Fundamental View

[Samirofi]

Japanese yen showed lower rates against dollar and major currencies amid the renewed concerns among investors before the meeting of the G-20, which may discuss current stimulus plans in Japan and its affect on industrial economies.

From another side, Currencies markets notices hesitate moves recently after Bernanke’s speech who confirms the importance of boosting recovery cycle in the U.S. with monitoring its economic data to spur markets.

Bernanke’s speech and the awaited G-20’s meeting boosted investors to avoid risks on trades before the end of the week, which boosted major currencies to incline against Japanese yen.

USD/JPY pair inclined for the second straight day to record high of 99.86, while the EUR/JPY pair recorded high of 130.91 after yesterday’s high of 131.35.

EUR/USD pair slid for the second consecutive day to record low of 1.3106, while the GBP/USD pair traded in narrow ranges today near 1.5200 after hitting its yesterday’s high at 1.5266, the highest in more than week.

[Samirofi]

The International Monetary Fund noted that risks are increasing for Chinese economic growth this year, where the China is expected to notice further downside risks amid the recent forecasted slower performance.

Moreover, IMF raised its downside risks for Chinese growth after the recent drop in manufacturing sector in June and the current lower-than-estimated expansion in the second quarter of the year of 7.5%.

From another side, Chinese Prime Minister Li Keqiang noted earlier that Chinese economy should step forward for restructuring plans as long as growth and employment stay above unspecified zones.

Meanwhile, Chinese economy still insisted that the economy is still on track to reach the 7.5% growth target this year with the support of monetary and fiscal stimulus by policy makers.

[Samirofi]

National Australian Bank released Australia’s Business Confidence index reading for the second quarter of the year, where the reading came at -1, compared with the prior reading of 2.

[Samirofi]

India to target 1.2 Million indirect taxes to evaders

Finance Minister of India P. Chidambaram noted yesterday that the Central Board of Excise and Customs will target 1.2 Million evaders, where he mention that he targets people who are liable to pay service tax but didn’t filed a tax return.

Moreover, India’s government collected 4.7% trillion rupees ($80 billion) of indirect taxes during the fiscal year 2012-2013, where the government expects to raise to 5.6 trillion rupees ($95 billion) of indirect taxes in fiscal 2013-14.

The RBI’s governor affirmed to tax officials that its very important to mobilize revenues and the department should achieve its tax collection target, where he expects a 19% increase from tax collections from last year.

[PCMNewsdesk]

Today, the German Finance Minister Schaeuble will visit Greece and referring to information from the German Government, he will present plans for the implementation of a 100 million EUR fond to revive the nation’s economy. But the Greek administration has to develop business models for the use of these funds. Recently, a report of the “Süddeutsche Zeitung” stirred up concerns that the estimated funding shortfall until the end of 2014 will increase to more than 10billion EUR, which would require new negotiations by the European Finance Ministers after their summer break. But announcements by the officials of the EU refused this article and explained that a money gap of 4.2 billion EUR will be expected, which is no new issue.
The contradicting statements by the U.S. Federal Reserve fomented the volatility of the Forex markets, which raised the difficulties for exchange-rate hedges by companies. This was reflected by the movements of the U.S. Dollar Index, which has decreased to a four-month low, before boosting up to a 36-month peak. Expectations grew that the G-20 finance ministers will approve the easing policy by the Bank of Japan to reach their target inflation of 2 percent as well as to stimulate the domestic economy. It remains questionable whether the Russian official will call for a reduction of the current loose monetary policy by nations like Japan or the U.S. As a result, the JPY lost against nearly all of its most traded counterparts. Therefore the USD/JPY climbed 0.2 percent to 99.76, after having advanced 0.5 percent yesterday. Meanwhile, also the EUR gained against the JPY and increased 0.1 percent to 130.79 from the day before, when it reached 131.36, the highest since the 5th of June. The EUR lost 0.1 percent against the USD and traded at 1.3110.

[Samirofi]

First Reaction: "Bernanke Stays Dovish" - BofA Merrill

The following is Bank of America Merrill Lynch's first reaction to Federal Reserve Chairman Ben Bernanke's semi-annual testimony before the Congress on Wednesday:


"Fed Chairman Ben Bernanke kicked off two-days of his Semi-Annual Monetary Policy Testimony with a dovish prepared statement.

Bernanke acknowledged the FOMC is still prepared to start tapering later this year, then “continue … in measured steps” until concluding mid-2014 — provided the incoming data confirm the Fed’s current forecast. But he also strongly emphasized the data dependence of this plan. In keeping with separating QE from interest rate policy, he suggested slightly stronger conditions to start and continue rate hikes. In his testimony, he reiterated these themes...He again noted that “the jobs situation is far from satisfactory,” and suggested that while some risks have diminished — and hence the FOMC is considering scaling back QE purchases this year — there remain continued risks from US fiscal policy (including the upcoming debt limit debate) and global growth. “The economy remains vulnerable to unanticipated shocks,” he concluded.

This worry suggests the Fed will be cautious in pulling back from the current level of accommodation.

