Oct. 25 (Bloomberg) — Georg Grodzki, global head of credit research at Legal & General Investment Management, talks about the effectiveness of Europe’s bailout fund to fight the region’s debt crisis. He speaks with Owen Thomas and Linda Yueh on Bloomberg Television’s “Countdown.” (Source: Bloomberg)
Forex Market Outlook 10/25/11
By Mike Conlon, ForexNews.com on Oct 25, 2011
Well it looks like the market is unaware that there is major risk potential in the marketplace as stocks and commodities took off yesterday and it was “game on” for risk appetite. As a result, the Euro as well as the commodity bloc currencies moved higher despite the Euro debt decision due out tomorrow.
Does the market know something that we don’t? As often is the case, the answer is simply “no”. What the market does know is that it wants to take on risk and wants to buy stocks (especially large fund managers who have posted less than stellar returns) as corporate earnings have been largely better than expected. Throw in higher Chinese PMI data that showed that they aren’t slowing entirely and you have a recipe for gains.
But should the market be paying more attention to the risk? I think the answer is a resounding “yes”. For the devil is in the details, as they say, and what we may hear from the EU tomorrow could be detrimental to market stability. For example, how big of a voluntary haircut will Greek bond holders have to bear? 50? 60? At what point does it no longer become voluntary and trigger a technical default which in turn triggers Credit Default Swaps and then starts the game of musical chairs that is inevitably going to leave someone exposed and with massive losses?
How large does the EFSF have to be to handle these problems and prevent contagion? How will they get it there? Leverage? Partial guarantees?
The point I am trying to make here is that there are MANY questions that need to be answered and I’m not certain that there is a “right” answer. It is more likely that we are at acceptable and unacceptable viewpoints and how the market reacts will be telling. But don’t forget, the market has been rallying in a big way heading into this news. Its not like it is unaware of the issues. Yet people are buying like its just another day. And by and large it is, and I believe the hope is that the cloud of uncertainty we have been dealing with will be lifted.
What is exactly is going to happen tomorrow is anyone’s guess, but the contrarian in me tells me that when everyone is bullish, I should be bearish. We are reaching certain price levels on many currency pairs that will likely induce volatility heading into tomorrow’s announcement that is showing to be released at 10EST, though not confirmed.
If I had to guess what is going to happen (and I hate to do that because I am a trader and not a prognosticator), I think the markets will spike higher on the news, and then start a sell-off as the news trickles out. This will likely represent a pullback on what has become a “ V-bottom” reversal into an up trend for most of the pairs. However, I am going to trade what I see and not what I think will happen and I advise you to do the same.
In other news, last night New Zealand reported CPI data that was lower than expected, showing 4.6% inflation vs. the expected 4.9% which may mean that the RBNZ will be on hold for tomorrow’s rate policy meeting.
Later this morning, the Bank of Canada will issue its rate decision and are not expected to change rates, which could mean a bounce off of parity vs. USD.
In the US, home prices and consumer confidence figures are likely to have little impact, and recent rumors being floated that there could be “QE3” in the works may have been the catalyst for the market’s recent rise.
While the Fed has a dual mandate to contain inflation and promote job growth, they may feel compelled to act if nothing comes out of the Super-committee in Washington that is charged with reducing our deficit.
However for now, I am waiting on tomorrow and will not be taking any positions into the release of the “resolution”. There are just too many uncertainties at this point.
Regards,
Mike Conlon,
Senior Forex Mentor
Forexnews.com
Bank of Canada Keeps Interest Rate at 1.00%
The Bank of Canada kept its target for the overnight rate unchanged at 1.00%; also holding the Bank Rate at 1.25% and the deposit rate at 0.75%. The Bank noted: “The global economy has slowed markedly as several downside risks to the projection outlined in the Bank’s July Monetary Policy Report (MPR) have been realized. Financial market volatility has increased and there has been a generalized retrenchment from risk-taking across global markets. The combination of ongoing deleveraging by banks and households, increased fiscal austerity and declining business and consumer confidence is expected to restrain growth across the advanced economies. The Bank now expects that the euro area—where these dynamics are most acute—will experience a brief recession.”
Previously the Bank of Canada also held the target interest rate unchanged at its September meeting; it’s last move was a 25 basis point increase to 1.00% in September last year. Canada reported annual CPI inflation of 3.2% in September, compared to 3.10% in August, 2.7% in July, 3.1% in June, 3.7% in May, and 3.3% in April, the same as March, according to Statistics Canada. The Bank of Canada has an inflation target of 2 percent over the medium term.
