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Friday, 31 July 2015

Euro zone's inflation-less recovery gains traction

The famous euro sign landmark is pictured outside the former headquarters of the European Central Bank (ECB) in Frankfurt, Germany, July 17, 2015. REUTERS/Kai Pfaffenbach

Confidence in the euro zone economy hit a four-year high in July and the European Central Bank said recovery is picking up, supported by loose monetary policy aimed at countering persistently low inflation.

Spain's economy was a case in point, with data on Thursday showing it growing at the fastest pace since before the financial crisis. Weak German price pressures, however, showed the threat of deflation has not disappeared with the rising economic tide.

The ECB is four months into a money-printing program which has warded off deflation but not yet pepped up prices in the euro zone, where Greece's economic crisis has fed uncertainty about the outlook.

The central bank expects prices to start rising towards the end of this year. But anaemic German inflation of just 0.1 percent this month highlighted the size of the task facing the ECB, which targets inflation of 2 percent over the medium term.

Euro zone inflation, to be updated on Friday, is running at 0.2 percent.

"For the ECB it is good news on the economy but the inflation data suggest it is right in signaling that (the money printing) will continue in the coming months as it attempts to get inflation back to its goal," said Nick Kounis, economist at ABN Amro.

To stimulate the economy, the ECB has cut interest rates to record lows, provided banks with billions of euros in cheap loans and embarked on its plan to spend 60 billion euros ($65.58 billion) a month buying bonds until at least September 2016.

"I think the euro zone economy is building momentum," added Kounis, echoing the ECB's message in an economic bulletin, in which it said lower oil prices should support growth.

The results of the European Commission's monthly economic sentiment indicator, which surpassed forecasts and hit 104.0 in July after 103.5 in June, came after a provisional bailout agreement was struck between Greece and the euro zone.


› Step aside, here come Europe's hot economies: Spain and Ireland.

The 11th-hour deal narrowly averted a Greek exit from the euro zone and -- at least for the immediate future -- removes a source of risk to the currency area. Business confidence in Germany duly rose this month.

A nuclear deal with Iran and declines in oil prices for most of July also supported the economic backdrop in the 19-country euro area.

Bailed-out Ireland, in the meantime, reported in a delayed report that first-quarter growth at a striking 1.4 percent quarter-on-quarter.

SPAIN SHINES

In Spain, the economy grew at its fastest rate since 2007 in the second quarter with more growth expected ahead.

Since Spain emerged from a prolonged downturn in mid-2013, economic growth has been driven by a steady rise in consumer spending underpinned by competitive prices, record numbers of tourists and a gradual drop in a sky-high unemployment rate.

The Spanish case offers hope that countries on the euro zone's southern periphery can regain competitiveness and growth by reforming and through so-called 'internal devaluation', effectively cutting wage and other costs.

Greece, however, faces a long road to recovery. Economic sentiment there fell in July.

In Germany, unemployment unexpectedly rose by 9,000 to 2.799 million in July -- its biggest increase since May last year. July is often a weak month for Germany's labor market as a flood of young people enters the workforce.

Federal Labour Office chief Frank-Juergen Weise said the German labor market remained in good shape. The agency's index of job openings hit a record high in July.

German economic growth weakened to 0.3 percent at the start of this year and the finance ministry said last week that the economy would probably expand by around the same amount between April and June, with domestic demand propelling growth while foreign trade picks up.

In neighboring Austria, the economy expanded 0.3 percent in the second quarter on the back of rising consumption and investments.

Further north, the economies of Latvia and Lithuania grew by 2.7 percent and 1.3 percent respectively in the second quarter. Non-euro zone member Sweden beat forecasts with quarter-on-quarter growth of 1.0 percent in the April-June period and annual growth of 3.0 percent.

Reference: Reuters

Wall St. lower amid weak earnings and GDP data

A specialist trader works on the floor of the New York Stock Exchange July 27, 2015.   REUTERS/Brendan McDermid

U.S. stocks fell in late morning trading on Thursday as earnings from Facebook and Procter & Gamble disappointed investors and data showed that the economy expanded at a slower-than-expected pace in the second quarter.

Procter & Gamble's (PG.N) 3.7 percent fall dragged down the Dow, after the company reported its sixth straight quarter of lower sales.

Facebook (FB.O) shares fell 3.9 percent after the social media company's profit decreased, and weighed heavily on the S&P 500 and Nasdaq.

Gross domestic product expanded at a 2.3 percent annual rate in the second quarter, below the 2.6 percent rise economists had expected, even as the Federal Reserve left doors open for a possible rate hike in September.

The Fed has maintained near-zero interest rates for nearly a decade, saying it will raise rates only when it sees a sustained recovery in the economy.

"Earnings haven't been great and there is much more slack in the economy than the market or the Fed thought while big concerns such as oil and China continue to persist," said John Canally, investment strategist at LPL Financial.

"We are in a slow-growth environment and anything that knocks that down further is not a plus for the market."

The U.S. dollar continued to strengthen and was up 0.68 percent near a weekly high of $97.63 against a basket of currencies as the Fed readies to raise rates this year.

U.S. stocks closed stronger on Wednesday after the Fed statement. The S&P 500 has bounced about 2 percent higher in the past two days following a near-3 percent drop over the preceding week that had been caused in part by a rout in China's stock markets.

At 11:12 a.m. ET (1512 GMT) the Dow Jones industrial average .DJI was down 66.34 points, or 0.37 percent, at 17,685.05, the S&P 500 .SPX was down 8.72 points, or 0.41 percent, at 2,099.85 and the Nasdaq Composite .IXIC was down 23.00 points, or 0.45 percent, at 5,088.73.

Seven of the 10 major S&P sectors were lower with the technology index's .SPLRCS 0.59 percent fall leading the decliners.

More than halfway through the second-quarter earnings season, analysts expect overall earnings of S&P 500 companies to edge up 0.8 percent and revenue to decline 3.9 percent, according to Thomson Reuters data.

While earnings are expected to increase this quarter, valuations remain a concern. The S&P 500 is trading near 16.9 times forward 12-month earnings, above the 10-year median of 14.7 times, according to StarMine data.

Companies scheduled to report during the day include Expedia (EXPE.O), LinkedIn (LNKD.N) and Western Union (WU.N) after the close.

Whole Foods Market (WFM.O) slumped 10.8 percent to $36.41 after same-store sales growth cooled.

Skechers USA (SKX.N) jumped 14.1 percent to $146.42 as the sports shoe maker and retailer reported a better-than-expected rise in quarterly revenue.

Mondelez International (MDLZ.O) rose 4.5 percent to $45.07 after reporting results that beat expectations.

Declining issues outnumbered advancers on the NYSE by 1,628 to 1,187. On the Nasdaq, 1,463 issues fell and 1,050 advanced.

The S&P 500 index showed 15 new 52-week highs and five new lows, while the Nasdaq recorded 30 new highs and 53 new lows.

Reference: Reuters

Thursday, 30 July 2015

Fed expected to push ahead with rate hike plan

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

The Federal Reserve is expected on Wednesday to point to a growing U.S. economy and stronger job market as it sets the stage for a possible interest rate hike in September.

The U.S. central bank is scheduled to issue its latest policy statement at 2 p.m. EDT following a two-day meeting, spelling out how policymakers feel the economy has progressed since they last met in June.

Earlier this year the Fed embraced a meeting-by-meeting approach on the timing of what will be its first rate hike since June 2006, making such a decision solely dependent on incoming economic data.

With a slew of employment, inflation and GDP reports to come before its September meeting, the Fed is unlikely to hint too strongly about its plans, Barclays economists Michael Gapen and Rob Martin wrote in a preview of this week's meeting.

But simply hewing to the language of the June policy statement, when the Fed said the economy was expanding moderately, or even strengthening the outlook a bit, "leaves the door wide open for September," they wrote.

Despite a dovish reputation, Fed Chair Janet Yellen has been among those pulling on the door handle in recent public statements, saying she felt a rate hike would be appropriate sometime this year absent a negative shock to the economy.

Although another collapse in energy prices and growing economic uncertainty in China is clouding the global economic outlook, the Fed has largely looked beyond recent turmoil overseas.

Instead, it has focused on the steady growth in the U.S. job market and on policymakers' expectations that inflation will eventually rise to the central bank's medium-term objective of 2 percent.

The U.S. unemployment rate is 5.3 percent, near what many officials consider full employment.

An economic contraction in the first quarter also has been set aside as an aberration, the result of a harsh winter and statistical "noise" that federal number crunchers are now trying to fix.

Early projections that the second quarter was also going to be weak have since turned around.

A "real-time" gross domestic product forecast by the Atlanta Fed as of the middle of May projected 0.5 percent annualized growth in the second quarter. When the final estimate was issued this week, the forecast had jumped to nearly 2.5 percent annualized growth.

