26 JUNE 2013: US DATA LIFTS STOCKS

Strong manufacturing and housing data lifted the US equity markets after several losing sessions following the meeting in the Federal Reserve (FED) and Chairman Ben Bernanke’s statement last Wednesday. Global markets have since been in turmoil on the prospect of a tapering in the USD 85 billion monthly bond buying program, which have fed stocks with liquidity and created what many see as an artificial rally. Uncertainty as to whether monetary easing will continue, has in two weeks wiped out most of these gains.

The economic data presented yesterday gave strong arguments to those arguing that the US economy is back on the right track and the 6.5% unemployment target set by FED, is within reach. Realizing the heavy waves last week’s statement has created, FED representatives were, on Wednesday, eagerly playing down the likelihood for a quick end to monetary easing, stressing the many uncertainties and FED’s conditions for a termination.

These efforts were, to a certain degree, undermined by better than seven years housing figures. Greater demands for capital goods such as cars and aircrafts point in the same direction. The positive numbers had Dow Jones turn sharply up after four dismal losing sessions. Dow ended 0.65 % up at 14 754, still far from the benchmark 15 000. Nasdaq also gained ground and added 0.5 %. The European markets ended in positive territory after big losses since last week.

The Dollar is the big winner of the FED statement. It gained new ground after the housing data was published, but fell somewhat back. EUR/USD which started on a good note on 1.3235 dipped at a point below the resistance level on 1.3172 which represents the last 200 days moving average. A fall below that level will indicate that the EURO is in bullish territory. EURO fell as deep as 1.3162, but has since recovered well above 1301,72 to 1.3091.

The USD/JPY followed a similar trading pattern and stands 97.90. Australian Dollar rebounded strongly while the Chinese Central Bank’s tighter credit conditions towards private lenders conducting a freewheeling policy, sent new shivers through the Chinese stock markets. The losses were, at one point, 5.5 %, but turned back to a relatively modest 0,2 %. While the US economy seems to improve fundamentally, there are big question marks around the world’s second biggest economy . Oil and commodity prices have risen on the back of the new positive data in US.

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09 MAY 2013: STOCKS RALLY AS MAJOR CURRENCIES LOSE DIRECTION

Global equity markets continue to rally as major currencies have lost a clear direction. Encouraging global data and Wall Street’s extended record rally, took Asian shares to a new two-year peak Thursday morning. Australia presented strong unemployment numbers. While 50 100 new jobs were added in April, the South Korean central bank made a surprise 0,5% interest cut lowering the interest rate to 2,5%. These steps further cemented the positive mood in global markets.

Lower interest rates and central banks increased money printing have created spare liquidity which moves into stocks. The Japanese monetary easing brought the Nikkei index within striking distance of a five-years highs outperforming its global peers. Stocks remain the favored asset class among investors as monetary easing depresses return on bonds. Unclear prospects regarding the world economic growth weigh negatively on commodity prices. Commodities trade without any clear direction with precious metals temporarily falling out of favor with investors.

In contrast to the clear uptrend in global equities major currencies have lost direction. This is the case with Japanese yen, JPY, which depreciated continuously since November last year and depreciated and lost 20 – 25% against most currencies. The last weeks USD/JPY has traded in the interval between 97 – 99 yen a dollar unable to make a major breakthrough and jump above the psychological 100 level.

Investors which made huge profits betting on big cash currency positions earlier this year go into equities which regardless of economic fundamental outlooks are strongly buoyed by monetary easing. As long as central banks keep their accommodative stance the uptrend in stocks would continue. Stocks were also helped by the upbeat US unemployment figures last Friday, Chinese trading data and more promising prospects for the German industry.

In spite of the economic outlook for the Euro zone continues to be dismal, the Euro remains resilient. Euro/USD trades at 1.3160. The economic problems in Europe are indeed serious, but traders have recently burnt their fingers on going short on Euro and stay away. The Euro seems to have discounted eventual bad news, and the balance of payment and real interest rates are no lower than anywhere else. There is no clear conviction among traders as to the timing of Euro weakness. In this financial climate oil prices are keeping up steady. Brent is hovering around USD 104 a barrel. Gold price which fell to USD 1449 on Tuesday, has picked up and trades at 1474.

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Is a decade-long bull run for gold coming to an end?