In recent weeks, market participants have coalesced around the view that the Fed will start tapering in September. Bernanke strongly pushed back, stating that the Fed’s plans for purchases “are by no means on a preset course.” He emphasized the data dependence of QE, noting several scenarios that might warrant maintaining the current purchase pace or even increasing it for a time: a “relatively less favorable” employment outlook, inflation not “moving back toward 2 percent,” or “insufficiently accommodative” financial conditions.

While we continue to see a sizable chance that data will allow the Fed to taper in September, we also expect that softer growth and inflation data for Q2 and Q3 are likely to postpone the start of tapering until the December FOMC meeting."

[PCMNewsdesk]

Due to surprisingly positively figures of the U.S. economy as well as a better than estimated quarterly balance sheet of the investment bank Morgan Stanley and a promising outlook of IBM benefited the Dow Jones, which climbed to new records in succession. Also the latest statements by the Federal Reserve Chief Bernanke, which seem to support a continuation of the loose easing policy, might stimulate the investors further. Yesterday, the Dow-Jones-Index rallied to a new all-time high around 15589, before dropping to a daily low around 15465 and closing with a 0.5 percent gain at 15548.
On the 21st of June, elections for the Upper House of the Japanese Parliament are set and referring to a gauge by Bloomberg, the economists are expecting great chances for the currently ruling Liberal Democratic Party of Prime Minister Abe. In case, they can gain a majority in this elections, the Prime Minister Abe would held a majority of voices in both chambers, which might pave the way for his easing policy. Since the beginning of this year, the JPY has dropped 14 percent and is heading towards a weekly loss against nearly all of its most traded peers. Therefore the JPY declined slightly against the USD to 100.42, targeting a 1.2 percent fall this week. Also, the EUR enforced versus the JPY to 131.69 from 131.66 by briefly reaching 132.10, the highest since the 28th of May. The EUR/JPY is set to establish a weekly slide of 1.5 percent, while the EUR/USD kept its level and was at 1.3109 following two-days of gaining. The weakening of the Japanese currency is also confirmed by the Bloomberg Correlation-Weighted Indexes, which showed that the JPY tumbled 23 percent in the last 12 months, the worst performance among the tracked currencies. Meanwhile, the EUR strengthened 9.1 percent in
the same period followed by the USD with a surplus of 1.5 percent.

[Samirofi]

Japanese Coincident index came at 106 .0 in May, compared with a previous reading of 105.9, while the final reading of Leading index in Japan recorded an actual of 110.7 in May from a previous reading of 110.5.

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Japanese economy released its All Industry Activity Index reading concerning the month of May, where the reading came at 1.1%, compared with a previous reading of 0.4%, while analysts’ expectations were 1.2%.

[Samirofi]

Japanese yen fell against dollar and major currencies before the senatorial elections during this week end, where the ruling party led by Shinzo Abe is expected to win.

Expectations were raised that Shinzo’s party will win the elections which give him the control over Japanese parliament to add support to his easing plans to spur the nation’s recovery, where current expectations negatively affects on Japanese yen trades.

From another side, American dollar kept its previous profits versus major currencies, while markets are monitoring the U.S. economic data and the Federal Reserve Bank’s step toward easing.

USD/JPY pair inclined to its highest in week at 100.85, while EUR/JPY pair inclined also to 132.08 to be traded now near 131.48.

EUR/USD pair inclined to 1.3140 after hitting its lowest today at 1.3088. GBP/USD pair inclined to 1.5247 from low of 1.5195.

Despite the current inclines versus dollar, trading ranges are still narrowed which gave dollar the chance to profit on short and mid-term.

[PCMNewsdesk]

Global finance chiefs sought to buttress the global economic recovery with pledges to avoid spooking markets as China moved to scrap a lending rule that had constrained its banks. Group of 20 nations will pursue “carefully calibrated and clearly communicated” policy moves so that the U.S. and Japan don’t cause cross-border damage when they start rolling back stimulus, they said after a two-day meeting of finance chiefs in Moscow. They will move “more rapidly” toward market-determined exchange rate systems, following China’s internal banking change, according to a July 20 statement. The G-20 heeded calls from emerging-market countries to guard against shockwaves when U.S. growth is secure enough for the Federal Reserve to cut back on its bond buying, according to the statement. It also repeated that nations should avoid competitive currency devaluations. Speculation about developed economies scaling back their unprecedented monetary easing has roiled emerging-market currencies and bonds since G-20 finance chiefs last met in April. The USD fell for a second week versus most major peers. Fed Chairman Ben S. Bernanke said the central bank wouldn’t slow its monthly bond-buying program unless warranted by economic conditions. Policy makers also sought to assure investors that the Fed will hold down the benchmark interest rate after ending bond buying. Treasury 10-year yields fell 10 basis points, or 0.10 percentage point, to 2.48 percent this week in New York, Bloomberg Bond Trader data showed. This week’s drop, combined with a 16 basis-point decline the previous five days, was the biggest back-to-back decrease since the period ended Aug. 31.
A U.S. Treasury Department official said the G-20 recognized that financial-market volatility has returned to normal. The official acknowledged a lot of interest in U.S. monetary and fiscal policy, while reiterating Washington’s call to do more to help the euro region emerge from recession.