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Feb 22, 2012
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For a change, the good old days appeared to be back in fashion, as traders focused on mildly weak Chin
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Feb 22, 2012
ZIONSFX - NEWS
MARKET NEWS
FOREIGN EXCHANGE
For a change, the good old days appeared to be back in fashion, as traders focused on mildly weak Chinese and surprisingly weak Euro-Zone economic data. The Dollar Index rallied ¼%, on combination of sharp gains versus the Yen & Pound, each down ½%+, and smaller gains versus the Mexican Peso & Canadian Dollar, which have lost ½% early in the US session.
The JAPANESE YEN slipped to a fresh 7-month low 80.35. Since the start of February, the yen is off more than 5.5% versus the Dollar, while the Pound is virtually unchanged and the Euro has gained almost that much in the same time. Traders cited two main reason for Yen weakness—the massive JPY 10 Trillion increase in the BoJ’s asset purchase program (Quantitative Easing), and an incredibly high 80% negative correlation between the Yen and the 2-year Treasury-JGB spread (the wider that spread, the weaker the Yen). The former will remain in play indefinitely; the latter is likely to continue as long as Japan’s economy is blighted by deflation and negative growth. Analysts noted that the BoJ is also the most effective Central Bank in terms of how and when it intervenes. The most recent example is its QE program, announced when the Yen was already in decline. Technically, Yen has broken minor support at 80.00, and is now poised to test the 38.2% Fibonacci support at 82.85. Momentum indicators suggest the yen is overbought, so look for consolidation near current levels before new lows. Support lies in an 80.00-79.50 range.
The BRITISH POUND got slapped today, shedding more than ¾% to a 1-week low $1.5660after minutes of the most recent BoE policy meeting showed the Bank was likely to approve & implement more stimulus in the coming months. Analysts had expected a couple to vote for only a GBP 25 Bln increase, with the rest approving a 50 Bln increase. Instead, the two dissenters voted for an even larger GBP 75 Bln increase, to provide further stimulus to the economy. So, the UK will likely see more Quantitative Easing in the months ahead, a negative for the Pound.
The CANADIAN DOLLAR slipped ½% to 1.0010 early today, and is off 1% since the start of the week. Traders were hard pressed to provide specific reasons for the move, citing disappointment with today’s Chinese and EU PMI reports, and slight drop in oil prices. However, most of Canada’s exports go to the US, which has reported a recent string of good-to-better economic data. Traders noted that the C$ had slipped below both the 14-day and 200-day moving averages, suggesting both short- and long-term weakness. Support now lies at trend-line 1.0015, then 1.0115, the 38.2% Fibonacci level. Resistance lies at 0.9985 (200-day MA), then 0.9900 (October-February double top).
FIXED INCOME
Treasuries were flat heading into trading today, with the 10-year note paying 2.06% at the open. Traders said that markets were hemmed in by safe haven buying, a result of the Greek credit crisis (only one of two references to that today!), and this week’s heavy supply, the latest in the never-ending series of weekly offerings from Treasury. Traders also expect this week’ housing related data (Home Sales & FHFA Prices) to show the US housing market continues to improve, that homes are selling and the decline in sales prices may have moderated.
Just after the open, prices rallied a bit after Fitch downgraded Greece’s sovereign debt to C, from CCC (the second reference). Fitch said that the move reflects their view that Greece is sliding into a “restricted default” in which some investors will be made whole (mostly the ECB) while most Private Sector Investors (the PSI so often referred to) will take a beating, writing off 70% or more of their holding. Yield on 10-year notes slipped to 2.03%.
EQUITIES
Asian equities markets rallied on a combination of currency weakness and apparent easing in Chinese lending practices. The Nikkei rallied almost 1% on the weakened Yen, while Korean and Hong Kong markets gains ¼% and 1/3% as well. Chinese markets gained more than 0.9% mostly on surging property management firms. China appears to be easing recently enacted moves to curb speculation in real estate.
European markets slipped ½% TO ¾% on weaker Euro-Zone PMI. Economists said that recent data suggest EU is teetering on the brink of recession, dragged down by Greece, already well along that path for the past 5 years, but also Spain, where unemployment is near 25%, or Portugal, facing similar pressures as Greece.
US Markets opened slightly lower, on the mix of global economic news, and the decline in oil prices.
COMMODITIES
Gold prices held near recent highs, trading at $1,760 for the second day in a row. This seems to fly in the face of the stronger Dollar; gold usually trades inversely to the Dollar. However, it may also reflect the market’s growing anxiety over chronic weakness in Europe, and today’s mildly disappointing weakness seen in China.
