Continue reading »]]> On the New York Mercantile Exchange, light sweet crude futures for March settlement traded at USD96.08 a barrel during early U.S. trade falling 0.28%.
Weakness in the U.S. dollar helped depress crude oil prices. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, gave back 0.06% to 79.03.
Dollar weakness generally lifts commodity prices, as it increases their appeal as an alternative asset and makes dollar priced commodities less expensive for holders of other currencies.

Oil traded near a six week low after booking a five day losing streak yesterday, the longest since August.
The heavily anticipated non farm payroll report hits the wire before the U.S. stock market opens on Friday.  It is forecasted that employment increased by 140,000 after climbing 200,000 last month.
Traders watch this report very closely to gauge the strength of the recovery in the world’s largest oil consuming nation.
In the U.S., data indicated that the number of filings for unemployment assistance last week dropped more than expected to 367,000 beating estimates for a decline of 373,000.
Economists believe jobless claims below 400,000 indicate an improving labor market. The number has remained below 400,000 in 12 of the last 14 weeks, helping fuel the bullish stock advance in 2012.
Meanwhile, Federal Reserve Chairman, Ben Bernanke stated at his testimony today that the economy is showing signs of improvement. In addition to requesting lawmakers to reduce the long term U.S. budget deficit.
Additional U.S. data indicated that the number of filings for unemployment assistance last week dropped more than expected to 367,000 beating estimates for a decline of 373,000.
Economists believe jobless claims below 400,000 indicate an improving labor market. The number has remained below 400,000 in 12 of the last 14 weeks.
In earlier news, slowing U.S. oil demand added to the sessions bearishness. Official data on Wednesday indicated that U.S. supplies climbed by a more than expected 4.2 million barrels last week.
Meanwhile, U.S. gasoline consumption decreased 7.97 million barrels a day, the lowest since September, 2001, while stockpiles increased 3.02 million barrels last week per official Energy Department data.
Oil traders continue to watch Iranian and Sudanese tensions very closely due to supply disruption concerns.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for March delivery advanced 0.42% to trade at USD112.55 a barrel, up USD16.40 on its U.S. Counterpart.

Improved labor market and tensions with Iran may set a platform for crude oil to rise again.

Continue reading »]]> It seems finding a feasible solution to Greek crisis may not be possible for the European leaders as they have had 9 meetings in past 5 days and still no one have come up confidently and said that they will find the fix to the Greek Debt. It seems that there are conflicts at every meetings while leaders try to solve complex mathematics of Greece’s finance.

Here is the list of meetings that have gone through in past few days:

• Friday afternoon: Eurozone finance ministers
• Saturday: EU finance ministers
• Saturday: EU foreign ministers (general affairs council)
• Sunday morning: EU national leaders
• Sunday afternoon: Eurozone national leaders
• Wednesday: EU finance ministers
• Wednesday (tbc): Eurozone finance ministers
• Wednesday: EU national leaders
• Wednesday: Eurozone leaders

This excludes some pretty major conferences, such as the impromptu pow-wow for Jean-Claude Trichet’s retirement in Frankfurt last Wednesday, and a bilateral summit between Angela Merkel and Nicolas Sarkozy on Saturday.

Continue reading »]]> Currency markets just saw slide of DOLLAR/YEN to lowest level since World war II. Reasons of the fall are still not clear but I see it is because of expectations of QE3/QE4 (as you may conceive it) which lead to breaking of technical support levels. This lead to Dollar/Yen dive below 75.80 level, never seen since WW2.

Here is the chart:

Well time for BOJ to intervene. Japanese exports are already suffering from Yen’s gains in past months. BOJ has said government would intervene soon.

Continue reading »]]> UBS’ Stephane Deo comes up with amazing analysis where he says that 50% hair cut being proposed by Euro leaders wont work and it would effectively amount to just 22% hair cut. According to Deo, Greece would need 100% hair cut which would then be effectively equal to 50%.

