Monday, October 31, 2011

Today's Major Market Move: Cyprus Stock Market Down 7.6% in Monday's Session

The European bailout sugar high is rapidly wearing off as the Cypriot equity market tanked 7.6% today. It has the honor of being the first equity market in the world that is now trading below its pre-bailout level. The next 2 worst performers globally were Finland and Ukraine at -4.6% and -4.4% respectively.

Click here to go to a live version of the table.

Here's the line chart for 2011 of the main Cypriot equity index, the General Market Index CSE:

Click here to go to a live version of the chart.

The net impact of the bailout on the Cypriot economy may in fact be negative as Cypriot banks have a large exposure to sovereign Greek debt. S&P downgraded the island's sovereign credit rating the past Thursday (10/27) and kept it on a negative watch. From Business Week:
The new debt exchange may lead to the need to recapitalize Cypriot lenders “through a public offering or a government capital injection,” S&P said. “Weaker economic growth could worsen the Cypriot government’s debt dynamics and reduce the willingness of its political leaders to press forward with fiscal and labor-market reforms.”

The Cypriot government aims to reduce the budget deficit to 5.5 percent of GDP this year from 6.5 percent of GDP in 2010. Lawmakers approved a 220 million-euro ($313 million) austerity package in August, which included public-sector wage cuts and higher taxes in a bid to prevent borrowing costs from rising.

Sunday, October 30, 2011

Today's Major Market Move: Japanese Yen Weakens Over 4% vs the USD in Today's Session

The BOJ is at it again. They kicked off the week by intervening in the currency markets in yet another attempt to prevent the Yen from strengthening further (headlines courtesy of zerohedge):
The last time the BOJ intervened was on Aug 3 and that lasted all of a week before the USDJPY was trading below the pre-intervention price.

Click here to go to a live version of the chart.

It's interesting to note that they pushed it right back up to just over 79, the same level as the Aug 3 intervention. Another thing I noticed was that previous interventions typically occurred when the Japanese equity market was in the midst of a significant decline. But in this case the Nikkei 225 has rallied 6% in October. Here's a chart of the Nikkei 225 vs the USDJPY over the past Year:

Click here to go to a live version of the chart.

Saturday, October 29, 2011

Today's Major Market Move: Montenegro Equity Market Down 6.7% in October

Like other fringe Euro economies, like Hungary and the Ukraine, Montenegro is also having economic issues. Its equity markets have dropped 6.7% in October and over 20% since March. The October drop is especially discouraging considering that over 80% of global equity markets were in the black due to the most recent EU bailout.

Click here to go to a live version of the table.

Montenegro doesn't issue its own currency; it essentially has been bootlegging the Euro since its introduction in 2002. This means Montenegro has the same currency problem as the rest of the PIIGS in that it cannot boost exports and reduce imports with a weaker currency. If you look at the chart of the stock market in Montenegro vs the USDEUR, you'll see some direct correlation (although for the period from May through Sept, the Montenegro Stock Exchange declined while the USDEUR stayed flat).

Click here to go to a live version of the chart.

Friday, October 28, 2011

Today's Major Market Move: Aussie Dollar Gains 10% on the USD in October

The best performing currency versus the USD in the month of October has been the Australian Dollar. It strengthened close to 10%, followed by the Ugandan Shilling at 9% and the Brazilian Real at 8.8%.

Click here to go to a live version of the table.

Now ordinarily, with a move of that magnitude, one would expect to hear some rumblings out of the Central bank about how the market is mispricing the currency. That is central bank speak for "The strengthening currency is hurting out exports and we would prefer that the rest of the world buy our exports rather than buying the exports of some other country." (see Japan and Switzerland for recent examples of this behavior). But unlike most other currencies, the USDAUD has been inversely correlated to Australian equities. This may be partly due to the fact that AUD is considered a commodity currency whereas the exports of Japan and Switzerland are comprised predominantly of non-commodities (e.g. manufactured goods and finance).

Click here to go to a live version of the chart.

Here is the typical direct correlation (USDCHF vs Swiss Equities):

Click here to go to a live version of the chart.

Thursday, October 27, 2011

Today's Major Market Move: French Stock Market Gains Over 6% After News of EFSF Expansion

Christmas came early for Sarkozy this year. He got his expanded bailout along with a Greek debt write down 'sans' CDS trigger. The market rewarded him with a 6.6% surge in the CAC 40, making it the 4th best performing equity index globally (of the ones we track) on a day when many indexes were deep in the black.

Click here to go to the live version of the table.

Many of the typical whipping boys this year (Hungarian, Ukranian, Greek and Cypriot equities) all had huge up days. However even with today's stellar performance, all of those markets have a long ways to go to get back to even for the year.

Click here to go to the live version of the chart.

