Forex Spread Betting

The Financial Markets - 16 October 09

• Fed member and arch hawk Fisher played up the lower-for-longer policy regime the Fed intends to run. He observed that there’s so much slack in the US economy and such a high level of unemployment that the risks still remain tilted towards disinflation or even deflation then inflation. He said all that negativity in the economy is going to take a long while to work off. How long is an ‘extended period’ will be determined by developing economic circumstances. The indication for Fisher is that time is some way out – he said it wasn’t certain the recovery signals seen of late were sustainable and certainly didn’t buy into a ‘V’ shaped recovery. However, Fisher’s view on policy did have a twist to it – while he didn’t advocate an unwind, he indicated he felt the Fed had given sufficient support to the markets. Indeed he said he didn’t believe the Treasury purchase program had really had that much benefit and was glad it was finished, while he felt the Fed had done its bit in assisting the mortgage market.
  
  
• Treasury secretary Geithner was cautious in his comment, noting that while the recovery has been better than expected so far, he felt that the overall run back to health will be longer than is typical. He said are must be taken to avoid withdrawing the stimulus too soon as downside growth risks still persist.
  
  
• Why I don’t like banking stocks. Banks in the longer term inevitably face a regulatory backlash for their myriad of sins. The Basel committee on banking supervision is working hard on tougher solvency and liquidity requirements. Regulators will be wary of not imposing tough rules quickly, given the risk of a severe drought in bank lending. Yet the newswire this morning focuses on fairly quick changes when it comes to trading book capital: new requirements there are expected to become effective by the end of 2010 and would force banks to increase their total capital holdings by an average of 11.5%.
  
  
• Former UK FSA head Sir Howard Davies provided some pretty punchy commentary warning that the UK public was living in a ‘fools paradise’, uncomprehending the sheer scale of the country’s indebtedness. He said it’s clear that there’ll have to be some dramatic measures to control spending. He also warned that while Sterling’s recent weakness might be assisting the export sector, past experience suggests the Pound doesn’t stop when officials would like it to. He said he is extremely concerned the British people are unwilling to face even minimal belt tightening.
  
  
• In forex news, a Japanese currency strategist forecasts the demise of the Dollar. The chief currency strategist of Sumitomo Mitsui Banking, Daisuke Uno, said the Dollar would drop to 50 Yen and lose its role as the world’s reserve currency. This is the gutsiest forecast I’ve yet heard from a serious forecaster, who also said that the US economy will decline into 2011, as the consumer and financial sector continue to adjust. The Dollar has so far fallen to 75 Yen, close to its all time record. He said after the Dollar will have lost its reserve currency status, the world will fall into three trading blocks – US, Europe and Asia – with volumes of global currency trading destined to fall in the long run.
  
  
• While the consensus is that the Dollar will continue to depreciate over the foreseeable future, Christian Broda, Piero Ghezzi, Eduardo Levy-Yeyati say in a column in Vox that the Dollar may strengthen in 2010 if the Federal Reserve exits quantitative easing sooner than its counterparts and the US economy enjoys a strong rebound.
  
  
• This story hasn’t gotten much attention “IMF warns Australian banks about defaults”. The IMF has injected fuel into the debate over the timing of the peak of banks’ bad debts by warning Australian banks could lose $33 billion due to household and corporate defaults. A deterioration in Australian banks’ asset quality since early 2008 shows corporate solvency risks have risen to the extent that expected corporate default losses could reach two per cent of GDP based on historical recovery rates of around 40%.
  
  
• A joint report from the panel of five ‘wise men’ who advise the German government conclude that ‘there is still a significant risk of further shocks to the international financial system’. It adds that emergency action by the ECB and authorities worldwide “averted a looming collapse” of Germany’s banks but lenders are still too frail to renew normal lending.
  
  
• Man offered credit card with 79.9% interest rate.
  
  
• Next time you’re in London pop, into Harrods and pick up a Gold bar.

1. Home prices will remain stable as the foreclosures remain orderly, government stimulus continues to support the market.
   
   
2. Earnings are stabilising, sales trends are improving and firms are becoming profitable again.
   
   
3. The Federal Tax Credit is likely to get extended into the first quarter of next year.