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Friday, 30 January 2015

Apple

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Basic Trading Concepts Defined

With the largest cap value in the market of $628.42 billion, NASDAQ-listed Apple is known as the most valued company in the world, far ahead of the next two most valued companies – Exxon Mobil ($388.31 billion) and Microsoft ($378.47 billion). (Figures stated are as of January 2015).

The 7:1 stock split in June 2014 managed to bring down its stock market price by a factor of 7 (from $645.57 to $92.22), while keeping the overall company valuations unchanged. (For related reading, see: How To Profit From Stock Splits And Buybacks).Though the split made the stock price relatively affordable for small investors, the price -- hovering in the range of $107 -- is still considered expensive by many small and workaday investors. High-priced stocks are often perceived as over-valued, with little or no room for further appreciation, while low-priced stocks are seen to have more growth potential (hence investors tend to go after penny stocks). Stock splits generate more liquidity due to low prices, which leads to more market participation, which includes small investors. (For related reading, see: The Lowdown On Penny Stocks).

 

Apple's post-stock-split performance

Although the Modigliani-Miller (M&M) Theorem states that businesses don’t create any additional value just by reorganizing their corporate equity structure (such as a stock split), historical data confirms that splitting a stock does have a positive impact on stock price. WSJ provides the following data about stock performance being better in the long run, subsequent to a split:

Source: WSJ.com

 

Challenges in trading Apple stock

Even after the stock split by a factor of 7, the price above $100 makes it difficult to attract common investors (psychological price barriers). But there are other ways to trade Apple through low-cost options.

To maintain a base case for comparison, assume that an investor has $2,000. He can therefore purchase 20 Apple shares, assuming the price is $100. Let’s keep the price target of $135 on long positions (35% profit) and $80 on the downside (20% loss).

 

Trade Apple stock through options and option combinations

Options trading not only allows a lot of flexibility to match the stock trades at a fraction of the cost, but also enables investors to create different combinations with varying returns to suit their risk appetite. (For related reading, see: Measuring And Managing Investment Risk).

Reference: Investopedia

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Dollar set for record run, European shares rise

A man walks under an electronic information board at the London Stock Exchange in the City of London January 2, 2013.  REUTERS/Paul Hackett

(Reuters) - The dollar was on track on Friday for its best run since it was floated in 1971, notching up a seventh straight month of gains, while European shares headed for their best monthly performance in more than three years.

Cheered by upbeat German retail sales, which posted their biggest annual rise in 2-1/2 years in December, the pan-European FTSEurofirst 300 index advanced on Friday, with Germany's DAX index rising 0.6 percent.

European gains tracked a late rally on Wall Street on Thursday, where stronger-than-expected U.S. jobs numbers and a rally in Apple and Boeing helped offset some disappointing earnings.

"Retail sales in Germany and Spain, as well as consumer spending in France, are above expectations. These are the first signs for the positive impact from low oil prices and are a good support for equities," Christian Stocker, equity strategist at UniCredit in Munich, said.

Ahead of euro zone inflation data due at 1000 GMT, yields on the currency bloc's lowest-rated bonds dropped, as deflation risks took center stage again after reassurances from the new Greek government that it is looking for common ground on their bailout problem.

After a bout of investor nerves earlier in the week after the left-wing anti-austerity Syriza party won power, Greek shares tracked higher on Friday. The banking index rose 9.1 percent, adding to a 12.9 percent rebound on Thursday.

The euro also edged higher, trading up 0.2 percent at $1.1344, 2-1/2 cents above an 11-year low of $1.1098 hit at the beginning of the week, and on track for its first week of gains in seven.

But the single currency is still down over 6 percent for the month, its worst performance in 2-1/2 years, having fallen on the expectation, and then the confirmation, that the European Central Bank would launch a full-scale quantitative easing program to shore up a flailing euro zone economy.

GOLD

Those gains have helped the dollar gain almost 5 percent against a basket of currencies so far this year as traders bet that the U.S. Federal Reserve will be the first major central bank to raise interest rates. The dollar index was last down 0.2 percent at 94.5697, close to an 11-year high.

"There are a lot of investors waiting for a move higher in the euro to reload (on the dollar)," said Michael Sneyd, a currency strategist at BNP Paribas in London. "We are still dollar bulls."

Gold edged up on Friday and was set for its biggest monthly gain in almost a year after a rally fueled by the ECB's announcement of its 1.1 trillion euro QE program.

Brent crude edged up to $49.3 a barrel, having found some support from China, where new commercial crude reserves regulations are likely to boost import demand.

Asian shares had wavered between positive and negative territory, with Japan's Nikkei stock average adding about 0.4 percent.

Investors were likely to remain cautious ahead of fourth-quarter U.S. gross domestic product data at 1330 GMT. A Reuters poll tipped the economy to have grown 3.0 percent.

Reference: Jemima Kelly

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Asia wavers, but Wall Street gains lend support

Employees of a foreign exchange trading company work under monitors displaying the exchange rates between the Japanese yen and the U.S. dollar (L top, C), yen against the Euro (R), and Japan's Nikkei average (L bottom), in Tokyo, January 26, 2015. REUTERS/Yuya Shino

Asian shares wavered between positive and negative territory on Friday, as a late earnings-led surge on Wall Street helped counter persistent concerns over global growth and sagging Chinese shares.

Spreadbetters predicted the U.S. luster would rub off on European bourses when they opened, with Britain's FTSE 100 expected to open up around 19 points, or 0.3 percent; Germany's DAX to gain about 58 points, or 0.5 percent; and France's CAC 40 to rise 34 points, or 0.7 percent, according to IG.

"With Asian markets generally supported, we should see a positive open in Europe," Chris Weston, chief market strategist at IG, wrote in a note.

"We all know European markets have performed strongly as traders priced in the idea of liquidity making its way into the equity market," he said.

MSCI's broadest index of Asia-Pacific shares outside Japan edged down about 0.2 percent on the day in late trade, but was still on track to gain more than 1 percent for the month.

The Shanghai Composite Index lost 1.0 percent, set for a fourth consecutive day of declines, as this week's investigations into stock margin trading made investors wary.

Overall, though, regional sentiment got a lift from Thursday's U.S. gains, which saw major U.S. indexes surging almost 1 percent or more as Apple Inc and Boeing Co extended gains after strong earnings reports this week.

U.S. jobless claims figures also helped bolster the mood, with the number of Americans filing new claims for unemployment benefits last week marking its biggest weekly decline since November 2012, falling to its lowest since April 2000.

Japan's Nikkei stock average added about 0.4 percent, clawing back some of the 1.1 percent lost the previous session, its biggest one-day drop in two weeks. Strong company earnings led by Nomura Holdings and Advantest Corp buoyed sentiment, but a sell-off in index-heavyweight SoftBank Corp limited the gains.

For the week, the Nikkei gained 0.9 percent, and added 1.3 percent for the month.

Mostly upbeat data released before the market open showed Japan's core consumer inflation slowed for a fifth straight month in December due to slumping oil prices, though factory output rose 1.0 percent, helped by a much-awaited rebound in exports and the jobless rate fell.

"Overseas catalysts still dominate the Japanese market's mood. But with quarterly results being released now, investors are seeing if there is any forward-looking indication on how companies will perform in 2015," said Masaru Hamasaki, head of the market & investment information department at Amundi Japan.

The U.S. dollar slipped against its Japanese counterpart, losing about 0.4 percent to 117.83 yen.

According to Japanese government and central bank officials, the Bank of Japan has put monetary policy on hold and found backing for its wait-and-see stance from advisors to Prime Minister Shinzo Abe, who worry more easing could send the yen to damagingly low levels.

This newfound caution means Japan is set to be an outlier at a time when central banks from Canada to the euro zone to Singapore have eased policy to prop up faltering growth and defuse deflationary pressures. 

Expectations of further easing from the Reserve Bank of Australia sent the Australian dollar slumping to its lowest in over five years this week, with the Aussie falling as low as $0.7720. It was last up about 0.2 percent on the day at $0.7777.

The euro added about 0.2 percent to $1.1337, moving further away from this week's 11-year low of $1.1098.

U.S. crude edged down to $44.50 a barrel, moving back toward a nearly six-year low touched overnight on data that showed a rise in already record-high U.S. oil inventories.

Spot gold was up about 0.2 percent at $1,259.10 an ounce after falling more than 2 percent to a two-week low overnight on concerns over a looming increase in U.S. interest rates. Gold is still on track to post its biggest monthly gain in almost a year.

Investors were likely to remain cautious ahead of fourth-quarter U.S. gross domestic product data later on Friday. A Reuters poll tipped the economy to have grown 3.0 percent.

