Chinese Disappoint Asian Markets Weak on Monday

Chinese markets returned from a week-long Lunar New Year holiday as the  Hong Kong’s Hang Seng Index fell 0.5%, while the Shanghai Composite Index dropped 0.7%/ There is an overall disappointment regarding  Chinese monetary and fiscal policy. The markets were expecting easing in China during the Chinese New Year which did not occur

Asian sentiment were concerns about Europe ahead of a leaders’ summit in Brussels later Monday, as questions surrounded Greek finances.

Japan’s Nikkei Stock Average dropped0.6%  today, while South Korea’s Kospi  dipped 0.8%, and Australia’s S&P/ASX 200 fell 0.4%

European concerns, a lack of easing measures over the holiday, and comments by Chinese Premier Wen Jiabao vowing to tackle irregularities surrounding local-government debt all helped send banks lower in Hong Kong and weakened Asian currencies and exchanges.

The dollar index on Monday regained a fraction of ground lost the previous week, although some analysts warned of possible risks ahead for the USD.

The  ICE dollar index fell 1.7% last week after the FOMC said that it could keep interest rates at low levels until late 2014. The Fed had previously said that rates would stay low until the middle of 2013. The index rose by 0.27% at 79.16

This is a important week for U.S. data releases, and in turn, the U.S. dollar. Important economic data including January payrolls, ISM manufacturing confidence and consumer confidence readings are on tap throughout the week.

Earlier this week the main focus will be on the EU review of the Greek settlement with their creditors. Angela Merkel and other German officials have thrown a monkey in the works, asking for an EU commissioner to be assigned to control Greek finances. Greece is opposed to this, Germany might push to have it included as part of the bailout package.

Crude Oil is also rising on Iran’s new tactics, to use economic rhetoric as opposed to military. Over the weekend Iranian officials indicated that if the oil embargo goes into effect they will push oil prices up to the $120-150 level, but the West views this as non sense, as the China and India, who will be the prime customers of Iran, will push Iran to lower prices.

A Travelers Guide to “Bailout Countries”

“Portugal’s caretaker prime minister Jose Socrates says he has reached agreement on a bail-out from the EU and the International Monetary Fund.” read the CNN headlines on May 4, 2011. Headlines just last week read  “Portugal’s PM Says Country Will Not Seek Additional Bailout Funds”  followed within hours, “Portugal’s borrowing rates rise to record 19.4%. New high arrives amid fears that bailed-out country will not be able to break free of financial crisis.” Where is all this heading. Portugal can not continue to sell bonds at this rate as they will never be able to pay the interest or the principle.

Last week, credit default swaps for Portugals debt skyrocketed.

Portugal needed a €78bn (£65bn) rescue package last year as its high debt load and feeble growth pushed it towards bankruptcy.

The EU/ECB bailed out Portugal, forcing on them a three-year program of austerity measures and economic reforms is aimed at restoring investor confidence in the country, but a deepening recession, with a 3.1% contraction forecast for this year, is undermining the faith of the markets in Portugal. This program was identical to the guide laid out in Greece which is now failing.

Just last week, Angela Merkel, admited in an interview with the UK Gaurdian, that the harsh austerity measures alone are not working as planned.

Ireland, recently revised their budget and austerity program independently, before they were headed back to crisis. Greece was too late and Portugal is too late.

The programs dictated by the EU leadership along with the ECB and IMF were so concerned with reducing government spending to cut deficits, it overlooked growth. Austerity is desperately needed but combined with a plan of growth and development, which ultimately is more important.

David Cameron, Prime Minister of the UK, forced his country to accept harsh austerity measures, and saw it almost fail, until they decided to push growth, jobs and development, they still face skyrocketing unemployment.

Last week Spain, released their unemployment figures which are now above 22.%.

This week, Fitch Ratings downgraded euro-zone countries, Italy, Spain, Belgium, Cyprus and Slovenia, while affirming Ireland’s credit rating as it completed a ratings review that was announced last month. All six countries continue to carry a negative outlook.

Portugal last year  agreed to harsh measures in exchange for the loan, which includes 12 billion euros of support for the country’s banks, These include:

  • a cut in the public sector wage bill by freezing wages and limiting job promotion
  • an increase in sales tax on items such as cars and tobacco
  • the privatization of stakes in national energy companies and the sale of national airline TAP Air Portugal
  • the reduction of the most generous state pensions and the freezing of others
  • the maximum length unemployment benefit can be paid to be cut to 18 months, from 3 years.

In just 9 months Portugal is again running out of money, with no where to turn to except the EU and ECB or to the IMF, the lender of last resorts.

The question facing Angela Merkel and President Sarkozy, is how do you make a country grow while reducing their spending. And more importantly where does the money come from to keep bailing out countries.

Asian Currency as Mysterious as its Culture

The government of India has increased the import-duty on gold  for the first time in two years, hoping to benefit from current trends. 

 India is the world’s largest consumer of gold so to help balance the government’s finances and  balance the nation’s current-account deficit, both of which attributed to the fall in the rupee, India decided to increase their import duty. The rupee is down 18%

Instead, rupee weakness itself seems to have acted as a deterrent for gold demand in India, which imported only 125 tons in the fourth quarter of 2011, according to the Bombay Bullion Association, an industry group. Less than half the 281 tons previously expected by the World Gold Council, which was banking on the strong demand typically seen for the wedding season at the end year.

As for India’s latest duty on gold, it has to be put in the context of budget plans for the coming fiscal year, which starts in April.

With more subsidies, including poverty-alleviation measures, expected to be announced ahead of key state elections, the government is under pressure to tighten its finances elsewhere.

