Royal Bank of Scotland Group Plc issued structured notes that pay a return based on swings in the Swiss franc versus the euro, regardless of what direction they’re in.
Investors in the so-called win-win notes get a coupon equal to the franc’s rise or fall against the common currency after five years, according to Kemal Bagci, a Frankfurt-based director in RBS’s equity derivatives unit. The notes pay a minimum return of 10 percent, he said.
RBS plans to issue about 20 million euros ($26 million) of the notes, which will be listed on the Frankfurt and Stuttgart stock exchanges when the subscription period closes at the end of August. The note includes a 1.5 percent fee which is incorporated into the pricing structure.
“This suits the current market conditions as you’ve seen a lot of currency speculators betting on the future of the euro, while the Swiss currency has drawn investors in who view it as a safe haven,” Bagci said. “We are mainly targeting private banks for this product.”
Monday, July 26, 2010
Morgan Stanley Ends Advice to Sell Kiwi Versus U.S. Dollar, Booking Loss
Morgan Stanley analysts ended a recommendation to sell the New Zealand dollar against the U.S. currency after the so-called kiwi appreciated beyond the level set to protect against potential losses.
The month-old “tactical trade” was ended on July 23 at 72.73 U.S. cents per New Zealand dollar, a team of strategists led by Stephen Hull in London said today in a note distributed by e-mail.
The trade, based on an opening level of 70.54 cents on June 24, booked a loss, the analysts wrote in the note.
The kiwi rose 0.3 percent to 72.98 U.S. cents at 11:31 a.m. in London.
The month-old “tactical trade” was ended on July 23 at 72.73 U.S. cents per New Zealand dollar, a team of strategists led by Stephen Hull in London said today in a note distributed by e-mail.
The trade, based on an opening level of 70.54 cents on June 24, booked a loss, the analysts wrote in the note.
The kiwi rose 0.3 percent to 72.98 U.S. cents at 11:31 a.m. in London.
Yen May Strengthen as Regulations Force Mrs. Watanabe to Curb Carry Trades
Yen May Strengthen as Regulations Force Mrs. Watanabe to Curb Carry Trades
By Yasuhiko Seki and Hiroko Komiya - Jul 25, 2010
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Business ExchangeTwitterDeliciousDiggFacebookLinkedInNewsvinePropellerYahoo! BuzzPrint The yen may climb next month as tighter regulations force Japanese households controlling about $76 billion in daily exchange trading to unwind bets on higher- yielding currencies, analysts said.
The government will cap debt used to boost trading bets, or leverage, at 50 times committed cash from August 2010, down to 25 times in 2011, the Financial Services Agency decided last year. Individual traders have started to prepare for the change, according to Japan’s biggest online currency broker which saw accounts with 100 times or more leverage fall by half last month.
“If margin traders decide to discontinue highly leveraged transactions, it will put upward pressure on the yen as those positions are unwound,” said Yuji Kameoka, senior economist in Tokyo at Daiwa Institute of Research Ltd., a unit of Japan’s second-biggest brokerage. “The Australian dollar, a favorite among margin traders, may feel the pinch in particular.”
The yen rose to an eight-year high of 107.32 per euro June 29, and climbed to 86.27 U.S. cents on July 16, near a 14-year peak of 84.83 set Nov 27. It gained to 72.69 per Australian dollar on July 1, the highest since May 25. Japan’s currency traded at 113.23 per euro, 87.62 U.S. cents and 78.36 to the Aussie as of 12:23 p.m. in Tokyo.
The FSA enacted the leverage standards to protect against excessive losses for customers and aid in risk management in the financial industry, according to a release by the agency last year. There was previously no official limit on leverage in currency margin transactions.
Traders who use margin accounts collectively came to be called “Mrs. Watanabe,” drawing upon the common Japanese surname and the fact that wives traditionally control the purse strings in Japanese families.
