Thursday, 29 December 2011

Stocks Rally on Economic Data as Euro Erases Drop Versus Dollar

By Michael P. Regan and Rita Nazareth
Dec. 29 (Bloomberg) -- U.S. stocks rose, rebounding from yesterday’s drop, as data signaled the U.S. economy is weathering Europe’s debt crisis. The euro erased an earlier loss and European shares advanced.

The Standard & Poor’s 500 Index climbed 0.8 percent to 1,258.95 at 12:20 p.m. in New York, leaving it up 0.1 percent for the year. The euro was little changed at $1.2941, after slumping as much as 0.6 percent, and trimmed a 0.8 percent slide against the yen to 0.3 percent. Italy’s 10-year bond yield was up less than three basis points at 7.03 percent after climbing 13 basis points earlier. Ten-year U.S. Treasury rates were little changed at 1.91 percent.

U.S. equities extended gains after an index of pending U.S. home sales rose more than economists forecast, while other reports showed stronger-than-projected growth in business activity and a drop in jobless claims over the past month to a three-year low. European stocks fell earlier, while the euro touched a decade low against the yen and a 15-month low versus the dollar, after Italy raised less than its maximum target at a debt auction.

“There has been a much better tone in the U.S.,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “We’re optimistic that corporate earnings can continue to be strong and that will be a driver of the market.”

Financial stocks in the S&P 500 rose 1.4 percent as a group today to lead an advance in all 10 of the main industries as Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. rallied at least 2 percent. The group of 80 banks, insurers and investment firms has tumbled 18 percent this year for the worst performance among the 10 industries.

Homebuilders Rally

PulteGroup Inc. and M/I Homes Inc. rose more than 4 percent to lead gains in all 12 companies in an S&P gauge of homebuilders. The National Association of Realtors’ index of pending home sales increased 7.3 percent to the highest level since April 2010. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg News survey.

The four-week moving average for jobless claims, a less volatile measure than the weekly figures, dropped to 375,000 last week, the lowest level since June 2008, Labor Department figures showed. Applications rose for the first time in a month in the week ended Dec. 24, climbing by a more-than-forecast 15,000 to 381,000.

Other data showed business activity in the U.S. expanded more than forecast in December, prompting companies to boost employment. The Institute for Supply Management-Chicago Inc.’s business barometer was 62.5. Readings above 50 signal growth. Economists forecast the gauge would fall to 61, according to the median of estimates in a survey.

Commodities Slip

The S&P GSCI Index of commodities retreated 0.3 percent as natural gas, cocoa and gold led losses among 17 of 24 commodities.

Gold futures fell as much as 2.6 percent to $1,523.90 an ounce, the lowest price since July. Oil in New York lost 0.4 percent to $98.99 a barrel after falling 2 percent yesterday.

The Stoxx Europe 600 Index increased 0.9 percent as real- estate firms, utilities and chemical companies led gains. The Stoxx 600 has dropped 12 percent this year, compared with an 18 percent slump in the MSCI Asia Pacific Index. The S&P 500 has drifted above and below its 2010 closing level since the end of October.

The MSCI Emerging Markets Index was little changed after falling for three straight day. Russia’s Micex rose 0.4 percent. Indian stocks dropped for a third day, with the Sensex sliding 1.2 percent. China’s Shanghai Composite Index advanced 0.2 percent, a second straight day of gains that trimmed its yearly decline to 23 percent.

--With assistance from Shiyin Chen in Singapore, Mariko Ishikawa in Tokyo, Paul Dobson, Claudia Carpenter, Ash Kumar and Andrew Rummer in London and Robert Willis in Washington. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Rita Nazareth in Sao Paulo at; 
Michael P. Regan in New York at

To contact the editor responsible for this story: Nick Baker at

Wednesday, 28 December 2011

Euro hits lowest level in nearly a year

The euro (EUR/USD-I1.30-0.01-0.90%) neared a one-year low against the U.S. dollar on Wednesday after data showed euro zone banks were still hoarding cash rather than lending it out, unnerving markets ahead of an important Italian bond sale.