From India we can go right across the globe to China, unnerved by the financial crisis in the euro zone, Chinese policy makers are contemplating a new approach that won’t be immediately obvious in the currency charts, according to one analyst.

China has kept the currency artificially low in efforts to help exports and to keep the cost of chinese made good competitve.

China’s new policy is to allow the currency to be traded on the open markets.

Don’t expect a big rise in the yuan this year, as China is likely to opt for a gradual appreciation of its currency over time. The Chinese currency rose 4.3% against the dollar in 2011, and is up about 23% since China first ended its formal currency peg to the U.S. currency in July 2005.

Other analysts agree that China’s currency will continue to appreciate, even amid the deteriorating global export outlook, with internal Chinese politics also playing a role.

From China, we can sail right over to one of their major trading parters, Japan, home to mysterious culture and currency which has a lot of very unique features. The apparent disconnect between the yen and Japan’s economic situation could easily continue, keeping the yen buoyant this year.

Last year, the yen was the best performing among major currencies, rising more than 5% against the dollar and 8% against the euro . It’s rallied about 35% against the greenback since 2007 when the U.S. dollar bought more than ¥120

One factor helping support the yen is a shift in the global carry trade, or what currencies investors borrow to fund higher-yielding investments.

Before the 2007-2008 financial crisis, Japan’s near-zero interest rates had encouraged a multi-year carry trade of borrowing against the yen to buy higher-yielding assets such as stocks. With the Federal Reserve driving its benchmark interest rate to near 0% starting in late 2008, the dollar has taken over some of that role.

Three countries , three cultures , all with differing outlooks and views on their currency and the markets.

Lunchtime in Europe, BedTime in Asia and Breakfast in America

In the far east today, the markets were fairly quiet as Lunar New Year was still being celebrated in China, Taiwan and Vietnam,  although the FTSE Asia Pacific index rose 0.3 per cent, aided by a 0.3 per cent surge in Hong Kong as the just returned from the holiday.

South Korea’s Kospi index added 0.4 per cent as sentiment was supported by record fourth-quarter profits from  electronics manufacturer Samsung as sales of its Galaxy Series of mobile devices climbed.

The Nikkei Stock Average dipped  by 0.1% to 8,841.22 in Tokyo, as Hong Kong’s Hang Seng climbed 0.3% to 20,501.67 and South Korea’s Kospi rose 0.4% to 1,964.83. Accompanied by Australia’s S&P/ASX 200  as it advanced by 0.4% to 4,288.40.

As the lights went out in Asia, Europe woke up with a bang.

Spain reported a huge increase in unemployment, pushing the level over the 22% range, even after promises from the new government that they would find a way to add jobs. The Institute for National Statistics said Spain’s jobless level reached 5.27 million in the fourth quarter, a gain of 295,300 persons. The unemployment rate now stands at 22.85%, up 1.33 points from the third quarter.

As could be predicted retail sales fell 6.2% on an annual basis in December, and fell 5.8% as a whole for 2011. Spain is beginning to collapse in on itself.

While Spain is implodeing, across the map in Italy, the government bond sale was quite successful. Italy saw short-term borrowing costs drop as it sold 11 billion euros ($14.4 billion) in bills at auction. Bids exceeded supply 1.35 times, down from a bid-to-cover ratio of 1.69 in December. The Treasury also sold 3 billion euros of flexible BOTs maturing in December at an average yield of 2.21%.

As continued worries bother investors with no final word on Greece and Portugal developing into a crisis, the markets showed the jitters.

The stock markets traded down on Friday, headlined  by banks and mining stocks in the wake of mixed data from the U.S. the prior day. On Thursday, the US reported a  rise in unemployment, a drop in housing sales but in the bright spot, durable good sales were way above forecast, which is good for manufacturing, and will eventually creat jobs and increase home saels. The French CAC 40 dropped 0.4% to 3,348.15. The Stoxx Europe 600 drifted down 0.3% to 257.17. The German DAX 30 dropped 0.3% to 6,517.96. The FTSE 100 flowed downhill by 0.6% to 5,759.84

Futures in the US have been declining this morning, after the worrisome reports yesterday and continued worries about Greece. Yes Greece, over and over Greece.

There are two important reports due out this morning before the markets open. These are forth-quarter gross domestic product at 8:30 a.m. Eastern time and the University of Michigan/Thomson Reuters consumer sentiment gauge for January at around 10 a.m. Eastern.

In a breakfast statement this morning,  Richmond Federal Reserve President Lacker said  that he dissented from the Fed’s decision this week to keep interest rates low until 2014 because an increase in rates may be needed before late 2014. He said he expects that as economic expansion continues, even if only at a moderate pace, the federal funds rate will need to rise in order to prevent the emergence of inflationary pressures.

Back over the Europe where US Treasury Secretary Timothy Geithner is attending the World Economic Forum, he stated that the outlook for U.S. growth and jobless levels depends on the resolution of that crisis, along with developments in the Gulf due to oil supplies and the direction of U.S. politics. 

Profit Taking in Asia to End the Week

Asian exchanged posted followed US markets on Thursday after the US Federal Reserve pledged to keep interest rates low for another three years to nurture the country’s stubbornly slow economic recovery. The Fed had initially told the markets that they would hold low rates tell the end of 2012 but Wednesday, the FOMC moved the date until the end of 2014. US markets surged on the news, as the USD dropped.

The Hong Kong’s Hang Seng Index jumped 1.2 percent to 20,342.71 on its first trading day since the Chinese New Year holiday, just in time to repond to US markets. While,  South Korea’s Kospi rose 0.2 percent to 1,956.21. Followed by  Thailand and New Zealand which also rose. 

