Asian Emerging Markets
I rarely write on Asian Emerging Markets but I follow them closely also. I lead a daily Emerging Markets call for my firm that, logically starts with and Asian update. This week I found an interesting theme, one of buying Dollars. The updates were as follows,
Usd/Krw Onshore Dollar buyers
Usd/Inr local Oil importers seen buying Dollars
Usd/Sgd Offshore sellers of Dollars against MAS agent banks on the Dollar Bid (MAS is the Singapore CB).
Usd/Chy onshore names on the bid.
Similar theme local entities are buyers of Dollars across the board. It continued into Latin America as locals were buyers of Dollars from Chile to Argentina.
According to a CLSA report this week on China, Chinese officials have moved from a gradual tightening to a more proactive tightening. We have seen that recently with the aggressive nature of the rise in reserve requirements. The CLSA report calls for 108bp of increases to offset what is seen by officials as the extremely liquid conditions of the market. Chinese officials have been attempting to rein in credit and seem to be determined to do what it takes to achieve this goal. The increase in rates should lead to currency appreciation, which should help combat inflation pressures. All in all look for higher rates and a stronger currency in China. This should also lead to buying on the Chinese stock market.
A quick thought on Chile.
New regulations this week were put into place. It was to increase hedging requirements for Chilian pension funds. The regulation
* Extends from 10 to 90 days the period for pension funds to adjust to the new hedging limits
* Stipulates that hedges will have to be made against the currency where the investment is made ( i.e. Brl, Jpy) not just against the Dollar.
This announcement certainly sparked an interest to buy Dollars. Interestingly it was the Pension Funds themselves that were asking for this change. I think that the extreme volitility and illiquid environment for the Peso has alot to do with general fear in the market. The Dollar buying is partially the result of the new regulation but the general Dollar bid tone has a lot more to do with it. As I posted yesterday, right now the market is looking at all the news and sees the bad in it. It is part of the eb’s and flows of a markets and one that I do not like to fight.
Good Luck and Good Forex Trading.
It’s the Economy
Yes its the economy, not just the U.S. but the entire Global economy. Right now sitting back and trying to come up with a reason for all this carnage I can break it down to one thing. The market that for the final quarter of 2009 looked at any news from a Positive perspective are now taking the opposite approach and finding a negative spin to everything. Don’t get me wrong there is certainly enough negative to go around. Employment is terrible and prospects are worse. What jobs there are out there are paying far less then in the past.
More and more it is becoming apparent that whatever growth we have seen is a direct result of the massive spending that the governments from around the world are putting into place. This spending cannot go on forever and unless employment begins to increase this economy will begin imploding on itself. This week the Fed announced that they were going to stop the mortgage buying program as scheduled to do. Trying to begin an exit strategy for all the massive liquidity that has been pumped into the system. But is it to soon? Frequent readers of my post’s know that I am bullish on financial stocks. What the Fed was and is doing amounts to free liquidity for the banks and as such should really help the bottom line. But then what happened? Most of the bank’s results were far below expectations and a few were kind of scary. What have the banks been doing? Were there bigger problems then were originally reported (obviously yes)? Did the banks write down enough of this debt a year or two ago (obviously not)? So what is happening now is that the banks are showing smaller profits, or greater losses as they continue to address these problem loans. Does the Fed know the problems at these institutions? Well I certainly hope so and certainly expect they do. And what about Congress, interrogating Tim Geithner and Hank Paulson the way they did? This crisis even in hindsight was alot deeper then anyone of us ever knew. Paulson talks in his book (I have not read it yet, just an excerpt) that he called his wife one night and told her that he was scared. That speaks volumes to me. Paulson was center stage during this crisis, he saw exactly what was going on and for him to be scared tells me we were closer to financial ruin then any of us knew. This is not to say I was happy with the way the bailout occurred. Part of the deal for getting the cash from the government should have been that all guaranteed contracts are null and void. You don’t like it don’t take the money and go bankrupt. Going bankrupt you get zero and with the bailout you get zero, but at least have a job. I have felt that way from day one, but clearly things were spiralling out of control faster then plans could be put in place. I truly believe that if given the time something like that would have been put in place. They were not acting to protect “fat cat” bankers, but rather acting as quickly as possible to stabilize the economy. When both men spoke of being extremely close to financial ruin I really believe them. I always realized we were in trouble, just how much is really being seen now. The testimony this week coupled with poor results from the Financials highlights the problems that are still out there. I underestimated the problems at the Banks and we are seeing it now. From the reaction of the markets this month so has everyone else! We are seeing all the optimism coming out of the markets and it has been painful for my trading. Although I Have done well with my Euro position the liquidity situation has kicked me in the teeth. When markets turn like this liquidity thins out and being a market maker is not optimal.
I think there is more fall out to come. The market closed very weak on Friday, and I think there will be more people looking for the exit in the weeks to come.
I will be posting on the Latin American currency’s later in the weekend.
Good Luck and Good Forex Trading!
