Month: April 2011

The Nasdaq OMX Group (NASDAQ:NDAQ) and the IntercontinentalExchange (NYSE:ICE) announced today a joint proposal to acquire NYSE Euronext (NYSE:NYX) for $42.50 per share in cash and stock, or approximately $11.3 billion, based on the closing prices of the respective stocks as of March 31, 2011. The proposal represents a 19% premium over the buyout offer from Deustsche Boerse, based on the German exchanges closing share price as of March 31, 2011, according to Nasdaq OMX and ICE. Under the terms of the deal, NYSE Euronext stockholders would receive $14.24 per share in cash, plus 0.4069 shares of Nasdaq OMX stock and 0.1436 shares of ICE stock for each NYSE Euronext share they own. As part of the proposal, ICE would purchase NYSE Euronext’s derivates business, with Nasdaq OMX retaining the rest of NYX’s businesses, including its stock exchanges in New York, Paris, Brussels, Amsterdam, and Lisbon, as well as its U.S. options business. The combined NYSE EuronextNasdaq would merge the two largest stock exchanges in the world by total market capitalization of companies listed and total value of trade on the exchange. The exchange would have a total market capitalization of companies listed of over $20 trillion, have a geographic footprint in 16 countries and be headquartered in New York City. Robert Greifeld, CEO of NASDAQ OMX, said: “Our industry is undergoing a period of historic change. During the last five years more than 90 percent of the top 100 global listings chose not to list in the U.S., depriving U.S. investors of the opportunity to easily invest and trade in these companies. The combination of the two leading U.S. exchanges delivers an opportunity to build a global exchange platform that has the scale and growth potential to benefit investors, issuers and other market participants. We believe it would increase transparency and liquidity in U.S. markets and create jobs as new companies raise capital. For Europe, it strengthens the equity markets by creating a new, truly pan-European equity-trading platform and solidifies Paris and London as premier financial hubs. Given that our proposal is clearly a superior proposal, we hope that NYSE Euronext’s Board will recognize this opportunity as well as the benefits for NYSE Euronext’s employees and customers.”

The Bank of England has held the benchmark bank rate at 0.5 percent for the past two years but as rising prices continue to erode the buying power of the pound, pressure builds on the Bank to hike rates. The minutes of the last Monetary Policy Committee (MPC) meeting in early March reveal that the interest rate vote at that time consisted of six voting members in favor of maintaining the current rate, and three votes for an increase.

The next MPC interest rate decision will be announced on Thursday, April 7 at the conclusion of the committee’s monthly two-day meeting. The early line is that the decision could be even tighter this time, but the prevailing belief is that the MPC will opt to continue with the current rate policy for the time-being at least.

The Bank of England is responsible for maintaining growth as close as possible to an annualized rate of 2 percent. This is considered the ideal trade-off between sustainable growth and inflation. When the Bank fails to meet this goal by more than a full percent above or below the target, the Bank is required to explain why the target was missed and what steps will be taken to correct the situation. This explanation arrives by way of a letter that Bank Governor Mervyn King must write to his boss in the government, the Chancellor of the Exchequer.

As of the end of February, the inflation rate for the previous twelve months as measured by the Consumer Price Index was 4.4 percent. The expected result for March is even higher. This means Governor King must fire off another letter to the Chancellor – in fact, if this is indeed the case, it will actually be his seventh straight letter explaining why monthly inflation surpassed the target by a wide margin.

Naturally, those concerned with the level of inflation are lobbying for taking interest rates higher to curb consumer spending. Governor King has argued against adjusting rates upwards claiming he fears this could derail the very fragile recovery underway in the British economy. He is also not convinced inflation is due solely to unrestrained spending habits.

To bolster his argument, King points to recent tax hikes introduced as part of the government’s attempts to reduce the country’s massive budget gap of nearly £150 billion (US$241.3 billion). On January 1st, the main sales tax known as the Value-Added Tax (VAT) was increased from 17.5 percent to 20 percent. This was an across the board increase that spared no consumer or business.

