Fundamentals du Jour

What's after Greece or has it not yet run its course? I am curious as to everyone's opinion and reasoning. I am not really a fundamental trader, but it seems there are often one or two news stories that actually do matter at any given point in time. Depending how this week goes, I may be tempted into thinking that Greece may have done its damage for the time being. I will be watching for rising rates out of China/India as the next big thing for now, but am always open to other ideas. Anyone else?

I expect the way markets are seeing the news will unfold during the week, but this from Bloomberg...



April 12 (Bloomberg) -- The euro surged to the highest level in more than three weeks versus the dollar after European governments offered Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates.

South Korea’s won rose to its strongest in more than 18 months as the nation’s central bank raised its economic forecast and Asian stocks reached a 20-month high. The euro earlier gained the most in seven months, after last week dropping to within one cent of an 11-month low, as traders cut from a record bets that Europe’s common currency would slide.

“In an environment where currency speculators are very short euro, news about a detailed European Commission- International Monetary Fund package could be the circuit breaker,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. “This week is going to be quite strong for the euro.”

The euro gained 1 percent to $1.3637 at 7:17 a.m. in London after touching $1.3692, the highest since March 18. It rose as much as 1.4 percent, the biggest gain since September. Last week, the euro traded at $1.3283, less than a quarter of a cent above $1.3268, the lowest level since May 7, 2009. It rose 1.2 percent to 127.25 yen.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 1.1 percent, the most since July 2009. The dollar traded at 93.31 yen from 93.18 yen last week.

The MSCI Asia Pacific Index of shares rose 0.5 percent and touched 129.21, the highest level since August 2008.

‘Huge Amount’
After Greek borrowing costs surged to an 11-year high, euro-region finance ministers said they would offer as much as 30 billion euros in three-year loans in 2010 at around 5 percent interest. That’s less than the current three-year Greek bond yield of 6.98 percent. Another 15 billion euros would come from the International Monetary Fund.

“This is a huge amount,” said Stephen Jen, managing director at BlueGold Capital Management LLP in London and a former IMF economist. “This is more than a bazooka. They have gone nuclear on the issue of Greece. In the short run the market is short Greek assets so we’ll get a rally in those.”

The package may lend longer-term strength to the euro “if it draws a line under sovereign problems,” driving it toward $1.38 to $1.40 this week, Commonwealth’s Capurso said.

Futures traders decreased bets the euro will fall against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 67,223 on April 6, compared with net shorts of 85,326 a week earlier.

Korea Growth
“Some of the structural problems exposed by the whole Greece episode still very much remain in place,” said John Horner, a currency strategist in Sydney at Deutsche Bank AG, in a Bloomberg Television interview. “Question marks about monetary union in the absence of political and fiscal union” will limit gains to $1.40, with the euro falling to the mid- $1.30s “reasonably swiftly,” he said.

The won rose a second day as the Bank of Korea said gross domestic product will expand this year at the fastest pace since 2006. The economy will grow 5.2 percent in 2010, the central bank said today, raising its outlook from a December forecast of 4.6 percent. The currency rose 0.4 percent to 1,113.35 and touched 1,111.38, the most since September 2008.

Trading in currency options shows that emerging economies have become safer relative to developed nations than at any time in almost two years.

Depreciation Option
“The global perception of risk is changing,” said Jerome Booth, who helps manage $32 billion in emerging-market assets as the head of research at Ashmore Investment Management Ltd. in London. “Where you want to be is non-leveraged places, and that means anything in emerging-markets. This is a start of a trend. The rally in emerging-markets has barely started yet.”

A record U.S. budget deficit, Europe’s bailout of Greece and the prospect of a hung parliament in the U.K. are increasing the risk of losses in dollars, euros and pounds. In developing markets, the deficit fell to one-third the level of advanced nations this year and the economies are growing twice as fast as the U.S., the International Monetary Fund says.

The pound weakened against 14 of its 16 most-traded counterparts in the past three months and billionaire investor George Soros said the next U.K. government after the May 6 election should decide whether to allow a further devaluation of the British currency to assist a recovery.

Britain “has more room to use exchange rate adjustments as a way of adjusting the economy” than do nations using the euro, Soros said in an interview on April 9 in Cambridge, England. “It’s a question for the next government to decide. It has a number of options, of which a currency depreciation is one.”


To contact the reporters on this story: Candice Zachariahs in Sydney at [email protected]Yasuhiko Seki in Tokyo at [email protected].

How much play does the Greece saga have left?

I'm no economist but personally I think it was all an over reaction anyway, as is usual in the markets. I guess Greece will fade into the background and other fundamentals will take centre stage.

This latest move in Eur doesn't appear to be anything more than short covering profit taking, especially when you consider the sell off. Maybe there's now a lot of money on the sidelines waiting to see how things develop but I'm not sure what else can come out of the Greece saga.

It's difficult to know fundamentally which horse to back, all the majors seem to have their own problems, I guess it a case of which economy has the least problems!

"....A record U.S. budget deficit, Europe’s bailout of Greece and the prospect of a hung parliament in the U.K. are increasing the risk of losses in dollars, euros and pounds....."

What's left to trade, commodity currencies?

Debt auction today may be a market mover apparently.

This week, earnings & related effects on equity markets - not much on the calendar otherwise....

Greece news is taking a breather. Man they got some mileage out of that one, dint they?

Oh, right, the slide in crude. Bet that comes back pretty quick.

http://finance.yahoo.com/news/Oil-fa...n&asset=&ccode=

Any thoughts on Japanese deflation?

How do you combat that without growth? Japan could gain from a renminbi appreciation, but not much I shouldn't think; its not like they can lower interest rates, so what are their options? Print yen?

http://finance.yahoo.com/tech-ticker...%5EDJI,%5EGSPC

One thing....China has time....trying to anticipate if/when they revalue renminbi might be a frustrating game.

But if/when that occurs, is it safe to expect speculative capital flows increasing into China? So what does that mean for the USD? Typically an increase in speculative capital flows will mean a loss of flow to the US Treasuries so the USD should be inversely correlated to a floating yuan.

Does that make sense?

On the other hand...

http://finance.yahoo.com/news/Dollar...36232.html?x=0

http://finance.yahoo.com/news/Banks-...6&asset=&ccode=

I wouldn't be surprised to see the discount rate go up again pretty soon.