Canada reported year on year GDP growth of 2.2% in Q2 this year, compared to 2.9% in Q1, while “the Bank projects that the economy will expand by 2.1 per cent in 2011, 1.9 per cent in 2012, and 2.9 per cent in 2013.” The Canadian dollar (CAD), also known as the Loonie, has weakened by 1% against the US dollar so far this year, while the USDCAD exchange rate last traded around 1.01. The Bank of Canada next meets on the 6th of December
Rosgen Sees Opportunity in Asian Cyclical Stocks
Oct. 25 (Bloomberg) — Markus Rosgen, Hong Kong-based chief Asian strategist at Citigroup Inc., talks about the outlook for Asian and U.S. equity markets. Rosgen also discusses the impact of Europe’s debt crisis on global stocks. He speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)
Will A New Libya Usher in The European Energy Revolution?
Will A New Libya Usher in The European Energy Revolution?
by David Fessler, Investment U Senior Analyst
Tuesday, October 25, 2011: Issue #1628
There’s a plan, considered grandiose by its critics. If successful, the project could fulfill much of the current and future energy needs of Europe, North Africa and the Middle East. It’s located smack in the middle of one of the most inhospitable places in the world: the Sahara Desert.
Libya’s participation is critical to the success of the intercontinental plan. Whether it ultimately becomes a reality depends on many factors.
Muammar el-Qaddafi’s reign has ended. That’s a good thing, especially for those forced to endure his totalitarian nightmare for nearly 42 years. The transitional government must now transform itself into something that all Libyans can live with. And one of the largest energy exporters to Europe will need to change its ways in order to fulfill its plan to implement a radical renewable project.
But this won’t happen overnight.
What About Libyan Oil and Gas Production?
The speed at which it does happen will matter, especially to the resumption of energy production. When will Libyan oil and natural gas production resume its rate prior to the country’s uprising?
The reality is, it’ll take at least a year or two, or maybe even three – and an estimated $3 billion of capital – for oil and natural gas production to return to pre-civil war levels.
History tells us that even three years could be wildly optimistic. When the United States invaded Iraq in 2003, oil output dropped almost immediately from the 2.4 million barrels per day (mbpd) before the invasion to around 100,000 bpd. It only just returned to pre-invasion levels in Q2 2011, a delay of eight years.
On the plus side, Qaddafi was a dead man walking for weeks. That reduces oil company and investor concerns that the country could become another Iraq. Most of the country was securely in rebel hands even before Muammar met his demise.
The odds are increasing that the resumption of Libya’s contribution of two million barrels of oil per day to the global oil supply will be sooner rather than later. Initial indications point to a relatively smooth process. Oil and gas companies are already starting to trickle back into the country.
On the downside, there was a significant amount of damage to oil infrastructure at both production and port facilities. Many of these repairs will take years, and they’re just beginning to get underway.
Libyan Natural Gas Production: Already Ramping Back Up
Natural gas is a slightly different story from oil. Libyan natural gas exports to Italy have resumed through the 32″ Greenstream Pipeline.
This 340-mile pipeline crosses the Mediterranean Sea, and is jointly owned by the Italian oil and gas giant Eni S.p.A. (NYSE: E) and the Libyan National Oil Corporation.
It connects onshore gas-producing fields at Wafa and offshore fields at Bahr Essalam with Libyan gas processing facilities at Mellitah. The Italian end terminates on the island of Sicily at Gela.
Roughly 80 percent of gas produced by Libya was historically exported to Italy, where it represents 10 percent of Italy’s total gas usage. Since February, when supplies were halted due to the uprising, Italy started buying gas from Russia to make up the difference.
It recently resumed buying from Libya, albeit at a much-reduced rate than before the uprising. You can see that in the graph below from the EIA. As things continue to return to normal, you can expect Italy to buy less from Russia and more from Libya.
The revenue will provide a much-needed source of capital for Libya to begin reconstruction of its oil and gas infrastructure, and its infrastructure at large.
A New Chapter and a Potential Bonanza in the Desert
Libya is about to begin a new chapter in its history. It’s potentially a new democratic nation in the making. Rebuilding its energy infrastructure is key to the resumption of economic growth. But there’s an even bigger reason to do so on the horizon.