Here is how he proves his point:

Why a 50% haircut does not work at the time of writing, Greece has total debts of €346.4bn. About a third of this debt is in public hands (34.8% is attributable to the IMF, ECB and European governments), roughly another third is in Greek hands (28.8%, essentially for banks) with the remainder (36.4%) held by non-Greek private investors.

The problem with the above is that some of the debt cannot be included in a haircut. This is almost certainly true in the case of the IMF debt. It has been suggested that the IMF debt could actually be included in the restructuring, but this would be unprecedented and we attach a very low probability to such a decision. Similarly, the bilateral loans are de jure pari passu, but we think it is nevertheless difficult to envisage a haircut on that part of the debt.

More debatable is the ECB case: the ECB has not been party to public-sector involvement (PSI), as it was a “voluntary” exercise and the ECB did not volunteer. However, in the case of a coercive default, it would be legally difficult for the ECB not to participate. Hence, in Chart 6 below, we provide two simulations: one with ECB participation and the other without ECB participation. In the case of ECB participation, if we assume the ECB holds €55bn in Greek bonds, and has purchased these bonds at an average of around €¢70, it would mean that a 50% haircut would leave the ECB with a loss of about €11bn.

Last, while the Greek banks would naturally be subjected to any haircut, the difficulty is that they are undercapitalized. According to our equity analysts, Greek banks currently have a core tier 1 ratio of around 8% (Marfin Popular Bank – 8.6%, National Bank of Greece – 8.5%, Alpha Bank – 8%, EFG Eurobank Ergasias – 6.4% and Piraeus Bank – 7.2%). This means that any haircut affecting their debt portfolio would push their capital lower and trigger the need for a recapitalization. Consequently, every euro saved by the government on its debt via the haircut would be injected into the Greek banks. This is equivalent to having the Greek debt in Greek banks excluded from the haircut.

Hence, Greece would need a hair cut of complete 100% for actual reduction of 50% of debt. I doubt leaders would be even thinking of 100% hair cut but if we want to get out of the Greek Debt problem then it might be needed.

Continue reading »]]> Deutsche bank’s danger map is an representation of financial health of major developed and developing economies of the world. It allots scores on the basis of several financial criteria like Deregulation of lending,%of credit to GDP, Unemployment, interest rates, Exchange rate Volatility, etc. Map shows Greece, Ireland, Portugal and Spain under the danger zone among developed nations and India with China in danger zone among emerging economies.

There are some good news though. Many countries, developed and developing are still in stable zone (indicated by grey cells on map). These countries are Australia, Sweden, Germany and Israel among developed ones and Thailand, Malaysia and Indonesia among emerging economies.

Unemployment scores of emerging economies are far better than the developed economies. All the emerging economies are out of danger zone of unemployment but developed countries like US, France, Greece, Ireland, Portugal and Spain are finding themselves in unemployment danger zone.

Japan is the safest bet among all the listed countries, though it still has the highest Debt to GDP ratio in the world. May be that is why Japanese Yen has been appreciating as investors run for safe heaven.

Overall report of emerging economies is marginally better than developed ones and that might not be enough to pull up the sentiments of world finance currently.

Continue reading »]]> The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

Besides the angry investors, 50 state attorneys general are in the final stages of negotiating a settlement to address abuses by the largest mortgage servicers, including Bank of America, JPMorgan and Citigroup. The attorneys general, as well as federal officials, are pressing the banks to pay at least $20 billion in that case, with much of the money earmarked to reduce mortgages of homeowners facing foreclosure.

Bank officials also counter that further legal attacks on them will only delay the recovery in the housing market, which remains moribund, hurting the broader economy. Other experts warned that a series of adverse settlements costing the banks billions raises other risks, even if suits have legal merit.

As of June 30, Freddie Mac holds more than $80 billion in mortgage securities backed by more shaky home loans like subprime mortgages, Option ARM and Alt-A loans. Freddie estimates its total gross losses stand at roughly $19 billion. Fannie Mae holds $38 billion of securities backed by Alt-A and subprime loans, with losses standing at nearly $14 billion.

Report was first published by New York Times