Daily Forex News

By David Becker

Geo-politics put pressure on the US markets on Friday, but the follow through seems to have been short lived.  The US markets sold off approximately 2%, on Friday with the Dow down 1.3%, the S&P 500 Index down 1.7%, and the Nasdaq 100 leading the markets lower down 2.5%.

Investors seemed to be more focused on US earning and the plethora of data that is expected to be released during the week.  This week will be the start of the major data releases for January.  Purchasing Managers reports are due out Tuesday, which should continue to be broadly consistent with accelerating global growth.  Job growth in the US looks set to remain fairly tame as non-farm payrolls will be reported Friday.

ADP jobs will be reported on Wednesday and is likely to have little impact given its large discrepancy relative to the BLS report in  December.  The January jobs data for the US will likely be subject to some distortions given the horrible weather experience during the month over much of eastern US.

Dow component Exxon Mobil posted quarterly earnings early on Monday morning that topped Wall analysts’ expectations, thanks to rising oil prices.  Exxon reported earnings of $9.25 billion, or $1.85 a share in the fourth quarter. That was up 53% from $6.05 billion, or $1.27, a year earlier.  Analysts had expected earnings per share of $1.63 with revenue up 17% to $105.2 billion in the quarter, beating expectations of $99.1 billion in revenue.

Investors also were able to receive some insight into car production and sales.  Chrysler Group LLC reported a loss for the fourth quarter as heavy interest costs the company pays on its government loans continued to hamper its profitability.  The auto maker lost $199 million from a loss of $2.69 billion for the same period in 2009. Revenue rose 14% to $10.76 billion. This is the first year-over-year comparison since the company filed for bankruptcy protection and was fused with Fiat SpA.

During the week, JDS Uniphase, a technology company, will earnings on February 3rd.  Fiber optic components and subsystems markets are destined to grow, and JDS Uniphase will likely continue to be a less volatile stock with consistent earnings.

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By David Becker

Despite the political unrest unfolding in Egypt, the currency markets has turned their attention back to the fundamentals which have been driving the markets.  Over the past few weeks, German interest rates have move higher relative to US interest rates, making it more attractive to hold the Euro relative to the US dollar.

The euro has gained buying interest today, as the widening of interest rates between US and German have trumped the flight to safety trade for the dollar.   Euro zone inflation increased to 2.4% on a year over year basis in January from 2.2% year over year in December.  The increase has increased short term German interest rates and has led the 2-year US-German differential higher to 85 basis points which is the widest since March of 2009.  Inflation levels over 2%, will likely attract hawkish comments from the ECB.

Although it is very unlikely that the ECB will tighten interest rates to the extent that current short term interest rate instruments are pricing, it will be hard for the dollar to rebound significantly if rate differentials continue to widen in Germany’s favor.

The Greek press reported that European officials are finally discussing a Greek debt restructuring.  The report suggests that the EU, IMF, and the ECB have reached a basic understanding that a Greek debt restructuring is inevitable and that haircuts on principal as well as extensions of maturities to 30 years at lower interest rates are being discussed.

The Euro tested lower levels early in Asian trading before snapping back toward the 1.37 level.  The next resistance level is close to 1.38.  Last week, the 20-day moving average crossed above the 50-day moving average generating upside technical momentum for the Euro.  Support for the currency pair is seemed below at 1.34, which coincides with the 20-day moving average.

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By Barbara Zigah

According to a press release from the Japanese Ministry of Economy, Trade and Industry, December’s industrial production surged for the last month of 2010, striking an 11-month production peak and topping economists’ forecast.  The improvement, driven primarily by increasing demand overseas, rose by 3.1%, besting estimates of 2.9%.In an report from BNP Paribas’ Economic Research Department, they caution that Japan’s production figures for December notwithstanding, the underlying quarterly trend remains negative, with a -1.7% quarter-on-quarter decrease.However, from the results of an entrepreneurial survey conducted by BNP Paribas, the outlook for at least the first quarter of 2011 remains encouraging, with production expected to rise in January.

Given that Japan’s economic recovery is heavily driven by foreign trade, BNP Paribas is also predicting that the Japanese economy will grow about 1.6% in 2011, with the same growth rate predicted for 2012.  One economist in Japan suggests that given the recent strong economic data, including last week’s report of an increase in exports, the economy should pull ahead this quarter.

The Yen’s strength is the only fly in the ointment, as BNP Paribas sees it.  They suggest that the earlier weakness in production can be attributed to the Yen’s appreciation.  Too, they note that industries are hesitant to invest in Japan, with some speculation that current enterprises are considering moving their production lines overseas.  BNP Paribas does, however, expect to see some improvement in investor sentiment during the year, with Yen depreciation.  At the present time, however, the Yen is under demand as a safe-haven currency, in the face of escalating tensions in the Middle East.  Currently, USD/JPY is steady at 82.1550, while EUR/JPY is at 112.56, approaching a 1-week peak.