Is a decade-long bull run for gold coming to an end?: Arne Treholt, Vice President, Business Development Director at MAYZUS Investment Company discusses Gold prices

Gold prices have suffered their sharpest fall in 30 years over the last couple of days, heightening fears among investors that the decade-long bull run for precious metals, especially gold, is about to end. The dramatic development started on 12th of April with 15thof April as the ugly black Monday for gold lovers. Gold has traded steadily between 1550 and 1615 during the first months of 2013, and then suddenly plunged USD 200. Shocked investors took a deep breath after losing confidence in the metal for which many thought that the sky was the limit.

The volatility of market sentiments was demonstrated early Monday morning as investors debarred gold from its safe haven status in just a few short hours. As a result of the lost confidence in gold, the Japanese Yen (JPY), which had been suffering for the last few months due to aggressive Japanese economic stimulus and monetary easing, briefly regained its position as a safe haven candidate.

The safe haven rally was short lived; USD/JPY jumped from a low 96 to above 98 yen to a dollar in just a few hours. Following a technical upward correction after the steep fall, markets continued to be extremely nervous, showing some similarities with market behavior in 2008 prior to the financial crisis that autumn. After a short rebound the selling pressure on gold continues.

Close market followers could have noticed signals that investors were becoming increasingly skeptical about gold. For many years, it has been taken more or less for granted that gold is going to continue to rise and shine. However, if we look back at the gold graph of the last couple of years, we can see that there have been some worrying signals. Gold prices peaked and reached USD 1406 in early January 2011. There was a technical correction down, but between February and September gold prices rose steadily to USD 1920. A breakthrough of the magic psychological 2000 level seemed to be within reach and many investors betted on that opportunity.

Instead, gold started to correct down steadily and moved sidelong before reaching an autumn peak at 1787 on October 1, 2012. It has been falling down since October with minor upwards technical corrections until it reached 1321 and rebounded to 1382. With the existing strong selling pressure and weak market sentiments there is no reason to believe that USD 1350 represents a bottom.

In addition to the charts, which show a steadily falling curve since September 2011, there have been other reasons for concern. Major international banks have recommended selling gold. There might be numerous reasons why Goldman Sachs, Credit Suisse and Societe General are all in favor of liquidating gold reserves.

The erratic and speculative way international banks have operated over the last few years, from manipulation with labor to excessive greed, demonstrated in both trading and investments, makes one ask, whether their recommendations are a new expression of speculative behavior to their own best benefit? Are gold sales boosted up, so certain market players can buy the precious metal back at strongly reduced prices?

When George Soros recommends selling as he did a few weeks ago, when gold prices were USD 1615, there is a stronger reason for an alert.In spite of the fact that Soros operates on behalf of his own institutions, he was first and foremost considered to be an individual investor. Since the 1960’s it is a good idea for the markets to listen to his predictions and advices. Two years ago, Soros recommended to sell silver for USD 45, after its steady climb from USD 17 a troy oz. Silver peaked at 49,67 and has been continuously falling since, reaching a low of 22,65 on Monday, April 15th, 2013.

Where does gold go from here?
In a short-term perspective, the technical upside correction already seems to have subsided. Gold simply seems to have no steam to lift the precious metal beyond the USD 1400 limit. There is no inflationary pressure to strengthen gold. Ever record-high US stocks have seen gold selling in favor of investments in stock markets, which as long as the monetary easing continues will be a far more interesting investment than placing money in the risky precious metal with market sentiments against it.

The opportunity for central banks selling their gold reserves to finance own assets requests from international lenders as the European Central Bank (ECB) and the International Monetary Fund (IMF) added to the selling pressure on gold. This development was spurred by tiny Cyprus, but the idea was picked up by central banks in countries like Italy and Spain that are also under big pressure.
There are, however, more optimistic outlooks pointing to a strong gold recovery at the end of 2013, even if most analysts seem to agree that it may take time before investors‘ confidence returns to the precious metals market. Gold is on the verge of being oversold. An oversold market shall create a tighter supply/demand fundamentals relation.

Even if stock markets continue to raise, these rallies are artificial and are more based on monetary easing than on economic fundamentals. What is going to happen when the bubble bursts? Could gold then be back shining, considering that some central banks in emerging countries are buying gold to strengthen their reserves?

There might be light in the tunnel for gold prices in the medium and long-term perspective.

