03 JUNE 2013: ASIA FALLS ON PROFIT-TAKING

Asian shares fall on profit taking Monday after recent highs. Uncertainty over how much longer the current US stimulus will continue, still dominates the agenda at the start of a new trading week.China’s last PMI figures (Purchasing Manager’s Index) published during the weekend, creates concern in light of softening domestic and external demands. More US-data this week might give a clue as to growth and demand prospects and will hopefully show some direction in regards to how long the monetary easing will last.

The dollar index rose last week on investors bets that improved data on the US economy would encourage the Federal Reserve (FED) to reduce monetary stimulus, which have boosted investments into riskier assets as emerging market currencies. The South African Rand, Mexican Peso and Hungarian Forint were hardest hit against the dollar in a volatile week in the currency market that saw investors reduce their exposure to risk-related assets.

The New Zealand Dollar fell more than any other developed currency after their Reserve Bank Governor stated that the Kiwi dollar still remained overvalued. Further currency interventions were thus needed to weaken the Kiwi.

The Euro/USD gained substantially last Thursday, but fell back due to the unemployment figures published on Friday. The unemployment rate in the Eurozone hit a fresh record high at 12.2 percent in April. Youth unemployment is reaching alarming levels. Euro/USD trades at 1.3013 in the morning. The President of the European Central Bank (ECB), Maro Draghi, said that the Eurozone economy is on track for a recovery driven by ECBs loose monetary policy, and outside demand.

Japanese Yen is up against USD at 00.48 amid a bout of profit-taking by investors last week. GBP is steady at 1.5217. Oil prices are under pressure, but Brent crude is still trading above USD 100 a barrel. Gold prices are slightly up at USD 1395.

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30 MAY 2013: JAPANESE NIKKEI INDEX IS AGAIN AN OUTSIDER

After couple of days of moderate growth, the decrease at the Asian stock markets was resumed. Support to sellers is given by the Yen growth, though in the debt market - profitability of 10 year bonds, was a little far away from maximum levels previously reached. The reason for this, could be the speech from the chairman of the Central Bank, Haruhiko Kuroda, who declared intention to decrease volatility in the debt market, and also decrease interest rates by means of a monetary easing program in the long-term prospective. As a result, Japanese Nikkei lost -5.14% and USD/JPY decreased to 100.72 this morning.

The Eurozone prepared an unpleasant surprise yesterday- data on the labor market which showed growth of the number of the unemployed by 21 thousand against the expected 4 thousand. However, it couldn't roll EUR/USD, which, towards the end of the day,returned to the day’s maximum levels, having reached 1,2977 and having rolled away to 1,2940 by the close.

There are some statistics which could influence further development of the EUR/USD pair. We are not expecting any changes of GDP (Gross Domestic Product) of the USA, but the number of the unemployed who have submitted applications for receiving a grant, is interesting, especially in the light of Rosengren's statements yesterday from FRS, in which he noted that it is possible to reduce the volume of the buying up of bonds, if the indicators from the labor market and on the economy, will, in general, be stable for few more months. The lower the unemployment figures will be,the higher chances EUR/USD will have to return to testing of support on 1,2850.

Prices of oil following the results of the last trading session showed negative dynamics. Besides a noticeable decrease in the developed stock markets, deterioration of forecasts on the development of the economy of the two largest consumers of raw materials - the USA and the People's Republic of China, became one of negative factors. Also, according to yesterday's data from the American institute of oil (API) stocks of oil increased by 4,4 million barrels. As for gasoline, the volume of stocks grew by 1,94 million barrels. Today, price for Brent is 102,36$ and price for WTI is 92.87$.

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22 April 2013: Gold rebounds; USD/JPY 99,84

Last week was dominated by an extraordinary fall of USD 250 fall in gold prices and heavy losses in other commodities. Gold demonstrated, however, strong resilience and staged a rebound. Gold is hundred dollar up from the bottom of USD 1322 an ounce last week. Copper is still weak. While Brent crude again trades above USD 100 a barrel. Strong retail buying in Indian and China strengthened gold which was seen as a buying opportunity. Gold reached the USD 1400 mark on Friday and trades at 1422 in Asia. Many investors have kept their strong faith in gold on expectations of high inflation and governments being unable to deal with it, and continues to buy gold.

