Euro Pressured by European Crisis
By JAVIER E. DAVID And TANIA CHEN
Renewed concerns about Europe's ability to avert financial disaster pressured the euro, momentarily eclipsing the stormy U.S. debt-ceiling debate as investors mulled whether the euro-zone crisis could take a turn for the worse.
Barely a week after a landmark European Union summit struck an accord to rescue financially distressed Greece, investors have yet to be fully mollified.
Even in the face of widening pessimism about the U.S.'s ability to overcome the political stalemate and raise its $14.3 trillion debt ceiling by early next week, the euro fell for the second-consecutive session.
Analysts have nervously eyed the yields on Italian and Spanish government debt—the euro zone's third- and fourth-largest economies, respectively—as proxies of the market's growing concern that Europe can successfully manage the possibility of Greece's debt woes leapfrogging to Spain and Italy.
Italian government bond yields rose further Thursday after the Treasury held a long-term bond auction. Ten-year yields rose to 5.82% from 5.68%, and even two-year debt yields rose to 4.20%, well above the 3.5% interest rate that EU leaders promised the Greek government.
"The Italian auction did not go as well as expected and spreads are creeping higher," noted Brian Kim, currency strategist at RBS Securities. "As time goes by, people are getting a bit more skeptical" about the Greek rescue package. "You still need to see the details behind it all."
Late Thursday, the euro was at $1.4331, from $1.4369 late Wednesday. The dollar was at ¥77.72 from ¥77.99. The pound was at $1.6373 from $1.6331. The dollar was at 0.8010 Swiss franc from 0.8017 franc.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 74.117 from about 74.087.
In the meantime, today's dollar trading was choppy and range-bound, with the greenback rising against the euro but falling against the yen. Market watchers were waiting for the results of a congressional vote on a possible debt agreement.
The uncertainty that hangs over the market continues to contain the dollar's gains, as U.S. lawmakers are still at a loss to reach agreement on the debt ceiling. This has undermined risk sentiment, which helped drive stocks and other risk-correlated assets lower as investors fear either a default or a downgrade of the U.S.'s coveted triple-A credit rating—or both.
In a measure of how the debt-ceiling debate has undermined confidence in the dollar, risk-related currencies—which normally fall during periods of global turmoil—have surged for a lack of investors willing to hold the greenback.
Analysts say neither of the scenarios looks favorable in the long term. "The U.S. is just going to have to muddle through its own fiscal crisis," says Mark McCormick, currency strategist at Brown Brothers Harriman. He added that the likelihood of the U.S. going into default was still unlikely, but few are holding out hope for a perfect agreement as the Aug. 2 deadline approaches.
Friday, July 29, 2011
Wednesday, July 27, 2011
FXCM Agency Model
FXCM is one of the largest US brokers. It is very active in Asia and recently acquired the British ODL brokerage, seeking expansion in Europe. The $200 million that it’s expected to raise until the end of November will give a boost to its business.
So, with this broker trading on Wall Street, the stock price can reflect the state of the industry – the impact of new regulation proposals will be reflected in the stock – we’ll see which CFTC rules are meaningful and which aren’t. We’ll also get to see how the quarterly profitability reports that are required by the CFTC impact the stock price. Is a high profitability rate favorable for the broker, or not?
For market makers the answer is that a lower profitability rate means that the forex trader is “burned” faster and that the broker made money more quickly. For ECN / STP / NDD brokers like FXCM, the answer is expected to be the opposite – successful traders mean more trades – more profits from spreads.
And speaking about market makers vs. ECN / STP / NDD models, the prospectus contains FXCM’s opinion on this. It used to be a market maker (principal broker) and turned into a No Dealing Desk (agency) broker. In the prospectus, highlighted by FT Alpahville, they explain the inherent problem:
Our agency model is fundamental to our core business philosophy because we believe that it aligns our interests with those of our customers, reduces our risks and provides distinct advantages over the principal model used by the majority of retail FX brokers. In the principal model, the retail FX broker sets the price it presents to the customer and may maintain its trading position if it believes the price may move in its favor and against the customer. We believe this creates an inherent conflict between the interests of the customer and those of the principal model broker. Principal model brokers’ revenues typically consist primarily of trading gains or losses, and are more affected by market volatility than those of brokers utilizing the agency model.
Izabella Kaminska at Alpahville makes a good point that it “takes one to know one” – in this case, very closely – they switched models so they know what the interest of the broker is when it is a market maker…
But, I do believe that FXCM’s current model is the better way for forex brokers. The IPO will add to their transparency and will hopefully impact others as well. And as aforementioned, tracking the share price will be quite interesting.
So, with this broker trading on Wall Street, the stock price can reflect the state of the industry – the impact of new regulation proposals will be reflected in the stock – we’ll see which CFTC rules are meaningful and which aren’t. We’ll also get to see how the quarterly profitability reports that are required by the CFTC impact the stock price. Is a high profitability rate favorable for the broker, or not?
For market makers the answer is that a lower profitability rate means that the forex trader is “burned” faster and that the broker made money more quickly. For ECN / STP / NDD brokers like FXCM, the answer is expected to be the opposite – successful traders mean more trades – more profits from spreads.
And speaking about market makers vs. ECN / STP / NDD models, the prospectus contains FXCM’s opinion on this. It used to be a market maker (principal broker) and turned into a No Dealing Desk (agency) broker. In the prospectus, highlighted by FT Alpahville, they explain the inherent problem:
Our agency model is fundamental to our core business philosophy because we believe that it aligns our interests with those of our customers, reduces our risks and provides distinct advantages over the principal model used by the majority of retail FX brokers. In the principal model, the retail FX broker sets the price it presents to the customer and may maintain its trading position if it believes the price may move in its favor and against the customer. We believe this creates an inherent conflict between the interests of the customer and those of the principal model broker. Principal model brokers’ revenues typically consist primarily of trading gains or losses, and are more affected by market volatility than those of brokers utilizing the agency model.
Izabella Kaminska at Alpahville makes a good point that it “takes one to know one” – in this case, very closely – they switched models so they know what the interest of the broker is when it is a market maker…
But, I do believe that FXCM’s current model is the better way for forex brokers. The IPO will add to their transparency and will hopefully impact others as well. And as aforementioned, tracking the share price will be quite interesting.
Tuesday, July 26, 2011
在广州看到惊人内幕：房地产业即将迎来倒闭潮
“最后一根稻草”压垮中国房地产企业——已近在咫尺!
由于过度重视与地方政府关系，而过度轻视宏观战略预测，过分蔑视社会公众怨声，中国大部分房地产企业正将迎来严峻宏观调控和市场泡沫破灭的严厉惩罚——未来6-12个月，中国房企将会有相当比例破产倒闭。
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这扇门终于在6月份关上了。从17日起，国内主要信托公司已经暂停除保障房以外的房地产信托业务。虽然此次监管层并未以红头文件的形式下发，而是采用了电话逐个通知的“窗口指导”。此外，监管层还要求今后信托公司凡涉及房地产相关业务，都要到银监部门逐笔审批。这意味着实际卡住了房地产信托。
房地产商应对宏观调控的另一个对策是，东方不亮西方亮，一线沿海城市已涸泽而渔了，就转战二三线城市，炒热这些地方的楼市，通过预售购房款的方式，以获得流动资金，维持一线城市的运转费用。今年上半年，二三线城市楼价继续上涨让它们又看到了一丝生机
上周，这两个指望绝处逢生，侥幸过关的最后幻想都破灭了。
7月18日消息，二三线城市的“限购令”名单不久将出炉。据悉，住建部已着手调查分析部分二三线城市和中小城市房价快速上涨的原因，并据此圈定新一轮的限购城市名单。这与国务院常务会议日前强调要求房价上涨过快的二三线城市也要执行限购政策的决定几乎同步。
7月20日，银监会召开2011年第三次经济金融形势通报分析会，刘明康主席要求，银行金融机构审慎开展与地方政府之间的战略合作，警惕网络借贷、民间借贷和小额贷款公司等领域的风险，密切关注二三线城市的房地产市场风险。
7月22日，中央政治局召开会议，会议指出：“要坚持不懈搞好房地产市场调控和保障性住房建设，坚持调控决心不动摇、方向不改变、力度不放松，坚决遏制住房价格过快上涨，确保落实保障性住房建设计划，确保建设质量，确保分配公平。”
从住建部到银监会，再到国务院，最后到最高核心层的党中央政治局会议，均一再强调“房地产调控的决心不动摇，力度不放松”。由此可以断定，已经关紧了的房地产融资大门不可能短期打开。除非相当一批房地产企业倒闭，由此带动房价较大幅下降，楼市调控成果得到明显体现。
时至今日，合法融资主渠道大门已经关严，地产商的“最后一根稻草”是民间借贷。上周，本人到广东调研，与当地两个代表性商会进行了较充分的交流，得知，即使是商会朋友之间，地产的借款利率已经达到了年40%——这一利率意味着，如果借款两年半，其本金都会被耗光。
现在已可以肯定地判断，中国地产商10年以来的好日子走到了尽头，很多地产企业已经深陷“四面楚歌”绝境，逼近“霸王别姬”时刻。在不远的将来，房地产业将发生很多令人唏嘘不已的悲剧。
然而，地产商未来的“悲惨世界”很少有人会同情。因为其中很多人的暴富本来就是对社会公众的侵夺，当然他们贪的是小头，地方政府占的是大利;因为中央三令五声，三轮调控，很多人置若罔闻，一路对抗走到黑;因为本人和中华元智库自2009年以来不断升级对房地产危机的警告力度，然而很多人将之作为耳旁风。
2009年10月19日，本人撰文《房地产泡沫已成中国人财富最大威胁》(首发于第一财经日报)指出：最令人头疼的是，房地产泡沫的隐患正日益放大，如果不能果断有效遏制其继续膨胀的态势，如再膨胀三年，将难免出现巨大雪崩，也难免将击穿中华文明复兴的经济底线，最糟糕的是，它与全球纸币崩溃 (主权债务危机)同时袭来，则中国国内矛盾将空前激化，中国将难免被迫用武力向外转嫁社会危机。
2009年年底，笔者连发《房地产泡沫硬在地方政府既得利益》、《结婚房为何会成为中国人命运绞索》、《楼市泡沫雪崩为何十倍猛于A股大跌》、《当泡沫难免，推高股价比推高房价好》、《中国楼市泡沫：黄金眼中大，人民币眼中小》(以上文章均刊发于第一财经日报)，为2010-2011必将越来越严厉的楼市调控预警。
2010年以来，中华元智库不断升级房地产危机预警，1月推出战略报告《中国房地产泡沫正将盛极而衰》;2010年3月，刊发《楼市轿子理论：坐轿者快把抬轿者压垮了》;4月刊发《房产盛极而衰 黄金将成为中国投资品之王》(以上两篇文章刊发于第一财经日报);2011年1月，推出战略报告《中国楼市：回调或崩盘》;2011年3月，推出战略报告《中国楼市拐点已到》……如此不断预警，作为战略预测者的中华元智库已经是尽心尽力了，只能说破产倒闭真的是这些地产商的宿命了。
这种“战略迷失悲剧”仅仅地产商的笑话吗?非也，类似的悲剧正在金融业拉开帷幕，随着全球主权债务危机的蔓延，全球纸币危机的深化，纸币信用资产正日渐逼近大崩溃的前夜。倘若这个大崩溃像现在房地产危机这样降临，那些缺乏黄金、石油、铜等实物资产财富，主要是纸币信用资产——现金、债券、证券等的金融机构，将面临灭顶之灾。这包括中国大多数保险公司、证券公司、基金公司，相当大比例银行、信托等等，相当有可能遭遇严峻的信用风险，甚至一些金融机构将被清零。这个越来越大的未来悲剧可能，本人已经预警了5年时间。
“战略迷失悲剧”未来还可能发生在地方政府身上，过去很多年，地方政府一直是以“土地招拍挂”等手段，不断扩张既得利益，这样下去，终究有物极必反的时候。一言以蔽之，“公务员泡沫”将是中国最后的泡沫，而这个泡沫现也开始走向破灭的道路。
Monday, July 25, 2011
Why Euro May Keep Defying Gravity
Why Euro May Keep Defying Gravity
By KELLY EVANS
Betting against the euro isn't a no-brainer.
The euro-zone economy is weakening, at least one nation is careening toward default, and the breakup of the 17-member currency bloc can't be entirely ruled out. In a sign that duress continues to spread, yields on 10-year Spanish and Italian debt rose on Friday despite the latest bailout deal reached for Greece. They now stand at about 5.8% and 5.4%, respectively, up about half a percentage point each from January.
.Yet all this has hardly torpedoed the euro. In fact, the currency has strengthened 6.6% against the dollar this year to $1.4358 as of Friday. It is nearly 11% stronger than a year ago, even as sovereign-debt troubles have continued to build and the euro zone's economic growth prospects have dimmed. It almost seems obvious the euro's next move should be down. Yet Nomura Securities, for one, barely expects it to budge. Analyst Jens Nordvig expects the euro will be at about $1.40 at the end of the quarter—and still around $1.40 at year end.
That is as much because of dollar weakness as euro strength. Indeed, the euro has weakened this year against other, sturdier currencies, such as the Swiss franc. U.S. fundamentals "make it tough to be a dollar bull," says Deutsche Bank currency strategist Alan Ruskin. The nation's weak economic recovery, high unemployment and, importantly, near-zero interest rates all make the currency relatively less attractive. That is likely to keep the euro around these levels until the Federal Reserve starts to raise interest rates or the European Central Bank lowers its own.
View Full Image
Andrea Comas/Reuters
The euro has strenghtened even as sovereign-debt troubles have continued to build and the euro zone's economic growth prospects have dimmed.
.The Fed is clearly on the sidelines for the time being. As for the ECB, it raised its benchmark rate this month to 1.5% and will be loath to reverse course unless its juggernaut economy—Germany—slows sharply. Indeed, strong export growth to emerging markets has helped propel the German economy despite the costlier euro. This, says Bank of America Merrill Lynch strategist David Woo, is a big reason the currency hasn't been weaker.
Of course, global economic growth looks to be slowing. A hard landing almost certainly would sink the euro and buoy the greenback. For now, though, euro strength isn't an oxymoron.
Write to Kelly Evans at kelly.evans@wsj.com
By KELLY EVANS
Betting against the euro isn't a no-brainer.
The euro-zone economy is weakening, at least one nation is careening toward default, and the breakup of the 17-member currency bloc can't be entirely ruled out. In a sign that duress continues to spread, yields on 10-year Spanish and Italian debt rose on Friday despite the latest bailout deal reached for Greece. They now stand at about 5.8% and 5.4%, respectively, up about half a percentage point each from January.