It could turn Libya into a North African energy powerhouse (no pun intended). I’m talking about Libya’s role in the Desertec concept.
Desertec proposes to generate electricity in North Africa, the Middle East and Europe. Participating nations would all be tied together in one large grid. More energy falls on the deserts in North Africa in six hours than the world consumers in a year.
The place is virtually uninhabitable, yet it’s relatively close to the major population centers of Europe and the Middle East.
Take a look at the conceptual map below, and you get an idea of the size of the undertaking.
Ultimately, over €400 billion would be spent on concentrated solar power plants, wind farms and a super grid of high voltage DC lines. This network will connect the various sources to major population centers.
It’s estimated that Desertec could provide Europe with as much as 15 percent of its overall energy needs. African nations would receive much needed capital to create jobs and foster economic growth.
Houston, We Are Probably Going to Have a Problem
The biggest problem Desertec faces has nothing to do with technology and everything to do with the geopolitical environment. The Middle East is traditionally a hotbed of armed conflict, social unrest and high unemployment.
Cooperation between European, Middle Eastern and North African countries will certainly be challenging. This is especially true at the moment, as a number of countries are involved in civil wars and potential government upheavals.
Damage to existing infrastructure is high on the list of targets under these types of situations. Still, the project has merit, and Tunisia is well on its way to reform and Libya is just beginning the process.
The rest of the Arab world is keeping an eye on their ability to succeed. Desertec’s ultimate implementation could have an incredibly positive effect on the economies of North African and Middle Eastern nations.
Who Benefits?
Two companies immediately come to mind. The first is ABB Limited NYSE: ABB). This Zurich-based company is one of the largest European manufacturers of high voltage transmission equipment. The Desertec project will require nearly 5,000 miles of new transmission lines constructed and others upgraded.
ABB will be a prime beneficiary of the transmission line construction and upgrades that will go on for decades under the full implementation of Desertec.
The second company is First Solar, Inc. (Nasdaq: FSLR). First Solar joined the Desertec consortium over a year ago, and was the first photovoltaic company to do so.
Stephen Hansen, Managing Director of First Solar’s European sales and customer service unit for Europe, the Middle East and Africa had this to say about First Solar’s participation in Desertec: “The challenges of energy security and global warming demand bold solutions and Desertec certainly provides an ambitious vision.”
For now, Desertec is just a great plan for producing carbon neutral energy. Its implementation depends on cooperation and understanding between countries with vastly different beliefs and political agendas. We’ll keep a close eye on the project to see if and when it moves into the implementation phase.
Good investing,
David Fessler
Article by Investment U
Gold Surges Following Bear Trap
Source: ForexYard
The price of spot gold has received a bit of a bump the last three trading days with the commodity rising 1.6% today. Tensions in Europe could be the usual suspect for today’s price increase though perhaps it is the prospect of additional monetary policy easing in the US that is driving the gains.
The WSJ’s front page article describes the potential collapse of the Italian government but gold prices may be moving higher on additional QE3 expectations. On Friday comments from Fed Governor Janet Yellen made no bones about the Fed’s willingness to go back to the tool chest should risks to growth or price stability emerge. ‘Helicopter’ Ben Bernanke is well known for his position when tackling the threat of deflation in the US economy. Perhaps the events in Europe have been clouding the landscape and only now market players are turning their attention to a more strategic play in gold for an additional round of US policy easing.
Gold prices recently performed a ‘bear trap’ when the price of spot gold fell below its rising support line from the September 28th low only to pull higher the same day and continue to advance higher to test the $1,695 level. Should the price continue to move higher there are retracement targets located at $1,725 and $1,771. Support comes in at the October low of $1,603.
Read more forex trading news on our forex blog.
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.
The Big Mac – Recession Proof
by Jason Jenkins, Investment U Research
Tuesday, October 25, 2011
Once again we see a large multinational corporation exceed Wall Street’s expectations.
McDonald’s Corp. (NYSE: MCD) reported last week that its third-quarter net income rose by nine percent to $1.51 billion. This marked the ninth straight quarter of earnings gains. The fast food empire’s bottom line beat Wall Street estimates and was elevated by a 14-percent increase in revenue that offset some higher expenses the chain is facing, including a higher effective tax rate and rising labor costs in Europe and other markets.
