Forex

What Coordinated Central Bank Intervention Could Look Like

Matthew Kanterman — Fri, 15 Jun 2012 20:47:57 +0000

In recent days, rumors have circulated that a globally synchronized liquidity operation will be undertaken by the world's major central banks. In theory, the goal of the operation would be to prop up a fledgling global economic recovery and prevent an outright deflationary collapse due to the European banking system's problems.

The operation would most likely entail a combination of rate cuts and money printing. In nations such as the U.S., the U.K., and Japan (where rates are effectively at the zero interest rate boundary) further rate cuts are highly unlikely so traders may expect more quantitative easing. The European Central Bank, at the center of the crisis, would also be prompted to print but could accompany this with a rate cut. Other banks that could cut rates include the People's Bank of China, the Reserve Bank of Australia, and the Bank of Canada, among others.

To prevent ...

Why the Pan-European Banking Union is Overhyped

Matthew Kanterman — Fri, 15 Jun 2012 19:55:51 +0000

A consistent theme throughout Europe's debt crisis has been for European politicians to over promise and under deliver. Thus, In the case of a European banking union, it would be wise for market participants to expect nothing else. The European Stability Mechanism was said to be the end-all be-all of financial firewalls designed to prevent contagion, and yet Spain is currently requesting 100 billion euros to recapitalize its banks and only three of seventeen nations have ratified the ESM proposal.

Germany's Chancellor Angela Merkel was adamant last year that no nation would leave the euro. Still, the future of Greece in the currency union is set to be tested on Sunday when Greece holds its election. With these lessons in mind, a European banking union deserves a real debate.

There are lots of benefits to a pan-European banking union. Rather than having individual domestic regulators, there would be one European bank regulator that would be able to monitor cross-border capital flows, provide deposit insurance, and make the financial system more transparent. Also, due to the fact that many banks are extremely large relative to their nation's GDPs, a pan-European banking union would make backstopping ...

Three High-Risk/High-Reward Stocks for the Greek Elections

Tuomo Kallio — Fri, 15 Jun 2012 18:32:29 +0000

On Sunday, Greece will hold a national election. This election will be the second in just over a month, as no Greek political party could form a government following the first election. Regardless of Sunday's results, there are three European stocks that are likely to move.

National Bank of Greece (NYSE: NBG)

Market Cap: $1.82 billion
Beta: 1.98

National Bank of Greece is a Greek financial institution. The company offers a broad range of different financial services including corporate and investment banking and retail banking. The stock's high beta of almost 2.0 shows that it reacts extremely strongly to European news.

National Bank of Greece is down approximately 10% year-to date, but over 50% from its highs in February. A pro-bailout result in the Greek election will most likely make the shares rally higher, whereas an anti-bailout result could see them moving lower.

ING Groep (NYSE: ING)

Market Cap: $23.6 billion
Beta: 2.77

ING Groep ...

Setting Up Your Portfolio for the Greek Elections

Scott Rubin — Fri, 15 Jun 2012 18:08:47 +0000

Heading into Sunday's Greek elections, world markets have been moving higher. For the week, the S&P 500 is trading up a little less than 1%. A modest rally started on Thursday and has carried over into Friday. The catalyst for the move higher in stocks, despite the steep risks posed by this weekend's elections, has been commentary from global central banks who stand ready to provide liquidity in the case of financial market turmoil.

On Friday, European Central Bank president Mario Draghi said that the ECB will continue to inject liquidity into banks where it is deemed necessary. “The ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. This is what we have done throughout the crisis ... and this is what we will continue to do,” Draghi said.

The ECB president's assurances come on the heels of a $124 billion lending program unveiled by the Bank of England. In return for collateral, the central bank will lend money to institutions in need of liquidity. Furthermore, the Bank of England said that it will activate an unused facility which will put at least 5 billion pounds a month into the financial sector.

In December and again in February, the ECB provided unlimited three-year loans to European banks. This added more than $1.26 trillion into the financial system. Similar actions could be taken in the case of significant turmoil in markets after the elections in Greece.

“In times of increased financial instability, ‘adequate liquidity' indicates a volume of central bank money that also counteracts a temporary inability of banks to refinance in the market, which could lead to systemic consequences for the banking sector as a whole," Draghi added.

