Forex Blog

March 21, 2014

Taiwan Protests Chinese Trade Pact

Thousands of young Taiwanese waved banners and shouted slogans to mark the third day of their occupation of parliament to protest against a trade pact with China which they fear could further swell Beijing’s economic influence.

Parliamentary approval of the pact would pave the way for greater economic integration between the two former geopolitical foes by opening 80 of China’s service sectors to Taiwan and 64 Taiwanese sectors to China.

The protesters say the deal will damage Taiwan’s economy and leave it vulnerable to political pressure from China.

“We will continue [the occupation] since [President] Ma did not respond to our demands or hold an open dialogue with the students and the people. We will take further actions,” one of the protest leaders, Huang Yu-feng, told reporters. Details would be unveiled later in the day, she said, after their ultimatum expired at noon on Friday.

President Ma Ying-jeou, meanwhile, called for a peaceful end to the standoff, saying a consensus should be reached in “rational and democratic ways”.

“President Ma hopes the parliament will resume functioning soon to ensure the constitutional order so the dispute can come to a peaceful end,” his office said in a statement.

Police set up barbed-wired barricades outside the presidential office and 2,000 officers were deployed in parliament, as the 200-plus protesters considered their counter-measures.

via The Guardian

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China’s 2014 7.5 Percent GDP Target In Jeopady

The sluggish start has led many economists to downgrade their forecasts, and some think Beijing may not be able to meet its 7.5% GDP growth target for 2014.
In the past, policymakers might have responded by pushing cheap credit into the economy and pursuing other quick fixes to boost growth.
But Beijing has started a series of market-oriented reforms that include a crackdown on the shadow banking sector and runaway local government debt. Another sugar high of easy credit would endanger those initiatives.
Related story: China’s rich make plans to avoid smog
Market participants believe growth will be allowed to slow. Eighty-four percent of investors expect GDP will expand by less than 7.5% this year, according to a survey by Barclays (BCS). Respondents rank weak growth in China as their biggest worry, ahead of geopolitical concerns and changes to the Fed’s stimulus program.
In a sign that policymakers might seek to exhaust other options before pursuing major stimulus measures, Premier Li Keqiang indicated this month that Beijing is placing less emphasis on hitting a specific GDP target — a measurement long used to gauge the performance of local and provincial officials.

via CNN

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EU Preparing Further Sanctions Against Russia

The European Union is prepared to take further action against Russia if tensions with Ukraine escalate, leaders from three EU countries told CNBC following Thursday’s EU summit in Brussels.
Fredrik Reinfeldt, the Prime Minister of Sweden, told CNBC, said while Russia has played down the impact of the sanctions, the country’s economy was likely to be impacted.

“I don’t think we should listen so much to the way [Russian President Vladimir] Putin is trying to behave when it comes to this,” said Reinfeldt.

“[It's] very foreseeable that they say that they don’t care about anything, but we have in history seen that these targeted measures are probably better working sanctions than many other things that you could do,” he added.

via CNBC

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February 26, 2014

No Credit Risk In China? Banks Growing Cautious Lending Money To Each Other

China’s credit-market gauges are triggering alarm bells, as banks grow cautious in lending to each other while investors prefer the safest government bonds.

The spread between the two-year sovereign yield and the similar-maturity interest-rate swap, a gauge of financial stress, reached 121 basis points on Feb. 19, the widest in Bloomberg data going back to 2007. Two days later, the cost to lock in the three-month Shanghai interbank offered rate for one year reached an eight-month high of 94 basis points over similar contracts based on repurchase agreements, which are considered safer because they involve government securities as collateral.

Billionaire investors George Soros and Bill Gross have drawn parallels between the situation in China now and that in the U.S. before the 2008 financial crisis, when traders gauged lending appetite by monitoring the difference between the London Interbank Borrowing Rate and the overnight indexed swap. Premier Li Keqiang’sefforts to curb leverage in the world’s second-largest economy by driving up borrowing costs need to be handled carefully to avoid wrecking confidence in the financial system, according to Nomura Holdings Inc.