Reference: Lisa Twaronite

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Thursday, 29 January 2015

Forex- Basic Trading Concepts Defined

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What is Forex-  For the Novice Trader

Opening a price chart

To get started, click on the ‘create marketshot’ button at the top of the trading station. Next, you need to pick a currency pair, select the period, and specify the data range.

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The period is the time interval that the chart updates. For example, a period set to one day (d1) means that each point on the chart represents one trading day of data. A period set to five minutes (m5) means that each point on the chart represents five minutes of data. The data range is the amount of data you want the chart to populate. If you want to look at a full year of data, you’d set the data range to one year.

 

Using candlestick charts

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The default chart type is called a ‘candlestick’ chart. This chart type is used frequently in the forex market. A bar on a candlestick chart shows the open, close, high and low prices for the selected period. The body of the candle shows the open and close prices where the wicks show the high and low prices.

If the closing price is higher than the opening price of the previous candle, then the candlestick will be blue. If instead the closing price is lower than the opening price of the previous candle, then the candlestick will be red. Candlesticks simply make it easier to see if the trading period ended up or down.

 

Adding an indicator

Just looking at forex charts can be helpful in making a trading decision, but many traders also use technical indicators to help them make more informed trading decisions. These tools help a trader locate price trends and predict future price movements. The trading station is equipped with over thirty popular pre-loaded indicators. Over six hundred popular and custom indicators are downloadable online. To add an indicator to a chart, right click on the chart and select ‘add indicator.’

 

Drawing a trend line

Prices trend in one of three ways: up (bull market), down (bear market) or sideways (range bound market). A trend line is used to help a trader visually recognise which trend direction is in place. Until the trend is “broken,” a trader can reasonably expect the trend to continue. Trend lines are drawn with the ‘pencil’ tool. Typically, when you draw a trend line, you want to connect two or more extreme high or low prices that define the trend. Here are a few examples:

Up Trend                                          Down Trend                                     Horizontal Trend

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Most Traded Pairs

Although some retail dealers trade exotic (less popular) currencies such as the Thai baht or the Czech koruna, the majority trade the seven most traded currency pairs in the world. The four most popular, also known as "the majors" are:

EUR/USD (euro/dollar) – "euro"

USD/JPY (U.S. dollar/Japanese yen) – "gopher"

GBP/USD (British pound/dollar) - "cable"

USD/CHF (U.S. dollar/Swiss franc) – "swissie"

The three less popular commodity pairs are:

AUD/USD (Australian dollar/U.S. dollar) – "aussie"

USD/CAD (U.S. dollar/Canadian dollar) – "loonie"

NZD/USD (New Zealand dollar/U.S. dollar) – "kiwi"

These currency pairs, along with their various

These currency pairs, along with their various combinations (such as EUR/JPY, GBP/JPY and EUR/GBP) account for more than 95% of all speculative trading in FX. Given the small number of possible trades - only 18 pairs are actively traded - the FX market is much less broad than the stock market. (For more, see Top 8 Most Tradable Currencies and Popular Forex Currencies.)

Reference: FXCM.com

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Asian shares skid as bullish Fed takes investors by surprise

daily-economic-calendar-eur-usd-fx-trading-news 16

Asian shares extended losses on Thursday after the Federal Reserve took an upbeat view on the U.S. economy and signalled that it remains firmly on track to raise interest rates this year, despite an uncertain global outlook.

Spreadbetters predicted the weak tone would carry over into European trade, with FTSE 100 seen opening 63 to 81 points lower, or down 1.2 percent; Germany's DAX opening 116 to 145 points lower, or down 1.4 percent; and France's CAC 40 opening 60 to 74 points lower, or down 1.6 percent.

"European equities are set to open lower following last night's FOMC statement," Jonathan Sudaria, a dealer at Capital Spreads, said in a note.

"There was no change in the language or their stance that they remain patient on raising rates but this sent U.S. markets into a tail spin because for traders who are now addicted to accommodative monetary policy, even 'patient' is deemed to be hawkish," he said.

A greater likelihood of higher U.S. interest rates this year helped Asian stock indexes follow Wall Street into negative territory. Japan's Nikkei slipped 1.1 percent to mark its biggest one-day drop in two weeks, while MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.1 percent.

Adding to the gloomy picture, Chinese shares skidded after the official Xinhua news agency said that country's stock regulator will inspect the stock margin trading business of 46 companies, amid concerns that the country's stock markets are becoming over-leveraged and vulnerable to a crash which could strain the financial system.

The Fed said that international developments would be taken into consideration, but noted that falling energy prices boosted household purchasing power even as it acknowledged a decline in certain inflation measures.

"The markets were a bit surprised that the Fed was more hawkish than expected, especially considering that many people had thought that the board members this year would be more dovish than last year's," said Hideyuki Ishiguro, senior strategist at Okasan Securities.

Four voting members from regional Feds at the policy committee this year are considered less hawkish than last year's rotating members.

On Wednesday, the Dow Jones industrial average fell 1.1 percent to a six-week low while the S&P 500 lost 1.4 percent.

The Fed's optimism and unwavering stance on future rate hikes contrasted with a recent spate of dovish policy shifts at many central banks around the world - from Europe to Canada to India.

"Most every central bank wants to weaken their currency at the moment, in contrast with the Fed," said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.

"The market liquidity is relatively low now, considering it is getting toward the end of the month," he added.

The diverging monetary policy outlooks helped the U.S. dollar recoup some losses this week. The dollar index, which tracks the greenback against a basket of major currencies, gained about 0.2 percent on the day to 94.661.

Against the yen, the dollar added about 0.1 percent to 117.70 yen, while the euro slightly to $1.1282, moving away from a high of $1.1423 hit on Tuesday.

Signs of tension in Greek financial markets added to downward pressure on the euro. Greek short-term bond yields hit their highest since the country's 2012 debt restructuring and Greek shares tumbled 9 percent to a 2-1/2-year low on Wednesday, as the new government in Athens appeared to be squaring up for a fight with international creditors.

The New Zealand dollar steadied after tumbling to a 3-1/2-year low on Thursday after the Reserve Bank of New Zealand opened the door to a possible rate cut.

As share prices eased, U.S. bond yields have fallen, with the 30-year yield hitting a record low of 2.273 percent on Wednesday.

The 10-year yield stood at 1.720 percent, not far from this month's low of 1.698 percent, which was its lowest level since May 2013.

The Fed repeated it will be "patient in beginning to normalize" rates, although it dropped a reference that rates will be held at the current levels "for a considerable time" -- which many traders had taken to mean about six months.

Despite the indication from the Fed that the first rate hike could come as early as June, markets have relentlessly pushed the timing out to year-end and are plotting a much lower trajectory for future hikes.

Oil prices steadied after slumping anew overnight, with U.S. crude futures hitting near six-year lows after government data showed record-high inventories in the United States.
U.S. crude futures were nearly flat on the day at $44.48, having sunk as low as $44.08 on Wednesday, their lowest since April 2009.

Reference: Lisa Twaronite and Hideyuki Sano

Secrets of successful traders. Free Newsletters with down to earth trading tips. Go to: http://www.tradingprofits4u.com/

Wednesday, 28 January 2015

Forex Essentials, Making or Breaking The Global Economy

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Basic Trading Concepts Defined

While Draghi’s was announcing the late arrival of QE to bring the Eurozone back from the brink of its deflationary trajectory, Christine Lagarde was in Davos preparing her speech notes for the World Economic Forum warning that this is the year  ‘to strive for economic growth or accept stagnation; to work to improve stability or risk succumbing to fragility; and to cooperate or go it alone’.

And her answer? Global cooperation overseen by institutions such as the IMF and fiscal reform country by country, with policy ‘focused on promoting growth and creating jobs’, including closing the gender gap.

And here is her warning if we mess up; ‘The global economy risks getting stuck in a “new mediocre” – a prolonged period of slow growth and feeble job creation’.

Lagarde continues to see the US as the bright spark in an otherwise lacklustre outlook for the global economy and included her own expectation that the US is more likely than not to raise rates by the summer of this year. She gave praise to Yellen for communicating with the market (still probably bemused by recent lack of transparency shown by the SNB), and for a terrific job as FOMC chairwoman , with some infant signs of inflation and a strengthening jobs market.

Ironically for Legarde, the ink was barely dry before the pre-QE tensions between Germany’s Merkel and the ECB chairman started spilling into the press. Draghi did please the market with the amount of the liquidity  announced on Thursday which amounted to 60 billion per month for at least 18 months. There is, however, a lot of confusion as to the mechanics and whether it can even be effective in such a disparate union.

Germany’s concern remains;  structural reform is necessary to support the monetary policy. And, indeed Draghi himself is only too aware of this as he expressed it  ‘monitory policy can create a basis for growth, but for growth to pick up you need investment and for investment you need confidence and for confidence you need structural reform’.