In general it was day for the inflationistas as many commodities surged along with equities. Of the 29 commodity futures we track, only 3 had down days and copper, nat gas and sliver were all up over 5%. Gold, silver and WTI crude have all been making strong moves in the past few days with gold back to 1750, silver now back at 35 and WTI crude at 94 well on its way back to $100 per barrel.

Click here to go to the live version of the table.

Over the weekend we are going to add the capability to track global bond and cds prices. It will be very interesting to see how today's events are digested in various markets after the initial gut reaction.

Wednesday, October 26, 2011

Today's Major Market Move: WTI Crude Futures Up 14% this Month

Today's Major Market Move post features WTI crude futures but I'm going to start out by talking about the debt crisis in Europe. Today equity markets around the world have been rejoicing at the news that more bailout measures will be put in place for struggling banks and governments in Europe. The lower house of the German parliament authorized a blank check for the EFSF to leverage itself without restrictions and the ECB announced that they would continue their program of purchasing government bonds. These latest steps are just further confirmation that when confronted with a financial crisis, governments and central banks around the world will continue doing the same thing they've been doing for the last 4 years in order to avoid immediate financial pain. In the case of governments that means spending or putting a risk more taxpayer money. In the case of central banks, it means pushing out more 'liquidity' into the system by any means possible, whether it be QE vX, purchasing MBS, purchasing sovereign debt or Operation Twist.

So this brings us back to oil, the commodity upon which the global economy depends more than any other. Its many uses include, but are not limited to, fuel for transportation, energy generation, heating, fertilizer, plastics, asphalt and pharmaceuticals. It is now becoming more and more apparent that the only dampener on government and central bank intervention is the price of oil. Back in mid 2008 as the financial crisis was starting to get rolling and WTI crude prices were over $100 / barrel (on their way to over $140/ barrel), the Fed had enough concern about rising oil prices that they were threatening to raise rates later in the year. The ECB went beyond just threatening and actually increased rates in the midst of a deflationary credit collapse. From the Washington Post back in June of 2008:
But six days later, addressing a conference sponsored by the Federal Reserve Bank of Boston, Bernanke took a firmer position in reaction to the soaring price of oil. By promising that the Fed would "strongly resist" inflationary expectations, he generated talk of a rate increase -- probably later this year.

Bernanke's strong language came four days after Trichet's surprise announcement that the European Central Bank's governing council, meeting in Frankfurt, had agreed on a rate increase after heated debate. That constituted a major internal victory for anti-inflation hawks in Europe led by Axel Weber, president of the German Bundesbank.
Now we return back to today and see that oil prices have made a strong move lately, up almost 14% for the month of October. If equities continue their strong run and the perception remains that the European problems have been fixed or at least alleviated, don't be surprised to see $100 or higher WTI crude prices in the near future.

Click here to go to an active version of the chart.

Tuesday, October 25, 2011

Today's Major Market Move: Japanese Yen Strengthens Over 10% vs USD since April

When a ceiling was set on the EURCHF by the Swiss National Bank, the options for "flight-to-safety" currencies was reduced by one. Some of the remaining candidates are the Norwegian Krone, the Japanese Yen and for reasons I haven't yet been able to discern, the Paraguayan Guarani. The list may soon be reduced again as the Yen continues to get stronger. The Japanese currency has strengthened 10% against the USD since April, the most of any currency.

Click here to go to an active version of the table.

USDJPY is now not only at the lowest point of the year, but also at the lowest point in history. The Bank of Japan has intervened twice this year in an attempt to weaken the yen and in light of recent price action one could hold one of two opinions:
A) Optimistic: The Yen would be even stronger were it not for the bold actions taken by the BOJ.
B) Despairing: All of the attempts by the BOJ to game the forex market have been an exercise in futility, and despite their actions the USDJPY has hit an all-time low.

Is Japan going to take a page out of Switzerland's playbook and make an attempt to put a floor on the USDJPY? The BOJ must have severe reservations in taking that step because if they considered the move a slam dunk, they would've done it already. Furthermore, even though the SNB program has been successful to date, there are still questions as to how it will play out in the long run and whether or not the cap will hold through a Lehman-esque type credit event.

Below is a chart of the % moves of the following crosses: USD / Swiss Franc, USD / Norwegian Krone, USD / Yen and USD / Paraguayan Guarani. The CHF / EUR ceiling was announced on Sep 6th.

Click here to go to an active version of the chart.

Monday, October 24, 2011

Today's Major Market Move: Greek Equity Market Down 6.7% Today

Volatility continues to be the name of the game. The Greek stock market was the subject of our Major Market Move post on Friday, surging 6%. Well today it gave that all back and then some, with the FTSE/ASE 20 Index sliding 6.7%. The only equity market to perform worse was in Cyprus which dropped 7.6% (and is now plumbing the lows of the year).

