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

One of the largest economies is about to declare bankruptcy.

How do I know? Here’s what fund manager Takahiro Kawase had to say…

“The big change for us is that there’s no new money to invest, so we may need to be a seller.” With $1.37 trillion under management, Takahiro Kawase is the world’s largest fund manager…

Uh oh. This is bad news. Today, I’m going to explain how this happens… and show you how to profit from it.

Kawase runs the Japanese public pension fund and has sole discretion over its asset allocation. This fund is enormous… bigger than the 2008 GDPs of countries like Australia, India, and Mexico. It is almost seven times bigger than top U.S. pension fund CalPERS, according to Bloomberg.

Kawase’s favorite investments are Japanese government bonds. He has 70% of his portfolio in them. Needless to say, Kawase is the world’s largest investor in Japanese government bonds.

Unfortunately, Kawase has to give up investing in Japanese government bonds and begin selling them…

Japan’s aging society is the reason. Millions of Japanese are entering retirement and drawing pensions, Kawase has to pay their pensions. Meanwhile, fewer Japanese are entering the workforce, so Kawase’s pension fund receives less money.

The result is, Kawase will have to start liquidating some of his Japanese government bonds and says his fund will be a net seller of bonds for the next few years.

If you thought the U.S. government was heavily in debt, you should see Japan. The Japanese government’s debt has now reached $10 trillion… almost the same debt load as the U.S. government, except America’s GDP is almost triple Japan’s. Japan now has the world’s highest debt-to-GDP ratio of any country in the world except Zimbabwe, according to the CIA World Fact/book.

Dylan Grice, an analyst at Societe Generale, says about a quarter of Japan’s total debt load – $2.36 trillion – will reach maturity in 2010. In other words, the Japanese government has to find new investors for $2.36 trillion in debt – about 45% of its GDP – over the next nine months.

This huge debt rollover comes at the same time as the world’s largest investor in Japanese government bonds has said publicly it won’t buy any more… (Another huge investor in Japan also said recently it’s considering selling Japanese government bonds over the next few years.)

I think the Japanese government is heading for a credit crunch either this year or next year. It won’t be able to roll over its bonds, interest rates are going to rise to attract investors, the government won’t be able to afford the interest, the debt load will get worse… and before anyone can patch up the problem, confidence in Japan’s credit will evaporate. It’ll be a nightmare a hundred times worse than the subprime crisis…

FXY is the symbol for the Japanese yen fund… but the easiest way to place this trade is to buy YCS. It’s a double-short Japanese yen fund that rises 2% for every 1% the Japanese yen falls.

Tom

P.S. This government crisis has huge implications for the Japanese stock market. In today’s issue of DailyWealth Premium, Steve Sjuggerud explains how Japan’s credit crisis will affect Japan’s stocks… and what you can do to take advantage of it… To access DailyWealth Premium for only $5 a month, click here.

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

Yields off to a slow start to the week

Global long ends are back in rally mode as most Asian stock markets pulled back after recent gains and investors prepare for disappointment from an EU meeting in Brussels. Fears are that any agreement on principles that could lead to the provision of financial assistance to Greece as it moves forward with fiscal reform will not make the Eurozone’s sovereign debt crisis disappear.

Eurodollar futures –Eurodollar futures remain higher after a New York Fed manufacturing survey indicated positive manufacturing activity within the sector albeit at a lesser pace. Investors also await the outcome of the March FOMC meeting Tuesday and will examine the statement for any change to the Fed’s comments about the longevity or otherwise of the ultra-low monetary policy stance. December expiration Eurodollars are higher by three basis points at 99.13 carrying an implied yield of 0.87%. June note futures are in a very narrow trading range to commence the week and sit one tick higher at 116-26 to yield 3.71%.

Australian rate futures –Aussie bills rose in light of weakness in regional stock prices. Bill prices added three basis points as implied yields dropped along the curve. Dealers await the latest RBA minutes this week and will scour the notes in the hunt for clues as to how much more tightening the central bank feels it may need to add on top of the 1% it’s already administered. December bills at 94.66 imply a 5.34% yield.