Japan’s Nikkei was 0.4 percent lower at 8,853.02 as a weakening dollar pressured the country’s exporters.   

Markets in Taiwan and mainland Chinese remained closed for the Chinese New Year. Markets in India and Australia were closed for public holidays.  

The benchmark Hang Seng Index added 232.34 points to 20,342.71 on turnover of HK$29.79 billion ($3.8 billion) in early moring trading. After a rollercoaster morning session, the markets returned after lunch and wer almost flat for the rest of the dayFriday, dragged by weakness in Chinese shares as investors took profits among the out performers in a January rally that had boosted the Hang Seng Index by more than 10 percent to date. 

Despite recent optimism, strength in defensive sectors, such as utilities and communications, along  with Europe’s debt issues unresolved and uncertainty over the extent of a slowdown in the Chinese economy. Chinese growth is hinged on an EU recovery.

It’s a good time to take some profits right now but I think there’s still some more upside to this rally going into month’s end, was the consensus of investors. 

China is scheduled to release manufacturing surveys on the mainland for January next week, which may point to sluggish activity, strengthening expectations for monetary policy easing. 

The Hang Seng Index dipped down 0.04% to close at 20,431.96 near the bottom of a narrow trading range

If this is broken, the target is seen at 20,975-21,017, the highs reached in September and August.

There will be a lot of news on Friday from Europe and the Americas, we will have to wait to see how the Asian markets react Monday.

US Markets Up USD Down

The greenback continued to drop against most major currencies today continuing losses after a two major U.S. economic reports showed jobless claims and durable-goods orders jumped. One positive and the other negative.

The move downward spiral comes the day after the Federal Reserve said interest rates may remain at current levels until late 2014, reducing the appeal of the USD to international investors, regardless of the positive comments about growth and the economy.

The dollar index dropped to 79.248, and is well below its 80.131 level ahead of the Fed’s policy announcement.

In a news conference, Chairman Ben Bernanke said expanding its balance sheet remains an option and the central bank stands ready to ease further if the outlook worsens. Bernanke said it’s too early to say strong growth is here to stay. As for the bonds the Fed already holds, he said sales of those have been pushed back to 2015.

The two reports released in the US today, showed new applications for unemployment climbed sharply last week. Jobless claims climbed by 21,000 to a seasonally adjusted 377,000 in the week ended Jan. 21, the Labor Department said Thursday. Claims from two weeks ago were revised up by 4,000.

The number of claims varies in January due to holiday temporary hiring’s despite government efforts to adjust for seasonal factors.

The markets pay more attention to the four-week average which showed claims fell slightly, down 2,500 to 377,500.

The second report release was on durable goods, where stronger orders for airplanes and machinery translated into a better-than-expected 3.0% increase in durable-goods orders in December.

As investors look closely through the recent data for any sign of improvement, the manufacturing sector remains a decidedly bright spot for the U.S. economy.

Durable goods are defined as big-ticket items such as cars, planes, appliances, furniture and computers designed to last at least three years…

The Fed’s move Wednesday and subsequent remarks by Federal Reserve Chairman Ben Bernanke served to spur risk appetite, lifting commodities and equities while the dollar weakened. The increase in durable goods supports a strong view of US growth. US markets have climbed on the news.

Austerity For The Simple Folks

One of the first things you learn in business school is that when profits fall, you need to cut expenses and increase income. The ECB seems to have forgotten the second part of this lesson. You cannot simply cut expenses, as revenue will continue to fall, profits might climb for a short while, but eventually the loss of income will far exceed  the reduction in expenses and profits will tumble.

Let’s look at the math, if a country collects  business and personal taxes of let’s say in the amount of 1 billion euros. If that same country has expenses of 1.2billion euros, they will have a budget deficit of .2billion euros. Now that is simple to follow. That country needs to cut expenses. How does a country do this, they start by reducing waste and government spending. That helps in the immediate time, but as you continue to reduce waste, businesses that supplied that “waste” lose revenue and they pay fewer taxes. So your income begins to drop ever so slightly. Next comes along the spending reductions, which means a cut in government employees as well as spending. As you terminate employees, more and more citizens go on the government payroll under unemployment or welfare benefits. They also no longer pay taxes but take money from the government pot. What do we have now, an increase in expenses and a reduction in income. As governments stop spending businesses suffer, as businesses suffer, they pay less tax and cut their employees who go on government programs. Again cutting income and increasing expenses.

Of course it is not a one-one ratio and austerity and reduced government spending and waste is necessary, but harsh austerity programs demanded by the European Central Bank and the International Monetary Fund, eventually work the opposite of what they are supposed to.

If this is business 101, where did these economist and government leaders go to school?

Successful businesses know that when you are cutting expenses you need to increase advertising, to increase income, which will generate higher profits in a more streamlined economic model. This would have worked, if it had been balanced. Even the tough austerity measures could have worked in isolated situation, but when the global economy is suffering, how would a country like Greece who is already looking at declines in tourism and exports due to the global recession, ever generate enough income to sustain or meet the criteria set by the ECB.

Now Angela Merkel has admitted that this model is not working, Ireland recently realized the same thing and is trying now to turn things around before needing additional bailout funds.

The question is if this austerity program is failing, what is to come of Portugal, who is now in worse shape than Greece, having the same problems, while implementing austerity measures their budget deficit continues to grow. Behind Greece sits Spain and Italy waiting and looking at failure. Where is the new model? How do you help these countries spur on growth? Growth should have been the key word all along.  Is it that the EU dynamic duo has set their sails on a course and it is too late to change directions as the winds are already shifting?