Governor King also identifies the spike in oil and energy costs over the past year as a major contributor to inflation. Britain is highly dependent on imported oil and King claims the higher fuel costs alone account for roughly one-third of the jump in inflation in recent months.

Finally, Governor King is quick to point out the impact the severe spending cuts outlined in the most recent government budget will have on future growth. To reduce the national deficit, the government has committed to reducing spending by £83 billion (US$133.5 billion) over the next four years. This is expected to eliminate 300,000 public sector jobs alone and could push unemployment to 9 percent by the end of this year from the current rate of 8 percent.

For April’s MPC meeting, it appears King has sufficient like-minded voting members to carry the decision but if inflation does not soon show signs of easing, King may soon find himself defending a “stay-the-course” position on his own.

Scott Boyd is a currency analyst at OANDA and blogs on MarketPulse FX.

The SEC is considering whether to investigate the purchase of stock in chemical products maker Lubrizol (LZ) by David Sokol, one of Warren Buffett’s top executives at Berkshire Hathaway (BRK.A) before his abrupt resignation on Wednesday, according to The New York Times.

By Elliott Wave International

Earnings season is upon us, so it’s a good time to delve into how earnings affect stock prices. Here’s an excerpt from Bob Prechter’s February 2010 Elliott Wave Theorist. It considers the conventional belief in a cause/effect relationship between earnings and stock prices. EWI’s 50-page Independent Investor eBook includes the entire report on the effect 10 different economic events, political events, and monetary and fiscal policies have on the market. You can download it now for free.

Claim #4: “Earnings drive stock prices.“
This belief powers the bulk of the research on Wall Street. Countless analysts try to forecast corporate earnings so they can forecast stock prices. The exogenous-cause basis for this research is quite clear: Corporate earnings are the basis of the growth and the contraction of companies and dividends. Rising earnings indicate growing companies and imply rising dividends, and falling earnings suggest the opposite. Corporate growth rates and changes in dividend payout are the reasons investors buy and sell stocks. Therefore, if you can forecast earnings, you can forecast stock prices.

Suppose you were to be guaranteed that corporate earnings would rise strongly for the next six quarters straight. Reports of such improvement would constitute one powerful “information flow.” So, should you buy stocks?

Figure 9 shows that in 1973-1974, earnings per share for S&P 500 companies soared for six quarters in a row, during which time the S&P suffered its largest decline since 1937-1942. This is not a small departure from the expected relationship; it is a history-making departure. Earnings soared, and stocks had their largest collapse for the entire period from 1938 through 2007, a 70-year span! Moreover, the S&P bottomed in early October 1974, and earnings per share then turned down for twelve straight months, just as the S&P turned up! An investor with foreknowledge of these earnings trends would have made two perfectly incorrect decisions, buying near the top of the market and selling at the bottom.

In real life, no one knows what earnings will do, so no one would have made such bad decisions on the basis of foreknowledge. Unfortunately, the basis that investors did use–and which is still popular today–is worse: They buy and sell based on estimated earnings, which incorporate analysts’ emotional biases, which are usually wrongly timed. But that is a story we will tell later. Suffice it for now to say that this glaring an exception to the idea of a causal relationship between corporate earnings and stock prices challenges bedrock theory.

For more of Robert Prechter’s analysis of cause/effect relationships in the markets, download EWI’s FREE 50-page Independent Investor eBook. It includes essays from recent issues of The Elliott Wave Theorist and its sister publication The Elliott Wave Financial Forecast, in addition to a full chapter from the New York Times bestseller, Conquer the Crash. Download your free eBook.

The American manufacturing sector posted its 20th consecutive month of expansion in March, according to the closely followed index from the Institute for Supply Management. The 61.2% reading was just above the 61.1% economists had expected. It was down slightly from the 61.4% in February, which was the highest level since May of 2004. March is the third month in a row the index came in above 60. Any reading over 50 indicates an expansion of the sector. Norbert Ore, Chairman of the ISM’s manufacturing business survey committee, commented, “The component indexes of the PMI remain at very positive levels and signal strong sector performance in the first quarter. While manufacturers are benefiting from strength in new orders and production, there is significant concern with regard to commodity prices. Many manufacturers indicate the prices they have to pay for inputs are rising, and there is concern about the impact of higher prices on their margins.” The prices index rose to 85%, up from 82% in February.