.Yet all this has hardly torpedoed the euro. In fact, the currency has strengthened 6.6% against the dollar this year to $1.4358 as of Friday. It is nearly 11% stronger than a year ago, even as sovereign-debt troubles have continued to build and the euro zone's economic growth prospects have dimmed. It almost seems obvious the euro's next move should be down. Yet Nomura Securities, for one, barely expects it to budge. Analyst Jens Nordvig expects the euro will be at about $1.40 at the end of the quarter—and still around $1.40 at year end.
That is as much because of dollar weakness as euro strength. Indeed, the euro has weakened this year against other, sturdier currencies, such as the Swiss franc. U.S. fundamentals "make it tough to be a dollar bull," says Deutsche Bank currency strategist Alan Ruskin. The nation's weak economic recovery, high unemployment and, importantly, near-zero interest rates all make the currency relatively less attractive. That is likely to keep the euro around these levels until the Federal Reserve starts to raise interest rates or the European Central Bank lowers its own.
View Full Image
Andrea Comas/Reuters
The euro has strenghtened even as sovereign-debt troubles have continued to build and the euro zone's economic growth prospects have dimmed.
.The Fed is clearly on the sidelines for the time being. As for the ECB, it raised its benchmark rate this month to 1.5% and will be loath to reverse course unless its juggernaut economy—Germany—slows sharply. Indeed, strong export growth to emerging markets has helped propel the German economy despite the costlier euro. This, says Bank of America Merrill Lynch strategist David Woo, is a big reason the currency hasn't been weaker.
Of course, global economic growth looks to be slowing. A hard landing almost certainly would sink the euro and buoy the greenback. For now, though, euro strength isn't an oxymoron.
Write to Kelly Evans at kelly.evans@wsj.com
中国经济硬着陆风险加大 人民币"空军"已出动
中国经济硬着陆风险加大 人民币"空军"已出动
在各路资金押注人民币继续升值时，有一些少数派选择了相反的方向。
"我们的确在做空人民币。"纽约投资公司Bienville Capital Management LLC的首席投资官卡伦?汤普森(Cullen Thompson)告诉财新《新世纪》，人民币兑美元贬值的可能性，至少比市场一致预期认为的要更大。
近日，海外市场做空人民币期权的价格小幅上升，显示做空人民币的交易在增加。尽管市场主流意见还是看多人民币，还没有出现多空转折点，但少数做空交易的出现，意味着人民币兑美元升值的压倒性一致预期，已出现分歧。
这一方面是因为汇改以来人民币升幅已然不小，另一方面是因为市场对中国经济的忧虑在增加。
中国经济增速、结构调整成败、地方政府债务风险、经常项目平衡状况、资本项目开放前景、通胀风险等经济基本面的多个因素，都将影响人民币兑美元汇率走势。
押注"可预见的意外"
"几个月之前，我们这样做了。"汤普森告诉财新《新世纪》记者，中国经济正走向"软着陆"或"硬着陆"，尽管下滑程度和时点尚不确定。早在今年4月，汤普森在一次对投资者的会议上称，"已经试图审慎地减少任何依赖中国经济高增速的重大杠杆风险。"
汤普森特地强调，"不一定将人民币贬值视为基准情形"。但他认为，中国经济的确有一些问题，考虑潜在风险的严重程度，任何事情都可能发生。
美国北卡罗来纳州的财富管理公司Broyhill Family Office也在做空人民币。该公司首席投资官克里斯多夫?帕维泽(Christopher Pavese)6月30日在公司网站发文称，不能确信人民币会贬值，但敢说其可能性比"市场先生"认为的要大得多。
"在发表这篇文章时，作者正通过传统的和衍生工具卖空人民币，尽管头寸随时都在变化。"该文末尾声明。
做空队伍中，更具影响力的是来自得克萨斯州的对冲基金Corriente Advisors LLC。这家公司赫赫有名，其首席投资官马克?哈特(Mark Hart)在2006年成立了美国次债危机基金，2007年推出欧洲主权债务危机基金，都成功做空，收益颇丰。
"市场参与者对中国的得意自满，与美国次债危机和欧洲主权债务危机之前的情景可怕地相似。"哈特去年11月就这样告诉投资者。他专门设立了中国机会基金(China Opportunity Master Fund)，试图从中国经济放慢中获利。
一位了解Corriente Advisors投资策略的美国资产管理公司人士告诉财新《新世纪》记者，这家公司是赌市场低估发生概率的金融事件，赌对就可以大赚，"他们不是觉得人民币的风险提高，而是认为市场对人民币的风险显著低估了。"
帕维泽认为，中国债务驱动的投机泡沫，可能导致人民币贬值成为"可预见的意外"。他所称的"可预见的意外"有三个特征：至少有一些人意识到有问题；随着时间推移愈发严重；最终会形成冲击力巨大的危机。
"预测这类事的时点富有挑战且令人沮丧，但时点存疑，并不意味着风险可以被忽视。"帕维泽说，每一位投资者都在寻找中国的投资机会，都认为中国会保持当前的增速，那么当这些人都错了时，会怎样呢？"至少值得在投资组合中采取一些保险措施，来对冲上述假设都是错误的风险。"
更重要的是，"采取保险措施对冲风险几乎是免费的。"帕维泽说。成本低廉也是汤普森的考虑之一，"做空期权的确很便宜。"
投资公司和对冲基金做空人民币的一个主要工具，是买入人民币看空期权，多为一年期。
一位欧洲银行驻香港的外汇交易员介绍，有两个指标可以判断海外做空人民币行为的程度。一是对冲基金共买了多少金额，"这个很难找到"；二是期权的价格。
7月初市场上买入一年后美元兑人民币汇率为1:7.0的看空期权，每100万美元面额的期权，需支付2200美元。但四个月或者半年前，只需要支付500美元至600美元。
一位做空人民币的美国对冲基金人士也告诉财新《新世纪》记者，现在人民币看空期权的价格几乎是一年前的2倍，过去几周这类期权的价格正在上升，但仍然是有吸引力的。而且，他认为，价格上升，恰恰是更多人开始关注中国波动性的信号。
上述外汇交易员说，过去在外汇市场上提人民币贬值，海外投资者都不屑一顾，但现在情况在改变。
人民币看空期权的吸引力在于，既可以对冲人民币贬值风险，也可以获得利润。上述美国对冲基金人士介绍，有两种获利方式，第一种是持有期权，等候人民币贬值；第二种是，在市场波动中，在较高价格时卖出期权获利，"风险在于，期权市场流动性不足。"
两种做空逻辑
财新《新世纪》记者采访发现，做空人民币主要基于两种逻辑，一是危机论，即认为由于房地产泡沫、地方政府债务等风险，中国经济可能"硬着陆"，中央政府会采取刺激政策，人民币贬值是其中之一；二是升值到位论，即考虑到中国高通胀及高房价，以及贸易顺差的缩小，人民币兑美元即将升值到位甚至已经到位，若央行不干预，市场力量驱动下可能会贬值。
"苍蝇不叮无缝的蛋"。对冲基金做空一国货币，多是因为预计经济基本面可能出现问题。
帕维泽，就很担忧中国的政府债务风险。
审计署6月27日公布的地方政府债务数据显示，过去三年，地方政府债务占GDP的比重从17%增长至27%，且60%以上投向基础设施，近四分之一的债务偿还依赖土地收入。
看到上述数据，帕维泽担心，在货币条件收紧和全球经济更脆弱的情况下，一旦信贷投放放慢，对经济产生实质性制约，地方债务违约会快速增长。
Bienville Capital Management对中国经济和人民币的关注已经超过18个月。汤普森接受财新《新世纪》记者采访时说，做空人民币，只是为防范中国潜在的"硬着陆"或者"软着陆"风险而采取的措施之一。中国经济的问题，"短期内是通胀，中国的通胀不仅仅是周期性的，会制约政策的灵活性；中期内，信贷问题可能出现，而且其规模和严重程度会超过以前曾经出现过的问题。"他强调，中国经济从便宜的贷款中获益，而一旦大量流动性消失，问题就会显现，对于已经非常脆弱的全球经济有负面影响。
哈特从去年就开始看空人民币。他在去年11月对投资者的一次会议上指出，中国不适当的低利率和人为压制汇率的做法，在房地产和银行信贷等多个领域带来危险的泡沫。
不过，也有人认为，中国经济危机导致人民币贬值的逻辑，未必讲得通。
"这种逻辑是不了解中国的政策特点，即使经济真的硬着陆，也不一定会让人民币贬值。"渣打银行大中华区研究主管王志浩接受财新《新世纪》记者采访时说，2008年应对危机中，中央政府通过大量投资项目和提高出口退税刺激经济，并没有动用人民币贬值工具，只是把人民币重新与美元挂钩。
上述美国资产管理公司人士也提醒，中国的汇率政策不一定和财政政策、货币政策同步。"首先我不认为中国经济会硬着陆，即便硬着陆，反映到人民币汇率上也有很长的周期。"
从经济基本面来看，看空人民币的第二种逻辑是，认为人民币已经接近均衡估值。
2005年7月汇改以来，人民币兑美元升值近22%。中国贸易不平衡局面已经明显改善，贸易顺差占GDP的比重从2007年的7.5%降至2010年的3%左右。
一位外汇管理部门人士认为，从理论上讲，近期经常项目收支尤其是贸易收支失衡状况的改善，显示人民币汇率不存在大幅升值的基础。从股价、房价等资产价格相对境外高估的情况看，人民币汇率甚至有贬值的可能。
此外，通胀在人民币汇率调整中扮演越来越重要的角色。今年2月4日，美国财政部发布的半年度汇率政策报告指出，由于中国通胀明显高于美国，经过通胀调整的人民币实际升值速度更快，会达到年10%的升值幅度。
升值到位论也遭到质疑。王志浩认为，下半年贸易顺差还会增加，因为进口增速会放慢，而出口态势还不错。即使资本账户逐步放开，也没办法一两天之内平衡资本账户。所以，"双顺差会继续，还会有升值压力。"6月，中国贸易顺差高于预期达到220亿美元。
人民币走向何方
跟踪外汇市场十多年的研究人士亚当?克里兹(Adam Kritzer)赞同人民币继续升值的经济基础已经相对薄弱，但他认为，这并不意味着人民币"不会或不应该继续升值"。
"投资者的行为经常是非理性的。"克里兹接受财新《新世纪》记者采访时说，未来几年，中国可能会有经济下滑或金融危机，迫使外国投资者停止押注人民币进一步升值。但现在的现实是，外国投资者仍然很高兴地忽视基本面，盲目地把大量资金投向中国项目，直接或间接地赌人民币继续升值。
上述香港对冲基金人士也认为，从购买力看，可以认为人民币是高估的，但是高估并不能成为看空的理由。
总部位于伦敦的对冲基金蓝金资产管理公司(BlueGold Capital Management LLP)宏观经济与货币业务常务董事任永力(Stephen Jen)认为，回答"人民币是否会贬值"的关键考虑是，对于人民币汇率，中国决策者可能做什么？
"市场压力对人民币的真正影响，并没有对其他货币那么大。"任永力接受财新《新世纪》记者采访时说，尽管人民币已经有弹性多了，但在人民币兑美元汇率的变动速度方面，政策影响仍然是相当重要的一个因素。"外汇储备累积的速度仍然非常快。这表明，人民币兑美元变动幅度，是在决策者而不是投资者在掌控中。"
一位华盛顿对冲基金的中国研究总监认为，中国央行手握逾3万亿美元外汇储备，能掌控人民币升贬，如果有贬值压力，可以抛售美元买入人民币。
对此，汤普森认为，人们提到中国的大规模外汇储备是正确的，但是其风险在于，如此大规模的流动性有可能突然间消失。
任永力认为，只要中国政府把通胀视为比增长更重要的首要焦点，人民币兑美元就会继续升值。然而，如果下半年全球经济实质性放缓，削弱了中国政府对经济增长的信心，可能会看到人民币升值速度放慢。
上述华盛顿对冲基金的中国研究总监认为，即使中国经济减速，仍然大大高于美欧的增速，所以，人民币升值速度可能会放缓，但方向不会变。
不过，近期市场数据传递的一些信号，显示人民币兑美元升值预期趋弱，值得进一步关注。
5月开始，一年期无本金交割远期外汇交易(NDF)显示人民币升值预期逐步下降。一年期NDF与当天人民币兑美元中间价相比显示的升值幅度，从4月29日的3.02%降至7月19日的1%。
同时，国内人民币远期结售汇(DF)与NDF价格持续出现倒挂。招商银行金融市场部分析师刘东亮接受财新《新世纪》记者采访时说，DF与NDF价差往往较为敏感的反映了升值预期的强弱，一般海外NDF反映的升值预期比DF更大，也就是NDF值小于DF，当NDF大于DF时，意味着海外投资者的升值预期减弱，海外投资者对汇率预期变化更为敏感，因此出现倒挂值得关注。
从历史数据看，2005年7月汇改以来，DF与NDF价格倒挂的现象出现过三次。第一次在2008年三季度至2009年一季度，与这次倒挂相伴随的是，人民币兑美元长达两年的升值停滞期；第二次在2010年二季度短暂出现，当时监管部门反复重申人民币不会一次性升值，市场升值预期不断削弱；第三次，则是从5月开始价差收窄，间或出现倒挂。
刘东亮认为，中国贸易顺差趋势性收窄、通胀高企对升值空间的侵蚀、套利空间前景收窄、宏观经济降温等诸多因素作用下，人民币兑美元单边升值的趋势已经接近尾声，未来半年，人民币升值可能会继续，但半年以后，人民币很可能结束单边升值阶段，进入双向波动甚至阶段性贬值。
此外，最新公布的外汇储备数据显示，上半年最后两个月，外汇储备增幅大幅回落。二季度新增外汇储备1528亿美元，较一季度环比回落22.56%。特别是5月和6月，新增外汇储备仅分别为202亿美元和315亿美元，而当月贸易顺差分别为131亿美元和223亿美元，若考虑外商直接投资(FDI)，最近两个月资本流入放缓，甚至可能资本流出，或许也是人民币升值预期减弱的信号。(财新网)
在各路资金押注人民币继续升值时，有一些少数派选择了相反的方向。
"我们的确在做空人民币。"纽约投资公司Bienville Capital Management LLC的首席投资官卡伦?汤普森(Cullen Thompson)告诉财新《新世纪》，人民币兑美元贬值的可能性，至少比市场一致预期认为的要更大。
近日，海外市场做空人民币期权的价格小幅上升，显示做空人民币的交易在增加。尽管市场主流意见还是看多人民币，还没有出现多空转折点，但少数做空交易的出现，意味着人民币兑美元升值的压倒性一致预期，已出现分歧。
这一方面是因为汇改以来人民币升幅已然不小，另一方面是因为市场对中国经济的忧虑在增加。
中国经济增速、结构调整成败、地方政府债务风险、经常项目平衡状况、资本项目开放前景、通胀风险等经济基本面的多个因素，都将影响人民币兑美元汇率走势。
押注"可预见的意外"
"几个月之前，我们这样做了。"汤普森告诉财新《新世纪》记者，中国经济正走向"软着陆"或"硬着陆"，尽管下滑程度和时点尚不确定。早在今年4月，汤普森在一次对投资者的会议上称，"已经试图审慎地减少任何依赖中国经济高增速的重大杠杆风险。"
汤普森特地强调，"不一定将人民币贬值视为基准情形"。但他认为，中国经济的确有一些问题，考虑潜在风险的严重程度，任何事情都可能发生。
美国北卡罗来纳州的财富管理公司Broyhill Family Office也在做空人民币。该公司首席投资官克里斯多夫?帕维泽(Christopher Pavese)6月30日在公司网站发文称，不能确信人民币会贬值，但敢说其可能性比"市场先生"认为的要大得多。
"在发表这篇文章时，作者正通过传统的和衍生工具卖空人民币，尽管头寸随时都在变化。"该文末尾声明。
做空队伍中，更具影响力的是来自得克萨斯州的对冲基金Corriente Advisors LLC。这家公司赫赫有名，其首席投资官马克?哈特(Mark Hart)在2006年成立了美国次债危机基金，2007年推出欧洲主权债务危机基金，都成功做空，收益颇丰。
"市场参与者对中国的得意自满，与美国次债危机和欧洲主权债务危机之前的情景可怕地相似。"哈特去年11月就这样告诉投资者。他专门设立了中国机会基金(China Opportunity Master Fund)，试图从中国经济放慢中获利。
一位了解Corriente Advisors投资策略的美国资产管理公司人士告诉财新《新世纪》记者，这家公司是赌市场低估发生概率的金融事件，赌对就可以大赚，"他们不是觉得人民币的风险提高，而是认为市场对人民币的风险显著低估了。"
帕维泽认为，中国债务驱动的投机泡沫，可能导致人民币贬值成为"可预见的意外"。他所称的"可预见的意外"有三个特征：至少有一些人意识到有问题；随着时间推移愈发严重；最终会形成冲击力巨大的危机。
"预测这类事的时点富有挑战且令人沮丧，但时点存疑，并不意味着风险可以被忽视。"帕维泽说，每一位投资者都在寻找中国的投资机会，都认为中国会保持当前的增速，那么当这些人都错了时，会怎样呢？"至少值得在投资组合中采取一些保险措施，来对冲上述假设都是错误的风险。"
更重要的是，"采取保险措施对冲风险几乎是免费的。"帕维泽说。成本低廉也是汤普森的考虑之一，"做空期权的确很便宜。"
