Daily FX Commentary, January 26, 2012

Federal Reserve Chairman Ben Bernanke did not disappoint us yesterday, as the FOMC rate announcement and forecast became the highlight of the day, and from the market’s perspective, possibly a game changer in setting forward looking expectations. “Exceptionally low rates through 2014” will be the phrase most quoted today. The FED also set a goal of 2% on inflation and has also left the door open to further “Quantitative Easing”, should inflation remain below target and unemployment stubbornly high - the current economic environment in the US. This sent gold to a six week high and USD/CAD to parity with a little help from our friends across the pond. European markets also took EUR/USD up through 1.3100.
 
USD/CAD is seeing good bids below parity, and as USD sellers exhaust themselves, look for a pop higher in funds to find better levels to sell. Buyers should have their bids in, as we haven’t seen these levels in 3 months, and month end demand should also be kicking in, providing further support.
 
Markets are continuing the risk on trend this morning with stock futures up ahead of some key economic data out of the US today. Greek debt talks are scheduled to resume today adding to the optimism.

USD/CAD 1.0015
EUR/USD 1.3157
GBP/USD 1.5695
AUD/USD 1.0670

You miss 100% of the shots you don't take.
Wayne Gretzky

Daily FX Commentary, January 25, 2012

In today’s chart of the day below, USD/CAD has been consolidating since September and is poised for a breakout. Question is, which way?

USD/CAD traded higher overnight because of negative comments from the IMF’s Lagarde and weaker than expected UK GDP. The UK economy shrank by 0.2% in the 4th quarter of 2011, after a rise of 0.6% in the previous quarter, edging it towards recession. This prompted the Bank of England Governor Mervyn King to say that slowing inflation gives room for further bond purchases, which will help to prevent the economy from falling into a "renewed severe downturn."
 
Japan has announced its first trade deficit in 30 years, this contrasts their history of being one of the world’s largest exporters of cars and electronics. Most of this swing can be directly attributed to the tsunami disaster back in March, as Japanese infrastructure continues to be rebuilt and exporters struggle with a rising JPY and damaged manufacturing facilities.
 
The Australian dollar rose after inflation there came in unexpectedly higher lowering the chances of an expected rate cut. It has since come off to trade below 1.05 against the USD.
 
The ECB has reiterated that it remains opposed to any restructuring of its Greek bond holdings as the debt was required for monetary policy purposes. This was in response to pressure for it to join the private-sector investors in taking a haircut on their holdings.
 
Today’s market highlight will be the first time that the FOMC releases its own forecasts for the benchmark interest rate.
 
And in case anyone missed it last night President Obama is in fact running for reelection.
 

“As a nuclear power—as the only nuclear power to have used a nuclear weapon— the United States has a moral responsibility to act.”

Barack Obama

Daily FX Commentary, January 24, 2012

Expected Range: 1.0085 – 1.0155
Gold $1668.3
Oil $99.33
 
USD/Cad is a bit higher overnight as the overall ‘risk’ trade softens. The Euro is being whipsawed as markets are sensitive to further delays in the Greek debt talks, while getting strong economic data in the form of higher than expected PMI numbers across the board (save France). Overseas equity markets are down and the trend is continuing across time zones to North America.
The IMF President Christine Lagarde was in the press yesterday telling Germany that she needs to give more € to the ESFS and back down from its position of more aggressive and continued austerity on the debt laden countries. She also pointed out that the IMF will not be giving any money to Europe as it has enough money sloshing around the Euro zone to fix their own debt problems, as the IMF’s funds are needed to help other nations around the world dealing with economic shocks that are out of their control.
In other news Greece has published a list of some 4,000 alleged tax evaders. The top offender owing nearly €1 billion, the list seems to be comprised of mostly owners of business’ that have gone out of business. I wonder if it was their intention to show that this Greek issue of debt nonpayment really is a Greek phenomenon that starts at the top and goes all the way down the line. Somebody pass the Ouzo.
Today marks the start of the FOMC’s two day meeting, markets will also be watching tonight’s State of the Union speech from President Obama.
This morning’s Canadian retail sales are expected to be up +.02%, this isn’t expected to move markets as our Loonie is at the mercy of larger global macro issues at the moment.
 
