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FX Options and the Greek June 17 election
Prices of forex options ahead of Sunday's Greek elections is ...
Prices of forex options ahead of Sunday's Greek elections is three times the usual level, says Saxo Bank options trader Kresten Bechmann. In this video, he talks where the stops are for EURUSD, both above and below current levels, based on who wins the election.
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"We have to believe we can save Spain's banks"
In this special banking report video Yvette Roper of TradingFloor.com ...
In this special banking report video Yvette Roper of TradingFloor.com interviews Tomas Berggren, Equity Analyst, Saxo Bank on the fate of Spanish banks after the news of a Euro 100 billion bailout. He discusses whether this will be enough to save the necks and reputations of the most troubled banks and if not what the next most likely scenario is. For a long time the Spanish government insisted that it did not need external help to recapitalise Spain’s banks. That all changed quickly with news of the bailout. There’s no doubt the 100 billion is a step in the right direction but now the hard work begins in terms of setting a Spanish model to recapitalise the banks, says Tomas. And now it’s all about a bail-in rather than a bail-out model which if it works will in the long-term benefit taxpayers, he adds. He estimates however that unless there’s a turnaround soon in the housing market in Spain then much more than 100 billion will be needed. The focus is on the regional banks or so-called Cajas which have gone all-in on the Spanish real estate and housing market and will be the first ones helped. Tomas estimates that a few Cajas will be nationalised pretty soon. There are some concerns about the two great multinational banks BBVA and Banco Santander, though they are more insulated because they have other sources of income and funding which also come from outside Spain. In terms of how the Spanish bailout differs from the likes of Ireland it all comes down to the economy’s and thereby banks’ over exposure to the property market. The banking system has bet almost everything on this property wave and therefore there are not that many alternatives for the Spanish economy, says Tomas, adding that a further 20 percent drop in Spanish housing prices might be ahead. The Spanish situation is also particularly exacerbated by the troublesome micro and unemployment situation. He sees how Spain comes through this as a definite make or break event for the Euro. The Spanish economy is the fourth-largest in Europe and in magnitude of severity this ‘crisis’ matches more than the other four PIIGS members combined. Nevertheless he is optimistic and states: “We have to believe we can save the Spanish banks” with the main issue no longer being “if” but “how”. He stressed the need for proper risk takers to take the losses so taxpayers don’t have to step in to foot the bill. See more of Tomas' bank coverage in his blog Berggren's Banking Monitor on TradingFloor.com
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Asian Focus: Australian, Japanese trade data unlikely to impress
In this Asian Focus video Yvette Roper of TradingFloor.com interviews ...
In this Asian Focus video Yvette Roper of TradingFloor.com interviews Andrew Robinson, FX Analyst for Saxo Capital Markets in Singapore about GDP and trade data from Australia and Japan. Andrew also gives insight into the countries’ central bank actions. There is still more room for rate cuts in Australia, despite a cut earlier in the week and recent impressive growth and employment reports. For Japan, talk continues about yen intervention though the verbal not physical variety seems the only way for some time yet. With Japan’s trade numbers seen hovering around zero and or possibly in deficit for May Bank of Japan intervention would be much welcomed by Japan’s exporters. We would have to hear a lot more talk about stimulus measures and the dollar-yen drifting much lower before we actually get some real intervention though, says Andrew, adding that other central banks were not that enthused when the BOJ acted last time and further intervention will be difficult to get through the G7 and G20. Intervention won’t come until the dollar-yen is back down around the 76 level, he says. Trade numbers are out Friday. On Australia, trade data for April is the focus now with the mining sector’s strength, or lack of, still a determining factor. This report comes on the back of very strong GDP numbers for the first quarter, impressive employment data for May and a Reserve Bank of Australia rate cut earlier in the week, all of which Andrew discusses in this video. On GDP such growth levels have not been seen since before the global financial crisis began in 2008. There’s a natural fear though that it was a one-off and that when we get to second quarter data we will see slightly lower numbers due to the global situation and particularly concerns about more economic weakening in Europe and moderation in China. For the trade data though it’s highly unlikely that the number will impress. The trade deficit is seen declining for a fourth straight month. See more of Andrew's Asian market commentary on TradingFloor.com
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Asian Focus: Substance to China stimulus; Japanese orders slowing
In this Asian Focus video Yvette Roper of TradingFloor.com interviews ...