The Germans have their issues with Draghi and the QE debate which the Greek situation is not helping. The new government may be demanding debt forgiveness and Germany is their biggest creditor. The German press have already referred to Merkel’s preference for Grexit rather than concessions to the debt.

There is a growing feeling that the German stance can derail or at least undermine the momentum that QE was intended to bring to  a zone perilously close to deflation with a chairman intent on deflecting it.

 

Forex Outlook for the Euro:

As the ECB are now planning to buy bonds from Eurozone countries, the effect will be for bond yields to fall. They are already at record lows . The following chart is the German 10yr Bund yield in what is now a steep descent;

Reference: Judith Waker

fotistradingacademy.com

Secrets of successful traders. Free Newsletters with down to earth trading tips. Go to: http://www.tradingprofits4u.com/

Global shares resilient as investors pin hopes on Fed; Apple outperforms

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Asian stocks showed some resilience on Wednesday as investors speculated whether the Federal Reserve could take a dovish turn in its post-meeting statement later in the session, amid signs a stronger dollar was hurting U.S. corporate profits.

Apple Inc (AAPL.O) also provided some relief after the bell as record iPhone sales helped it beat expectations, sending its stock up more than 5 percent.

Yahoo Inc (YHOO.O) gained more than 6 percent in after-hours trading on its plans to spin off its 15 percent stake in China's Alibaba Group Holding Ltd (BABA.N), responding to pressure to hand its prized e-commerce investment over to shareholders.

Those moves helped U.S. stock futures ESc1 rise 0.7 percent in Asia even as earnings from other U.S. majors generally disappointed, with multinationals from DuPont (DD.N) to Microsoft Corp (MSFT.O) complaining that a strong U.S. dollar was hurting profits.

European shares were expected to keep their bullish tone since the European Central Bank unveiled quantitative easing last week, with spreadbetters seeing rise of around one percent in Britain's FTSE .FTSE, Germany's DAX .GDAX and France's CAC40 .FCHI.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ticked up 0.2 percent to hit a four-month high while the Nikkei .N225 also gained 0.2 percent to one-month high.

"The ECB quantitative easing was very powerful. Asian markets saw big fund inflows. The falls in oil prices reduced inflation risk, allowing many central banks in emerging markets to ease policy," said Yukino Yamada, senior strategist at Daiwa Securities

Singapore's central bank in fact eased monetary policy unexpectedly on Wednesday ahead of its scheduled review in April, joining a growing list of central banks that took steps to counter disinflation and slowing growth.

The latest U.S. economic news was mixed with surprisingly soft durable goods orders, but notable strength in housing and consumer sentiment.

Soft business investment and corporate earnings stoked talk the Fed would have to acknowledge the more difficult environment in its policy statement at 1400 GMT.

So far, the Fed has stuck by plans to raise interest rates around the middle of 2015, but markets have relentlessly pushed the timing out to year-end and are plotting a much lower trajectory for future hikes.

Fed funds <0#FF:> imply a rate of only 45 basis points by December, compared to the current effective funds rate of 12 basis points.

"The market now thinks a rate hike around June is unlikely. So if the Fed does not change its tone, the market will take it as a bit more hawkish than expected," said Tomoaki Shishido, fixed income analyst at Nomura Securities.

Just the risk of a dovish turn was enough to force speculators to cut back on crowded short positions in the euro, lifting the common currency to $1.1372 EUR= and away from Monday's 11-year low of $1.1098.

The dollar dipped to 117.92 yen JPY= and retreated against a basket of major currencies to 94.092 .DXY, off an 11-year high of 95.481 hit on Friday.

In commodity markets, oil prices were pressured by news U.S. oil stockpiles surged by nearly 13 million barrels last week. [API/S]

Brent crude oil LCOc1 dipped to $49.01 a barrel while U.S. crude oil futures CLc1 slipped to $45.57.

Reference: Hideyuki Sano and Wayne Cole

Secrets of successful traders. Free Newsletters with down to earth trading tips. Go to: http://www.tradingprofits4u.com/

Tuesday, 27 January 2015

Forex- Basic Trading Concepts Defined

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What is Forex?  For the Novice Trader

Forex is a commonly used abbreviation for "foreign exchange". It typically describes the buying and selling of currency in the foreign exchange market, especially by investors and speculators. The familiar expression, "buy low and sell high," certainly applies to currency trading. A forex trader purchases currencies that are undervalued and sells currencies that are overvalued; just as a stock trader purchases stock that is undervalued and sells stock that is overvalued.

 

How do you read a quote?

Because you are always comparing one currency to another, forex is quoted in pairs. This may seem confusing at first, but it is actually pretty straightforward. For example, the EUR/USD at 1.4022 shows how much one euro (EUR) is worth in us dollars (USD)

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What is a lot?

A lot is the smallest trade size available. FXCM accounts have a standard lot size of 1,000 units of currency. Account holders can however place trades of different sizes, so long as they are in increments of 1,000 units like, 2,000, 3,000, 15,000, 112,000 etc.

 

What is a pip?

A pip is the unit you count profit or loss in. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count "pips". Every point that place in the quote moves is 1 pip of movement. For example, if the EUR/USD rises from 1.4022 to 1.4027, the EUR/USD has risen 5 pips.

 

What is leverage/margin?

As mentioned before, all trades are executed using borrowed money. This allows you to take advantage of leverage. Leverage of 200:1 allows you to trade with $1,000 in the market by setting aside only $5 as a security deposit. This means that you can take advantage of even the smallest movements in currencies by controlling more money in the market than you have in your account. On the other hand, leverage can significantly increase your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.

The specific amount that you are required to put aside to hold a position is referred to as your margin requirement. Margin can be thought of as a good faith deposit required to maintain open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit. Learn more about FXCM's Margin Requirements.

 

Currency Direction

Forex traders have developed several methods for attempting to figure out the direction of a currency pair. Fundamental traders may read news sources such as DailyFX.com to see how interest rates, economic growth, employment, inflation, and political risk affect the supply and demand for currencies. Technical traders use charting tools and indicators to identify trends and important price points of where to enter and exit the market.
But no matter what type of trader you are, you'll need to learn how to read forex charts

To be continued.

Reference: FXCM.com

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Asia shares inch ahead, euro steady as Fed meets

An employee of a foreign exchange trading company stands in front of a monitor, showing the graph of the recent fluctuations of the exchange rates between the Japanese yen against the euro, in Tokyo, January 26, 2015. REUTERS/Yuya Shino

(Reuters) - Most Asian share markets firmed on Tuesday and the euro clung to rare gains, relieved that European equities had weathered Greece's election outcome without too much disruption.

The main European indices were expected to open higher, though foul weather in the United States will curb activity on Wall Street. The Federal Reserve also starts its first policy meeting of the year, in what is a busy week for earnings.

Japan's Nikkei gained 1.4 percent, while Australia's main index added 0.8 percent. Other moves were mostly modest and MSCI's broadest index of Asia-Pacific shares outside Japan was flat on the day.

Chinese markets continued their recent erratic path and the Shanghai index slipped 2.2 percent.

On Wall Street, the Dow had ended Monday up a bare 0.03 percent, while the S&P 500 gained 0.26 percent and the Nasdaq 0.29 percent.

A snow storm engulfing New York is expected to keep many investment banks and fund managers on skeleton staff, though the main exchanges all plan to open as usual on Tuesday.

Around 30 percent of S&P500 companies report earnings this week, including tech heavyweights Microsoft, Apple, and Google. Of the 96 companies that have reported so far, 66 have topped forecasts, 18 disappointed and 12 were in line with estimates.

The U.S. Federal Reserve starts a two-day policy meeting on Tuesday and investors are keen to hear its take on the rash of policy easings from the euro zone to Canada and Switzerland.

The general assumption is the Fed will acknowledge the uncertain global outlook and stick to its promise to be patient on tightening. Yet its timetable remains for lift-off on rates by mid-year, a trajectory that presages further broad-based gains for the dollar.

The dollar was near an 11-year peak against a basket of major currencies at 94.910 having risen 11 percent in only the past three months.

It softened a shade on the yen to 118.28 yen, while the euro pared a little of its recent heavy losses to stand at $1.1243.

The Fed is hardly alone in meeting this week, with policy decisions awaited from Hungary, Thailand, Malaysia, New Zealand, South Africa, Mexico, Colombia and Russia.

In Europe, Greek left-wing leader Alexis Tsipras was sworn in on Monday as the prime minister of a new hardline, anti-bail-out government determined to face down international lenders and end nearly five years of austerity.

Tsipras quickly sealed a coalition deal with the Independent Greeks party which also opposes the EU/IMF aid program.