Reference: HOWARD SCHNEIDER

Asian shares, dollar up on Fed's optimism; earnings in focus

People are reflected in a board showing market indices in Tokyo July 28, 2015.   REUTERS/Thomas Peter

Asian stocks tiptoed higher on Thursday and the dollar consolidated recent gains after the U.S. Federal Reserve painted a relatively bright picture of the economy, but a deepening sell-off in commodities kept gains in check.

Prospects of stronger U.S. growth in coming months lifted Asian stocks in early trade, with Japan's Nikkei .N225 up 1.1 percent and Australian shares adding 0.8 percent. But South Korean shares .KS11 fell 0.7 percent.

A dollar-denominated index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.2 percent after Chinese stocks had a quiet opening.

Financial spreadbetters expect Britain's FTSE 100 .FTSE to open 0.1 percent higher, Germany's DAX .GDAXI to open up 0.2 percent, and France's CAC 40 .FCHI to open up 0.1 percent.

Gains were muted before the earnings season kicks off at full throttle next week, when companies are broadly expected to post disappointing results on the back of weak economic data in recent months, particularly for trade.

Gavekal strategists noted that Asia’s trade performance had been disappointing in recent months. After a two-year post-crisis rebound in 2010-2011, export growth in the region has slowed to an annual average of 7.5 percent in U.S. dollar terms and 6 percent in volume terms this year compared to U.S. dollar growth rates of 30 percent in the years before the crisis.

"The markets still think that the world's economy remains fragile, given a fall in Chinese shares and commodity prices. The Fed surely doesn't want to screw up its exit from zero rates by hastily moving and hitting already fragile commodities market and the world economy," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.

Subdued external demand is expected to weigh on corporate earnings, with CLSA strategists expecting first-half earnings growth at Hong Kong and Chinese companies to be weak and guidance for the third quarter unlikely to be better.

Chinese equities, already a third lower than their June highs, slipped on Thursday after state media reported that banks were investigating their exposure to the stock market from wealth management products and loans collateralized with stocks.

"The market has been struggling to hover above the water with investors taking to the sidelines to see if stability can be maintained in the market," said Ben Kwong, a director at KGI Asia in Hong Kong.

On Wall Street, U.S. stocks rose broadly on the Fed's optimism and strong corporate earnings, with the S&P 500 .SPX rising 0.7 percent to 2,108.57.

After a two-day policy meeting, Fed officials said they felt the economy had overcome a first-quarter slowdown and was "expanding moderately", leaving the door open for an interest rate increase in coming months.

Commodities extended their decline, with copper CMCU3, considered a bellwether for global economic activity, trading near a six-year low at $5,322 a tonne.

The broad Thomson Reuters CRB commodities index .TRJCRB also hit a fresh six-year low.

Oil prices, smarting from supply concerns due to rising U.S. shale oil output and an easing of sanction on Iran, rose after weekly data showed an unexpectedly large drawdown in U.S. crude inventories.

Front-month Brent crude futures LCOc1 rose overnight to settle at $53.38 a barrel, recovering from Tuesday's six-month low of $52.28.

In currencies, the dollar index advanced to 97.22 .DXY, having rebounded from Monday's two-week low of 96.288.

The euro fell 0.1 percent to $1.0955 EUR=, near its lowest level of the week. In recent weeks the euro has fallen, strengthening its appeal as a funding currency for investment in risky assets.

The dollar rose about 0.1 percent in Asian trade to 124.1 yen JPY=, hitting its highest level so far this week.

Reference: SAIKAT CHATTERJEE

Wednesday, 29 July 2015

Euro Forecast to Slip Down to 0.68 Against the British Pound

Euro to pound sterling projections TD Securities

The euro to pound (EURGBP) exchange rate remains caught in a downward channel despite putting in some significant moves higher over the course of the past week.

The euro rallied against the pound on Thursday following news that the UK's retail sector unexpectedly shrunk in June.

Our historical data confirms a high of 0.7034 was reached earlier this week while we are presently witnessing higher levels at 0.7046.

The move higher represents an impressive bounce off the floor of 0.6943, this low was achieved on the 17th of July. However, we hear from seasoned analysts that any spikes in the euro will only likely attract further selling interest. 

"Near-term momentous moves higher have added two bullish looking daily candles in three days. But In a greater scheme of things this is anyway likely to be a correction within a still ongoing downtrend in a higher division. So look for sellers coming back to market somewhere between here and 0.7137," say SEB Bank in a strategy note to clients ahead of the weekend.

To show sellers’ initiative coming back SEB are looking at support at yesterday’s 0.7039 mid-body point being lost and later also a near-term “b-wage low” at 0.6964.

Note, all currency quotations in this article are to be assumed as spot market rates. Your bank will deliver a lower rate owing to the subtraction of a spread. An independent specialist would however gladly get you closer to the market, in some instances they can deliver up to 5% more currency when compared to your bank. Find out more. 

The recent move higher in EUR/GBP, "satisfies the minimum requirement for the bounce off of Monday’s lows. We cannot rule out another squeeze higher in the very near term, but we think the 0.7070 region should contain any further strength,” says Richard Kelly at TD Securities.

Looking at the longer-term forecasts, TD Securities expect a move toward 0.68 in coming days as the theme of policy divergence between the UK and Eurozone gains traction.

The reason for the losses in GBP (retail sales data) by no means represent a game-changer for the pound sterling complex, hence why market analysts continue to see any pullbacks in sterling as better levels to buy back the currency ahead of further gains.

"June’s UK retail sales report exceeded even our own downbeat expectations. Sales fell 0.2% m/m on both the headline and ex-auto fuel components against consensus expectations for a rise of 0.4%," says Paul Fage, also at TD Securities.

There is no doubt that this has been a tough week for those watching the euro / pound market, EUR/GBP as fast as it goes up it comes down again.

"This choppy behaviour we suspect is a market trying to recover off the base of a 6 year channel at .6967. Rebounds should struggle 0.7057/65 and ideally remain contained by the .7151 short term downtrend," notes Karen Jones from Commerzbank.

Jones reckons the base of the 0.6967 6 year down channel was the medium downside target and this together with the recent low at 0.6937 provide key support. This is the break down point to the .6571/41 the 2007 low.

Reference: Rob Samson
Poindsterlinglive.com

Dollar eases vs yen ahead of Fed statement; kiwi edges up

American dollar notes are displayed in this photo illustration in Johannesburg August 13, 2014. REUTERS/Siphiwe Sibeko

The dollar eased versus the yen on Wednesday but held above a recent two-week low as investors awaited hints from the U.S. Federal Reserve on the timing and pace of future interest rate increases.

Ahead of the Fed's policy statement due at 1800 GMT (2 a.m. EDT), trading could be swayed by month-end related flows, with Wednesday being the last trading day for settlement before the month end, traders said.

The dollar eased 0.1 percent to 123.49 yen JPY=, but still held above a two-week low of 123.01 yen set on Monday.

Against a basket of major currencies, the dollar last traded at 96.648 .DXY =USD. The greenback had set a two-week low at 96.288 on Monday but has since pulled up from that trough.

"We expect the Fed to refrain from a clear indication on the timing of the Fed's rate hike. We still expect a hike in September," said Tohru Sasaki, the head of forex research at JPMorgan Chase Bank in Tokyo.

Sasaki also said the dollar/yen is unlikely to move much if the Fed does steer clear of dropping clear hints on its rate hikes, noting that dollar/yen has not shown any big reaction to the Fed' policy statement this year.

The euro held steady at $1.1060 EUR=, trading below Monday's two-week high of $1.11295.

Worries about the Fed's draining of cheap funding have been weighing on commodities and emerging market assets that had benefited in recent years from the Fed's money-printing.

Many commodity currencies remained under pressure from worries about slowdown in the Chinese economy as well, though they bounced back from multi-year lows thanks in part to hopes Chinese shares are stabilizing after their massive fall on Monday.

The Australian dollar eased 0.2 percent to $0.7322 AUD=D4. On Tuesday it had set a six-year low of $0.7257.

The New Zealand dollar, worst-performing of the major currencies so far this year, edged higher after comments from the Reserve Bank of New Zealand were perceived to contain no new surprises.

RBNZ Governor Graeme Wheeler said the economy needed further rate cuts and a lower exchange rate. He added that local forecasts of further large rate cuts "could only be consistent with the economy moving into recession".

The kiwi rose to as high as $0.6739, its two-week high, following Wheeler's comments. It last traded at $0.6704 NZD=D3, up 0.2 percent from late U.S. trade on Tuesday.

"The RBNZ is still clearly jawboning the currency lower, and thus we might expect a relatively limited further bounce in the NZD," Greg Gibbs, head of Asia Pacific markets strategy for RBS in Singapore, said in a research note.

Still, a further near-term bounce in the New Zealand dollar could not be ruled out, Gibbs said. The New Zealand dollar hit a six-year low of $0.6498 earlier this month, having fallen 16.7 percent from the end of last year.