Click here to go to a live version of the table.

The market is reacting as if an adequate firebreak has been set up for the eventual default of Greece (and its conjoined twin Cyprus). This next chart show the major equity indexes from France,Germany,Italy,Spain,Portugal,Greece and Cyprus exemplifies the firebreak mindset:

Click here to go to a live version of the chart.

Each day that goes by Greece accumulates more debt making its financial condition ever more unsustainable. I don't know what specifically the EU authorities are waiting for in order to finally say "Ok, now we can let them default". The latest chatter seems to indicate that it is just a matter of everyone (in particular the French banks, which hold a bunch of Greek sovereign debt) agreeing on the size of the haircut. The authorities may also still be negotiating with the rating agencies to try to avoid a credit event, but I think there's zero chance of that happening. Do they expect an investor to willfully accept a 50+% loss on bonds for which they purchased insurance? Highly unlikely and I'm sure that will scenario will end up in the courts tout de suite.

A note on the website: This coming weekend we are going to begin collecting sovereign bond interest rate data and CDS pricing data. We are going to start out with a subset of countries at first (7 countries for bonds and about 30 countries for CDS') and hopefully in the near future expand to include data from all major global economies.

Sunday, October 23, 2011

Today's Major Market Move: Copper Futures Down 23% for the Year

Copper futures, otherwise known as Dr. Copper because of their ability to diagnose future business activity, have slumped 23% so far this year. According to the good Dr, the patient has a case of excessive debt disease and the treatment calls for a few rounds of 'default' therapy. Unfortunately the patient has been unwilling to cooperate and is opting instead to gulp down handfuls of bailout pills. These are great for easing short term symptoms but do very little to cure the underlying condition.

Click here to go to the live table.

Here's a line chart of Copper Futures against the stock market performance of some of the more notable equity markets (China, US, Germany and Greece). There was a big decline in copper prices at the end of September which the equity markets in US, Germany and China (to a lesser extent) seem to have avoided, mostly due to the news of an additional European bailout. So while most of the global equity markets are enjoying the bailout high, the copper market doesn't seem to be as convinced.

Click here to go to the live chart.

Copper prices would have probably declined even further were it not for supply concerns arising from a strike at the world's 2nd largest copper mine. From
Copper prices remained supported after the world’s second largest copper producer Freeport McMoran Copper & Gold threatened to close its strike-hit Grasberg mine in Indonesia, the world’s second largest.

“We are continuing to assess whether or not the security conditions are conducive for us to continue production,” a Freeport spokesman said earlier.

Saturday, October 22, 2011

Today's Major Market Move: Ukrainian Equity Market Down 50% for the Year

After Greece and Cyprus, the third worst performing equity market has been in the Ukraine, with the main Ukrainian equity index, the PFTS Index, down 50.8%.

Click on image for a larger view.
Click here for a live version of the chart.

Many of the companies in the PFTS are in the raw materials or industrial segments. I'm going to use copper futures as a proxy indicator for commodities and industrial activity and the Greek Equity Index FTSE/ASE 20 Index as a proxy indicator for investor confidence in PIIGS equity markets. I would argue that making a comparison between Ukraine and the PIIGS is valid considering that they have similar debt/GDP levels and are essentially within the same geographic region. Here is the chart comparing
these 3 entities:

Click on image for a larger view.
Click here for a live version of the chart.

It is interesting to see that the PFTS Index and copper futures tracked very closely together from the beginning of the year until the end of May. That's when European sovereign credit issues really began to dominate the economic discourse and one can see how Ukrainian equities disconnected from copper and began to more closely track Greek equities. Actually Ukraine is in a worse position economically than Greece because they lack one extra buffer, the EU. Ukraine has to go directly to the IMF when things get out of control, which has happened numerous times since the Soviet breakup. Ukraine is now the 2nd largest borrower from the IMF ($9.2 billion) after Greece ($15.6 billion), with Portugal coming in a close third ($9.1 billion) (source However even with that extra buffer, you can see that it doesn't completely prevent EU members from still having to tap the IMF.

Friday, October 21, 2011

Today's Major Market Move: Greek Stock Market Up Over 6% in Today's Session

Driven by the news that Greece will get the next installment of bailout money, the Greek equity market surged  today with the main Greek equity index (FTSE/ASE 20 Index) up over 6%. The only equity market to perform better was in Cyprus which is not surprising considering the two economies are essentially conjoined.

Click on the image for a larger view.
Click here to go to the live table.

Even with this sizable move today, both equity markets are still down for the month. I also added the EURUSD cross to the following chart to show that there is some correlation between the equity markets and the Euro although the equities are significantly more volatile (red - Greek equities, yellow - Cypriot equities, blue -EURUSD, y-axis is % change).