Having different opinion on future prices for Gold? At MAYZUS you can test your judgments, read more here.

About the Author:
Arne Treholt, Vice President, Business Development Director at MAYZUS Investment Company

Mr. Treholt began his career as a journalist and foreign correspondent of the Oslo-based daily newspaper Arbeiderbladet in Norway. He then joined the Norwegian Royal Ministry of Foreign Affairs, where he was promoted to the position of Political Secretary to the Minister of Shipping and Foreign Trade, followed by his position as Deputy Minister of Law of the Sea. He held the position of Counselor for Economic Development and Social Affairs at the Ministry of Foreign Affairs, and was member of the Norwegian Mission to the United Nations, New York. Mr. Treholt retired from his diplomatic career and moved to Moscow, where he became CEO of ISMOS Trading, followed by his position of CEO of Rim Investment Management and FMC Securities in Cyprus. Mr. Treholt joined Mayzus Investment Company in June 2009 as Vice President, and he is also in charge of the business development and portfolio asset management of the company. He is the author of five books and numerous articles on economics and politics.

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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18 April 2013: Risks assets broadly slips

Risks assets broadly slipped on Thursday following overnight drop in US and European equities on fears for global growth. Oil prices have dropped substantially. Brent crude fell two dollars trading below USD 98 a barrel. Iran, has asked for an emergency meeting in OPEC, the organization for oil producing states, to discuss the low oil prices as non-OPEC United States is pumping 7,2 million tons a day. This contributes to the imbalance between market demand and supply. Gold dipped further as capital flow out of gold-backed-exchange-traded funds continues.

US-Stocks fell in a broad market sell-off yesterday. The decline in stock prices was led by a sharp drop in Apple which tumbled 5,5% to USD 402,80. Apple has fallen USD 250 since its peak last autumn. A key chip maker, Cirrus, simultaneously presented a disappointing revenue forecast. This together with the slowing demand for Apple products, fueled market worries about a weakening demand for iPhone and iPad. The financial sector was also hard hit by weaker than expected results from Bank of America.

Wednesday’s losses represented the second day of big sell-off during this week. It adds to fears that the market is starting the pullback analysts have been speculating in for months. Expectations have outdistanced economic fundamentals. Monetary easing has additionally injected fresh speculative capital into equities. This development has led to stock rallies without roots in the real economy creating new bubbles.

Investors’ optimism have been based on expectations of a stronger economic growth in China and a recovery in the US. There are positive signs in both markets, but the world economy is still dragged down by an ever deeper recession inside the Euro zone. The plunge in gold and metal prices and a simultaneous sell-off of stocks bear striking similarities with the situation in 2008 where stock markets were running off from realities to end with a hard landing. Bankers’ wild speculations contributed to the misery which led to a financial crisis in the second half of the year where the liberal orientated economic market model was put at serious risk.

Is history in the process of repeating itself?

Nervousness and risk aversion has also plaid into the currency market where the euro come under pressure. Euro/USD fell from Wednesday high on 1.3172 to 1.3043 on talk of more monetary easing by the European Central Bank. USD/JPY trades marginally up at 98,03 indicating a continued slid in the yen and a new test on the symbolic 100 yen a dollar level. The Australian dollar is steady after trimming earlier losses due to the fall in gold and metals and a weaker growth in China.

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16 April 2013: Gold prices collapse

Gold collapsed completely yesterday as precious metals plunged to the lowest levels seen in years. Gold trades at USD 1351 an ounce falling 250 dollar in two days. Silver fell from USD 28,25 ending yesterday at 22,50. Oil and other commodity prices sharply declined. Brent crude fell below the critical USD 100 a barrel level at USD 98,42. Stock market plunged as investors dumped risky assets and worries over slowing growth in China and US took hold. After a short spell of relief, Japanese yen, JPY, continued to slide against USD, before rebounding to 97,67 yen to a dollar.

The dramatic development in financial markets follows a worldwide rally in stocks in the first months of 2013 where daily new records on Wall Street have outpaced fundamentals. The monetary easing in the US, Europe and lastly Japan have injected huge capital into stocks without succeeding to create new employment. Risk markets have been rallying at a pace not in line with a tepid global growth recovery. Investor’s sell off of precious metals, commodities and shares might be seen as a last ditch effort to take some profit while markets evert to levels more in line with fundamentals.