 
I can resist everything except temptation.
Oscar Wilde

Daily FX Commentary, January 23, 2012

Expected Range USD/CAD: 1.0065 – 1.0150
Gold: $1670.5
Oil: $99.20
 
A relatively quiet start to the week as markets prepare for a week full of meetings, economic data, earnings and headlines. Risk continues to be on even if mildly so. EUR/USD is trading either side of 1.30 this morning, the first time we have seen this key technical level since the start of the year. Some might chalk this up to a market short squeeze. The Australian dollar has also risen to its highest levels breaching 1.05 against the USD for the first time since Halloween of last year. Rumor has it that Greek bondholders have given their maximum haircut level and are awaiting a response from EU leaders as they meet today to discuss. The EU has also finalized its oil embargo against Iran over the weekend.
The earnings reporting in the US will continue this week with names including such American bellwethers as Halliburton, McDonald’s and Boeing. The US Republican Primaries continue with Newt Gingrich winning the last one in South Carolina, showing the battle for the party’s leadership continues to show no clear leader at the moment.
This week’s FOMC meeting looks to be the focus of the week ahead as this meeting marks the first time they will release a forecast on interest rates, as they see it. Historically the FOMC has never given forecasts; this is part of Mr. Bernanke’s push for more transparency at the Federal Reserve. This week will also finish with the infamous Davos conference, where the headlines will vary from what Ms. Lagarde’s warnings on the global economy and requests for more monies from world leaders, to what they will be serving with afternoon tea.
 
 
“A public-opinion poll is no substitute for thought.”
-Warren Buffett

Daily FX Commentary, December 30, 2011

By Tim Harling, Jameson Bank

Expected range 1.0160 – 1.0250

On this, the final trading day of 2011, there are no data releases so markets look to be driven by month end rebalancing and year end flows mainly. The Euro has dropped below 100 yen for the first time since June of 2001. It is also poised for the first back to back annual drop since 2001 as debt concerns still weigh on the currency and investors seek out solace in the USD and JPY.

The Yuan has also risen to its highest level against the greenback since the dollar peg ended in 2005 at 6.3009, mainly due to a very positive yearend report from the Peoples Bank of China.

We are seeing some relative strength in the risk-on and commodity based currencies this morning as stock markets are closing on a positive note to end the year, although most equity indices and commodities are poised to end the year in the negative.

In today’s trivia question, name the only two countries in the world with a lower growth rate over the past decade than Italy (Europe’s third largest economy). Answer at the bottom of this commentary.

As an end note, it seems that the nations of Samoa and Tokelau have cracked Einstein’s theory of relativity and solved the conceptual problems of time travel. As the people of Samoa and Tokelau slept in their beds and the clock passed through midnight on Dec 29 it then entered into Jan 1. It was 119 years ago that their ancestors made a similar move in the opposite direction - not exactly light speed but quite the feat nonetheless. See the re-aligned time zone below.

Top 10 economic facts of 2011, predictions for 2012, from BMO

Gold was the top-performing commodity of 2011, but overall, commodities were down more than 8 per cent.

To celebrate the New Year, BMO's Deputy Chief Economist, Doug Porter, has offered up five interesting facts from 2011, and five predictions for 2012.

2011 Interesting Facts

Canada grew faster than Brazil in the past year. Despite a series of challenges both in Canada and globally, the Canadian economy likely grew 2.3 per cent, close to expectations and not far from its long-run average. Over the latest four quarters, GDP is up 2.4 per cent year-over-year, outpacing not just most major industrialized economies (the U.S. was up 1.5 per cent and the Eurozone 1.4 per cent), but even the 2.1 per cent advance in emerging market darling Brazil over the same period.

The Canadian dollar was the weakest currency in the G10 in the past year. Global investors were not so impressed with the Canadian dollar in 2011, driving the currency down more than 2 per cent on the year. So, not only did the loonie weaken against the U.S. dollar and the disaster-hit Japanese yen (which was in fact the strongest major currency this year), but even against the beleaguered euro.

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Tips for small business owners to minimize tax payable

BMO Says 'Make a List and Check it Twice': 5 Year-End Tax Tips for Small Business Owners

BMO Bank of Montreal released 5 year-end tax tips and strategies for Canadian small business owners that can pay dividends come tax time.