Housewives, Gnomes
Bank of Japan Deputy Governor Kiyohiko Nishimura said in 2007 “the housewives of Tokyo” had a stabilizing effect on currency markets, in contrast to the “gnomes of Zurich,” a term used by U.K. politician Harold Wilson to describe pound speculators based in Switzerland.
Benchmark interest rates are 4.5 percent in Australia and 2.75 percent in New Zealand, compared with 0.1 percent in Japan, attracting investors to the South Pacific nations’ higher- yielding assets. In carry trades, investors borrow money in countries with low interest rates to invest in higher-yielding assets.
The Australian dollar versus the yen "has historically been the most-favored play by leveraged Japanese investors,’’ said Sue Trinh, senior currency strategist in Hong Kong at Royal Bank of Canada. “Limits on leverage could therefore see reduced demand from August.”
Net Shorts
Trinh recommends selling the Australian dollar, saying it may retest the 72 yen level reached in May amid ebbing sales in Japan of overseas-focused mutual funds and a pattern of seasonal weakness for the Aussie in August.
Net short positions on the yen, equivalent to yen carry trades, stood at 1.89 trillion yen ($21.6 billion) at the end of June, up 59 percent from the previous month, according to the Financial Futures Association of Japan, which compiles data from 57 margin brokerages.
The average trading volume of foreign currencies in Tokyo stood at $254.2 billion a day in April 2009, the latest figure available from the Foreign Exchange Market Committee. Currency margin traders account for up to 30 percent of daily turnover, according to an estimate from JPMorgan Chase & Co.
“The new leverage regulation just sounds like harassment for individual traders,” said Nobuhide Suzuki, 42, a Tokyo- based private investor who leverages exchange trades by 100 times on average. “The reduced leverage limits will simply deteriorate the efficiency of investment.”
‘Preparatory Mode’
Gaitame.com, Japan’s largest foreign-exchange margin dealer, said 7 percent of its accounts were leveraged at more than 100 times in its latest survey conducted between June 16 and June 23, down from 13.6 percent the previous month.
“Individual investors were already in a preparatory mode ahead of the regulatory tightening, trimming highly-leveraged positions,” said Tsuyoshi Okada, managing director in Tokyo at Gaitame.com’s research unit. “The new regulations may spur intraday volatility at the start.”
Japan’s currency typically rises during times of financial turmoil as the nation’s trade surplus means it doesn’t have to rely on overseas capital. Global risk aversion in the wake of Europe’s debt crisis has spurred an 10 percent surge in the yen in 2010, according to Bloomberg Correlation-Weighted Currency Indexes, the most among 10 currencies tracked.
Yen-denominated margin accounts had deposits of 595.1 billion yen as of March 2009, according to private-research institute Yano Research Institute Ltd. That’s down from a record 696.4 billion yen a year earlier when the collapse of Lehman Brothers Holdings Inc. accelerated gains in Japan’s currency.
“Margin traders are likely to stay on the sidelines initially to adapt themselves to the new rules and see how things will develop before they return to the market,” said Toshiya
By Yasuhiko Seki and Hiroko Komiya - Jul 25, 2010
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Business ExchangeTwitterDeliciousDiggFacebookLinkedInNewsvinePropellerYahoo! BuzzPrint The yen may climb next month as tighter regulations force Japanese households controlling about $76 billion in daily exchange trading to unwind bets on higher- yielding currencies, analysts said.
The government will cap debt used to boost trading bets, or leverage, at 50 times committed cash from August 2010, down to 25 times in 2011, the Financial Services Agency decided last year. Individual traders have started to prepare for the change, according to Japan’s biggest online currency broker which saw accounts with 100 times or more leverage fall by half last month.
“If margin traders decide to discontinue highly leveraged transactions, it will put upward pressure on the yen as those positions are unwound,” said Yuji Kameoka, senior economist in Tokyo at Daiwa Institute of Research Ltd., a unit of Japan’s second-biggest brokerage. “The Australian dollar, a favorite among margin traders, may feel the pinch in particular.”