Investors are reassessing their portfolio allocations for the second quarter of 2013 on that basis. In this perspective it seems likely that funds would be pulled out of the US stock market also taking European uncertainties into account. US debt might then back as a secure long term investment and reduce demands for an alternative safe-haven as gold. There are therefore valid question marks as to whether the deep plunge in gold will continue and that we are still far from a bottom.

USD/JPY recovered during Monday. The dollar fell to 95,67 yen. The Euro hit a low of 125 yen. Both USD and Euro have rebounded. Euro is trading at 126,75 yen. In a market dominated by steep falls and quick rebounds, EURO/USD has traded steady in an interval between 1.3050 and 1.31. In early Asian trading, the Asian-Pacific index, MSCI, has stabilized after a 2% drop in European and US markets yesterday. A bomb explosion killing two and injuring 130 people at the finish line of the Boston marathon added to the downward pressure on the New York exchanges.

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12 April 2013: Wall Street posts new record highs

Asian shares retreated marginally Friday morning after recent gains. The Asia-Pacific, MSCI-index fell 0,3% due especially to the tense situation in the Korean peninsula. Investor’s confidence was underpinned by new record highs on Wall Street. Shares rose for the fourth day. A drop last week in the number of Americans seeking unemployment benefits, gave markets a new boost. A 14% plunge in personal computer sales in first quarter, the sharpest drop in two years, could not spoil the good sentiment. USD/JPY continues to flirt with the 100 yen mark.

The Nikkei index helped by Bank of Japan’s (BOJ) efforts to fight deflation dropped 0,8% on profit taking. The Nikkei is up 10% over the last week and trades at its highest level since July 2008. The dollar has gained 6% towards the yen the last week and hit a 99,95 yen to dollar on Thursday, a level not seen in four years. Euro/Yen climbed to 131,10 and reached the highest level seen since 2010. Aussie dollar also soared towards the yen. USD/JPY fell back to 99,50 unable to break through the 100 mark.

In Europe the EU- Commission’s bleak forecast on the economic development inside the Euro zone did not affect the strength of the Euro. Euro/USD is steady around 1,31 – 1.3150. Slovenia with its struggling banking sector, was singled out as a candidate to be next in line for a bail-out after Cyprus. But the banking sectors Italy, Spain and also France remain in the danger zone. The guru investor, George Sorros, stated earlier in the week that he saw Eurobonds as the solution to Europe’s troubled economies and saw a possible German Euro exit as a viable alternative.

President Barack Obama’s latest proposal to solve the US budget crisis by trimming Social Security and other safety-net benefits have is off to a cold response. Republicans, Democrats and even the White House have distanced themselves from the proposal. The reactions illustrate the difficulty of reaching a bargain to reduce spending and tame the deficit. The Republicans said that the President’s offer did not go far enough to cut spending.

In Cyprus the Central Bank has been selling part of its gold reserves to raise around 400 million Euro to help finance part of its bailout, the European Commission announced on Wednesday. Cyprus has totally a reserve of 13,9 tons. 10,35 tons are set to be sold. The transaction had a negative impact on gold prices which following the Cypriot sales fell USD 20 dollar an ounce on Wednesday. The Cyprus Central Bank is selling gold at a time when other central banks are building up their gold reserves as security against monetary easing and big volatility in the currency markets.

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11 April 2013: Wall Street lifts Asian shares

Wall Street’s record closing and optimism on the Chinese economy lifted Asian shares in early Thursday morning trading. The Japanese yen continues to be under strong pressure. USD/JPY trades at 99,60, a hair’s breadth within the 100 level. Yen continues to test fresh lows against major currencies as the effect of the Bank of Japan’s (BOJ) bold monetary easing takes hold. The South East Asian Pacific index, MSCI, gained 0,8%, while the Japanese Nikkei jumped 1,3%.

The new Governor of BOJ has proven that is serious regarding a 2% inflation level bringing fresh impetus to a stagnating, deflationary economy. There are questions whether this is enough. Monetary measures ought to be followed up by a strong restructuring of the Japanese economy especially steps to encourage the private bond market. Japanese bonds have fallen on BOJ measures, and Japanese investors are said to be moving funds into foreign bonds.