The reaction in markets was modest by recent standards. Greek stocks fell 3 percent, led lower by bank stocks. Greek 10-year bond yields rose, but stayed below the levels seen in the run-up to the vote.

In commodity markets, U.S. crude was quoted 10 cents firmer at $45.25. Brent edged up 16 cents to $48.32, but that followed a 1.3 percent drop on Monday.

Reference: Wayne Cole

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Monday, 26 January 2015

A Beginner's Guide To Tax-Efficient Investing

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Basic Trading Concepts Defined

Tax efficiency is essential to maximizing returns. Due to the complexities of both investing and U.S. tax laws, many investors don't understand how to manage their portfolio to minimize their tax burden.

Simply put, tax efficiency is a measure of how much of an investment's return is left over after taxes are paid. The more that an investment relies on investment income - rather than a change in its price - to generate a return, the less tax-efficient it is to the investor. This article will detail common strategies for creating a more tax-efficient portfolio. It will discuss tools commonly overlooked by investors, which results in lower lifetime returns due to paying higher taxes.

Taxable, Tax-Deferred and Tax-Exempt Accounts

Before investors can take any steps toward tax-efficient investing, they must first determine how their accounts are structured under the law. Generally speaking, accounts can be taxable, tax deferred or tax exempt. For taxable accounts, investors must pay taxes on their investment income in the year it was received. Taxable accounts include individual and joint investment accounts, bank accounts and money market mutual funds. On the other hand, tax-deferred accounts shelter investments from taxes as long as they remain in the account. Any kind of retirement account - 401(k), IRA or Roth IRA - is a tax-deferred account. For tax-exempt accounts such as Canada's Tax-Free Savings Account, investors do not need to pay taxes even at withdrawal.

Both types of savings accounts have their advantages and disadvantages. As a general rule of thumb, tax-efficient investments should be made in the taxable account, and investments that are not tax efficient should be made in a tax-deferred or tax-exempt account - if an investor has one.

Know Your Bracket

Next, an investor must consider the pros and cons of tax-efficient investing. First, the investor needs to determine his marginal income tax bracket and whether it is subject to the alternative minimum tax. The higher the marginal bracket rate, the more important tax-efficient investment planning becomes. An investor in a 39.6% tax bracket receives more benefit from tax efficiency on a relative basis than an investor in a 15% bracket.

Once the investor identifies his bracket, he must be aware of the differences between taxes on current income and taxes on capital gains. Current income is usually taxable at the investor's bracket rate. Capital gains taxes are distinguished by being a gain and by being either short term (usually held less than one year) or long term (usually held more than one year).

Generally speaking, short-term capital gain rates are at the investor's marginal tax bracket, and his long-term rates are at a preferential rate. If the latter is the case, then the investor needs to try to generate capital gains at the preferential longer-term rate.

Different asset classes like stocks and bonds are taxed differently in the United States and often play much different roles in the investor's portfolio. Historically, investors purchased bonds to provide an income stream for their portfolios, and bonds have generally enjoyed lower volatility or risk than stocks. The interest income from most bonds is taxable (municipal bonds are a tax-efficient vehicle at the Federal Tax level, however) and is, therefore, tax-inefficient to the investor in a higher tax bracket. Stocks are often purchased to provide a portfolio with growth or gains in their capital, as well as a current income stream from dividends.

As a rule, investors should put tax-inefficient investments in tax-deferred accounts, and tax-efficient investments in taxable accounts. But tax efficiency is a relative concept. With the exception of the lowest-quality bonds, no investment is completely tax-inefficient - yet some are clearly more tax-efficient than others. To underscore this hierarchy, we'll now discuss the different kinds of investments in terms of their location on a tax-efficiency scale, moving in the direction of complete tax efficiency.

Tax-Inefficient Investments

Among the most tax-inefficient investments are junk bonds. Due to their high risk of default, junk bonds typically pay higher yields than better-quality bonds to attract investors. Since junk bonds are used primarily as speculative instruments, they also pay higher yields than other types of bonds. Consequently, the yields paid to junk-bond investors are taxed at the same rate as ordinary income.

Straight-preferred stocks are relatively tax-inefficient. Generally considered hybrid instruments, straight-preferred stocks share characteristics of both common stocks and bonds. Like common stocks, straight-preferred stocks are issued in perpetuity; like bonds, they yield fixed payments, which provide downside protection but limited upside potential. In addition, straight-preferred stockholders, like bond holders, are paid ahead of common stockholders.

Due to their bond-like qualities and fixed payment, straight-preferred stocks are taxed at the same rate as ordinary income. Although institutional investors, which are the primary market for preferred stocks, may largely offset their tax bill using the dividend received deduction (DRD), this tax credit is unavailable to individual investors. As with junk bonds, individuals must apply the current income tax rate to their dividend income from straight-preferred stocks.

Some straight-preferred stock is convertible to a pre-determined number of the issuer's common stock. The stockholder may decide to exercise this option at any time, enabling him to first lock in the fixed dividend payouts and then participate in the capital appreciation of the common stock. In exchange for this flexibility, the issuer usually pays lower dividends on convertible preferred stocks than on its straight-preferred stocks.

Dividends from convertible preferred stocks are considered ordinary income and taxed as such, unless the securities are converted to common stock. Therefore, convertible preferred stocks are hardly more tax-efficient than straight-preferred stocks - although investors may dramatically increase their tax efficiency by converting their holdings to common stocks, which are taxed at the lower long-term capital gains rate.

Tax-Efficient Investments

By comparison, convertible bonds are relatively tax-efficient. Not only do they usually have lower yields - and therefore incur fewer taxes - than junk bonds or preferred stocks, but bondholders may hold them in tax-deferred accounts. To achieve improved growth in capital gains, investors may convert these bonds into the issuer's common stock.

Next are investment-grade corporate bonds. Investors may also put them in tax-deferred accounts, making them a relatively low-cost and liquid means of gaining exposure to the bond market while also lowering their tax profile.

Even more tax efficient are common stocks, which are among the most tax-efficient investments, particularly when held in tax-deferred accounts. This is primarily because they are taxed at the long-term capital gains rate if held more than one year. Most tax efficient are municipal bonds due to their exemption from federal taxes. Yet because they have lower yields than investment-grade bonds, municipal bonds often represent a substantial opportunity cost for investors.

Real estate investment trusts (REITs) offer tax-efficient exposure to the real estate market. At the trust level, REITs are tax exempt provided they pay at least 90% of their profits to shareholders, while investors must pay ordinary income tax on their dividends and on shares bought and sold. However, REIT shares are taxed only after they earn back that part of the investment used to finance real estate purchases and improvements. Consequently, investors may time their tax liability for their REIT shares, or in some years avoid taxes altogether.

The Bottom Line

Tax-efficiency is within reach of most investors. If you want to keep more of your investment earnings and stay out of a higher tax bracket, choose investments that offer the lowest tax burdens relative to their interest income or dividend income. You may also want to consider your opportunities for investing tax-free. Given the markets' persistent volatility, your decisions regarding tax-efficient investing may spell the difference between reaching and falling short of your financial goals.

Reference: Investopedia

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Eyes on Fed after ECB, other bank stimulus moves

The United States Federal Reserve Board building is shown in Washington October 28, 2014. REUTERS/Gary Cameron

The Federal Reserve could be key for Wall Street next week as investors get to hear from the U.S. central bank for the first time since a series of moves by its global peers, including the European Central Bank's massive stimulus plan.

Thursday's larger-than-expected stimulus package from the ECB lifted U.S. stocks, helping indexes post gains for the week after three straight weeks of losses.

But the increased stimulus measures from the ECB and elsewhere globally, including the Bank of Canada, may make it tougher for the Fed to move ahead with its own plan to start raising interest rates by mid-year, lest U.S. economic policy move out of sync with the rest of the world.

"Global central policy is not one of their mandates, but I think they have to acknowledge it, because this is not just global economic headwinds, this is actually the moves of other central banks. They've got to take that into account," said Erik Davidson, chief investment officer for Well Fargo Private Bank in San Francisco.

Should the United States raise rates when other major developed economies are being more expansive, that could boost the dollar, putting further pressure on commodity prices - which because they are denominated in dollars become more expensive for non-U.S. investors - and adding to the threat of deflation.

The Fed is expected to reiterate that those global risks have not yet put the U.S. recovery or the Fed's rate plans off track when it issues its policy statement at the close of its two-day meeting on Wednesday.

The timing of the Fed's eventual rate move has been a top concern for investors. Stocks rallied when the Fed said after its December meeting that it would take a patient approach toward raising interest rates and gave an upbeat assessment of the U.S. economy.

The sharp decline in oil prices that began last June and worries about deflation could keep the Fed on hold for longer, analysts said.