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By Barbara Zigah

This past weekend saw tension in several Middle Eastern nations escalate, giving rise to growing sentiment among investors and analysts alike that oil prices are likely to rise, with per barrel prices forecast to hit $100 in the near term.  Currently, oil prices are flirting with $90 a barrel.  Last Friday, several key events occurred:  oil prices surged 4.3%, effectively wiping out earlier losses incurred during the week, U.S. Oil Fund, the biggest oil-EFT in the U.S., struck an 8-month peak, and the NYMEX reported record-breaking volume in oil futures.

All this comes on the heels of Tunisia’s recent civil uprising, and as Egypt’s anti-government turmoil threatens to spread throughout the region.While most analysts believe that the tensions won’t spill-over into any major oil producing country, Egypt’s key strategic position as a facilitator in the worldwide oil market is in jeopardy, specifically because the 200-mile Suez-Mediterranean gas pipeline is seen as a potential choking point.  Too, Egypt’s Suez Canal currently provides a conduit between Middle East oil and European consumers.  Should the pipeline or Canal be closed as a result of the current unrest, oil tankers would be forced to travel an additional 6,000 miles, by diverting around South Africa.

One Goldman Sachs analysts’ brief to investors reported that they saw little risk of politically-related unrest affecting the more affluent Middle Eastern countries, but financial contagion has raised the cost of production already.  Further, if these countries are forced to yield to political pressure and increase government spending, balancing budgets will become more difficult and likely to result in an oil price rise.

The political unrest is also igniting a flurry of selling in higher-risk currencies, including the Euro and other commodity-based currencies as investors flock to the safe-haven of the U.S. Dollar, Swiss Franc and Japanese Yen.  In Asian trading, EUR/USD is priced at 1.3635, while AUD/USD is at .9935.

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Prices of food and energy as well as other commodities have been steadily rising over the past 12 months.  Inflation has become an issue for many Asian and European companies, as well as, Latin American EM countries.

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By Barbara Zigah

As 4^th quarter U.S. corporate earnings reports continue to hit the news wires, yesterday’s breach of protocol by Microsoft – announcing corporate earnings during regular trading hours – shocked even seasoned investors, yet they quickly recovered their composure and helped to boost the NASDAQ higher.  That boost, coming as it was ten minutes to the closing bell, was temporary, however, as a flurry of selling moments before the close brought the NASDAQ back down to earth. Still, at the bell, the NASDAQ closed up 15.78 points to 2,755.28 points, a .58% gain on the day.

The reason why Microsoft jumped the gun was plausibly explained as a human error which allowed a pre-production version of the 4^th quarter results to be posted on a public server, which was found by one media outlet during a routine search and then sent on to its clients.  Microsoft execs approached NASDAQ once they learned of the posting, and then issued official results.  According to the “official” 4^th quarter results, Microsft reported $6.63 billion in net income for the quarter, equivalent to $0.77 per share, based on sales of $20 billion.  Microsoft shares rose to $28.87 at NASDAQ’s close, a gain of $.09 per share.

But it wasn’t only Microsoft’s earnings that had piqued sentiment in the NASDAQ.  Earnings reports from technology stocks Qualcomm and Netflix also gave a lift to the composite, both of which bested analysts’ forecasts.  The selling flurry which eventually brought the NASDAQ lower at the bell was caused by internet giant Amazon’s report of a 36% increase in 4^th quarter earnings, but sales for the period did not meet forecasts, resulting in the share price dropping nearly 10% in after hours trading.

It’s expected that all of the major indices, including the DJIA and the NASDAQ, will get off to a lackluster start, with activity picking up later in the day in advance of more corporate earnings releases and following this morning’s release of U.S. GDP growth data.

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By Barbara Zigah

In spite of recent mixed result indicators, economists had forecast stronger growth for the 4^th quarter of 2010.However  The actual numbers fell short of expectations.  The U.S. Bureau of Economic Analysis reported earlier today that the pace of ^4th quarter annualized GDP growth slowed to 3.2%.  While slightly better than the 3^rd quarter adjusted growth rate of 2.5%, it remains well of the forecast of 3.5% growth. A significant rise in personal consumer spending during the last quarter of the year to 4.4% from 2.4% in the 3^rd quarter was acknowledged as providing the largest contribution to the growth.

Shortly after the data release, the U.S. Dollar trended lower, with EUR/USD at 1.3697 and USD/JPY at 82.41.

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By Barbara Zigah

The foreign exchange markets are gearing up for some serious profit taking today, ahead of the release of U.S. GDP growth data later in the trading day.  The common currency Euro, especially, was considered ripe by investors, given the fairly significant broad gains it has been seeing in recent weeks.  Profit takers are taking advantage of yesterday’s downgrade of Japan’s sovereign debt rating and disappointing U.S. jobless claims data to sell off their Euro holdings.