The G-20 meeting in Washington ended on Friday without any conclusive results. Since 2010 the group has turned from being a cohesive group of the world’s most important economies into a body that spends hours of negotiating the punctuation in a communique. Japan was the focus for attention. In spite of the fact that the Japanese yen, JPY, has depreciated 20% in relation to most currencies since November last year, G-20 accepted Japan’s explanation that its monetary policy is aimed at price stabilization and economic recovery. Its strong monetary easing does not intend to manipulate its exchange rate.

As expected JPY as a result of the meeting, continued to slide in Asia this morning. USD/JPY reached 99,84 and is again licking the symbolic 100 level which most likely is going to be broken during the day encouraged by the Group of 20 endorsing of Japan’s reflationary policies. Following the meeting, players feel comfortable selling the yen further. Asian shares inched higher, but investors remained wary of volatility given the uncertainty of global growth prospects. Global stock markets might be on the verge of a selloff.

The International Monetary Fund, IMF’s forecasts for the G-20 meeting were out of date no sooner than it was presented. Weaker US labor market figures and Chinese economic growth in the first quarter, make it necessary to downgrade growth forecasts for the world economy. The G-20 meeting also given another stark warning that economic forecasts is not any precise science. The Harvard economists Kenneth Rogoff and Carmen Reinhart’s have since 2010 postulated that when debt reaches 90% of Gross Domestic Product, GDP, growth automatically fell. This postulate has been the basis for government’s austerity measures especially in the Euro zone.

An Excel error put serious question marks with the evidence the economist have built their postulate on. For the first time in years it thereby is possible to put questions with postulates presented as science. The austerity measures in Europe are as most other economic theories are based on political attitudes. When such postulates end up in mass unemployment and social misery it might be right time to take a break and ask whether the austerity measures resulting in mass unemployment and social misery are the right prescribed medicine.

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08 April 2013: Yen slumps as US - job figures hit dollar

 US job figures set alarm bells ringing as the  rise in job recruitment was half the expected. US employers added only 88 000 jobs in March  at a its slowest pace in 10 months.  The job figures published on Friday triggered fresh concerns about a slowdown in the world’s largest economy.  Equity markets fell and might indicate that the last months strong US stock rally has come to an end. Expectations of a fast recovery might have  run  faster than what is economic fundamental realities.

 The dollar plunged in relation to EURO and other major currencies.  The Euro/USD rose to a two week high at 1.3039 stabilizing around 1.30 in early Asian trade today.  The British pound, GBP, hit the strongest level in six weeks at 1.5362 on concerns of the health of the US labour market. Oil prices fell.  Brent crude trades at USD 104,50 a barrel.

 The Japanese yen, JPY also fell dramatically.  USD/JPY trades at 98,52 after he Japanese Central Bank (BOJ) announced strong quantitative monetary  easing measures to combat deflation.  After falling 20 % in some few months, analysts ask how far down the JPY would be permitted to go. Recent developments might encourage investors to shift back to  yen as a funding currency instead of the dollar. The data may encourage more long European currency/yen trading with yen  as the favoured funder.  It might  reinforce the yen’s place  as the favoured carry trading currency.

 The Euro received a boost earlier last week as the European Central Bank held rates at 0,75 % and the ECB President, Mario Draghi,  sought to reassure markets that the Cyprus bailout should not be seen as a template for possible future bailouts in the  eurozone.  In a memorandum of understanding between the parties involved in the bailout; Cyprus, ECB, IMF and the EU-commission, severe budget cuts and privatization of state owned assets are among the measures needed for Cyprus to receive its periodic allotments of bailout money.

 The anger and public fury run high on the island. Adding to the public tension a financing consulting firm, Alvarez & Marshal hired by the Central Bank to make investigations on  the banks behaviour leading up to the crisis, revealed that two of the most senior executives at the Bank of Cyprus may have deleted crucial emails pertaining the bank’s disastrous buying of Greek government bonds just before Greece’s international bailout in 2010.

