Encouraging News for Europe - page 9

[DTT]

Encouraging News for Europe

Responding to global pressure to do take action on the region’s financial crisis, European leaders have convinced bondholders to accept a 50% loss on Greek debt and increased the volume of the EFSF to 1 trillion Euros ($1.4 trillion). Ten hours of tense balancing on the precipice of a breakdown of the second crisis-related summit in four days led to the development of a plan which, according to Euro zone politicians, could mean a path out of the debt hole. The last, time-crunched negotiations with bank representatives led to an easing of Greece’s debt burden. The main target of the agreements reached is to reduce the time Greece spends in “quarantine” recovering from its illness, as well as preventing speculation against Italy and France which could devastate the Euro zone and disseminate global economic chaos.

DT Trading analysts explain that, in order to implement such a plan to “quarantine” Greece, the country needs to reduce its level of government debt to 120% of GDP from the current 160% within 10 years.

German Chancellor Angela Merkel spoke to journalists in Brussels around 4:15AM this morning, saying “the entire world’s attention was focused on these negotiations. We, the Europeans, showed today that we made the right conclusions.” The measures adopted include providing lines of credit to European banks upon the security of their shares, the potential of larger loans from the International Monetary Fund, obligating Italy to take bigger steps toward reducing its debt, and a pledge from leaders that the European Central Bank will continue to buy bonds on the secondary market. Buying government bonds on the secondary market signals that the ECB will not acquire them at the market price, which is inflated to some extent and may be used only for speculative aims and not for strategic investments.

The Euro appreciated and stocks also rose. The Euro rose 0.7% against the dollar to reach $1.4007 as of 9:45AM in Brussels. The Stoxx Europe 600 Index rose 2.5%, while futures on the Standard & Poor’s 500 Index rose 1.6%.

The agreements reached early Thursday morning also had a strong effect on traders of European bank shares, in particular, of French banks. Shares of Credit Agricole and BNP Paribas shot up 12% this morning, while Societe Generale’s increased 11%. Shares of Barclay’s Plc rose 10% and those of Deutsche Bank AG, the largest creditor in Germany, rose 7.9%.

The largest world banks agreed to what Merkel called “the last word:” agreeing to give half of the value of the Greek government debt they hold to the Euro zone’s common cause of ending the financial crisis. However, DT Trading analysts think that talking about the end of the financial crisis before forming specific agreements with each of the banks is somewhat premature. The agreement involves the exchange of short-term bonds the banks already hold and which have already reached maturity, for bonds with 30-year maturity periods. The Institute of International Finance, which represents 450 financial companies, agreed to “develop specific, voluntary agreements” on the 50% curtailment of Greek debt, said Managing Director Charles Dallara early this morning at 4:26AM in Brussels. Euro zone leaders, who invited Dallara to the meeting at midnight during a break in the 10-hour summit, said that as of right now the bond-exchange deal remains voluntary.

DT Trading Limited Analytical Department

[DTT]

Historical Rally on the Market

The dollar and the yen led the week’s drop against most major currencies, as the global rally that began on the stock markets on Thursday dampened demand for safe-haven assets.

The Euro rose 0.5% from a seven-week high against the yen after European leaders came to an agreement to expand the EFSF for debtors and their creditors to make the last write-offs of Greek debt. The dollar continued to drop against the Euro after data published yesterday on US GDP growth showed even higher numbers. DT Trading analysts report that the data published today on consumer spending should diminish any expectations that the US Federal Reserve might introduce additional monetary stimulus measures.

Today the dollar was trading at $1.4195 per Euro as of 8:47AM in Tokyo, versus $1.4189 in New York yesterday, appreciating 2.2% this week. The Euro also appreciated 0.1% to 107.86 against the yen. The yen slid down from 75.95 to 75.96 against the dollar after reaching 75.66 yesterday, a high not seen since the World War II era.

The MSCI World Index (MXWO) of 24 developed countries, including Germany and Japan, shot up 4.2% yesterday, the highest rate since May 2010. The Stoxx Europe 600 Index added 0.5%.