投资公司和对冲基金做空人民币的一个主要工具，是买入人民币看空期权，多为一年期。
一位欧洲银行驻香港的外汇交易员介绍，有两个指标可以判断海外做空人民币行为的程度。一是对冲基金共买了多少金额，"这个很难找到"；二是期权的价格。
7月初市场上买入一年后美元兑人民币汇率为1:7.0的看空期权，每100万美元面额的期权，需支付2200美元。但四个月或者半年前，只需要支付500美元至600美元。
一位做空人民币的美国对冲基金人士也告诉财新《新世纪》记者，现在人民币看空期权的价格几乎是一年前的2倍，过去几周这类期权的价格正在上升，但仍然是有吸引力的。而且，他认为，价格上升，恰恰是更多人开始关注中国波动性的信号。
上述外汇交易员说，过去在外汇市场上提人民币贬值，海外投资者都不屑一顾，但现在情况在改变。
人民币看空期权的吸引力在于，既可以对冲人民币贬值风险，也可以获得利润。上述美国对冲基金人士介绍，有两种获利方式，第一种是持有期权，等候人民币贬值；第二种是，在市场波动中，在较高价格时卖出期权获利，"风险在于，期权市场流动性不足。"
两种做空逻辑
财新《新世纪》记者采访发现，做空人民币主要基于两种逻辑，一是危机论，即认为由于房地产泡沫、地方政府债务等风险，中国经济可能"硬着陆"，中央政府会采取刺激政策，人民币贬值是其中之一；二是升值到位论，即考虑到中国高通胀及高房价，以及贸易顺差的缩小，人民币兑美元即将升值到位甚至已经到位，若央行不干预，市场力量驱动下可能会贬值。
"苍蝇不叮无缝的蛋"。对冲基金做空一国货币，多是因为预计经济基本面可能出现问题。
帕维泽，就很担忧中国的政府债务风险。
审计署6月27日公布的地方政府债务数据显示，过去三年，地方政府债务占GDP的比重从17%增长至27%，且60%以上投向基础设施，近四分之一的债务偿还依赖土地收入。
看到上述数据，帕维泽担心，在货币条件收紧和全球经济更脆弱的情况下，一旦信贷投放放慢，对经济产生实质性制约，地方债务违约会快速增长。
Bienville Capital Management对中国经济和人民币的关注已经超过18个月。汤普森接受财新《新世纪》记者采访时说，做空人民币，只是为防范中国潜在的"硬着陆"或者"软着陆"风险而采取的措施之一。中国经济的问题，"短期内是通胀，中国的通胀不仅仅是周期性的，会制约政策的灵活性；中期内，信贷问题可能出现，而且其规模和严重程度会超过以前曾经出现过的问题。"他强调，中国经济从便宜的贷款中获益，而一旦大量流动性消失，问题就会显现，对于已经非常脆弱的全球经济有负面影响。
哈特从去年就开始看空人民币。他在去年11月对投资者的一次会议上指出，中国不适当的低利率和人为压制汇率的做法，在房地产和银行信贷等多个领域带来危险的泡沫。
不过，也有人认为，中国经济危机导致人民币贬值的逻辑，未必讲得通。
"这种逻辑是不了解中国的政策特点，即使经济真的硬着陆，也不一定会让人民币贬值。"渣打银行大中华区研究主管王志浩接受财新《新世纪》记者采访时说，2008年应对危机中，中央政府通过大量投资项目和提高出口退税刺激经济，并没有动用人民币贬值工具，只是把人民币重新与美元挂钩。
上述美国资产管理公司人士也提醒，中国的汇率政策不一定和财政政策、货币政策同步。"首先我不认为中国经济会硬着陆，即便硬着陆，反映到人民币汇率上也有很长的周期。"
从经济基本面来看，看空人民币的第二种逻辑是，认为人民币已经接近均衡估值。
2005年7月汇改以来，人民币兑美元升值近22%。中国贸易不平衡局面已经明显改善，贸易顺差占GDP的比重从2007年的7.5%降至2010年的3%左右。
一位外汇管理部门人士认为，从理论上讲，近期经常项目收支尤其是贸易收支失衡状况的改善，显示人民币汇率不存在大幅升值的基础。从股价、房价等资产价格相对境外高估的情况看，人民币汇率甚至有贬值的可能。
此外，通胀在人民币汇率调整中扮演越来越重要的角色。今年2月4日，美国财政部发布的半年度汇率政策报告指出，由于中国通胀明显高于美国，经过通胀调整的人民币实际升值速度更快，会达到年10%的升值幅度。
升值到位论也遭到质疑。王志浩认为，下半年贸易顺差还会增加，因为进口增速会放慢，而出口态势还不错。即使资本账户逐步放开，也没办法一两天之内平衡资本账户。所以，"双顺差会继续，还会有升值压力。"6月，中国贸易顺差高于预期达到220亿美元。
人民币走向何方
跟踪外汇市场十多年的研究人士亚当?克里兹(Adam Kritzer)赞同人民币继续升值的经济基础已经相对薄弱，但他认为，这并不意味着人民币"不会或不应该继续升值"。
"投资者的行为经常是非理性的。"克里兹接受财新《新世纪》记者采访时说，未来几年，中国可能会有经济下滑或金融危机，迫使外国投资者停止押注人民币进一步升值。但现在的现实是，外国投资者仍然很高兴地忽视基本面，盲目地把大量资金投向中国项目，直接或间接地赌人民币继续升值。
上述香港对冲基金人士也认为，从购买力看，可以认为人民币是高估的，但是高估并不能成为看空的理由。
总部位于伦敦的对冲基金蓝金资产管理公司(BlueGold Capital Management LLP)宏观经济与货币业务常务董事任永力(Stephen Jen)认为，回答"人民币是否会贬值"的关键考虑是，对于人民币汇率，中国决策者可能做什么？
"市场压力对人民币的真正影响，并没有对其他货币那么大。"任永力接受财新《新世纪》记者采访时说，尽管人民币已经有弹性多了，但在人民币兑美元汇率的变动速度方面，政策影响仍然是相当重要的一个因素。"外汇储备累积的速度仍然非常快。这表明，人民币兑美元变动幅度，是在决策者而不是投资者在掌控中。"
一位华盛顿对冲基金的中国研究总监认为，中国央行手握逾3万亿美元外汇储备，能掌控人民币升贬，如果有贬值压力，可以抛售美元买入人民币。
对此，汤普森认为，人们提到中国的大规模外汇储备是正确的，但是其风险在于，如此大规模的流动性有可能突然间消失。
任永力认为，只要中国政府把通胀视为比增长更重要的首要焦点，人民币兑美元就会继续升值。然而，如果下半年全球经济实质性放缓，削弱了中国政府对经济增长的信心，可能会看到人民币升值速度放慢。
上述华盛顿对冲基金的中国研究总监认为，即使中国经济减速，仍然大大高于美欧的增速，所以，人民币升值速度可能会放缓，但方向不会变。
不过，近期市场数据传递的一些信号，显示人民币兑美元升值预期趋弱，值得进一步关注。
5月开始，一年期无本金交割远期外汇交易(NDF)显示人民币升值预期逐步下降。一年期NDF与当天人民币兑美元中间价相比显示的升值幅度，从4月29日的3.02%降至7月19日的1%。
同时，国内人民币远期结售汇(DF)与NDF价格持续出现倒挂。招商银行金融市场部分析师刘东亮接受财新《新世纪》记者采访时说，DF与NDF价差往往较为敏感的反映了升值预期的强弱，一般海外NDF反映的升值预期比DF更大，也就是NDF值小于DF，当NDF大于DF时，意味着海外投资者的升值预期减弱，海外投资者对汇率预期变化更为敏感，因此出现倒挂值得关注。
从历史数据看，2005年7月汇改以来，DF与NDF价格倒挂的现象出现过三次。第一次在2008年三季度至2009年一季度，与这次倒挂相伴随的是，人民币兑美元长达两年的升值停滞期；第二次在2010年二季度短暂出现，当时监管部门反复重申人民币不会一次性升值，市场升值预期不断削弱；第三次，则是从5月开始价差收窄，间或出现倒挂。
刘东亮认为，中国贸易顺差趋势性收窄、通胀高企对升值空间的侵蚀、套利空间前景收窄、宏观经济降温等诸多因素作用下，人民币兑美元单边升值的趋势已经接近尾声，未来半年，人民币升值可能会继续，但半年以后，人民币很可能结束单边升值阶段，进入双向波动甚至阶段性贬值。
此外，最新公布的外汇储备数据显示，上半年最后两个月，外汇储备增幅大幅回落。二季度新增外汇储备1528亿美元，较一季度环比回落22.56%。特别是5月和6月，新增外汇储备仅分别为202亿美元和315亿美元，而当月贸易顺差分别为131亿美元和223亿美元，若考虑外商直接投资(FDI)，最近两个月资本流入放缓，甚至可能资本流出，或许也是人民币升值预期减弱的信号。(财新网)
Friday, July 22, 2011
FX eCommerce - Single Dealer Platforms
http://www.finextra.com/community/fullblog.aspx?blogid=5213
FX eCommerce - Single Dealer Platforms
14 Apr, 2011 18:57 I recently completed some research on single dealer platforms or FX eCommerce systems, which are designed for market makers and dealers in foreign currency trading. My research covered FX aggregation, pricing, auto-hedging, position-keeping, smart order routing and internalization.
Here are a few tidbits from the research:
FX single dealer platforms aggregate liquidity from dozens of sources, identify base pricing, determine and publish pricing to clients, manage positions, handle order flow, automatically hedge positions, route orders to counterparties, and internalize client orders.
The FX market is highly fragmented, with hundreds of dealing banks, ECNs, and interdealer brokers all publishing prices and competing for order flow. Pricing approaches are not standardized. Liquidity may be reflected as streaming quotes, live resting orders, indicative prices, request for quotes, or request for streams.
Every FX deal involves two currencies – one being bought and the other being sold. This means that the dealer takes a position with every execution of a customer order, and those positions have to be hedged promptly to reduce risk. However, prices offered by other banks can shift rapidly, and quotes are not always firm, which makes routing orders and ensuring execution more complicated. The life span and nature of each price varies by venue and sometimes by message. Some venues want a “last look” option allowing them to take a look at the markets before they automatically execute an order. This might result in them rejecting an order at a quoted price even if the price was valid when the order was sent.
Most FX market data is delivered in pulse intervals instead of continuously, and substantial activity can occur outside of regular data distribution intervals, which also affects the validity of prices, especially in a high frequency trading environment.
Geography also plays a role. Since the dealing banks are geographically distributed around the globe, prices have a varying amount of latency when they first arrive, adding more complexity that has to be considered by the pricing engine, smart order router, auto-hedging and risk management.
This is a fascinating market with a lot of complexity that makes it very interesting. It is clear that an event-driven architecture is absolutely critical for creating an FX eCommerce system.
FX eCommerce - Single Dealer Platforms
14 Apr, 2011 18:57 I recently completed some research on single dealer platforms or FX eCommerce systems, which are designed for market makers and dealers in foreign currency trading. My research covered FX aggregation, pricing, auto-hedging, position-keeping, smart order routing and internalization.
Here are a few tidbits from the research:
FX single dealer platforms aggregate liquidity from dozens of sources, identify base pricing, determine and publish pricing to clients, manage positions, handle order flow, automatically hedge positions, route orders to counterparties, and internalize client orders.
The FX market is highly fragmented, with hundreds of dealing banks, ECNs, and interdealer brokers all publishing prices and competing for order flow. Pricing approaches are not standardized. Liquidity may be reflected as streaming quotes, live resting orders, indicative prices, request for quotes, or request for streams.
Every FX deal involves two currencies – one being bought and the other being sold. This means that the dealer takes a position with every execution of a customer order, and those positions have to be hedged promptly to reduce risk. However, prices offered by other banks can shift rapidly, and quotes are not always firm, which makes routing orders and ensuring execution more complicated. The life span and nature of each price varies by venue and sometimes by message. Some venues want a “last look” option allowing them to take a look at the markets before they automatically execute an order. This might result in them rejecting an order at a quoted price even if the price was valid when the order was sent.
Most FX market data is delivered in pulse intervals instead of continuously, and substantial activity can occur outside of regular data distribution intervals, which also affects the validity of prices, especially in a high frequency trading environment.
Geography also plays a role. Since the dealing banks are geographically distributed around the globe, prices have a varying amount of latency when they first arrive, adding more complexity that has to be considered by the pricing engine, smart order router, auto-hedging and risk management.