HEADLINE NEWS
Euro is trading in a tight rangeas the market digests the 2nd bailout package for Greece. One day after the agreement Greece said it expects a 2012 budget deficit to reach 6.7% of GDP, missing the earlier target of 5.4%. Wolfgang Schaeuble’s spokesman said that Germany does not view the latest budget deficit forecast as a negative. Schaeuble had said earlier that he thought Greece was a bottomless pit. Greece’s New Democracy Party said they would agree to holding elections on April 29th from April 8th should more time be needed to complete the PSI swap. With respect to the upcoming PSI debt swap, a Greek gov’t spokesman said the threshold for activating collective action clauses, which would force creditors to take part in the swap, would be 66%. Joseph Ackerman; chairman of Deutsche Bank and also chairman of the IIF which coordinates talks on the PSI said he expected take up to be “substantial” without providing details and when asked if the agreement was still voluntary he said, “absolutely.” Ratings agencies have said that they would consider activation of CACs to warrant a Selective Default rating. How ISDA determines the action is the real determinant. In Spain, El Pais is reporting that the gov’t will ask the EU to make this year’s deficit target easier to reach, saying the target should be 5% instead of the current 4.4% to avoid a negative impact on growth and unemployment. The report said it would petition to raise the deficit target in a presentation to the EU in 10 days. The ECB’s first LTRO was set up to address fears that the interbank market in Europe was frozen. European banks borrowed almost half a trillion Euros to plug their funding needs and fend off a credit crunch. The measure succeeded in lowering borrowing costs for Italian and Spanish bonds and the ECB hopes that its next offer of cheap funds on Feb 29th to be its last. There are concerns that making billions available to banks over a 3 year period will stoke a credit binge that could
lead to inflation. The ECB does not want to do all the heavy lifting and wants European gov’ts to enact better economic policies and strengthen the ESM.
The Eurozone Composite PMI fell to 49.7 in Feb. from 50.4 in January. Eurozone services PMI fell to 49.4 in Feb from 50.4 in Jan, and missed expectation of a rise to 50.6. Eurozone Manufacturing PMI fell edged up slightly to 49.0 from 48.8 in Jan. Private sector companies continued to shed workers but at a slower pace with the composite employment index inching up to 49.5 from 49.4. The survey reinforces expectations for the ECB to cut rates by 25 bps from 1% to 0.75%. In economic powerhouse Germany manufacturing PMI fell to 50.1 barely expanding, from January’s 51.0 reading. The service sector PMI fell to 52.6 from 53.7 making the composite PMI fall to 52.9 from 53.9. France’s manufacturing PMI climbed unexpectedly to 50.2 in Feb from 48.5 in Jan and the services PMI fell to 50.3 from 52.3. Combined, the data shows the EU economy slowing but not falling off a cliff.
In China, the HSBC flash PMI rose to a 4 month high of 49.7in Feb from 48.8 in Jan. The new export orders sub index dropped to 47.4 from 50.4 in January as the slowdown in Europe curbed exports to the area. Exports to the EU in January fell 3.2% from a year earlier level. On Saturday China cut the RRR by 50 bps to 20.5% which released about 400 bln Yuan that could be used for bank lending. China’s big four state banks reported that they had lent around 70 bln in new local currency loans from Feb 1st to Feb 19th. The big four usually account for around 30-40% of overall new loans and the data suggest a big drop in lending.
Scott Stone, VP, Foreign Exchange Services | 801-844-7065 | Scott.Stone@zionsbank.com
Mark Garfield, SVP, International Banking | 801-844-7688 | Mark.Garfield@zionsbank.com
Gary DeGrange, VP, International Banking | 208-395-2285 | Gary.Degrange@zionsbank.com
The material presented in this email is for informational purposes only and should not be used or construed as a recommendation to buy or sell any financial instrument or currency or to participate in any particular trading strategy in any jurisdiction. While the information contained herein has been derived from sources believed to be accurate and reliable, we make no representation as to its accuracy or adequacy. The views and outlook presented are current as of the date of this communication and represent the views of the author and not those of Zions Bank. Such views are subject to change at any time based on market or other conditions. Zions Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast of estimate set forth herein, changes or subsequently become inaccurate. Foreign exchange and money market information provided by Amegy Bank N.A., a subsidiary of Zions Bancorporation.
Zions Bank | 1 South Main Street | Salt Lake City, UT 84101
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Feb 21, 2012
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EU Financial officials (ECB & EU Fin Mins) have today crafted the latest Greek Credit Crisis
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Feb 21, 2012
ZIONSFX - NEWS
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EU Financial officials (ECB & EU Fin Mins) have today crafted the latest Greek Credit Crisis Resolution, writ large, comprised of draconian austerity measures and steep write-downs of sovereign bonds. For this to have a chance of succeeding, it will take much more than an official blessing. Private Sector Investors will be required to write down significant portions of their bond holdings, while Greek citizens will be forced to bear the brunt of deep cuts to their wages, living standards, and Govt services. The good thing is this comes in time to avoid a de facto and de jure default March 20th (when EUR 14 Bln of Greek debt comes due). The real problem is that most of the EUR 130 Bln (85%-to-90%) will go to bailing out banks, not offsetting private investors’ losses or assisting Greek citizens, or even reducing greece's massive debt. The Dollar is broadly higher today, gaining against all the major currencies except the Yuan, as traders seem to doubt THIS bailout will be the final fix, any more than the last one was.