The last published minutes from the Federal Reserve (FED) Board’s meeting gives new stimulus to the US dollar. According to the minutes FED officials have debated to slow down the pace of asset purchases or end them later this year. The Dow Jones industrial average and the Standard & Poor’s 500 gave also impetus to a stronger dollar. Both indexes ended at historic highs on Wednesday, led by cyclical shares on China’s rosier demand outlook. Chinese imports have increased significantly during the last quarters. Higher-yield commodity currencies also gained ground on the Chinese data with the Australian dollar jumping to 1,0553 Against the USD.

A report published by the European commission yesterday gave a bleak picture of the economic development inside the euro zone. One of the EU-newcomers, Slovenia, has been a stark warning to put his house in order. The banking sector’s debt ridden and suffers. Slovenia might therefore be the next in line to follow Cyprus. The EU Commission also points to serious weaknesses in the banking sector in Italy, France and Spain in and reminds that the European banking and financial crisis might only be in its beginning.

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09 April 2013: Aggressive bond buying sinks JPY

USD/ JPY dropped for the third straight day as the Bank of Japan (BOJ) yesterday started  its aggressive monetary easing program. Following the strategy of the US Federal Reserve (FED), BOJ is buying Japanese bonds for trillion in an effort to stimulate economic growth.  The Japanese government intends to get out of the vicious inflation  circle and  has set a target for 2 % inflation. The bond buying has boosted the Japanese stock market. US stocks also gained yesterday ahead of second quarter earnings session which is expected to show moderate growth.

 USD rallied to its highest level towards JPY seen since 2009, trading at 99,50 yen as BOJ concluded its first bond purchases since announcing the new monetary easing last week. Wall Street slipped in early trading as caution ahead of the quarterly season dominated the sentiment. Stocks turned around and ended in positive territory.  US stocks have rallied strongly over the last months with major indexes hitting record highs. Earnings forecast are predicting a 1,6 % rise in earnings over the last year.

 The Nikkei index in Tokyo jumped 3.1 % and saw its highest level since 2008 as BOJ shall pump  an equivalent to USD 1,4 trillion into bonds over the next two years. These measures  have created a bonanza in the stock and real estate markets. Traders are waiting for a break through of the psychological  100 yen level a dollar.  US 10 years treasury bills fell sharply last week in response to the aggressive Japanese measures.

 Oil prices hitting a 8 month low on Friday, have recovered.  Brent crude is trading at USD 105,55 a barrel, up one dollar from the beginning of the week. Euro/USD has made a strong come back from its low level on 1.2760 last week in the aftermath of the turbulence in Cyprus and the press conference of the European Central Bank (ECB).  Euro/USD is  trading at 1.3050.  British pound, GBP, and other major currencies have also gained ground against dollar. Precious metals led by gold,  USD 1575 an ounce, is also trading higher.

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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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04 April 2013: ECB under fire for Cyprus handling

Asian stocks fell as worse-than-estimated US economic data spurred concern about the pace of the US recovery as investors speculated whether the Bank of Japan (BOJ) would be able to meet forecast for monetary expansion and an inflation target of 2%. The MSCI Asia Pacific index slid 1% with carmakers as Toyota Motor declining on a stronger Yen. USD/JPY trades at 93.00. Copper prices, a strong indicator for economic growth, sank to its lowest level since August. Gold and silver prices plunged with Gold at USD 1546 an ounce. Oil prices fell two dollar a barrel.

The European Central bank (ECB) is meeting today in the aftermath of a botched attempt to rescue Cyprus. Bank shares have been tumbling across the Euro area and rattled confidence in policy maker’s ability to tame the sovereign debt crisis. With unemployment reaching a record high of 12,5%, doubts are growing about Mario Draghi’s forecast for a second-half economic recovery. The austerity measures prescribed from European bankers and politicians have so far dragged Europe into an even deeper recession.

The disconnect between official low lending rates and those businesses are actually charged, is also a growing concern for the ECB. More than four times as many small businesses in Spain were rejected loans in the second half of 2012 than in Germany or walked away from, too, expansive offers. The excess liquidity in the banking sector has halved over the last half year and lenders in the south European periphery might be in need of more central bank funding.

In front of today’s meeting critical questions are asked on the role ECB plaid in the Cyprus bailout. ECB initially welcomed and supported the Cypriot government’s plan to confiscate funds on all banking accounts including those below Euro 100 000. This was rejected by the Cypriot Parliament. A revised agreement was negotiated a week later under the threat of ECB cutting emergency funding to Cypriot banks. Additionally; capital controls were for the first time in the EU history introduced to avoid capital flight. Free movement of capital is one of the four basic freedoms EU cooperation is built upon.

