The idea is called "express money" that would be issued by governments. It would have fast circulation with a 2 percent levy for hoarding notes with a 10 percent charge for conversion into euros. A supporting document co-written by Gelleri reminds readers that doubling monetary velocity, doubles gross national product.


He recommends a complementary currency on a national level in Greece and even if they did break from the euro, he believes that local currencies could be used alongside the drachma to strengthen poorer areas.


And Gelleri has plenty of experience, the currency he created - the Chiemgauer - will celebrate its 10-year jubilee next year.


"With a turnover of 6 million euros last year and a growth rate of 20 percent we see a continuous and very positive development," he said.


The amount of local currencies across Europe has now reached 104, all of which are listed on complementarycurrency.org. This week Bristol, a city in southwest England, launched the latest of these - the Bristol Pound.
The project is backed by the Bristol Pound Community Interest Company who initially set the exchange rate which is simply one-to-one with the pound sterling.


A secure printing firm creates the notes, seven main outlets then issues them and 350 independently owned businesses in the region will be accepting them in the coming weeks. They hope 1000 businesses will sign up to the scheme by the end of the first year.


A business consultant who lives in the area, Ross Parker, isn't so keen on the idea saying it won't change people's spending habits or the amount of money they have.
"The Bristol Pound is linked to the U.K. pound, and neither the Bristol Pound, nor other local currencies would survive without such a link," he told CNBC.com. "There is no reason why people would trust their local council to stand behind any currency if they can't trust their central bank."


Dr Gill Seyfang, an academic from the University of East Anglia in the U.K., who lectures on sustainable consumption, has a more positive outlook for the Bristol Pound.


She sees it as being more professionally-organized, more useful and better marketed than previous attempts. There's a clear reason why these local currencies are appearing according to Seyfang.


"As people find that more of their needs are simply not met by national (and international) currencies, then naturally people look to new, innovative financial solutions," she told


"These initiatives always spring up in times of economic recession," she said, citing the "stamp scrip" that begun in the American state of Iowa during the 1930s Great Depression.






Sep 24, 2012 10:27 AM
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