In trading in New York yesterday, stocks rose, adding to the largest monthly growth for the Standard & Poor’s 500 Index since 1974. American bonds fell at the same time that metals and oil led the ascent among commodities.

The S&P 500 jumped up 3.4% to 1,284.59 at the close of trading in New York, making its total October growth 14% and thus closing 2011 with an overall loss. The Dow Jones Transportation Index, which includes only transportation companies most closely linked to the economy, saw a 20% rally this month, the largest growth since the end of the Great Depression in 1939. Stock market indexes in France, Italy, and Germany rose more than 5% since German stocks and stocks on emerging markets increased their growth from their previous lows of the year by more than 20%. The Euro rose the most over the past 12 months and yields on 10-year US treasury bonds rose 17 basis points to 2.38%. Yields on 10-year German bonds rose for the second day in a row and yields on analogous Japanese bonds reached a seven-week high. Copper and oil underwent a correction, with each fixing the same weekly percentage increase.

Today, futures on the S&P 500 Index rolled back 0.4% after a 3.4% jump in trading yesterday. The Korean won went up 0.9%.

DT Trading Limited Analytical Department

[DTT]

Market Undergoes Correction Ahead of Big Events This Week

European stocks fell as they corrected after the largest monthly growth since July 2009, as some investors again started to reluctantly buy stocks before Euro zone leaders had a chance to explain how they will pay for the expansion of the region’s rescue fund. Futures on American stock indexes and Asian shares also fell. Shares of HSBC Holdings Plc and BHP Billiton Ltd led the drop among shares of companies in the banking and commodity sectors. The Stoxx Europe 600 Index dropped 1.1% to 246.18 as of 10:32AM in London. The index closed with monthly growth of 8.8%, which is not bad considering it was the highest growth in over two years. On October 28 last week, the European stock index underwent a 0.2% correction after 3.6% growth the previous day following Euro zone leaders announcing that they intended to increase the EFSF in an attempt to put a stop to the region’s debt crisis. In total, the index shot up 4.2% last week and ended its fifth straight week of growth.

Futures contracts on the Standard & Poor’s 500 Index with December maturities receded 0.9% from their closing levels on Friday, while the MSCI Asia Pacific Index fell 2.4%, marking the biggest drop in the past four weeks. This week, G-20 leaders will meet November 3-4 in Cannes. This will be the second time in the last 7 days that Europeans will meet with creditors after Euro zone authorities pledged to increase funds in the EFSF to 1 trillion Euros ($1.4 trillion). The Euro zone has already turned to China for financial aid and to the IMF for its cooperation. Nevertheless, French presidential advisor Andre Gueno has refuted talks of offering more incentives to China in exchange for help in resolving the Euro zone debt crisis. DT Trading political analysts believe that the French presidential administration’s unwillingness to speak about such talks may indicate that China asked for a very high price in exchange for its assistance. It is also possible that the Chinese leadership is looking to get a share in European industrial assets, in particular, in the aerospace agency EADS.

The European Central Bank, under the leadership of new head Mario Draghi, will decide whether to change its interest rates this week. DT Trading analysts insist that there is a very small chance that Draghi will call for lowering the refinancing rate, which has already been raised to 1.5% this year, at his first meeting in his new position.

DT Trading Limited Analytical Department

[DTT]

Australia Cuts Interest Rates Amid Japanese Intervention

The Japanese government signaled that it is prepared to continuously intervene to ward off speculators from buying the yen after the national currency’s appreciation forced Japanese companies from Panasonic Corp (6752) to Honda Motor co (HMC) to lower their revenue forecasts.

After a massive sale of the yen yesterday which was valued at approximately $50 billion, Japanese Finance Minister Jun Azumi said that he will “continue the intervention until I am satisfied.” The intervention follows another in August, when Japan sold 4.51 trillion yen ($57 billion) in an attempt to stop the currency from appreciating to a post-war high against the dollar. The Japanese press, however, indicated varying figures for the amount of the intervention. In particular, the newspaper Asahi estimated the sale at 10 trillion yen, while the newspaper Yomiuri reported that it was 6 trillion yen. However, unlike their Swiss counterparts, Japanese politicians did not allude to any target level for their currency.

