NEWS/BLOG

Never Fear, Green Shoots Are Here

An update from the currency exchange firm World First

Risky assets rallied last week as hopes of a global recovery surged, and fears of any further financial pandemonium continued to diminish. Currency and equity markets reacted to this sentiment, as risky currencies were rewarded and safe havens sold off. The pound and its risky counterparts the commodity currencies pressed further north, while the dollar, Yen and franc suffered.

What the markets are witnessing is a turnaround in sentiment from the dark days of late last year. Marie Curie once commented “nothing in life is to be feared. It is only to be understood.” As the credit crisis unfolded, Central Banks have acted calmly to understand how this crisis came about, and then move towards addressing the situation. Worldwide, a generally unified approach of slashing interest rates, supporting financial institutions and stimulating the wider economy has seen global markets start along the right path to recovery, causing global fears to wane.

The extent of the reversal can be illustrated by the VIX Index, often referred to as the ‘fear gauge” as it measures how volatile markets have been, and are expected to continue behaving. A high reading indicates pulses are still racing, while a lower reading indicates that markets are less fearful. Last week the VIX broke below a significant level of 24, the first time since the collapse of Lehman Brothers last year that it has done so. When market panic reached a climax last year, the VIX topped at levels 89.50.

The reading is not a cause for optimism itself; it merely illustrates the underlying optimism in the market which last week was pushed ahead by further positive data and earnings reports. Equity markets in the U.S. and Europe reached their highest levels of the year, advancing over 4% for the week. Predictably, the dollar fell across the board, its index falling to the lowest level in 10 months. Its low yielding partner the Yen also suffered somewhat of a selloff, losing over 1% against the pound and euro and over 2% against CAD, AUD and the NZD.

Data out from the UK was mixed over the week, helping to restrain the pounds advance. Bank of England minutes revealed a generally bullish stance for the UK economy, and retails sales figures also surprised on the upside. However, Public borrowing figures highlighted the ongoing worry of the state of the UK public finances, whilst Friday’s advanced GDP result showed the economy continued to contract by 0.8% in the Q2 of the year, far exceeding economists’ forecasts on the downside.

U.S. data revealed a stabilizing unemployment rate and housing market, both major factors in a rebounding American economy. Developments revealing that failing lender CIT would avoid bankruptcy for the moment, and corporate earnings sustaining their positive momentum drove equities higher over the week. Commodities strength in light of market developments has also helped push the dollar down.

This week reveals a drought of tier one data from Europe, with the US providing the Fed’s beige book, initial jobless claims, a PCE reading and finally an advance GDP figure. The strong correlation that equity movements and currency movements have been displaying will mean that stock markets should once again provide the main decider of the pounds fate for the week.

With risky assets rallying worldwide, and fear levels abating it is worth noting the cautious thoughts of respected investor Warren Buffet who famously states to “be fearful when others are greedy and greedy when others are fearful”

Trade of The Week

This trade of the week is relevant to a seller of sterling and a buyer of dollars. This zero premium structure enabled the client to hedge their exposure for a six month period through a ‘window convertible forward’.

The client has a worst case rate (WCR) of 1.61 and can benefit 100% of any and all upside up to a rate of 1.80 during the relevant window period. Should GBP/USD hit 1.80 at any point in the window period, the structure reverts to a forward contract at 1.61. For full details of this structure please contact one of our options traders on 0207 801 9050.

For full details of this structure, please contact one of the World First options traders on 0207 801 9050.

For more information, see www.worldfirst.com.

See disclaimer below.

Translators Wanted

Translators are needed, especially in Afganistan, though not only there. U.S. citizens who can pass a security clearance can become what’s know as Category II translators who can earn a starting salary of $210,000 a year. Speakers of Pashto, the language of Southern Afganistan, are especially needed. The safety of military personnel often depends upon a qualified translator.

Unfortunately, some translators who thought they were getting a desk job found themselves in 115 F. heat with 40 pounds of food and gear on their backs. According to a recent Associated Press story, translators over 50 and overweight are being sent to the war zone with no idea of what they were getting into. Incredibly, the recruiters didn’t tell them.

Translation is also one of the few real work-at-home opportunities. (An organization called the Rat Race Rebellion, which screens 4,500 to 5,000 ads for home-based jobs weekly, finds that only one out of 57 is legit.)

Translators in general are in a rapidly growing job category, according to the U.S. Bureau of Labor Statistics Occupational Outlook Handbook, 2008-2009, which groups translators and interpreters, projects an employment increase of 24% over the 2006-to-2016 decade, much faster than the average for all occupations.

The mean hourly wage for translators and interpreters in the U.S. was $20.74 or $43,130 annually as of May 2008, according to the BSL estimates. Some industries offer more, jobs management, scientific and technical consulting services have a mean hourly wage of $56.50 or $117,530 annually.

The website www.Homewiththekids.com lists 15 companies seeking translators working from home. Home, of course, could be anywhere, even abroad. 