The Pound and Euro are off ¾% each from session highs to $1.5775 and $1.3215, rising immediately on the latest headline, slipping lower as traders once again acknowledge it takes a village to make the resolution work. And the EU-village is in turmoil.
The A$ took the biggest hit in the Small Dollar Trio, sliding more than 1-cent to $1.0650. The C$ held onto session gains, trading at 0.9950, even as weak domestic data and the EU news were a drag on sentiment. Canada’s relative insulation from EU (with most exports going to the US), and rising oil prices put a floor under the C, which despite today’s dip, remains within ½-cent of 3-month highs.
The Yuan was the biggest winner today, in fact the only winner, rising 5 jiao, from 6.3015 to 6.2964. the PBoC is keeping the Yuan stable, after having pushed it slightly higher in the run up to last week’s official visit to the US. Local sentiment remains high after the PBoC cut bank reserves for the second time in 3 months. Analysts said that the timing is aimed at alleviating an acute liquidity shortage, and should not seen as a stimulus move, or an easing of policy—PBoC is still focused on combating commodity inflation, and rampant real estate speculation.
FIXED INCOME
US Bond prices were lower in early US trading, having dropped in Europe on the EU news. Traders were also lightening up ahead of this week’s auctions, with Treasury due to sell $99 Bln of 2- to 7-year notes. Traders also said that the Fed’s Operation Twist was a disincentive to buying shorter maturities—in addition to this week’s supply, the Fed keeps selling its holdings of short-term debt, in exchange for longer maturities, part of its efforts to keep long term rates low.
The Leadership at UBS has got religion, at least when it comes to market manipulation. As regulators extend their probe into LIBOR market-setting irregularities, UBS has decided to be the first to confess its sins, turning itself in before other banks can do so, to avoid criminal and regulatory prosecution. Analysts said that the “first-mover” usually gets the best deal. Criminal prosecutors often refer to this snitching. UBS will still be subject to civil penalties, while other offenders will face criminal as well civil prosecution.
ENERGY
US Crude prices continue to climb, rising to 9-month highs of $105.80 after jumping from Friday’s $103.60 close to open at $105.20 today. Traders said that the EU deal was a minor reason to buy. The threat that Iran would close the Straits of Hormuz was more of a factor than any actual closure. Uncertainty is always more of a market mover than certainty, even if that certainty is dire.
HEADLINE NEWS
Greece will receive its bailout from the Eurogroup and will now be able to launch its bond swap with private investors writing off 53.5% of their Greek holdings immediately. Negotiations for the PSI are expected to be completed by March 8th with the actual swapping of bonds being done on March 10th and 11th. Greece’s parliament will be discussing CAC (Collective Action Clause) legislation today whereby Greece can force all bondholders to accept a deal this has kept Greece’s CDS market from rallying. Should everything work smoothly Greece’s debt to GDP will be around 120.5%. On Feb 23rd and 24th the G20 meets in Mexico City and will discuss providing more funds for the IMF. The IMF contributed about 30% of the first bailout and Germany’s finance minister Schaeuble said that he will use a IMF contribution of 13 bln euros as a base when seeking approval from Germany’s lower house of parliament next week. With Greece avoiding a messy default on March 20th attention is now turning to implementation and execution which has always proved more difficult. On Wednesday Greece’s 2 biggest unions have called for a protest in Athens. The fact that the Northern EU states have called for a EU commissioner and an escrow account that prioritizes Greece’s debt service payments over other demands on the gov’ts budget has fragmented Greece’s political parties. The beneficiaries are Greece’s far left and far right. Implementation concerns are expected to arise after the April elections. Yesterday the Bank of Portugal said that general gov’t debt rose to 107.2% of GDP at the end of 2011 up from 93.4% in 2010 and the IMF expects Portugal’s debt to peak around 118% of GDP in 2013. The leader of Portugal’s Socialist Party told the Troika’s inspection team that Portugal needs more time to reach the fiscal goals set under the terms of its bailout. Portugal’s 10 yr bond yield rose by 2 bpts to 11.346% while the 5 yr CDS on Portugal rose 12 pts to 1148.6.