If significant central bank intervention is needed, global central bankers seem prepared to take coordinated action. Bank of Japan Governor Masaaki Shirakawa also said that the BoJ is ready to take any necessary measures to counteract market turmoil. "There are no cunning steps to achieve financial system stability, he told Reuters. "An orthodox step would be to provided liquidity. We have the means to provide our own currency and foreign currencies. It would be important to supply abundant liquidity to calm worries."

In Greece, where official polls are banned two-weeks prior to elections, the race between the leading parties is still too close to call. Elections held on ...

Forex Trades for the Greek Elections and Wednesday's Fed Meeting

Matthew Kanterman — Fri, 15 Jun 2012 17:40:42 +0000

Over the coming days, two major events will dominate global markets: on Sunday, Greeks will vote in a national election. Then, next week, the Federal Reserve will hold its June meeting. Traders looking to take a position on these events may turn to the forex market to do so.

EUR/USD Traders can take a position on the outcome of the Greek election via the EUR/USD pair. Those who believe that there will be a negative outcome in Greece (a Radical Left victory) would want to short the EUR/USD, especially after the currency pair has seen recent gains. As the chart below shows, the pair is running into significant neckline support (the straight red line across the top) and is supported by the upward-sloping tend line from the lows hit at the end of May.

This technical formation is interesting in that it usually results in a breakout of prices, often to the upside. However, as this pattern is aligning with the fundamental story of the Greek elections, a wise trader would expect that the results will determine the next move. A negative outcome may send the pair lower, near $1.25 and then to $1.2450, where there are significant technical supports. Upside resistance is in the $1.2780-1.2820 range, so there is significant room for a move on either side.

Gold Some market watchers have said that a negative outcome from the Greek elections will prompt the Fed to take action next week. Traders who follow this view ...

Week in FX Europe June-10-15

OANDA — Fri, 15 Jun 2012 17:19:14 +0000

The Greek elections this weekend can accelerate the rise in market stress. Investors are going into the weekend cautions given Sunday's election in Greece in which the radical left Syriza could win the election. However, analysts note that even with the extra 50 seats that go with winning first place, the left will not have a majority and will have to convince a partner to join it in order to form a government. This may be difficult and a third election may be required to break any stalemate. With no opinion polls legally allowed in the two weeks before the election means no one really knows the true strength of the various parties heading in. Syriza leader Tsipras says he intends to keep Greece in the Euro-zone. However, his deafening refusal to accept the bailout terms could get Greece cut off from further bailout money and could even get Greek banks cut off from ECB funding, which would cause them to collapse immediately. The Euro's next chapter begins on Sunday night.

Below are some other highlights of the week:

EUROPE

ESP: Spain started the week managing to get their credit line with preferential treatment from the Euro-group who agreed to informal Spanish bank recapitalization aid request. The amount that they could end up borrowing may not reach the +EUR100b number being thrown around. Obviously, it will be a number that will influence the country indebtedness. All the market was concerned about was if the bailout was a market game changer? Spanish assistance would be provided by the EFSF and/or ESM to recapitalize their financial institutions.
EU: The impact of the financial gesture will depend on the bond market. If FI view this as improving Spain's long-term debt sustainability and Spanish bonds rally, there could be a more prolonged recovery for sentiment. Thus far, investors remain dubious of the overall affect.
ESP: The Spanish aid request is likely to exert pressure on the country's ratings. If the +100b is used, then the country debt to GDP would jump to around +90% from +81%.
EU: Ex-Spanish window dressing, the data on the Euro front remains bleak at best. French IP rose +1.5%, m/m, in April. Digging deeper, it had a weak manufacturing component, contracting -0.7%, m/m.
NOK: Norwegian inflation rose to +0.5%, y/y, from +0.3%, in line with consensus. However, underlying inflation surprised higher ...

University of Michigan Survey Signals Waning Consumer Confidence

James Hunter — Fri, 15 Jun 2012 17:12:41 +0000

The monthly Thomson Reuters/University of Michigan Surveys of Consumers gauges the level of confidence American consumers have. The survey's Index of Consumer Expectations is an official component of the US Index of Leading Economic Indicators.

The reading is compiled from a survey of around 500 consumers. The survey is important because it is often seen as an indicator of consumer spending, which totals about two-thirds of US GDP.