Reference: HIDEYUKI SANO

Tuesday, 28 July 2015

UK rate hike still seen in Q1 2016; BoE's Carney brushed off

Bank of England Governor Mark Carney arrives to attend a Treasury Committee hearing at Parliament in London, Britain July 14, 2015.  REUTERS/Neil Hall - RTX1K9QR

LONDON - It will be early 2016 before the Bank of England raises interest rates from a record low, according to economists who largely brushed off hawkish talk last week from officials suggesting a rate rise might come earlier.

The British economy's strong momentum despite extremely low inflation now meant the decision on when to raise rates from 0.5 percent would come into sharper focus around the end of this year, Governor Mark Carney said on Thursday.

Some interpreted that to mean that rates might rise by the end of the year as the remarks followed news of higher pay growth and a hawkish speech from outgoing Monetary Policy Committee member David Miles, who said rates should rise soon.


But the latest Reuters poll of over 50 economists, taken after Carney's speech, said an initial 25 basis point hike wouldn't come until the first quarter, followed by an identical increase in the third quarter and one more before end-2016.

"Although many will take Carney's bold words as a clear hint that rates will rise this year, it is worth bearing in mind the similarities with last year's Mansion House speech," said Allan


"The Governor then warned that rates could rise earlier than expected ... But subsequent MPC communications then presented a much more nuanced picture."

Goldman Sachs economist Andrew Benito, who held his forecast that rates won't rise until the second quarter of 2016, took it a step further: "This indicates that Governor Carney's individual vote will likely be more finely balanced at the turn of the year, assuming the economy evolves as he expects. Yet, it does little to commit to voting for a rate rise even then."

"Instead, the statement does most to downplay the likelihood of voting for a rise in Bank Rate this year."

There is only a median 28 percent chance the Bank will have moved before year end, little changed from last month. But there is a 60 percent chance of a move before April - up from 55 percent on July 1 - and a more certain 75 percent likelihood Bank Rate has risen before July.

Over the past week, markets changed their bets and are now pricing in an initial hike in the first quarter, earlier than previously, with part of a hike by the end of the year now priced in.

Sterling also rallied to a 7-1/2 year high on a trade-weighted basis.

Only seven of the 46 economists polled expect a move this year - a proportion little changed from a June poll - and none of them expect any move when the Bank's MPC meets on Thursday.

Indeed, it will be August even before at least one of the nine MPC members votes for an increase, according to the poll.

If the Bank does wait until 2016 then its benchmark rate would have been at rock-bottom for around seven years and will put it just behind the United States Federal Reserve - which is widely expected to begin tightening policy in September.

All of the respondents to an extra question said it was either unlikely or very unlikely the Bank moves before the Fed.

In the medium term, Bank Rate would probably rise to about half as high as the historical average of around 4.5 percent, Carney said last week, and according to the poll at the end of 2017 it would still only be at 1.75 percent.

Britain's economy is expected to grow a reasonably robust 0.5-0.7 percent per quarter through next year and inflation is seen picking up towards the Bank's two percent target, although it will be at least 2017 before reaching it, the poll found.

Inflation is languishing near zero right now.

"Despite Governor Carney's hints, we think the BoE will wait until inflation is back above 1 percent before starting to raise interest rates," said Azad Zangana at Schroders.

As prices are rising so slowly, wage growth - one of the Carney's key requisites for Bank Rate to rise - will be faster than inflation across the forecast horizon.

Reference: Reuters

Asian stocks edge up despite fresh China market volatility

A woman is reflected on a stock quotation board outside a brokerage in Tokyo July 14, 2015.   REUTERS/Toru Hanai

Asian stocks rose from the day's lows on Tuesday as Chinese shares see-sawed after Beijing scrambled to prop them up while some investors took shelter from market volatility in safe-haven assets such as government bonds and the Japanese yen.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.3 percent on the day after falling nearly 1 percent early on, touching its lowest level since July 9 before rebounding.

Main China indexes gyrated. In the mid-afternoon the Shanghai market benchmark .SSEC was down more than 3 percent, then pared some of the loss.

Financial spreadbetters expected Britain's FTSE 100 .FTSE to open around 30 points higher, or up 0.46 percent, and Germany's DAX .GDAXI to gain about 60 points, or up 0.54 percent, on Tuesday.

With most China focused stock indexes quite volatile after Beijing pledged to lend further support, sentiment remained weak with many investors looking to exit the markets at the first signs of a rally.

"Retail investors' confidence in the mainland market is very weak. They prefer to stay away from the market after liquidating their position," said Steven Leung, a director from UOB Kay Hian in Hong Kong.

Since hitting a peak in early June, Chinese shares have gone through a roller-coaster ride with main indexes falling by a third in less than a month before rebounding by a quarter, only to then have their biggest one-day fall since 2007 on Monday.

"Volatility is the enemy of investor appetite," said the head of index trading at a U.S. fund, referring to the lack of demand from foreign investors for onshore stocks.

A mechanism to invest in Chinese equity markets remains barely utilized this week despite the gyrations, in contrast to previous episodes when offshore buyers have jumped in to buy mainland stocks during any weakness.

While regional Asian markets have been initially resilient to the fireworks in Chinese stocks, they have started to move more closely in step with the mainland over recent days in the absence of fresh triggers elsewhere.

Correlations between the MSCI gauge for regional stocks and the Shanghai index .SSEC have risen to 0.5 - its strongest in nearly a year - indicating the market rout is starting to have a broader regional impact.

Tokyo's Nikkei .N225 ended 0.1 percent lower while Australian shares .AXJO were down 0.2 percent.

Investor sentiment was also cautious ahead of a two-day U.S. Federal Reserve meeting beginning later Tuesday where some investors believe the it will make its case for hiking rates as early as September.

Overnight, the Dow .DJI dropped 0.7 percent and Nasdaq .IXIC fell 1 percent while share indices in Frankfurt and Paris tumbled more than 2.5 percent.

In currencies, the dollar rose from the day's lows at 123.55 yen JPY= as safe-haven assets were boosted by market jitters, offsetting upbeat U.S. durable good orders data.

The euro was slightly weaker at $1.10830 EUR= after surging to a two-week high of $1.1129 overnight thanks to a bullish Ifo survey of German business sentiment.

Bonds were the solitary bright spot in Asia with U.S. Treasuries and Japanese government debt standing tall in a sea of red across stock markets as investors dumped riskier bets.

Ten-year Japanese bond yields JP10YT=RR held firm at 0.40 percent, from 0.55 percent two weeks earlier, a large move for the markets while 10-year U.S. Treasuries held at 2.2 percent.

Oil struggled at four-month lows after the Chinese stock market crash fuelled worries the world's biggest energy consumer may cut back and as more evidence emerged of a global crude supply glut. [O/R]

U.S. crude CLc1 was down nearly half a percent at $47.22 a barrel, near $46.91, its lowest since late March.

Copper CMCUc1 for August delivery, heavily influenced by demand from key consumer China, languished near a six-year low of $5,177 a tonne on the London Metal Exchange.

The broader Thomson Reuters CRB commodities index .TRJCRB also hit a six-year low.

Reference: SAIKAT CHATTERJEE

Monday, 27 July 2015

New York sell orders in thin trade trigger Shanghai gold rout

Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London, Britain July 21, 2015.  REUTERS/Neil Hall

In early Asian trading hours on Monday the 20th, when typically only tens of contracts of gold are traded, investors dumped more than $500 million worth of bullion in New York in four seconds, triggering the market's biggest rout in years.

The sell-off began when one or more massive sell orders hit the price of gold on the CME Group's Comex futures in New York a tenth of a second after 9:29 a.m. in Shanghai, triggering turnover of almost 5,000 lots of gold in a blink of an eye. (Graphic: reut.rs/1KjLJ7H)

    That equates to 13 tonnes of gold, more than typically trades in hours during this time of day, and the selling knocked the price almost $20 to $1,100 per ounce during those four seconds. It marked the first leg of a dramatic 60-second sell-off that saw prices sink more than 4 percent to five-year lows.

The rout astonished even veteran traders and followed months of calm ensured by competing forces, from the Greek debt crisis, the stronger dollar and expectations of a U.S. interest rate increase.

"I was stunned that 8,000 lots moved the market by $50," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

"It was an illiquid time, but nevertheless the impact was outsized to say the least."

Within seconds of the New York sell-off, turnover picked up in the Far East where morning trading on the Shanghai Gold Exchange had just started, though prices did not immediately reflect the selling pressure.

Many dealers, rattled by the recent stock market crash in China, which knocked commodities prices lower, were quick to blame Chinese funds for the selling.

But a Reuters analysis of trade data from New York and Shanghai exchanges shows that it was New York which recorded far heavier volumes and a bigger downdraft on prices.

While Chinese investors participate in the U.S. market, it was not immediately clear who the sellers were.