In this Asian Focus video Yvette Roper of TradingFloor.com interviews Andrew Robinson, FX Analyst for Saxo Capital Markets in Singapore about the latest PMI data from China, plus talk of pending stimulus there which clearly has some substance to it. The interview also covers PMI data from Japan which bears some similarity to China's slowing story plus industrial production there, which is still skewed by the post tsunami effect. Furthermore, Australian purse strings are clearly tightening, recent retail sales data reveals. May PMI data for China is seen still firm with the headline number expected at 53.3, well above the 50 contraction/expansion mark. Drilling down in the data though the positive effect is not seen as strong with new orders on the decline and Andrew expects slower or weaker data from the series ahead. Despite the obvious difference in the official data and the HSBC data due to the number and type of companies surveyed it is interesting to note that within the official data there is a small business sub-index that last month was very close to the HSBC number, revealing that the actual discrepancy between the two numbers is actually not that great after all, says Andrew. Australian retail sales dropped 0.2 percent in April on a month on month basis. The number looks quite weak though because of an equivalent upgrade to the previous month’s data. Overall however, clearly the Australian economy, apart from the mining sector, is struggling, says Andrew, adding that it was of particular interest to see that the biggest decline was in the restaurant and café sector, suggesting less discretionary spending. On Japan the headline PMI number for May at 50.7 was unchanged from April and virtually also the three month average of 50.8. Beneath the numbers though there is some similarity to China with new orders and export orders declining, says Andrew. On industrial production for Japan, a similar slowing effect is expected for the month of April which is seen coming in at 0.5 percent versus 1.3 percent in the previous month. The annual comparisons are still distorted by the effects of last year’s tsunami though which again is showing a slight slowdown to 13.7 percent year on year versus 14.3 percent in the previous month. On Chinese stimulus, Andrew says there is clearly some substance to the rumours as officials have been mainly downplaying the estimates rather than denying any action. The expectation is for no more than 2 trillion yuan in stimulus, which is well below the amount provided in 2008. The form however is not likely to involve a direct hand-out but rather some boosting to lending from banks and increasing the speed that infrastructure projects are sanctioned at. On the latter, Andrew says such projects will only provide a very short-term boost to the economy as in the long term you can’t keep building bridges to nowhere and Chinese authorities will have to do something else. There is also talk of a ‘cash for clunkers’ scheme, somewhat like what was done in the US in 2008. Recently this has had a positive effect in the stock markets with automobile producers getting a bit of a boost in the last couple of days. Any increase in bank lending however will most likely coincide with a Reserve Requirement Ratio cut, says Andrew, adding that it’s highly likely there will be more positive or definite noises about stimulus coming out of the Chinese officials in the next few weeks. See more of Andrew's Asian market commentary on TradingFloor.com
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Asian Focus: China's growth struggle vs. Japan's inflation wish
In this special Asian Focus video Yvette Roper of TradingFloor.com ...
In this special Asian Focus video Yvette Roper of TradingFloor.com interviews both Andrew Robinson, FX Analyst for Saxo Capital Markets in Singapore and Steen Jakobsen, Chief Economist, Saxo Bank, Copenhagen. They discuss the health and future scenarios of the region’s two dominant economies - China and Japan - based on their respective ‘insider looking out’ and ‘outsider looking in’ perspectives. China is seen continuing to struggle with its role as a production hub for the rest of the world where growth is slowing. This is an issue particularly because the Chinese economy almost entirely bases its competitiveness on a weaker currency and low unit labour costs which will be increasingly threatened by moves to robotics and other technology. Therefore it will be interesting to see how China’s plans to increase government consumption, speed up infrastructure projects, reduce taxes, allow private investment in public projects can help boost growth that much. It’s a planned economy and per definition it should work, however political turmoil there is being underestimated by markets, says Steen. Despite China’s Premier Wen being very vocal about such initiatives, even though he is stepping down in a few months, the market is growing very tired of his comments. Market reaction lasts only about 24 hours and the biggest problem is that even when the action comes the impact on the economy won’t be that great, says Andrew. Also of interest is the many reserve requirement ratio cuts in China of late which are not really filtering through to society with little lending happening so far. Furthermore, inflation is a bit of an issue in China with hefty wage pressure costs coming through the pipeline. It’s very much a tug of war between the two sides of the equation, says Andrew adding that even though more cuts are on the way any direct impact on the economy is difficult to tell. On Japan, focus is largely on how the implementation of