"While 2011 may be a year remembered most for its economic challenges, many small business owners we talk to are cautiously optimistic and confident about their ability to finish 2011 on solid ground," said Cathy Pin, Vice President, Commercial Banking, BMO Bank of Montreal. "Before the holiday rush, now is the time to do a quick financial check-up with a small business specialist and your accountant to consider some straightforward tips and strategies to help minimize the amount of 2011 income tax payable," added Ms. Pin.

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Builders Direct launches online purchasing tool for real estate buyers

Builders Direct Inc. has launched Builders Direct, an innovative, patent-pending online purchasing tool that will revolutionize Canadian real estate purchasing. Buyers can browse through floor plans, live inventory and pricing lists provided by builders and developers and apply for mortgage financing, entirely online.

Every week, Buildersdirect.ca will reveal exclusive deals from builders—up to 20 per cent off the price of high-demand real estate properties. Interested buyers can reserve properties by purchasing an access voucher from Builder's Direct. Once the payment is processed, the buyer will take the voucher to the real estate sales center for access to exclusive pricing. The voucher fee goes to Builder's Direct, which is pleased to offer buyers these unprecedented savings.

And, since Canadian real estate attracts investors from around the world, Buildersdirect.ca is fully navigable in 52 languages.

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Oil and copper top picks for investors in 2012: Scotiabank

Scotiabank Commodity Price Index outlook for 2012

After falling for three consecutive months, Scotiabank's Commodity Price Index edged up by one per cent month over month (m/m) in November, boosted by a sharp rebound in oil and firmer base metal prices. The All Items Index remained 6.7 per cent above a year earlier and will likely end 2011 just above year-ago levels. While most commodity prices remain at profitable levels, there has been a marked loss of momentum after an 18 per cent year over year (yr/yr) gain in late 2010.

The star performers of 2011, among the 32 commodities covered in Scotiabank's Commodity Price Index, were sulphur (the No. 1 commodity for the second-year running, used in DAP fertilizers), premium-grade hard coking coal from Western Canada into Asian growth markets, potash (a fertilizer) and hogs and cattle (pushed up by herd liquidation across North America).

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Most investment managers take positive view of equity markets: survey

Euities remain by far the most-favoured asset class, with nearly eight in ten investment managers expecting positive returns for the S&P/TSX in 2012.

80 percent of Canadian Investment Managers Forecast Positive Returns in 2012

• 80 percent of Canadian investment managers forecast  positive returns for S&P/TSX in 2012
• Equities continue to be strongly favoured over bonds and cash - with energy and materials preferred sectors
• Outlook for EAFE markets remains bleak

Investment manager sentiment towards Canadian and international equity markets improved in the fourth quarter, with emerging markets leading the way, according to the latest Russell Investment Manager Outlook, which was conducted between November 15 and 25, 2011.

Overall, equities remain by far the most-favoured asset class, with nearly eight in ten investment managers expecting positive returns for the S&P/TSX in 2012. In fact, the survey found that one-third of managers surveyed expect a gain of 10 per cent or more, and 77 per cent expect a positive rate of return. Only six per cent of managers expect a decline of up to 10 per cent, and the same number expect  a decline of 10 per cent or more.

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Twelve tips for saving on your tax bill

Twelve days of tax tips: Ernst & Young's year-end guide to savings

The holidays are all about spreading joy. While December is a hectic month for many, Ernst & Young suggests taking a little time out of busy scheduled to review these year-end tax tips. Remember: addressing these now could put a little extra jingle back into Canadian pockets in the months ahead.

1. On the first day, pay tax-deductible or tax-creditable expenses for 2011. A variety of expenses can only be claimed as deductions in a tax return if the amounts are paid by the end of the calendar year. If some amounts would otherwise be paid early in 2012, consider paying them by the end of this year, to get the benefit of the tax deduction or credit in 2011 returns. Children's arts programs are a newly eligible expenditure for 2011.
2. On the second day, review investment portfolio. You may want to sell loss securities to reduce capital gains realized earlier in the year. If the losses realized exceed gains realized earlier in the year, they can be claimed against net gains in the preceding three years and you will receive the related refund. If you have capital loss carryforwards, you may want to trigger some capital gains without attracting any additional tax. For all security sales, keep in mind that the trade must settle in 2011 to be considered a 2011 disposition. For Canadian exchanges, the final trade date for 2011 settlement is December 23, and for US exchanges it's December 27.