Canada’s 90-day BA’s – Canadian bills are extremely quiet with no change to note.

European short futures – June bund prices are 10 ticks higher at 122.65 after a day of weakness on Friday. Short European futures prices are also higher in early afternoon trading with the December contract higher by three ticks to 98.79 where the implied yield stands at 1.21%.

British interest rate futures – Short sterling futures have accentuated gains at the back end of the curve where prices are three ticks higher, while the front of the yield curve is only marginally higher. June gilts at 114.32 are higher by 37 ticks and are the strongest among European markets after a Moody’s Investor Services report warned that the nation’s AAA credit rating remains safe – for now. Deteriorating fiscal conditions and a perilous post election situation may yet rob the nation of a rating it has always been assures of. Gilts are higher over the potential for the Bank of England to ease its quantitative stance further in light of comments from one member of the committee who noted the potential for GDP to head into reverse for one quarter.

Japan – Bonds rose 10 ticks at the June future to close at 138.95 where the yield is 1.31%. This week the Bank of Japan is due to conclude a two-day policy meeting at which it is widely expected to bow to government wishes to provide further assistance to a banking system struggling to revive demand for loans.

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

Hawks circle sterling

The British pound came under heavy selling pressure at the European opening on Monday as investors reacted to a weekend reminder that AAA credit ratings have to be earned. And with fiscal integrity on the chopping block as a result of the forthcoming election, the perceived risks to the loss of such status was a convenient excuse for traders to lop a cent off the value of sterling versus the dollar. Global equity prices are lower to start the week and there is an air of risk aversion about the market tone even before U.S. markets are open.

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

British pound – The pound is safe for now according to a weekend report from Moody’s Investor Services, but traders wasted no time rehashing the story using it as reason enough to bash the pound the unit one more time. It was a notable laggard against the dollar and quickly slumped by more than a cent to as low as $1.5020 after a Friday close at $1.5184. The pound has since bounced back to $1.5060.

Comments carried by one regional newspaper cited Bank of England policy-member Kate Barker as forewarning about a possible quarter of negative GDP growth. Perhaps this is the real shocking event that hurt the pound today. The revised fourth quarter data showed a 0.3% growth recently marking the official recovery from fallen fortunes throughout the recession. However, a semi-official warning of a worsening outlook comes out of the blue and is set against a backdrop of an election that might result in political weakness in which the ruling party might make little headway in reducing the deficit. The pound also fell against the euro to stand at 91.17 pence while the pound dropped to ¥136.55.

U.S. Dollar – The FOMC begins a two-day meeting on Tuesday with no one looking for any change in official rates. However, the policy statement will be closely examined to ensure the Fed hasn’t changed its subtle tone.

Euro – Earlier weakness saw the euro ease to $1.3701 as ministers from the EU met in Brussels on Monday to thrash out principles on which a framework to assist Green might be built. The euro appears to be suffering from another long wait at the end of which there is no news to report, either good or bad. In early trading the euro declined to $1.3711.

Japanese yen – The yen awaits the outcome of this week’s two-day meeting at the Bank of Japan with dealers anticipating a further degree of easing, however the Bank might manage it. The top bet is for an extension of the ¥10 trillion fund via which the central bank has so far granted liquidity to the banks in an effort to encourage them to lend.

The yen maintained its weaker bias on Monday as traders continued to favor the dollar, which has built on the momentum it gathered Friday. At ¥90.70 the dollar remains within spitting distance of Friday’s ¥91.08 high. Against the euro the yen remains unchanged at ¥124.50.

Aussie dollar – Weakness in Asian equity markets hampered the progress of the recent advance in the Australian dollar, which on Friday traded at a seven-week peak against the dollar. Monday’s less enthusiastic mood contrasts to any of the recent reports indicating strong growth among Australia’s trading partners and ahead of minutes from the recent RBA meeting at which members voted for a quarter point increase in interest rates. Currency traders will be looking for hints as to how much further the central bank feels rates should go. Ahead of the trading day in New York the Aussie is slightly lower at 91.31 U.S. cents.

