Sunday, November 13, 2011
28 Trading Rules
Friday, November 11, 2011
New governments, new hopes, same problems
Markets are on their way to finish the week with optimism after the formation of a new government headed by Papademus in Greece and following the approval by the Italian Senate of a key budget bill, that if also approved by the Chamber of Deputies, it should lead to the resignation of Silvio Berlusconi as Prime Minister. Despite political changes, economic and political uncertainty remains high and continues to be an important driver of world markets. Europe remains on the center of stage, as structural problems continue.
Italy takes center stage
Markets managed to trim losses at the end of the week but tension and worries are still the rule. Market panic came after the Italian 10-year bond yield rose above 7%, rate that many suggest as key level and also a level that if holds, could make the fiscal situation in Italy unmanageable, as it could lose access to the debt market. As the week came to an end, bond yield pulled back below 7%, on the back of the Senate approval of key measures and amid speculations that Mario Monti, could be the next PM of a unity government. The bill approved in the Senate includes debt-reduction measures in order to increase market credibility. Reforms include €60B in spending cuts and tax hikes, sale of assets, liberalization of local services and a pension reform; it does not include changes in labor laws.
If the package is approved in the lower house, Berlusconi should resign and so far, the most likely scenario but not certain, is that Mario Monti will replace him. Monti is an economist an a former EU commissioner, that was named a life senator by Italian President, Giorgio Napolitano on Thursday. The President will have to name the next PM. Monti has experience in global finances and investors so far have received the prospects of him becoming PM with optimism, also Italian political and business leaders supported his possible nomination. If the formation of a new government fails, the President would have to call early elections, a scenario that some members of Berlusconi’s political party want.
New government in Greece
In Greece, Lucas Papademos, former vice president of the ECB sworn in as Prime Minister, replacing George Papandreou, whose political capital vanished in the last months, particularly after he announced a referendum, later canceled. Negotiations took longer than expected but finally came to an end that has been well received by markets. If Papademos is supported by the entire political spectrum, he could take the steps that the EU is demanding from Greece, in order to continue receiving financial aid. Greece is facing alarming financial difficulties and is getting ready to implement what was agreed on the EU summit on October 26. Evangelos Venizelos will continue to be the Finance Minister. The reappointment of Venizelos is a sign to the EU that Greece wants to do whatever it takes in order to remain inside the Eurozone.
Despite the change in names, the main problem of Greece, Italy and many other countries in the Eurozone remains in the economic front. The lack of strong economic growth continues to create more fiscal challenges and the austerity measures needed to balance budget exacerbate the problem. New names and new programs could help Italy and Greece to make more time, but the clock is ticking and the situation worsens as economic growth does not pick up.
The crisis in Greece and Italy, spurred contagion fears. Some analysts point to France as the next Italy. The spread between French and German bonds rose to the highest level since the introduction of the Euro during the week and particularly after S&P erroneously announced a downgrade in France’s rating.
The ECB is being pressured to take more action to curb current worries, like buying unlimited amounts of government bonds. According to Nouriel Roubini the ECB should dropped rates to zero and massively buy bonds, implementing quantitative easing. Roubini, who predicted the financial crisis of 2008, wrote: “Unless the eurozone moves toward greater economic, fiscal, and political integration (on a path consistent with short-term restoration of growth, competitiveness, and debt sustainability, which are needed to resolve unsustainable debt and reduce chronic fiscal and external deficits), recessionary deflation will certainly lead to a disorderly break-up. With Italy too big to fail, too big to save, and now at the point of no return, the endgame for the eurozone has begun. Sequential, coercive restructurings of debt will come first, and then exits from the monetary union that will eventually lead to the eurozone’s disintegration.”
Euro trims losses after changes
The new Greek PM and speculations about Monti becoming the next PM in Italy triggered a recovery in the Euro and in stocks. Markets in Europe finished the week slightly higher, after a strong recovery on Thursday and Friday.
The Euro had dropped sharply on Wednesday, suffering one of the worst daily declines in months. The EUR/USD bottomed at 1.3480 but bounced and is about to end the week above 1.3700, still down but considerably far from weekly lows. The improvement in risk appetite sent the Dollar lower across the board on Friday. The Italian 10-year government bond yield retreated further, and is about to close the week clearly below the 7% level.
Despite Friday’s optimism, Europe is still far from out of the woods.