The FOMC Statement Heard Around The Globe

On Wednesday afternoon, in the US or in late evening in Europe, the Federal Reserve Open Market Committee made their most recent statement and comments on the US economy and their forecast for interest rates in the US.

Most foreign exchange analysts, traders and professionals pay close attention to this statement, they read and interpret every nuance of the presentation, to understand exactly what the US Fed is trying to tell the public, but they also try to figure out what they are thinking and what they might be doing in the near future. Newscasters, Reports, Market Analysts, Economist and Brokers all spend have their own interpretation of the words that make up the carefully crafted statement.

Wikipedia defines and explains  The Federal Open Market Committee (FOMC), as a committee within the Federal Reserve System, is charged under United States law with overseeing the nation’s open market operations (i.e., the Fed’s buying and selling of United States Treasury securities). It is the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply. It is the principal organ of United States national monetary policy. The Committee sets monetary policy by specifying the short-term objective for the Fed’s open market operations, which is currently a target level for the federal funds rate (the rate that commercial banks charge between themselves for overnight loans).

The FOMC also directs operations undertaken by the Federal Reserve System in foreign exchange markets, although any intervention in foreign exchange markets is coordinated with the U.S. Treasury, which has responsibility for formulating U.S. policies regarding the exchange value of the dollar.

The FOMC by law are required to meet a minimum of 4 times yearly, but in actually they meet between 5-8 times per year.

“Attendance at meetings is restricted because of the confidential nature of the information discussed and is limited to Committee members, nonmember Reserve Bank presidents, staff officers, the Manager of the System Open Market Account, and a small number of Board and Reserve Bank staff”

At the conclusion of each meeting, a consensus is reached by the board members and a directive is issued to the Federal Reserve Bank of New York. This directive serves as guidance to the Manager in terms of the every day-to-day open market operations. The directive states the FOMC’s objectives for long-run growth of certain key monetary and credit aggregates. It also sets forth operating guidelines for the degree of ease or restraint to be sought in reserve conditions and expectations with regard to short-term rates of growth in the monetary aggregates, along with their views on the economy in general.

On January 25, 2012 the FOMC meet and released their statement.

On the whole, they believed the economy was on an upswing, although they were still worried about the employment and housing situation. These were to be expected.

The surprise was their directives on interest rates. The Fed stated that they would hold interest rates at the current level until late 2014. Previously the Fed Reserve had stated they would hold the current rates through 2013.

This simple statement causes shockwaves in the global markets within minutes.

The USD dropped, gold soared rising over 35.00 per ounce and the euro surged. Currencies around the world skyrocketed against the dollar, while the US markets improved. If ever the Fed Reserve Committee wanted to shake the global markets in one short quick statement markets around the globe reacted.

Ava FX Opens in Sydney, Australia

Ava FX announced on Monday January 23, 2012 that they have opened an office in Sydney, having been granted a liscense from the Australia Securities and Investment Commission to operate in Australia. Ava FX is now a fully regulated brokerage offering a complete range of services in the FX and CFD markets.

Ava FX has built an exception reputation around the globe in just a few short years. Their professionalism, customer service, training and integrity are beyond compare. Throughout these years of global financial turmoil, Ava FX has worked hard to assist their clients and traders to succeed in difficult and volatile markets.

Making sure all clients’ large and small, novice and professional exercise good money management and risk management when trading. Ava FX has exceeded all expectations, in financial responsibility and transparency. Their online and account security have the highest security protection ratings possible. Ava FX’s goal is to offer all clients a safe and secure trading platform, that is fast, efficient and beyond reproach.

“What makes Ava unique in the world of on-line trading is its user-oriented perspective. While many other trading sites are merely on-line extensions of banking institutions, Ava FX was designed to fit the individual needs of both retail as well as institutional traders. From our multi-lingual, 24-hour support center to our advanced interface design, Ava FX is built around the user. Our proprietary trading platform leverages the power of the world’s leading banks and financial institutions while providing consumers with an easy-to-use yet functionally rich trading environment.”

Ava FX currently maintains offices in most of the capital cities throughout the world, all operating under the Ava FX, umbrella, extending from New York, Tokyo, Dublin, Paris, Frankfurt, Milan and Sydney.  They fully regulated within Australia, the EU and Japan.

The numerous requests for Ava FX services by Australians made it clear that there was a strong demand for Ava FX’s unique offering in Australia and this was the impetus for this important development. Ava CEO Emanuel Kronitz said: “we are delighted to establish our Sydney office. Having obtained the ASIC license, we look forward to being able to offer Australian customers Ava FX’s incomparable service and trading resources, which has made us the fastest growing broker.

Investors can know that they will be trading with a trusted and established company. Kronitz continues: “our primary concern is to provide customers the most efficient, transparent and absolutely the best customer service available anywhere.”

Ava FX’s success can be attributed to their customer focused approach which has seen the company win many Global awards in the past twelve months including the “Daily Forex” customer service award.

Credit Default Swaps (CDS) and Greece-Italy-Portugal & Spain

defines Credit Default Swaps as an agreement that the seller of the CDS will compensate the buyer in the event of a loan default. The buyer of the CDS makes a series of payments (the CDS “fee” or “spread”) to the seller and, in exchange, receives a payoff if the loan defaults.

In the event of default the buyer of the CDS receives compensation (usually the face value of the loan), and the seller of the CDS takes possession of the defaulted loan. However, anyone can purchase a CDS, even buyers who do not hold the loan instrument and who have no direct insurable interest in the loan.

Credit default swaps have existed since the early 1990s, and increased in use after 2003. By the end of 2007, the outstanding CDS amount was $62.2 trillion, falling to $26.3 trillion by mid-year 2010.