The Japanese government’s measures lent support to Japanese exporters who have perceived a loss of competitiveness over the last two years due to the yen’s 15% growth against the dollar and 21% loss against the Euro. Although monetary policy in Japan is established by the Ministry of Finance, yesterday’s commentary from Bank of Japan Governor Masaaki Shirakawa speaks more of a tactical approach to the yen. At a press conference in Osaka, Shirakawa told journalists that the events that occurred on the market were not very strong in nominal effective terms. According to DT Trading analysts, Shirakawa’s comments hint that new interventions on behalf of foreign currencies may be possible in the future.

In other news from the Pacific region today, the Australian Central Bank lowered the key interest rate for the first time since April 2009. While inflation dropped, even weaker growth in the world economy is threatening a slowdown for the commodity export-based economy. Reserve Bank of Australia Governor Glenn Stevens said that “the latest data suggests that weakened demand and the national currency’s high exchange rate have curbed inflation.” The bank lowered the rate, one of the world’s highest borrowing rates among developed countries, by 25 basis points to 4.5%.

The lowering of the rates, which led to a drop in the national currency and in yields on government bonds, reflects a decrease in the country’s inflation rate to its weakest level in the past 14 years, as the European debt crisis has lowered the forecast for the world economy. Stevens is among twenty or so colleagues from around the world who have made the decision to loosen their country’s monetary policy in order to support domestic demand. Despite the relatively high refinancing rate, DT Trading analysts think that altering the rate by 25 basis points is a much more neutral value and signifies a switch to an adaptive monetary policy and to economic support.

The Australian dollar fell from $1.0530 yesterday in New York to $1.0485 at 3:18PM in Sydney. Yields on 10-year government bonds fell eight basis points from yesterday’s closing, or 0.08%, to 4.43%.

“With overall growth moderate, inflation now likely to be close to target and confidence subdued outside the resources sector, the board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2 percent to 3 percent inflation over time,” Stevens said.

DT Trading Limited Analytical Department

[xx3xxx]

govt use referendum to delay ancient Greece politicization Salary impact

[DTT]

Investors Await Fed’s Decision

European stock indexes rose, putting an end to the biggest three-day drop in almost two months, in expectation of the Federal Reserve’s upcoming annoucements. Futures also climbed on US stock indexes while Asian stocks fell. Shares of Inmarsat Plc (ISAT), the largest provider of satellite communications services for the maritime industry, rose 2.6% after the company reported increased revenues. Rio Tinto Group and BHP Billiton Ltd (BHP) led the growth in shares of mining companies, just as copper has put a stop to its two-day drop. Shares of Lundin Petroleum AB (Lupe) were up 7.5% after the company itself forecasted an increase in production for next year. The Stoxx Europe 600 Index was up 0.8% to 236.88 as of 8:51AM in London. Yesterday, the index plummeted to a five-day low after Greece called for a referendum on its latest rescue package, thereby generating concern that the country may default.

Yesterday, Greek Prime Minister George Papandreou announced that the country should approve a referendum on its rescue package, even amid signs that Papandreou’s government may collapse. Nevertheless, “the referendum will give a clear mandate and send a powerful signal within and outside of Greece about our European course and our membership in the Euro zone,” Papandreou said this morning before his ministers in Athens. The cabinet voted unanimously to approve the plan.

According to DT Trading analysts, Papandreou’s actions are ruining plans on resolving the two-year crisis by issuing a plebiscite on Greece’s rescue package and calling for parliament to express an analogous vote of confidence in the government. All over the world yesterday, stocks, European government bonds, and the Euro all fell due to fears that the plebiscite will negate plans to avoid a default.

Futures on the Standard & Poor’s 500 Index were up 0.8%, while the MSCI Asia Pacific Index dipped 0.5%. The Federal Reserve is most likely developing the parameters for its next round of large-scale asset purchases. According to a survey of 42 economists carried out October 26-31, 69% of economists say that Fed Chairman Ben Bernanke will introduce a third round of quantitative easing, or QE3, while 36% predict that this will happen no sooner than in the first quarter of next year.

DT Trading Limited Analytical Department