In a sign of how sharply China is slowing Japan’s exports to China fell by 20.1% in January in annual terms. It was the fourth straight month that Japanese exports to China have fallen in annual terms. The data underscore the effects of a strong yen a global slowdown and more expensive fuel imports to make up for the loss in nuclear energy. Japan’s surplus with the EU also shrank to its smallest surplus ever at 689 mln yen as exports fell 7.7%. Last week the Bank of Japan surprised markets with a 10 tln yen increase in its asset purchase program and by setting an inflation target of 1%. Since that decision the dollar has been strengthening against the yen. Although Japan’s trade balance is expected to move into surplus territory in the 2nd half, the deficits lead to concerns on how much longer Japan can rely on exports to finance its huge public debt. A Japanese newspaper is reporting that Japan is likely to receive an exemption from U.S. sanctions on Iran, as it reduced imports of crude by 11%.
Scott Stone, VP, Foreign Exchange Services | 801-844-7065 | Scott.Stone@zionsbank.com
Mark Garfield, SVP, International Banking | 801-844-7688 | Mark.Garfield@zionsbank.com
Gary DeGrange, VP, International Banking | 208-395-2285 | Gary.Degrange@zionsbank.com
The material presented in this email is for informational purposes only and should not be used or construed as a recommendation to buy or sell any financial instrument or currency or to participate in any particular trading strategy in any jurisdiction. While the information contained herein has been derived from sources believed to be accurate and reliable, we make no representation as to its accuracy or adequacy. The views and outlook presented are current as of the date of this communication and represent the views of the author and not those of Zions Bank. Such views are subject to change at any time based on market or other conditions. Zions Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast of estimate set forth herein, changes or subsequently become inaccurate. Foreign exchange and money market information provided by Amegy Bank N.A., a subsidiary of Zions Bancorporation.
Zions Bank | 1 South Main Street | Salt Lake City, UT 84101
To stop receiving this update, please respond to sender with message “unsubscribe”
© 2012 Zions Bank |Member FDIC | Equal Housing Lender
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Feb 16, 2012
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The euro continued its selloff last night falling 0.6% to open around 1.2985 after a 1.3068 – 1
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Feb 16, 2012
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The euro continued its selloff last night falling 0.6% to open around 1.2985 after a 1.3068 – 1.2973 overnight range. News that European finance ministers failed to come to an agreement on the 130 bln bailout package along with news that Moody’s may cut the ratings of 17 global banks and 114 European financial institutions contributed to the selloff. The ratings decision comes after Moody’s downgraded 6 European sovereigns and warned it may downgrade France, Britain and Austria of their AAA rating. Greece will have to wait until Monday to find out whether it will get the entire 130 bln package or whether it will receive a bridging loan to cover the March 20th bond redemption payment and receive the rest after the elections. Greek finance minister Venizelos said that Greece could announce its debt swap scheme with private creditors on Monday if the EZ ministers sign off on an overall package. Whether private creditors will be able to come to any agreement amid uncertainty about Greece’s overall financial bailout is uncertain. Jean Claude Juncker said last night that the debt sustainability report from the Troika had been completed but provided no details. He said that Greece and the Troika had identified the required additional 325 mln in spending cuts and that they had received strong assurances that Greece would abide by the austerity measures after the election. He did say that he was confident that the Euro group would be able to take all the necessary decisions on Monday. The uncertainty in Europe sent the Mexican peso lower, opening around 12.9350 after weakening to 12.9956. The Australian dollar rose on news that employment jumped above expectations sending the jobless rate to a 6 month low of 5.1%. The Aussie dollar rose to 1.0740 but gave up all of its gains to open around 1.0680 as the Greek crisis continues to weigh on risk sentiment. The Japanese yen weakened further last night trading to 78.87. The head of its Japan’s banking lobby warned that Japan could face its own sovereign crisis within a decade if it doesn’t speed up efforts to improve its fiscal position. Japan ran a trade deficit for the first time in 2011 and if the country begins to run a current account deficit it would be unable to finance its debt without overseas funds. Opening levels for some of the major currencies are; CAD 1.0005, AUD 1.0709, GBP 1.5695, BRL 1.7304, MXN 12.9040, JPY 78.89, CNY 6.3015, DXY 79.93
FIXED INCOME - German bunds rose supported by safe haven bids with the 10yr bond yield falling 4 bpts to 1.827%. Portuguese 10 yr yields rose by 19.6 bpts to yield 11.337%, after Portugal reported that its unemployment rate rose to 14% at the end of 2011, as employers cut jobs ahead of labor reforms and deeper austerity driven spending cuts begin to have their effect. Portugal is viewed as the next sovereign to need a bailout. Greece’s 10 yr is yielding 30.202% and 5 yr CDS are priced as an upfront payment of 72.5% as the risk of a disorderly default rises amongst the delays. U.S. Treasuries gave up some their gains after jobless claims fell to their lowest level in almost 4 years. The 10 yr bond is yielding around 1.946% up 1.9 bpts.