Swiss Banks to Maintain Secrecy

The Swiss take pride in their banking secrecy even as the U.S. tried to crack down on tax dodgers. U.S. authorities have demanded information on some 52,000 account holders at UBS, the largest of the Swiss banks. The Swiss government, however, maintains that it is illegal for UBS to hand over client information.

The dispute has been ongoing. Switzerland and U.S. authorities have clashed over the demand for information that could reveal the names of Americans attempting to evade tax. UBS has already paid a $780 million fine and disclosed hundreds of client names to prevent criminal charges.

Most recently, the case moved to a Miami court where the demand for additional client information is being heard. The U.S. maintains that Swiss banking secrecy is not a valid excuse for UBS to help U.S. citizens dodge taxes. The Swiss government has, however, agreed to redraft its tax treaties. 

Divergent Data Leave Pound Stalled

An update from the currency exchange firm World First

The US Independence Holiday and the subsequent long weekend started last week in a sleepy mood with markets ending the week rather sedately.  Anticipation of the G8 summit and a discussion on real USD alternatives as the Global Reserve currency were seen as the major drivers of FX markets however turmoil in China called the Premier home to deal with more pressing matters and with the loss of such a key figure caused the G8 summit to become very much a side show.  The main event proved to be the BoE rate decision.

Sterling PMI came out rather positively above 50.00 but it was not as positive as some had expected, yet all were still hopeful.  The correlation between Greenback strength and oil prices began to ring true again as we began to see less incentive driven trading and a return to fundamental economic relationships as the major factor in pricing the dollar.  It is probably the first week since Lehman failed that we have seen a return of these fundamental economic relationships driving the price of currencies.

Oil prices dropped to a 8 week low and signaled to investors that the worst of the downtown is yet to be over and provided some much needed perspective.  As a result, risky assets were dropped like a bad habit.  Sterling, viewed as riskier than a big bag of risky things, suffered.  However, poor housing data from Europe provided GBP with something to cling onto to until rumors that the BoE were about expand the quantitative easing scheme spooked markets.

Stock markets continued to move lower as US corporate earnings numbers failed to impress.  Risk returned to the markets with vengeance and coupled with the perceived event risk surrounding the BoE meeting the pound continued to fall.

The BoE’s MPC announced that they were keeping interest rates at 0.5% and that they were not going to expand the QE policy to utilize the £25Bn left in the tank.  Sterling briefly rallied but with the expectation that they will utilise the £25bn already earmarked, or worse sanction more debt, in August we were due a bumpy ride whilst markets seek to price in this possibility.  The week was rounded off with mixed news of a 48% rise in Chinese car sales but a fall in US Consumer Confidence.

We anticipate the week ahead to hold a large downside risk to sterling.  The week begins quietly but Tuesday sees very UK-centric house data out, with both RICS and DCLG out.  We also have core RPI and CPI from the UK.

Wednesday will certainly be a busy one with UK unemployment figures and Average earnings out prior to details of the FOMC Minutes. On Thursday the US will release a raft of data including NAHB housing, Initial Jobless Claims and Philly Fed Manufacturing PMI. We round off the week with US housing Balance.

Trade of the Week

This week’s trade of the week is a simple Vanilla Protection option for a seller of EUR and a buyer of Sterling

This option gave the client a worst case rate (WCR) of 1.16 and the ability to participate in 100% of favourable movement upwards of the WCR for an upfront premium of 2.2%

If, on expiry, GBP/EUR is above 1.16 the client can buy at 1.16. If, on expiry, GBP/USD is below 1.16, the client is able to participate in 100% of the movement upwards. For full details of this structure, please contact one of the WorldFirst options traders on 0207 801 9050.

For more information see www.worldfirst.com.

See disclaimer below. 

Costa Rica Ranked Happiest Nation

"Happiness doesn’t have to cost the earth,” according to the Happy Planet Index published by the New Economics Foundation, a British think-tank which also considers the ecological footprint and life expectancy of countries.

Out of 143 countries, Costa Ricans report the highest life satisfaction in the world (85% said they were happy). Their life expectancy is the second-highest at 78.5 years. Only Canadians live longer. In addition, Costa Ricans “have an ecological footprint that means that the country only narrowly fails to achieve the goal of ... consuming its fair share of the Earth’s natural resources.” the report stated.

This year’s survey featured Latin American nations in nine of the top 10 spots. After Costa Rica came the Dominican Republic, followed by Jamaica, Guatemala and Vietnam. A total of 143 countries were investigated.

Great Britain ranked 74th and the United States came in at 114, because of its over-consumption and ecological footprint. The United States was greener and happier 20 years ago than it is today, according to the report.

Launched in 2006, the Happy Planet Index is the first index to combine environmental impact with well-being to measure the environmental efficiency with which countries provide long and happy lives.