Canadian dollar –The Canadian dollar has maintained Friday’s strength spurred by another firming in employment conditions and the tailwinds of strong retail sales growth in its major U.S. market. Since its propulsion to 98.48 U.S. cents in the aftermath of Friday’s data the Canadian unit has not fallen below 98.07 cents since. Currently it’s trading at 98.25.

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

Investors question sustainable euro weakness

Friday March 12, 2010

The dollar is under pressure to end the week after words from a powerful investment house jolted investors expecting further decimation of the single European currency into a spin by warning that the next 10 cents for the euro is more likely on the upside than the downside. An unexpected jump in retail sales has provided a lifeline to an ailing dollar on Friday morning, but in my mind the die has been cast in that the rationale for remaining short the euro has just become more perilous than ever.

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 – Despite predictions for a February slide in U.S. retail sales, the out turn was a healthy 0.3% rise as electronics sales jumped. Ex-autos, sales rose 0.8% proving that winter blizzards and car recalls failed to dampen the spirits of consumers. A smaller than forecast decline in job losses last week may have also played a role, while one could equally argue that rising confidence among newly hired workers bodes well for the March employment report amid a spring thaw. We’ll also get the latest reading for consumer confidence later today from the University of Michigan in its sentiment survey, which is predicted to rise from 73.6 to 74.0.

The dollar index is lower after Goldman Sachs predicted that dollar strength is tomorrow’s story, but that its performance against the euro is more likely to result in a medium term revisit to $1.45 so long as it remains above $1.35. The dollar also weakened on viable rumors that President Obama was about to nominate San Francisco dove Janet Yellen as vice chairman at the Federal Reserve. She recently stated that if she could vote for negative rates, indeed she would.

Euro – Earlier the euro reached $1.3796 ahead of U.S. retail sales and has subsequently pulled back to $1.3754. It remains to be seen which line of argument is stronger: The premise that the euro-bashing has gone too far remains my favorite, while I still see rising yields as a story supportive of the dollar in the second half of the year rather than today. The euro was earlier supported by surprising strength in data from January released this morning indicating a far healthier picture for industrial production than previously believed. In itself data showing a 1.4% annual increase in production compared to a forecast decline of 1.6% has radically shaken the sleepy Eurozone bears.

British pound – The pound is also much firmer against the greenback although the reason is possibly more driven by abatement to conviction surrounding a strengthening dollar today. Yet two sterling bullish events have transpired and the pound stands at $1.5135 post retail sales data from the States. First of all, a new political opinion poll apparently indicates less likelihood of stalemate as voters are warming to the Conservatives line of thinking. Second, a survey from Acadametrics claims a 1.9% increase in British home prices for February. However, the report is at odds with just about every other piece of data including bank lending and spotty data received from increasingly thin housing markets and I’d have to conclude that this report is merely a convenient peg on which to hang today’s sterling performance. The euro today buys a near unchanged 90.80 pence.

Japanese yen – The dollar surged against the yen after the retail sales and reversed its earlier losses. The yen is fast becoming the world’s whipping boy once again and its Prime Minister Hatoyama recently reflected that weakness among Japanese employers and manufacturers hardly sits comfortably with the high value of the yen. Japanese Finance Minister Kan also commented to the diet that he was prepared to sell the domestic currency in the event that the yen moved sharply adding further pressure to exporters while reducing the cost to importers and pressuring domestic prices. Next week the Bank of Japan concludes a two-day meeting and is tipped to expand a ¥10 trillion fund used to provide loans to banks as a means to encourage customer lending. The dollar is pushing on ¥91 this morning while the euro made gains to ¥125.

Aussie dollar – The Aussie failed earlier to sustain a breach above an intra-week peak at 91.93 U.S. cents and dealers used the stronger than forecast retail sales data as a reason to bag profits on the Aussie, which subsequently eased to 91.65 cents.

Canadian dollar –The loonie took a step closer to parity this morning spurred by a 20,900 gain by employers in a February employment report. The rate of unemployment declined to 8.2% helping drive the Canadian currency to 98.48 at its zenith this morning. It has subsequently pared gains to stand at 98.29 cents. Today’s high marks the strongest reading for the Canadian unit since July 2008.

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

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

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.