"It bodes well for the Fed to be patient," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. "There's no inflation here; the problem is deflation. If oil prices were to go lower, that could create more of a problem."


THE ATTRACTION OF EUROPEAN SHARES

At the same time, more money has been moving from the U.S. market into European stocks as a result of the ECB measures, adding to concerns for U.S. stock investors.

Sharp declines in the euro EUR=, which hit an 11-year low against the dollar on Friday, make European stocks cheaper, especially compared with U.S. equities.

Flows into EPFR Global's European regional equity funds rose to one-year highs in the week leading up to the ECB announcement, EPFR Global said. Exchange-trade funds tied to Europe rallied following the ECB move this week. The SPDR Emerging Europe ETF (GUR.P) jumped 3.7 percent this week, its biggest weekly gain since September.

Investors will also be watching elections Sunday in Greece. With the leftist Syriza party - which has pledged to scrap austerity measures and secure a debt write-off - leading in polls, the euro may see further pressure.

Underpinning the argument for U.S. stocks, though, is the growing strength of the U.S. economy while overseas economies have been weakening.

"European equities will likely improve in the short term, but in the medium term equity performance is likely to be tied to the performance of the real economy," Rob Waldner, chief strategist at Invesco, wrote in a note this week.

Next week also marks one of the busiest weeks for fourth-quarter U.S. earnings, with 141 S&P 500 companies slated to report. Among them are several top technology names including Apple (AAPL.O) and Microsoft (MSFT.O).

With fourth-quarter earnings projected to grow 10.6 percent, tech is expected to be a bright spot in an earnings season that has been lackluster thus far.

Profit growth expectations for S&P 500 companies, now at 3.3 percent, are down sharply since the start of the fourth quarter following a big drop in forecasts for energy company earnings.

Reference: Caroline Valetkevitch

Friday, 23 January 2015

Oil jumps as Saudi king's death feeds market uncertainty

A man fills up his car at a petrol station in Rome January 6, 2015.   REUTERS/Max Rossi

Oil prices jumped on Friday as news of the death of Saudi Arabia's King Abdullah added to uncertainty in energy markets already facing some of the biggest shifts in decades.

Abdullah died early on Friday and his brother Salman became king in the world's top oil exporter.

Salman named his half-brother Muqrin as heir, moving to forestall any succession crisis at a moment when Saudi Arabia faces unprecedented turmoil on its borders and in oil markets.

Brent crude futures rose to a high of $49.80 a barrel shortly after opening before easing back to $49.30 a barrel by 0650 GMT, up 78 cents. U.S. WTI crude futures were at $47, down from a high of $47.76 earlier in the session.

"This little spike in prices is understandable. But this is a selling opportunity in our view. It should be sold off quickly and it won't last long at all," said Mark Keenan of French Bank Societe Generale.

After seeing strong volatility and price falls earlier in January, oil markets have moved little this week, with Brent prices range-bound between $47.78 and $50.45 a barrel.

The new king is expected to continue an OPEC policy of keeping oil output steady to protect the cartel's market share from rival producers.

"When King Salman was still crown prince, he very recently spoke on behalf of the king, and we see no change in energy policy whatsoever," Keenan said.

Analysts said almost equally as important as the royal succession to energy markets would be whether Saudi oil minister Ali Al-Naimi, in office since 1995, might step down.

"The real question is if there is a new oil minister soon," asked FGE analyst Tushar Bansal, adding that Al-Naimi had reportedly wanted to step down but been convinced by King Abdullah to stay on.

Abdullah's death comes amid some of the biggest shifts in oil markets in decades.

Oil prices have more than halved since peaking last June as soaring supplies clash with cooling demand.

Booming U.S. shale production has turned the United States from the world's biggest oil importer into one of the top producers, pumping out over 9 million barrels per day.

Data from the Energy Information Administration on Thursday showed the biggest build in U.S. crude inventory in at least 14 years, driving Brent and WTI prices apart. [EIA/S]

To combat soaring output and falling prices, many oil exporters, such as Venezuela, wanted the 13-member Organization of the Petroleum Exporting Countries (OPEC) to cut output in order to support prices and revenues.
Yet, led by Saudi Arabia, OPEC announced last November it would keep output steady at 30 million barrels per day.

Reference: Henning Gloystein

Asia equities surge on ECB boost, euro near 11-year low

Trayport

Asian stocks extended a global rally on Friday after the European Central Bank launched a landmark bond-buying stimulus program that buoyed investors' risk appetite, drove bonds higher and kept the euro pinned near 11-year lows.

Spreadbetters expect Europe to retain the previous session's sunny mood, forecasting Britain's FTSE to open up by as much as 0.3 percent, Germany's DAX up 0.5 percent and France's CAC 0.7 percent higher.

Crude oil prices bounced after Saudi Arabia announced that King Abdullah had died and his successor, Salman, moved quickly to name his own heir to rule the world's biggest oil exporter. U.S. crude rose 85 cents to $47.16 a barrel.

The Saudi king's death added to longer-term uncertainty in energy markets already facing some of the biggest shifts in decades. [O/R]

"The fear of the unknown is going to be supportive to crude oil prices," said John Kilduff, partner, Again Capital LLC in New York. "King Abdullah was the architect of the current strategy to keep production high and force out smaller players instead of cutting (output)."

The ECB took the ultimate leap into quantitative easing on Thursday, launching a government bond-buying program which will pump hundreds of billions of new money into a sagging euro zone economy.

European shares surged, German stocks hit record highs and euro zone bonds rallied, while German government bond yields slid to new record lows. The euro plummeted, bringing parity with the dollar in sight.

On Wall Street, the S&P 500 and the Dow each gained 1.5 percent overnight.

Lifted by the global surge in equities, MSCI's broadest index of Asia-Pacific shares outside Japan rose to an eight-week high and was last up 0.9 percent.

Japan's Nikkei gained 1 percent and Australian and South Korean shares also made sizeable gains. The Indonesian stock index rose to a record high.

"Although the risk-sharing aspect of the plan was a little disappointing, the quantitative easing scheme the ECB decided upon greatly exceeded market expectations. President Draghi proved he was indeed a 'Super Mario'," Yoshimasa Maruyama, senior economist at SMBC Nikko Securities, wrote in a client note.

Market reaction was limited to the HSBC flash PMI which showed China's manufacturing growth stalling for the second straight month in January. The survey also showed mounting deflationary pressures in China, which could reinforce expectations that authorities there will roll out more stimulus measures.

The euro shed 0.2 percent to $1.1344, not far from the 11-year trough of $1.1316 struck overnight and having shed nearly 2 percent this week. The common currency also fell to a three-month low of 134.28 yen.

The euro is gearing up for another trial as global markets await snap Greek elections on Jan. 25. A win by the leftist Syriza party, which has pulled ahead on opinion polls, could trigger a standoff with the EU/IMF lenders and drive Greece from the euro zone.

The dollar was up 0.1 percent at 118.60 yen. The greenback was on track to book a 0.8 percent gain on the week.

The Australian dollar fell to a 5-1/2 year low of$0.7980. The Aussie has been under pressure as a surprise rate cut by the Bank of Canada this week has raised expectations the Reserve Bank of Australia could soon follow suit.

Reference: Shinichi Saoshiro

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Thursday, 22 January 2015

OPEC, oil companies clash at Davos over price collapse

Swiss special police officers observe the surrounding area from atop the roof of the Davos Congress Hotel in the Swiss mountain resort of Davos January 20, 2015. REUTERS-Ruben Sprich

 

(Reuters) - OPEC defended on Wednesday its decision not to intervene to halt the oil price collapse, shrugging off warnings by top energy firms that the cartel's policy could lead to a huge supply shortage as investments dry up.

The strain the halving of oil prices since June is putting on producers was laid bare when non-member Oman voiced its first direct, public criticism of the Organization of the Petroleum Exporting Countries' November decision not to cut production but instead to focus on market share.

Oil prices have collapsed to below $50 a barrel as a result of a large supply glut, due mostly to a sharp rise in U.S. shale production as well as weaker global demand.

The rapid decline has left several smaller oil producing countries reeling and has forced oil companies to slash budgets.

Speaking at the World Economic Forum in Davos, Switzerland, the heads of two of the world's largest oil firms warned that the decline in investments in future production could lead to a supply shortage and a dramatic price increase.

Claudio Descalzi, the head of Italian energy company Eni Spa, said that unless OPEC acts to restore stability in oil prices, these could overshoot to $200 per barrel several years down the line.

"What we need is stability... OPEC is like the central bank for oil which must give stability to the oil prices to be able to invest in a regular way," Descalzi told Reuters Television.

He expected prices to stay low for 12-18 months but then start a gradual recovery as U.S. shale oil production began falling.