Italy takes center stage
Markets managed to trim losses at the end of the week but tension and worries are still the rule. Market panic came after the Italian 10-year bond yield rose above 7%, rate that many suggest as key level and also a level that if holds, could make the fiscal situation in Italy unmanageable, as it could lose access to the debt market. As the week came to an end, bond yield pulled back below 7%, on the back of the Senate approval of key measures and amid speculations that Mario Monti, could be the next PM of a unity government. The bill approved in the Senate includes debt-reduction measures in order to increase market credibility. Reforms include €60B in spending cuts and tax hikes, sale of assets, liberalization of local services and a pension reform; it does not include changes in labor laws.
If the package is approved in the lower house, Berlusconi should resign and so far, the most likely scenario but not certain, is that Mario Monti will replace him. Monti is an economist an a former EU commissioner, that was named a life senator by Italian President, Giorgio Napolitano on Thursday. The President will have to name the next PM. Monti has experience in global finances and investors so far have received the prospects of him becoming PM with optimism, also Italian political and business leaders supported his possible nomination. If the formation of a new government fails, the President would have to call early elections, a scenario that some members of Berlusconi’s political party want.
New government in Greece
In Greece, Lucas Papademos, former vice president of the ECB sworn in as Prime Minister, replacing George Papandreou, whose political capital vanished in the last months, particularly after he announced a referendum, later canceled. Negotiations took longer than expected but finally came to an end that has been well received by markets. If Papademos is supported by the entire political spectrum, he could take the steps that the EU is demanding from Greece, in order to continue receiving financial aid. Greece is facing alarming financial difficulties and is getting ready to implement what was agreed on the EU summit on October 26. Evangelos Venizelos will continue to be the Finance Minister. The reappointment of Venizelos is a sign to the EU that Greece wants to do whatever it takes in order to remain inside the Eurozone.
Despite the change in names, the main problem of Greece, Italy and many other countries in the Eurozone remains in the economic front. The lack of strong economic growth continues to create more fiscal challenges and the austerity measures needed to balance budget exacerbate the problem. New names and new programs could help Italy and Greece to make more time, but the clock is ticking and the situation worsens as economic growth does not pick up.
The crisis in Greece and Italy, spurred contagion fears. Some analysts point to France as the next Italy. The spread between French and German bonds rose to the highest level since the introduction of the Euro during the week and particularly after S&P erroneously announced a downgrade in France’s rating.
The ECB is being pressured to take more action to curb current worries, like buying unlimited amounts of government bonds. According to Nouriel Roubini the ECB should dropped rates to zero and massively buy bonds, implementing quantitative easing. Roubini, who predicted the financial crisis of 2008, wrote: “Unless the eurozone moves toward greater economic, fiscal, and political integration (on a path consistent with short-term restoration of growth, competitiveness, and debt sustainability, which are needed to resolve unsustainable debt and reduce chronic fiscal and external deficits), recessionary deflation will certainly lead to a disorderly break-up. With Italy too big to fail, too big to save, and now at the point of no return, the endgame for the eurozone has begun. Sequential, coercive restructurings of debt will come first, and then exits from the monetary union that will eventually lead to the eurozone’s disintegration.”
Euro trims losses after changes
The new Greek PM and speculations about Monti becoming the next PM in Italy triggered a recovery in the Euro and in stocks. Markets in Europe finished the week slightly higher, after a strong recovery on Thursday and Friday.
The Euro had dropped sharply on Wednesday, suffering one of the worst daily declines in months. The EUR/USD bottomed at 1.3480 but bounced and is about to end the week above 1.3700, still down but considerably far from weekly lows. The improvement in risk appetite sent the Dollar lower across the board on Friday. The Italian 10-year government bond yield retreated further, and is about to close the week clearly below the 7% level.
Despite Friday’s optimism, Europe is still far from out of the woods.
Tuesday, November 8, 2011
Mixed currencies ahead of critical decisions from Europe
Currencies are mixed and are fluctuating heavily since opening the session in Asia today, where we can see instability in the market as investors are waiting for heavy and critical decisions from Europe, as other European finance ministers’ joined the euro-area ministers in a meeting today to complete the final plan set to support Europe to overcome the debt crisis once and for all.
The U.S. dollar index (USDIX) started the day at 76.93, and recorded the highest at 77.17 and the lowest at 76.86, and is currently hovering around 76.98.
The euro fluctuated heavily today, yet biased to the downside with expectations that European ministers will disappoint investors as usual and will provide nothing critical to the market adding to concerns and jitters, especially when political decisions are awaited from Italy and Greece.