 While most attention over the last weeks has been directed towards Cyprus, the leak of 2.5 million files containing details of offshore accounts of some of the world’s wealthiest individuals has added fuel to Europe’s debate over the economic crisis.  In a situation where many struggling Europeans are asked to tighten belts and pay more taxes, the political and financial elites of Europe have stuffed their wealth in offshore tax havens as British Virgin Islands, the Cook island and Singapore,  making German, EU and IMF accusations against Cyprus pale in comparison.  The latest money laundering and  tax exemptions accusations  involve reputable Western European banks as Deutsche Bank, and individual top German and French bankers and politicians.

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05 April 2013: Draghi: Cyprus not a template

Cyprus is not a template for other possible banking crisis inside the Euro zone, the president of the European Central Bank, ECB, Mario Draghi stated after the ECB board meeting yesterday. Draghi thereby criticized his own decision where Cyprus banks with the blessing of the ECB, was given the right to confiscate funds on private banking accounts below the guaranteed Euro 100 000. Draghi admitted that the proposal was not very “smart”, and stressed that potential future crises would be handled differently without risk for private account holders and companies. This initial wrong decision was quickly corrected, Draghi added.

It took, however, more than a week before the ECB sponsored proposal was rejected by the Cypriot parliament and a new bailout plan was presented. In the meantime it created confusion and havoc in the global financial markets. The new proposal exempted accounts with a balance below Euro 100 000 and from confiscation and left to foreign account holders, mainly Russians and Ukrainians, to bear the bulk of the bailout burden.

The Euro fall as low as 1.2745 on Draghi’s remarks. Euro/USD later recovered strongly to 1.2933. The way ECB and the EU have handled the Cyprus crisis, has, however, put grave question marks as to Draghi and EU-politicians ability to handle the euro zone problems. The crisis ridden Southern European periphery is dragging further into recession, and the only solution the troika of EU, ECB and the International Monetary Fund, IMF, has been able to come up with is a further vicious circle of reduced economic growth, increased taxes and growing unemployment.

Draghi had suggested yesterday that ECB could slash the interest rate, already at a record low level, even further. In a situation where the currency rates are highly volatile and often jump more than one percent a day, a reduction of the interest rate with 0,25% is not the most convincing argument to get the euro zone back on track. Along with low interest rates quantitative easing has been central banks preferred tool. ECB has heavily been buying national bonds in Italy and Spain to avoid spiraling bond rates.

Bank of Japan which also met yesterday, announced aggressive measures to ease monetary policy. USD/JPY plummeted from 93 to 95,67. BOJ will in the next two years double its holding of bonds and shares in line with the monetary easing policies of the US Federal Reserve (FED). BOJ has also set an inflation target of 2% to stimulate economic growth. BOJ’s plan implies to buy bonds for an equivalent of USD 73 Billion monthly. Fed is in comparison buying for USD 85 billion a month. Wall Street got a lift from BOJ’s surprisingly dramatic stimulus plan. This came along with supportive comments from ECB and FED, suggesting that central bank policies will keep underpinning measures to the benefit of stocks. 

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18 March 2013: Vote on controversial Deposit haircut today

 The Cypriot Parliament is later today going to vote on EU finance ministers unprecedented decision  to impose an all-out haircut on Cypriot deposits. The newly elected President Nikos Anastasiades was in Brussels with his  finance minister Friday night and returned back to a uproar among Cypriot and foreigners who had entrusted their savings to the island’s banks and now found them in risk of being confiscated.


The bail-out was cut from Euro 17 to 10 Billion and implies that savers have been forced to bear the cut. Banks are by Tuesday 19^th automatically going to withdraw 9,9 % on deposits above Euro 100 000 and 6,75 % on all smaller amounts. It is unclear whether this implies both private and corporate accounts.  But most likely both.  It also seems that the decision applies to accounts in all Cyprus based banks regardless of their origin country.  All accounts seem to be hit in an action that best can be described as pure confiscation or theft of private savings and funds.

 The unilateral action of the European Union and the Cypriot government have instituted a new practice never earlier seen in financial markets. The confiscation or “levy” which they call it, is estimated to contribute Euro 5,5 billion towards the recapitalization of the Cypriot banks. This counts for more than 50 % of the bail out from the richest countries in Europe.  In a televised speech on Sunday  President Anastasiades defended his decision and stated that Cyprus was faced with the gravest situation since the Turkish invasion in 1974. The Cypriot government has “sugared”  its measures by stressing that the confiscated funds are compensated by shares in the island’s   bankrupt banks, the Bank of Cyprus and Popular Bank.