Year-end conditions kept volumes light, but traders said investors who were engaged this week were spooked by European Central Bank data showing euro zone banks deposited a record €452-billion ($585.18-billion U.S.) with the central bank.

That came just days after the ECB provided banks almost half a trillion euros worth of three-year loans at cut-rate prices to encourage lending and ease strains on the banking system caused by a two-year old sovereign debt crisis.

“If European banks are still this concerned, it’s not a good sign,” said Karl Schamotta, senior markets strategist with Western Union Business Solutions.

Banks typically park only excess cash in the ECB’s low-interest rate deposit accounts, often at a loss. That they were doing so after accessing cheap ECB loans was troubling, Mr. Schamotta said.

“That underlines the possibility that this liquidity crunch is getting worse and will continue into the new year,” he said.

The euro fell as low as $1.2910, its lowest since Jan. 10, before clawing back to $1.2933, about 1 per cent below its level late Tuesday in New York. The slide below $1.30 triggered automatic sell orders that sped up the slide, traders said.

Unease about the euro zone lifted the safe-haven appeal of U.S. assets. The dollar rose 0.2 per cent to 77.99 yen and 0.9 per cent to 0.9424 Swiss francs, while sterling shed 1.2 per cent to $1.5477.

Optimism seen after Italy halved the price it pays for six-month loans faded after the ECB report and as traders looked ahead to Thursday’s more challenging auction of three- and 10-year government debt.

Investors have been shunning longer-maturity Italian government bonds over the last few months for fear slow growth and a tough package of spending cuts and tax hikes will make it difficult for the country to finance its large public debt burden.

Italy must attract strong demand on Thursday from global investors to hold benchmark 10-year borrowing costs below the 7 per cent level that markets fear is not sustainable.

Even then, traders said one or two decent auctions will not solve a two-year-old debt crisis that has already forced Greece, Ireland and Portugal to seek emergency rescues.

“You can’t make your decision based on one auction,” said Ihab Salib, senior portfolio manager and head of international fixed-income at Federated Investors in Pittsburgh. “It’s going to be an evolution of more than one event.”

Traders emphasized that year-end liquidity was thin, exaggerating moves, but most said there was little reason to get long the euro before the year ends.

“It might pop up to $1.32 because of year-end squaring, but I haven’t really seen it. There’s no reason to own the euro going into the new year,” said John Doyle, a currency strategist at Tempus Consulting in Washington.

While the euro is off about 3.2 per cent against the U.S. dollar this year, the currency has swung widely as investors fret the 17-nation monetary union could face drastic changes because of the debt crisis.

That volatility could continue into next year, Mr. Salib cautioned.

“Unless you’re really doing your homework and you’re capable of being fairly active, you’re better off just staying away,” he said. “Moves that used to take weeks and months to develop can happen in a two- or three-day period.”

Tuesday, 27 December 2011

Forex - Euro remains vulnerable in holiday-thinned trade

Forexpros - The euro hovered close to an eleven-month low against the U.S. dollar on Tuesday and was mixed against its other major counterparts, as concerns over the handling of the debt crisis in the euro zone continued to dominate market sentiment.

During European early afternoon trade, the euro was higher against the U.S. dollar, with EUR/USD up 0.10% to hit 1.3072, trading within striking distance of an eleven-month low.

With markets in the U.K., Canada and Australia remaining closed for an extended holiday break and most investors already away on year-end leave, trading volumes were low, resulting in subdued trade.

The single currency remained under pressure as the yield on Italian ten-year bonds rose earlier Tuesday above the 7% threshold, a level widely considered to be unsustainable, adding to concerns over the country's financial woes.

Meanwhile, Spain's new government predicted negative economic growth in the final quarter of 2011 and the first quarter of the new year, technically putting the country back into recession.