inflationary targeting will be met and not on any recent ratings downgrades. Nor is it on the dire nature of its massive debt to gdp ratio (close to 250 percent) as while Japan effectively pays zero percent in interest the situation remains sustainable. Japan’s bonds, currency and other asset classes continue to remain strong amid this environment largely due to the dominance of Japanese ownership which is ingrained into the society. Of interest will be how Japan switches from deflation to inflation with a target of 1 percent. What essentially also needs to change is the perception of inflation in Japan, with its safe haven status largely being a reflection of the fact that inflation is positive for currencies. On currencies, for the two nations the preferred path is obvious, or as Steen aptly puts it: “Everyone wants China to have a stronger currency and Japan to have a weaker one to spur growth.” He sees the yen beginning to weaken over the next 10 to 15 years reflecting that Japan will be coming back into the world market as an engine while China's currency will continue to weaken. And on the yuan, its continued weakness against the US dollar is not as simple as Chinese authorities just trying to keep it low to boost the country’s exports. There’s a general corporate market shortage of dollars in the region and a lot of Asian currencies being sold against the US dollar, says Andrew. Meanwhile, the near-term effect of the recent opening of an extra yuan facility near the Myanmar border (in addition to Hong Kong) won’t have a great impact on Asian regional trade. Furthermore FX trading in the yuan is hardly just around the corner. Authorities always said they will open up markets as and when it suits them and there’s no inclination it’s in their interests to do so at the moment, says Andrew. See more of Andrew's Asian market commentary on TradingFloor.com For more comments by Steen Jakobsen see his blog Steen's Chronicle on TradingFloor.com
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Asian Focus: Dim Japan outlook as rebuilding post quake wears off
In this Asian Focus Video, Yvette Roper of TradingFloor.com interviews ...
In this Asian Focus Video, Yvette Roper of TradingFloor.com interviews Andrew Robinson, FX Analyst for Saxo Capital Markets in Singapore about first quarter growth and March industrial production data from Japan. He emphasises the expected positive effects of post earthquake rebuilding on the data and warns that such effects are rapidly fading so the outlook for Japan looks dim. He also gives insight into the state of growth in Singapore and the recent monetary easing in China. Whether the latter or even more reserve requirement ratio cuts can help keep the Asian engine running at moderate speed, let alone power wider reaching growth is unlikely. Japan’s economy is expected to have grown in the first three months of this year, making it the first increase in two quarters but the upcoming data will hardly represent a turning point for Japan. It might be a good figure for the first quarter but generally things look less bright for the rest of the year, says Andrew. The expected strong rebound is dependent on leftovers from the rebuilding programme after last year’s earthquake. Once the rebuilding is out of the way Japan will be back to relying on exports again, he says. Growth prospects are further compounded by the fact that the yen has strengthened 5 percent since the middle of last month and the external situation is looking "quite dicy" with prognoses for slips in GDP ahead. The same goes for the industrial production data for March from Japan. Annual growth will be a lot higher but the month on month numbers will be much lower. There’s no doubt that compared to one year ago when the earthquake hit that the March data has to look good but a continued increase is unsustainable, says Andrew. This is partly caused by the Japanese manufacturers’ plans being hindered by power shortages due to the reduction in nuclear power. The switch to fossil fuel and alternative energy is however more of a concern for the country’s trade balance as Japan is forced to import more oil and coal making a continued trade deficit an ongoing reality, says Andrew. Ever since the earthquake hit Japan it has seen mostly monthly deficits in its trade balance and that’s more of a concern for the economy going forward, he says. Singapore is expected to post strong first quarter GDP data with performances in the manufacturing and construction sectors standing out. But the outlook for the manufacturing sector in particular, which is very much dependent on the external situation, looks quite bleak, says Andrew. On China, the affirmation of economic slowing signalled by the reserve requirement ratio cut earlier this week is a positive step, but the cut in itself is hardly enough to change much for China or the Asian economies. It will be quite a struggle for China and the other Asian nations to produce good figures in the coming quarters when the rest of the world is facing a slowdown, he says. In isolation this cut was a much needed move for China and is not the last. Despite more cuts ahead the expectations for China to power global growth are unrealistic. The Eurozone issues will particularly plague China and the rest of Asia, with these economies being hit at least twice as hard as the US economy. See more of Andrew's Asian market commentary on TradingFloor.com
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Asian Focus: More signs of China slowing but easing still way off
In this Asian Focus Video, Yvette Roper of TradingFloor.com interviews ...
