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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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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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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01 April 2013| Gloomy perspective for Cypriot investors

EURO/USD fell to its lowest level in four month Monday on concerns about the spill over from Cyprus bailout terms. The Euro hit 1.2791, just above the four month low of 1.2750 reached on Wednesday. The Euro was trading at a high of 1.3711 back in February. Trading activities have been low over the last days due to Easter holidays in Europe.

 The short and medium term effects of the Cyprus crisis inside the Euro zone are so far not fully digested. Russian investors are hard hit, but Western European companies and individuals using Cyprus for the same tax planning reasons have also suffered heavy losses as a result of the collapse of Laiki, The Cyprus Popular bank, and near bankruptcy of the biggest bank, Bank of Cyprus (BOC). This comes among rumours that the Cypriot banks lately have given politicians and close friends - favourable loans and credits.

 Small companies struggling to repay loans in Italy and Spain signal bigger problems on the horizon for the euro zone. Defaults by small and medium sized enterprises which are the biggest employers in Spain and Italy, are rising explosively spelling troubles for banks and countries in the heart of Europe’s debt crisis.  While Cyprus count for 0,2% of the total Gross Domestic Product (GDP) in the euro zone, Spain and Italy count for 28%.  Whether these countries will be able to pull themselves out of the crisis and avoid full-blown bailouts depends on their banks which are fighting with bad loans and decreased profitability.

 Recent news from the Cypriot Minister of Finance and the Central Bank tell that account holders would be hit much harder than firstly announced. Cypriot authorities are still putting strong restrictions on “safe” accounts with less than Euro 100 000 meaning that Cyprus for all practical purposes not any longer is a functioning member of a currency union. On deposits above Euro 100 000.00 - 37,5% shall be converted into shares in Bank Of Cyprus (BOC), 22.5% are going to be frozen and the remaining 40% might be used for recapitalization of BOC.

 This means that Russian depositors stand to lose billions of Euro in what Prime Minister Medvedev has described as a Soviet style confiscation of Russian accounts.  The Russian government will, however, not aid businesses that have lost money in Cyprus.  Deputy Prime Minister, Igor Shuvalov, stated yesterday that Moscow is going to continue to clamp down on flight capital to offshore financial centers. “It is a terrible shame that Russians lose money, but the government will not take action in such a situation”.

 Much of the Russian money in Cyprus, probably up to Euro 19 Billion in bank deposits, are flight capital where Russian companies and rich individuals have tried to avoid taxation in Russia. The authorities have formerly offered a tax amnesty for flight capital being brought back to Russia.
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