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Apr 22, 2013

Yen to gain in Q2 as growth worries trump BoJ-FX Concepts’ Taylor

NEW YORK (Reuters) – Worries about the global economy will boost the yen against the dollar in the coming months despite Japan’s aggressive stimulus program, John Taylor, chairman of FX Concepts, one of the largest currency hedge funds, said on Monday.

“We’re forecasting that the yen is going to be strong between now and July,” Taylor said at the Reuters FX Summit. “I think in the next quarter, we’ll trade between 92 and 102, and I’d be more inclined to think 92.”

Apr 19, 2013

Japan shock therapy risks disturbing emerging markets

NEW YORK, April 19 (Reuters) – A steady flow of cash into
emerging markets could become a flood as the Bank of Japan’s
huge stimulus program may prompt the nation’s investors to chase
higher returns – but for some developing countries that could be
too much of a good thing.
The fear is that a big fresh influx of foreign money could
overheat those markets, triggering higher prices and pushing
currencies higher, which would make a country’s exports more
expensive while pulling in cheaper imports that could hit
domestic producers. The money may also disappear as fast as it
arrived if returns became better elsewhere.
Global investors were loading up on Mexican, Russian and
other bonds even before the Bank of Japan (BOJ) announced on
April 4 its attempt to end decades of stagnation by pumping $1.4
trillion into the economy. Global inflows into local currency
emerging market debt funds in the first quarter were the biggest
in two years, Thomson Reuters’ Lipper service data shows.
A 15 percent drop in the yen so far in 2013, and a 28
percent gain in Japanese stocks, has prompted Japanese investors
to bring some cash back home in recent months. But analysts
expect Japan’s appetite for foreign assets to increase again
given low yields on Japanese deposits and bonds.
“A lot of money is still likely to leave Japan,” said
Citigroup currency strategist Steven Englander. “Some of it has
to go into emerging markets.”
Bank of America Merrill Lynch estimates that Japanese retail
investors, collectively referred to as “Mrs. Watanabe,” the
mythical manager of household savings, hold some $16.8 trillion
in assets, with a bit more than half in deposits and cash.
Emerging markets, with their strong growth rates and high
interest rates, “may attract a significant portion of these
savings,” strategists at Bank of America told clients in a
recent note.
Concerns that money created by central banks, such as the
U.S. Federal Reserve and the BOJ, will pour into developing
markets was high on the agenda of the finance leaders of the G20
group of advanced and emerging economies this week in
Washington.
In a communique after the meeting, G20 leaders said they
would be “mindful” of side effects of extended monetary
stimulus.
“Monetary policy should be directed toward domestic price
stability and continuing to support economic recovery, according
to the respective mandates of central banks,” the statement
said.

HUNTING FOR YIELD
In the past five years, emerging economies have accounted
for almost three-quarters of global growth, the IMF says.
That’s fueled a big move into local currency funds, which
pulled in more than $16.7 billion in the first quarter of 2013,
the best this relatively young sector has seen in more than two
years, according to Lipper. Hard currency funds attracted cash
in the first three months of the year, albeit at half the pace
seen in the fourth quarter.
The inflows come despite disappointing returns so far in
2013. Local currency debt funds lost 1.05 percent while hard
currency debt funds dropped 2.2 percent in the first quarter.

Apr 19, 2013

Analysis: Japan shock therapy risks disturbing emerging markets

NEW YORK (Reuters) – A steady flow of cash into emerging markets could become a flood as the Bank of Japan’s huge stimulus program may prompt the nation’s investors to chase higher returns – but for some developing countries that could be too much of a good thing.

The fear is that a big fresh influx of foreign money could overheat those markets, triggering higher prices and pushing currencies higher, which would make a country’s exports more expensive while pulling in cheaper imports that could hit domestic producers. The money may also disappear as fast as it arrived if returns became better elsewhere.

Apr 17, 2013

Euro down on ECB rate cut talk; yen dips before G20

NEW YORK (Reuters) – The euro headed on Wednesday for its biggest daily decline against the dollar in nearly a year, weakened by talk of a euro zone interest rate cut, while signs of economic malaise in Britain and Canada added to the U.S. currency’s appeal.

The yen also slipped against the dollar, with officials at a weekend Group of 20 meeting not expected to scold Japan for a monetary policy that has led to a sharp slide in the currency.

Apr 10, 2013

IMF chief says easy monetary policy should stay for now

NEW YORK (Reuters) – Global growth is likely to remain tepid this year and central banks should keep their easy monetary policy in place, the head of the International Monetary Fund said on Wednesday.

“Thanks to the actions of policymakers, the economic world no longer looks quite as dangerous as it did six months ago,” IMF Managing Director Christine Lagarde told the Economic Club of New York.

Apr 9, 2013

Weak U.S. data may dilute shock value of latest Fed minutes

NEW YORK, April 9 (Reuters) – The release of the Federal
Reserve’s policy meeting minutes, usually a fairly staid affair,
was anything but in January and February, thanks to spirited
debate about when and how to end the central bank’s stimulus
program.

That debate undoubtedly continued at the central bank’s
March 19-20 meeting, but minutes due on Wednesday may not
provoke the kind of market fireworks they did at the start of
2013, when long-dated Treasury yields soared to nine-month
highs.

Apr 3, 2013

Foreign bank curbs won’t hurt global reform – Fed’s Tarullo

NEW YORK, April 3 (Reuters) – Plans to tighten oversight of
foreign banks in the United States are crucial for financial
security and pose no threat to global banking reform, the
Federal Reserve’s point person on financial regulation said on
Wednesday.

Speaking on CNBC-TV, Fed Governor Daniel Tarullo defended a
plan to require all foreign banks to group subsidiaries under a
holding company, subject to the same capital standards as U.S.
holding companies. The biggest banks would also need to hold
liquidity buffers.

Apr 1, 2013

Chinese factories rise but U.S. manufacturing slows

NEW YORK/BEIJING (Reuters) – Strong demand at home boosted activity at Chinese factories last month, but U.S. manufacturing hit an unexpected speed bump after expanding rapidly in February, weakened by a slower pace of new orders.

Other surveys released on Monday showed manufacturing sectors in South Korea and Japan growing as exports increased, while Brazil faced sharply slower output and rapidly rising prices, suggesting a manufacturing recovery remained tenuous.

Mar 21, 2013

Euro zone in reverse, China, U.S. perk up

LONDON/NEW YORK, March 21 (Reuters) – Economic malaise in
the euro zone deepened in March even before another member
country ran into debt trouble, but manufacturing in the United
States and China improved, surveys showed on Thursday.

Solid growth in the United States and China, the world’s
largest economies, will be important for overall global growth,
particularly as the 17-country euro zone continues to struggle.

Mar 18, 2013
via MacroScope

Fears of 1994 bond market flashback

The 1994 bond market massacre is remembered with horror by those who lived through it. Yields on 30-year Treasuries jumped some 200 basis points in the first nine months of the year, hammering investors and financial firms, not to mention thrusting Mexico into crisis and bankrupting Orange County.

The accepted story is that an over-eager Federal Reserve set off the carnage by raising interest rates too soon – the sort of premature move that current Fed Chairman Ben Bernanke has suggested, again and again, that he is not going to make.