The yen rose to an eight-year high of 107.32 per euro June 29, and climbed to 86.27 U.S. cents on July 16, near a 14-year peak of 84.83 set Nov 27. It gained to 72.69 per Australian dollar on July 1, the highest since May 25. Japan’s currency traded at 113.23 per euro, 87.62 U.S. cents and 78.36 to the Aussie as of 12:23 p.m. in Tokyo.
The FSA enacted the leverage standards to protect against excessive losses for customers and aid in risk management in the financial industry, according to a release by the agency last year. There was previously no official limit on leverage in currency margin transactions.
Traders who use margin accounts collectively came to be called “Mrs. Watanabe,” drawing upon the common Japanese surname and the fact that wives traditionally control the purse strings in Japanese families.
Housewives, Gnomes
Bank of Japan Deputy Governor Kiyohiko Nishimura said in 2007 “the housewives of Tokyo” had a stabilizing effect on currency markets, in contrast to the “gnomes of Zurich,” a term used by U.K. politician Harold Wilson to describe pound speculators based in Switzerland.
Benchmark interest rates are 4.5 percent in Australia and 2.75 percent in New Zealand, compared with 0.1 percent in Japan, attracting investors to the South Pacific nations’ higher- yielding assets. In carry trades, investors borrow money in countries with low interest rates to invest in higher-yielding assets.
The Australian dollar versus the yen "has historically been the most-favored play by leveraged Japanese investors,’’ said Sue Trinh, senior currency strategist in Hong Kong at Royal Bank of Canada. “Limits on leverage could therefore see reduced demand from August.”
Net Shorts
Trinh recommends selling the Australian dollar, saying it may retest the 72 yen level reached in May amid ebbing sales in Japan of overseas-focused mutual funds and a pattern of seasonal weakness for the Aussie in August.
Net short positions on the yen, equivalent to yen carry trades, stood at 1.89 trillion yen ($21.6 billion) at the end of June, up 59 percent from the previous month, according to the Financial Futures Association of Japan, which compiles data from 57 margin brokerages.
The average trading volume of foreign currencies in Tokyo stood at $254.2 billion a day in April 2009, the latest figure available from the Foreign Exchange Market Committee. Currency margin traders account for up to 30 percent of daily turnover, according to an estimate from JPMorgan Chase & Co.
“The new leverage regulation just sounds like harassment for individual traders,” said Nobuhide Suzuki, 42, a Tokyo- based private investor who leverages exchange trades by 100 times on average. “The reduced leverage limits will simply deteriorate the efficiency of investment.”
‘Preparatory Mode’
Gaitame.com, Japan’s largest foreign-exchange margin dealer, said 7 percent of its accounts were leveraged at more than 100 times in its latest survey conducted between June 16 and June 23, down from 13.6 percent the previous month.
“Individual investors were already in a preparatory mode ahead of the regulatory tightening, trimming highly-leveraged positions,” said Tsuyoshi Okada, managing director in Tokyo at Gaitame.com’s research unit. “The new regulations may spur intraday volatility at the start.”
Japan’s currency typically rises during times of financial turmoil as the nation’s trade surplus means it doesn’t have to rely on overseas capital. Global risk aversion in the wake of Europe’s debt crisis has spurred an 10 percent surge in the yen in 2010, according to Bloomberg Correlation-Weighted Currency Indexes, the most among 10 currencies tracked.
Yen-denominated margin accounts had deposits of 595.1 billion yen as of March 2009, according to private-research institute Yano Research Institute Ltd. That’s down from a record 696.4 billion yen a year earlier when the collapse of Lehman Brothers Holdings Inc. accelerated gains in Japan’s currency.
“Margin traders are likely to stay on the sidelines initially to adapt themselves to the new rules and see how things will develop before they return to the market,” said Toshiya
Sunday, July 25, 2010
Euro Bears Vanish as End of Stress Makes Goldman Sachs a Bull
Losers eat sour grapes & claims winners are lunatic. See bottom paragraph.