"Whoever wanted to sell and get out, got out. It looks like a big hedge fund or producer decided to move an order," said Doug Cifu, Chief Executive of Virtu Financial Inc, an electronic market maker.

The selling triggered stop loss orders, pushing prices through technical support levels and leaving bullion teetering on the brink of $1,000 per ounce.

The trade statistics also underscore the U.S. market's role as the center of liquidity for global bullion trading, even as secretive Chinese funds have caused big swings in base metals prices this year.

To be sure, low liquidity in both markets accelerated the drop.

It was late Sunday evening in New York and 2:30 a.m. in London. Japan was closed for a national holiday, removing a big chunk of liquidity from the Tokyo commodity exchange, TOCOM, where average daily turnover is about 23 tonnes, a sizeable portion of the average global daily turnover.

By the end of the New York trading session on Monday evening, prices had recouped about half of the lost ground.

But while the sell-off only lasted a minute, the depth of the rout and the weak rebound signaled long-term damage to bullion sentiment.

"The magnitude of the drop showed low interest in the gold market even at current levels was exacerbated by a toxic combo of a potential Fed rate hike and a regulatory environment reducing trading interest," said Wong.

60 SEC0NDS

The episode was the biggest in a string of sell-offs during Asian hours that have plagued the illiquid market in the past few years and stirred memories of the 2013 rout that wiped hundreds of dollars off the price of gold.

And it only took one minute.

First, CME circuit-breakers stopped trading after the main contract sunk $20 in just four seconds to prevent cascading stop orders that could exaggerate price movements in illiquid markets.

When trading resumed, another 1,554 lots changed hands over the course of nine seconds, pushing prices down a further $29, or 2.7 percent, to hit five-year lows of $1,080 an ounce at 9:29:32, triggering the second circuit breaker.

As of 10:46 p.m. EDT (0246 GMT), spot gold traded at $1,096.4 per ounce, down 0.5 percent, teetering close to Monday’s lows, suggesting there is more pain to come.

"Although the (gold) complex attempted such a reversal on Monday, the effort was rather halfhearted, leading us to conclude that we are not out of the woods just yet," said INTL FCStone analyst Edward Meir.

Reference: JOSEPHINE MASON

Asian shares skid as Fed monetary meeting looms

A man looks at a board displaying the Nikkei average in Tokyo July 17, 2015. REUTERS/Thomas Peter

Asian shares began the week on a plaintive note amid losses on Wall Street and worries over China, while investors braced for a Federal Reserve meeting that might take another small step toward lifting U.S. interest rates.

Financial spreadbetters expected Britain's FTSE 100 0.3 percent lower, Germany's to open 0.4 percent down, and France's CAC 40 to open 0.3 percent lower. UBS's stronger-than-expected results may help markets.

Japan's Nikkei slipped more than 1 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.4 percent.

In China, the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen fell 3 percent, with sentiment still soured by a poor PMI manufacturing survey.

"A rapid, post-rout rebound in mainland 'A' shares has ended, and the market has entered a stage of fluctuations, with investor sentiment increasingly unsteady," fund manager Yang Delong at China Southern Asset Management wrote to clients.

Australia's main index was up 0.2 percent but mining stocks struggled with the slump in global commodity prices.

Both copper and the Thomson Reuters CRB commodities index hit their lowest in six years. Early Monday, copper futures were off another 0.1 percent.

The Fed's policy-setting Open Market Committee meets on Tuesday and Wednesday and is considered highly unlikely to lift interest rates just yet, though it does still seem set on a move in September.

Trading volume has shrunk recently due to the northern hemisphere summer break exacerbating market moves. For example, turnover in Hong Kong stocks on Friday was below 80 billion Hong Kong dollars ($10.3 billion), less than half of 200 billion seen earlier this month.

"We expect Fed voters to pull the trigger in September, but for the path to interest ratenormalization to be a long one given the global risk profile, the lack of inflationary pressure, and concerns over what moving too quickly may do to asset markets, particularly the dollar, and the wider economy,"

said analysts at Australia and New Zealand Banking Group.

Expectations of a hike have slowly pushed up U.S. Treasury yields and widened the dollar's premium over the euro. Yields on two-year U.S. notes are around 90 basis points more than German debt.

The common currency was a shade firmer at $1.10070 on Monday, but not far from recent lows around $1.0810.

The dollar was 0.1 percent lower against a basket of currencies at 97.035. It was broadly steady on the yen at 123.48 having spent the past few sessions wandering between 123.54 and 124.48.

A first estimate of U.S. economic growth for last quarter is due on Thursday and is expected to show a rebound of 2.7 percent annualized, from the first quarter's weather-induced contraction.

The Dow ended Friday down 0.92 percent, while the S&P 500 lost 1.07 percent and the Nasdaq 1.12 percent. For the week, the Dow fell 2.9 percent while the S&P 500 lost 2.2 percent and the Nasdaq 2.3 percent.

Wall Street has been weighed in part by concerns that a high U.S. dollar and sluggish global demand was pressuring corporate profits, a theme that should wend its way through this week's busy diary of earnings.

As well as blue-chip names such as Pfizer and Exxon Mobil, there are a range of social media stocks that have led the market so far in 2015 including Facebook, Cigna, Twitter and LinkedIn.

Brent crude oil was quoted 7 cents lower at $54.55 a barrel and near its lowest since March. U.S. crude was off 21 cents at $47.93.

Gold seemed to have steadied after its recent slide, with spot bullion at $1,097.90 an ounce.

Reference: WAYNE COLE AND SAIKAT CHATTERJEE

Friday, 24 July 2015

Basics of Fundamental Analysis


Basic Trading Concepts Defined


Traders typically approach financial markets in one of two ways: either through technical analysis or fundamental analysis. The reality is that history is full of traders who have had very successful careers as traders that employed both of these types of analyses.

Market Wizards


In fact, in Jack Schwager's best-selling classic, Market Wizards, two of the traders interviewed are Ed Seykota and Jim Rogers. Rogers is quite adamant in his statement that he believes it is impossible to make a living as a technical trader. He goes so far as to say he has never met a rich technician. Seykota actually shares the exact opposite story. According to Seykota's own interview, he was a struggling trader when he traded according to fundamental analysis. It was not until he became a technician that he started to make a living trading financial markets.


Fundamental Analysis


As stated, successful traders throughout history have employed both technical and fundamental analysis. In this article we are going to break down the basic principles of fundamental analysis in the forex market.
Fundamental Analysis is commonly defined as a method of evaluating a specific security in order to determine its intrinsic value by analyzing a host of economic and financial data. In the foreign-exchange market, a security would be a currency. Market participants are continually analyzing the emerging fundamental from a country in order to determine the intrinsic value of the country's currency. There are several key economic indicators that every trader should understand on a basic level. Fluctuations in the data of these key indicators will generally cause the value of a currency to rise and fall.


Interest Rates


These are the single greatest driver of currency value over the long-term. Most Central Banks announce interest rates each month, and these decisions are watched very scrupulously by market participants. Interest rates are manipulated by Central Banks in order to control the money supply in an economy. If a Central Bank wants to increase the money supply, it lowers interest rates, and if it wants to decrease money supply it raises interest rates.


Gross Domestic Product (GDP)


GDP is the most important indicator of economic health in a country. A country's Central Bank has expected growth outlooks each year that determine how fast a country should grow as measured by GDP. When GDP falls below market expectations, currency values tend to fall and when GDP beats market expectations, currency values tend to rise.


Inflation


Inflation destroys the real purchasing power of a currency, and, therefore, inflation is very bad for the economy in most circumstances. Each year a normal rate of inflation between 2-3% is expected, but if inflation begins moving beyond the upward targets set by the Central Bank, a currency value will actually rise due to expectation of an imminent rate hike. Higher interest rates tend to fight off inflation.

Unemployment


We will discuss consumer demand in a moment, but people are basically what drive economic growth; therefore, unemployment is the backbone of economic growth. When unemployment levels increase, it has a devastating effect on economic growth; consequently, when the labor market contracts and unemployment increases, interest rates are often cut in an attempt to increase the money supply in the economy and stimulate economic growth.


Consumer Demand


As stated in the previous point, people are what drive economic growth; as a result, healthy consumer demand is essential to the normal, healthy functioning of an economy. When consumers are demanding goods and services, the economy tends to move forward, but when consumers are not demanding goods and services, the economy falters.
Even if you are a technical trader, it can still be very helpful to understand these basic elements of fundamental analysis. The best forex course will oftentimes offer further insight into how the emerging fundamentals drive price behaviour.


Reference: actionforex.com

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Wall Street slumps for third day as earnings disappoint

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, July 21, 2015. REUTERS/Lucas Jackson

Wall Street fell for the third straight day, with the Dow Jones industrial average lower for the year after disappointing results from bellwethers such as 3M (MMM.N) and Caterpillar (CAT.N).