Google (GOOG) is tightening its grip on its Android software, and Google’s partners are said to be upset. The company’s agreements with Android partners are said to be more “onerous” now and reportedly include “non-fragmentation clauses” that give Google video power over tweaks others want to make to Android. Additionally, sources say Google has “tried to hold up” some Verizon (VZ, VOD) Android devices that use Microsoft (MSFT) Bing as its search engine. Some companies have complained to the Justice Department.

By CountingPips.com

March’s government nonfarm payrolls employment data surpassed economic forecasts with a gain of 216,000 jobs for March while the unemployment rate fell to 8.8 percent. The March data marked the fastest pace of hiring in almost a year and follows a revised gain of 194,000 jobs in February and a revised gain of 68,000 jobs in January.

January’s employment data was revised higher to an increase of 68,000 jobs after a gain of 64,000 jobs was previously estimated while February’s data was revised from a gain of 192,000 to 194,000 jobs.

Market forecasters and economists were expecting the nonfarm payroll report to show a gain of approximately 190,000 jobs in March with the unemployment rate remaining at 8.9 percent.

The unemployment rate, now at 8.8 percent, fell from 8.9 percent in February and has reached its lowest level in just about 2 years.

Private companies added 230,000 jobs in March as the service sector created 199,000 jobs and the goods producing sector advanced by 31,000 jobs. Government hiring declined by 14,000 workers in March.

Professional and business services led the way in the service sector with job increases of 78,000 workers while education and health services hiring added 45,000 jobs in March. In the goods producing sector, manufacturing jobs rose by 17,000 workers while construction jobs fell by 1,000 workers.

US Dollar mixed in today’s Forex Trade

The US dollar has been mixed in forex trading action following the monthly government jobs report. The American currency has been gaining ground versus the Japanese yen and the Swiss franc while showing a decline versus the euro, British pound sterling, Australian dollar, New Zealand dollar and the Canadian dollar at time of writing.

The US stock markets, meanwhile, have been on the rise in trading today with the Dow Jones industrial average increasing by over 80 points while the NASDAQ has been higher by over 15 points and the S&P 500 has increased by approximately 10 points at time of writing.

In commodities, oil has increased to the $107.28 level while gold futures have decreased to trading at the $1,425.00 level so far today.

ForexCT Afternoon Thoughts 01-04-11

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

By Russell Glaser

A recent group of Federal Reserve members have come out in favor of tightening US monetary policy and scaling back the Fed’s $600B quantitative easing program. Today’s non-farm payrolls report could go a long way to convince additional Fed members that the time has come to begin the normalization of monetary policy. This would ultimately lead to dollar strength, but more vocal support will ultimately be needed.

There have been multiple instances of Federal Reserve members publicly declaring their support for the reigning in of US monetary policy which in turn boosts the dollar.

Last Friday, St. Louis Federal Reserve Bank President James Bullard said the Fed should review its program of quantitative easing in light of recent positive economic data as the US economy, “Is looking pretty good.” Bullard, who does not have a vote on the Federal Reserve Open Market Committee said during the upcoming April meeting, the Fed may reexamine its decision to purchase $600B in US government bonds in order to lower US interest rates further and support the economic recovery.

Bullard continued his vocal support for tightening of monetary policy in regards to QE II, “The economy is stronger and inflation is higher than when we did the decision,” Bullard said. “So why aren’t you adjusting policy? If you are not adjusting, you don’t have a state-contingent policy. It would be an important signal to send.”