In my understanding these are simliar Private Mortgage Insurance, which is popular in American on home mortgages, that the buyer is not putting a significant downpayment on the property. The bank or mortgage hold is protected by PMI, so if the owner defaults, the mortgage holder does not lose, the bank is paid off by the insurance and the insurance company then is the owner of the rights to the property. Although it gets a lot more complicated then this in the world of finance and risk, as you can have insurance on only certain parts of the debt or only on a certain level of default or only on particular types of non payments.

One of the main problems with the Greek settlement is what will trigger this insurance. The question then comes, if a bond holder has CDS coverage, why would they settle for anything less then the full face value and what happens if they do?

If the bond holder settles for a negotiated settlement, will the insurance kick in. The who should the Greek government be negotiating with the holder of the bond or the CDS.

The other important question is what is a default and how is a default determined. The EU has done everything they can to distance a negotiation with credits from a default. In technical terms it is a default anytime you do not repay the full value of the debt, but what the definition is in legal terms, insurance terms and banking terms could be entirely different.

The European debt crisis is getting ever more serious, and will soon move away from Greece to one of the biggest – and potentially most explosive – economies in the world: Italy

US institutions have been snapping up credit default swaps (CDSs), insurance against credit losses. The value of guarantees provided by US lenders on government, bank and corporate debt in troubled eurozone countries rose by $80.7bn to $518bn in the first half of this year, according to the Bank of International Settlements. If Italy goes down in a disorderly default it will shake the roots of the financial and economic world, estimate put the money needed over the next three years to be  around €650bn

Today cost of insuring Portuguese government debt against nonpayment soared. Reaching a  record on fears the country may be forced to follow Greece in seeking a restructuring of its debt. The spread on five-year Portuguese CDS widened to 1,310 basis points from 1,279 basis points earlier this week. That means it would now cost $1.31 million annually to insure $10 million of Portuguese debt against default for five years.

Yesterday, S&P stated that if Greece goes into default it does not need to be a domino effect, this is true, except countries like Spain, Italy and Portugal, are already in line.

the inforgraph comes from the Economic Time, but does not list an designer.

Did David Cameron See The Writing On The Wall When He Walked From The New EU Treaty

In 2010, the Euro-zone executive board said it would study whether the WU should go alone in imposing a tax on financial transactions after G20 leaders failed to agree on the issue. In September 2010, then president of the European Commission Jose Barroso officially presented the plan of creating the new financial transactions tax.

The Global Financial Markets Association issued a statement saying that the proposed European financial transaction tax (FTT) will hike the cost of trading foreign exchange by up to 18 times, in the latest attack on the controversial tax reform.

If implemented the tax must be paid in the European country where the financial operator is established, meaning that the EU-FTT would cover all transactions that involve a single European firm, no matter if these transactions are carried out in the EU or elsewhere in the world. This would cause a huge hardship on competitiveness of EU financial firms, competing outside of the EU.

The Global Financial Markets Association the largest trade association in Europe, North America and Asia representing financial (forex) transactions, issued a report this week, which said the tax would make all forex trades up to seven times more expensive, and more liquid products up to 18 times more costly.

This study shows that the proposed tax would in effect penalize Europe’s businesses for sensible risk management and also threaten to impose further costs on the investment returns of pension funds and asset managers. Additional cost related to the trading tax will be passed on to end-users, such as pension funds, insurers and corporate, and would have a negative effect on the real economy as well as global competition.

The GFMA report said that up to three-quarters of tax eligible currency transactions could be moved outside the EU’s tax jurisdiction if the FTT is imposed. This tax would validate UK Prime Minister David Cameron’s response to the new EU treaty. If imposed England would have huge competitive edge to offer financial firms.

The German banking association stated earlier this week that the FTT could reduce bank earnings by as much as 10 percent contrary to German Chancellor Merkel who insisted last week that she wants European finance ministers to complete plans by March. EU Ministers will undoubtedly use these funds as a promise to repay loans and bonds issued for bailouts and to fund the new Emergency Stability Fund.

What Will Be Said In Davos Tonight Will Move Financial Markets Tomorrow

As one of the most famous annual meeting of global political and business leaders, the World Economic Forum in Davos, Switzerland takes place this year from Jan. 25 to 29.

The World Economic Forum known as WEF is a Swiss non-profit foundation, based in Cologny,Geneva. It describes itself as an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas.

The Forum is best known for its annual meeting in Davos, a mountain resort in Graubünden, in the eastern Alps region of Switzerland. The meeting brings together some 2,500 top business leaders, international political leaders, selected intellectuals and journalists to discuss the most pressing issues facing the world, including health and the environment.

The organzation also convenes some regional meetings each year in locations such as Latin America and East Asia, as well as in China and the United Arab Emirates.

The  January 2012 meeting, is themed “The Great Transformation: Shaping New Models”

In the days prior, workmen scramble to ready the venue as dignitaries trickle into town, sometimes to enjoy a few days of skiing before the cocktail parties get under way. Guests in this year’s annual meeting have to navigate not only a busy agenda of back-to-back meetings, but also the tons of snow that have blanketed this Swiss Alpine town in recent days.

Fresh snow was falling early on this morning, building moutains and snow drits. Police officers and security guards stood outside major intersections and buildings, prepared for the cold, as security is on alert.

Events include debates and speeches by business leaders,Ministers and Nobel laureates, guests in the annual meeting are here to do business. Many have scheduled dozens of meetings a day with potential clients, partners, associates and reporters. Around 40 government leaders and over 1,600 business executives are among the 2,500 participants at the annual meeting.