STICKING TO GUNS

But both OPEC and Saudi Arabia, the group's largest producer, stuck to their guns.

"If we had cut in November we would have to cut again and again as non-OPEC would be increasing production," OPEC Secretary General Abdullah al-Badri said in Davos.

"Everyone tells us to cut. But I want to ask you, do we produce at higher cost or lower costs? Let's produce the lower cost oil first and then produce the higher cost," Badri said.

"Prices will rebound. I saw this 3-4 times in my life."

Al-Badri said the policy was not directed at Russia, Iran or the United States.

State-run oil company Saudi Aramco Chief Executive Khalid al-Falih also appeared unfazed, saying that although it could take some time, the oil market will eventually balance itself.

The chief executive of French oil major Total Patrick Pouyanne echoed Descalzi's warnings.

"There is a natural decline of five percent a year from existing fields around the world. That means by 2030 more than half of the existing global oil production will disappear. There is an enormous amount of money that needs to be invested to get another 50 million barrels per day of new production," Pouyanne said in Davos.

Total is set to cut capital spending by 10 percent this year from 2014's $26 billion, reducing investments in the North Sea and U.S. shale production, he added.

Total joins a raft of international oil companies, including BP and ConocoPhillips, that have slashed 2015 budgets due to lower prices.

Reference:  Dmitry Zhdannikov

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ECB to decide on bond-buying plan for reviving euro zone economy

The new European Central Bank (ECB) headquarters is pictured in Frankfurt January 21, 2015. REUTERS/Kai Pfaffenbach

(Reuters) - The European Central Bank is poised to announce a plan on Thursday to buy government bonds, resorting to its last big policy tool for breathing life into the flagging euro zone economy and fending off deflation.

Market expectations are sky-high for the ECB to unveil a large-scale program of quantitative easing (QE) - printing money to purchase the sovereign bonds - despite opposition from Germany's Bundesbank and concerns in Berlin that this could allow spendthrift countries to slacken their economic reforms.

A euro zone source said on Wednesday that the ECB's Executive Board, which met on Tuesday, has proposed that the bank should buy 50 billion euros ($58 billion) in bonds per month from March.

The broader, 25-member policymaking Governing Council will discuss the proposal on Thursday before ECB President Mario Draghi holds a news conference at 1330 GMT (8:30 a.m. EST).

"I expect they will deliver, and launch a QE program that will be probably larger than 500 billion (euros)," said Sassan Ghahramani, CEO of New York-based SGH Macro Advisors, which advises hedge funds.

Uncertainty surrounds the proposed program's duration. The Wall Street Journal reported it would last a minimum of one year while Bloomberg said the purchases would run until the end of 2016. The ECB declined to comment on any of the reports.

The duration is significant. A program starting in March and running for a year would total about 600 billion euros, based on a purchase rate of 50 billion per month. If a similar plan ran until the end of 2016, it could surpass 1 trillion euros.

A Reuters poll of money market traders on Monday showed they expected a 600-billion-euro bond-buy plan, though they also believed that would not be enough to return inflation to target.

Euro zone inflation turned negative last month; consumer prices fell 0.2 percent, far below the ECB's target that they should rise just under 2 percent annually.


GLOBAL FALLOUT

The ECB has already cut interest rates to record lows, begun buying private sector assets and funnelled hundreds of billions of euros in cheap loans to banks, in the hope that they would lend the money on into the economy and stimulate growth.

Now its last remaining major option is QE, a policy that the U.S. Federal Reserve, Bank of Japan and Bank of England have already used to revive growth since the global financial crisis. Euro zone policymakers are keen to prevent the kind of deflationary spiral which has plagued Japan on and off for years, resulting in weak growth punctuated by recessions.

By buying sovereign bonds, the ECB would show its commitment to pushing up inflation, while also generating a "portfolio effect" under which investors move into other assets - some of them outside the euro zone - thereby depressing the euro.

Expectations that the ECB will opt for QE are already having global repercussions.

With the euro EUR= diving against the dollar in anticipation of such ECB action, the Swiss National Bank (SNB) last week abandoned its three-year-old cap on the franc.

So heightened are expectations around the policy meeting, that French President Francois Hollande said on Monday the ECB "will on Thursday take the decision to buy sovereign debt". An official at his office said he was just presenting a scenario.

Others, mainly in Germany, are worried by QE - a measure the ECB will debate just three days before an election in Greece.

Highlighting her concerns, German Chancellor Angela Merkel repeated on the eve of the meeting that any move by the ECB to buy government bonds with new money should not be used as an excuse to put economic reforms on the back burner.

Against this backdrop, Draghi must balance the intense market pressure to act and a need to buoy inflation on the one hand, with a desire to minimise German dissent on the other.

One option to achieve a compromise is for the euro zone's national central banks to bear the brunt of the risk of bond purchases, rather than this exposure being shared among them.

Ireland's finance minister said on Monday such a ploy would make a QE plan "ineffective", yet this scenario may nonetheless be part of the final plan, sources have told Reuters.

RBS economist Richard Barwell said this would contradict the concept of solidarity among euro zone countries, and drew on the motto of the heroes in the novel "The Three Musketeers" to make his point. "It breaks the d'Artagnan principle of a currency union: 'one for all and all for one'," said Barwell. "But I can live with that if they are not constrained on size. To signal this is much better than other alternatives."

Reference: Paul Carrel and John O'Donnell

Wednesday, 21 January 2015

Trading Education-How to trade in a Bear Market

Newsletter-34_thumb1

Basic Trading Concepts Defined

 

Retirement plan

America’s increasing reliance on 401(k)s and other defined-contribution retirement accounts is something of a double-edged sword. On the one hand, because investors (not pension managers) decide how the funds are invested they have more control over the funds they’ll need during their later years.

But gone are the days when most investors can count on a predictable income stream from a defined-benefit pension once their career comes to an end. If the market takes a wrong turn at the wrong time, it could mean losing years of hard-earned savings.

When it comes to long-term investing, a degree of cautiousness can be a virtue. Those who plan for the next bear market before it arrives are in a better position to absorb the shock and maintain their current lifestyle.

Here’s what you can do now to protect your nest egg from the inevitable volatility of the market.

Maintain the Right Portfolio Mix

The single most important thing you can do to mitigate risk is to diversify your portfolio. Some investors believe having their savings in a mutual fund means they’re in good shape. Unfortunately, it’s not quite that simple.

There are two key types of diversification that every investor should employ. The first is asset allocation. That’s the amount of each asset class – whether it be stocks, bonds or “cash equivalents” like money market funds – you own.

As a general rule, you want to lessen your exposure to riskier holdings (e.g. small-cap stocks) as you get closer to retirement. These securities tend to be more volatile than high-grade bonds or money market funds, so they can put investors in a bigger hole when the economy goes south. Older adults, unlike younger workers, simply don’t have enough time to wait for a recovery when stocks take a hit. (See An Introduction To Small Cap Stocks.)

That’s why it’s important to work with a financial advisor and determine the asset allocation that best fits your age and investment objectives. Because asset categories will grow or decline at different rates over time, it’s a good idea to periodically rebalance your account to keep the allocation consistent.

Say you own a portfolio with 55% of the holdings in stock and 45% in bonds. Suppose that stocks had a great year and, because of these gains, they now comprise 60% of your account. Rebalancing means selling some of the stocks and buying enough bonds to maintain your overall risk profile.

The other type of diversification happens within each asset category. If 50% of your portfolio is dedicated to stocks, look for a nice balance between large- and small-cap stocks and between growth- and value-oriented funds. Most advisors suggest having some exposure to international funds as well, in part because it cushions the blow of a U.S. economic slump.

Keep in mind that not all bonds are created equal. For example, the debt of companies with a low credit rating – known as “junk bonds” – is more closely correlated to stock market performance than high-grade bonds. Therefore the latter are a better counterweight to the stocks in your account.

The goal is to have a proper mix of assets that historically don’t rise or fall at exactly the same time (see The Role Of Rebalancing).  

Have Some Cash on Hand

Those who are already retired have to maintain a delicate balancing act. To protect against outliving their assets, most financial planners suggest holding onto at least some stocks (see Is '100 Minus Your Age' Outdated?).

At the same time, retirees need to be more cautious about their investments because they don’t have the long time horizon that younger investors do. As a safeguard against economic slumps, some investment professionals suggest keeping up to five years' worth of expenses in cash or cash equivalents, such as short-term bonds, certificates of deposit and Treasury bills.

If you’re worried that the rate of inflation will grow and eat away at your purchasing power, consider having some of your “cash equivalents” in the form of Treasury Inflation-Protected Securities, or TIPS. While the interest rate on these securities is fixed, the par value increases with the Consumer Price Index. So if the rate of inflation hits 4% annually, your investment grows right along with it.