This is a fascinating market with a lot of complexity that makes it very interesting. It is clear that an event-driven architecture is absolutely critical for creating an FX eCommerce system.
Morgan Stanley Comes Up Golden
Morgan Stanley Comes Up Golden
By AARON LUCCHETTI
After a series of missteps, Morgan Stanley found its footing in the second quarter, generating its highest quarterly revenue since 2007 and overtaking rival Goldman Sachs Group in bond trading for the first time since the financial crisis.
.The New York investment bank's surprise performance was driven partly by its decision to take on more risk when trading on behalf of clients during the quarter—a move that contrasts with Goldman's risk-aversion during the same period.
The results were a much-needed win for James Gorman, Morgan Stanley's chief executive, who is under pressure to improve the firm's inconsistent performance and catch up with rivals such as Goldman and J.P. Morgan Chase & Co.
Morgan Stanley reported a quarterly loss of $558 million but that was due to a $1.7 billion charge incurred when Japanese bank Mitsubishi UFJ Financial Group last month restructured its investment in the investment bank. Morgan Stanley's per-share loss of 38 cents was far smaller than the 64 cents expected by analysts, according to Thomson Reuters.
Morgan Stanley shares soared 11.4%, or $2.48, to $24.20 in its biggest one-day percentage gain since early 2009.
"It's hard to remember the last time they were the outperformer," says Jeff Harte, a banking analyst with Sandler O'Neill.
.Morgan Stanley has suffered several fits and starts—especially in its trading business, where it suffered large losses on risky bets—and turned in subpar results when it cut back risk in 2009.
Mr. Harte said the second-quarter results released Thursday were "a step in the right direction, but give me three really good quarters, and I'll say they're definitely there."
Morgan Stanley's quarterly net revenue of $9.3 billion was its highest since the three-month period ended May 2007 and bested analysts' estimates by about 16%. They were especially striking given the weak quarter at Goldman Sachs, which had $7.3 billion in revenue. The two banks' results ended a nine-quarter streak in which Goldman revenue topped Morgan Stanley's, often on the back of savvy trading in stocks, bonds and commodities.
This quarter, Morgan Stanley's revenue beat its bigger rival in bond trading and investment banking. Morgan Stanley's fixed-income and commodity division had net revenue of $2.1 billion, but the number was boosted by a $470 million gain related to its financial exposure to bond-insurance firms. Goldman's fixed-income, currency and commodities division, by contrast, had revenue of $1.6 billion during the quarter.
In stock trading, Morgan Stanley's $1.85 billion in revenue trailed Goldman's $1.92 billion, but the results were Morgan Stanley's best since 2008.
"We're very pleased that we're executing and continuing to build share with clients," said Ruth Porat, Morgan Stanley's chief financial officer, in an interview. She said the firm's gains in trading came in part from efforts to get more business out of existing trading clients across a variety of services from prime brokerage for hedge funds to currency, interest rates and commodity trading.
The firm's stock- and bond-trading results came from taking more risk and increasing the amount of capital its traders can use to serve investors that want to buy and sell securities. Morgan Stanley has been increasing a measure of its trading risk—called "value at risk," or VAR—which attempts to estimate what the firm might lose in a single trading day based on its holdings and past market volatility.
In the second quarter, the firm's VAR increased on average to $145 million from $121 million in the first quarter and $139 million during the second quarter of 2010. Ms. Porat noted in a call with analysts that the risk measurement declined toward the end of the second quarter as investors pulled back from trading due to fiscal concerns in Europe and the U.S.
Morgan Stanley's investment-banking business brought in $1.7 billion, up 40% form the previous quarter and 57% from the second quarter of 2010. Both merger-advisory and underwriting fees rose sharply as the firm benefited from winning mandates to advise on large stock offerings and takeover deals during the quarter.
Unlike its trading divisions, Morgan Stanley's investment-banking department has stayed near the top of the pack, taking advantage of the banking consolidation that followed the 2008 crisis and left fewer competitors. Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co., most notably, went away or were swallowed by bigger commercial banks.
This year, Morgan Stanley has helped lead several big IPOs, such as that of commodities producer Glencore International PLC and social networking firm LinkedIn Corp. Morgan Stanley could also be well positioned if technology IPOs continue to become more popular for fast-growing private companies.
Mr. Gorman said Morgan Stanley was continuing its work to turn around the firm amid "unquestionably challenging markets."
He noted that the firm has made progress on many of the 10 items he felt the firm needed to improve on when he started as CEO in January 2010.
.One item was restructuring the relationship Morgan Stanley forged with Japanese bank Mitsubishi UFJ during the financial crisis. Mitsubishi UFJ made an emergency $9 billion investment in Morgan Stanley that carried a hefty quarterly dividend. Last month, the two firms restructured the investment. Mitsubishi UFJ got a bigger stake, but now owns common shares that don't require Morgan Stanley to pay the high dividend. In addition, Mr. Gorman said, the common stake aligns the two firm's interests better.
Mr. Gorman also indicated he would push for more cost-cutting at the firm's brokerage joint venture with Citigroup. Morgan Stanley, which owns 51% of the joint venture, plans to buy the rest over the next few years. While revenue has steadily grown in the joint venture, progress cutting costs and boosting pre-tax margins to 20% has gone more slowly.
"We remain very focused on expenses in this business," says Mr. Gorman. "Margins must improve and do so soon."
Ms. Porat said the firm would continue to prune some of the firm's underperforming brokers in an effort to increase margins. Overall, the firm would likely keep head count constant or reduce it slightly, mainly through slowing down hires. Some analysts say that Morgan Stanley may not need to cut as many staffers as other Wall Street firms in a difficult environment because it was smaller in some key areas such as trading in 2009 and 2010.
Morgan Stanley "should be less exposed" to some of the macroeconomic weakness, because they have been in a rebuilding mode and come from a weakened base," says Howard Chen, an analyst with Credit Suisse.
"MUFG prospers when Morgan Stanley prospers," said Mr. Gorman.
Write to Aaron Lucchetti at aaron.lucchetti@wsj.com
By AARON LUCCHETTI
After a series of missteps, Morgan Stanley found its footing in the second quarter, generating its highest quarterly revenue since 2007 and overtaking rival Goldman Sachs Group in bond trading for the first time since the financial crisis.
.The New York investment bank's surprise performance was driven partly by its decision to take on more risk when trading on behalf of clients during the quarter—a move that contrasts with Goldman's risk-aversion during the same period.
The results were a much-needed win for James Gorman, Morgan Stanley's chief executive, who is under pressure to improve the firm's inconsistent performance and catch up with rivals such as Goldman and J.P. Morgan Chase & Co.
Morgan Stanley reported a quarterly loss of $558 million but that was due to a $1.7 billion charge incurred when Japanese bank Mitsubishi UFJ Financial Group last month restructured its investment in the investment bank. Morgan Stanley's per-share loss of 38 cents was far smaller than the 64 cents expected by analysts, according to Thomson Reuters.
Morgan Stanley shares soared 11.4%, or $2.48, to $24.20 in its biggest one-day percentage gain since early 2009.
"It's hard to remember the last time they were the outperformer," says Jeff Harte, a banking analyst with Sandler O'Neill.
.Morgan Stanley has suffered several fits and starts—especially in its trading business, where it suffered large losses on risky bets—and turned in subpar results when it cut back risk in 2009.
Mr. Harte said the second-quarter results released Thursday were "a step in the right direction, but give me three really good quarters, and I'll say they're definitely there."
Morgan Stanley's quarterly net revenue of $9.3 billion was its highest since the three-month period ended May 2007 and bested analysts' estimates by about 16%. They were especially striking given the weak quarter at Goldman Sachs, which had $7.3 billion in revenue. The two banks' results ended a nine-quarter streak in which Goldman revenue topped Morgan Stanley's, often on the back of savvy trading in stocks, bonds and commodities.
This quarter, Morgan Stanley's revenue beat its bigger rival in bond trading and investment banking. Morgan Stanley's fixed-income and commodity division had net revenue of $2.1 billion, but the number was boosted by a $470 million gain related to its financial exposure to bond-insurance firms. Goldman's fixed-income, currency and commodities division, by contrast, had revenue of $1.6 billion during the quarter.
In stock trading, Morgan Stanley's $1.85 billion in revenue trailed Goldman's $1.92 billion, but the results were Morgan Stanley's best since 2008.
"We're very pleased that we're executing and continuing to build share with clients," said Ruth Porat, Morgan Stanley's chief financial officer, in an interview. She said the firm's gains in trading came in part from efforts to get more business out of existing trading clients across a variety of services from prime brokerage for hedge funds to currency, interest rates and commodity trading.
The firm's stock- and bond-trading results came from taking more risk and increasing the amount of capital its traders can use to serve investors that want to buy and sell securities. Morgan Stanley has been increasing a measure of its trading risk—called "value at risk," or VAR—which attempts to estimate what the firm might lose in a single trading day based on its holdings and past market volatility.
In the second quarter, the firm's VAR increased on average to $145 million from $121 million in the first quarter and $139 million during the second quarter of 2010. Ms. Porat noted in a call with analysts that the risk measurement declined toward the end of the second quarter as investors pulled back from trading due to fiscal concerns in Europe and the U.S.
Morgan Stanley's investment-banking business brought in $1.7 billion, up 40% form the previous quarter and 57% from the second quarter of 2010. Both merger-advisory and underwriting fees rose sharply as the firm benefited from winning mandates to advise on large stock offerings and takeover deals during the quarter.
Unlike its trading divisions, Morgan Stanley's investment-banking department has stayed near the top of the pack, taking advantage of the banking consolidation that followed the 2008 crisis and left fewer competitors. Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co., most notably, went away or were swallowed by bigger commercial banks.
This year, Morgan Stanley has helped lead several big IPOs, such as that of commodities producer Glencore International PLC and social networking firm LinkedIn Corp. Morgan Stanley could also be well positioned if technology IPOs continue to become more popular for fast-growing private companies.
Mr. Gorman said Morgan Stanley was continuing its work to turn around the firm amid "unquestionably challenging markets."
He noted that the firm has made progress on many of the 10 items he felt the firm needed to improve on when he started as CEO in January 2010.
.One item was restructuring the relationship Morgan Stanley forged with Japanese bank Mitsubishi UFJ during the financial crisis. Mitsubishi UFJ made an emergency $9 billion investment in Morgan Stanley that carried a hefty quarterly dividend. Last month, the two firms restructured the investment. Mitsubishi UFJ got a bigger stake, but now owns common shares that don't require Morgan Stanley to pay the high dividend. In addition, Mr. Gorman said, the common stake aligns the two firm's interests better.
Mr. Gorman also indicated he would push for more cost-cutting at the firm's brokerage joint venture with Citigroup. Morgan Stanley, which owns 51% of the joint venture, plans to buy the rest over the next few years. While revenue has steadily grown in the joint venture, progress cutting costs and boosting pre-tax margins to 20% has gone more slowly.
"We remain very focused on expenses in this business," says Mr. Gorman. "Margins must improve and do so soon."
Ms. Porat said the firm would continue to prune some of the firm's underperforming brokers in an effort to increase margins. Overall, the firm would likely keep head count constant or reduce it slightly, mainly through slowing down hires. Some analysts say that Morgan Stanley may not need to cut as many staffers as other Wall Street firms in a difficult environment because it was smaller in some key areas such as trading in 2009 and 2010.
Morgan Stanley "should be less exposed" to some of the macroeconomic weakness, because they have been in a rebuilding mode and come from a weakened base," says Howard Chen, an analyst with Credit Suisse.
"MUFG prospers when Morgan Stanley prospers," said Mr. Gorman.
Write to Aaron Lucchetti at aaron.lucchetti@wsj.com
Greece Gets New Bailout as U.S. Nears Brink
Greece Gets New Bailout as U.S. Nears Brink
By CHARLES FORELLE, PATRICIA KOWSMANN and COSTAS PARIS
BRUSSELS—Euro-zone leaders agreed Thursday on a new €109 billion ($157 billion) bailout for Greece and new steps to prevent its debt crisis from metastasizing across the Continent—in a plan expected to trigger the first debt default by a nation using the common currency.
.The meeting also produced a stark and open-ended declaration: The wider euro zone is committed to financing countries that take bailouts—thus far, Greece, Ireland and Portugal—for as along as it takes them to regain access to private lenders.
The move is a bold bid by Europe's leaders to corral an 18-month-old debt crisis that is veering dangerously out of control. Markets stopped lending to Greece, then Ireland, then Portugal. Fearful that policy makers have no concrete strategy for shoring up the larger economies of Spain and Italy, investors have lately soured on them as well. After months of dithering, European leaders resolved that they had to stop the bleeding.
Still, it remains to be seen whether the tourniquet will hold. Even after the new plan, Greece will have a staggering load of debt.
.Thursday's agreement was the fruit of several concessions. European Central Bank Jean-Claude Trichet lost a fight to prevent default. German Chancellor Angela Merkel pried open her reluctant nation's pocketbook to write another check and be on the hook for still more.
French President Nicolas Sarkozy, though he lost a bid to tax banks to pay for the bailout, may have come out the best by urging Ms. Merkel to a more proactive approach to the debt crisis.
..In a declaration crafted here after hours of haggling, and a whirlwind trip Wednesday to Berlin by the French president, the leaders put forward billions more in new loans to Greece. But they extracted a price: Greece's private-sector creditors will accept a bond exchange that gives them less than originally promised.
The euro zone had long insisted that none of its 17 members could contemplate not repaying its debt, and the European Central Bank vigorously fought a default to the very end. Mr. Trichet joined Ms. Merkel and Mr. Sarkozy at their meeting in Berlin on Wednesday to press his case once more. But Greece was reeling under its huge burden, and its woes were threatening to engulf other countries.
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.To push back against that contagion, the euro zone also agreed Thursday to a wide expansion of its €440 billion bailout fund. That vehicle, once restricted to lending to countries near the brink of collapse, will now be able to buy euro-zone bonds on secondary markets to move prices and lend directly to countries even before they lose access to private funding. That could even include lending money to finance bank recapitalizations.
The leaders also agreed to cut the once-lofty interest rates that the bailout fund charges and extend to as much as 30 years the maturities of the loans it provides.
"We created a solid firewall and better fire-brigade equipment," said Herman Van Rompuy, the European Union president.
That creation had been a long time coming. In spring of 2010, when the euro zone was debating the first Greek bailout, the countries—at the firm insistence of Germany—decreed that rescue loans would come only when absolutely needed, and would be issued at punitive rates to discourage countries from slacking on reforms and falling back on cheap aid.
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Zuma Press
Greek Prime Minister George Papandreou in Brussels on Thursday.
.Germany has made a stark reversal. Chancellor Angela Merkel, once the euro zone's "Madame Non," led a push to assemble the new Greek bailout program. In the face of stiff domestic opposition to creating what the German press dubbed a "Transferunion," she opened the door to far greater fiscal aid than her country had once contemplated. In return, she won a commitment that banks and other creditors—and not just taxpayers—would have to bear some of the burden.