The University of Michigan Consumer Sentiment Survey for June came in at 74.1, ...

Greece First and then the FED

OANDA — Fri, 15 Jun 2012 16:15:15 +0000

The turmoil in the Euro-zone is nearing fever pitch. Europe's escalating debt crisis is emerging as a top concern for both Governor Carney at the BoC and the Fed. Thrown in data showing that the euro-zone and US economies are slowing, which means fears of global contagion are real, could be pushing the Fed closer to more bond buying or extending “operation twist”. Despite a sluggish US recovery and still high unemployment, the Fed had looked odds on to to keep monetary policy on hold for a prolonged period and that next weeks FOMC meet was suppose to provide little drama. The market has been adding risk ever so delicately on the assumption the FED will stimulate growth. The rumored announcement on Thursday that “Central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the outcome of Greek elections on Sunday causes tumultuous trading” has been aiding this sentiment. Now we wait for Sunday.

Below are some other highlights of the week:

Americas

The dollar's was and has been trumped by other global events rather than its own domestic data this week.
USD: US import prices sank -1% last month and came in bang on market expectations. Most of damage came directly from the aggressive drop in fuel prices. Their impact solidified the biggest single-monthly drop in nearly two years. Analysts note that in the context of global growth slowing and stronger dollar, import prices are not expected to be a source for inflation.
USD: Producer prices on the other hand fell a bit more sharply, down -1% last month vs. a market consensus of ...

Yen Rise Noda Fundamental

OANDA — Fri, 15 Jun 2012 16:03:37 +0000

The BoJ 2-day meeting left its monetary policy unchanged, left its asset-purchase size unchanged at +JPY40t and its credit lending program unchanged at +JPY30t. That was in line with market expectations. The BOJ said it will pay “particular” attention to the global markets in an implicit promise to help ease any market strains that might emerge after the Greek election. The BoJ gave a relatively upbeat assessment of the economy's improvement and even noted that exports had improved, a potential signal that the MoF concerns about a strong Yen may be “off-base”. However, not according to Noda, reminds on intervention risk as Yen rise is not fundamental.

Below are some other highlights of the week:

ASIA

CNY: Last week-end data showed China reporting better-than-expected numbers. China's exports grew +15.3%, y/y, in May or +4.3%, m/m, seasonally adjusted, much stronger than the consensus for a +7.1% rise. More encouragingly, imports also surprised to the upside, rising +4.8% or +12.7%, y/y, after a subdued +0.3% rise in April. Overall, the trade surplus has widened slightly to +USD18.7b in May from +USD18.4b in April.
CNY: Other Chinese macro data continues to suggest that there is more room for PBoC to ease, now that inflation has fallen further to +3%, y/y, in May from +3.4% in April and +3.6% in March. IP rose +9.6%, y/y, and retail sales were up +13.8%, while fixed asset investment was up +20.1%.
NZD: Kiwi manufacturing activity declined -1.8%, q/q, in Q1, compared with a revised +0.9%, q/q, increase in the Q4.
JPY: The IMF has advised the BoJ to ease further. IMF staff believes that “additional easing could be delivered, including by expanding the AP program”. This would help increase the likelihood of Japan achieving its +1% inflation goal by the end of 2014.
IDR: Bank Indonesia kept policy rates ...

Empire State Manufacturing Signals Struggling Industrial Sector

James Hunter — Fri, 15 Jun 2012 14:47:54 +0000

The Empire State Manufacturing Index is a monthly survey of manufacturers in the New York region. Firms report on how business conditions have changed in various areas, including production, new orders, employment, prices and company outlook.

The Index is a regional survey, but it is highly correlated with state-level measures of business activity and employment.

According to the Empire Manufacturing Index, general business activity in June decreased to 2.29 from 17.09 in May. This is worse than the expected estimate of 12.5. Essentially, this is bearish for the manufacturing sector and is likely negative ...

Trading a Chinese Rate Cut

Matthew Kanterman — Fri, 15 Jun 2012 14:18:03 +0000

As Chinese growth slows, traders are beginning to ponder if and how China will try to reflate its economy. A greater than expected slowdown in China pushed policymakers to cut lending and deposit rates on June 7. Similar cuts had not occurred since the onset of the financial crisis.