Philadelphia Federal Reserve Bank President Charles Plosser proposed a strategy of raising interest rates and reducing the Fed’s balance sheet on which it holds billions of dollars of US treasuries and other bonds. Plosser also does not have a vote on the Federal Reserve Open Market Committee

Yesterday Minneapolis Fed President Narayana Kocherlakota helped to boost the dollar when he commented to the Wall Street Journal that the fed funds rate could rise by 75 bp by the end of 2011. Kocherlakota is considered an inflation hawk and is a voting member on the Federal Open Market Committee.

Further speeches today by Charles Plosser and New York Fed President William Dudley may also have an impact on the dollar. Dudley who does have a vote on the FOMC is considered an inflationary dove.

The Fed focuses heavily on inflationary data and unemployment numbers. Core inflation in January rose by 1.6% on a yearly basis, a rate well within the Fed’s target. Unemployment will need to rise as well. While the February numbers were a positive sign with the US adding 192K new jobs to the economy, today’s jobs report will also have to rise above expectations of 191K to influence the opinion of those in support of QE II and loose monetary such as Ben Bernanke, Janet Yellen, and William Dudley.

This should keep the dollar on its back foot, particularly versus currencies with expectations for central banks to raise interest rates such as the euro, pound, and Australian dollar.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Source: ForexYard

Today’s non-farm payrolls report combined with the ISM Manufacturing PMI are expected to show further improvement in the US economy. With the increase of risk appetite, commodity prices have soared, benefitting the commodity currencies of Australia and Canada.

Economic News

USD – Jobs Report Expected to Show Improving US Economy

The dollar paired its losses in the New York trading session after the release of worse than expected economic data. For the day, the greenback was mixed against the majors following a slew of negative reports.

US factory orders dropped to -0.1% m/m on expectations of a 0.5% rise. However, the previous month’s report was revised higher to 3.3% from 3.1, giving the report a more positive tone. Weekly unemployment claims were higher than expected at 388K while economists had forecasted 379K new jobless claims. Last week’s report was revised lower to 394K from 382K, adding to the negative tone of the report. The Chicago PMI declined to 70.6 in March from 71.2 in February. Most analysts had forecasted a decline to 69.9. This is the strongest number from the report since July 2009.

The dollar’s performance was mixed as rising commodity prices boosted the commodity-linked currencies while the dollar trimmed its morning losses versus the euro and the pound. The AUD/USD traded at a new record high of 1.0373 and closed the day at 1.0335. The USD/CAD continued to push lower and closed just below the 0.9700 level. The EUR/USD was up above the 1.4200 level again but failed to hold those gains and finished the day at 1.4163. Versus sterling, the GBP/USD rose to a high of 1.6152 from 1.6070 but later fell to a low of 1.6016 and closed at 1.6030.

All eyes will be on two key reports today; US non-farm payrolls and the ISM Manufacturing PMI. Both are expected to show continued improvement in the US economy. The jobs report will be more heavily weighted as the Fed targets improved employment data when setting monetary policy. Given the recent support by Fed officials for the tightening of US monetary policy, the report will be a key influencer on the Fed’s decision to keep a loose monetary policy and continue with its quantitative easing program.

Strong job numbers should be dollar negative as this would continue the trend of increasing risk appetite in the markets following the geopolitical events in Africa and the earthquake in Japan.

EUR/USD resistance comes in at last week’s high of 1.4250, followed by the November high of 1.4280. A breach of this level would target the January 2010 high of 1.4580. To the downside, support is located 1.4060 off the rising trend line from January. This level also coincides with the 20-day moving average. The weekly low of 1.4020 may also prove to be supportive. A 31.8% retracement from the January low could come into play at 1.3935.

EUR – Euro Climbs Against the Yen and Swiss Franc

The euro continues to climb, supported by expectations for an increase of interest rates next week by the ECB. Further support was given for an interest rate hike following the release of the German unemployment change which showed the number of people out of work declined by -55,000 to 3.01M. Economists had forecasted a reduction of only -24,000. The report was also boosted by last month’s revision up to -54,000 from -52,000. The improving unemployment picture is surprising given the unstable month that passed as the geopolitical events in Africa and natural disaster in Japan did not deter German employers from adding to their payrolls.