Starting with Italy, all eyes are focused on the parliament today, where the Prime Minister, Silvio Berlusconi faces a vote of confidence on last year’s budget plan, which is expected to reduce the Italian budget deficit by applying further austerity measures; however, several lawmakers demanded Berlusconi to step down, which reflects political instability in Italy as the Prime Minister seems to lost his majority in the 630-seat parliament, adding to concerns that Italy might skip applying the measures and will not be able to handle the largest debt in the euro-zone.
Yields on Italian bonds climbed to all-time recorded since founding the common currency, which raised fears that Italy will follow Greece steps and the contagion will soon spread to the country unless European governments intervene quickly and tackle the contagion of the crisis.
With rising fears and concerns, Greece highlights the political platform as we can see Greek parties have not found common grounds to assign new Prime Minister to lead the coalition government, where after Papandreou announced that he will step down and will not lead the unity government, expectations indicate that Lucas Papademos, the former European Central Bank Vice President, will take his place and lead the new government; however, all eyes are concentrated on Greece with hopes it will end the political conflict as soon as possible to avert early default.
Finance minister pledged yesterday to hand Greece the sixth tranche of 2010’s bailout package, but on the other hand, demanded the Greek Government to provide written acceptance of the second bailout deal along with showing commitment and act firmly to apply measures and reduce the percentage debt-to-GDP ratio.
The euro fluctuated heavily against the U.S. dollar after starting the session at 1.3771, where the EUR/USD pair recorded a high of 1.3791 and a low of 1.3723 and is currently hovering around 1.3772.
Moreover, Germany released the current account and trade balance figures today, showing that Germany was able to widen the trade and current account surplus beyond expectations driven by better exports and less imports in September.
The trade surplus expanded to 17.4 billion euros from the previous of 11.8 billion euros, while the current account surplus widened to 15.7 billion euros from 6.5 billion euros.
The sterling pound gained slight strength against the U.S. dollar after the manufacturing and industrial production indexes, where the GBP/USD pair opened the session at 1.6043 and recorded a high of 1.6100and a low of 1.6034, and is currently hovering around 1.6060.
The U.S. dollar index (USDIX) started the day at 76.93, and recorded the highest at 77.17 and the lowest at 76.86, and is currently hovering around 76.98.
The euro fluctuated heavily today, yet biased to the downside with expectations that European ministers will disappoint investors as usual and will provide nothing critical to the market adding to concerns and jitters, especially when political decisions are awaited from Italy and Greece.
Starting with Italy, all eyes are focused on the parliament today, where the Prime Minister, Silvio Berlusconi faces a vote of confidence on last year’s budget plan, which is expected to reduce the Italian budget deficit by applying further austerity measures; however, several lawmakers demanded Berlusconi to step down, which reflects political instability in Italy as the Prime Minister seems to lost his majority in the 630-seat parliament, adding to concerns that Italy might skip applying the measures and will not be able to handle the largest debt in the euro-zone.
Yields on Italian bonds climbed to all-time recorded since founding the common currency, which raised fears that Italy will follow Greece steps and the contagion will soon spread to the country unless European governments intervene quickly and tackle the contagion of the crisis.
With rising fears and concerns, Greece highlights the political platform as we can see Greek parties have not found common grounds to assign new Prime Minister to lead the coalition government, where after Papandreou announced that he will step down and will not lead the unity government, expectations indicate that Lucas Papademos, the former European Central Bank Vice President, will take his place and lead the new government; however, all eyes are concentrated on Greece with hopes it will end the political conflict as soon as possible to avert early default.
Finance minister pledged yesterday to hand Greece the sixth tranche of 2010’s bailout package, but on the other hand, demanded the Greek Government to provide written acceptance of the second bailout deal along with showing commitment and act firmly to apply measures and reduce the percentage debt-to-GDP ratio.
The euro fluctuated heavily against the U.S. dollar after starting the session at 1.3771, where the EUR/USD pair recorded a high of 1.3791 and a low of 1.3723 and is currently hovering around 1.3772.
Moreover, Germany released the current account and trade balance figures today, showing that Germany was able to widen the trade and current account surplus beyond expectations driven by better exports and less imports in September.
The trade surplus expanded to 17.4 billion euros from the previous of 11.8 billion euros, while the current account surplus widened to 15.7 billion euros from 6.5 billion euros.
The sterling pound gained slight strength against the U.S. dollar after the manufacturing and industrial production indexes, where the GBP/USD pair opened the session at 1.6043 and recorded a high of 1.6100and a low of 1.6034, and is currently hovering around 1.6060.
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