The two stocks, together with American Express (AXP.N), contributed 68 points to the Dow's fall.

Caterpillar shares fell as much as 3.8 percent to a four-year low of $76.75 after the world's largest construction and mining equipment maker reported sales decline in key markets in a sluggish global economy.

American Express fell 3.2 percent to $76.40 as revenue missed expectations while 3M was down 3.4 percent at $150.09 after the diversified manufacturer cut its full-year forecasts.

"Companies such as Caterpillar are a litmus test for the global economy especially at a time when the market is concerned about China's economy," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

Luschini said strong results from General Motors (GM.N) was helping offset some of the losses by Caterpillar and 3M. General Motors jumped 4.3 percent to $31.60 after its adjusted net income more than doubled in the second quarter.

At 12:43 p.m. ET (1643 GMT), the Dow Jones industrial average .DJI was down 92.8 points, or 0.52 percent, at 17,758.24, the S&P 500 .SPX was down 9.59 points, or 0.45 percent, at 2,104.56 and the Nasdaq Composite .IXIC was down 12.91 points, or 0.25 percent, at 5,158.87.

Nine of the 10 major S&P 500 sectors were lower with the utilities index .SPLRCU leading the decliners with a 1.8 percent fall. The materials index .SPLRCM fell 1.2 percent with Dow Chemical's (DOW.N) 3.5 percent drop weighing the most on the sector.

Corporate earnings will continue to drive the market with a host of big companies scheduled to report on Thursday.

Dow component Visa (V.N), Amazon (AMZN.O) and AT&T (T.N) are expected after the close.

While markets remain near record highs, June-quarter S&P 500 earnings are expected to dip 1 percent, according to Thomson Reuters data, less than the 3-percent decline expected at the start of July.

Of the companies that have reported so far, 75 percent beat earnings expectations, above the 63-percent average beat rate since 1994.

However, only 52 percent have topped revenue forecasts, below the 61-percent average beat rate since 2002.

"For the markets to move higher we need to see revenue growth and consumer spending to pick up. There is a feeling that consumers aren't spending enough and are saving instead," said Kevin Dorwin, managing principal of Bingham, Osborn & Scarborough in San Francisco, which oversees $3.4 billion.

The U.S. market is a little bit overvalued at the moment and is due for a correction, he said.

The S&P 500 is currently trading at 16.9 times forward 12 months earnings, above the 10-year median of 14.7 times, according to StarMine data.

SanDisk (SNDK.O) jumped 16.2 percent to $62.94, a day after the data storage products maker reported a quarterly profit that was double of what analysts had expected.

Under Armour (UA.N) jumped as much as 9.3 percent to a record high of $97.69 after the sports apparel and footwear maker raised its full-year forecast for the second time in three months.

Qualcomm (QCOM.O) fell as much as 4.7 percent to a two-year low of $61.16, a day after the chipmaker said it may break itself up as it delivered its third profit warning this year.

Declining issues outnumbered advancers on the NYSE by 2,072 to 908. On the Nasdaq, 1,774 issues fell and 889 advanced.

The S&P 500 index showed 31 new 52-week highs and 39 new lows, while the Nasdaq recorded 98 new highs and 107 new lows.

Reference: Reuters

Thursday, 23 July 2015

Using Fibonacci Levels for Scalping the Forex Market


Basic Trading Concepts Defined

Scalping a strongly trending market is very different from scalping a quiet, tame market where price action is confined in a small range and is going nowhere. In a ranging market scalpers will buy or sell, and wait until the price comes back to where it left, and keep gathering small profits until the prevailing range pattern is eliminated. When trading a trending market, however, we must be careful to ensure that our orders follow the established trend. Counter-trend scalping is also possible, but since the preferred strategy of most successful traders is trend following, we’ll concentrate our attention on using Fibonacci extensions in a trend following method in this article.

High volatility


High volatility requires a strict approach to realizing both losses and profits. A scalper who is trading in a tame, range-bound market can be a bit more relaxed and arbitrary about his risk controls (they must still be applied with discipline, but not in the robotic manner which must be applied in trending markets), because the market is not expected to make sharp movements due to fewer market participants and a smaller amount of liquidity (not to mention that there is no news catalyst for strong price movements.) But a trend scalper must deal with such conditions at all times.

Trend following method


In this section we’ll discuss the use of the Fibonacci extension levels for the determination of trade direction while scalping trending markets. Scalping in trends can be difficult, because of the size of the sudden fluctuations, and the lack of clarity (at least in the short term) with respect to the eventual destination of the price. The Fibonacci extension levels are very useful in analyzing trends in all cases, and scalping is no exception to the rule.

Our aim in using this indicator is identifying levels where the price may rebound. For drawing the extension, we’ll identify the beginning and end of the price movement which we expect to be extended, so to speak, in order that a new trend is created. In the 5-minute chart of the USDCHF pair, we have identified a sudden and sharp movement beginning at around 4 am on 23rd July, and decided to draw its extension after the first red bar where its momentum is temporarily checked. Upon drawing the extension in the indicated area, we notice the 61.8, 100, and 161.8 extensions of the first movement.

Careful examination of the chart above shows us not only that the price rebounded several times at the extension levels of the indicator, but also that these levels served as strong attractors pulling the price towards themselves. The 100 percent extension level, for instance, provided a support which prevented the price from “falling through” twice, as observed. And the other two levels similarly created performance bars for the trend which, once broken, created further momentum for the trend.

Trading against the trend


Trading against a trend is dangerous, and the risk of sudden reversals is no less dangerous for scalpers. As such we need a tool which will help us identify the general direction of the trend, so that even if we suffer some losses, eventually our gains will justify our trading activity. The Fibonacci extension level is a great tool for this purpose since it allows us to guess with a reasonable degree of accuracy the main momentum of the price action. In the above example, we’d be scalping the market by buying at the red arrows shown on the chart. If the price returned to the resistance or support levels indicated by the extension level, we’d stop trading for a while and await the market action to present some clarity (is the trend reversing?). But as long as the trend is intact our strategy would involve scalping between the extension levels to accumulate profits.

Reference: Tom Cleveland

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Asia shares slip on lackluster data, dollar strong

A man walks past a board displaying the Nikkei average in Tokyo July 17, 2015.  REUTERS/Thomas Peter

Asian shares dipped on Thursday following Wall Street's decline overnight and lackluster regional data while the greenback consolidated gains on the back of upbeat U.S. economic news.

South Korea's economy recorded its weakest expansion in six years in the second quarter, battered by a deadly virus outbreak and poor exports, while Japan reported strengthening export growth in June but concern remained about how shipments to China might be affected by its slowing economy.

The MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.2 percent but still holding well above a near 1-1/2 year low hit on July 8.

Tokyo's Nikkei .N225 rose 0.4 percent, helped by a weaker yen, while Australian shares .AXJO were off 0.2 percent.

Capital flow trends suggest money managers are slowly turning more bullish towards the region's growth prospects within the broader emerging market bloc.

"Asia remains one of the bright spots in the global economy with China and India remaining committed to the broader economic reforms agenda," said Kenneth Akintewe, a portfolio manager at Aberdeen Asset Management, which globally has $490.8 billion in assets under management.

Equity and bond inflows turned positive for the week of July 15 in Asia while Latin America posted yet another week of redemptions from both these asset classes, according to EPFR data compiled by BNP Paribas.

Those green shoots were evident in the region's currency and fixed income markets where the Chinese yuan CNY=CFXS has been rock solid amid the global currency market volatility while a broad index of local currency bonds in Asia compiled by JP Morgan has gained a chunky 5 percent over the last year.

Equities remained on the backfoot thanks to disappointing earnings from global tech giants, led by Apple (AAPL.O) whose shares plunged overnight, a day after the iPhone maker's revenue forecast for the fourth quarter was below market expectations.

Microsoft (MSFT.O) also slumped after reporting its biggest quarterly loss.

In currencies, the dollar nudged up 0.1 percent to 124 yen JPY= after rebounding overnight from a low of 123.27 thanks to a rise in U.S. home sales to a 8-1/2 year peak. The euro was little changed at $1.09490 EUR= after coming off an overnight peak of $1.0966.

Weaker commodity prices also supported a mild rebound in the dollar. Brent crude prices lost 1.6 percent LCOc1 on Wednesday after data showed U.S. crude inventories rose last week, while spot gold XAU= slid to a five-year low on the dollar's bounce. [O/R] [GOL/]

"Sentiment towards commodities as a whole has been plummeting as the Fed lift-off timeline narrows and the drive to the dollar returns after six weeks of macro turmoil," Evan Lucas, market strategist at IG in Melbourne, wrote.

The Greek debt crisis has gone on the back burner for the time being after Athens reached an agreement with its European creditors earlier this month, allowing market focus to shift back towards divergences in monetary policies between countries.

