Merkel decides Greek fate at EU summit

German Chancellor Merkel defended the trust placed in the hands of the national government by the German people today by ensuring that the government of Greece has to seek financial aid from the IMF and not its European partners alone. Proving today that a friend in need is a pest, Ms. Merkel called for a tougher set of rules in the future to punish those who dared engage in “trickery” concerning their budgetary stance. She called upon the EU to stand hand-in-hand with the IMF in providing last-minute financial aid. The euro is coming off a midweek depression not seen in 10-months – perhaps on profit-taking, yet investors holding a large amount of short positions don’t seem to be in a particular rush to clear the decks.

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc

Euro – The euro reached a low Wednesday at $1.3284 before reaching $1.3371 in Thursday morning trading. It also rallied sharply against the Japanese yen to stand at ¥122.89.

Merkel’s denial of stand-alone assistance to Greece is as a result of its failure to abide by European treaties and national law. The impact of this failure is to dilute the value of the single European currency. By accepting the erosion of the euro now, Ms.  Merkel is donning a hair-shirt as a self-punishment for the collective failure to administer the regard for those treaties and laws. But by doing so today, she might ensure that the risk of a further failure in the future is minimized by forcing the observation of both treaty and law by larger members, to the longer-term wellbeing of the euro.

U.S. Dollar – The dollar is lower today, but having won several Olympic gold medals with yesterday’s performance, its slip today is understandable. Nothing goes up in a straight line forever. Data on Thursday showed ongoing improvement in the U.S. labor market with a 14,000 decline in the initial claims data to 442,000 for the lowest reading since December 2008. Continuing claims, while revised higher for the previous week, also showed a 54,000 decline.

British pound – There was little in the pre-election budget to startle traders yesterday although the pound did find its feet following a rather strong reading of retail sales data for February. The numbers showed a 2.1% monthly increase to boost the annual sales gain to 3.5% despite a revision to January data showing a bigger slide in spending than previously thought. In conjunction with recent positive trends in labor market data the British economy is shown under a better light these days. The pound rose to buy $1.4928 against the dollar and advanced to a one-month high against the single currency at 89.40 pence.

The Chancellor yesterday refused to make any cuts to public spending while forecasting that the public deficit would decline from £167 billion this year to £89 billion by 2014.

Canadian dollar – The speech presented by Bank of Canada Mark Carney midweek crystallized the conditional pledge that delivers Canada its low interest rate. He acknowledged that since the central bank’s last review in January that both inflation and growth had surprised to the upside, which leaves a threat to the profile for inflation. It’s looking increasingly likely that the Bank will be the first G7 nation to raise interest rates by the end of June. The Canadian dollar added almost one penny from a midweek low at 97.25 U.S. cents to reach 98.20 cents this morning.

Japanese yen –The yen fought back after a massive rally by the dollar on Wednesday when it reached an intraday peak of ¥92.40. This morning the yen rallied to ¥91.78 before the dollar was further inspired by jobless claims data sending it back to ¥92.18.

Aussie dollar – The Assistant Governor at Australia’s Reserve Bank noted once again that the domestic economy was still benefitting from a below average rate of interest given the above average pace of growth, which officials predict will be maintained for several years ahead. Having reached a low midweek of 90.66 U.S. cents the Aussie rebounded to 91.33 cents Thursday.

Andrew Wilkinson

Senior Market Analyst                                                               ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Andrew Wilkinson

Director of Media Communications

Interactive Brokers Group LLC

8 Greenwich Office Park, Greenwich, CT 06831

(203) 618 8085

Canadian dollar in purgatory

A jump in the core inflation rate in Canada has dealers left wondering how much longer the Bank of Canada will be able to maintain its conditional commitment to a near-zero interest rate policy. February data rose above the 2% target and leaves the central bank floundering against a January prediction that not only would the first quarter core rate average 1.6%, but also that inflation wouldn’t disturb the central rate until the third quarter. Growing expectations surrounding the economy and the relative monetary response compared to United States has had investors plundering the so-called loonie lately driving its value back towards parity. The response today was another surge in the local dollar.

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc

Canadian dollar –The Canadian dollar has acted like a pressure cooker lately with an increasing number of factors turning up the heat. Its primary appeal stems from the fact that as a resource-rich nation the fundamental demand for base, semi and precious metals works its way through the currency. Global recovery also reflates demand for crude oil and natural gas. In recognizing both Canada’s strong growth and global recovery, central banks and overseas governments have stepped up the allocation of Canada’s dollar within reserves. The fact that Canadian fiscal policy is likely to return a balanced fiscal stance within five years is a huge positive when the rest of the world’s advanced nations are suffering under the stresses and strains of ballooning deficits for as long as the eye can see.