Traders were sending strong bids for the euro after higher than expected inflation numbers. The CPI Flash Estimate y/y was higher at 2.6% for the year. Economists had forecasted a 2.4% increase. The rising inflation numbers reinforces the market’s view for an ECB rate hike at its next meeting April 7th and should bring further bids to the euro.

The EUR/JPY continued to climb, rising sharply to close near its high of 118.60 from an opening day price of 116.82. The pair is quickly closing in on its short term target at 119.60 with an extension possible to 128.00. Support is found at 116.00

The EUR/CHF made a close at 1.0344, above the previous resistance at 1.3038. The pair should encounter selling at the 200-day moving average which comes in at 1.3070. Strong resistance is located at the February high at 1.3200. A breach here would target 1.3670 and 1.3830. To the downside, support is at 1.2820 followed by 1.2730.

JPY – Yen Continues to Weaken

The JPY is on its back foot versus the dollar and the euro as the currency continues to weaken following the G7 intervention and a renewal of the carry trade. As risk sentiment improves, traders have been quick to sell both the dollar and the yen as funding currencies for carry trades, helping to push the yen lower.

Yesterday the USD/JPY closed higher at 83.71 from an opening day price of 82.56. The close made significant headways on the charts, closing above the first resistance level at 83.30 above the falling trend line off of the September high.

Momentum has swung to the upside as the monthly chart shows both rising stochastics and increasing momentum. The monthly candlestick also closed on a hammer pattern, indicating further gains in the pair may be in store. Resistance comes in at 84.00. A breach above this level will target 84.60, followed by 85.90. To the downside, the previous trend line should be supportive at 83.35, followed by 82.55 and 82.00.

OIL – Crude Hits 2 1/2 Year High Amid Mid East Unrest

Violence in Libya, coupled with the aftermath of the devastating earthquake in Japan, continue to elevate the price of crude oil. On Thursday, the commodity hit a 2 1/2 year high, peaking at $107.62 a barrel before staging a very slight downward correction. Currently oil is trading at $106.85.

Analysts are warning that the price of oil is unlikely to come down in the near future, and may even continue to rise. As for today, heavy fluctuations are anticipated following the release of this month’s US Non-Farm Payrolls. The employment figure is considered one of the most important economic indicators on the forex calendar, and consistently generates heavy volatility. Today’s figure is expected to come in at 191K, slightly less than last month. If true, it would signal further growth in the US employment sector which could result in further bullishness for oil.

Technical News

EUR/USD

The EUR/USD pair climbed about 1,300 pips in the past 10 weeks, and it seems that the bullish momentum has the potential to proceed. Currently a rounding bottom patterns appears to be forming on the 4-hour chart, suggesting that the pair might reach as high as the 1.4250 level before the week ends. Going long seems to be the right choice today.

GBP/USD

The cable’s range-trading pattern continues and the pair is now trading near the 1.6050 level. Currently, a bullish cross takes place on both the 4-hour and the 1-day charts’ Slow Stochastic. It appears that a bullish session might be expected today. Going long could be the right strategy today.

USD/JPY

Momentum has swung to the upside as the monthly chart shows both rising stochastics and increasing momentum. The monthly candlestick also closed on a hammer pattern, indicating further gains in the pair may be in store. Resistance comes in at 84.00. A breach above this level will target 84.60, followed by 85.90. To the downside the previous resistance at 83.30 will turn into a support line, followed by 82.00 and 80.20.

USD/CHF

There is a very distinct bullish channel formed on the 4-hour chart, and the pair is currently trading in the middle of it. Nevertheless, as both the Slow Stochastic and the RSI on the daily chart are providing bearish signals, it seems that a bearish correction might take place today, with potential to reach the 0.9100 level.

The Wild Card

Oil

Crude oil’s bullish trend appears to be unstoppable and crude yesterday reached as high as $107.60 a barrel. In addition, as all technical oscillators on the 8-hour chart provide bullish signals, it seems that another bullish session may be impending. This might be a great opportunity for forex traders to join a very popular trend.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.