The drop in commodity prices has not been kind to commodity currencies such as the Canadian dollar, which retreated overnight to a six-year low of C$1.3053 CAD=D4 against the U.S. dollar.

The Canadian dollar and other commodity currencies could weaken even more if the U.S. Federal Reserve begins hiking interest rates as early as September.

The New Zealand dollar, which also probed multi-year lows recently against the U.S. currency, fared a little better after the Reserve Bank of New Zealand delivered a smaller interest rate cut than some in the market expected and softened its rhetoric on the kiwi following its recent, dramatic fall.

The kiwi NZD=D4 went as high as $0.6654 to put some distance between a six-year trough of $0.6498 hit last week.

Reference: Reuters

Wednesday, 22 July 2015

Jordan Belfort - The Wolf of Wall Street


Admired or despised, Jordan Belfort has been controversial to say the least. Without giving an opinion, we thought it would be interesting to look at the man himself, a few years later with a fresh view of today.

You will see here Join Grant Lewers in an interview with Jordan Belfort, The Wolf of Wall Street Jordan?s two bestselling books have been published in forty-three countries and translated into eighteen different languages. His life-story has turned into a major motion picture by Warner Brothers, with Leonardo Dicaprio set to play Belfort


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Dollar pauses after rally, uptrend seen intact

A woman looks at her mobile phone next to a stock quotation board outside a brokerage in Tokyo, June 30, 2015. REUTERS/Toru Hanai

The dollar held steady versus a basket of major currencies on Wednesday, nursing losses suffered the previous day in its biggest one-day fall so far this month.

The dollar index traded at 97.304 .DXY as of 0530 GMT (1.30 a.m. EDT), having fallen back from a three-month high of 98.151 set on Tuesday, when it ended up falling about 0.7 percent.

In part the dollar was a victim of its own success, having climbed for most of the past four weeks to provide bulls with tempting profits.

"There was no obvious catalyst for the dollar pullback but USD losses coincided with a retreat in equity markets and lower U.S. front-end yields," analysts at BNP Paribas wrote in a note to clients.

Yet fundamentals favor the currency given the Federal Reserve remains on track to hike interest rates later this year.

"We expect to see good interest to buy the U.S. currency on this pullback and we remain generally bullish," say BNP.

U.S. stocks fell on Tuesday as results from IBM (IBM.N) and United Technologies (UTX.N) dampened optimism for the earnings season. The blow to stocks made bonds look more attractive in comparison and nudged Treasury yields lower, in turn weighing on the greenback.

The dollar eased 0.2 percent to 123.67 yen JPY=, slipping further away from Tuesday's high of 124.48 yen set on Tuesday, the greenback's highest level in about six weeks.

On Tuesday, comments from Bank of Japan Governor Haruhiko Kuroda had helped weigh on the dollar versus the yen. Kuroda said he expected inflation to accelerate considerably in the coming months due to a tight labor market and brushed off the idea of needing more quantitative easing.

Kuroda's comments suggest that the BOJ has little desire to add to its monetary stimulus, said Masafumi Yamamoto, senior strategist for retail financial service provider Monex, Inc. in Tokyo.

"It reinforces the view that fresh yen-selling factors are unlikely to emerge from Japan," Yamamoto said.

Although the dollar could gain if the market starts to fully price in the possibility of the U.S. Federal Reserve raising interest rates twice by year-end, the greenback may struggle to rise to levels above 125.00 yen in the next month or two, he added.

The euro inched up 0.1 percent to $1.0940 EUR=, having pulled up from a three-month low of $1.0808 set on Monday.

The Australian dollar held steady at $0.7416, staying above a six-year low of $0.7328 set on Monday.

Australia's benign inflation figures on Wednesday reinforced belief that the Reserve Bank of Australia (RBA) has room to lower interest rates further if needed.

RBA Governor Glenn Stevens said, however, that too much easing could lead to longer-term dangers through risk-taking and excessive borrowing, in effect setting the bar pretty high for any rate cuts.

Reference: Reuters

Tuesday, 21 July 2015

OPEC sees more balanced oil market in 2016

A pump jack is seen at sunrise near Bakersfield, California October 14, 2014.    REUTERS/Lucy Nicholson

The oil market should be more balanced next year as China and the developing world use more oil while supply of fuel from North American shale grows more slowly, OPEC said on Monday.

In its monthly report, the 12-member Organization of the Petroleum Exporting Countries said it expected world oil demand to increase by 1.34 million barrels per day (bpd) in 2016, up from growth of 1.28 million bpd this year.

World oil demand growth should outpace any increase in oil supply from non-OPEC sources and ultra-light oils such as condensate, increasing consumption of OPEC crude, it said.

"This would imply an improvement toward a more balanced market," OPEC's in-house economists said in the report.

OPEC has increased production sharply over the last year as its most powerful member, Saudi Arabia, and other core producers in the Middle East Gulf attempt to build market share, leading to higher inventories worldwide.

OPEC said Saudi Arabia reported that it pumped 10.56 million bpd last month, up 231,000 bpd from May. According to industry data, that would be a record high.

Higher OPEC production has been a major factor behind a collapse in oil prices, which are now around half their levels of a year ago.

Benchmark Brent crude LCOc1 traded around $58.70 a barrel at 1230 GMT on Monday, down from a peak above $115 in June 2014.

Lower prices have squeezed high-cost oil producers and brought a sharp fall in the number of oil exploration rigs in operation, particularly across North America.

OPEC said supply of oil from non-OPEC producers was expected to grow by only 300,000 bpd in 2016, down sharply from growth of 860,000 bpd this year.

U.S. oil output, which has seen rapid increases over the last five years thanks to the development of huge shale resources by "fracking", is expected to log much more modest supply growth in 2016.

"Total U.S. liquids production is expected to grow by 330,000 bpd, just one third of the growth of 930,000 bpd expected this year," it said.

That should mean more demand for OPEC oil next year.

OPEC said it expected demand for its own crude to rise by 860,000 bpd in 2016 to 30.07 million bpd. But it cut its estimate of demand for its crude this year by 100,000 bpd to 29.21 million bpd.

The group said it estimated, based on figures from secondary sources, that its own collective crude output rose by 283,000 bpd to 31.38 million bpd in June, led by Iraq, Saudi Arabia and Nigeria.

That is still well ahead of current demand for OPEC oil and should help ensure global inventories continue to build for some time to come.

Reference: CHRISTOPHER JOHNSON AND LIBBY GEORGE

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Dollar near five-week peak vs yen on Fed official's hawkish comments

A visitor views the electronic sculpture '$' by Tim Noble and Sue Webster at Sotheby's auction house in London June 8, 2015. REUTERS/Toby Melville

The dollar hovered near five-week highs versus the yen on Tuesday after a top Federal Reserve official added to expectations that U.S. interest rates could be raised as early as September.

The dollar index was little changed at 98.036 .DXY and near a three-month high of 98.147 scaled overnight.

The greenback received a boost after St. Louis Fed President James Bullard told the Fox Business network on Monday that the central bank is likely to raise rates in September as inflation is set to climb toward its target and unemployment is poised to dip below 5 percent.

U.S. Treasury yields, notably those of shorter-dated maturities like two-year bills, rose in response to Bullard's comments and shored up the dollar.

The dollar was flat at 124.35 yen, not far from a five-week high of 124.39 reached overnight. The greenback still took another step closer to the 13-year peak of 125.86 reached in early June.

The U.S. currency has climbed steeply from a low near 120 yen plumbed at the start of the month when angst over the Greek debt crisis and sliding China shares triggered a rush toward the safe-haven Japanese currency, but the 125 threshold could be a tough ceiling to top.

"The approach to 125 yen takes dollar/yen into politically sensitive territory. Any big gains by the dollar just as the Trans-Pacific Partnership (TPP) talks are climaxing could stimulate those on both sides of the Pacific opposed to the negotiations, and the authorities would not want that," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

Ministers from the 12-nation TPP trade pact negotiations will meet July 28-31 in Maui, Hawaii, aiming to reach a broad agreement. The meeting is likely to mark the final stage in the TPP negotiations, a massive trade pact covering 40 percent of the world's economy.

REDUCED VOLATILITY

The euro treaded water at $1.0827 EUR=. The common currency hit a three-month trough of $1.0808 overnight, slipping steadily after a debt deal that will keep Greece in the euro zone for the time being shifted investor focus back to diverging U.S. and European monetary policies.

The twin themes that kept the markets on edge over the past month - the Greek debt saga and turbulence in Chinese equities - have gone on the back burner for now, as reflected in part by the decline in implied volatility.

Bets on how volatile eight major G10 currency crosses will be over the next three months are at the lowest since the Swiss National Bank removed the euro/Swiss franc floor in January, Steven Englander, global head of G10 FX strategy at CitiFX in New York, wrote.