In this Asian Focus Video, Yvette Roper of TradingFloor.com interviews Andrew Robinson, Correspondent for Saxo Capital Markets in Singapore reviews April trade balance figures out of China and previews other key data for the month which points to continued slowing in the world's second-largest economy. He also reviews the latest employment figures from Australia which seem to be surprisingly robust but a closer look reveals a different story. China’s trade balance data for April was hardly all good news despite a higher-than-expected increase in the surplus. Much of the improvement came due to the lowest level of imports in more than a year (excluding lunar New Year distortions), while exports grew at a much lower than expected pace. The report was especially negative for the Australian economy as reduced imports into China (Australia’s largest trading partner) suggest that demand for Australian resources will slow. The low level of imports suggest the requirements for the Chinese economy are slowing down and as a result there’s a risk of lower industrial production data for April, due Friday, says Andrew. Also on Friday Chinese retail sales for April are expected to come in flat at around 15.3 percent year on year versus 15.5 percent last year. As a result of this and the overall economic backdrop in China any expectations that domestic consumption will take off there soon are being put on the back burner a bit simply because the logistics of the domestic economy are very difficult to move and it’s going to be a very long and drawn out process, says Andrew. Friday will also see the release of Chinese CPI data for April. A slightly lower inflation rate of 3.4 percent is the consensus estimate, down from 3.6 percent in the previous month. Food plays an important part in the compilation of the basket of Chinese data and this time in particular the volatile food prices in vegetables and pork are also seen playing a major role. Regardless of the outcome though, and the weaker trade data, the wait for any stimulus or easing measures in China will take a few more months at least, estimates Andrew. In Australia, a jobs report for April surprised on the headline number with 15,500 jobs added to the economy and an overall unemployment rate of 4.9 percent, the lowest in a year. Closer analysis however revealed that most of the jobs were added in the part-time category while the number of full-time jobs declined, so that part of the headline is not quite as strong as it suggests, says Andrew. The report initially had a positive effect on the Australian dollar but expectations for an interest rate cut at the next Reserve Bank of Australia meeting in June have now dropped to a 50-50 bet from a 70-30 one just a week ago, he concludes. See more of Andrew's Asian market commentary on TradingFloor.com
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High odds for June RBA cut; Singapore COE inflation impact eyed
In this Asian Focus Video, Yvette Roper of TradingFloor.com interviews ...
In this Asian Focus Video, Yvette Roper of TradingFloor.com interviews Andrew Robinson, Correspondent for Saxo Capital Markets in Singapore about the likely reasoning behind the Reserve Bank of Australia’s deeper rate cut and the impact on consumer borrowing. They also discuss New Zealand’s higher than expected first quarter employment data and controversial PMI indices out of China. Andrew also previews interesting data for the Asian region to be released next week, including Certificate of Entitlement premiums from Singapore which are set to continue be a key contributor to rising inflation during the next month. This week the Reserve Bank of Australia cut the cash target rate by a more than expected 50 basis points. More benign Inflation and a weaker economy is expected to be confirmed as the reasoning behind the cut in the RBA’s monetary policy statement due Friday. The full impact in terms of reduced borrowing costs has been barely passed on to consumers though which is why the odds are already quite high (around 70%) for another 25 basis point cut at the bank’s June 5 meeting. New Zealand reported its highest unemployment rate since 2010 for the first quarter which put the kiwi under pressure and further delayed expectations of any interest rate normalisation soon. China’s manufacturing PMI reports (both the official data and the HSBC equivalent for April) showed slight improvements though there is still a great discrepancy between the two, with the private sector figure continuing to indicate contraction and the government figure expansion. Due to the different components and weightings it’s difficult to compare them like for like, says Andrew. Instead, they need to be analysed individually to get an indication of Chinese manufacturing activity. Looking ahead to upcoming Asian data, an employment report in Australia plus China trade numbers, industrial production and CPI will be in focus next week. Of particular interest will be Wednesday’s Singapore data on certificate of entitlements, which are required for putting a new car on the road. A recent increase in premiums due to expected restrictions is seen having a dramatic effect on inflation. See more of Andrew's Asian market commentary on TradingFloor.com
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Asian sales key to earnings; Wage and input cost pressures grow
With more than half of the first quarter earnings reports ...