Overseas Jobs for Cops

Overseas jobs are hard to come by, but DynCorp International is hiring. The jobs are highly specialized: police officers and former military personnel are needed to work as international police trainers and border recruitment advisers in Iraq and Afganistan. Based Falls Church, Va., the company provides services to civilian and military agencies in many different foreign countries.

Recruiters from the company, which is based in Falls Church, Va., were in Oakland, Ca. recently, in an attempt to fill 400 vacancies. Oakland is one of the U.S. cities where law enforcement officers may be let go because of budget problems.

Pay for these overseas jobs is high: $118,000 to $134,000 a year, some of it exempt from income tax. Health insurance is provided and all equipment — from uniforms to hot and cold weather gear and weapons — is issued free of charge. A thorough background check is required. More than 6,000 men and women have been hired for international police jobs since 1994, when DynCorp first sent its employees to Haiti. 

The BRIC Who Cried Wolf

An update from the currency exchange firm World First.

The second half of 2009 started in similar fashion to the first, with equities, commodities and risky currencies retreating, and investor’s favorite safe haven, the US dollar, strengthening.

Sterling was undermined by a far weaker than expected revision of GDP for the first quarter of 2009, showing that the UK economy shrank by 2.4% (consensus was 1.9%). ISM services figures also revealed the first fall in seven months. The euro was steady, with the ECB holding interest rates, yet hinting towards a possible lowering of the benchmark rate to come in the future. Thursday’s non-farm payroll figure, a broad measure of US unemployment, arrived over 125K worse than expected, providing a real shock to the markets, and some vindication to those opposing the theory of a ‘V shaped’ worldwide recovery. This saw the dollar strengthen, as investors once again looked for shelter from the economic storm.

But what is the long term future of the currency involved in 87% of all foreign exchange transactions, that has 22 currencies pegged to it, and is held as 65% of the world’s foreign exchange reserves? The voices continue to sound louder and louder for a replacement to the greenback as the current global reserve currency, particularly from the BRIC nations (Brazil, Russia, India and China) who have all been on record recently questioning its stability.

China first openly rocked the boat in 2008, as the People’s Bank of China, worried about the value of its dollar reserve holdings and the impact the dollar has on its important export driven economy, noted that there was a need for a global reserve currency “de-linked from sovereign nations”. More recently the debate has intensified, with Russian president Dmitry Medvedev openly criticizing the dollar system, repeatedly calling for a mix of currencies to be used as the global reserve. On Friday, India announced that it would look to diversify its near $300bn of foreign exchange reserves away from the dollar, and Brazil has been reported to be in support of a replacement.

Joseph Stiglitz, the Nobel Prize winning economist, is one who supports a new global reserve system, noting that economists have been discussing for decades the weakness of a single currency reserve system. He stated that the having the dollar as the reserve currency was “unstable, and had inequality associated with it”, and was in favor of using the already existing special drawing rights (SDR’s), a synthetic currency created by the International Monetary Fund (IMF). Yesterday, in the lead up to this week’s G8 meeting, France’s finance minister Christine Lagarde chimed in, stating that they must explore a new way forward given the “growing role of emerging countries.”

However, it is somewhat of a case of ‘the boy who cried wolf,’ with regards to the impact these statements are having on the markets. While earlier in the year, foreign exchange markets were reacting strongly and selling off the dollar after a hint of any comments from these BRIC countries, the markets are now largely ignoring them.

Until there is a clear movement towards a concrete resolution on the dollar debate, we expect this to continue, and while we concede that an eventual movement away from the dollar is increasingly likely, even the official Chinese newspaper, the ‘People’s Daily.’ admits that “the evolution of the US dollars status will be a long drawn-out process.”

Looking ahead for the week, the biggest bump on the horizon is the BoE interest rate announcement on Thursday, as we look for a possible change to the Quantitative Easing (QE) program. The euro zone backs up the UK’s disappointing GDP revision figure with their own, released at 10am on Wednesday, while the US has University of Michigan consumer confidence and trade balance figures.

Trade of the Week

This week’s trade is a strategy rather than an option, and is called the ‘ratio forward.’ It is a synthetic combination of two existing strategies (the participating forward and convertible forward) that are weighted 50% each. For a seller of dollars a buyer of sterling, this client took advantage of a stronger dollar, hedging themselves over a six month period.

When combined, these strategies mean that the client was able to guarantee a worst case rate (WCR) of 1.66. If spot at expiry had never traded at or below 1.50, the client was able to benefit in 75% of the favorable movement. If 1.50 is ever touched then half of the exposure is reverted to a forward at 1.65, and you continue to benefit in 25% of any further favorable movement.

This strategy requires no premium, and is also relevant for sellers of sterling and buyers of other currencies. As there is a potential strengthening for sterling in the future, it provides a balanced upside for this potential, while guaranteeing a tight WCR.

For full details of this structure, please contact one of our options traders on 0207 801 9050.

For more information see www.worldfirst.com.

See disclaimer below.