Three-month sterling/dollar implied volatility GBP3MO=R was roughly at its lowest since January, while that of the euro/dollar EUR3MO= was near a 4-1/2-month low. Dollar/yen implied volatility JPY3MO= recently hit its lowest since early May.

"It is a clear signal that investors expect a quiet summer, but may also tell you something about the memory span of FX investors," Englander said.

"We think that what has happened is that the threat of an immediate rupture has dropped out of asset market pricing. What is not getting priced in is the rising risk that we see a renewed USD upward trend."

The New Zealand dollar kept its distance from six-year lows against the dollar after comments overnight by Prime Minister John Key gave the battered kiwi breathing space.

Although the Reserve Bank of New Zealand is still expected to cut rates when it meets Wednesday, Key's comments that the kiwi's 25 percent slide in the past year was faster than expected gave the market pause for thought.

The kiwi was up 0.4 percent at $0.6594 NZD=D4 after touching $0.6498 last week, its lowest since July 2009.

Reference: SHINICHI SAOSHIRO

Monday, 20 July 2015

UK's minimum wage boost will not bring riches for all

Demonstrators protest as Britain's Chancellor of the Exchequer George Osborne delivers his budget to the House of Commons, in London, Britain July 8, 2015. REUTERS/Paul Hackett      - RTX1JKE6

Conservative politicians cheered and pumped their fists on Wednesday when Chancellor George Osborne announced a bumper increase in the minimum wage, but the economic gains from the change are likely to be much more muted.

The plan to raise the minimum wage by 40 percent by 2020 was the surprise of Osborne's first budget since the Conservative Party won an unexpected outright victory at May's election.

By tweaking a policy of the vanquished centre-left Labour Party, Osborne cast it as an end to taxpayer subsidies for low-paying firms as he tried to claim the political centre ground.

But it may keep some people out of work and fail to compensate others for the big cuts in welfare he also announced.

Fears of job losses when Britain first introduced a minimum wage in 1999 proved wide of the mark. However the much broader scope of the new minimum wage, which will cover about 10 percent of the workforce, makes some economists nervous.

"The introduction of the 'national living wage' does have the potential to raise the natural unemployment rate and deliver real economic costs," said Philip Rush, chief UK economist at Japanese investment bank Nomura.

Businesses which rely heavily on cheap labour, such as supermarkets and pubs, have grumbled, while anti-poverty groups say the rise will not offset benefit cuts.

The current minimum wage for those aged 21 and over is 6.50 pounds ($10) an hour and will rise to 6.70 pounds in October. Osborne said that from April 2016 employers will have to pay a 'national living wage' of at least 7.20 pounds to over-25s.

This will rise steadily over the following four years to around 9.35 pounds an hour, 60 percent of the average wage for those aged 25 or over. The current minimum is less than half the average wage, while in the United States it is under 40 percent.

The big increase roughly doubles the number of workers who will come under the scope of the plan and get a pay rise. It may also have knock-on effects for up to a quarter of the workforce, according to figures from the government's budget watchdog.

With the Bank of England watching wage growth as it judges when to start to raise interest rates, Nomura's Rush said the new minimum wage could encourage it to act sooner.

JOBS AT RISK

The higher minimum wage will also cost jobs, though Osborne said the effect would be small.

The Office for Budget Responsibility estimates that the change will push up Britain's long-run unemployment rate by 0.2 percentage points -- the equivalent of 60,000 jobs -- and that other workers will lose out from employers offering fewer hours.

Economic output by 2020 will be 0.1 percent lower than it otherwise would have been as people work less, the OBR said.

Rush fears the effect on jobs and growth could be much bigger, and that it is too optimistic to simply extrapolate from the limited impact of previous rises in the minimum wage.

Much depends on whether firms improve a dire recent track record on productivity so that they can afford pricier workers.

A minimum wage nearer the national average also gives businesses less scope to cut pay rather than jobs in an emergency, as they did during the last recession.

Supermarket chain Tesco, Britain's biggest private-sector employer, backed the new national living wage on Thursday. But there were hints from employers that other benefits such as paid breaks or pensions could be under threat.

Higher wage bills could lower profits at pub chains such as JD Wetherspoon and Mitchells and Butlers by almost 10 percent, according to an estimate by equity analysts at Irish stockbrokers Goodbody.

The low paid will also bear the brunt of 12 billion pounds of government welfare cuts announced on Wednesday. For many families, this will outweigh gains from the higher minimum wage.

The Resolution Foundation think tank estimates that a couple on the minimum wage with three children will be 350 pounds a year worse off, even after big pay rises.

"It will take many struggling families years before they earn their way back to their current position," the foundation's chief executive, Gavin Kelly, said.

Reference: DAVID MILLIKEN

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Hedge fund investors fear lockdown amid China, Greece difficulty


Hedge fund clients face a nervous wait to see if firms betting on the troubled Chinese and Greek markets can avert emergency measures that give them power to lock away investors' cash.

Both China and Greece have taken steps in the last month to curb sell-offs in their stock markets by imposing trading restrictions. Hedge funds exposed to the two markets are now finding it tough to value their holdings.

At least two hedge funds - APS Greater China Long/Short and Horizon Growth Fund - have told investors that they can no longer withdraw their capital. The APS fund is exposed to China and Horizon Growth is exposed to Greece.

Hedge funds fear that geopolitical flux might prompt some investors to pull their money out, leaving the remaining investors stuck with holdings that are hard to sell, should Greek and Chinese stocks remain inaccessible for long.

The move is a stark reminder of similar actions during the 2008 crisis, which led some hedge funds to create "side pockets" or mini suspended funds in which to park illiquid assets.

Investors are restricted from exiting them, making side pockets unpopular. Meanwhile, funds could calculate a separate net asset value (NAV) for assets that can be valued, allowing them to accept fresh subscription or redemption requests.

"That's how hedge funds have dealt with these types of situations in the past," said Ryan McNelley, managing director at Duff & Phelps that advises fund firms on asset valuation.

"A side pocket where they don't get fees based on valuation is one potential way to isolate the problem," he added.

The Greek market has been shut since June 29. In China, meanwhile, 1,300 stocks had announced trading halts last week, making roughly $2.4 trillion worth of stock market assets inaccessible to investors.

The two countries pose different risks. While Greece is a tiny market - research firm eVestment estimates institutional investors have just $1.7 billion invested in Greek stocks.

In China, most trading suspensions are not expected to last long, but the sheer size of the market means liquidity problems could pile up for funds with exposure.

Potential foreign participation in the mainland stock market through two government programmes that give direct investment quotas to foreign firms totalled $139 billion as of June 29. A third avenue was launched last year to trade China shares through a Hong Kong office, totalling up to 300 billion yuan ($48.32 billion), although it is not yet utilised fully.

VALUATION

Trading suspensions are a problem for funds that are required to accurately value their portfolios, which means if they last too long, the fund is forced to put in place contingency measures.

Side-pockets are generally put in place only when funds face heavy redemptions, which investors say is not the case at this time with prominent U.S. funds that are invested in Greece.

However, smaller funds whose bets in Greece form a relatively larger part of their total overall exposure, may be considering such moves, investors said.

"June NAVs are usually done by the end of July. If by that time Greece is not open, people will have to write down Greece exposure or do side pockets, especially funds with more than 2-3 percent exposure," a London-based hedge fund investor said.

Funds resorted to creating side pockets in 2008 as buyers for many assets disappeared and investors wanted money back.

Assets worth up to $400 billion were parked in side pockets, gated or restructured during the crisis globally, according to Hedgebay, a secondary market for hedge fund stakes.

"To justify side pockets you really need close to zero liquidity in the assets, and of course there are investments which have done 'a 2008' and for which there is practically no market to mark against," Savvas Savouri, chief economist at London-based hedge fund Toscafund told Reuters.

"And as we saw in the period post 2007, investors can be nasty litigators and unforgiving for the future," he added.

($1 = 6.2081 Chinese yuan renminbi)

Reference: NISHANT KUMAR

Friday, 17 July 2015

Risk Management


Basic Trading Concepts Defined

Portfolio Diversification

The simplest form of risk management is to follow conventional wisdom and not put all your eggs in the same basket. Or, as the suits say, “diversify your portfolio”. Of course there is a little more technique to it than that (and nowadays we just keep all our eggs in the refrigerator anyway).
Diversity in your portfolio is not about buying different currencies or equities, but evaluating the relative risk of your options and distributing your investments in such a way that you have an acceptable risk-to-profit ratio.

Generally speaking, however, by making several smaller investments, you have less risk than if you make one big investment. This is the principle behind banking. Banks run the risk of their clients not paying them back each time they loan out money. By loaning to lots of people the risk is spread out over all their clients, and it’s easier to compensate for.
For example, say you have an investment opportunity; it really doesn’t matter what it is. For every dollar you put in, you could get back 10; and you can invest in it as many times as you want. But, of course, there’s always risk, and there’s a fifty-fifty chance it won’t work out (which isn’t all that far-fetched; 50% of start-ups go bankrupt in the first year).