The combination of growing confidence in Europe’s economy and mounting evidence of a slowdown in the U.S. is driving euro bears into hiding.
After tracking the euro’s slide from about $1.45 at the beginning of 2010, the median forecast of currency strategists has stayed within two cents of $1.20 since the start of June, according to data compiled by Bloomberg. Goldman Sachs Group Inc. and Wells Fargo & Co. raised their estimates in the past two weeks, joining HSBC Holdings Plc and Deutsche Bank AG in predicting a stronger euro.
While the euro weakened 15 percent in the first half as the region’s debt crisis threatened to tear the currency union apart, investors have shifted their focus to the U.S. as the dollar depreciated 8 percent from a four-year high in June. U.S. economic data fell short of economists’ estimates this month by the most since March 2009, while euro-region reports exceeded forecasts since April, according to Citigroup Inc. indexes.
“People got a bit too excited about the idea the euro-area was going to break up and forgot that the U.S. has a whole load of problems of its own,” said David Bloom, global head of currency strategy at HSBC in London, who has predicted since the start of June that the euro would end the year at $1.35.
Confidence in the euro returned after the most-indebted countries in the region announced budget cuts and the European Union crafted a 750 billion-euro ($970 billion) financial backstop in May to forestall defaults. Spain, Portugal, Ireland and Greece successfully auctioned more than 17 billion euros of bonds and bills since July 13.
Economic Outperformance
Speculation the recovery would accelerate increased when Germany’s Ifo institute said July 23 that its business climate index unexpectedly jumped to the highest level since July 2007. A composite index of European services and manufacturing industries climbed to 56.7 in July from 56 the month before, London-based Markit Economics said a day earlier.
Investors showed little surprise on July 23, when the Committee of European Banking Supervisors said seven of 91 EU banks subject to stress tests failed with a combined capital shortfall of 3.5 billion euros.
The euro rose 0.2 percent today to $1.2934 today after gaining in three of the past four weeks. The 16-nation currency appreciated 8.9 percent since June 7, when it slid to $1.1877, the weakest level since March 2006. It also rose 2.3 percent since falling to a more than seven-year low on June 29, according to Bloomberg Correlation-Weighted Currency Indexes.
Outlook Reversed
Analysts are raising their forecasts as Citigroup’s euro- region economic surprise index reached a three-year high of 131 on May 27. The equivalent U.S. gauge fell to a 16-month low of minus 43.6 on July 1. The measures examine historical standard deviations of data surprises by comparing releases with Bloomberg median estimates.
Goldman Sachs analysts led by Thomas Stolper in London reversed their outlook for the euro twice in two months, and said in the most recent forecast that the dollar will weaken against the euro by January as U.S. growth slows. The New York- based bank says the shared currency will reach $1.22 in three months, $1.35 in six months and $1.38 in a year. As recently as June, Goldman Sachs forecast the dollar would surge to a seven- year high.
Weaker Growth
“Weaker U.S. growth, reasonably solid euro-zone macro data and less political-fiscal disruptions than feared have been a feature of the past few weeks,” Goldman Sachs analysts wrote in the report dated July 14.
Wells Fargo, based in San Francisco, raised its six-month euro forecast to $1.24 from $1.20 on July 14, said Vassili Serebriakov, a currency strategist in New York.
“The main positives for the euro have been stronger-than- expected euro economic numbers and a recovery in risk appetite,” he said. Serebriakov said the euro will weaken longer term, falling to $1.18 in 12 months.
While U.S. growth has slowed more than forecast, the economy will still outpace Europe over the coming year as budget cuts start to brake the recovery, said Ian Stannard, a senior foreign-exchange strategist in London at BNP Paribas SA. The Paris-based lender scaled back its forecast for a decline in the euro on July 23, saying it will fall to $1.12 in the first quarter, from a previous prediction of parity.