EQUITIES – Global stocks sold off with Asian shares weaker after China reported that FDI fell by 0.3% y/y, it’s 3rd monthly drop and China’s commerce industry chief said the outlook for FDI this year is grim. The Japanese stock market is off by 0.24%, China’s by 0.53% and Australia’s stock market fell 1.68% despite payrolls rising by 46,000 as markets lower expectations for a rate cut. In Europe the Euro Stoxx is off by 0.51% with financials suffering losses after Moody’s announcement and disappointing earnings from Soc Gen. In the U.S. S&P stock futures are trading lower by 4.7 pts
ECONOMIC NEWS
Jobless claims fell 13,000 to a seasonally adjusted 348,000 giving further evidence that the labor market is improving. Last week’s number was revised up to 361,000 from a previously reported 358,000.
Housing starts and building permits both rose in January by 699,000 and 676,000 respectively, giving investors hope that the housing market is finally beginning to recover. Single family starts fell to 508,000 in January from 513,000 in Dec while multifamily starts surged to 191,000 from 176,000. Single family permits rose by 4,000 to 445,000 while multifamily permits rose 1,000 to 231,000.
The labor department reported that the producer price index rose by 0.1% compared to expectations of a 0.4% increase. Excluding food and energy prices rose 0.4% compared to expectations of a 0.2% increase and was the largest monthly increase since July 2011.
Scott Stone, VP, Foreign Exchange Services | 801-844-7065 | Scott.Stone@zionsbank.com
Mark Garfield, SVP, International Banking | 801-844-7688 | Mark.Garfield@zionsbank.com
Gary DeGrange, VP, International Banking | 208-395-2285 | Gary.Degrange@zionsbank.com
The material presented in this email is for informational purposes only and should not be used or construed as a recommendation to buy or sell any financial instrument or currency or to participate in any particular trading strategy in any jurisdiction. While the information contained herein has been derived from sources believed to be accurate and reliable, we make no representation as to its accuracy or adequacy. The views and outlook presented are current as of the date of this communication and represent the views of the author and not those of Zions Bank. Such views are subject to change at any time based on market or other conditions. Zions Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast of estimate set forth herein, changes or subsequently become inaccurate. Foreign exchange and money market information provided by Amegy Bank N.A., a subsidiary of Zions Bancorporation.
Zions Bank | 1 South Main Street | Salt Lake City, UT 84101
To stop receiving this update, please respond to sender with message “unsubscribe”
© 2012 Zions Bank |Member FDIC | Equal Housing Lender
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Feb 15, 2012
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The FX markets remained enamored with all things Greek, all things EU. Traders bellied up to the troug
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Feb 15, 2012
ZIONSFX - NEWS
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The FX markets remained enamored with all things Greek, all things EU. Traders bellied up to the trough this morning after China said they were prepared to play a far bigger role in resolving the EU’s credit/debt crisis, lifting the Euro, EM and export currencies, in a classic “risk-on” rally. PBoC officials also said that China, and the other “BRIC” countries—Brazil, Russia, India, and China—are waiting for “just the right moment” to step in (read as getting the biggest concessions for the least amount of money possible, or buying Europe on the cheap)! Then, traders pushed back from the table after EU Fin Mins said that today’s face-to-face meeting had been downgraded to a teleconference. Officials said there was no reason to call everyone together, when the meeting was not likely to result in agreement or success. Traders and analysts say they are growing numb to the latest headline, then jump when the next headline slides across their computer screens, or trading room TV monitors.
Euro rallied to a session high $1.3190 on PBoC remarks that China will continue to support the EFSF program. Current Premier Win Jiabao had earlier made similar comments. Euro then plunged 1-cent to a session low $1.3070 when EU Fin Mins said there was no point in meeting today after Greek and EU officials’ comments. Greek officials said they would require modifications to the austerity measures, while EU officials are considering delaying a final decision on aid, to give Greece time to reach agreement. Both groups continue to hop Greece will avoid default, although their recent efforts virtually assure that it will.
The MEXICAN PESO opened at 12.7500 in US trading, after a 12.79-12.69 range overnight.The Peso was dragged higher on the China stories of aid to EU, sold on disappointment after EU and Greek remarks that no agreement was in site. It rallied marginally on the good US manufacturing related data this morning.
Asian & EM currencies rallied on the Chinese pledge to continue providing assistance for the EU’s debt crisis programs, including the EFSF and ESM; traders have faith in China’s ability to fulfill that pledge, given their $3.18 Trillion in reserves, the largest in the world. KOREAN WON gained ½% to 1,120, INDIAN RUPEE ¼% to 49.30.