It will be an important financial day here, with German Chancellor Merkel set to give the opening address this evening.. Everyone wants to hear what the German leader has to say about resolving the euro-zone debt crisis ahead of the Jan. 30 summit of European Union leaders in Brussels. The world will be listening and analyzing this message, as it will move markets and set the precedent for the future of the eurozone.

In a Surprise Move EU Ministers Enact Immediate Embargo on Iranian Oil and Freeze Assets

For months, the US has been pushing for embargo’s and punitive action against the Iranian Government trying to get them to abandon or at least slow their nuclear program and their quest for nuclear weapons.

In a time that most governments around the world are reducing stockpiles and trying to rid the world of the fear of nuclear disaster, one of the prime enemies of the United States, Western countries and Israel are developing nuclear weapons at a hastened pace.

The fact is nuclear weapons are frightening and deadly, even in the governments of developed nations, who openly admit and aim to reduce their stockpiles. During the Cold War, Russia and the United States played a dangerous game, one that could have wiped humankind off the face of the earth.

Since the end of the cold war and the fall of the iron curtain, most nations and governments and leaders have agreed to reduce the threat of nuclear war. North Korea and China have the capabilities of destroying the world with their weapons but they too have come around to the reduction side of the table. Most nations no longer threaten each other with nuclear destruction.

Iran, a country of religious fanatics who believe that death in the name of religion is good, could easily change leadership overnight and allowing religious fanatics or zealots to possess weapons of immense destruction is wrong and frightening.

The leadership continues to threaten the western world and always the Zionist state with war and destruction, so do you allow these politicians, these leaders that openly promote hatred and death to their “enemies”. In civilized worlds we negotiate, we communicate and we do not wish or pursue destruction and death, we pursue a way to live side by side in tolerance of others. Not the religious zealots that control Iran, not the government that controls Iran and not the people who have been brainwashed to hate.

Recently, Iran has conducted aggressive military exercises in the Straits of Hormuz, while threatening American Naval vessels and promising to close the waterway, if the western nations continue to apply pressures on the Iranian government.

NATO and the US have stated outright that they will not allow the Iranians to blockade International Waters.

For months the US has pushed for embargos and sanctions against Iran, to prod them to sit at the negotiation table, but to no avail. The rhetoric and threats keep growing.

In a surprise move yesterday, the EU made the strongest effort to date and supported the embargo and financial sanctions against Iran, to become effective immediately.

Many have said that an embargo will not be effective since India and China will continue to purchase Iranian oil, which is true, but the Chinese are shrewd people they may continue to buy oil but they will pay less of the Iranian oil.

But it is not necessarily the financial effect that the embargo will have on Iran, but the public view and the fact that most of the Free World is standing up to them.

Stating the Obvious

Yesterday, IMF director Christine Lagarde called for additional protections or using the newly popularized word, “firewalls” in Europe to stop the spread or “contagion” in the eurozone. (On a side note, let us see how many of this new financial jargon I can use in this article). To most of the world the EU, the ECB, the IMF, the European Financial Stability Facility(EFSF) and the under development European Stability Mechanism (ESM) are all what we call rescue funds. To the average Joe, who cares what you call the money, or how it is being funneled to governments and banks, we just know that it going from taxpayers pockets out the door to cover huge debts.

Just back a few years ago, when the US bailed out GM and AIG and many others, where the money was coming from was really unimportant, it came via the government and that meant it came from the tax payer.

When you pay your taxes does the government care which bank account you took the money from or if you sold your car to come up with the money or if you borrowed it. They just care that you paid the money and eventually it all comes from the same place your pockets.

Last week it was suggested the IMF raise their funding to 1 trillion euros, now this week IMF director Lagarde is suggesting that they pool all the money that the EU has stashed or can leverage into one pool. It sounds nice but in actually outside of economists and ministers and banking officials who really cares, if the EU has the money to “ring fence” the eurozone that is all that matters.

The bigger question is what will be the outcome, how many other creditors will be forced to take “haircuts” (a nice way to say losses of billions) and why can’t we just get on with it. The agony of the daily news and comments and the never ending problems and meetings. Why can’t these Ministers just sit down come up with a plan more than just a “fiscal pact” and “austerity” measures to figure a way to resolve or deal with these problems, develop a formula or a road map or a committee charged with dealing and settling these matters quickly as they continue to drag the rest of the world down.

Greece had a deadline of last Friday to reach agreements with their creditors but nothing was resolved and talks continue as the IMF and the EU help put up smoke screens. Why isn’t anyone actively dealing with Spain and Italy, who the IMF director says could deal with their own debts?

Not likely, these are two economies buried by debt and government expenses that need assistance. Just because they are not in dire straits with their backs against the walls, why do we push them off to the future, why not deal with them now.

The US economy is slowly chugging along, it is not great, and it is very fragile, but it is showing signs of recovery, but the EU continues to drag them back down.

Boys and Girls, let’s get on with it. How many slang and jargon terms did I use.

What A Busy Day For A Monday

This was a day that just kept you jumping. The morning opened quietly in the Asian markets, with the celebration of the Lunar New Years several markets in China and Korea were closed making it a day of low volume.

As the day progressed, we kept hearing about a deal between Greece and their creditors, although there doesn’t seem to be a final deal on the table and default still looms as a possibility for Greece, EU leadership continues to sing a happy melody assuring the world that a deal would be reached to avoid a Greek default. There are many interpretations of a deal and default. The EU believes as long as a deal is reached, even if it is forced upon the creditors that it is not a default, but by its true definition anytime a debtor fails to pay in full their obligations they are in default, at least a technical default.