Markets fear risk but not Bill Gross
With stocks up on Monday and the Brazil markets closed I expected to walk in tuesday morning to a lower Dollar Brazil. WRONG! The market opened 1.8235 and moved straight up to 1.8385 and later even higher. Tuesday marked a day of thin liquidity and a risk adverse trading environment. But there was some hope (well for me at least). Bill Gross of Pimco came out today suggesting “less leveraged” countries such as China, India and Brazil that are “less easily prone to bubbling”.
“Go where the growth is, where the consumer sector is still in its infancy, where national debt levels are low, where reserves are high, and where trade surpluses promise to generate additional reserves for years to come,” Gross wrote in a monthly investment outlook published on Newport Beach, California-based Pimco’s Web site. “The old established G-7 and their look-alikes as they de-lever have lost their position as drivers of the global economy.”
For traders of the opinion that the markets will be range bound (all be it a larger then normal range) then Bill Gross’s comments can give support to this view. The difficult thing is patience. Today I got squeezed pretty good in the Chile. I was paid on the open and watched as the market climbed 5 figures in 30 minutes on little to know volume. After I cut the position (at nearly the top) I watched the currency strengthen back to the days low. FUSTRATING!
The only trade I am really confident about is Short Euro (quick go out and buy it!). Today is a Brazil Central Bank meeting. No rate change is expected but the market is definitely looking for a more hawkish statement. Speaking to locals the expectations are for a stronger Usd/Brl and rate rises below market expectations. Also continue to watch China. They once again raised reserve requirements and their approach is beginning to remind me of 2006 all over again. Back then they raised reserve requirements and then let the currency appreciate in a steady fashion. Will it happen again, I do not know, but there is a lot of chatter in the market of a once off revaluation. One thing is certain, China will move when China wants to move, it is just looking more likely that it will happen sooner (Chinese New Year in February) rather then later.
Good Luck and Good Forex Trading.
Please take a minute and vote on my poll
How do you feel about the Economy?
Thanks
A few trade Ideas
It was quite a slow day in the office today. Rather then sit around and “surf” YouTube like I usually do I decided to come up with a few Trading ideas outside of my usual core currency’s.
Long Usd/Jpy. This really revolves almost totally around the Carry Trade. Around the world Central Banks are beginning to raise rates. The BOJ has a desire to keep rates low and have shown a desire to keep the currency soft in order to fight inflation. Interest rate differentials will begin to move more and more in favor of a weaker Yen. This trade should play out over the next 3-9 months.
Short Usd/Inr. India has rebounded very quickly from the Global recession. There are significant inflows into the country (remember they are the “I” in BRIC) and as the rest of the world improves so will India’s exports. A stronger Inr helps to fight inflation which the RBI likes.
Short Usd/Mxn. In the end yield wins. A day like today reminds me that in times of quiet markets the trade will be “Risk on”. The same can be said for Usd/Brl, I think that although the Central Bank really doesn’t want a stronger Brazil, it will eventually happen. The currency has traded sideways to slightly weaker since Oct 2009. The talk in the market is for a weaker Brazil and in reality it hasn’t really happened. I think that there are very few traders strategically short Dollars. I for one am getting bored trying to play this currency pair from the long side. I also think that this “recovery” may not be as robust as I originally thought. A very steady but slow recovery is in the works.
Usd/China. I am getting the feeling that China will be more aggressive with letting their currency strengthen then I originally thought. Previously I was looking for 3-4% not I think we could get a bit more then that. This should also play into a weaker Euro.
DISCLAIMER: Today my son was looking at my BlackBerry when the P/L e-mail was sent out. He thumbed through it and noticed that I was the lowest contributor on the desk so far this year. So my recommendations should be taken with that in mind! Luckily I live to fight another day!!
Good Luck and Good Forex Trading
Please take a minute and vote in my poll
How do you feel about the Economy?
Bernanke, coming back?
Part of the uncertainty in the markets last week was the confirmation of Ben Bernanke coming back for another term as Federal Reserve chairman. That could possible be on the back burner now as there is word that the President has received assurances from Senate leaders the Mr Bernanke will be confirmed for a second term. Leading Democrats Christopher Dodd, Judd Gregg and Richard Durbin as well as Republican leaders have expressed a desire to see the current Fwd chairman back for another term. One report has it that the President himself spent Saturday calling leading Senators to assure the nomination of Bernanke does not go off course. Harry Reid the Senate majority leader has stated that he is behind Bernanke and that should help sway any Democrats looking to oppose the nomination. All in all another term for Bernanke will be viewed as a positive for the markets.
The Week ahead.
Who knows! I think it should be Risk positive to start. A stabile stock market will lead to a more positive approach to Emerging Markets and a stronger Dollar. Certainly the President is being briefed that his comments last week had a big (negative) effect on the markets. He wants stability more then anyone, as such it will be interesting to see his comments in the coming weeks.
I will be looking for some positive carry trades this week. BUT these trades will have a short lease. I traded through the Asian Crisis in the late 1990’s and the Credit Crisis of years ago and one thing I learned was not to fight the market. If this is a real run, then get on board. Currently I am not sure we are really in a “run”. BUT I am on guard incase it is.
Good Luck and Good Forex Trading.
Please take a minute and vote in my poll
-
*************************