FIXED INCOME
US Treasuries were flat this morning, as good news/bad news from EU seemed to vie with varying interpretations of today’s US economic reports, both worse than expected yet better than the first read would lead one to believe. 10-year notes paid 1.93%, down 1-bp from the close.
The investigation continues into a probe in London over manipulation of global interest rates. Britain’s Financial Services Authority is looking into allegations that several major banks colluded in setting LIBOR, that they used proprietary information to defraud their clients, by artificially boosting the interest rate quotes in several markets, effectively setting LIBOR’s higher than the real interbank market. The investigation is viewing this as a form of price fixing.
Portugal continues to avoid an immediate debt crisis today. Despite traders’ anticipation that Portugal is next-in-line for risk of default, the Iberian nation continues to successfully issue debt, and doing so while paying lower rates. 2-year yields dropped more than 40-bp today even after Portugal issued EUR 3 Bln in short term bills. Long dated rates are also moving lower, so perhaps Portugal has avoided, or at least deferred default.
ECONOMICS NEWS
The Empire State Manufacturing Sector Survey rose to a 1 ½ year high 19.53 (mkt +15.0). The survey showed that not only has Manufacturing recovered from its summer-time slump, the recovery had also gained a little momentum through the end of the year.Today’s data revealed that momentum had slowed a bit in February—while most sub-indices remained in positive territory, they also eased back slightly from January’s levels. The biggest disappointment came from a drop in New Orders, down from 13.7 to 9.73.
In other news, Industrial Production was flat in January, a downside surprise from the +0.7% market consensus. However, a 0.6% upward revision to December’s data made up for this month’s shortfall, so on balance, IP showed that the economy continues to grow. Utilities were once again the big loser, as unseasonably warm weather cause Utilities Production to contract 2.5%, after December’s 2.4% plunge. Despite strength in metals prices, activity in the mining sector also dropped from month ago levels. Supporting this morning’s earlier report, manufacturing increased 0.7%, while a revision to last month showed manufacturing activity jumped 1.5% (previously reported at +0.9%). Capacity Utilization dipped to 78.5%, down from an upwardly revised 78.6%, originally reported as 78.1%
Overall, the data show the manufacturing sector ended the year on an even stronger note, but that trend has decelerated a bit in 2012.
HEADLINE NEWS
The euro sold off yesterday on news that a EZ finance ministers’ meeting was downgraded to a conference call as they had not yet received written assurances from all of Greece’s political leaders that they will abide by the terms of the bailout package after elections in April. Antonio Samaras who is expected to win the election has been a critic of the austerity packages and said he will send a letter of commitment to the terms of the bailout today. Further complicating negotiations the Troika which needs to sign off on a Greek sustainability report said it can’t complete the report until it sees the results of the private sector’s participation in the country’s debt restructuring. In addition it seems increasingly unlikely that Greece’s debt burden will be cut to 120% of GDP even after the swap as demanded by the Troika. There are reports that EZ officials are looking at ways of delaying parts or even the entire 2nd bailout program, sending the euro down to 1.3070 from 1.3135. ). It appears that Germany, Netherlands and Finland are pushing for the delay. This could make it difficult for the private sector negotiations as creditors may not be willing to sign up to a swap if Greece’s financing is not in place as Greece may not be able to meet future bond payments.(catch 22). It appears that Germany, Netherlands and Finland are pushing for the delay. Odds for a disorderly Greek default are rising as are the odds that Greece will use collective action clauses to restructure its debt.
Zhou Xiaochuan said that China will continue to invest in EZ gov’t debt and it remains confident in the euro. His remarks follow similar sentiment by Premier Wen. China’s Vice Finance minister said that China and the U.S. were collaborating closely on the financial crisis and that China would be willing to join concerted actions to help Europe. Not necessarily related but the PBOC transferred $50 bln to CIC’s Hong Kong based arm of its $410 bln sovereign wealth fund. On another matter the PBOC said that China still needs to prevent a rebound in inflation even as the economy slows. In its statement the PBOC said, “Our policies will become more targeted and flexible and preemptive and we will make timely and appropriate fine tuning to keep prices stable as well as fast economic growth. China fears inflation as it has led to social unrest in the past but the country faces a delicate balancing act as it also aims to raise minimum wages by 13% a year before 2015.
Iran’s English language TV reported today that Iran has stopped oil exports to the Netherlands, Greece, France, Portugal, Spain and Italy. The EU’s 27 states agreed to stop importing oil from Iran as of July 1st over disputes over its nuclear program. On Feb. 4th Iran said it might stop exporting oil ahead of the July 1st embargo. The EC said it has no information about Iran’s halt of oil exports. Oil prices rose on the news to a six month high above $119 but sold off after Iran’s oil minister denied the media reports that Iran had halted its oil exports. At the same time Iran announced that more advances in its nuclear capabilities in an attempt to show that sanctions are not having the desired effect of curbing Iran’s nuclear progress. Iran’s economy is suffering under the imposed sanctions and the central bank announced that inflation had risen to 21% for the month to Jan 20th up from 20.6% the month before.