While the core CPI data for January had risen to 2% it was widely expected to ease back to 1.7% in February. However, this morning’s data showed a further acceleration to an annualized pace of 2.1%. The news catapulted the loonie from a low of 98.15 U.S. cents ahead of the data to 99.05 cents as speculation swirled that the Bank of Canada might yet have to deliver a surprise return to normalization in light of positive economic data. In January the Bank of Canada predicted a first quarter average core CPI reading of 1.6%. To achieve this would require a 0.7% reading for March, which would be practically impossible save for downward revisions to previous data in a month’s time.

The pressure is now on the Bank of Canada to delicately explain that fantastic economic conditions have materially changed the inflationary trajectory and that to ignore it would risk having to act more than would be required if it could shake off its commitment through June. It could always shake off any interest rate increase on the unexpectedly successful political and fiscal measures speedily enacted after the global crisis.

The final thought to ponder is the likelihood of implicit monetary tightening in the event they try to string the party out through June. There is likely to be intense speculation at each meeting to that point with speculators betting via the currency that the Bank will be forced to act. Any disappointment will be hard to contain because the later the central bank leaves tightening, the more they will have to do, which would only enhance the appeal of a currency in purgatory. And by the way, that’s not near Calgary.

Euro – The euro is one again suffering at the hands of European discord to end the week. With the Greek Prime Minister threatening to take his woes to the IMF for financial aid, divisions within the EU are becoming blatant. French President Sarkozy and ECB President Trichet have already said that the path to the IMF should be ruled out on account that it shows the EU can’t solve its domestic challenges. Meanwhile German Chancellor Merkel predicts that this path maybe the only viable one for the government of Greece. From the perspective of the investor, events continue to be frustratingly opaque. Repeated meetings result in no clear statement other than a commitment that now appears far less solid than before.

Thus Greek PM Papandreou is holding a gun to whichever head he can by threatening to scoot off to the IMF if next week’s (24-25^th March) meeting of ministers fails to deliver an explicit financial aid package for his nation. The problem facing the euro right now is that Mr. Papandreou could very well be pointing the gun in his own direction in the event that the EU fails. That could be very tricky for the EU and thus the euro’s weakness continues in to the weekend where the unit has once again slumped towards $1.3550 – its lowest since early last week.

U.S. Dollar – Although it did no material damage to equity prices on Thursday, the rumor doing the rounds that the Fed was ready to make a second adjustment to its symbolic discount rate has traders on edge at present. We do not know the source of the story but can only say that the Fed is unlikely to pause in lifting that rate gradually until the spread between it and the fed funds rate has widened satisfactorily. Typically that could be a 1% spread, in which case there are two further moves whose timing is pure speculation, but before the summer would make sense and probably cause no harm. And while this isn’t a factor for driving the dollar higher since it genuinely does not signal and change to official policy settings, it does serve to highlight the deviant paths for monetary settings between domestic and Japanese policy.

British pound – The pound fell following words from a British policymaker that may be taken somewhat out of context. The headline story is the CNBC interview with the MPC member Andrew Sentance, who highlighted the potential facing Britain for a double-dip recession. On the face of it this is pretty bearish and created repentant bulls out of those eager to buy the pound earlier in the week after a positive jobs report.

However, Mr. Sentance did warn that this is not the Bank of England’s central view and that the risk to a secondary downturn for the economy comes from an external shock. This part of the story seems to have been overlooked today. One understands the weak domestic situation facing the British economy, but equally we know that fog is lifting. To fear further would be foolhardy on the simple basis that an external shock might happen. It makes more sense in light of recent data to maintain some optimism on the pound rather than to wear a hair-shirt and go about beating one’s chest in the worry that external factors become derailed. The pound eased against the dollar to $1.5146 and lost some ground to the euro at 89.44 pence. 

Japanese yen – The yen is falling against the dollar at ¥90.59 on Friday as investors keep one eye on rallying Asian stock markets and try to consider the role of the yen as a risk aversion vehicle. In a world of growing confidence and one where central bankers are discussing the need to unhitch their wagons from emergency monetary levels, one just cannot envisage a time ahead when the same can be said of the Japanese economy.

Aussie dollar –The Aussie dollar is finding the going a little harder in the environment where investors are jittery over potential Chinese action to stem growth. A headline-grabber earlier this week concerned the ban on bank lending to speculators in the land and real estate markets. The story is open to interpretation but the potential for further official Chinese measures that would stall growth is enough for now to curb enthusiasm for the Aussie currency, which today eased to 91.93 U.S. cents.

