Emerging Markets
A rundown of Emerging Markets….
Brazil. Bovespa up over 3% and the currency just keeps on appreciating. The trend of the last 4 years just refuses to stop. part of the reason was the good U.S. numbers today. ADP employment was up 6,000 jobs against an expected loss of 60,000.
“Good news from U.S. markets makes investors more confident and willing to take on more risk,” said Francisco Carvalho, currency trading manager at Sao Paulo-based brokerage Liquidez Corretora.
I do not currently have a position here but would play it from the short (dollar) side for short term plays.
Chile. The Peso weakened alot today closing up near 507.00. I didn’t see any specific news for this but I think we are basically range bound with a slight bias toward a higher Usd/Clp.
Colombia. Similar to the Chile. The peso traded weaker most of the session and couple that with the Central Banks desire for a weaker Peso I see no reason to buck this move. I think the only reason we are not higher was the rate rise last Friday. Eventually the interest rate differential will kick in but for now I think the Dollar moves higher here.
Argentina. In a word UGH. The market is looking for dollars across the curve, but specifically against 1,2,3 months. Although spot has not moved up much, the rates have moved higher in these periods. Argentina is always a difficult currency for me to short and this time is no different. I squared up my position and am currently only running a small yield curve play. For this I am grateful as I have a bad feeling here that a meltdown may be quickly approaching.
Mexico. The short covering sqeeze of last Friday is all but forgotten and it looks like we are once again ready to take out the 10.00 level. Stay short dollars for now, the trend and interest rate differencial are in your favor.
And now a little Asia.
Korea. This currency is trading totally in line with crude. Today crude rally’s 4 dollars and Usd/Krw moves higher. I think this crude move is short lived and we will be seeing sub $120 a barrel very shortly. Therefore and high oil consumers (India, China, Korea, and the good old USA) currency should do well.
Good Luck and Good Currency Trading
More Write Downs to come….
Although the Merrill news could be seen as good news to some extent, it should also signal the beginning of some real substantial write downs for other institutions. The good news is that with this write down it seems to me that Merrill has taken all its medicine. The remaining sub prime assets on their books are already hedged or written down substantially. The bad news is mostly for all other financial institutions. Since prior to this fire sale there was really no prices to mark to market the portfolios, individual financial institutions were allowed to mark their books where they thought the market was. I doubt (but do not know for a fact) that anyone had their books marked this low. As such I would expect another round of write downs or fire sales in the near term.
Shareholders can not be overly happy either. The share price is now greatly diluted, but at least they are moving forward. I look at this very similar when I trade. Sitting on bad positions, hoping and praying that things will change. I always feel tremendously relived when I finally cut the position and move on. Only then can I begin to make rational decisions again.
Hopefully this will move Wall Street in the same direction.
Good Luck and Good Currency Trading
Merrill writes down again
Although it seems this could be the last time (I know I have said that before..).
I think it is a good move, write it off and start again. Holding it certainly didn’t work.
Here is the story from the WSJ
Good Luck and Good Currency Trading.
Some thoughts on the Euro
European stocks have been struggling this year as have stocks worldwide. The decline has been led by Financials and airlines. This is again a universal theme.
“If you’re looking for good news from the banking sector I suggest you go on holiday because it is just not going to be there,” Howard Wheeldon, senior strategist at BGC Partners LP in London, said in a Bloomberg Television interview.
Earnings estimates are being trimmed and I see little reason to think that things will get better in the near term future.
In the States the curbs installed for preventing short selling is being credited for the large bounce in Financial stocks last week. I think that the over sold nature of the sector also had a lot to do with it. But as in Europe I would not get overly long just yet. The capital structure of most financial institutions is poor and only time will get them out of it. If fundamentals are not good then preventing short selling will not help things, only delays the inevitable.
A recent survey of German consumer confidence showed a decline to five year lows, this is certainly not good sign.
“Three things are weighing on sentiment: inflation, inflation and inflation,” GfK Chief Executive Officer Klaus Wuebbenhorst said in an interview on Bloomberg Television. “And the European Central Bank raising rates also makes consumer loans more expensive.’
Besides inflations slower growth is weighing on the region and the ECB has made it clear that inflation is the biggest worry, therefore growth could really suffer.
“Along with fears of high inflation, many Germans are concerned that there will be a more marked cooling of the economy than previously anticipated,” GfK said. “News from the U.S. of the continuing gloom in the financial markets support these assumptions and not least, the continuing high value of the euro represents a hazard to exports.”
Overall I think that the Euro could suffer moving forward (I know I have said this many, many, many times before).
Technically we are in the middle of a range, a range we have been in since Feburary. No need to break out now but I think when it does break, it will break to the downside.
Good Luck and Good Currency Trading
Emerging Markets
Friday was once again an interesting day in Emerging Markets, lets go through each country.
Colombia, raised rates unexpectedly on Friday. The reason cited was inflation. Colombia will probably miss its inflation target for the third consecutive year and as such the CB reacted.
“Inflation has had a higher than expected increase,” said Finance Minister Oscar Ivan Zuluaga at the central bank in Bogota after the announcement.
This could be a problem for the currency, as it will add to its strength (interest rate differential widening). The CB has been under tremendous pressure of late to stop the appreciation of the currency. That is one of the reasons they instituted the daily currency purchases earlier this year.
Mexico. The Central Bank announced the suspension of dollar sales, beginning Aug 1. This caused the currency to weaken the most in almost 6 weeks. This followed the announcement that the Government would purchase 8 billion dollars in reserves from Banco De Mexico. With the market looking to challenge the 10.00 level (I have been calling for the for a while) there were ample shorts to squeeze, which is exactly what happened. There was also talk of major “knock-outs” in the options market at the 10.00 level. Now what from here….
The announcement “led to a sharp move in the peso,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “We’re not expecting a big drop in the coming days as the spread with U.S. rates keeps the peso firm.”
Interest Rate differential comes into play once again. I tend to agree as carry is king (in my book at least).
Argentina, posted the largest trade surplus since 2001. This on the back of the farmers strike. Rates have settled in at around the 15% level in the 12 mths, and the currency has strengthened slightly in recent days (3.0150/00). I still like my position which is long a few (not many) dollars in spot and short dollars along the curve. I benefit from positive carry while guarding against a meltdown of the currency.
Brazil. The calmest currency of all. The stock market has been struggling of late and the yield curve is recting strange. I think there are opportunites to be had in the differentials with dollars. Of late they have been narrowing, I do not agree with that. I think there is an opportnity to buy the curve looking for it to widen out. Rates will continue to go higher in Brazil, here in the States we will stay flat. As for the currency, I do not have a strong view. The currency has strengthed for the past 4 years, I guess ride the trend for now (sorry I do not have any conviction here).
Good Luck and Good Currency Trading.
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