Scott Stone, VP, Foreign Exchange Services | 801-844-7065 | Scott.Stone@zionsbank.com
Mark Garfield, SVP, International Banking | 801-844-7688 | Mark.Garfield@zionsbank.com
Gary DeGrange, VP, International Banking | 208-395-2285 | Gary.Degrange@zionsbank.com
The material presented in this email is for informational purposes only and should not be used or construed as a recommendation to buy or sell any financial instrument or currency or to participate in any particular trading strategy in any jurisdiction. While the information contained herein has been derived from sources believed to be accurate and reliable, we make no representation as to its accuracy or adequacy. The views and outlook presented are current as of the date of this communication and represent the views of the author and not those of Zions Bank. Such views are subject to change at any time based on market or other conditions. Zions Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast of estimate set forth herein, changes or subsequently become inaccurate. Foreign exchange and money market information provided by Amegy Bank N.A., a subsidiary of Zions Bancorporation.
Zions Bank | 1 South Main Street | Salt Lake City, UT 84101
To stop receiving this update, please respond to sender with message “unsubscribe”
© 2012 Zions Bank |Member FDIC | Equal Housing Lender
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Feb 14, 2012
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With today’s mildly disappointing data, many analysts are already decrying the end of the string
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Feb 14, 2012
ZIONSFX - NEWS
MARKET NEWS
FOREIGN EXCHANGE
With today’s mildly disappointing data, many analysts are already decrying the end of the string of good US economic reports, which had lead to the Dollar’s 6.75 point, 9% rally from November to mid-January. However, in the “2nd and 3rd thought” world that is foreign exchange, today’s underwhelming data provided the Dollar with a little lift, sending most currencies back to session lows. The big news that wasn’t today appears to be Moody’s downgrade of 6 EU sovereigns, including Spain, Italy, and Portugal, and its negative outlook on French and British debt, both of which still enjoy a AAA rating, for now.
The POUND fell to a 2-week low $1.5685 on the aforementioned ratings news—analysts say there’s now a 1-in-3 chance of a downgrade in the next year. A report that British Inflation moderated slightly, from 4.2% in December, to 3.6% for the year ended January was a mixed blessing. While lower inflation reduces the drag on the weakened consumer, falling inflation also allows the Bank of England to continue with stimulative policies, including more quantitative easing, a currency negative.
The NORWEGIAN KRONE is one of the rare currencies to hold its own this morning, stable at 3-month high 5.7000. Norway’s Central Bank, the Norgesbank, is struggling to balance a relatively high yielding Krone (which pays 125- 150- basis points higher than Euro, Pound or Dollar assets), which is drawing “value” and carry trade investors into the Krone, with soaring domestic debt and rising property values, stimulated by what are historically low domestic interest rates. The Krone appears poised to rally further—weekly technicals having rolled over to a buy 2 weeks ago. Krone has broken short-term Fibonacci resistance at 5.7340, so look for a move to 5.6500 soon. On the longer-term chart, Krone tested the 50% Fibonacci support at 6.1275 and has now broken resistance at 5.8475, which puts 5.500 in sight. As investors and central banks are both looking for alternatives to Euros & Dollars to diversify reserves, the Krone could possibly test the 2008 high of 4.9415. Expect officials to talk down the strong Krone, which is starting to drag on Norwegian growth.
Most EM currencies weakened after Moody’s fired its latest warning shot over the EU’s bow. The KOREAN WON, MEXICAN PESO, and SINGAPORE DOLLAR lost ¼% to ½%versus the US close. The Peso proved the most resilient, losing only ¼% to 12.7300, while the Won fell ½% to 1,126.
Illustrating the widening gap between Germany and the rest of EU, the ZEW Index, a survey of Business Sentiment, surged more than 25 points to an 8 month high 5.4. Coupled with the ratings warnings and downgrades, it shows that Germany, and a couple of smaller satellites, are really the only viable members of EU in its present form.
FIXED INCOME
The Bank of Japan joined other major Central Banks today, increasing its asset purchase program, a de facto easing of monetary policy, the only move left when rates are already at 0%. BoJ increased its own QE program from JPY 55 Trillion to 65 Trillion, a change equal to $130 Bln, which will be used to purchase long-dated Govt bonds. The Yen plunged ½-Yen to 78.20, a 3-week low.
In typical fashion, a ratings down now seems to actually improve investor sentiment and virtually assure more successful Govt bond auctions. After Moody’s announcement today, Italy sold EUR 6 Bln of 3-year notes, at the lowest rates in more than 9 months, while Spain sold 1-year bills at less than 1.9%, the least it has had to pay in more than 15 months.