Be Disciplined About Withdrawals

Simply put, the more money you have squirreled away, the better position you’ll be in should a bear market arise. This may sound simple, but too many retirees overspend in retirement, which leads to poor investment decisions that are made out of desperation.

The antidote: discipline in your spending habits. Most experts suggest withdrawing no more than 3% to 5% of your funds in year one of retirement in order to maintain a sustainable lifestyle. From there, you can adjust your annual withdrawal to keep pace with inflation. So if you determine that you can take out $2,000 a month in the first year and consumer prices rise 3% annually, your allotment would grow to $2,060 by year two. For details, see Strategies For Withdrawing Retirement Income.

By planning your withdrawal allowance, you eliminate the need to liquidate a large sum of assets at fire-sale prices simply to pay the bills.

Don’t Let Emotions Take Over

If there’s one tendency to avoid when saving for retirement, it’s impulsiveness. When stocks take a plunge, it’s tempting to try to cut your losses by selling shares. But most of the time, investors choose to act after the downturn is well underway.

You’re better off staying the course when things are rough. If you’re rebalancing your nest egg on a regular basis, that means you may actually buy more stock when the market’s down to keep your allocation in check. By purchasing at a low – or near the low – you’re poised to maximize profits when the market eventually rebounds.

It’s equally important to have a steady hand when the economy is humming along. If you’re still saving for retirement, resist the urge to cut back when your 401(k) is exceeding expectations. The market will always have ups as well as downs. Those who are ahead of expectations prior to a bear market will invariably have an easier time handling the fallout.

The Bottom Line

By its nature, the economy will always experience boom and bust cycles. Investors who take a disciplined approach and diversify their portfolio are almost always in a better position when the next bear market arises.

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Reference: Daniel Kurt

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Central bankers lurch from 'whatever it takes' to 'whatever next'

Swiss 100 franc bank notes are withdrawn from an ATM in the northern Swiss town of Kreuzlingen in this picture illustration, January 16, 2015. REUTERS/Arnd Wiegmann

(Reuters) - The Swiss currency shock has raised an awkward question many investors have been fearful of asking - what if central banks become as unpredictable and fallible as they are powerful?

The Swiss National Bank's sudden decision to abandon its three-year-old cap on the franc - the "cornerstone" of its monetary policy just three days before - led to the biggest one-day move in major exchange rates in the post-1973 floating rates era. To some it was a warning sign of other U-turns, mishaps and possible failures by central banks still ahead, outcomes not fully appreciated by long-becalmed markets.

For decades the power of currency printing presses has held markets in thrall. "Don't fight the Fed" and all its international variations has been a devout belief among financial traders.

Even after the failure of Alan Greenspan's Federal Reserve to spot and headoff one of the biggest credit booms and busts in history, the ability of the Fed, Bank of England, Bank of Japan, European Central Bank and others to flood their money supply to ease the fallout helped anaesthetise fractious markets.

The subsequent waves of cheap credit, currency fixes and "quantitative easing" drove down borrowing rates and erased volatility.

The demonstrations of central bank might culminated in ECB chief Mario Draghi's declaration in 2012 that he would do "whatever it takes" to save the euro. In the face of the power of the money printing press, speculation became pointless.

So much so that one of the biggest conundrums of recent years became the persistently low implied volatility in markets even in the face of outsized economic, political and policy risks. Not everyone was pleased by the complacency.

"Monetary methadone was the best of no choice but we have become addicted to cheap money everywhere and, somehow, that central bankers are prophetic," Nigel Wilson, chief executive of UK insurer Legal & General told Reuters last week as he bemoaned the track record of central banks over many years.

The first cracks appeared last summer, when it became clear the Fed was turning off the printing presses even as counterparts in Europe and Japan were still cranking up theirs.

The idea the world's largest economy was about to suck dollars back out of the world just as others were pumping in euros and yen sent once-steady exchange rates lurching. The power of the central banks was as daunting as ever, but no longer such a reassuring and calming influence.


THUNDERBOLT

Last week's thunderbolt from the Swiss authorities went further by calling into question whether central banks are as committed to their policies as they purport to be.

The SNB may simply have tried to pre-empt a flood of euro sales expected after the ECB announces sovereign QE this week. But in allowing 30 percent plus franc appreciation it delivered its ailing economy a harsh blow, which few outsiders saw as unavoidable.

And for a major central bank to twice proclaim the virtue of effectively printing Swiss francs at a fixed 1.20 per euro, only to scrap the cap within the week, injects an element of randomness into monetary policymaking not seen for many years.

Can investors now be sure now Denmark's central bank - facing a similar problem of holding a long-standing crown peg to a weakening euro - will hold the line as it repeatedly promises?

Or more immediately, will Draghi stay good to his commitment to do "whatever it takes" to sustain the euro zone and stave off euro deflation? Will he even be there to see it through?

Stephen Jen, manager of the eponymous hedge fund SLJ Macro, reckons the Swiss decision was as much about personalities as the durability of the policy. The expansion of the central bank's balance sheet to date did not leave it way out of whack by comparison with the likes of Singapore, for example.

Jen argues the abandonment of the Swiss franc cap was simply a personal preference of SNB chief Thomas Jordan who had inherited a policy he never liked from predecessor Philipp Hildebrand.

"Perhaps the bigger point here is that central banking is increasingly being driven by the personalities rather than the institutions," Jen said.

Would the Bank of Japan have adopted its last two waves of so-called "quantitative and qualitative easing" without governor Haruhiko Kuroda in charge? Would the Fed have launched three rounds of QE without Ben Bernanke at the helm?

Perhaps a bigger question in a week when the ECB is expected to break considerable political ice by announcing sovereign bond buying for the first time is how central Draghi is personally to the "whatever it takes" phrase he himself made so powerful?

Whatever it takes for Draghi might not be whatever it takes for his successor.

Financial markets, whose bond pricing already doubts the ECB can hit its 2 percent inflation target over the next 10 years, are already starting to pay the price of central bank wavering and lack of cooperation with higher volatility.

"The ECB has a huge task this week to restore confidence and trust in financial markets," said Jaisal Pastakia, investment manager at Heartwood Investment Management. "The ECB’s record has been commendable ... but the stakes are getting higher."

Reference: Mike Dolan

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Tuesday, 20 January 2015

Essential Fundamental Trading Tips for 2015

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Above the Dax in the heart of the troubled Eurozone:

Basic Trading Concepts Defined

On the subject of sentiment it should be noted that the VIX spiked to 23 this week but fell back towards 16. Even 23 is still a relatively low level but the index is itself more active.

 

Essential Fundamental ; The Rise Of The Greenback

Can US growth survive? This is a topic frequently discussed among analysts. The pressure of global decline will no doubt weigh on the recovery, but some argue that there is data to support a more upbeat analysis.  Indeed the views of the FOMC disclosed in their minutes earlier this week that lower oil prices will be a positive for the economy.

They as usual focused on labour statistics, noting lack of evidence of wage growth, which will cause concern until any improvement is seen. The non-farm numbers beating expectations on Friday will have been noted and this did receive a positive reaction…it is not just a good number but one of the key  factors for FOMC rate hikes. It is not the only factor. The US data is always a mixed bag.

Will they, won’t they? We know for sure the FOMC decisions are data driven. So far so good and the middle of the year target may be back on, despite dissenting members who voiced the opinion that rates should not be raised this year. Comments were made ahead of non-farm numbers.

Here is the Daily chart of the USD index; courtesy of stockcharts.com

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There is a slew of US data to watch this week. This is our reserve currency and is our major paring and remains the focus.

 

Essential Fundamental ; Deflation zones

The Eurozone confirmed recession with CPI  missing at -0.2%, cheered slightly by better than expected retail sales in the zone and in Germany in particular. There was little to lift the malaise and all ears are now on Draghi on 22nd January to see if he can convince the ECB to launch full scale QE.

In China, deflation now threatens with commodity prices still falling, metals especially copper seeing new lows after it last month  easily removed the major low of March 2014.  PMI for December was 49.6.  and below that important 50 level. PPI , producer prices which will trickle down to consumer prices, was down more than 3% on the year. China’s export prices are falling and deflationary pressure increasing.

As a result of commodity declines, the downward pressure on the commodity currencies will continue. Chart courtesy of stockcharts.com:

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The Aussie had some good data last week, but it is vulnerable and pressured by commodities. It also missed a retail expectation. Employment numbers this week.

 

Looking ahead

The contrast deepens, the US continues, for now, in a positive direction. Will the phoenix rise? Its still a fragile environment and  its challenge will be from a double-edged sword. Oil prices.  At once a stimulant for economic growth and a precursor of a growing momentum towards global deflation.