The other illusion is what private deals and agreements are being made behind closed doors, why would a creditor with insurance or a swap accept less money than they are due. Why would anyone accept a loss of up to 70%?

Well as this plays out, while you are watching the main circus act in the center ring, off in the far ring, the EU Ministers are doing something else, and what is this something else. They imposed an immediate embargo on all Iranian oil and freeze all the assets of the Iranian Central Bank.

What does this do, it turns on the rhetoric from the Iranian leadership and its one thing they can do and that is yell and scream and threaten…

As the euro surges on promises of a deal on Greece, oil surges on threats of the Iranians. What do investors do they run for safety driving gold up by 12.80 to 1677.00. Now crude is just at 100.00 up close to 2.00. The USD is dropping against all foreign currencies due to the EU assurances of a settlement in Greece.

What do we have not, EU exchange markets up, the euro up, the dollar down, gold skyrocketing, oil climbing. And then there is Natural Gas that all of a sudden is climbing off a down side to pick up from 2.32 on Thursday to 2.56 on Monday.

Talk about a busy day… We had successful German bond sales, a T bill sale in the US… and then what happens…

US markets plummet. Wall Street has been on the upswing since the beginning of the year, reaching its highest levels since July, just fell apart today, at high noon today, the Dow fell 38.2 points, or 0.3%, to 12682, the S&P 500 dipped 3.6 points, to 1311 and the Nasdaq Composite gained 12.1 points, or 0.43%, to 2775. US markets have kicked off the year in rally mode, with the broad S&P 500 surging 4.6% higher and the Dow picking up just over 500 points so far in January.

What a busy day for a Monday.

Mixed Markets as EU Ministers Meet and Greece is in Focus

Mixed Markets as EU Ministers Meet and Greece is in Focus
Mixed Markets as EU Ministers Meet and Greece is in Focus
Although the US retail sales added on Friday to signs the United States is recovering, while the borrowing costs fell in Europe last week following the strong auctions, cautious is prevailing as the results of the Greek talks are unclear.

Investors are awaiting the progress of the crucial Greek talks, as the government is trying to reach an agreement with bondholders over the size of the losses in order to avoid a messy default.

Meanwhile in Europe the Euro zone finance ministers will meet in Brussels to discuss the latest offer from private holders of Greek debt, while France and Germany are due to sell short term bonds today.

Data today is absent from both Europe and the U.S., while in Asia volumes were thin as most markets were closed for the Chinese Lunar New Year’s holiday, which marks the start of the Year of the Dragon.

Equities in Asia were mixed today with Nikkei 225 falling 0.01 while the MSCI Asia Pacific Index rose 0.1%. The same goes for the currencies and commodities, while in Europe stocks started the session with losses, where DAX fell 0.24%.

The euro is moving with an upside momentum around the 1.2930 level, the pound is weakening trading around 1.5535, while the yen is weaker at 77.05. However the dollar index is falling trading around 80.20.

While gold is gaining trading around $1670.70, oil is weakening trading around $98.00 as EU foreign ministers will decide today when the embargo of Iranian oil will start, to increase pressures on Tehran to stop their nuclear program.

Greece Conflict Effects Asia

Asian markets moved very little during Monday’s trading session.  Australian share markets lost 0.1% to 4233.50 after gaining all year, Australia is actually up over 4% for the New Year, making quiet gains. Most of the markets just seemed to drift today. Many are closed for the Lunar New Year including Shanghai, Hong Kong and Seoul.

The Nikkei rose 0.2% in a quiet trading session. Asian markets got what little life they exhibited today from the bounce in US markets on Friday.

With little in the way of economic news and data out today and the lower volume due to the holiday, the markets were lax.

All eyes and ears were waiting for news on the Greece situation. As of this morning, there has been no verifiable agreement reached between the Greek government and the IIF, representing the banks and major creditors. The original deadline to reach an agreement to avoid default was this past Friday, when no deal was reached both parties stated that they were going to continue talks over the weekend via phone. At this moment, there have been lost of conflicting reports and rumors, but no hard news on a final deal.

This morning’s deadline was set to present the final deal to the EU and ECB at their meeting today.

Reuters reported last evening “Greece and private creditors neared a debt swap deal which would prevent Athens from bankruptcy and have investors lose up to 70 percent of the loans they have given to the country. But many details were still unresolved and the plan must be approved by the International Monetary Fund and others.

Euro zone finance ministers will decide on Monday what terms of a Greek debt restructuring they are ready to accept as part of a second bailout package for Athens.”

In Monday’s Asian session, most of the currencies including the yen, aussie and the kiwi remained in tight ranges, just sitting and waiting.

Last week we saw the euro pick up some strength and rise almost back to the all important 1.30 level, making it as high as 1.2986 before losing the battle. On Friday as investors grew weary and amongst some profits taking the euro declined and the USD picked up steam. Many investors ran for the safety of gold pushing gold up by 10.00 on the close of the week end at 1664.50.

Today we might expect statements from the EU, the ECB and the IMF but it does not look like a deal will be struck without some incentives added, perhaps a Greek default is possible.

Markets Witness Mixed Trading after IMF Cuts Global Growth for 2012

US dollar managed to incline against most of major currencies as a report came from The Daily Telegraph today saying that the IMF will downgrade the global growth outlook for 2012 to 3.3% from 4.0%.

The IMF sees a 2.2 percent contraction for Italy and a 1.7 percent growth decline for Spain, as economies are weighed down by fiscal austerity measures, The IMF also urged the European Central Bank to boost liquidity to stave off a deeper Euro zone crisis.

While on the other hand, some major companies and banks in U.S announced their earnings reports for the fourth quarter, where Google and General Electric failed to reach markets expectations, affecting the performance of Stocks during Friday’s session.