‘Still in Place’
“The reasons why a weaker euro are both likely and needed are still in place,” said Stannard. “The market still hasn’t really adjusted to the prospect of lower euro-zone growth once the fiscal tightening that has been announced is implemented and begins to bite.”
The U.S. economy will expand 3.1 percent this year, according to the median of 55 analyst forecasts compiled by Bloomberg. The euro-region will grow 1.1 percent, a separate median estimate shows.
German Chancellor Angela Merkel’s Cabinet approved four years of budget reductions and revenue programs worth 81.6 billion euros on July 7. Greece aims to cut its budget deficit to 8.1 percent of gross domestic product this year, from 13.6 percent in 2009, and meet the EU’s 3 percent limit by 2014. Portugal plans to reach the EU target by 2012, reducing it from 9.4 percent last year.
The euro-region deficit will narrow to 6.1 percent of GDP in 2011 from 6.6 percent this year, according to European Commission forecasts on May 5. The U.S. gap will hit 10 percent in 2010 and 9.9 percent next year, the figures show.
While European governments are pruning, U.S. President Barack Obama signed into law a $34 billion extension of unemployment benefits on July 22.
Treasury Yields
“The market seems to be favoring regions where policymakers are taking an active role on deficit reduction and that’s not the U.S.,” said Thanos Papasavvas, who helps manage more than $5 billion in currencies at Investec Asset Management Ltd. in London. “For Europe it may be painful in the short-term, but they are dealing with it. The U.S., which has a much bigger problem, isn’t even beginning to deal with it.”
At the same time, the bond market is telling the U.S. government to focus on growth, not the deficit. Yields on two- year Treasury notes fell to a record low 0.5516 percent on July 23 and are 16 basis points, or 0.16 percentage point, less than similar-maturity German debt.
Housing starts in the U.S. fell more than forecast last month, the Commerce Department said July 20. Initial jobless claims rose to 464,000 in the week ended July 17, exceeding the highest estimate of economists surveyed by Bloomberg, Labor Department figures on July 22 in Washington showed.
Bearish on Dollar
Futures traders turned bearish on the dollar for the first time in almost three months on July 13, according to data from the Commodity Futures Trading Commission in Washington. So- called short positions, or bets prices will fall, by hedge funds and other large speculators outnumbered long positions by 99,175 on July 20, CFTC figures show.
The changing fortunes for the euro and the dollar caught foreign-exchange funds by surprise, according to the Parker BlackTree Currency Index, which tracks 22 currency funds that manage about $15 billion. The index lost 1.7 percent between May 14, when valuations reached the highest level since November, and July 16.
“Foreign exchange is the world’s biggest fruit and vegetable store, with millions of people playing it 24 hours a day,” Goldman Sachs Chief Global Economist Jim O’Neill said on July 21 in a radio interview with Tom Keene on Bloomberg Surveillance. “Anybody who thinks they can get foreign exchange right all the time should be in a lunatic asylum.”
Sunday, July 11, 2010
11 July 10 FX Summary and World Cup Finals
It has been 5 months since I first published my forecast back in 8 Feb 10.
The majority of the forecast have turned out to be right.
USD and JPY have rose.
GBP, EUR, AUD plummet during this period and we have seen volatility for the past few days.
Since the end of May and beginning of June, sentiments towards Euro has turned bullish. There could be a few reasons.
Firstly, EURUSD had registered an huge 20% loss since December 09 as a result of the European sovereign debt crisis. Since July this year, the stronger European nations eg Germany, have imposed strict measures to assist the countries in need of stronger fiscal control over their public finances. Germany is obligated to prevent a breakup of the Eurozone and to offer funding to Greece. No doubt that featured news have suggested that Greeks had failed to managed their expenditure over the last 10 years, but also Germany companies have also 'forced' Greece to buy some 5 submarines 2 years back, which has resulted in the Navy Chief having to resign as he opposed the purchase and insisted that Greece do not have the money and need to buy the 5 submarines. Its is just to keep the German company that makes the submarines, keep its workers employed. Talks of corruption have also arised.