ECONOMICS NEWS
Retail Sales rose only 0.4% in January (mkt +0.7%) as a massive 3.6% swing in auto sales, from +2.5% to -1.1% blunted solid gains in most other sectors. Taking into account downward revisions to November and December Sales, the past 3 months reflect a far less active, and perhaps less confident consumer than previously thought. “Non-Store” retailers, aka internet sites, posted the other big decline, also contracting 1.1%, the steepest decline in this growth sector in nearly 3 years.
On a more positive note, Retail Sales, ex-autos grew 0.7% (mkt +0.5%), the steepest increase in 10 months. While a big 1.4% increase in gasoline sales was partly responsible for this rise, discretionary sectors like sporting goods, clothing, electronics and food/beverage (entertainment) also showed solid growth. The biggest surprise—Department Store sales posted their largest increase in over 5 years!
In other news, Import Prices increased 0.3% (mkt +0.2%) for the month, and 7.1% for the full year, with higher prices for food and crude responsible for most of the increase. Stripping out these volatile components, Import prices actually dropped 0.1%, suggesting lower core inflationary pressures, even as overall prices continue to rise. Other inflation data due out later this week is expected to show rising prices at the wholesale level (PPI +0.4%), but a weak labor market and a struggling consumer leave little room for companies to pass on their higher costs to the consumer.
HEADLINE NEWS
The Bank of Japan surprised markets by easing monetary policy by increasing the size of its asset purchases by 10 Tln yen. The move comes even though the B of J hadn’t completed its previous asset purchase scheme of 55 Tln. (B of J has bought 43 Tln yen leaving 12 Tln still to buy) The 10 Tln increase in the asset purchase program is targeted entirely at buying long term JGBs and accounts for about 2% of GDP. The B of J also announced an inflation target of 1%, as a near term goal, as the bank attempts to tackle the persistent deflation that has burdens the economy. B of J Governor Shirakawa brushed off suggestions that the easing came as a response to gov’t pressure and said he saw Japan’s economy headed for a moderate recovery but that the outlook remains highly uncertain. Yesterday as the meeting started Japan reported that GDP fell 0.6% in the 4th Q 2011 with GDP for the year fell 0.9% the first full year contraction since the crisis began in 2009. The GDP release makes it difficult for Prime Minister Noda to double the 5% sales tax by late 2015 a move designed to reduce Japan’s debt burden. The IMF has warned Japan that it could face a sudden loss of confidence if it fails to implement the plan. The yen weakened to 78.18 from a low of 77.35 with 78.30 seen as near term resistance.
The ZEW survey was released showing German economic sentiment improved by 27 pt to 5.4 pts. It was the first time that the survey was in positive territory since May of 2011. For the Eurozone as a whole the ZEW rose 24.4 pts to -8.1 while the indicator for the current economic situation rose 2.7 pts to -49.1 pts. The Bank of Spain reported that Spain’s banks accessed the ECB’s facilities by borrowing 161.4 bln Euros. The ECB’s LTRO has contributed to a series of strong bond auctions and has encouraged the Bank of Spain to front load its issuance of bonds and it has covered almost 30% of its 2012 funding needs. Spain is operating under an excessive deficit procedure since 2009 for breaking the EU’s 3% of GDP deficit limit. So far 23 of the 27 countries are under the excessive deficit procedure; however Spain may face fines of up to 0.1% of GDP for not cutting its deficit. Late last year Spain’s Prime Minister said the deficit would reach 8% of GDP mainly due to deterioration in the public finances of Spain’s regions. The EC is concerned that Spain exaggerated the 8% deficit level to make the current years data better. The Spanish gov’t said that accusations that it inflated the deficit figures are speculative and misleading and stands by its forecast. Portugal reported that its recession deepened in the 4th Q as GDP shrank by 1.3% after the economy shrank by 0.6% in the 3rd Q 2011. Portugal’s gov’t has to meet a budget deficit target of 4.5% in 2012. Last year it achieved its target of 5.9% through a one off measure where it transferred 6 bln Euros from banks’ pension funds to the state. In Greece the economy shrank at an annual rate of 7% in the 4th Q 2011 and shrank by 6.8% on an annual basis. With Greece’s economy in its 5th year of recession and it’s difficult to see how the country can ever meet its revenue targets and cut the country’s deficit. Forecasts are for Greece’s economy to shrink by 4-5% in 2012 and 2013.
Scott Stone, VP, Foreign Exchange Services | 801-844-7065 | Scott.Stone@zionsbank.com
Mark Garfield, SVP, International Banking | 801-844-7688 | Mark.Garfield@zionsbank.com
Gary DeGrange, VP, International Banking | 208-395-2285 | Gary.Degrange@zionsbank.com
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