Andrew Wilkinson

Senior Market Analyst                                                               ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Andrew Wilkinson

Director of Media Communications

Interactive Brokers Group LLC

8 Greenwich Office Park, Greenwich, CT 06831

(203) 618 8085

Time to regroup

Wednesday’s forex activity was notable for two things: The dollar weakened as risk appetite accelerated sending riskier asset classes and currencies to multi-month peaks. The euro failed to join the party closing down on the day. It should, like a strong derby favorite, have taken up the early running, but we all quickly noticed how hobbled it looked resting at the back of the pack. Sure enough we find today that the questions are starting to arise about the very existence of a financial rescue package for Greece in the event it can’t roll over spring bond maturities over the next two months. Overnight developments leave us with the mental imagery of politicians in Berlin holding up traffic signs emblazoned with the words, “U-turn here for IMF building.”

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc

Euro – We have become accustomed to hearing little substantive in the aftermath of EU ministerial meetings at which defense plans were supposedly discussed. Any press conferences or statements have been confined to merely stating facts surrounding the need for Greece to get its own house in order coupled with strong supportive words from fellow nations. However, the words yesterday from Germany’s chief finance minister telling Greece to pay a visit to the IMF if it feels the need for financial assistance is a real deviation from the previous script. It also leaves Chancellor Merkel treading a fine line between standing behind Greece and actual facing up to the nation as an opponent.

Needless to say the outcome is a reversion to ongoing fears for the euro, which slipped to around $1.3650 before rebounding to $1.3685. Headway for the single currency has suddenly become difficult to envisage. However, it has to be remembered that in the aftermath of the recent budget there was not only adequate but also ample demand for the €5 billion government bonds issued by Greece. The gradient of the uphill task facing the nation going forward evened out somewhat in the aftermath. Looking forward, IMF assistance is an option for Greece and looking beyond that the outlook might even improve. Arguably EU members won’t be dragged down by lending to Greece and may make a test case in sending the nation cap in hand to the IMF. For its part Greece is shored up by binding loans from the IMF, which could improve its credit-worthiness to future bond buyers.

For today, however, the perceived aversion to the euro was stepped up by investors as they sold it in favor of dollars, the pound and the yen.

U.S. Dollar – This morning’s dollar rebound on risk aversion fears continues to gather steam mid-morning while equity prices are contradicting the lack of risk appetite by putting in another positive performance. Weakness in the euro is the main reason behind today’s gyrations while in the big scheme of things, the dollar is currently confined to a narrow range.

British pound – Aside from a rebound in the dollar to $1.5307 the pound is holding onto recent gains. A midweek employment report showing far fewer job claimants seems to be the tonic sterling needed, while a smaller hole in the public finances was revealed today, which further boosted sentiment towards the pound.

Japanese yen – The yen is rising alongside the dollar after an overnight story carried by the Chinese Securities Journal reportedly stated that the Peoples Bank of China banned banks from lending to unscrupulous developers who hoarded land and withheld apartments from sales in the hope that land and property prices would rise further. This story has gained traction with speculation growing that China is set to take further measures to cool its economy. The yen strengthened earlier per dollar reaching ¥89.75 before slipping to ¥90.35. Against the euro the yen appreciated to ¥123.60 from ¥124.00. Against the Australian dollar the yen rose marginally to ¥83.29.

Aussie dollar – The China story once again served to tarnish the shining Aussie dollar, which is weaker at 92.18 U.S. cents. In midweek trading the Aussie surged to 92.52 U.S. cents, while Thursday’s forewarnings of measures to slow Chinese growth have tempered the bullish export scenario.

Canadian dollar –The Canadian dollar took a further step towards parity reaching 99.30 U.S. cents in midweek trade. The currency has attracted plenty of interest as measures by the government might ensure that it’s the fastest nation to eradicate a budget deficit with its plan to do so by 2015. Signs of stronger growth and rising inflation might also spur the Bank of Canada into faster action on the monetary front causing an additional appeal from a yield perspective. But it also appears that government ministers are far more sanguine surrounding the impact of an appreciation in the Canadian dollar. Just seven months ago they raised their fists to speculators warning that currency appreciation was dashing the recovery and that it would take necessary measures to reverse the move. And while they never lived up to those promises, political leaders have recently stated that the impact on a shrinking manufacturing sector is lessening over time. Additionally, ministers are now predicting that gains in productivity would outpace the appreciation of the loonie whose strength was showing little sign of impacting the nation’s competitiveness.

Andrew Wilkinson

Senior Market Analyst                                                               ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Andrew Wilkinson

Director of Media Communications

Interactive Brokers Group LLC

8 Greenwich Office Park, Greenwich, CT 06831

(203) 618 8085

OVERVIEW OF THE MARKETS

The ongoing bull-market in global stocks is gathering steam and over the past few days, the momentum has shifted in favour of the West. Yesterday, the S&P500 Index closed at a 17-month high and we expect further gains over the following weeks. Over in Asia, our preferred markets are performing well, with India leading the way. Furthermore, it seems to us as though China and Vietnam are also about to commence another upleg within their primary uptrends. Given the fact that the Asian economies are in a much better shape than the West, we continue to believe that stocks in India, China and Vietnam will produce solid growth over the course of this business cycle. Therefore, we are holding on to our positions and believe that near-term weakness represents a buying opportunity.

