Is the worst behind us?
Today was another rather calm day for the markets. Libor rates continued to come down, stock markets rallied, Emerging Market currencies strengthened and interest rates continued to fall. Sitting back one might think that everything is good and it is “Safe to enter the water again”.
Mexico. I like recieving positons in rates, specifically Mexico and Brazil. Today Mexican rates came off hard, primarily in the back end of the curve. This caused the curve to flatten as the shorter end was unchanged. I have been seeing alot of customers buying Mexican CD’s as the implied rates offshore are considerably higher then the onshore rates. I will be watching short dates for more direction on the curve, if they stay around these levels then the curve will steepen out again, but I am leaning toward short end rates coming lower (as the currency strengthens) and a further flattening of the curve ensues.
Brazil. Interest Rates went higher today in a move that I can only clarify as strange. I think these were weak shorts getting squeezed out and I think that they will begin to move lower in the days to come. The currency is being effected by numerous flows. It seems the Central Bank is doing all it can to keep it from running away. There have been many newspaper articles written about the trouble of local corporates who speculated on a stronger Real only to have severe mark to market issues of late. The CB are well aware of this and doing everything in their power to provide ample liquidity to the market. Tommorrow is the fixing of the Nov BMF contract. The roll has gone exceptionally bid and I think it could be paid up by banks trying to accumulate dollars in an effort to “close out” these corporates. This is pure speculation. As such I think there is a good chance we see sub 2.00 in the next two days, after that I have no idea.
Euro. I think that the Euro reached a temporary top (1.3100 ish) and will begin to move lower testing 1.2500 by the end of next week. The market still needs dollars and I think this will be the catalist to move the Euro lower.
Good Luck and Good Currency Trading.
Fed Cuts Rates
The Fed came in today and cut rates 50bp as expected. Market pricing was split between 50 and 75bp. Today’s move is in line with what the rest of the world has been doing, that is cutting rates in an attempt to shorten the economic slowdown we have been experiencing.
Their statement was quite clear. We will “monitor economic and financial developments
carefully and will act as needed to promote sustainable economic
growth and price stability.”
The Fed clearly believes that the multiple policy initiatives that have been put in place will help to alleviate the slowdown which we are currently experiencing.
The Fed also said that it stands ready to ease further if economic and financial markets warrent as “downside risks to growth remain”. I think that economic activity will remain soft and there is a good possibilty of further rate cuts in December.
I look for Emerging Markets currencies to improve going into the weekend but clearly we are not out of the woods yet.
Good Luck and Good Currency Trading.
The Fed to the Rescue
The Fed has just set up dollar swaps with Brazil, S Korea, Singapore, and Mexico. This took the dollar lower against all of these currencies.
Overall another step toward calming the waters and getting everyone lending again.
Well at least lets hope so.
CLICK HERE to read more.
Good Luck and Good Currency Trading
Laugh or Cry
Young Chuck moved to Texas and bought a Donkey from a farmer for $100.
The farmer agreed to deliver the Donkey the next day.
The next day the farmer drove up and said, ‘Sorry son, but I have some bad news, the donkey died.’
Chuck replied, ‘Well, then just give me my money back.’
The farmer said, ‘Can’t do that. I went and spent it already.’
Chuck said, ‘Ok, then, just bring me the dead donkey.’
The farmer asked, ‘What ya gonna do with him?
Chuck said, ‘I’m going to raffle him off.’
The farmer said, ‘You can’t raffle off a dead donkey!’
Chuck said, ‘Sure I can Watch me. I just won’t tell anybody he’s dead.’
A month later, the farmer met up with Chuck and asked, ‘What happened with that dead donkey?’
Chuck said, ‘I raffled him off. I sold 500 tickets at two dollars a piece and made $998.’
The farmer said, ‘Didn’t anyone complain?’
Chuck said, ‘Just the guy who won. So I gave him his two dollars back.’
Chuck now leads the US bank bailout team.
Good Luck and Good Currency Trading.
Stocks move Higher
Stocks had a great day yesterday closing up almost 900 points. Alot of people were calling this the bottom and saying that we were now going to turn up….well I hope so (and think so) but don’t be so quick to that conclusion. This to me was a relief rally. It happened across a few different assets classes. The Dollar moved lower. Emerging Markets strengthened and interest rates (in EM) came off. This is a good first step but I think we need a little follow through in the days ahead. I like that this all occurred after the terrible confidence number we saw today (38 expected 58 , I think were the numbers). To me those were to be expected. Equities were off considerable and that is how people judge there wealth. Sure you house price can fall, but as long as you can pay the mortgage (I know that is a big IF these days)it really doesn’t matter, but when your 401k is falling in value people stop spending…fearing for their future.
I am looking for the Dollar to continue under pressure and for the U.S. yield curve to steepen out a bit. The Fed will cut tomorrow, probably 50bp which I do not see doing alot now, but would cripple stocks if they didn’t and the Fed knows this.
Good Luck and Good Currency Trading.
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