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Daily FX Commentary, December 15, 2011

By Warren Hayhoe,

Columnist, Canadian Money Magazine

Central Trader, Jameson Bank

Expected USD/CAD range: 1.0125-1.0240
Expected GBP/CAD range: 1.5855-1.5980
Expected EUR/CAD range: 1.3600-1.3725
Expected GBP/USD range: 1.5570-1.5725
Expected EUR/USD range: 1.3315-1.3475
Expected USD/JPY range: 77.50-78.20

 
Oil opened at $100.99 currently $100.80

Gold opened at $ 1730.70, currently $1717.50

Morning Observations:

First let me start by apologizing for the laps in the commentary over the past few days. We are doing some shuffling around here in the office and timely distribution of the Morning Commentary has been disrupted. These issues should be concluded before the New Year so please bear with us.

Turning back to financial markets we had a relatively quiet overnight session. Bearish sentiment from yesterday’s romp in commodity markets spilled over into the Asian session before turning a small corner early this morning in Europe on better than expected German data and a Spanish auction deemed ‘successful’. In FX markets the only real notable mover overnight was the Swiss franc which jumped through the crosses (even the EUR) when the Swiss National Bank did not hint at any form FX intervention. As you may know their 1.20 EURCHF ‘target’ was rumoured to be increased to 1.25 or even 1.30 but in the absence of any further action the franc ran ~1% higher in minutes. Aside from that it was a bit of a sleeper in currencyland as commodity prices have stabilized from yesterday afternoon’s base. The recent run on the US dollar has put pressure on gold prices and squeezing out a lot of the weaker long positions. In what has to be one of the longest streaks in history, gold closed under it’s 200 day moving average for the first time in 732 days. September’s low price and Fib support are on and the same at $1,542.00 and should be watched if market start to roll over today. As for USDCAD trend support just under 1.0350 should be watched today and a break of that opens up another 75 pips lower. Sentiment is overtly skewed to the topside, so USDCAD bulls should be prepared for a squeeze in the coming days. For those on the sidelines anything with a 1.02 handle should be appealing for a move back to 1.04-1.05. 

Thought of the Day

“Money is like manure. You have to spread it around or it smells.”

J Paul Getty

Canadian business must take advantage of strength, become more competitive: Mark Carney

Reprinted with permission from Condo.ca

Mark Carney, Governor of the Bank of Canada: the present debt crisis in Europe has opened a "window of opportunity" for Canadian business to become more competitive, profitable.

Canada’s national net worth increased 1.0 per cent to $6.5 trillion in the third quarter, reports Statistics Canada. On a per capita basis, national net worth rose to $189,100, up from $187,900 in the previous quarter. However, because of the substantial drop in the value of equities—the TSX lost 12 per cent during the period—household net worth actually fell by 2.1 per cent, or $4,600. Although residential real estate assets increased, the decline in the value of equities more than offset the increase.

At the same time, household credit market debt expanded, with consumer credit debt and mortgage debt rising. The ratio of household debt to disposable income now stands at 150.8 per cent. The situation is even more worrisome in the United States, where, according to figures given by Mark Carney, Governor of the Bank of Canada, in a speech to the Canadian Club yesterday, American aggregate non-financial debt is at levels similar to those last seen in the midst of the Great Depression. At 250 per cent of GDP, that debt burden is equivalent to almost US$120,000 for every American.