As far as the technical picture goes, it is notable that the market’s breadth is extremely strong and the Advance/Decline line on the NYSE has broken out to a new high. Furthermore, the number of new highs is significantly greater than the number of new lows, the bank index has started outperforming the broad market, volatility has subsided and the yield curve is very steep. All these are positive signs and suggest that we are still in the early stages of the ongoing bull-market. Remember, interest-rates are very low in most nations and the monetary backdrop is supportive for asset prices. As long as the interest-rate environment is favourable, we will maintain our growth seeking investment positions.

Over in the commodities complex, the price of crude oil is trading above US$82 per barrel. This is in line with our expectation and as long as the economic recovery is intact, we should see more upside. Regardless of what you might hear in the mainstream media, hard data confirms that the world will struggle to produce more than 89 million barrels per day of crude oil and with demand rising in the developing world, the stage is set for a serious oil crunch. Our view remains that the price of crude will rise significantly and we have allocated roughly 35% of our clients’ capital to superb energy companies. Apart from upstream oil companies, we have stakes in world-class solar, wind and power companies. Moreover, we have recently acquired a stake in a railway company which should be a prime beneficiary in an era where trucks will prove to be big losers.

In the metals arena, base metals are holding steady and this is despite the big build up in inventories. In our view, this rally is mainly due to speculation via ‘long only’ commodity trackers and at some point, we will get a nasty correction. Accordingly, we have recently liquidated our positions in the base metals miners and have allocated capital elsewhere. With so many opportunities around, we do not see the point in making a speculative bet when the supply/demand fundamentals do not support base metals.

As far as precious metals are concerned, gold and silver are trying to build a base. It is worth noting that precious metals are in the seasonally strong time of the year and a spring rally is still possible. As George Soros stated in Davos, “with near-zero interest-rates, gold is the ultimate asset bubble”. We agree with his assessment and believe that monetary inflation together with the massive debt overhang in the West will propel gold and silver to new highs. Accordingly, we are holding on to our positions in our preferred gold and silver mining stocks.

In the world of money, the US Dollar Index is trading in a tight range and it is struggling to break above the 81 level. Furthermore, the Euro and the British Pound are now extremely oversold, so a sharp rally cannot be ruled out. Amongst the paper currencies of the developed world, we prefer the Canadian, Singaporean and Australian Dollars. And in the developing nations, we like the Indian Rupee and the Chinese Yuan.

The above ‘Weekly Update’ was sent out to subscribers of Money Matters on Friday, 12 March 2010.

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets.  In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com.

Puru Saxena

Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients.  He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Copyright © 2005-2010 Puru Saxena Wealth Management.  All rights reserved.

Trading in commodity futures and options involves substantial risk of loss. Past performance is not indicative of future results.

You cannot have your cake and eat it too! Either circumstances in the economy are getting better and we need to start looking for an exit door or we are still in for a sh-t storm and then no action is necessary! If the Fed sees the economy improving than why leave IR at an “excessively low rate for an extended period.” Inflation subdued by what measures? Pass me what Ben and the gang are smoking. Crude gained by 2.5% today, ideally this is a one day wonder but tomorrow will tell. Talking to some big energy traders today they expect a range from $76-82. We will continue to play options for clients on rallies thinking that we will head back to the lower end of that range.

It sounds like a broken record but we like scaling into longs in Nat gas at these low extremes. What will be the catalyst one client asked today to turn around prices…I do not know but this the short trade feels too crowded!

Indices were sideways to up on most of the session and are still trying to digest the Feds non-action to decide where from here. I’ve thrown in the towel trying to predict a top but some of the cycle analysis that we’ve read of late courtesy of some of our clients predicts going into April it could get ugly.

Sugar made fresh lows, futures traders should have been stopped at a loss when we broke last weeks levels. We are holding off on all new entries until this market bottoms. On a rally if we get one in the coming weeks we will be looking to cut losses on call options for clients.

Let Treasuries rally 1 1/2-3 handles before selling! We will have an interest in 30-yr bonds closer to 120′00 and above 118′00 in 10-yr notes.

Green across the screen in agriculture today with corn up by 1.0%, and wheat and soybeans by 1.60%.Corn is a buy; in options we like July and futures December. We sill think there is a possibility to see a trade close to 38.00 in May soybean oil to exit for clients; we will give it till the end of this week.

Metals caught fire today likely because of the pressure on the dollar and strength in outside markets. April gold, May silver and May copper all gained virtually 2% each. We do not trust the upside and the only way we see it following through is we get a hefty break in the dollar…stay tuned.