Click on the image for a larger view.
Click here to go to the live chart.

The markets don't seem to be overly concerned about the strikes and riots that took place earlier in the week. As long as the ECB, the EU and the IMF keep the money spigot open, then everyone else can bury their head in the sand. The bond market isn't quite so sanguine; the 1 YR Greek Government Bond interest rate went from 180% to 183% today. I wonder what the coupon is on those things; I don't see it on Bloomberg.

Thursday, October 20, 2011

Today's Major Market Move: South African Rand Weakens 4.3% Against the USD this Week

The South African Rand has seen significant volatility over the past couple of months and this week was no different. It's down 4.3% vs the USD since Sunday; the worst performing currency over that time period.

Click on the image for a larger view.
Click here to go to the live table.

The Rand is considered a "commodity currency" along with the Australian Dollar, Canadian Dollar, and Brazilian Real, to name a few. Since the end of August, the Rand has tracked the inverse of the Gold futures almost perfectly (South Africa is the #1 producer of gold in the world).

Click on the image for a larger view.
Click here to go to the live chart.

According to this article on the WSJ, the recent price action has the South African authorities concerned and they state they are prepared to intervene. Of course, it's much easier to weaken a currency (theoretically a central bank has infinite capacity to do so) than to strengthen one (where a central bank is going to be limited by their foreign reserves and their ability to raise interest rates). Considering that the South Africans are actually thinking about lowering rates to perpetuate growth, this would leave foreign reserve exchanges as the only remaining option for supporting the currency.

Wednesday, October 19, 2011

Today's Major Market Move: Belarusian Ruble Weakens 11.2% Against the USD this Month

If you want to follow a real live hyperinflationary scenario unfolding before your eyes, look no further than the Belarusian Ruble. Its down another 11.2% vs the USD this month which brings the total decline for the year to 185%. Seeing as how the exchange rate for pictures to words has and will always be .001, let me add some graphical flavor to this post:

Click on the image for a larger view.
Click here for a live version of the chart.

The chart shows 3 steps representing 3 major devaluation events. The first event on May 31 was delivered by edict from the Belarusian authorities (which we discussed here). The other two events were driven by the market meaning that the authorities have essentially lost control of the currency. I would not be surprised if we see at some not-too-distant point in the future a several-thousands to 1 type of currency conversion. I also suspect that a significant portion of cash transactions in Belarus are now being conducted in a foreign currency, most likely Euros or US Dollars.

Tuesday, October 18, 2011

Today's Major Market Move: NYSE Arca Oil Index Up 14% in October

Of the global equity indexes we track on, the best performer so far for the month of October has been the NYSE Arca Oil Index which is up 14.5%. The index coming in a close second, which also happens to be petroleum related, is the Oil Service Sector Index, up 14.4%.

Click on the image for a larger view.
Click here to view the live table.

Considering that these 2 indexes are made up primarily of US based petroleum companies, it is not surprising that they are tracking the price of WTI Crude Futures almost exactly. I've also include Brent Futures in the chart as well.

Click on the image for a larger view.
Click here to view the live table.

Here's another chart focusing on just WTI and Brent futures, starting from the beginning of the year. Staring in May a large spread opened up between the 2 and I think many people have been playing the convergence trade (short Brent, long WTI) in the meantime. They've come back together slightly in October, but there still remains a sizable gap.

Click on the image for a larger view.
Click here to view the live table.

Monday, October 17, 2011

Today's Major Market Move: Cyprus Equity Market is down 64% for the year

After seeing a slight pop over the last 2 weeks (along with every other equity market on the planet), the economic malaise has taken hold in Cyprus again and its equity market is trending back down. It is now back at the lows for the year, down 64%.

Click on the image for a larger view.
Click here to view the live table.

Fairly or not, global investors have essentially lumped Cyprus and Greece together from an economic standpoint and their equity markets have tracked each other. Here's a chart of the main equity indexes in Greece and Cyprus in terms of % performance over the last year (blue is Greece, red is Cyprus):

Click on the image for a larger view.
Click here to view the live chart.

The most recent equity index bounce was the result of yet another European bailout plan being announced 2 weeks ago. In reality it was an announcement of a future announcement; the full plan is not due to be released until October 23. The market was in the midst of a major sell off when the initial announcement was made back on Oct 12. The European leaders, in their desperation, decided to simply declare that they were prepared to do 'something' and would work out the details later. I was very surprised at the markets inability to call bs on these types of shenanigans. Well 'later' is almost here so the details better be good.

We're back...

We took a break from blog posting to focus on the ongoing development of the website. We've been working hard on enhancing our charting and data collection capabilities, however we are now ready to resume our blog posts covering major trends in global finance and examining economic topics of interest.