The new plan for Greece will work as follows: The euro zone's bailout fund and the International Monetary Fund will lend the country roughly €109 billion over the next three years at around 3.5% interest.
Private creditors who hold Greek debt that matures in the coming years will "voluntarily" turn in their bonds and accept new ones that mature far in the future. The Institute of International Finance, a banking trade group, said its members had committed to participate in the exchange.
The banks, Germany and France's largest institutions among them, offered to take new 30-year or 15-year Greek bonds. The offer includes a menu of four different flavors of bonds with varying coupons and types of insurance—some would be backed by triple-A-rated collateral. Some of the bonds on the menu include a 20% discount to principal.
The euro-zone leaders said the private sector's "contribution" would amount to €37 billion through 2014 and €106 billion through 2019, though it didn't detail the calculation. They also said a debt buyback program would yield an additional €12.6 billion by taking Greek debt off the markets at discount prices.
Charles Dallara, chief executive of the Washington-based IIF, which has been leading negotiations for the private sector, said he believed the deal should put an end "to the uncertainty swirling around the future that was hindering any capacity for the Greek economy to grow."
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EPA
German Chancellor Angela Merkel, right, talks to the head of the International Monetary Fund, Christine Lagarde, and French President Nicolas Sarkozy at the EU summit in Brussels on Thursday.
.The nature of the private-sector contribution—and how it is calculated—is murky. But it appears that a relatively small portion of it would come from actually renouncing principal the creditors are owed. A large part will come from accepting to be repaid late at low interest rates.
In any case, the exchange would cause ratings companies to place Greece into "selective default"—a term indicating it has defaulted on some obligations but is honoring others. It isn't clear how long Greece would remain in that situation.
That has a side effect: The European Central Bank has made clear it wouldn't accept defaulted bonds as collateral for its lending operations. That would be devastating to banks—especially Greek banks—that rely on using their holdings of Greek bonds to get quick cash from the ECB. To counteract that, the euro-zone countries committed to providing "credit enhancement"—guarantees or other measures—that would allow the ECB to continue to accept Greek debt.
WSJ's Charles Forelle reports from the Euro Summit on efforts to put a final stamp on a bailout package for Greece that could run as high as $100 billion. Photo: GEORGES GOBET/AFP/Getty Images
.Mr. Trichet, the ECB president, made clear he was a reluctant participant in the arrangement. But he said governments would provide some €35 billion of insurance in case the Greek collateral isn't solid. He added that the ECB's own holdings of Greek bonds would be "fully and integrally honored."
European leaders took pains to separate Greece from other countries. Greece "requires an exceptional and unique solution," they said in a statement. Other euro countries "solemnly reaffirm their inflexible determination to honor fully" their own sovereign bonds, the statement said.
Ireland and Portugal, both receiving European aid, will get breaks on their interest rates to 3.5%. For Ireland, which was paying around 6% on the EU portion of its €67.5 billion bailout, that is a victory. Previous attempts to lower its interest rate had been stymied by French insistence that Ireland's low corporate tax rate be raised. That demand is dropped.
—Stephen Fidler and Marcus Walker contributed to this article.
Write to Patricia Kowsmann at patricia.kowsmann@dowjones.com, Costas Paris at costas.paris@dowjones.com and Stephen Fidler at stephen.fidler@wsj.com
By CHARLES FORELLE, PATRICIA KOWSMANN and COSTAS PARIS
BRUSSELS—Euro-zone leaders agreed Thursday on a new €109 billion ($157 billion) bailout for Greece and new steps to prevent its debt crisis from metastasizing across the Continent—in a plan expected to trigger the first debt default by a nation using the common currency.
.The meeting also produced a stark and open-ended declaration: The wider euro zone is committed to financing countries that take bailouts—thus far, Greece, Ireland and Portugal—for as along as it takes them to regain access to private lenders.
The move is a bold bid by Europe's leaders to corral an 18-month-old debt crisis that is veering dangerously out of control. Markets stopped lending to Greece, then Ireland, then Portugal. Fearful that policy makers have no concrete strategy for shoring up the larger economies of Spain and Italy, investors have lately soured on them as well. After months of dithering, European leaders resolved that they had to stop the bleeding.
Still, it remains to be seen whether the tourniquet will hold. Even after the new plan, Greece will have a staggering load of debt.
.Thursday's agreement was the fruit of several concessions. European Central Bank Jean-Claude Trichet lost a fight to prevent default. German Chancellor Angela Merkel pried open her reluctant nation's pocketbook to write another check and be on the hook for still more.
French President Nicolas Sarkozy, though he lost a bid to tax banks to pay for the bailout, may have come out the best by urging Ms. Merkel to a more proactive approach to the debt crisis.
..In a declaration crafted here after hours of haggling, and a whirlwind trip Wednesday to Berlin by the French president, the leaders put forward billions more in new loans to Greece. But they extracted a price: Greece's private-sector creditors will accept a bond exchange that gives them less than originally promised.
The euro zone had long insisted that none of its 17 members could contemplate not repaying its debt, and the European Central Bank vigorously fought a default to the very end. Mr. Trichet joined Ms. Merkel and Mr. Sarkozy at their meeting in Berlin on Wednesday to press his case once more. But Greece was reeling under its huge burden, and its woes were threatening to engulf other countries.
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.To push back against that contagion, the euro zone also agreed Thursday to a wide expansion of its €440 billion bailout fund. That vehicle, once restricted to lending to countries near the brink of collapse, will now be able to buy euro-zone bonds on secondary markets to move prices and lend directly to countries even before they lose access to private funding. That could even include lending money to finance bank recapitalizations.
The leaders also agreed to cut the once-lofty interest rates that the bailout fund charges and extend to as much as 30 years the maturities of the loans it provides.
"We created a solid firewall and better fire-brigade equipment," said Herman Van Rompuy, the European Union president.
That creation had been a long time coming. In spring of 2010, when the euro zone was debating the first Greek bailout, the countries—at the firm insistence of Germany—decreed that rescue loans would come only when absolutely needed, and would be issued at punitive rates to discourage countries from slacking on reforms and falling back on cheap aid.
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Zuma Press
Greek Prime Minister George Papandreou in Brussels on Thursday.
.Germany has made a stark reversal. Chancellor Angela Merkel, once the euro zone's "Madame Non," led a push to assemble the new Greek bailout program. In the face of stiff domestic opposition to creating what the German press dubbed a "Transferunion," she opened the door to far greater fiscal aid than her country had once contemplated. In return, she won a commitment that banks and other creditors—and not just taxpayers—would have to bear some of the burden.
The new plan for Greece will work as follows: The euro zone's bailout fund and the International Monetary Fund will lend the country roughly €109 billion over the next three years at around 3.5% interest.
Private creditors who hold Greek debt that matures in the coming years will "voluntarily" turn in their bonds and accept new ones that mature far in the future. The Institute of International Finance, a banking trade group, said its members had committed to participate in the exchange.
The banks, Germany and France's largest institutions among them, offered to take new 30-year or 15-year Greek bonds. The offer includes a menu of four different flavors of bonds with varying coupons and types of insurance—some would be backed by triple-A-rated collateral. Some of the bonds on the menu include a 20% discount to principal.
The euro-zone leaders said the private sector's "contribution" would amount to €37 billion through 2014 and €106 billion through 2019, though it didn't detail the calculation. They also said a debt buyback program would yield an additional €12.6 billion by taking Greek debt off the markets at discount prices.
Charles Dallara, chief executive of the Washington-based IIF, which has been leading negotiations for the private sector, said he believed the deal should put an end "to the uncertainty swirling around the future that was hindering any capacity for the Greek economy to grow."
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EPA
German Chancellor Angela Merkel, right, talks to the head of the International Monetary Fund, Christine Lagarde, and French President Nicolas Sarkozy at the EU summit in Brussels on Thursday.
.The nature of the private-sector contribution—and how it is calculated—is murky. But it appears that a relatively small portion of it would come from actually renouncing principal the creditors are owed. A large part will come from accepting to be repaid late at low interest rates.
In any case, the exchange would cause ratings companies to place Greece into "selective default"—a term indicating it has defaulted on some obligations but is honoring others. It isn't clear how long Greece would remain in that situation.
That has a side effect: The European Central Bank has made clear it wouldn't accept defaulted bonds as collateral for its lending operations. That would be devastating to banks—especially Greek banks—that rely on using their holdings of Greek bonds to get quick cash from the ECB. To counteract that, the euro-zone countries committed to providing "credit enhancement"—guarantees or other measures—that would allow the ECB to continue to accept Greek debt.
WSJ's Charles Forelle reports from the Euro Summit on efforts to put a final stamp on a bailout package for Greece that could run as high as $100 billion. Photo: GEORGES GOBET/AFP/Getty Images
.Mr. Trichet, the ECB president, made clear he was a reluctant participant in the arrangement. But he said governments would provide some €35 billion of insurance in case the Greek collateral isn't solid. He added that the ECB's own holdings of Greek bonds would be "fully and integrally honored."
European leaders took pains to separate Greece from other countries. Greece "requires an exceptional and unique solution," they said in a statement. Other euro countries "solemnly reaffirm their inflexible determination to honor fully" their own sovereign bonds, the statement said.
Ireland and Portugal, both receiving European aid, will get breaks on their interest rates to 3.5%. For Ireland, which was paying around 6% on the EU portion of its €67.5 billion bailout, that is a victory. Previous attempts to lower its interest rate had been stymied by French insistence that Ireland's low corporate tax rate be raised. That demand is dropped.
—Stephen Fidler and Marcus Walker contributed to this article.
Write to Patricia Kowsmann at patricia.kowsmann@dowjones.com, Costas Paris at costas.paris@dowjones.com and Stephen Fidler at stephen.fidler@wsj.com
Wednesday, July 20, 2011
US Long Bond Rallies On Debt-Ceiling Hopes
US Long Bond Rallies On Debt-Ceiling Hopes
By Cynthia Lin
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--A surge of optimism Tuesday about the U.S. government making progress toward a budget deal helped 30-year Treasurys recoup sharp losses suffered in the previous session, to post their strongest session in more than four months.
President Barack Obama's mid-afternoon remarks included praise for a sweeping deficit-reduction plan by the so-called "Gang of Six" that involves spending cuts, entitlement-program modifications and tax reforms--all deep-rooted measures that ratings firms are calling for in order to rein in the nation's rising debt load.
The plan, which appeared to garner a flood of bipartisan support, is among the first positive signs that the U.S. debt crisis impasse is finally cracking. Still, some analysts are pessimistic about a solution until they see it officially put in place.
"This is all still so much political theater on everyone's parts, it's pretty horrendous," said Joe Burke, the head of government bond risk management at Interactive Brokers. "It wasn't just surprising that [Treasury bonds] rallied, but how fast it did. If someone were to come out and say they weren't going for it, we'd be right back to where we started."
Aside from the late-day bond rally, the rest of the Treasurys market traded with little conviction because investors struggled to balance the euro-zone debt crisis against the still-unsigned U.S. debt deal. Treasury notes hovered around par for most of the session despite a strong jump in U.S. stocks helped by a better-than-expected jump in June U.S. housing starts.
The debt ceiling debate "is keeping Treasurys in a holding pattern as people await a resolution," said Scott Sherman, interest rate strategist at Credit Suisse.
For months, investors regarded the U.S. debt limit discussions as trivial, showing little concern that the world's largest country might default on its debt. In fact, Treasurys enjoyed months of heavy buying, fueled by the euro-zone debt crisis that drove investors into safer assets. This came even as the Treasury Department's Aug. 2 deadline for Congress to increase the nation's borrowing limit inched closer and ratings firms had threatened to strip U.S. debt of its top-notch grade.
But investors have started getting uneasy about holding longer-dated U.S. government debt, which would stand to lose the most if market participants lose faith in the value and credibility of Treasurys. It wasn't until Obama's reassurances Tuesday that 30-year bond prices rallied, more than recovering Monday's steep selloff and almost erasing the losses over the past four sessions combined.
Many traders say a technical default would spark a sharp, but short-lived exodus from Treasurys. But they think there are better chances that the debt ceiling is lifted in time and that a longer-term plan to cut fiscal spending will hurt stocks and boost appetite for Treasurys.
Analysts at Nomura recommend buying Treasurys on price dips, maintaining faith that the debt ceiling will be resolved and ongoing euro-zone fears will drive Treasury prices higher. Hartford Investment Management says the debt ceiling debate is adding upward pressure on Treasury yields and expects the benchmark 10-year to go as high as 3.35% in the near-term.
In late-afternoon trading, the 30-year bond rose 1 28/32 in price to yield 4.179%. Benchmark 10-year notes fed off the momentum, rising 10/32 to yield 2.873%. Two-year notes fell 1/32 to yield 0.371%. Bond prices and yields move inversely.
US Swap Spreads Mixed
U.S. two-year swap spread, which measures the differential between the two-year swap rate and two-year Treasury yield and is a main gauge of credit risks, was 0.25 basis point tighter at 29.00 basis points. The 10-year swap spread was 2.75 basis points wider at 14.50 basis points.
COUPON ISSUE PRICE CHANGE YIELD CHANGE
3/4% 2-year 100 0/32 dn 1/32 0.371% +1.2BP
1 1/4% 3-Year 100 0/32 dn 1/32 0.622% +0.8BP
2 1/4% 5-year 100 11/32 dn 0/32 1.428% +0.2BP
2 7/8% 7-Year 101 15/32 up 4/32 2.144% -2.2BP
3 5/8% 10-year 102 5/32 up 10/32 2.873% -3.6BP
4 3/4% 30-year 103 11/32 up 1 28/32 4.179% -11.1BP
2-10-Yr Yield Spread: +255.0BPS Vs. +255.2PS
Source: Tradeweb
-By Cynthia Lin, Dow Jones Newswires; 212-416-4403; cynthia.lin@dowjones.com
By Cynthia Lin
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--A surge of optimism Tuesday about the U.S. government making progress toward a budget deal helped 30-year Treasurys recoup sharp losses suffered in the previous session, to post their strongest session in more than four months.
President Barack Obama's mid-afternoon remarks included praise for a sweeping deficit-reduction plan by the so-called "Gang of Six" that involves spending cuts, entitlement-program modifications and tax reforms--all deep-rooted measures that ratings firms are calling for in order to rein in the nation's rising debt load.
The plan, which appeared to garner a flood of bipartisan support, is among the first positive signs that the U.S. debt crisis impasse is finally cracking. Still, some analysts are pessimistic about a solution until they see it officially put in place.
"This is all still so much political theater on everyone's parts, it's pretty horrendous," said Joe Burke, the head of government bond risk management at Interactive Brokers. "It wasn't just surprising that [Treasury bonds] rallied, but how fast it did. If someone were to come out and say they weren't going for it, we'd be right back to where we started."