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Daily FX Commentary

By Warren Hayhoe,

Columnist, Canadian Money Magazine

Central Trader, Jameson Bank

 FX Commentary, December 12th, 2011

Expected USD/CAD range: 1.0190-1.0300
Expected GBP/CAD range: 1.5975-1.6085
Expected EUR/CAD range: 1.3540-1.3645
Expected GBP/USD range: 1.5540-1.5715
Expected EUR/USD range: 1.3180-1.3325
Expected USD/JPY range: 77.50-78.20

 
Oil opened at $99.41 currently $97.89

Gold opened at $ 1712.80, currently $1670.50

Morning Observations:

Late yesterday in Brussels’ a so called working dinner turned into an all night session for the EU leaders.  The outcome of this all night session was the EU members agreed to a new agreement called a “fiscal compact”.  The main points of which are new caps on annual structural deficits, “automatic consequences” for countries that exceed these said limits and a further €200bn from the IMF for bailouts.  In short they argued over espressos and lattés to come up with new economic limits and penalties seeing as the original limits were all but ignored and went unpunished.  The leaders expect us to believe that this won’t happen again with this new “fiscal pact”?  It should also be noted that this deal was signed by everyone but the UK. Maybe, sometimes it is a good thing to be alone on an island.

Moody’s has downgraded France’s 3 big banks, citing the banks’ increasing difficulties with raising additional funding and a worsening economic outlook.  They did also not that the banks would likely benefit from state support if the crisis deepens.

This morning’s CAD trade balance came in lower than expected citing a slowdown in exports. The US trade balance came in bang on market expectations.

We now wait for further details from Brussels and dare we say it, the US military on what it plans to do about Iran.

Slower growth but not necessarily recession in forecast for 2012: CIBC

Lacklustre year ahead for Canadian economy but recession is avoidable

Interest rates to stay low through 2013 as fiscal tightening hits global growth

Canada will feel the squeeze of a slowing global economy in 2012 but can avoid recession as continued low interest rates support business investment and cooler inflation gives consumers more spending power, notes a new report from CIBC World Markets Inc.

"As an open economy, Canada can't help but feel the disappointment of a barely half-speed world," says Avery Shenfeld, chief economist at CIBC in a new economic forecast. "Excepting Europe, we're not destined for recession, but global growth will barely top three per cent next year, and 2013 won't be a whole lot better, well below the bounteous five per cent pre-recession pace."

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Tips for surviving the holiday season if you're unemployed

The following tips on how to minimize stress and focus on keeping a positive attitude during the holiday season when you have lost your job were prepared by the American credit counseling organization, Consolidated Credit. The tips are practical and easy to follow and we think they are just as valid for Canadians.

Consolidated Credit’s holiday unemployment survival guide:

• Apply for a seasonal job According to snagajob.com, hiring managers expect to employ an average of 4 seasonal workers this year, nearly a 5 percent increase from last year. Seasonal employees are expected to earn roughly $10.00 per hour, which is unchanged from last year.
• DIY When it comes to holiday decorating, winter wardrobes, and festive dinners stick to doing-it-yourself. Make your own decorations, revamp older winter clothes, and make meals out of what is already in your pantry.

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Daily FX Commentary, December 6, 2011

By Warren Hayhoe,

Columnist, Canadian Money Magazine

Central Trader, Jameson Bank

Expected USD/CAD range: 1.0125-1.0240
Expected GBP/CAD range: 1.5855-1.5980
Expected EUR/CAD range: 1.3600-1.3725
Expected GBP/USD range: 1.5570-1.5725
Expected EUR/USD range: 1.3315-1.3475
Expected USD/JPY range: 77.50-78.20

 
Oil opened at $100.99 currently $100.80

Gold opened at $ 1730.70, currently $1717.50

Morning Observations:

Over night we got a nice surprise to the upside by the way of German factory orders +5.2% vs exp. +1% and the RBA cut rates 0.25% to 4.25%.

Late yesterday the S&P put the entire Eurozone on negative credit watch, well almost everyone sorry Greece your rating can’t go any lower than it already is. This puts even more pressure on Europe to come up with a viable plan to be implemented at Friday’s European Summitt. If they can not then France and Germany are at a 50% risk of having their AAA rating cut. This would cause the ECB and ESFS even more difficulties in how they could implement any bailouts for countries in the Eurozone. The reason being is that they take the soverign debts of the larger more stabile economies in Europe, leverage them upward to pay off the debts of the weaker economies. If your stong economies are all of a sudden weakened by a ratings downgrade and your already short of funding to bailout the weaker ones, well what do you do? You do what they are desperatley hoping they will not have to do and that is go to the IMF with their hat in hand. And that is why Mr. Geitner is on a plane to Germany right now. Guess who would have to put more money into the IMF? And guess who’s congress already sees this coming and is preparing legislature to block such a move by the FED. Your move Ms. Merkel and Mr. Sarkozy.