That being said the dollar index broke the 2 previous days lows and the trend line that had held since the first week of December. The Euro and Pound should benefit the most as they have been hit the hardest. The Euro could make a stab at 1.3950/1.40 and the Pound at 1.5500; next significant resistance levels.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.

A year after the weakest close for global equity prices, risk appetite has very much returned to the agenda. Stock prices are 60% or so higher from the bottoms reached in March 2009. Of course at the time no one knew it was the bottom and subsequently investors have climbed that so-called “wall of worry.” As they did they became accustomed to intermittent bouts of risk aversion, which often showed up in two forms. Type A would see stock prices around the world cascade lower as new systemic threats and corporate failures emerged. Type B risk aversion showed up in strengthening values for the dollar and the yen as investors sought safe haven sanctuary. But is it possible that we are now entering a new era? A clearly advancing global stock market, merely punctuated by intermittent and largely minor setbacks, is driving a wedge between risk aversion types A and B. That’s clearly evident in Wednesday’s trading as the dollar advances at the expense of the Japanese currency.

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc

U.S. Dollar – Earlier gains for the dollar are under pressure at 8am in New York except versus the yen. Earlier European news (see below) gave traders rationale to sucker-punch both the pound and the euro, but both appear to be regaining their poise. The reason for yen weakness stems largely from the fact that Chinese export data for February saw a huge 46% surge over the previous year and confirms two things. The Chinese currency is undervalued and global demand is alive and kicking. In light of this data the Japanese yen slipped against all of its major trading partners as investors lose the argument that there is an ongoing need to maintain a stake in safe haven units.

Chicago Fed President Charles Evans gave further encouragement to investors hoping for low interest rates for a long time when he said that the Fed would likely maintain its present stance for “at least three or four meetings.” With the FOMC scheduled to meet this month and next and then in Jun and August, the earliest possible shift in the fed funds rate doesn’t come until at least September. Those words from Mr. Evans are taking some of the shine off the appeal of the dollar today. He also noted that a low interest rate policy was consistent with a stubbornly high unemployment rate currently running at 9.7% and inflation well below the central target rate. Comments from its New York markets chief on Monday also confirmed that a pre-requisite for tighter policy would be a more established recovery.

Euro – The euro was earlier hurt by pessimism stemming from surprising weakness in German export orders for January. The trade surplus was expected to be €14.5 billion but thanks to a 6.3% contraction in exports that surplus shrank to stand at €8 billion. Overseas orders were supposed to rise by 0.5%. Meanwhile low inflation remained intact although marginally higher than was forecast. Data released today showed that annualized consumer prices rose 0.6% compared to a forecast of 0.4%.

The euro slipped earlier in the day to $1.3544 before rallying not long ago to $1.3625. Against the yen the euro buys ¥123.10 and a euro buys 91.13 pence.

British pound – The pound closed at $1.50 on Tuesday and found itself under further pressure today after manufacturing data showed the first drop in five months. The pound immediately slipped upon the release of the data to reach $1.4873 before recovering to $1.4933. Data showed unexpected weakness with industrial production falling by 0.4% on the month and manufacturing output on the decline by 0.9%. Both readings were expected to improve but the lack of export demand across continental Europe, also evident within today’s German data, proved a data-shocker for the U.K.

Japanese yen – Lack of a need for safety is the theme for the yen today. At ¥90.47 per dollar the yen is near the week’s low and we wonder what type of acceleration might occur on a push above ¥90.68. When the dollar typically spikes, it tends to emanate from a movement against the yen. Data overnight show that machinery orders slipped in line with expectations by 3.7% for January and confirm a lack of commitment to advance capital spending possibly created by the prospect that capital goods’ prices will be weaker ahead.

Aussie dollar – Recently the Governor at the Reserve Bank noted that Australians were still feeling the benefit of below average borrowing costs. In a speech today its assistant Governor Philip Lowe predicted that the economy would likely face several years ahead of above average growth. In tandem with surging Chinese export data indicating strengthening regional recovery the comments helped raise the appeal of the Australian dollar once again lifting it to a seven week high at 91.70 U.S. cents. In the bigger picture the Aussie also jumped to its strongest level against the pound since 1985 and against the euro in 13 years. While data showed that consumer confidence nudged higher official banking figures indicated a surprise drop in home loan approvals.

Canadian dollar –For eight consecutive sessions, intraday data shows higher highs for the Canadian dollar. Failure to breach 97.70 today will mark the first sign that the Canadian strength is in need of a rest. The loonie is currently lower on the day at 97.37 U.S. cents.