Aside from the late-day bond rally, the rest of the Treasurys market traded with little conviction because investors struggled to balance the euro-zone debt crisis against the still-unsigned U.S. debt deal. Treasury notes hovered around par for most of the session despite a strong jump in U.S. stocks helped by a better-than-expected jump in June U.S. housing starts.
The debt ceiling debate "is keeping Treasurys in a holding pattern as people await a resolution," said Scott Sherman, interest rate strategist at Credit Suisse.
For months, investors regarded the U.S. debt limit discussions as trivial, showing little concern that the world's largest country might default on its debt. In fact, Treasurys enjoyed months of heavy buying, fueled by the euro-zone debt crisis that drove investors into safer assets. This came even as the Treasury Department's Aug. 2 deadline for Congress to increase the nation's borrowing limit inched closer and ratings firms had threatened to strip U.S. debt of its top-notch grade.
But investors have started getting uneasy about holding longer-dated U.S. government debt, which would stand to lose the most if market participants lose faith in the value and credibility of Treasurys. It wasn't until Obama's reassurances Tuesday that 30-year bond prices rallied, more than recovering Monday's steep selloff and almost erasing the losses over the past four sessions combined.
Many traders say a technical default would spark a sharp, but short-lived exodus from Treasurys. But they think there are better chances that the debt ceiling is lifted in time and that a longer-term plan to cut fiscal spending will hurt stocks and boost appetite for Treasurys.
Analysts at Nomura recommend buying Treasurys on price dips, maintaining faith that the debt ceiling will be resolved and ongoing euro-zone fears will drive Treasury prices higher. Hartford Investment Management says the debt ceiling debate is adding upward pressure on Treasury yields and expects the benchmark 10-year to go as high as 3.35% in the near-term.
In late-afternoon trading, the 30-year bond rose 1 28/32 in price to yield 4.179%. Benchmark 10-year notes fed off the momentum, rising 10/32 to yield 2.873%. Two-year notes fell 1/32 to yield 0.371%. Bond prices and yields move inversely.
US Swap Spreads Mixed
U.S. two-year swap spread, which measures the differential between the two-year swap rate and two-year Treasury yield and is a main gauge of credit risks, was 0.25 basis point tighter at 29.00 basis points. The 10-year swap spread was 2.75 basis points wider at 14.50 basis points.
COUPON ISSUE PRICE CHANGE YIELD CHANGE
3/4% 2-year 100 0/32 dn 1/32 0.371% +1.2BP
1 1/4% 3-Year 100 0/32 dn 1/32 0.622% +0.8BP
2 1/4% 5-year 100 11/32 dn 0/32 1.428% +0.2BP
2 7/8% 7-Year 101 15/32 up 4/32 2.144% -2.2BP
3 5/8% 10-year 102 5/32 up 10/32 2.873% -3.6BP
4 3/4% 30-year 103 11/32 up 1 28/32 4.179% -11.1BP
2-10-Yr Yield Spread: +255.0BPS Vs. +255.2PS
Source: Tradeweb
-By Cynthia Lin, Dow Jones Newswires; 212-416-4403; cynthia.lin@dowjones.com
Monday, July 18, 2011
Bumpy Ride Likely for Treasurys
Bumpy Ride Likely for Treasurys
By CYNTHIA LIN
NEW YORK—As the clock ticks down on a deal to raise the debt ceiling, the partisan bickering and floating of trial balloons are pricking Treasury bond holders' nerves.
For months, Treasurys investors largely brushed off any notion that the world's largest economy would miss an interest payment and face losing its top triple-A rating. The euro-zone debt crisis and fragile U.S. economy consumed much of the attention, fueling a three-month run-up in Treasury prices as investors sought financial safety.
But prospects of a technical default are getting hard to ignore without a signed agreement as the calendar heads toward the Treasury Department's Aug. 2 deadline, when the U.S. is supposed to run out of money to pay all of its bills.
Word of a $1.5 trillion agreement on spending cuts between Republicans and Democrats sparked a selloff in Treasurys Thursday. It wasn't so much a reaction of hope, but rather frustration, analysts say, since stocks ended lower alongside the drop in Treasury prices. Some say the figure was disappointing, falling short of the $4 trillion in budget savings needed and $2 trillion from a Republican proposal last weekend.
For the week, Treasury prices rose, pushing the benchmark 10-year yield to 2.910% on Friday, from 3.014% a week earlier.
Other plans have emerged, such as Minority Leader Mitch McConnell's arrangement to allow the president to lift the debt ceiling on his own, and House Majority Leader Eric Cantor's "Cut, Cap and Balance" approach.
"The market doesn't know what to react to because there's such a cacophony out of Washington," said Ward McCarthy, chief financial economist at Jefferies. "Until they've sign on the dotted line, no one is going to believe they've agreed on anything."
Throw ratings companies in the mix, and the consequences of a missed payment, however technical, looms larger. Standard & Poor's said Friday there is a chance it will downgrade the U.S. even before a missed debt payment if it sees the probability of a default rising further between now and Aug. 4, when S&P said an interest payment is due. Moody's put the U.S. on negative watch Wednesday, following through on a promise made last month if it felt there was a lack of progress in Washington.
While it is hard to imagine a world where U.S. government debt isn't the global investment safe haven, investors are getting increasingly anxious.
The 30-year bond, where owners stand to lose the most if the value or credibility of U.S. debt is in question, has underperformed, with its yield rising faster than those of shorter-dated notes.
Justin Lederer, senior strategist at Cantor Fitzgerald, said he expects "extreme volatility" in the Treasury market to persist as the budget debate drags on. "Across the market, it's a tug of war back and forth ... and on the long end, there's a fear of what the long-term outlook for the economy is."
For the week ended Wednesday, global fund tracker EPFR found that there was a notable turn within U.S. bond-fund inflows toward those mandated to invest in intermediate five- to eight-year debt. "There was not much interest in longer-term" U.S. debt, said EPFR analyst Cameron Brandt. "I would say it is tied to the uncertain fiscal monetary outlook for the U.S."
Some Asian nations, among the biggest foreign owners of U.S. debt, have been quietly wringing their hands over the battle on Capitol Hill. Officials and analysts there have voiced concerns but said they have few alternatives for parking their cash.
But signs of anxiety reflected in the markets remain contained, and U.S. analysts say a default at home could be very different from any of those abroad.
"A ratings downgrade would be about politics, not about the U.S.'s ability to pay. Markets do understand that," said Ira Jersey, interest-rate strategist at Credit Suisse.
In fact, if no agreement is reached by Aug. 2, Kevin Giddis, president of fixed-income capital markets at Morgan Keegan, says that Treasurys could even gain in that scenario. "As counterintuitive as this may sound, my guess is that Treasurys will initially rally on the news," Mr. Giddis said, citing how investors "instinctively" head to U.S. government debt while in risk-off mode.
Write to Cynthia Lin at cynthia.lin@dowjones.com
By CYNTHIA LIN
NEW YORK—As the clock ticks down on a deal to raise the debt ceiling, the partisan bickering and floating of trial balloons are pricking Treasury bond holders' nerves.
For months, Treasurys investors largely brushed off any notion that the world's largest economy would miss an interest payment and face losing its top triple-A rating. The euro-zone debt crisis and fragile U.S. economy consumed much of the attention, fueling a three-month run-up in Treasury prices as investors sought financial safety.
But prospects of a technical default are getting hard to ignore without a signed agreement as the calendar heads toward the Treasury Department's Aug. 2 deadline, when the U.S. is supposed to run out of money to pay all of its bills.
Word of a $1.5 trillion agreement on spending cuts between Republicans and Democrats sparked a selloff in Treasurys Thursday. It wasn't so much a reaction of hope, but rather frustration, analysts say, since stocks ended lower alongside the drop in Treasury prices. Some say the figure was disappointing, falling short of the $4 trillion in budget savings needed and $2 trillion from a Republican proposal last weekend.
For the week, Treasury prices rose, pushing the benchmark 10-year yield to 2.910% on Friday, from 3.014% a week earlier.
Other plans have emerged, such as Minority Leader Mitch McConnell's arrangement to allow the president to lift the debt ceiling on his own, and House Majority Leader Eric Cantor's "Cut, Cap and Balance" approach.
"The market doesn't know what to react to because there's such a cacophony out of Washington," said Ward McCarthy, chief financial economist at Jefferies. "Until they've sign on the dotted line, no one is going to believe they've agreed on anything."
Throw ratings companies in the mix, and the consequences of a missed payment, however technical, looms larger. Standard & Poor's said Friday there is a chance it will downgrade the U.S. even before a missed debt payment if it sees the probability of a default rising further between now and Aug. 4, when S&P said an interest payment is due. Moody's put the U.S. on negative watch Wednesday, following through on a promise made last month if it felt there was a lack of progress in Washington.
While it is hard to imagine a world where U.S. government debt isn't the global investment safe haven, investors are getting increasingly anxious.
The 30-year bond, where owners stand to lose the most if the value or credibility of U.S. debt is in question, has underperformed, with its yield rising faster than those of shorter-dated notes.
Justin Lederer, senior strategist at Cantor Fitzgerald, said he expects "extreme volatility" in the Treasury market to persist as the budget debate drags on. "Across the market, it's a tug of war back and forth ... and on the long end, there's a fear of what the long-term outlook for the economy is."
For the week ended Wednesday, global fund tracker EPFR found that there was a notable turn within U.S. bond-fund inflows toward those mandated to invest in intermediate five- to eight-year debt. "There was not much interest in longer-term" U.S. debt, said EPFR analyst Cameron Brandt. "I would say it is tied to the uncertain fiscal monetary outlook for the U.S."
Some Asian nations, among the biggest foreign owners of U.S. debt, have been quietly wringing their hands over the battle on Capitol Hill. Officials and analysts there have voiced concerns but said they have few alternatives for parking their cash.
But signs of anxiety reflected in the markets remain contained, and U.S. analysts say a default at home could be very different from any of those abroad.
"A ratings downgrade would be about politics, not about the U.S.'s ability to pay. Markets do understand that," said Ira Jersey, interest-rate strategist at Credit Suisse.
In fact, if no agreement is reached by Aug. 2, Kevin Giddis, president of fixed-income capital markets at Morgan Keegan, says that Treasurys could even gain in that scenario. "As counterintuitive as this may sound, my guess is that Treasurys will initially rally on the news," Mr. Giddis said, citing how investors "instinctively" head to U.S. government debt while in risk-off mode.
Write to Cynthia Lin at cynthia.lin@dowjones.com
统计局：6月份70个大中城市房价仅3个同比下降
统计局：6月份70个大中城市房价仅3个同比下降
6月份70个大中城市住宅销售价格变动情况
一、新建商品住宅(不含保障性住房)价格变动情况
(一)与上月相比，70个大中城市中，价格下降的城市有12个，持平的城市有14个。与5月份相比，6月份环比价格下降和持平的城市增加了6个。价格上涨的城市中，环比涨幅均未超过0.5%，涨幅比5月份缩小的城市有24个。
(二)与去年同月相比，70个大中城市中，价格下降的城市有3个，涨幅回落的城市有28个。6月份，同比涨幅在5.0%以内的城市有39个，比5月份增加了3个。
二、二手住宅价格变动情况
(一)与上月相比，70个大中城市中，价格下降的城市有19个，持平的城市有12个。价格上涨的城市中，环比价格涨幅均未超过1.0%，涨幅在0.5%以内的城市有36个。
(二)与去年同月相比，70个大中城市中，价格下降的城市有5个，比5月份增加了1个。涨幅回落的城市有24个。6月份，同比涨幅在5.0%以内的城市有48个。
2011年6月份70个大中城市住宅销售价格指数
2011年6月份70个大中城市新建商品住宅分类价格指数
2011年6月份70个大中城市二手住宅分类价格指数
说明：
1、从2011年1月份起，国家统计局开始实施《住宅销售价格统计调查方案》(以下简称《新方案》)。由于《新方案》对数据来源渠道、指标设置、计算方法等影响价格指数计算的主要因素都进行了相当大的调整，因此今年前11个月数据与以往历史数据不完全可比。
2、同比价格指数的计算方法。鉴于网签数据从2010年12月份起开始上报，前11个月的网签数据缺失，故不能计算今年1-11月份各月与网签数据同一口径的同比价格指数。为保持同比价格指数计算和发布的连续性和稳定性，满足有关方面的需要，国家统计局采用2010年的有关房价统计数据和2011年按网签数据计算的房价数据，根据同比指数和环比指数之间的数学关系，对6月份同比价格指数的计算进行了技术处理：将2010年7-12月份(6个月)的环比数据连乘，再乘以2011年前6个月的环比数据生成本月同比价格指数。以此类推可计算其他月份的同比价格指数。计算公式表示为：
其中：P201006……P201012分别表示2010年6-12月份各月价格，P201101……P201106分别表示2011年1-6月份各月价格。
3、2011年6月份，62个城市的新建住宅价格指数根据网签数据计算，其他8个城市根据统计系统房地产开发统计报表中各个项目的分类销售面积和金额数据计算。62个网签数据城市分别是：北京、天津、石家庄、太原、呼和浩特、沈阳、大连、长春、哈尔滨、上海、南京、杭州、宁波、合肥、福州、厦门、南昌、济南、青岛、郑州、武汉、长沙、广州、深圳、南宁、海口、重庆、成都、贵阳、昆明、西安、兰州、西宁、银川、乌鲁木齐、秦皇岛、包头、丹东、吉林、牡丹江、无锡、扬州、徐州、温州、金华、安庆、泉州、九江、济宁、洛阳、平顶山、宜昌、岳阳、常德、惠州、湛江、韶关、桂林、北海、三亚、泸州、南充。6月份新增加的城市是安庆、济宁和常德。
4、新建住宅含保障性住房；新建商品住宅不含保障性住房。
5、表格中"--"表示本月无成交记录。(国家统计局网站)
七十个大中城市住宅销售价格指数(2011年6月)
6月份70个大中城市住宅销售价格变动情况
一、新建商品住宅(不含保障性住房)价格变动情况
(一)与上月相比，70个大中城市中，价格下降的城市有12个，持平的城市有14个。与5月份相比，6月份环比价格下降和持平的城市增加了6个。价格上涨的城市中，环比涨幅均未超过0.5%，涨幅比5月份缩小的城市有24个。
(二)与去年同月相比，70个大中城市中，价格下降的城市有3个，涨幅回落的城市有28个。6月份，同比涨幅在5.0%以内的城市有39个，比5月份增加了3个。
二、二手住宅价格变动情况
(一)与上月相比，70个大中城市中，价格下降的城市有19个，持平的城市有12个。价格上涨的城市中，环比价格涨幅均未超过1.0%，涨幅在0.5%以内的城市有36个。
(二)与去年同月相比，70个大中城市中，价格下降的城市有5个，比5月份增加了1个。涨幅回落的城市有24个。6月份，同比涨幅在5.0%以内的城市有48个。
2011年6月份70个大中城市住宅销售价格指数
2011年6月份70个大中城市新建商品住宅分类价格指数
2011年6月份70个大中城市二手住宅分类价格指数
说明：
1、从2011年1月份起，国家统计局开始实施《住宅销售价格统计调查方案》(以下简称《新方案》)。由于《新方案》对数据来源渠道、指标设置、计算方法等影响价格指数计算的主要因素都进行了相当大的调整，因此今年前11个月数据与以往历史数据不完全可比。
2、同比价格指数的计算方法。鉴于网签数据从2010年12月份起开始上报，前11个月的网签数据缺失，故不能计算今年1-11月份各月与网签数据同一口径的同比价格指数。为保持同比价格指数计算和发布的连续性和稳定性，满足有关方面的需要，国家统计局采用2010年的有关房价统计数据和2011年按网签数据计算的房价数据，根据同比指数和环比指数之间的数学关系，对6月份同比价格指数的计算进行了技术处理：将2010年7-12月份(6个月)的环比数据连乘，再乘以2011年前6个月的环比数据生成本月同比价格指数。以此类推可计算其他月份的同比价格指数。计算公式表示为：
其中：P201006……P201012分别表示2010年6-12月份各月价格，P201101……P201106分别表示2011年1-6月份各月价格。
3、2011年6月份，62个城市的新建住宅价格指数根据网签数据计算，其他8个城市根据统计系统房地产开发统计报表中各个项目的分类销售面积和金额数据计算。62个网签数据城市分别是：北京、天津、石家庄、太原、呼和浩特、沈阳、大连、长春、哈尔滨、上海、南京、杭州、宁波、合肥、福州、厦门、南昌、济南、青岛、郑州、武汉、长沙、广州、深圳、南宁、海口、重庆、成都、贵阳、昆明、西安、兰州、西宁、银川、乌鲁木齐、秦皇岛、包头、丹东、吉林、牡丹江、无锡、扬州、徐州、温州、金华、安庆、泉州、九江、济宁、洛阳、平顶山、宜昌、岳阳、常德、惠州、湛江、韶关、桂林、北海、三亚、泸州、南充。6月份新增加的城市是安庆、济宁和常德。
4、新建住宅含保障性住房；新建商品住宅不含保障性住房。
5、表格中"--"表示本月无成交记录。(国家统计局网站)
七十个大中城市住宅销售价格指数(2011年6月)
Friday, July 15, 2011
China Stumbles in Yuan Grand Plan
China Stumbles in Yuan Grand Plan
LINGLING WEI And BOB DAVIS
BEIJING—When China announced a flagship program to make its currency more international in the summer of 2009, it cited "the growing call" from Chinese trading partners to use the yuan in cross-border transactions. More than a year later, the People's Bank of China touted the program as a "breakthrough," citing a surge in the amount of trade in the currency.