In 2008-2009, China embarked on an enormous fiscal stimulus plan, which invested in infrastructure and created uninhabited "ghost cities." Friday, analysts are expecting the government to rely on rate cuts, rather than fiscal stimulus, to spur growth. The 4 trillion yuan ($628 billion) package launched in 2008-2009 did super charge growth, but also left local governments saddled with debt that later started to sour.

Analysts are expecting future rate cuts to come in the form of continued ...

Financial Breakfast: Morning News Summary for June 15, 2012

James Hunter — Fri, 15 Jun 2012 11:25:37 +0000

Friday, June 15, 2012

This is your Benzinga news summary and trader's outlook covering headlines from overnight and today's pre-market session.

Benzinga's Top News

Yesterday, Central Banks Preparing for Coordinated Action to Provide Liquidity if Needed After Greek Election -Reuteres Citing G20 Sources

Bank of England to Launch Liquidity Facility on June 20

Domestic Pre-Market Trading

U.S. Equity Markets trade up as Dow futures trade higher about 39 points.
U.S. Dollar trades about 0.20% lower.

To see more pre-market news, click here.

Overseas Trading

European markets are higher in afternoon trading. Britain's FTSE 100 gained 0.60%, Germany's DAX advanced 1.24% and France's CAC 40 added 1.78% on the session.
Asian stocks ended the session higher. China's Shanghai added 0.54%, Japan's Nikkei 225 gained 0.01%, and Hong Kong's Hang Seng advanced 2.26%.
Yesterday, Central Banks Preparing for Coordinated Action to Provide Liquidity if Needed After Greek Election -Reuteres Citing G20 Sources
Bank of England to Launch ...

Bank of England to Launch Liquidity Facility on June 20

Charles Gross — Fri, 15 Jun 2012 10:50:01 +0000

The BOE announced Friday it will hold its first emergency liquidity-providing operation for banks next week, an auction of 6-month funds on June 20, as part of ...

Retail Favors EUR Shorts

OANDA — Fri, 15 Jun 2012 10:29:00 +0000

Global policy makers are setting the groundwork for some sort of coordinated intervention if need be. Anyone and everyone who has direct domestic policy influence have been standing on their soapbox as the market sounds off the remaining few hours of this weeks trading. The Central banks from major economies stand ready to take steps to stabilize financial markets and prevent a credit squeeze should the outcome of Sunday's Greek elections cause further financial stress.

Greece is not the problem, it's Spain. Despite Europe continuing to give the impression that it is only capable of dealing with one issue at a time, even coming late to this weekend's party is bringing some sense of order and less volatility. In the latter half of this week the market has been living with the risk of periodic squeezes on record short risk positions. The bulk of investors remain married in their beliefs that the momentum will favor dollar and yen positions in the second half of this ear. Without aggressive new policy initiatives, bond market access for both Spain and Italy will be a problem and weighting portfolios heavy in both these currencies is a tactical play on further deterioration in risk conditions and rising expectations for monetary easing in the G10.

Central bankers are doing what they are supposed to be doing, and thats providing ...

Euro And Risk Currencies Supported While Yen Very Well Bid

DailyFX — Fri, 15 Jun 2012 10:26:00 +0000

Greek election finally upon us; markets prepare for election
Global coordinated intervention rhetoric ramps up
Euro remains well supported while Yen very well bid
Best to stay sidelined until event risk volatility priced out
UK trade deficit reaches record high

A lot going on in the markets right now, with the weekend finally upon us and the outcome of the Greek election imminent. Polls have the election locked in a dead heat, and most probably there will be some form of a minority government where a deal will need to be reached between the two parties. As such, the reality is that the fate of Greece's status will most probably still take additional days to determine.

We are of the opinion that a Grexit (Greece Exit) is unlikely and are optimistic that Greece will remain within the Eurozone. Still, we feel that even if Greece were to exit, the markets will ultimately find a way to remain supported on the application of an aggressive round of government proponomics. Over the past 24 hours we have already seen a ramping up in commitments by a number of central banks from around the globe to pump additional stimulus into the financial system should the markets need it.

Relative performance versus the USD Friday (as of 11:10GMT)

JPY +0.79%

NZD +0.32%

AUD +0.12%

CAD -0.03%

GBP -0.10%

EUR -0.11%

CHF -0.12%

My colleagues have prepared two top-notch pieces that talk of 1) the latest round of centr