On this side of the pond we have the BoC Interest rate announcement, which is expected to remain at 1% with all eyes on any comments that are said afterwards, we will also get building permits and Ivey PMI later this morning. There is no data out of the US today.

Expect this week to continue to be whipsawed around by headlines from mainly Europe but also the US. We also seem to be in a pattern of alternating ‘risk on’, ‘risk off’ days and by that standard today is risk off.

Thought of the Day

Everything in excess is opposed to nature.

Hippocrates

Better information needed for Ontario government to perform better: Auditor General

Ontario's auditor general, Jim McCarter, says that provincial ministries and agencies must do a better job of collecting meaningful and reliable information about their programs. Speaking on the release of his Annual Report for 2011, McCarter said "Getting the right information to help ensure the best decisions are made is all the more important given the fiscal challenges Ontario currently faces." McCarter said that in their audits this year, his office found a number of instances where better information would help management improve program operations and guide long-term strategic planning.

The following audits in the 2011 Annual Report are examples of the need for better information:

• Ontarians pay significantly more for auto insurance than any other Canadians due to high accident claim costs. However, the commission that oversees the auto insurance sector does not know whether insurers are handling claims judiciously and paying out the proper amounts, and it needs better information on the impact of auto insurance fraud on claim costs.

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Daily FX Commentary, December 2, 2011

By Warren Hayhoe,

Columnist, Canadian Money Magazine

Central Trader, Jameson Bank

Expected USD/CAD range: 1.0050-1.0175
Expected GBP/CAD range: 1.5855-1.5980
Expected EUR/CAD range: 1.3620-1.3745
Expected GBP/USD range: 1.5620-1.5775
Expected EUR/USD range: 1.3415-1.3575
Expected USD/JPY range: 77.50-78.20

 
Oil opened at $100.20 currently $101.20

Gold opened at $ 1735.30, currently $1755.50

Morning Observations:

Canadian jobs numbers disappointed for the second month in a row as Stats Can reported Canada losing 18.6K jobs in the month of November (employment change charted below). The full-time/part-time split served to soften the blow a little bit at +34k/-53k but all told the Loonie is off half a cent from its pre-number high. By region Quebec was the standout, shedding over 30K jobs themselves, which was offset by a good month for Ontario who added 16K. From here all eyes turn to what is expected to be very good US employment numbers at 8:30am. The ‘official’ consensus is somewhere around 125K new jobs for the month of November but there is a lot of talk about +200k. Equity markets are certainly of this mindset as the futures market is up well over 1% from yesterday’s close.

Taking a step back to Europe (you didn’t think I could go a commentary without talking about Europe did you?) where more talk of ECB lending via an IMF proxy is gaining some credibility. The DAX is moving higher as I type, pulling the EURUSD well through 1.3500 and aside from the US jobs number it feels like this may be the topic that moves markets today ahead of the European dues ex machine next week. That being said today has that buy the rumour sell the fact feel to it, and if we do get a good number at 8:30am I’ll be a buyer of USDCAD in anticipation of Europe disappointing next week and risk going lower. Expected range in USDCAD: 1.0050-1.0175

Thought of the Day 

“A word to the wise ain't necessary - it's the stupid ones that need the advice.”

Bill Cosby

Canadian companies see value in investing in foreign markets

Investing in foreign markets continues to be an important part of the growth plans of Canadian companies despite the ongoing recovery period, according to a survey released today by Export Development Canada (EDC). More than 60 per cent of Canadian companies with direct investments abroad (CDIA) expect their sales to increase in the next six months. More than 30 per cent plan to increase their investments abroad.

"The data shows that sales from the foreign affiliates of Canadian companies are growing at twice the rate as direct exports from Canada," said Peter Hall, Chief Economist for EDC.

"Canadian companies clearly understand that foreign investment is a boon to their bottom lines, and especially so as the developed economies continue to struggle. This is an important advantage to Canada's trade performance in an intensely competitive global marketplace."

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