Not everything went according to plan.
The move had important, unintended side effects, including giving companies and investors a way to profit from the difference in interest rates between China and other countries, and opening a path for "hot money" to flood the country.
It also has boosted, rather than reduced, the amount of foreign-exchange reserves piling up in China's coffers—the opposite of what Beijing intended when it opened the yuan for foreign trade.
This, in turn, could add to China's already difficult battle to tame an inflation rate running at more than 6%, as the central bank needs to print more yuan to buy up the dollars flowing into the country.
China's stumbles in trying to get its currency more widely accepted outside its borders underline a fundamental contradiction at the heart of Beijing's plans: The Chinese authorities want to keep a tight grip on the value of the yuan to keep exports booming, while at the same time encouraging more foreign companies and investors to use it.
China is trying to blunt the rise of the yuan by keeping its appreciation sharply controlled, but the internationalization program puts upward pressure on the currency.
There is a "tension in the short run between managing yuan appreciation and increasing the yuan's prominence in global trade and finance transactions," says Brookings Institution China scholar Eswar Prasad.
.On Tuesday, the People's Bank of China said foreign-exchange reserves jumped by $153 billion in the second quarter to $3.2 trillion.
Of that increase, $48 billion, or about a third, was attributable to China's decision to allow the yuan to be used in foreign-trade transactions, estimates Zhu Chaoping, head of research at ChinaScope Financial, a market-research firm in Hong Kong.
In the prior two quarters, the trade program added a total of $83.5 billion to China's reserves, Mr. Zhu calculates.
China had hoped that allowing the yuan to be used more freely abroad would boost demand for the currency, also known as the renminbi or RMB, and reduce the amount of dollars entering the country.
For the long term, China wants to turn the yuan into a global reserve currency that is used for investment, trade and loans, as the dollar and euro are.
A widely accepted yuan could help Chinese companies alleviate foreign-exchange risks. Chinese exporters, in particular, fear the yuan's continued appreciation against the dollar—a rise China's leaders have tried to restrain—would expose them to losses if they can be paid only in greenbacks that have been steadily losing value.
The yuan is widely seen as undervalued, so only overseas sellers are interested in the trade.
Nearly 90% of cross-border trade settled in yuan in the first quarter—totaling 360.3 billion yuan, or 7% of China's total trade—involved China's imports, according to data provided by the People's Bank of China, a sign foreign demand for yuan hasn't picked up much.
Shanghai Flying Horse Imports & Exports Co., a state-owned company that exports clothing and textiles, is among the first batch of companies in the city authorized to use yuan to settle trade.
Still, nearly all of the company's exports are settled in dollars, according to Mao Xiaohua, a manager at Shanghai Flying Horse.
"Renminbi settlement certainly would be good for us because that would reduce our foreign-exchange risks," Ms. Mao said. "But our customers in Europe and the U.S. are all unwilling to pay in renminbi....It seems that they totally dismiss the idea of renminbi settlement."
The Chinese authorities want to keep a tight grip on the value of the yuan to keep exports booming, while at the same time encouraging more foreign companies and investors to use it. Above, The Great Wall in April.
.The fact that importers are using yuan means that dollars build up at a more rapid clip in the Peoples Bank of China's vaults because importers don't need to tap them.
"Everyone thinks there is a one-way bet on which way the currency will move," so only those that get paid in yuan are interested in the business, says University of California at Berkeley economist Barry Eichengreen. "When you internationalize, you can't control all the uses to which money is put."
Chinese economist Yu Yongding, a former adviser to the People's Bank of China, recently told a Chinese newspaper that "to date, renminbi trade settlement hasn't helped Chinese companies reduce foreign-exchange risks, but has helped foreign companies cut risks."
Some companies also have used the trade-settlement program to profit from the difference between higher yuan interest rates in mainland China and lower U.S. dollar rates in Hong Kong, according to bankers and analysts.
Such transactions could be used by speculators betting on the yuan's rise and have the potential effect of adding to China's dollar reserves.
Asia Pulp & Paper Co., an Indonesian paper maker, recently directed its Hong Kong subsidiary to borrow U.S. dollars at low rates, using its yuan deposits as collateral, says a person familiar with its operations.
APP then took the dollars and paid for goods produced by its mainland subsidiaries, effectively using low-rate U.S.-dollar loans instead of higher-rate yuan loans.
At the end of a complex series of transactions, APP was able to repay the dollar loans with yuan obtained from the internationalization program.
APP benefitted in two ways: It borrowed in dollars at low rates and paid off the loan with yuan that had appreciated in value since the beginning of its dealings.
APP declined to comment.
Li Bo, director of the Chinese central bank's currency policy division, said in an April speech that the goal of the cross-border yuan program was to help Chinese companies reduce foreign-exchange risks and to ease cross-border trade and investment.
PBOC officials declined to comment for this article.
Harvard economist Jeffrey Frankel said China is unusual in pressing to give its currency a bigger international role. Japan and Germany, after World War II, and the U.S. after World War I resisted such efforts because they worried their currencies would strengthen and make their exporters less competitive.
For now, China's central bank is struggling to keep up with companies looking to use the internationalization program as a channel for so-called hot money, which can contribute to dangerous bubbles in China's real-estate market and stock exchanges, as investors look to park their money in sectors seen as paying a high return.
The State Administration of Foreign Exchange, the central bank's currency watchdog, has put in place a "special campaign" to crack down on speculative money flows.
This week, the regulator fined Guangzhou Teng Hang Metal Materials Co., of Guangzhou, China, which buys steel scrap from overseas for recycling, for manipulating its import payments.
More
Companies Worry: If Yuan Floats, Could It Fall?
.The company inappropriately deferred payments of $1.3 million, SAFE alleged.
Delaying payments for imports is a long-used tactic by Chinese companies to benefit from yuan appreciation.
Experts on China's foreign-exchange regulations say the availability of yuan settlement has the potential to make this form of arbitrage even more profitable, because companies now have access to even more favorable yuan exchange rates overseas.
The yuan is valued slightly more against the U.S. dollar in Hong Kong than it is on the mainland.
A manager at Guangzhou Teng Hang declined to comment on SAFE's finding and the fine levied by the agency.
"I'm not aware of that," he said.
The SAFE program may be having some impact.
According to UBS AG economist Wang Tao, speculative inflows—or capital seeking short-term returns—slowed to $24 billion in the second quarter, from an estimated $90 billion in each of the previous two quarters.
Write to Lingling Wei at lingling.wei@wsj.com and Bob Davis at bob.davis@wsj.com
LINGLING WEI And BOB DAVIS
BEIJING—When China announced a flagship program to make its currency more international in the summer of 2009, it cited "the growing call" from Chinese trading partners to use the yuan in cross-border transactions. More than a year later, the People's Bank of China touted the program as a "breakthrough," citing a surge in the amount of trade in the currency.
Not everything went according to plan.
The move had important, unintended side effects, including giving companies and investors a way to profit from the difference in interest rates between China and other countries, and opening a path for "hot money" to flood the country.
It also has boosted, rather than reduced, the amount of foreign-exchange reserves piling up in China's coffers—the opposite of what Beijing intended when it opened the yuan for foreign trade.
This, in turn, could add to China's already difficult battle to tame an inflation rate running at more than 6%, as the central bank needs to print more yuan to buy up the dollars flowing into the country.
China's stumbles in trying to get its currency more widely accepted outside its borders underline a fundamental contradiction at the heart of Beijing's plans: The Chinese authorities want to keep a tight grip on the value of the yuan to keep exports booming, while at the same time encouraging more foreign companies and investors to use it.
China is trying to blunt the rise of the yuan by keeping its appreciation sharply controlled, but the internationalization program puts upward pressure on the currency.
There is a "tension in the short run between managing yuan appreciation and increasing the yuan's prominence in global trade and finance transactions," says Brookings Institution China scholar Eswar Prasad.
.On Tuesday, the People's Bank of China said foreign-exchange reserves jumped by $153 billion in the second quarter to $3.2 trillion.
Of that increase, $48 billion, or about a third, was attributable to China's decision to allow the yuan to be used in foreign-trade transactions, estimates Zhu Chaoping, head of research at ChinaScope Financial, a market-research firm in Hong Kong.
In the prior two quarters, the trade program added a total of $83.5 billion to China's reserves, Mr. Zhu calculates.
China had hoped that allowing the yuan to be used more freely abroad would boost demand for the currency, also known as the renminbi or RMB, and reduce the amount of dollars entering the country.
For the long term, China wants to turn the yuan into a global reserve currency that is used for investment, trade and loans, as the dollar and euro are.
A widely accepted yuan could help Chinese companies alleviate foreign-exchange risks. Chinese exporters, in particular, fear the yuan's continued appreciation against the dollar—a rise China's leaders have tried to restrain—would expose them to losses if they can be paid only in greenbacks that have been steadily losing value.
The yuan is widely seen as undervalued, so only overseas sellers are interested in the trade.
Nearly 90% of cross-border trade settled in yuan in the first quarter—totaling 360.3 billion yuan, or 7% of China's total trade—involved China's imports, according to data provided by the People's Bank of China, a sign foreign demand for yuan hasn't picked up much.
Shanghai Flying Horse Imports & Exports Co., a state-owned company that exports clothing and textiles, is among the first batch of companies in the city authorized to use yuan to settle trade.
Still, nearly all of the company's exports are settled in dollars, according to Mao Xiaohua, a manager at Shanghai Flying Horse.
"Renminbi settlement certainly would be good for us because that would reduce our foreign-exchange risks," Ms. Mao said. "But our customers in Europe and the U.S. are all unwilling to pay in renminbi....It seems that they totally dismiss the idea of renminbi settlement."
The Chinese authorities want to keep a tight grip on the value of the yuan to keep exports booming, while at the same time encouraging more foreign companies and investors to use it. Above, The Great Wall in April.
.The fact that importers are using yuan means that dollars build up at a more rapid clip in the Peoples Bank of China's vaults because importers don't need to tap them.
"Everyone thinks there is a one-way bet on which way the currency will move," so only those that get paid in yuan are interested in the business, says University of California at Berkeley economist Barry Eichengreen. "When you internationalize, you can't control all the uses to which money is put."
Chinese economist Yu Yongding, a former adviser to the People's Bank of China, recently told a Chinese newspaper that "to date, renminbi trade settlement hasn't helped Chinese companies reduce foreign-exchange risks, but has helped foreign companies cut risks."
Some companies also have used the trade-settlement program to profit from the difference between higher yuan interest rates in mainland China and lower U.S. dollar rates in Hong Kong, according to bankers and analysts.
Such transactions could be used by speculators betting on the yuan's rise and have the potential effect of adding to China's dollar reserves.
Asia Pulp & Paper Co., an Indonesian paper maker, recently directed its Hong Kong subsidiary to borrow U.S. dollars at low rates, using its yuan deposits as collateral, says a person familiar with its operations.
APP then took the dollars and paid for goods produced by its mainland subsidiaries, effectively using low-rate U.S.-dollar loans instead of higher-rate yuan loans.
At the end of a complex series of transactions, APP was able to repay the dollar loans with yuan obtained from the internationalization program.
APP benefitted in two ways: It borrowed in dollars at low rates and paid off the loan with yuan that had appreciated in value since the beginning of its dealings.
APP declined to comment.
Li Bo, director of the Chinese central bank's currency policy division, said in an April speech that the goal of the cross-border yuan program was to help Chinese companies reduce foreign-exchange risks and to ease cross-border trade and investment.
PBOC officials declined to comment for this article.
Harvard economist Jeffrey Frankel said China is unusual in pressing to give its currency a bigger international role. Japan and Germany, after World War II, and the U.S. after World War I resisted such efforts because they worried their currencies would strengthen and make their exporters less competitive.
For now, China's central bank is struggling to keep up with companies looking to use the internationalization program as a channel for so-called hot money, which can contribute to dangerous bubbles in China's real-estate market and stock exchanges, as investors look to park their money in sectors seen as paying a high return.
The State Administration of Foreign Exchange, the central bank's currency watchdog, has put in place a "special campaign" to crack down on speculative money flows.
This week, the regulator fined Guangzhou Teng Hang Metal Materials Co., of Guangzhou, China, which buys steel scrap from overseas for recycling, for manipulating its import payments.