Overall revenue rose to $7.17 billion, beating the $7.02 billion expected by analysts. Revenue at stores open at least 13 months rose five percent. This number is a telling statistic of a corporate entity’s well being because it excludes the impact of recently opened or closed locations.
Per-share earnings were $1.45, beating analysts’ expectations of $1.43.
Fast Food Giant Gets a Facelift
McDonald’s has been profitable during the recent global economic downturn in part because the chain has managed to reshape its image from a burger-and-fries joint into a cool place to eat with multiple healthy options. McDonald’s has introduced new menu items ranging from smoothies to specialized coffees to oatmeal.
Domestically, the company got a boost from the aforementioned premium McCafe beverages, a fairly new segment that has become a rock star in a market that Starbucks and Dunkin’ Brands dominated. Operating income in the U.S. market gained six percent this past quarter.
The menu isn’t the only thing going through renovation; the burger giant remodeled restaurants and converted more locations to 24-hour operations.
Chief Executive Jim Skinner stated: “The investments we are making to optimize our menu, modernize the restaurant experience and broaden McDonald’s accessibility with ongoing convenience and value platforms are driving profitable market share growth, a clear indication that our strategy is working.”
True Growth Comes From Emerging Markets
The other part of the success comes from directed efforts to expand its presence in emerging markets as the U.S. economy struggles. In China, McDonald’s increased its restaurant locations from about 1,200 to 1,400 over the past year. And even with its sovereign debt crisis, Europe now accounts for the biggest portion of McDonald’s revenue coming in a little over 40 percent.
McDonald’s revenue in the United States rose five percent. When you compare that to its rivals it seems very respectable, but pales in comparison to its own performance in other regions around the world. Revenue in Europe climbed 16 percent, and revenue in the Asia Pacific region, the Middle East and Africa climbed 20 percent.
Be Long on McDonald’s and its Foreign Franchises
The numbers look good for the momentum to last. What may be of slight concern is that McDonald’s raised prices on customers this year to deal with the higher costs for ingredients, like beef, and materials, like fuel. But as long as it doesn’t raise its prices too much, they won’t drive away their core budget-conscious customers.
And as McDonald’s goes, look for its foreign franchises to follow. Arcos Dorados (NYSE: ARCO) is the world’s largest McDonald’s franchisee, in terms of system-wide sales and number of restaurants. It’s the largest quick service restaurant chain in Latin America and the Caribbean, with restaurants in 20 countries and territories.
This Argentinean-based company just came public on April 2011 and pays a $0.06 quarterly dividend, good for a 1.1-percent dividend yield, and trading right near its IPO price. It had just over $3 billion in revenue in 2010 and a strong $250 million in cash position as of the end of 2Q with very little short-term debt. The company just had a big secondary offering last week of over 40 million shares at $22 per share, which was well received.
Good investing,
Jason Jenkins
Article by Investment U
Bacchus Says U.S. Senate Bill on Yuan a `Mistake’
Oct. 25 (Bloomberg) — James Bacchus, chairman of the global practice at Greenberg Traurig LLP and former chairman of the World Trade Organization appeals tribunal, talks about the U.S. Senate’s vote to punish China for depressing its currency. Bacchus also discusses the challenges faced by foreign companies operating in China and U.S.-China trade relations. He speaks in Hong Kong with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)
UK Mortgage Approvals Sluggish in October
Source: ForexYard
An early report on housing loans in the UK was released this morning, revealing a mild sluggishness in the number of loans approved for home purchases. The data has been mulling about in mildly bullish territory for the past two months, making this month’s dip a decent counter to the increase in consumer spending which we are seeing ahead of the holidays.
The Mortgage Approval figure does tend to carry a significant impact on housing, moreover. The number of loans approved for home purchases indicates the level of house price increases and demand for housing across Great Britain which ties into the strength of capital markets.
Read more forex trading news on our forex blog.
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.
GfK German Consumer Climate Beats Forecasts
Source: ForexYard
Released this morning was a report on the state of the German economy according to consumers. The survey, conducted by GfK, revealed a surprising uptick in consumer optimism, beating forecasts for a minor decline of 0.1.
The indicator tends to have less impact than other reports due to its distance from economic valuation. Consumers have one part of the picture, but in the case of Germany it doesn’t seem to have as much of an impact as the ZEW or Ifo readings, which get released prior to the GfK report.
Read more forex trading news on our forex blog.
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.