Bloomberg

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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January 23, 2014

Japan Aks China To Lower Military Spending

Japan’s prime minister has called on China to scale back its military spending on a day when he compared the mounting tension between Asia’s two biggest economies with the rivalry between Britain and Germany before the first world war.

Shinzo Abe used a keynote address to the World Economic Forum in Davos to hail a new dawn for his country and said the fruits of growth in Asia should be used for innovation and investment in human capital rather than weapons.

Earlier, Abe said the frayed relationship between Tokyo and Beijing was similar to the situation in Europe pre-1914. He said a conflict between the two countries would be disastrous, but refused to rule it out. “Trust, not tension, is crucial for peace and prosperity in Asia, and in the rest of the world,” he said. “This can only be achieved through dialogue and the rule of law, and not through force or coercion.

“We must restrain military expansion in Asia, which could otherwise go unchecked. We should create a mechanism for crisis management as well as a communication channel between our armed forces.”

via The Guardian

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November 26, 2013

Berlusconi Does Not Commit To Support Italian PM

Italy’s centre-right leader Silvio Berlusconi said on Tuesday his party was still undecided on whether to withdraw its support for Prime Minister Enrico Letta’s government, just hours before a confidence vote over the 2014 budget.

Letta is expected to win the vote without Berlusconi, but the primarily procedural move has nonetheless brought the clash between the two to a head.

A broad left-right coalition, formed after February’s deadlocked national election, has supported Letta since April. Berlusconi, however, prompted a split in his party when he tried and failed to bring down the government last month.

The rift has left 30 centre-right senators and 27 deputies supporting the government, which is enough to guarantee its survival.

“The government is in such confusion that it still has not written a definitive version and so we have not been able to read it,” Berlusconi, a media magnate, said of the budget package during an interview with one of his TV channels.

But his Forza Italia party, whose lawmakers will meet in the afternoon to make their decision, is widely expected to break with the government and go into open opposition.

via Reuters

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September 18, 2013

EU ready for talks with China on Investment Deal

European Union countries will agree next month to talks with China on a pact making it easier to do business, possibly paving the way for a free-trade deal between two of the world’s biggest markets, EU officials said on Tuesday.

Brussels and Beijing want to negotiate an accord to break down barriers to each other’s markets and encourage billions of euros of new investment between the two, in a push for better ties after narrowly avoiding a trade war earlier this year.

Trade between Europe and China has doubled since 2003 and is worth more than 1 billion euros ($1.3 billion) a day, but China receives just 2 percent of the EU’s investment abroad.

China Daily

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

August 21, 2013

US Market Roundup: 4 Day Streak Broken But Bearish Pressure Continues

US stocks snapped a four-day decline yesterday, with S&P 500 gaining 0.38%. Dow 30 continue to be the bearish twin between the two, closing slightly lower at -0.05%, but did manage to rally higher during the day, almost gaining 65 points at one point (0.42%) before sliding down to just above 15,000 during the final hour of trade. The same occurred in S&P 500, with prices gaining as much as 0.78% during the day. Once again, there wasn’t any major news releases during the day, while the rest of the global markets were bearish across Asia and Europe. Hence it is interesting to see US Stock prices bouncing up higher during the day.

Perhaps the reason for yesterday’s mild bullishness is 3 pronged. Firstly, we could be on a technical rebound as both S&P 500 and Dow 30 are sitting on support levels following the four-day decline. There are also some slight good news from big names such as Best Buy who reported earnings that beat estimates. Lastly, US10Y prices actually rebounded off the 125.0 level on a technical rebound one day prior. While this does not really suggest that the latest taper fears have reached its natural end, it is highly conceivable that stock traders will be relaxed to see yields coming down slightly, and thus slightly more optimistic.