Andrew Wilkinson

Senior Market Analyst                                                               ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Andrew Wilkinson

Director of Media Communications

Interactive Brokers Group LLC

8 Greenwich Office Park, Greenwich, CT 06831

(203) 618 8085

Ready, willing and able

Monday March 8, 2010

French President Sarkozy’s strong weekend words supportive of the plight of Greece have seemingly struck a chord with investors across a variety of asset classes today. It would appear that last week’s efforts by the authorities in Greece have received a positive global response leaving traders ready to once again step back up to the table to feast on bolder prospects as appetite for risk returns.

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc

Euro – Monsieur Sarkozy’s comments gave investors the strong impression that EU partner aid in the form of financial assistance was very much available now that a stringent budget has been implemented. That the collective EU governments have given such a strong seal of approval for the Greek measures bolsters Sarkozy’s stance that the bloc is ready, willing and able to come to the financial rescue of Greece. The determined aspect of those words is in the short term at least having as supportive impact on the euro and risk in general.

The potential for independent sovereign default on behalf of the government of Greece appears that much more remote beyond a budget that has allowed for the creation of demand for high-yielding government debt. And the ongoing ratification of the path its government is treading helps make the short posturing surrounding the euro that much more tenuous. Latest CFTC data through March 2 shows that short euro positioning by speculators took a 7% haircut. Outstanding short positions slipped to 66,770 as the euro steadied.

There is little on the data front today other than a small decline in French business sentiment, which slipped from an index reading of 104 to 102 for March. In neighboring Germany the data could have been worse for industrial production during January. A 0.6% gain fell short of an expected 1% gain, but a serious backward revision for the better left the year-over-year data with a 2.2% gain.

U.S. Dollar – A broad rise in risk appetite for Asian stocks inspired by Sarkozy’s comments has helped push the euro to $1.3662 this morning, while the dollar and yen are suffering as investors appear to be breathing that little bit easier.

Emerging market stocks have built on last week’s 4.2% rally and are fast approaching breakeven for the year. The fact that Greek debt woes are receding has helped investors buy into the Asian recovery story more to start the week. In addition, bankers close to counterparties in the Dubai World saga have hinted that the conglomerate with outstanding debt of $26 billion is preparing to submit plans to creditors that may see them receive all of their loans back. According to media reports, creditors’ best option may be patience and a willingness to remain longer term lenders might assure them a guarantee from the government of Dubai.

The “safer” world this week is setting off a domino-style resumption of risk taking. The yen and the dollar are both falling as appetite for riskier bets in the shape of natural resources, emerging stock markets and riskier currencies picks up.

Japanese yen – The yen fell against the euro but is stable at ¥90.30 against the dollar. The better tone to the euro saw it rise to ¥123.32. March is the end of the Japanese fiscal year and is typically marked by a flood of overseas earnings returning to head office. Typically this supports the Japanese unit. However, investors are having a hard time making the argument that such demand for the yen can last beyond month end given the growing differences in the shapes of recovery between the world’s two largest economies. It’s becoming easier to argue that the Fed will shift policy higher before the Bank of Japan despite warnings from former and current Fed officials that now is not the time to remove either fiscal or monetary stimulus. Last week Japan’s Nikkei newspaper ran with a story that the Bank of Japan is set to mull new initiatives to stimulate its moribund economy. This will likely see a reversion to further Bank purchases of government debt in an effort to revive corporate and retail demand for loans.

British pound – Weekend opinion polls saw a widening of the lead for the opposition Conservative party ahead of a summer election. This, along with a wider appetite for riskier currencies aided sterling, which rose to $1.5196 and its highest point versus the dollar since the end of February. The euro rose a little to buy 90.23 pence.

Aussie dollar – This week brings the February employment report for the Australian economy. The booming domestic jobs market is expected to add a further 15,000 positions after an increase of 57,000 in January. Demand for the Aussie was once again fuelled by demand for natural resources in the shape of equities in associated companies or in physical buying of commodities. The Aussie rose to a six-week peak at 91.31 U.S. cents.

Canadian dollar – Throughout the recent Eurozone crisis the Canadian dollar fared far better than its Australian counterpart. As firmer economic data continues to emerge, investors are growing increasingly skeptical that the central bank will be able to maintain its near-zero policy beyond the date it promised in June. Each swoon in the euro that was exaggerated by losses in emerging stocks and commodity prices was felt less and less so by the Canadian unit, which has quietly accelerated towards parity with the U.S. dollar. Today the Canadian dollar buys 97.38 U.S. cents.

Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

by Mike Larson 03-05-10

Boy are things getting ugly in the U.K. The British currency, the pound, is getting crushed. The price of long-term British debt securities, called gilts, is heading down. And the cost of default insurance on the country’s debt is rising steadily.

My takeaway: This is but a preview of what’s to come here in the U.S.

Why the Crisis Is Coming
To a Head in the U.K.