The month of January has seen a good deal of Euro volatility; only three weeks ago it was at a 4-month low, and as recently as last week it struck a 2-month peak.  Investors still believe that the Euro has room for more growth, with the ECB position seen as hawkish and the likelihood of a rate increase becoming more probable.

The likelihood that the Bank of England will also move to hike interest rates before mid-year is providing support for the Pound Sterling against the greenback, as well as the Euro.  In yesterday’s trading the Pound gained .26% on the U.S. Dollar, closing at $1.5939, off from a session high of $1.5991.  Analysts suggest that the currency was not strongly affected by the recently issued data of a drop in U.K. housing prices and a decline in retail sales for the month.

Profit taking Euro investors have helped to prop up the Pound, with EUR/GBP currently at .8633.  The story is similar against the U.S. Dollar, with EUR/USD at 1.3695.  Later today, the U.S. will release 4^th quarter GDP data, which is forecast to show that the American economy grew by 3.5% (annualized) last quarter, and should the economists’ predictions come true, the Dollar will likely gain broad support.

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By David Becker

The US markets continues to remain robust, with technology continuing to lead the major indexes higher.  Positive sentiment continues to permeate investors trading actions as the risk on trade has stayed the course despite some bumps in the road.  Today’s worse than expected jobless claims is one of those bumps.  According to the Labor Department, jobless claims increased last week by 51,000 to 454,000 in the week ended Jan. 22. Analysts had expected that claims would rise by just 1,000 to 405,000.  This was the largest weekly rise in claims since September of 2005.

Prior to the bell, Caterpillar climbed 2.2% after the company’s fourth-quarter earnings that were much better than expected.  Caterpillar reported a profit of $968 million, or $1.47 a share, up from $232 million, or 36 cents a share, a year earlier. The world’s largest manufacturer of bulldozers, excavators, wheel loaders and other construction machinery, reported revenue surged 62% to $12.81 billion after tumbling 39% a year earlier.

Consumer giant Procter & Gamble declined in pre-market trading after its fiscal second-quarter profit slid 28% compared to a prior-year period that included a large gain from discontinued operations. Colgate-Palmolive edged down 0.3% after its fourth-quarter earnings fell 1.1% on lower-than-expected revenue as higher materials costs hit margins. The company also forecast fiscal third-quarter earnings of 95 cents to $1 a share, lower than the 99 cents analyst were expected.

Other headwinds the S&P 500 index will face is the worse than expected Durable Goods Orders which were released at 1330 GMT.  Durable goods declined by 2.5% in December, when analyst had expected to see a rise of 1.4%.  Durable goods ex-transportation climbed by 2.0%, which shows that transportation was very week in the month of December.

After the bell today, investors will be watching the earnings of Amazon, which is a bell weather for the retail sector.  Investors will be looking for strong growth in Amazon’s two biggest businesses, which are electronics and other general merchandise and books, CDs, DVDs and other media.  Analysts expect a profit of 88 cents per share on $13.0 billion in revenue. Amazon predicted $12 billion to $13.3 billion in revenue in October.

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By David Becker

The EFSF (European Financial Stability Facility) was created to issue debt in order to fund loans to member countries in “financial difficulties.”  The bonds issued are backed by guarantees given by all 16 members of the euro zone, up to €440 billion.  The ESFS has seen excellent demand for the first issuance which generates robust sentiment for the Euro zone at a very important time in their history.

The related EFSM (European Financial Stability Mechanism) comes from funds raised by the European Commission and are guaranteed by the EU budget, up to €60 billion.  EFSM bonds will only be EUR-denominated, while EFSF can be in other currencies besides EUR, but in principal will be mostly EUR-denominated.

In the first issue, more than €40bn in orders were in bid for the bonds from some of the biggest public and private funds round the world. The demand enabled the European financial stability facility to allot the maximum amount of €5 billion of bonds it wanted to sell and price the bonds at much lower yields than a previous European Union deal earlier this month. The bond priced at a yield of 2.8 per cent. This is lower than the previous EU bond, which priced at 12 basis points over mid-swaps and 70 basis points over bunds.

The EFSF bond has a top-notch triple A rating, which makes it extremely attractive to central banks, sovereign wealth funds and big private investors.  The 5 billion euro 5-year bond was over-subscribed nearly by a factor of nine. Yet the successful auction has not seen peripheral spreads over Germany narrow.  Comments by a number of sovereigns had suggested that the triple-A EFSF (and EFSM) bonds were seen as more attractive paper to invest, rather than an additive, to create a successful fund that would bail out troubled EMU countries.  Investors and strategists are increasingly expecting policymakers to beef up the EFSF and introduce tougher fiscal targets over the next two months.

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