We have our Charlotte, NC workshop this weekend which I am very much looking forward to. The workshops are very intensive and I know that anyone who attends is serious about trading. We learn about the real institutional FX market and specific strategies, rather than some get rich quick grail which usually end up putting funds into the accounts of my workshop attendees.

Economic data provided some surprises on an otherwise quiet day as investor risk sentiment remained subdued. The Conference Board Consumer Confidence Index surged from 26.9 in March to 39.2 in April, well above the consensus estimate of 29.7. While the index is still in historically low territory, the print was a positive development as the expectations portion of the index rose. We're doubtful this, what is to be considered a leading indicator, is meaningful at this stage. Rather, it is simply a positive wiggle in a macro negative scenario. Meanwhile, the number of confirmed swine flu cases continued to rise, though the information had less of a pronounced impact than previously. One of the big three US automakers is reported to have made progress to reduce its debt burden ahead of an end of the month deadline imposed by the government but nothing has yet been confirmed. Read More...

Prelim on Stress Tests Pose Questions and Uncertainty

Full results from the questionable stress tests are due in early May and administration officials are wary of affecting overall financial stability as they plan the releases. Although banks have broadly managed to outperform expectations in the current earnings cycle, provisions for credit losses have risen across the board and the outlook remains challenging as economic activity and the labour market continue to deteriorate. Treasury Secretary Geithner said in an interview with the FT that he saw a "slackening" in the economic downturn, but "significant risks remain and critical countries act together to strengthen global recovery." Global cooperation will certainly be on the agenda at today's G7 meeting of finance ministers. We believe they will work on the new framework agreed upon at the London summit but will not seek to act unilaterally on issues which require G20 consultation. More action on financial stability and pledges to avoid protectionism will probably be released in addition to efforts to boost the IMF lending resources. In the auto sector, one of the big three automakers is reported to be preparing to file for Chapter 11 protection as early as next week. This comes on the back of another company's announcement that it may not make a key debt payment in June. Investors have likely been bracing for a bankruptcy in that sector though a disorderly bankruptcy could be very complicated.
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Per the last blog entry, today saw material weakness in equities. We saw the onset of the movement reflected in the Dow futures prices thru Asian into London session. Typically Dow futures weakness of 100pts or more during Asia or London can stimulate USD buying in the current environment.

Another major US bank beat first quarter earnings expectations but investors again remain cautious. The bank said conditions remain difficult and several one-time gains appeared to bolster the first quarter figures. Results of government bank stress tests continue to weigh on investor sentiment and President Obama recently commented that further government support may be needed and said, "Different banks are in different situations. They're going to need different levels of assistance from taxpayers". Since the stimulus money is not finding its way into the pockets of consumers, I’m not convinced the speculation of inflation later in 09’ is likely to find its way. That is a subject for another time. Press reports also suggest there is some debate between the US Treasury and financial regulators on how to release their results, which are scheduled for early May. There are fears that by identifying the banks with the most vulnerable capital positions, further weakness could ensue, for the banks themselves and for the wider financial system. The credibility of the tests themselves has also been called into question as the market remains in the dark about the methodology used. Read More...

Tags: Financial Crisis

Traders and Investors have acknowledged that the broader picture for risk is far less promising than originally anticipated and a general pullback is on the cards, particularly as economic data continues to be mixed. The tone of the latest Fed Beige Book was not as weak as the previous reports, as contraction slowed in only five of twelve Fed districts despite overall economic activity remaining weak. CPI disappointed at -0.4% y/y versus expectations of -0.1% y/y, as deflation, rather than inflation, is more of an imminent concern. The NAHB Housing Market Index, meanwhile, reported the highest level since October 2008 at 14, well above expectations of 10. However, the reading is still very low compared to historical prints. In other news, the Treasury Department released its Semi-annual Report on International Economic and Exchange Rate Policies. Secretary Geithner did not label China nor any other major trading partner as a currency manipulator but said the yuan remains undervalued. He retreated from earlier comments in January when he said President Obama believed China is manipulating its currency, as would any politician seeking to remain in the game. The report also mentioned that global exports are under severe downward pressure and that the Treasury wants forceful IMF surveillance of currency practices. All with good intent, I'm sure, but not convinced such a proposal would have any material impact. Read More...

Investors remain cautious after the first financial institution reported better than expected earnings. A major US bank holding company announced above expectation earnings and profits ahead of schedule and announced it would use the proceeds of a proposed equity offering to repay the $10bn in TARP funds it received. Come on folks, read between the lines, there is a reason they reported ahead of schedule. Press reports suggest that the government will not allow any repayment of TARP funds at least until the conclusion of the stress tests, the results of which should be available by April 30. But it remains to be seen how other financial sector earnings release are viewed in light of the recent change in accounting guidelines, whether positive results like this are sustainable and how much more capital raising will be needed after the conclusion of the stress tests. Read More...

Tags: ECB

The USD has weakened on risk appetite. The commodity currencies, in particular, have markedly strengthened against the dollar while investor risk-seeking has interestingly enough benefited the dollar against the euro, judging from the breakdown in the correlation between EURUSD and global equities. But investor uncertainty still persists, particularly as we enter first quarter earnings season and wait for the pending results of the bank stress tests. Any negative developments on those fronts would shift sentiment back to safe havens like the dollar. We remain cautious as there is a good deal of event risk, mostly in the financials, but we still favour the dollar over the longer term at the current juncture.
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Tags: Risk Appetite

Source: UBS

A press report suggesting the Obama administration considers a pre-packaged bankruptcy for a major US carmaker as the best solution going forward weighed on stock futures overnight. European bourses were also weaker on the news. Although President Obama this week had given a major carmaker 60 days to get its house in order, the "quick and surgical" bankruptcy his administration described as an option is reportedly becoming "inevitable". The report, however, was subsequently denied by an official of the Obama administration. He said that the President's thinking on the automaker's situation has not changed. As such the avoidance of a bankruptcy would still remain the most favored outcome. At Pro Traders Club, we do not find this news at all shocking, since we anticipated that GM would continue to fail on their 3 month window for salvation.
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Tags: EUR