Supporters of the new president have lately stressed his good and friendly relations with Angela Merkel and other European center right leaders.  “Lazy” Greeks and “irresponsible” Cypriots have for long time leading up to the German elections in September,   been negative headlines in the German press. Nikos Anastasiades got his chance to prove he is Germany’s devoted  friend.  He might have helped Merkel’s election campaign, but does this decision serve ambitions of making Cyprus a financial center?

This is also a question of negotiating tactics. In its dealings with EURO zone finance ministers and the “troika” of representatives from the International Monetary Fund, IMF, the European Central Bank, ECB, and EU, Cyprus demonstrated that they were overeager to strike a deal. This never pays off in  a Brussels nourished by confrontations and last minute’s deals.  The late hours exercise in Brussels have given both Cyprus and the Euro zone members a hard  lesson.  It is time for blue Monday blues.

 The new Cyprus government  has experienced – if they believed it in before - that there are no solidarity or true friends in Europe.  It does not matter  whether you are  a goodwill pro-European   or a former communist. European relations are built on interest politics.  Cyprus has less than a million people and institutes 0,2 % of the Gross Domestic product inside the Euro zone. But exactly the size is why European leaders could have afforded to be a little generous.  Instead  EU once again demonstrated  an attitude which lately has brought the Southern periphery of Europe to despair.

Today the Euro is falling 100 points close to 1,29.  The message is clear.  Neither  markets nor Cypriots any longer trust the Eurozone reliability.  Why should other Western European depositors do when their banks are bankrupt.   Today Cypriot bank customers are  treated dis respectfully. Their deposits are stolen  and  they are offered valueless shares.  Next time the same medicine might be ordained to Italy, Spain, Greece, Portugal or  for that sake Netherlands.

 It has been sent a clear message to whole Europe. When governments are reluctant to pay for their banks speculations and excesses private property rights do not apply. Then it is up to the man in the street to pay the bill by having their accounts confiscated.

Luckily enough Mayzus Investment has been wisely enough to keep our client funds in banks outside Cyprus.

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08 March 2013: USD/JPY rallies before US jobs

The dollar surged to its highest level against Japanese yen in 3-1/2-year before US job numbers for February are going to be presented later today. USD stands at 95,43 yen up 0,6% since yesterday. It is expected that that the US economy last month created net 160 000 new jobs. The unemployment rate still stands at 7,9% far from the 6,5% which the Federal Reserve (FED) has set as target for ending monetary easing.

Investors waiting for more dovish signals from the European Central Bank (ECB) at its press conference yesterday was disappointed. The single currency posted its biggest rally this year and jumped more than 100 points against the dollar and stands at 1.3092 after flirting with 1.29 figures earlier in the week. ECB President Mario Draghi plaid down the threat of contagion to other euro members following the Italian political stalemate. Draghi stressed growing market confidence in the Euro which had EURO bears quickly to cover short positions.

The Euro skyrocketed 2% to 124,57 against the JPY. It stood at 118,74 last week. The 34 month peak of 127,71 set last month is thereby brought back in play. The rally might, however, be short played with investor’s attention back on Chinese trade data and whether the US unemployment rate will stay at 7.9%.

Bank of England (BOE) kept its guns yesterday and held fire on the expected more economic stimulus. The downward pressure on British sterling (GBP) continues, however. USD/GBP trades again below 1.50 after seeing some recovery yesterday. There is no change in the choppy trading pattern in commodity related currencies. Oil prices are steady. Gold fell back from USD 1583 an ounce reached yesterday to 1567 this morning.

The stock rally in the United States continue. Dow Jones ended at record high for the third straight day boosted by expectations of a pick-up in the payrolls report. Growth oriented sectors led the gains with strong jumps in Bank of America (up 2,9%) and JP Morgan Chase (1,2%). Worries about the path of US fiscal policy and the Euro zone crisis loom, however, in the background. For the moment the Bulls are in advance.

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