However, we need to address the elephant in the room which is the decline towards the end of the day. The only possible bearish fundamental news yesterday was the lower than expected Chicago Fed Nat Activity Index, which came in at -0.15 vs expectations of -0.10. This is considered a minor economic number and has rarely, if ever, moved markets. Furthermore, this figure was released before US stock market opened, and hence cannot be used as the reason for the late session decline. Looking back at US Yields again, it seems that prices of the benchmark 10Y came down again after hitting resistance in the form of downward trendline. The slight increment in yields most likely is the smoking gun which resulted in the “re-spooking” of equity traders, resulting in S&P 500 halving and Dow 30 giving up its entire gains.

S&P 500 Daily Chart

http://forexblog.oanda.com/mserve/SPX_210813D1.PNG

From a technical perspective, price is still straddling along the same support level of Monday. Stochastic readings has now fully turned around and is pointing higher, suggesting that a bullish cycle may be in play soon. As this is the Daily Chart, a proper bull cycle will be far reaching, and as such traders would still be able to enjoy sizable gains if confirmations for a 1,650 rebound/bull cycle are sought. This may translate in practice for a break of 1,680, or perhaps back above 1,700 before long positions are entered. Reason for prudence would be due to the fact that fundamentals seems to favor downside between short-mid term on QE Tapering fears. With US10Y looking likely to rebound lower, technicals of stocks do not truly line up with fundamentals, and hence caution should be practiced.

Dow 30 Daily Chart

http://forexblog.oanda.com/mserve/DJI_210813D1.PNG

The same could be said of Dow 30, who is mimicking S&P 500 movements despite it being the more bearish of the two. Should S&P 500 break 1,650, it is possible that Dow 30 may do one better and head towards 14,600~ support, ignoring the 14,850 soft support level. Conversely, if 15,000 is held, the chances of S&P 500 moving back towards 1,680 increases.

More Links:
USD/INR – Slight bearish relief on RBI Intervention, but uptrend intact
RBA Minutes – AUD Led lower by NZD despite no “immenient rate cut”
NZD/USD – Wheeler Driving Price Down Despite Inflation Bump

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

July 15, 2013

Youth Unemployment in Australia Highlights Challenges Ahead

The most recent unemployment figures have revealed a problem with youth unemployment that has for the most part been hidden by the traditional “youth unemployment” rate.

The June labour force figures released by the ABS last week showed that the unemployment rate for 15-24 year olds (the standard definition of youth unemployment) was 11.7% (in trend terms), slightly below where it was this time last year. For 15-19 year olds it is 15.6% – more than one percentage point lower than the 16.7% of June 2012.

So the rate is coming down. Cigars all round?

Alas no.

Last week we noted that the unemployment rate hides important details; this is magnified when it comes to youth unemployment. What has been noticeable of late is the unemployment rate of those looking for full-time work has surged, while the overall rate has stayed flat or declined.

There is now a bigger gap between the two rates than at any time in the past 20 years:

And yet despite this there is actually a smaller percentage of youth looking for full-time work than there was during the height of the global financial crisis.

So what is going on?

There are two issues: participation and jobs.

via The Guardian

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

June 25, 2013

Gold Correlation with Stocks Turns Negative

Further gains in global stock markets this year will be a signpost of more losses for gold, according to analysts, citing a re-established negative correlation between the two assets.

After nearly a decade of bullion broadly tracking stocks, as represented by the S&P 500 index, this year the opposite relationship materialised as share prices rallied.

While the S&P index has gained 10 percent so far on the year to date, gold is sitting firmly in bear market territory. After a brutal sell-off in April, it is nursing an annual loss of around 24 percent.

The S&P and spot gold showed a positive correlation between 0.6 and 0.9 from 2004 to 2012, after being negatively related between 1990 and 2003, according to data from Standard Bank Research.

via Reuters

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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