In the now, we have a strong dollar and it is the now we trade. If the flight to quality gathers pace the USD continues to strengthen as a safe haven currency. In that event focus shifts to include other safe havens.

And I will leave you with this thought. As hopes grow for QE in the Eurozone as maybe the only chance of defeating inflation, will it work? What if it is not enough to convince traders and investors that a global crises exacerbated by geopolitical uncertainty cannot be avoided?

Trade in the now of course, but watch the sentiment. The global environment is precarious to say the least.

Judith Waker fotistradingacademy.com

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Three days out, Bundesbank striving to put limits on ECB money-printing

German Bundesbank President Jens Weidmann delivers his speech at the European Banking Congress in the Old Opera house in Frankfurt, November 21, 2014.       REUTERS/Kai Pfaffenbach

Germany's Bundesbank is mounting a last-ditch drive to limit money-printing by the ECB, hoping either to soften the blueprint or delay decisions on key parts beyond this week, people familiar with the debate say.

With markets primed for a European Central Bank announcement on Thursday, Germany's central bank is worried that a programme to buy government bonds would leave it on the hook for any losses.

No final decision on the plan has been made and the Bundesbank is still seeking safeguards, including a likely move to make national central banks rather than the ECB bear much of the risk for buying the bonds of euro zone member states.

The size of the programme to buy bonds, known as quantitative easing, and a possible delay to its launch are also part of the debate.

"What exactly comes and in what dosage, that's where the real action is at the moment," said one person familiar with Bundesbank thinking. "It could be that the decision is taken with details to follow."

Although the Bundesbank's position within the ECB carries huge weight because Germany is the bloc's biggest economy, its allies are few in number on the 25-strong Governing Council.

The ECB's Executive Board, the six-person team that is at the core of decision-making, will meet on Tuesday to prepare recommendations to the wider group including central bankers from Athens to Rome, who gather from Wednesday.

By postponing the announcement of elements of the plan, ECB President Mario Draghi could avoid a clash - at least for now - with Bundesbank chief Jens Weidmann and his supporters, but at the risk of a dangerous market backlash.

Investors are already jittery after the Swiss central bank's surprise move last week to scrap a cap on the franc.

The ECB declined to comment.

The Bundesbank wants national central banks to bear the risk, an idea that some critics say heralds the disintegration of the euro but which may nonetheless be part of the final plan, sources have told Reuters. It also wants a limit on bond-buying.

"The Bundesbank's position has not changed," said another person familiar with the matter. "This would be nothing less than eurobonds by the back door."

Speaking last week, Weidmann signalled that his critical position was unchanged.

"I think that it is likely that there will be an announcement on Thursday, with details following later," said Francesco Papadia, the former head of the ECB's financial market operations.

"It is in keeping with Draghi's salami-type communication style."

International Monetary Fund chief Christine Lagarde said QE should involve as much risk-sharing as possible.

"The more efficient it is, the more mutualisation there is the better," she told a news conference in Dublin.

Many in German Chancellor Angela Merkel's political camp are privately critical of a move to print fresh money, believing it can do little to lift sagging economic growth or encourage bank lending. Nonetheless, the government would be loath to attempt publicly to put a brake on the ECB.

Merkel downplayed the likely impact of the ECB's decision and Greek elections three days later, saying she did not view this week as one of "destiny for the euro".

But one senior lawmaker from Merkel's conservatives, Norbert Barthle, told Reuters he was "not convinced of the need for a massive programme to buy state debt".

"The sensible thing would be to wait for the measures taken already to have their effect first," said the budgetary affairs spokesman for the conservatives in the lower house.

Merkel's spokesman Steffen Seibert declined to give details of her meeting with ECB President Mario Draghi last week.

Reference: John O'Donnell

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Monday, 19 January 2015

Essential Fundamental Trading Tips for 2015

image

Above the Dax in the heart of the troubled Eurozone:

 

Basic Trading Concepts Defined

The Phoenix and the double edged Sword

If a phoenix can rise from gloom as well as ashes, then maybe the US is one of them. It seems economically the only hope of one as we stand looking forward into another year.

As global outlooks continue to decline and more countries are added to the growing list of deflationary ‘watches’ , the US continues to pull promising data out of the bag, but as usual it is mixed and gives rise to differing opinions.

Their growth is ‘on track’ in some areas as the labour statistics have shown us and once again we can expect the speculation of rate rises in 2015 to increase. At least expect rumours but watch wage increases or lack of them, Janet Yellen wants upwards wage pressure and it is not showing up yet. There is a Jolts report this week; she likes this one too.

The contrast between US optimism and ‘the rest’ grows ever stronger. With commodities in decline, the Eurozone on the verge of economic crises, the Chinese economy causing major concern, the Japanese watching inflation dropping despite massive central bank on-going liquidity, it is hard to see a way out of crises on a global scale and how to avoid down-side momentum.

Essential fundamental; Monitoring Sentiment

There is a further factor to consider. A sad start to the year in the geopolitical arena, as incidents in Paris sent shock waves throughout Europe and beyond.

There was certainly a flight to quality seen in the first trading week of the year as quality bonds were purchased. The effect of course was to push yields lower in their inverse relationship.

The US 10 yr note gapped down at the beginning of the week, recovering with the data that arrived culminating in Friday’s non-farm numbers, but still closed down on the week;

The German bond 10yr yield, with nothing to support it in terms of result performance, it has drifted to 0.49%; this is a worrying low.

There were those who declared that dipping under 1% back in September was a bad sign and indeed it was. This is not just about flight to quality but a serious and depressing prediction of European deflation.

The performance on bonds and yields give us insights into market prediction and worth understanding and monitoring.

The equities also had down weeks, with the US at least recovering ground in the second half of the week again bolstered up by data and a little optimism from last week’s employment numbers.

Reference: Judith Waker  Fotistradingacademy

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To be continued..

China shares retreat; ECB call looms large

A man is reflected on an electronic board showing Japan's Nikkei average, outside a brokerage in Tokyo January 16, 2015. REUTERS/Toru Hanai

 

(Reuters) - Chinese shares recoiled on Monday after regulators took steps to rein in speculative lending there, while investors everywhere were wary of being disappointed by the latest efforts at policy stimulus in the euro zone.

A holiday in the United States also made for thin conditions at the start of a week littered with major data and a crunch council meeting for the European Central Bank.

In China, financial shares were slugged as Beijing cracked down on credit products that have been blamed for fuelling excessive market speculation over the past three months.

The Shanghai market shed 6.4 percent, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen slid 6.5 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan erased early gains to be down 0.1 percent, even as markets across much of the region edged higher.

Australia's main index firmed 0.2 percent and Japan's Nikkei added 0.8 percent. European bourses were also expected to open with modest gains.

Adding to the air of caution was Sunday data showing Chinese new home prices in December fell an average 4.3 percent year-on-year in 68 of the 70 major cities monitored.

Though property sales volumes picked up, massive inventories of unsold homes were expected to keep pressure on the sector and the economy well into 2015.

That was just an appetizer to Tuesday's report on gross domestic product which is expected to show China's annual growth slowed to 7.2 percent in the last quarter, meaning full-year growth would undershoot Beijing's 7.5 percent target and would be weakest in 24 years.

But the main event of the week will be Thursday's meeting of the ECB, which is considered almost certain launch a government bond-buying campaign in a bid to fight off deflation.

Sources have told Reuters the ECB may adopt a hybrid approach - buying debt and sharing some of the risk across the euro zone while national central banks make separate purchases of their own.

There has also been talk the program would be limited in size to 500 billion euros, an amount that would almost certainly disappoint investors eager for bold measures.

"The market is baying for action from the ECB on Thursday, with expectations now firmly entrenched in favor of a QE (quantitative easing) announcement," said James Ashley, chief European economist at RBC Capital Markets.

Ashley suspects the ECB will not put an amount on the bonds to be bought and will rather refer to the current objective of expanding its balance sheet to 3 trillion euros.

But with consumer prices falling, even that might not be enough.

"We think that the 3 trillion goal will need to be raised at some point in the future - and with that, so too will the amount of asset purchases," said Ashley.

Just to make the challenge all the greater, the Greek general election is due on Jan. 25 and could see the anti-bailout Syriza party win but without a controlling majority.


 

All this uncertainty kept the euro pinned at $1.1555, having hit an 11-year low of $1.14595 on Friday.

The common currency was shaky on the Swiss franc at 1.0020 after tumbling 17 percent last week when the Swiss National Bank abandoned its cap on the franc.

The dollar was a shade softer against the safe-haven yen at 117.00, but a touch firmer on a basket of currencies around 92.669.

Oil prices had a soft tone as Brent crude futures eased 26 cents to $49.91, while U.S. crude lost 28 cents to $48.41 a barrel.

References: Wayne Cole

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