With more than half of the first quarter earnings reports from benchmark S&P 500 companies out of the way Peter Garnry, Equity Strategist, Saxo Bank talks with Yvette Roper on TradingFloor.com about the trends that have emerged and which sectors are the best and worst performers. He particularly looks at information technology - the leader of the pack, yet again, in terms of sales and net income. He says that a lot of the reason for the IT sector’s outperformance is due to Apple, but there’s also a good development across the board from other IT companies, with a clear reinvestment cycle going on in terms of new equipment and infrastructure for companies. Regarding the worst performers, utilities and mining have suffered the most. Utilities particularly felt the impact of an extremely mild winter in the US. Materials and mining is hurting due to rising costs from late stage extraction of minerals. Regarding the earnings surprise ratio it is one of the highest seen since 2001. This bodes well for the overall health of companies, says Peter, adding that low expectations played a contributory role in the high surprise ratio. Companies in general have benefited from what Peter says is ‘okay’ growth in the US and Asian economies, with the latter playing a key role. More and more growth from Asia will continue to drive the large caps’ good performance. The impact of the global economic slowdown on company earnings is being largely offset by Asian growth. Sales growth is around 5.5 to 6 percent which is slightly above annual growth rates since 1999. But with no more tailwinds from profit margins in sight it’s essential that going forward companies get some more real sales growth, otherwise aggregate earnings will begin to flatten, says Peter. Profit margin contraction in 7 out of 10 sectors is a concern, says Peter, drawing attention to commodity prices which are still at fairly high levels and will take some time before they spill into the operations of multi-national companies. Then there’s the issue of rising unit labour costs in the US. US personal incomes have been flat for the last two years and we expect some wage pressure developing which will make it difficult for companies to maintain their profit margins, says Peter. On European stocks, Peter rates the first quarter earnings season as satisfactory but 'no party'. There’s no doubt US stocks are performing much better than European stocks but within Europe there are two sub sectors in the consumer discretionary sector that are performing very well – automobiles and luxury goods, which are benefitting from Asian demand. See more of Peter's market commentary on TradingFloor.com
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EURUSD squeeze on overly dovish FOMC? French election woes abound
In this video, Yvette Roper, Editor of TradingFloor.com, interviews John ...
In this video, Yvette Roper, Editor of TradingFloor.com, interviews John Hardy, Head of FX Strategy Saxo Bank, about the all-important Federal Open Market Committee meeting and in particular expectations for growth, inflation, rates and quantitative easing. He also discusses the French presidential elections and the negative implications for the Eurozone. The FOMC outcome will generally be dollar supportive if the market is where I think it is – expecting a rather dovish FOMC and a rather non-committal response, says John. In terms of the EURUSD there’s a risk of even a squeeze higher (but no run away rally short-term) if the FOMC is more dovish than I expect. Regarding Fed forecasts, he sees the unemployment rate being lowered a bit and inflation rising due to indicators having moved higher recently. In terms of further quantitative easing though he expects Chairman Ben Bernanke to back his dovish views while still showing concern about some worrying issues and the willingness to act if needed. We need a few more months of bad data points, especially on the unemployment side, and markets to be in really bad shape before we see the Fed going into more QE, especially considering the political sensitivity ahead of November elections, says John. In terms of politics elsewhere, the French presidential elections are receiving much attention. John goes as far as calling it the “last nail in the coffin”, particularly considering the German desire to see fiscal discipline and the Dutch Government dissolving on the inability to form a coalition around austerity measures. If Francois Hollande, who took the lead in the first part of the election goes all the way and become president then the march against austerity will continue. It will mean a lot of uncertainty going forward especially for German politics and Chancellor Merkel’s position and we may even see elections there ahead of schedule. The rapid rise of Marine Le Pen from the far-right is also adding to Eurozone concerns. Sarkozy is seen using some of her rhetoric to win over some votes though pulling off victory is doubtful, says John. What it all means for euro-dollar short-term is difficult to say. Eventually EURUSD will head lower but it’s been wishy-washy in a range up to now, he says. See more of John's commentary on TradingFloor.com