Britain’s finances are in shambles. The country’s budget deficit is running at more than 12 percent of gross domestic product, roughly the same as in Greece. In fact, for the first time, the country recorded a whopping $6.7 billion deficit in January … much worse than the $3.9 billion SURPLUS economists were expecting.

The U.K. government is planning to sell $349 billion in debt this year, the most ever, to cover its deficit. But demand is flagging, with foreign investors dumping the most U.K. sovereign debt in nine months in January and yields generally rising.

Then a few days ago, the crisis came to a head. The catalyst: New polling data that threw the British political outlook into chaos. Polls showed that the Conservative Party’s lead over the Labour Party shrunk to its lowest level in more than two years.

It now appears that neither party could come out of spring elections with a clear majority, leaving the U.K. with a “hung” parliament. That would make it much more difficult for the government to reduce the nation’s debts and deficits.

Investors are becoming more afraid of British debt.

With all of that, it’s no wonder …

• The British pound plunged six days in a row, its longest series of declines since October 2008.
• The yield on 10-year U.K. government debt recently hit 4.27 percent, compared with a low last fall of 3.44 percent.
• The cost of protecting against a British debt default in the credit default swap market surged to more than 101 basis points, or $101,000 per $10 million of debt. That’s up from around 44 bps in the fall.

Striking Similarities …

You don’t need a Ph.D. in economics to see the striking similarities between the situation in the U.K. and the situation here in the U.S. …

• Our debt situation is totally out of control, with the national debt on track to double over the next decade to almost $19 trillion.
• Our budget picture is a mess, with $8.5 trillion in deficits projected over the next 10 years.
• Our foreign creditors are starting to sell our bonds, with China alone dumping $34.2 billion of Treasuries in December, the most ever.

And politically, we’re facing the same gridlock and inaction as the U.K.
Just look at the deficit commission nonsense …

“The sovereign debt crisis is subprime all over again.” — Bill Gross, manager of the world’s largest mutual fund.

President Obama had to create an 18-member panel by executive order because Congress voted down an earlier proposal. Since it’s a presidential commission, Congress can just ignore any findings. And those findings won’t even be released until December 1, for purely political reasons (that’s after the mid-term Congressional elections).

Lastly, just like the U.K., we have bailed out, backstopped, or otherwise taken over so many institutions and segments of the capital markets that our own balance sheet is getting shakier and shakier.

As PIMCO Chief Investment Officer and “bond guru” Bill Gross just noted in a monthly commentary:

“If core sovereigns such as the U.S., Germany, U.K., and Japan ‘absorb’ more and more credit risk, then the credit spreads and yields of these sovereigns should look more and more like the markets that they guarantee. The Kings, in other words, in the process of increasingly shedding their clothes, begin to look more and more like their subjects. Kings and serfs begin to share the same castle.”

Bottom line: We’re running this country’s finances off the rails. And just like in Greece … Ireland … Spain … and now the U.K., it’s going to come back to haunt us.

So consider dumping your long-term U.S. bonds, and buying some gold as a hedge against global debt and deficit problems. Or if you’re more aggressive, check out a service like my Crisis Opportunity ETF Trader, where my subscribers are positioned to profit from this unfolding fiscal nightmare.

Until next time,

Mike

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Currency traders may ignore stormy labor data

Friday March 5, 2010

Ahead of the U.S. employment report the dollar is stable. Dealers will be looking at the headline number, expected to be job losses for February of around 50,000, and deciding whether bad weather distortions nullify the data. The dollar may react positively in the meantime due to a risk-aversion bid. On the other hand, a good reading would promote the view that the U.S. economy is chugging along slowly causing some more dollar bulls to challenge a none-month low in the euro.

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc

Euro – However,  the fact that the euro has held up against a $1.3432 low against the dollar depressed by uncertainty surrounding the Greek fiscal flare up, could mean that investors have already caused maximum euro destruction in which case there are lots and lots of short positions with no choice but to buy to close out positions. And we all know what happens when the exit hatch gets crowded.

This week’s Greek budget has served to thaw the government’s access to the capital markets enabling it to find ample bids for €5 billion in 10-year bonds on Thursday. Admittedly the price was rich at 3% more than the comparable cost to the German government, but the fact that there times the number of buyers showed up to buy Greek bonds underscores the improvement in market sentiment in the aftermath of its austerity package.

Following the ECB’s press conference on Thursday in which it announced a six month extension to abundant money market liquidity provision, the euro slipped as dealers quickly concluded that the odds in favor of a U.S. rate hike faster than at the ECB were improving. The euro slipped to $1.3550 from close to $1.3700 and today is steady at $1.3581.

U.S. Dollar – The dollar is moving higher against the low yielding yen and Swiss franc. All eyes will be on Friday morning labor data and we’ll be looking for any encouragement beyond the impact of persistent snow storms to see if or not the broader trend towards recovery is alive.