Secondly, as a result of the cheap exchange rates, goods and services (real estate, tourism, consumer goods, etc) have became much cheaper for foreign investors. These will drive inflows of Eur, and boost consumer prices eventually, which could lead to a rise in CPI. In the latest ECB, the governor said inflation is still under control and left interest rates at 1%. Ok, this is a bias toward a potential rate hike in the event CPI continues to rise. Using logical thinking, this should continue to rise as the cheap exchange rate continues to offer bargains for the European goods and services.
Thirdly, currencies seldom falls for 3 quarters in a row. 2 quarters is bad enough.
Fourth, breakup of the eurozone? Unlikely, though doomsayers would hope to see it happening.
Fifth, the technical charts are overstretched. EURJPY is way too low. Japanese companies earning Eur found themselves instead of being more profitable, yet now losing big money when earnings are converted back to JPY for quarterly reporting. And this will be priced into their share prices, which can cause weak earnings. Of course, new measures will arises to turn this around.
In summary, new forecast as follows:
EUR, GBP to rise from now till December. At least higher than where they are now.
CHF has rallied, and the above should follows.
AUD upside is limited.
USDSGD should be limited too.
JPYSGD should fall.
USDJPY could go lower than 87 before turning up to mean 94. (USDJPY has fell to 86.50 as of 20 July 10)
Let's see if I'm right again.
The majority of the forecast have turned out to be right.
USD and JPY have rose.
GBP, EUR, AUD plummet during this period and we have seen volatility for the past few days.
Since the end of May and beginning of June, sentiments towards Euro has turned bullish. There could be a few reasons.
Firstly, EURUSD had registered an huge 20% loss since December 09 as a result of the European sovereign debt crisis. Since July this year, the stronger European nations eg Germany, have imposed strict measures to assist the countries in need of stronger fiscal control over their public finances. Germany is obligated to prevent a breakup of the Eurozone and to offer funding to Greece. No doubt that featured news have suggested that Greeks had failed to managed their expenditure over the last 10 years, but also Germany companies have also 'forced' Greece to buy some 5 submarines 2 years back, which has resulted in the Navy Chief having to resign as he opposed the purchase and insisted that Greece do not have the money and need to buy the 5 submarines. Its is just to keep the German company that makes the submarines, keep its workers employed. Talks of corruption have also arised.
Secondly, as a result of the cheap exchange rates, goods and services (real estate, tourism, consumer goods, etc) have became much cheaper for foreign investors. These will drive inflows of Eur, and boost consumer prices eventually, which could lead to a rise in CPI. In the latest ECB, the governor said inflation is still under control and left interest rates at 1%. Ok, this is a bias toward a potential rate hike in the event CPI continues to rise. Using logical thinking, this should continue to rise as the cheap exchange rate continues to offer bargains for the European goods and services.
Thirdly, currencies seldom falls for 3 quarters in a row. 2 quarters is bad enough.
Fourth, breakup of the eurozone? Unlikely, though doomsayers would hope to see it happening.
Fifth, the technical charts are overstretched. EURJPY is way too low. Japanese companies earning Eur found themselves instead of being more profitable, yet now losing big money when earnings are converted back to JPY for quarterly reporting. And this will be priced into their share prices, which can cause weak earnings. Of course, new measures will arises to turn this around.
In summary, new forecast as follows:
EUR, GBP to rise from now till December. At least higher than where they are now.
CHF has rallied, and the above should follows.
AUD upside is limited.
USDSGD should be limited too.
JPYSGD should fall.
USDJPY could go lower than 87 before turning up to mean 94. (USDJPY has fell to 86.50 as of 20 July 10)
Let's see if I'm right again.
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