In Europe, CAC 40 dropped nearly 0.04%, while DAX inclined by 0.14%, while in US, Dow Jones rose nearly 0.23%, S&P 500 dropped by 0.32%, and NASDAQ declined by 0.34%.

In Currencies market, the euro declined against USD trading around $1.2909 compared with opening levels at $1.2967, as demand for Euro decreased today, while the pound rose trading at $1.5517.

The USD gained some momentum today trading around the 80.28 level, while the USD/YEN pair inclined to trade at 77.13. The AUD/USD pair jumped trading around the 1.0457, where gold dropped trading around $1653.24, and oil declined also trading at $100.29.

Profit Taking Ahead of the Weekend

Although Greece is closer to reach a an agreement with bondholders, Europe’s bond auctions were successful this week, and the US presented upbeat economic data and earnings yesterday, markets are retreating on profit talking operations ahead of the weekend.

In Asia, stocks advanced on easing worries over Europe, since the French and Spanish bond auctions were solid yesterday, pushing the yields down. Meanwhile the U.S. jobless claims fell to the lowest in almost 4-years and Morgan Stanly and Bank of America posted better than expected earnings.

Nikkei 225 rose 1.47% especially since sentiment was positive as Greece is getting closer to reach an agreement with bondholders over the size of the losses to avoid a messy default, while China’s manufacturing PMI might contract for a 3rd month, boosting chances for easing measures to support growth.

However in Europe shares opened lower today as caution dominated ahead of the Greek talks, with DAX falling 0.38% while CAC 40 fell 0.51%. European stocks entered an overbought area after reaching a five month high, while Google delivered the first disappointing results on weaker European demand.

Data today include the UK retail sales expected to improve, Canada’s CPI expected to shrink, and the US existing home sales expected to expand in Dec. Earnings today include General Electric Co., while Italy’s Prime Minister Mario Monti’s Cabinet will meet to pass a plan to boost economic growth.

As risk aversion intensified ahead of the weekend, the euro is weakening, trading around 1.2925 while the pound is trading with a slight downside momentum around 15470. The dollar index is stronger trading around 80.27. The yen is weaker trading around 77.22. The AUD is weaker trading around 1.0395.

As the US dollar regained some of its strength, downside pressures were imposed on commodities, therefore oil lost ground since today’s opening, trading around $100.30 from the highest of $102.04; while gold is slightly lower on profit taking, trading around $1650.25, yet heads for the 3rd week of gains.

Asian Session Positive… A Sign For European Markets, Maybe

Asian markets traded mostly higher, but Hong Kong and Shanghai saw their early gains reduced after data showed Chinese manufacturing activity remained in contraction. But the reading was very positive for things to come.

The markets were reacting to US economic data that showed an unexpected drop in unemployment, and an overall positive growth and improvement in the American Economy. Whereas Europe was rejoicing over successful bond sales in France, Spain and the UK.

Also more positive news came from the IMF, who said that they would be discussing increasing their funding to 1 trillion euros at their meeting in February and they also sought and received approval to begin conversations with Greece in some sort of a rescue package, other then what was previously agreed upon. More rumor then fact, news emerged that Greece had reached a better understanding with creditors and that they would have a final agreement shortly.

It seemed like the positive news and data outweighed the negative yesterday, sending markets climbing and the euro soaring reaching 1.2961.

Japan’s Nikkei closed up 1.3%, while and South Korea’s Kospi improved 0.8%, and Australia’s S&P/ASX 200 index added on 0.3%.

Hong Kong’s Hang Seng as it prepared to close for Lunar New Year opened up more than 1% break the psychological 20,000 level, but then petered out after the manufacturing data was up just 0.2% at 19,978.45.

The flash China manufacturing Purchasing Managers’ Index for January reported in at 48.8, up from a final reading of 48.7 last month. The flash PMI reading however represented a three-month high, Despite the upside surprise of industrial production growth in December, the ongoing slowdown of investment and exports implies more headwinds to growth and likely destocking pressures for manufacturers in the coming months. The silver lining in the cloud was in the PMI subcomponents, where data for manufacturing output showed conditions were contracting at an accelerating pace, while new orders were contracting at a slower clip. With a slower contraction in new orders, the next report should reflect this is output, meaning that China’s manufacturing show rate in a more positive light next month. This also indicates the global economy is getting healthier. The positive news from the flash report indicated that new export orders were among the few bright spots, with conditions expanding, changing direction from contraction indicated last month. In all the report is a positive sign of things to come.

Financial firms were pushed up amid global optimism and gains for U.S. counterparts overnight.

Hang Seng Index HSBC Holdings PLC increased 2.9% in Hong Kong.

Mitsubishi UFJ Financial Group Inc. jumped 5.1%; Daiwa Securities Group Inc. climbed 4.7%, among others.

All in all today’s Asian session was very positive and should give a push the EU markets, and investors’ appetites.

Chinese markets will be closed for the Lunar New Year.

01/23/2012 Monday Lunar New Year 1 Hong Kong Stock Exchange HONG KONG
Shanghai Stock Exchange CHINA
01/24/2012 Tuesday Lunar New Year 2 Hong Kong Stock Exchange HONG KONG
Shanghai Stock Exchange CHINA
01/25/2012 Wednesday Lunar New Year 3 Hong Kong Stock Exchange HONG KONG
Shanghai Stock Exchange CHINA
01/26/2012 Thursday Lunar New Year 4 Shanghai Stock Exchange CHINA
01/27/2012 Friday Lunar New Year 5 Shanghai Stock Exchange CHINA