Overnight in China the Premmier Wen Jiabao delivered comments that inspired regional stock market gains. He promised to maintain an appropriately easy monetary policy and a pro-active fiscal policy. The provision of bundles of liquidity in order to buoy the economy when domestic external demand plunged left the economy was surplus cash, which fed into real estate and stocks. The Peoples Bank of China has to wrestle with over zealous lending provision by curbing loan activity while the government has moved to create an offsetting tax regime. The news pushed investors towards riskier trades and spurred appetite for the Australian dollar.

Aussie dollar – The  Aussie has risen off a low at 89.78 U.S. cents yesterday when the U.S. dollar jumped and ahead of the U.S. labor data peaked at 90.40 cents.

Canadian dollar – The Canadian dollar has largely escaped losses at the hands of the recent appeal of the greenback. Instead the Canadian unit has been largely capped by a range of 96.75 to 97.25 U.S. cents. Ahead of the data the Canadian unit is right in the middle of this range.  

British pound – The prospect of a slow recovery and the domination of a nervous election battle is keeping sterling hemmed in a narrow range just above $1.50 before today’s data. Against the euro the pound is slightly higher at 90.75 pence.

Japanese yen – The yen is lower today after sources said the Bank of Japan, under growing pressure from the government, will discuss further initiatives to ease already low monetary policy. It’s hard to know precisely what they can do to stave off deflation at this point and although the current measures adopted to use quantitative easing to pump more funds into the system, the success is clearly limited. Trying to further reduce monetary policy is akin to trying to make an already thin piece of paper even flatter. The success of the Japanese central bank will be found in its ability to perform origami with that paper and design something captivating. The yen eased per dollar to ¥89.34 and lost ground to the euro at ¥121.35 while it dropped per pound to ¥134.35.

Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Sometimes traders can make money by not being in a trade. It is ok to be in cash when you cannot find a trade that you are comfortable with. That is not to say we are not trading we have just been trading more options than we typically do and scaling down our size.

$81/81.50 continues to act as a ceiling for April crude but that fact that prices have not broken down more we could see one more gasp at higher ground. We suggest refraining from short futures unless you are willing to ride prices up $1.50-3.00. We prefer a top to be set before we re-visit shorts for clients. That being said we still like $5 put spreads as they allow a bit more flexibility without the inherent risk of a potential overnight loss.

Whenever I trade natural gas I am remembered how unforgiving this market is; today prices were lower by almost 4%.

Clients have a small long position in futures and are willing to stomach it with plenty of margin if need be. The June $5.50 call spreads we started buying at $2000 are now closer to $1200. We still like the trade and expect it to be a winner but the same position can be bought at a 40% discount. Until prices break above 1125 or below 1111 in the S&P we have no new trade suggestions. Our bias remains down and clients continue to sell rallies and buy puts.

Sugar closed below the 200 day MA today; that being said we would refrain  from long futures and buying calls until an interim bottom is made. Clients that are already long via calls could take some heat in the short run but we still think a violent trade back to 26 cents in May is viable. Cotton looks like a sell at these levels; we are thinking a move to 75/76 in the May contract this month. Could the Euro-dollar be rolling over? We’ve been fooled before but this trade should remain on your radar.

Agriculture turned south today with corn down almost 1%, soybeans 2.25% and wheat 2-2.50%. We advised clients to spread off some of their corn exposure by shorting May against their December. Being they have a large corn long position we also wanted to get short something in agriculture in case of a larger break. What we opted to do was buy in the money May soybean oil puts. If soybeans continue lower and Crude oil comes off as we’ve been anticipating there is no reason why we cannot see soybean oil retrace back to 38.25-38.75. Live cattle were higher but failed to get above yesterdays highs. The Goldman roll starts tomorrow so being we have record open interest in cattle we think that April could come under pressure in the coming sessions. Clients remain long puts and short futures looking for 89.00 in April.

April gold was down just over $10/ounce today, we are operating under the influence that yesterday and interim top was made and a set back to $1085-1100 is in the cards. Clients have no long or short exposure in gold presently. With silver taking the January high and February low a trade to $17.35 serves as the 61.8% Fibonacci retracement level in May silver. We like silver in the medium to long term but a correction back to $16.50-16.85 is not out of the question short term. The reason we choose to trade spreads often in gold and silver is because the flexibility it allows in case a trade moves against you. Likewise if you are right out of the gate on direction you still make money just less than an outright.

Continue to fade rallies in the Pound though we do not suggest trading without stops. We are using the 5, 15, 30, 60 minutes charts for entry and exit. The Yen was lower by almost 1 point today; clients hold June puts expecting a trade near 1.10 in the coming weeks. As for central banks both the ECB and BoE kept rates as is; the ECB at 1.0% and the BoE 0.50%.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.