The euro was lower against the pound, also hovering close to an eleven-month trough with EUR/GBP down 0.07% to hit 0.8347.

Earlier Tuesday, the Telegraph reported that the U.K. is considering plans to restrict the flow of money in and out of the country, in order to protect the economy in the event of a full-blown break-up of the euro zone.

The single currency was lower against the yen and the Swiss franc, with EUR/JPY easing 0.08% to hit 101.75 and EUR/CHF retreating 0.15% to hit 1.2204.

A report showed earlier that Switzerland's UBS consumption indicator declined in November, falling for the first time in three months, edging down to 0.81 from 0.90 the previous month.

Meanwhile, in the minutes of the Bank of Japan's latest policy meeting, several policymakers indicated that financial turmoil caused by the euro zone's debt woes and the yen's appreciation are increasing risks for growth in Japan.

Elsewhere, the euro was moderately lower against the Canadian dollar, but higher against the Australian and New Zealand dollars, with EUR/CAD inching down 0.04% to hit 1.3320, EUR/AUD adding 0.13% to hit 1.2858 and EUR/NZD advancing 0.13% to hit 1.6884.

Also Tuesday, data showed that the use of the European Central Bank's overnight deposit facility reached a new, all-time high Monday, as euro zone banks increasingly turned to the ECB as a safe-haven for extra funds.

The report added to speculation that the central bank's three-year loan operation last week did little to strengthen the region's banking sector.

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Forex - GBP/USD trims gains amid renewed euro zone worries

Forexpros - The pound trimmed gains against the U.S. dollar on Tuesday, pulling back from a two-day high as renewed fears over the handling of the euro zone’s financial crisis weighed on demand for riskier assets.

GBP/USD pulled back from 1.5676, the pair’s highest since December 23 to hit 1.5648 during European afternoon trade, still up 0.09%.

Cable was likely to find support at 1.5579, the low of December 23 and resistance at 1.5728, the high of November 22.

With markets in the U.K. remaining closed for an extended holiday break and most investors already away on year-end leave, trading volumes were low, resulting in subdued trade.

Sentiment waned as the yield on Italian ten-year bonds rose above the 7% threshold, a level widely considered to be unsustainable, adding to concerns over the handling of the country’s sovereign debt crisis.

Meanwhile, Spain’s new government announced negative economic growth in the final quarter of 2011 and the first quarter of the new year, technically putting the country back into recession.

Investors were also cautious after data showed earlier that the use of the European Central Bank's overnight deposit facility reached a new, all-time high Monday, as euro zone banks increasingly turned to the ECB as a safe-haven for extra funds.

The report added to speculation that the central bank’s three-year loan operation last week did little to strengthen the region’s banking sector.

In the U.K., the Telegraph reported that the government is considering plans to restrict the flow of money in and out of the country, in order to protect the economy in the event of a full-blown dislocation of the single currency bloc.

Elsewhere, sterling edged higher against the euro with EUR/GBP retreating 0.07%, to hit 0.8347.

Later in the day, the U.S. was to publish industry data on house price inflation, as well as a report on consumer confidence and manufacturing activity in Richmond.

FOREX-Euro steady but Italian auction risk looms

Tue Dec 27, 2011 7:02am EST
By Naomi Tajitsu

LONDON, Dec 27 (Reuters) - The euro held in sight of an 11-month low against the dollar on Tuesday and was at risk of more selling if Italy struggles to sell government debt later in the week, highlighting how the euro zone debt crisis has worsened.

The dollar was a touch weaker versus a basket of currencies, but rates in general were little changed in extremely thin trade. UK markets were closed on Tuesday.

The euro traded up 0.1 percent at $1.3075, with the upside seen limited by options expiries at $1.3100 later in the day. A fall below $1.2945, a level touched earlier in the month, would take it to the weakest level since January.