The confiscation of private accounts and introduction of capital control have damaged investor confidence and banks reputation across the Euro zone. Between March 15 and 27 the Stoxx Europe 600 Bank index dropped 6,8%. The cost of insuring against default on European bank bonds have surged 41% in the same period. Partially responsible for a flawed bailout plan being presented to Parliament, ECB exacerbated markets reactions to the bailout and simultaneously harmed the trust in Europe’s crisis fighting abilities.

Analysts stress that even if the error originated in Cyprus, Euro Finance ministers and ECB’s big miscalculation were to support a flawed plan. This resulted in increased financial stress and uncertainties in global markets. The trust in the Euro was undermined. Whether Mario Draghi and the ECB today would be able to present the right damage limiting response, is an open question.

Three Supreme Court judges appointed by President Nicos Anastasiades will today start investigations into a decade of financial profligacy which brought Cyprus to its knees. They have also a mandate to look into the President’s own affairs after accusations of tipoffs that presumably saved close family for big amounts when of 21 million euros were transferred abroad days before the bailout plan was announced.

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Euro weakens as unemployment climbs

Euro/USD fell to 1.2803 as unemployment inside the euro zone fell to a record high 12,5 %.  The euro fell against 12 of its 16 most traded peers as unemployment continued to soar in Greece and Spain adding to concern of an even deeper recession. Unemployment in Greece  reached 26,7 % with 60 % of the youth without jobs. A mix of lower than expected  industrial manufacturing data and unemployment paint a grim picture for hopes of a quick recovery inside the euro zone.

 Asian stocks fell before later publication of new US job numbers.  The dollar index (DXY) which has fallen for the last days rose 82,920 as gold prices plunged 35 dollars to USD 1567 an ounce. Copper and silver continue to fall while oil prices are steady.  New York crude (NYMEX) has been trading above 96 for the whole week and Brent crude above USD 110 a barrel. The European Central Bank (ECB) which  along with the EU and International Monetary Fund, IMF, has been strongly criticized for its handling of the Cyprus crisis, meets on April 4th.

 As indicated in our Daily Report yesterday Cyprus has started a  blame  hunt for a crisis running out of hand. Finance Minister Michael Sarris who conducted the bailout negotiations in Brussels and afterwards came empty handed back from Moscow, resigned on Tuesday and was replaced by Labour Minister Haris Georiades.   Sarris has for the last year served as President of the Board in the bankrupt Popular Bank of Cyprus, Laiki.  Over the last months Laiki received billions of Euros from ECB in emergency funding.


The use of these funds will be part of a special investigation conducted by three special judges appointed by President Nikos Anastasiades. The judges shall within three months present a report on whom bear responsibility  for the crisis. Bank of Cyprus (BOC) and Laiki Bank were till recently regarded as solid profitable national flagships. The two banks have over the last 2 – 3 years lost billions of euro on speculation in Greek treasury bills and unsecured loans to Greek individuals and companies.

 President Anastasiades himself came under fire yesterday when it was known that a company headed by his son in law and other relatives presumably transferred 21 million euro out of Cyprus just before the controversial EU decision to raid bank deposits took place. Anastasiades flatly rejected tip-off to close family members or any other  wrong doing;  “I never knew, and it was never possible for me to wage war until Saturday morning March 16th to avoid what they imposed on us and at the same time supposedly tip-off people”.

 Other politicians have received similar accusations which would  be subject for the investigations. Even if  lose accusations,  the tip-off suspicions illustrate what the Cypriot public regards as, too,  “cosy” relations between bankers and politicians.

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02 April 2013: “Tax havens” fight for Cypriot clients

The dollar was losing momentum yesterday and early Tuesday as the Institute for Supply Management, ISM, announced that its index for national factory activity fell 6% in February. New orders, a key indicator for future growth, accounted for much of the fall. US stocks fell after being closed since Thursday due to the Easter holidays. The weak ISM manufacturing data together worries in the euro zone after the Cyprus bailout and some growth concerns in China, point towards a softening of economic activity and a weaker sentiment prior to the 2013 first-quarter earnings session.