More
Companies Worry: If Yuan Floats, Could It Fall?
.The company inappropriately deferred payments of $1.3 million, SAFE alleged.
Delaying payments for imports is a long-used tactic by Chinese companies to benefit from yuan appreciation.
Experts on China's foreign-exchange regulations say the availability of yuan settlement has the potential to make this form of arbitrage even more profitable, because companies now have access to even more favorable yuan exchange rates overseas.
The yuan is valued slightly more against the U.S. dollar in Hong Kong than it is on the mainland.
A manager at Guangzhou Teng Hang declined to comment on SAFE's finding and the fine levied by the agency.
"I'm not aware of that," he said.
The SAFE program may be having some impact.
According to UBS AG economist Wang Tao, speculative inflows—or capital seeking short-term returns—slowed to $24 billion in the second quarter, from an estimated $90 billion in each of the previous two quarters.
Write to Lingling Wei at lingling.wei@wsj.com and Bob Davis at bob.davis@wsj.com
Thursday, July 14, 2011
Why These Two Silver ETFs Are Poised For Massive Profits (AGQ, PSLV, SLV, ZSL, GLD)
Why These Two Silver ETFs Are Poised For Massive Profits (AGQ, PSLV, SLV, ZSL, GLD)
July 13th, 2011
George Maniere: Most investors believe that the reason silver is about 50 times cheaper than gold is because it’s a more abundant resource. It’s a simple example of the law of supply and demand. Having done some study on this I was amazed to find that this is simply not true. The amount of available silver is far less than the amount of available gold. I believe that the divergence in the price between an ounce of gold (NYSE
:GLD) and an ounce of silver will be closing and soon.
This is a fact that is overlooked by the many seasoned silver investors. While global silver mining has increased significantly over the past two decades and silver output has more than doubled since the early 1990’s, the global demand for silver is outpacing the global supply. In fact according to a report from the CPM group, a commodities research and asset management team, global silver production has been unable to meet global demand for more than fifteen years. The world’s silver mines are simply not producing enough silver to meet demand. [more reading: $60 Silver: How Investors Should Play This Silver ETF Trade]
For those of you that read me on a regular basis know that I have been a gold and silver bug since I was a child and my Grandma used to teach my brother and I about coin collecting. Back then it was a hobby. You also know that I have written on more than one occasion that I have more than my fair share of physical gold and silver. I have also written about the logistical problems of holding physical. Storage and safety are two issues that come to mind immediately. One of my readers wrote to me that if I have physical gold and silver I also better have a gun and be prepared to use it. He signed off “I remain long Gold, Silver and Lead!”
In 2010 the global demand for silver exceeded 1.05 billion ounces while the global mining only produced 700 million ounces. That begs the question, where is the surplus coming from? The answer is that over the last two generations major government stockpiles of silver have been sold off to supply the shortfall. The United States government alone has supplied nearly 5 billion ounces of silver into the market since World War II. [more reading: Gold & Silver ETFs: Buy High and Sell Higher]
While silver is 17.5 times more abundant in the Earth’s crust than gold the amount of above the ground gold far exceeds the amount of silver. This is because silver has industrial uses. Products like CD’s, cell phone batteries, calculators, printed circuit boards, hearing aids, electronic switches, TV screens, catalytic convertors, inks, computer monitors and thousands of other products use silver in their production. There are new technologies every day that use silver.
What do we do with these products when they have out lived their usefulness? We throw them away. That is because it is so labor intensive to reclaim the silver, it ends up garbage dumps. Indeed, I predict that garbage dumps will be a source of silver in the future. So while gold is produced but silver is consumed. Even though gold is highly desired, silver is needed. Add to this that the middle class man would rather own 40 ounces of silver than one ounce of gold and you can see why I believe the divergence in price between gold and silver will not last long. I’m not saying that it will be one for one but a ratio of 15 to 1 seems more like a realistic possibility in the near future. [more reading: Silver ETF Investors May Need To Be Patient For The Next Payoff]
OK. I have a nice position in physical and I want to use ETF’s to buy my positions to take advantage of these parabolic runs we have experienced. I have decided to use two silver ETF’s. The Sprott Physical Silver Trust (NYSE:PSLV) and Proshares Ultra Silver ETF (NYSE:AGQ). I have shied away from using the iShares Silver ETF (NYSE:SLV) because there is ample evidence that if SLV was ever asked to produce the underlying asset it would not be able to do so. Add to this that a look at the chart below will show in the last run up PSLV actually outperformed SLV. I conclude that this is because they do hold the physical silver.
I also have done a lot of study about ProShares Ultra Silver ETF (NYSE:AGQ). This ETF makes no bone about the fact that they don’t hold silver. What you are buying are futures contracts that are leveraged 2 to 1. It is not a trade for the faint of heart. Yesterday while Nero fiddled and the market sold off for the second day I was watching AGQ and I knew that today it would bounce. I bought 10,000 shares at $174.92 at 2PM on Tuesday and prayed. I innately knew that gold would make a big move today and whatever happened in the market gold would carry silver with it. For safety I had a tight stop under it so I knew if it went badly I would be out without too much pain. See the Chart from today below.
In the pre-markets I saw that AGQ was going to open at 183.00 so I knew things would go my way. And boy did it! At 11:27 AM on Wednesday I sold all 10,000 shares at $198.88. That’s a realized profit of 23% in I day! I do want to stress that while it worked remarkably well today this is a stock that is used for day trading. I want to stress that as I have already written this holding is not for the faint of heart. If this holding goes the wrong way you get wiped out in a heartbeat.
In conclusion, I will continue to build my position in PSLV on any weakness and when the opportunity arises and I am sure as sure can be I will float like a butterfly and sting like a bee with AGQ.
Related ETFs: ProShares Ultra Silver (NYSE:AGQ), ProShares UltraShort Silver (NYSE:ZSL), iShares Silver Trust (NYSE:SLV), SPDR Gold ETF (NYSE:GLD), Sprott Physical Silver Trust ETF (NYSE:PSLV).
In 2004, after retiring from a very successful building career, I became determined to learn all I could about the stock market. In 2009, I knew the market was seriously oversold and committed a serious amount of capital to the market. Needless to say things went quite nicely but I always remebered 2 important things. Hubris equals failure and the market can remain illogical longer than you can remain solvent. Please feel free to email me at maniereg@gmail.com.
Wednesday, July 13, 2011
Draghi Says EU Debt Crisis Is in New Phase
Draghi Says EU Debt Crisis Is in New Phase
By Lorenzo Totaro and Jeffrey Donovan - Jul 13, 2011 6:56 AM ET
“It’s now necessary for those trying to manage the sovereign crisis to give certainty, to define with clarity the political objectives, the scope of the instruments and the amount of resources available,” Draghi said today in a speech in Rome. “It’s a necessary step to ensure the stability of the euro area and its currency.”
European governments can no longer count on their financing costs remaining similar to those of Germany, the region’s strongest economy, simply because of their participation in the single currency, he said.
“The solvency of the sovereign states is no longer something acquired he said, but something earned with high and sustainable growth, which is only possible if budgets are in order,” Draghi, who also heads the Bank of Italy said. “Today’s cost of credit reflects that new reality.”
Draghi’s comments at the annual meeting of Italy’s banking association came after Italian bonds and stocks plunged in recent days on concern the country would struggle to reduce the euro-region’s second-biggest debt. The yield on Italy’s 10-year bond reached the highest since 1997 and financing costs at a sale of treasury bills surged on investor concern that Italy would be the next victim of the region’s debt crisis.
Bonds Gain
Italian bonds gained today on pledges by the government for swift passage of a 40 billion-euro ($64 billion) deficit- reduction plan that seeks to balance the budget in 2014. The premium investors demand to hold Italy’s 10-year bond over German bunds fell 17 basis points to 269.3, down from a euro-era record of 348 reached during trading yesterday.Italian Finance Minister Giulio Tremonti, speaking at the same conference, said the plan would be passed by both houses of parliament by July 15. Opposition parties have agreed to ease passage of the measure in the legislature.
“Italian politicians decided to respond firmly to market concerns over the credibility and implementation of the 40 billion-euro fiscal package,” Fabio Fois, European economist at Barclays Capital in London said in a note to investors. “These are clearly positive developments. The fiscal plan was originally supposed to be voted on at the beginning of August.”
Asset Sales
The deficit plan is “an important step in strengthening the public accounts” that will help reduce the debt, Draghi said. He also called on the government to explain details of additional measures for 2014 that will be needed to achieve the balanced budget.Tremonti did say the government was considering a plan to sell off more state-owned assets “once the crisis passes.”
Austerity measures won’t be enough for Italy and other euro-region countries to reduce debt if not accompanied by policies to boost economic growth, Draghi said. The Bank of Italy expects Italian growth to continue to lag behind the euro area average for the next two years, he said. Second-quarter growth did expand at a similar pace as that of the euro region, Draghi said, reversing the trend in the first three month when Italy grew 0.1 percent, a fraction of the 0.8 percent rate for the euro area.
In contrast to many European economies, Italy has the advantage of a solid banking system and a declining jobless rate, Draghi said.
Italian lenders will pass stress tests this week with a “significant” margin of capital above the core Tier 1 minimum, he said. He estimated the lenders still need to boost capital by 20 billion euros to meet Basel 3 standards for 2019, he said.
To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net. Jeffrey Donovan at jdonovan26@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
中国强劲GDP回击硬着陆 人民币升值压力陡增
中国强劲GDP回击硬着陆 人民币升值压力陡增
统计局：中国经济硬着陆风险比较小
国家统计局新闻发言人盛来运今天(7月13日)表示，从当前和今后一个时期看，中国经济增长的动力仍然比较强劲，经济增速快速回落的风险比较小。
国家统计局今天发布数据显示，二季度国内生产总值(GDP)同比增长9.5%，较一季度回落0.2个百分点，但仍处较高水平。
从经济“三架马车”来看，盛来运认为，今年是“十二五”开局之年，各地投资愿望很强烈。同时，目前民间投资同比增幅高于全国平均水平，说明市场自主投资动力比较强。
上半年，全国固定资产投资同比增长25.6%，其中地方项目投资同比增长28.1%，中央项目增长为负3.8%。按照企业性质分，国有及国有控股同比增长14.6%，低于全国水平11个百分点，“表明非国有及国有控股企业的投资增长快于全国平均水平”。
消费方面，上半年城镇居民人均可支配收入为1.1万元，扣除价格因素，实际增长7.6%，农村居民人均现金收入3706元，扣除价格因素实际增长13.7%。上半年，社会消费品零售总额同比增长16.8%。
盛来运表示，进出口增速虽然回落幅度较大，但是目前20%左右的增速仍然较高，并且上半年顺差仍然在稳定增加。
按贡献划分，上半年最终消费对GDP的贡献率为47.5%，资本形成总额对GDP的贡献率为53.2%，货物和服务进出口对GDP的贡献率为负0.7%，三大需求对经济增长的拉动点数分别是4.6、5.1和负0.1个百分点。
对于先期发布的物价指数，盛来运分析称，6月物价同比增幅较高主要是翘尾影响和食品价格较高所致，后期物价虽然上升压力较大，但是维持物价稳定的因素也在增加。
盛来运说，今年3月-5月，物价环比上涨中一个很重要推动力量是非食品价格上涨在增强，但是6月发生变化，非食品价格指数环比与5月比持平，CPI中7个非食品大类中有三个大类开始环比下降。
“这种状况值得观察，”盛来运说，如果是趋势性的话，对后期物价走势产生重大影响，并且也说明前期关于物价的调控政策正在取得积极成效。
至于下半年中国宏观经济面临的最大挑战，盛来运指出，还是如何处理好经济平稳较快发展、管理好通胀预期以及更好地调整经济结构之间的关系。一方面物价水平还在不断创新高。目前，国外流动性仍然非常充裕，国内也面临成本长期上升的压力，物价调控面临很大压力。另一方面，结构调整难度也比较大，传统的体制和机制根深蒂固。比如重工业增速仍然偏快，节能减排的任务形势比较严峻。
盛来运认为，下一阶段仍然要把物价的调控放在宏观调控的首位，但是也要利用好经济走稳的时机，利用价格上涨的倒逼机制，加快结构调整和发展方式转变。
财新网 王晶
国家统计局新闻发言人盛来运今天(7月13日)表示，从当前和今后一个时期看，中国经济增长的动力仍然比较强劲，经济增速快速回落的风险比较小。
国家统计局今天发布数据显示，二季度国内生产总值(GDP)同比增长9.5%，较一季度回落0.2个百分点，但仍处较高水平。
从经济“三架马车”来看，盛来运认为，今年是“十二五”开局之年，各地投资愿望很强烈。同时，目前民间投资同比增幅高于全国平均水平，说明市场自主投资动力比较强。
上半年，全国固定资产投资同比增长25.6%，其中地方项目投资同比增长28.1%，中央项目增长为负3.8%。按照企业性质分，国有及国有控股同比增长14.6%，低于全国水平11个百分点，“表明非国有及国有控股企业的投资增长快于全国平均水平”。
消费方面，上半年城镇居民人均可支配收入为1.1万元，扣除价格因素，实际增长7.6%，农村居民人均现金收入3706元，扣除价格因素实际增长13.7%。上半年，社会消费品零售总额同比增长16.8%。
盛来运表示，进出口增速虽然回落幅度较大，但是目前20%左右的增速仍然较高，并且上半年顺差仍然在稳定增加。
按贡献划分，上半年最终消费对GDP的贡献率为47.5%，资本形成总额对GDP的贡献率为53.2%，货物和服务进出口对GDP的贡献率为负0.7%，三大需求对经济增长的拉动点数分别是4.6、5.1和负0.1个百分点。
对于先期发布的物价指数，盛来运分析称，6月物价同比增幅较高主要是翘尾影响和食品价格较高所致，后期物价虽然上升压力较大，但是维持物价稳定的因素也在增加。
盛来运说，今年3月-5月，物价环比上涨中一个很重要推动力量是非食品价格上涨在增强，但是6月发生变化，非食品价格指数环比与5月比持平，CPI中7个非食品大类中有三个大类开始环比下降。
“这种状况值得观察，”盛来运说，如果是趋势性的话，对后期物价走势产生重大影响，并且也说明前期关于物价的调控政策正在取得积极成效。
至于下半年中国宏观经济面临的最大挑战，盛来运指出，还是如何处理好经济平稳较快发展、管理好通胀预期以及更好地调整经济结构之间的关系。一方面物价水平还在不断创新高。目前，国外流动性仍然非常充裕，国内也面临成本长期上升的压力，物价调控面临很大压力。另一方面，结构调整难度也比较大，传统的体制和机制根深蒂固。比如重工业增速仍然偏快，节能减排的任务形势比较严峻。
盛来运认为，下一阶段仍然要把物价的调控放在宏观调控的首位，但是也要利用好经济走稳的时机，利用价格上涨的倒逼机制，加快结构调整和发展方式转变。
财新网 王晶
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