Despite the spread of the euro's problems with government debt over the past year, the single currency is down only 2.3 percent so far in 2011, partly due to reserve diversification flows away from the dollar by central banks.

Speculation that the U.S. Federal Reserve may consider another round of quantitative easing next year has also put the greenback under pressure, supporting the euro.

But with little economic data and few events scheduled for the last week of 2011, investors are focused on Italian auctions of three- and 10-year government bonds on Thursday.

Rome's borrowing costs have surged in recent months to put yields around levels considered by many in the market to be unsustainable and raised speculation that the country may require a bailout.

Analysts said that even if investors flock to the longer-dated bonds, the euro would face selling pressure if yields climb higher after the auction.

"I think there could be some downside risks for the euro. (Thursday's auction) will be more of a test of the market, given that the bonds auctioned are longer maturities," said Sverre Holbek, currency strategist at Danske Bank in Copenhagen.

"A further rise in Italian yields should almost certainly be euro negative, and thin liquidity may exacerbate the move."

Any verdict from ratings agencies on the health of euro zone countries - speculation has grown about a downgrade to the credit ratings of sovereigns including France - could also put the single currency under more selling pressure.

The dollar slipped 0.15 percent to 79.811 versus a currency basket, but hovered in range of 80.730 hit in mid-December, its strongest since the start of the year.

Against the yen, the U.S. currency was down 0.2 percent at 77.82 yen. The pound edged up 0.1 percent to $1.5647.

Some market players said U.S. consumer confidence data due at 1500 GMT may help lift risk appetite and support perceived riskier currencies against the safe haven dollar if it surprises to the upside. Forecasts are for a reading of 58.3 in December, up from 56.0 the previous month.


Many expect the euro to stay under pressure in the near-term, as reflected in the consistently high level of bets among speculators that the single currency will weaken more.

These have piled up in past months, leaving them around record high levels as of last week according to the latest IMM data on speculator positioning.

Analysts at Citi said this reflected a bias among investors to shun the euro and other currencies perceived to be higher risk as 2011 winds down, particularly given difficult trading conditions this year.

In a note, they said this would keep trade subdued in the last trading days of the year, in contrast to some other years when currency movements, particularly versus the dollar, have become volatile as investors close positions at the last minute.

"The tactical implication is that in the final trading days of the year positioning may present less of a risk for volatility than commonly perceived," they said.

However, some in the market see the risk that the euro may initially climb on strong Italian auction results if a resulting slide in Italian yields prompt investors to cut back on those short euro positions.

Monday, 26 December 2011

As Euro Turns a 10, Reflections on Mark, Franc, Lira

Frankfurt. “It’s my party and I’ll cry if I want to”, goes a pop song from the 1960s.

And as Europe celebrates the 10th anniversary of the launch of euro banknotes and coins, there must be a great many of the more than 300 million of its citizens who share the single currency who feel like doing just that.

In the decade since the euro replaced their treasured national currencies, there can be few people who have not complained at one time or another that the euro has pushed up prices in every area of their lives.

Now, with the long-running debt crisis threatening to plunge even the wealthiest euro zone states into a deep recession or even a depression, there are a great many who, secretly or openly, clamor for a return of the deutschmark, the franc or the lira.

As a currency, the euro is actually 13 years old not 10: it became the official unit of transaction on the financial markets for 11 countries in 1999.

But it was not until January 1, 2002, that the virtual currency became a physical reality for Europeans, with the launch of euro banknotes and coins in 12 countries.

By the middle of this year, 14.2 billion notes and 95.6 billion coins worth a total 870 billion euros ($1.1 billion) were in circulation in the euro area, since expanded to 17 countries and 332 million citizens, according to data compiled by the institution that manages the single currency, the European Central Bank.

In retrospect, the euphoria that greeted the birth of the world’s number-two currency 10 years ago may — to many — sound a little hollow.

Policymakers, bankers and financiers insist a common currency brings only advantages.