EURO/USD fell 20 points to 1.2863 and also lost ground towards the Japanese yen, JPY, trading at 92,96 yen to the dollar. Copper prices fell to the lowest level in months on Chinese growth concern.
Oil prices are strong. Brent crude trades at USD 110,80 a barrel. Gold is up to 1602.

The ink was barely dry on the bailout of the Cypriot banking system last week when the legal challenges began rushing in. The first challenge was launched by the powerful Church of Cyprus which has big business interests on the island, which questioned the legality of shareholders in Bank of Cyprus having their equity stakes taken as part of the bailout mechanism. The complaint was filed on the basis that expropriation of property is contrary to the Constitution of Cyprus. The Church successfully petitioned the government. More legal challenges are to come.

A blame game hunt to find the “guilty men” responsible for the banking disaster has also intensified. Both the Minister of Finance and the Governor of the Central Bank have been caught in the fire line. The crisis is most likely to have potentially more worrying consequences for Cyprus’ relation to the EU. Politicians and officials being instrumental in securing that Cyprus became a member in the EU and EURO, have voiced grave concern and stressed that if they would not have recommended membership if they had seen what has now been coming.

Cypriots start to be critical for the speculative way their banks were run, but the anger and fury are mainly directed against Germany and EU which “wanted to punish Cyprus”. There is also growing irritation over EU singling out Cyprus as the only “offshore financial center” culprit. Germany stressed that the financial sector in Cyprus was seven times its GDP without asking questions to other EURO and EU members as Malta and Luxembourg where the baking sector is 8 and 22 times bigger than the GDP.

There is also growing irritation as to the aggressive way other offshore destinations inside and outside Europe now is trying to steal especially Russian clients away. Instead of demonstrating solidarity with a striving Cyprus and their banking sector these same countries are now trying to lure potential clients to their “tax havens”.

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29 March 2013: USA Markets – S&P index beat its historical maximum

Yesterday stock market of United States finished trading session with a moderate growth, at the same time the index of the wide market S&P 500, during the last minutes of the trading session, managed to subdue the level of its historical maximum 1565,15 points and was closed 4 points above it. Data on GDP of the USA presented yesterday, where the indicator increased by 0,4% in comparison with the previous assessment in 0,1% gave support to the market and positively influenced purchasing moods. The rest of the statistical data was not so positive, the number of primary requests for unemployment benefits last week increased by 16 thousand to 357 thousand and significantly exceeded expectations, and the Chicago index of business activity in March made only 52,4 points and more than 4 points didn't hold on to average forecasts.


Asian stock markets in the last working day not only of this week, but also month, and also the whole quarter show quiet multidirectional dynamics. Trading volumes are insignificant. The Japanese stock exchange bargains almost neutrally. Nevertheless, index Nikkei is ending quarter with growth of nearly 19%, which is the best result since middle of 2009. At the end of March the Nikkei index keeps about levels 12300-12400, which is just a bit lower its maximum levels. From the middle of November growth of the main exchange indicator of the country grew almost by 45%.


Leading stock indexes of Europe also closed yesterday’s trading session with a moderate growth - the British FTSE-100 grew up for +0,38%, the German DAX grew by 0,08%, the French CAC increased for +0,52%. Also it should be noted that in relation to the Catholic holiday “Passionate Friday”, markets of the USA, Australia, Hong Kong, India, Singapore and as well as many European platforms are going to be closed today.


Prices of oil following the results of last trading session continued a shy rebound upward and again showed positive dynamics. In the short term ascending dynamics can be continued up to the closest zone of resistance around $112-113 for barrel. This morning, we can see BRENT traded on a level of 109.77$ per barrel, NYMEX adds 0.67% in price and is on a level of 97.23$ per barrel.

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15 March 2013: Stock market growth smile on US dollar

  The Dow Jones Industrial rose for a 10^th straight day in a stock rally not seen since 1996, and ended up 0,6 % at 14 539. This followed a strong session in Europe.  In Asia stocks rose again this morning after two loss making sessions. The rally was spurred by new US- labour market data showing a fall in the weekly numbers of people applying for unemployment benefits. The data reflects  that the American economy is steadily improving.  A raft of recent data from retail sales and manufacturing to employment and housing have shown that the US  economy is gathering steam.