So, if you put all your money into it, you could become instantly rich. But, if things go sour, you could lose every penny you’ve got. So, is it worth it? That was a trick question; that’s something a gambler would consider. Traders should be applying risk management instead.
The key here is that you can invest as many times as you want (just like with equities markets). If you make one investment, you have 1 chance in 2 of losing (a 50% risk); but if you win, you get 10 times back. This is expressed as profit:risk. In this case you have profit 10 : risk 2, or 5:1 risk-to-profit ratio.
If you split your money in half, and buy twice; statistically speaking, one investment will lose everything and the other will pay off. So if you invest 100: in one you will lose 50, but in the other you will make 500. Net profit? 400. If you had invested all of your money, you could have made 900; but you also could have lost everything.

The important thing to remember here is that by splitting up the investment, you are no longer in an all-or-nothing position (gambling) but in a position where it’s much more likely that you will make at least some profit (investing).
Of course you can reduce some of the risk by using different techniques to try and figure out what will happen, but you can never be certain of the future. Once you’ve minimized as much risk as you can by researching the investment, you can then reduce the investment’s risk by handling how you expose yourself to it.
There are a lot of nuances to improving your profitability by diversifying your portfolio, and these will be covered in more detail in later lessons. 


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Wall St. opens higher on strong quarterly reports

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, July 15, 2015.  REUTERS/Lucas Jackson

Wall Street rose sharply on Thursday as the Greek parliament approved a bailout plan and bluechip companies such as Citigroup (C.N), eBay (EBAY.O) and Netflix (NFLX.O) reported strong results.

After the Greek vote, the European Central Bank slightly raised its emergency funding for Greek banks to help them partially reopen after euro zone governments agreed in principle to grant Athens a new three-year loan.

"Now that Greece has been taken care of for the time being, the focus has shifted to what's happening on the ground in the U.S.," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

"While U.S. equities are fully valued at the moment, if companies are not able to fulfill heightened expectations of stronger earnings in the second half of the year, we will see some more sideways action."

A majority of U.S. companies that have reported so far have posted strong results for the second quarter, defying expectations that Corporate America would report its worst sales decline in nearly six years on falling profit.

Citigroup reported its highest quarterly profit in eight years and its shares rose as much as 3 percent to a six-and-a-half year high of $58.18, giving the biggest boost to the S&P financial index .SPSY.

Goldman Sachs (GS.N) was the biggest drag on the financial index and the Dow as its shares slipped 0.5 percent to $212 after the bank reported its smallest quarterly profit in nearly four years.

At 9:44 a.m. ET (1344 GMT), the Dow Jones industrial average .DJI was up 45.38 points, or 0.25 percent, at 18,095.55. The S&P 500 .SPX was up 11.7 points, or 0.56 percent, at 2,119.1 and the Nasdaq composite .IXIC was up 33.37 points, or 0.65 percent, at 5,132.31.

Nine of the 10 major S&P 500 sectors were higher. The lone laggard was the materials index .SPLRCM, dragged down by weak results from paint maker Sherwin-Williams (SHW.N). Sherwin-Williams fell nearly 11 percent to $252.

UnitedHealth (UNH.N) fell 1.6 percent to $123.9 and was the biggest loser on the Dow as analysts were disappointed with the largest U.S. health insurer's higher-than-expected ratio of medical costs to premiums.

EBay (EBAY.O) rose 4.4 percent to $66.11 after the company reported a better-than-expected quarterly profit and said it was selling its enterprise business.

Netflix jumped 11.4 percent to $110.20 a day after the company added nearly a third more subscribers than expected in the second quarter.

Mattel (MAT.O) and Google (GOOGL.O) are scheduled to report after markets close.

Advancing issues outnumbered decliners on the NYSE by 2,080 to 615. On the Nasdaq, 1,634 issues rose and 647 fell.

The S&P 500 index showed 32 new 52-week highs and six new lows, while the Nasdaq recorded 79 new highs and 16 new lows.

Reference: TANYA AGRAWAL

Thursday, 16 July 2015

10 Investing Secrets from Warren Buffet


1. Reinvest Your Profits: When you first make money in the stock market, you may be tempted to spend it. Don't. Instead, reinvest the profits. Warren Buffett learned this early on. In high school, he and a pal bought a pinball machine to put in a barbershop. With the money they earned, they bought more machines until they had eight in different shops. When the friends sold the venture, Warren Buffett used the proceeds to buy stocks and to start another small business. By age 26, he'd amassed $174,000 -- or $1.4 million in today's money. Even a small sum can turn into great wealth.

2. Be Willing To Be Different: Don't base your decisions upon what everyone is saying or doing. When Warren Buffett began managing money in 1956 with $100,000 cobbled together from a handful of investors, he was dubbed an oddball. He worked in Omaha, not Wall Street, and he refused to tell his parents where he was putting their money. People predicted that he'd fail, but when he closed his partnership 14 years later, it was worth more than $100 million. Instead of following the crowd, he looked for undervalued investments and ended up vastly beating the market average every single year. To Warren Buffett, the average is just that -- what everybody else is doing. to be above average, you need to measure yourself by what he calls the Inner Scorecard, judging yourself by your own standards and not the world's.

3. Never Suck Your Thumb: Gather in advance any information you need to make a decision, and ask a friend or relative to make sure that you stick to a deadline. Warren Buffett prides himself on swiftly making up his mind and acting on it. He calls any unnecessary sitting and thinking "thumb sucking." When people offer him a business or an investment, he says, "I won't talk unless they bring me a price." He gives them an answer on the spot.

4. Spell out The Deal Before You Start: Your bargaining leverage is always greatest before you begin a job -- that's when you have something to offer that the other party wants. Warren Buffett learned this lesson the hard way as a kid, when his grandfather Ernest hired him and a friend to dig out the family grocery store after a blizzard. The boys spent five hours shovelling until they could barely straighten their frozen hands. Afterward, his grandfather gave the pair less than 90 cents to split. Warren Buffett was horrified that he performed such backbreaking work only to earn pennies an hour. Always nail down the specifics of a deal in advance -- even with your friends and relatives.

5. Watch Small Expenses: Warren Buffett invests in businesses run by managers who obsess over the tiniest costs. He once acquired a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was). He also admired a friend who painted only on the side of his office building that faced the road. Exercising vigilance over every expense can make your profits -- and your paycheck -- go much further.
6. Limit What You Borrow: Living on credit cards and loans won't make you rich. Warren Buffett has never borrowed a significant amount -- not to invest, not for a mortgage. He has gotten many heart-rendering letters from people who thought their borrowing was manageable but became overwhelmed by debt. His advice: Negotiate with creditors to pay what you can. Then, when you're debt-free, work on saving some money that you can use to invest.

7. Be Persistent: With tenacity and ingenuity, you can win against a more established competitor. Warren Buffett acquired the Nebraska Furniture Mart in 1983 because he liked the way its founder, Rose Blumkin, did business. A Russian immigrant, she built the mart from a pawnshop into the largest furniture store in North America. Her strategy was to undersell the big shots, and she was a merciless negotiator. To Warren Buffett, Rose embodied the unwavering courage that makes a winner out of an underdog.

8. Know When To Quit: Once, when Warren Buffett was a teen, he went to the racetrack. He bet on a race and lost. To recoup his funds, he bet on another race. He lost again, leaving him with close to nothing. He felt sick -- he had squandered nearly a week's earnings. Warren Buffett never repeated that mistake. Know when to walk away from a loss, and don't let anxiety fool you into trying again.

9. Assess The Risk: In 1995, the employer of Warren Buffett's son, Howie, was accused by the FBI of price-fixing. Warren Buffett advised Howie to imagine the worst-and-best-case scenarios if he stayed with the company. His son quickly realized that the risks of staying far outweighed any potential gains, and he quit the next day. Asking yourself "and then what?" can help you see all of the possible consequences when you're struggling to make a decision -- and can guide you to the smartest choice.

10. Know What Success Really Means: Despite his wealth, Warren Buffett does not measure success by dollars. In 2006, he pledged to give away almost his entire fortune to charities, primarily the Bill and Melinda Gates Foundation. He's adamant about not funding monuments to himself -- no Warren Buffett buildings or halls. "I know people who have a lot of money," he says, "and they get testimonial dinners and hospital wings named after them. But the truth is that nobody in the world loves them. When you get to my age, you'll measure your success in life by how many of the people you want to have love you, actually do love you. That's the ultimate test of how you've lived your life."

Read on for Warren Buffett’s best quotes on life and investing


1. “You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
2. “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks.”
3. “It is not necessary to do extraordinary things to get extraordinary results.”
4. “What we learn from history is that people don’t learn from history.”

5. “Chains of habit are too light to be felt until they are too heavy to be broken.”

Reference: Investopedia

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