It “increases price transparency, eliminates currency exchange costs, oils the wheels of the European economy, facilitates international trade and gives the European Union a more powerful voice in the world,” proclaims the European Commission on its website.

Furthermore, the euro “gives the EU’s citizens a tangible symbol of their European identity,” it insists.

But despite its clear advantages for travelers, “consumers have never really warmed to the euro. They’ve never been able to shake off the feeling that it has led to higher prices,” said Andre Sapir, economist at the Brussels-based think tank Bruegel.

Of course, the official statistics tell a different story: the ECB has succeeded in keeping area-wide inflation down to an annual average 2.0 percent since 1999.

But the basket of goods and services monitored by statisticians when calculating developments in the cost of living are not necessarily those which consumers tend to focus on when they think about rising prices. Hence the discrepancy between “perceived” and “official” rates of inflation.

People’s sense of a European identity has also taken a battering as a result of the debt crisis and interminable political wrangling, unsuccessful so far, to find a solution.

Germans huff and puff over the perceived profligacy of the Greeks or Italians, while the French seem increasingly wary of the dominance of their neighbor across the Rhine.

'No Plan B'

By contrast, companies are more enthusiastic about the euro, particularly in Germany, where the mighty automobile industry has saved an estimated 300 million to 500 million euros each year in transaction costs since the launch of the common currency, according to Bankhaus Metzler analyst Juergen Pieper.

Bruegel’s Sapir countered that the euro was simply “one factor among others” that has helped better integrate the European economy, along with the Maastricht Treaty on economic convergence, the opening of borders under the Schengen treaty and the eastwards expansion of the EU.

“Everything seemed to be going along just nicely until the financial crisis came along and shone the spotlight on the institutional shortcomings of the euro zone,” said Philip Whyte, senior research fellow at the Center for European Reform, a London-based think tank.

A lack of area-wide fiscal integration and the absence of a common banking supervision fueled the imbalances in the financial system.

The low interest rates that monetary union brought with it for southern Europe led governments, businesses and households to take on increasingly unmanageable burdens of debt and everyone, including the northern states, underestimated the dangers, Whyte said.

At a summit in December, euro zone states agreed to anchor fiscal discipline in European treaties but still shied away from going down the path of federalism.

No one at this stage is seriously contemplating a return to the old national currencies, even if nostalgia seems to be growing, particularly in Germany where people were fiercely proud of the mighty deutschmark, symbol of the country’s post-war economic miracle.

A collapse of the euro would certainly be catastrophic for European banks because it would lead to a sharp depreciation in the currencies of southern Europe, where banks hold huge amounts of debt.

Germany would be hit too, because its currency would likely rise sharply, throttling demand for its all-important exports, and that could kill jobs.

But nothing like that is on the cards for now, said Bundesbank President Jens Weidmann who recently quipped: “There’s no plan B. There’s no money printing press in the Bundesbank’s cellars. ”

Agence France-Presse
Etienne Balmer | December 26, 2011

Sunday, 25 December 2011

Banks Struggle With Euro Contingencies

LONDON—As the euro-zone debt crisis intensified in recent months, at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire.

That, the banks quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise.

Technology managers at the banks contacted Swift, the Belgium-based consortium that manages the network used in financial transactions, said people familiar with the matter. The banks wanted Swift's technology support and the currency codes that would be necessary to set up the backup systems.

But Swift declined to provide some information for such contingency planning, including whether old codes could be used in the system, said the people familiar with the matter.  

That is partly because officials there feared that releasing the information could fuel further doubts and instability in the euro zone, these people said. 

It is a relatively minor setback for banks, as they look at everything from loan agreements to the safety of their branch staff in the event of one country's withdrawal from the euro currency.

But it illustrates the road blocks that politicians, banks and companies in Europe face as they attempt to simultaneously prepare for a euro-zone break up while assuaging market fears.