 In contradiction to former historical stock rallies where the green buck was used as some kind of a life jacket, the USD has this time benefited greatly on the stock market’s surge to new highs and improved economic data.  Against a basket of currency, DXY, the dollar has reached a seven month high. Since January USD/JPY has jumped from 86,67 to over 96. Pound Sterling, GBP, has fallen from 1.62 to a bottom of  1.4832 earlier this week. The moves suggest that the dollar has entered a multi-year bull cycle where the dollar has outperformed nine of the major G-10 currencies.

 Political uncertainty in Italy has re-ignited  fear about the  euro zone’s debt crisis and put new pressure on the Euro.  Weak economic growth and  prospects of aggressive monetary easing in Japan and Britain have driven the yen and GBP to multi-year lows.  Spending cuts in Washington could for sure damper US economic growth and the FED has further pledged to keep interest rates low for the foreseeable future.   But capital flows continue to rotate in the favour of US-assets and  strengthen both the US economy and the dollar.

The dollar strength against JPY and Euro  took a little breather  on Friday. USD/JPY trades at 96,03 down from the peak of 96,71 on Tuesday. If the Bank of Japan (BOJ) follows up on its  declared strong monetary easing policies, USD/JPY is likely to trade in a future range between 95 – 105. If BOJ disappoints the trading range is expected to be 86 – 96. Euro/USD was in the short term  strengthened by a positive Spanish bond auction on Thursday. It  trades at 1.3010. Pound sterling and Australian dollar were yesterday’s winners. The Aussie added another 0,8 % after another  one percentage jump on good employment numbers on Wednesday.

 British pound surged yesterday as investors scrambled to cover short positions made on expectations of more quantitative easing by the Bank of England. The Bank’s Governor stated that GBP according to his opinion is properly valued and not seeking further depreciation.  GBP was helped by rumours that Qatar is planning to invest billions of GBP into British infrastructure projects. The GBP yesterday’s one % gain is the biggest seen in seven months.

 These short term gains are nevertheless not expected to  have any major medium or long term  impact.  The long medium and long term outlook point towards  a stronger USD both in relation to Euro, JPY, GBP and most other currencies. These forecasts for Euro/USD point to  a new test on former bottom levels 1.19 – 1.20. It is also predicted that GBP/USD can drop as low as 1.35.  The corridor range 95 – 105 is the most likely medium term scenario for USD/JPY.

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14 March 2013: Retail report boosts DOW to new high

Surprisingly strong retail sales helped the Dow Jones Industrial to rise for the ninth straight session in a stock rally not seen since 1996. The new record high posted for DOW is 14 455. Also Nasdaq edged higher to 3 245. Trading volume was light with investors consolidating positions after a strong run up in the three first months of the year. Sign of strength in the economy and the Federal Reserve’s (FED) monetary easing have accelerated the advance of US equities, but many investors are asking whether we are in for a technical correction. The retail sales report helped underscore the impression that the economy is gaining momentum.

Asian shares fell for the second day in row with regional factors outweighing the positive sentiments from another Wall Street record close. The MSCI-index for Asia-Pacific was down 0,6%. Australia plunged 1% in spite of positive employment numbers. The Australian dollar reacted positive to the employment news and hit a five-week high. The Japanese Nikkei bucked the negative trend and added 0,4%. Net inflows in Japanese mutual funds reached USD 11 billion in February. A domestic stock rally for the last four months have increased investor’s appetite for Japanese stocks.

Monetary policy direction remains diverse in Asia as countries also watch development in Chinese economy and North Korea closely. Japan wants powerful monetary easing to get out of a vicious deflation spiral harming its economy for two decades. Other central bankers are fearful of inflation. South Korea has been holding the interest rate steady at 2,75% for the last half year.

The Australian dollar jumped to USD 1,0383 after employment soared by 71 000 in February. JPY continues to gain strengthen against USD trading at 96,03 down from its 96,71 peak on Tuesday. Euro/JPY has also retreated from its record high on Tuesday. The brighter forecast for the US economy has negatively affected the Euro trading down to 1,2947. The yield on Italian short and long term bonds increased during yesterday’s auction, the first after the rating agency Fitch downgraded Italy’s credit rating in February. Investor’s attention will today turn to the Spanish bond auction.

Oil prices, gold and silver have dropped since yesterday. NYMEX crude trades at USD 92,28 a barrel. Brent crude is down to 108,40. Gold trades at USD 1586 an ounce.

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