"As soon as you start contingency planning   . . . it can become a foregone conclusion," said Alastair Newton, senior political analyst at Nomura PLC.  "But if things go wrong and you don't have plans in place, you're in trouble."

Such planning comes as the idea of euro-zone break-up is still frowned upon in many corners.
European Central Bank President Mario Draghi this past week said that such speculation about the euro's demise is "morbid."

Nevertheless, governments, finance firms and corporations have been quietly stepping up plans in the past several weeks to prepare for a worst-case scenario.

The Financial Services Authority, the U.K.'s bank watchdog, has sent letters to the country's major banks asking for updates on their level of preparedness, and a similar dialogue has begun between banks and regulators in the U.S. in recent weeks, said the people familiar with the matter.

The U.K. Foreign Office has begun making contingency plans to evacuate U.K. residents from Spain and Portugal in the case of bank meltdowns in those countries, said a person familiar with the matter. In a sign of concern over stirring panic, a spokesman was tight-lipped about details apart to say that office is always preparing for all types of scenarios.

In another sign of escalating fears, some corporate firms with operations in Greece and elsewhere in Southern Europe have begun transferring their cash out of Greece on almost a daily basis—compared to the normal two-week interval—as a precaution against a sudden loss in value if currencies are revived, said a banker familiar with the companies' transactions.

Prepping their systems to handle codes for old European of currencies is one way banks are taking steps to buffer themselves against major business disruptions if any country suddenly leaves the euro zone.

Currencies have three letter codes—such as USD for U.S. dollars—that banks use in a wide range of financial transactions, from complex investment-banking trades to the basic transfer of money. The codes are set by the Geneva-based International Standards Organization, and used by Swift, which is a co-operative company that formats and sends payment orders for some 10,000 firms in more than 200 countries. 

One question banks have, and have not been able to clarify, is whether codes for now-defunct currencies, such as GRD for the Greek drachma, will be valid in the current Swift system.

A Swift spokesman said the company is ready to take whatever actions are required to maintain normal operations, but that "it is not appropriate this time for Swift to comment on issues specifically associated with the euro zone."

 If a new currency emerges, it is handled by a maintenance agency affiliated with the International Standards Organization. A spokesman for that agency, SIX Interbank Clearing Ltd., said the agency has several projects looking at "dire scenarios" but the contingency plans for such scenarios have so far remained confidential.

Once a bank knows what the code is, it is relatively simple to set up a program for that new currency, according to technology experts. The bank must then tweak its infrastructure for expected volume and ensure data for counter-party banks are correct. Systems must then be modified and tested, said a technology executive at a bank in London, a process which takes one to two weeks.
Write to Sara Schaefer Munoz at

Thursday, 22 December 2011

Dollar slips against euro, yen in Asian trade

SINGAPORE: The dollar edged down against the euro in Asia amid increased risk appetite Friday after US data showed jobless claims had fallen to their lowest level since April 2008, analysts said.

The greenback changed hands at 78.10 yen, compared with 78.15 yen late Thursday New York while the euro rose to $1.3072 from $1.3050.

The euro bought 102.10 yen compared with 101.83 late Thursday.

On Thursday the US Labor Department said weekly claims for unemployment benefits hit a better-than-expected 364,000 last week, compared with a consensus estimate of 380,000 and representing a third straight drop.

The downward claims trend matched data from earlier in the month showing the national unemployment rate dropping to 8.6 percent in November from 9.0 percent the month before, adding to a sense of continued recovery in the world's number one economy.

"The US has been creating jobs for 14 months in a row," said Jennifer Lee of BMO Capital Markets. "In other words, the job market is improving."

Analysts from Singapore's United Overseas Bank expect the dollar to remain strong against the euro in the first half of next year if the European debt crisis remains far from resolved.

They said in a commentary "the likely increased severity of the European situation and a clearly missing workable short-term solution to the European debt problems in first half (of 2012) will imply that the dollar strength will be sustained."
Copyright AFP (Agence France-Presse), 2011