FX Markets Quietly Steady after Existing Home Sales
The forex markets are quietly steady in early US session. Existing home sales in US dropped merely 0.2% in Jul from an upwardly revised 5.76m annualized rate to 5.75m. Though it marked a fifth consecutive decline in the existing home sales and is the lowest reading since Nov 02, it's slightly better than expectation of 5.70m. The inventory-to-sales ratio surged to 9.6 months, while the median existing price is down by 0.6%. The data offered no catalyst for more volatility in the markets. Focus will be shifting to tomorrow's Germany Ifo and Eurozone M3.
Speaking of the Euro, the highly anticipated speech from Trichet has just focused on productivity. He said that eurozone productivity growth is "disappointing" comparing with more resilient growth in the US. And it is also "not particularly high" compared with previous business cycles. Productivity growth has been stronger in the manufacturing sector. But in services sector, it has not improved much. Trichet has signaled a Sep hike in the Aug ECB meeting just before turmoil in the financial markets. Markets hoped for some hints from Trichet on whether ECB will still hike or not in today's speech.
Monday, August 27, 2007
Tuesday, August 07, 2007
Friday, August 03, 2007
Stay away from bonds, warns economist
Stay away from bonds, warns economist
FinanceAsia, 3 August 2007
Link: http://www.financeasia.com/print.aspx?CIID=88105
Robert Lind says high-yield bonds are particularly vulnerable to the
market correction and should warrant higher risk premiums.
After Wednesday's global stock market crash, which caused Hong Kong's
Hang Seng index to drop 3.15%, the markets have been fickle. Intraday
trade has been erratic as bargain hunters move in and out of stocks,
trying to determine the markets' next move.
Negative sentiment has been fuelled by a couple of bad news reports.
Bear Stearns halted redemptions in a mortgage-related hedge fund in the
US, and Australia's Macquarie Bank said two of its bond funds may suffer
potential losses of up to 25%.
As stocks rose yesterday, Moody's darkened the mood again. The credit
ratings agency placed MGIC Australia's rating on review for possible
downgrade. MGIC Australia, is a wholly-owned subsidiary of Mortgage
Guaranty Insurance Corporation, a leading mortgage insurer in the US.
In this environment, investors are finding it impossible to price risk.
The benchmark iTraxx Crossover index, which consists of 50 mostly
junk-rated credits and is an important indicator of sentiment, broke the
500 barrier on Monday - illustrating the heightened cost of insurance
for the most risky assets. But it came down again substantially on
Tuesday, closing at 402, while rising once again on Wednesday to 475.
Says one specialist high-yield investor: "This magnitude of change only
happens every five to 10 years. Investors are so nervous they just don't
know what to do with their money and are behaving erratically."
However, Robert Lind, head of macro research at ABN AMRO, states that
these significant market moves should be viewed as a "normalisation",
which has come about following a bullrun in credit where investors
"bought anything", at prices which did not adequately reflect the risk.
"The areas which have suffered the most significant compressions are the
high-yield debt sectors in emerging markets. These markets should be
perceived as very vulnerable and warrant a much greater risk premium
than they have offered so far. We still need to see investors exercise
considerably more discrimination in their assessment of risk."
Since the tight spreads over the last few years have come about by in an
era of historically low interest rates in an environment of strong
global growth, Lind thinks it is likely that rates will increase. This
should lead to a gradual widening of spreads, although recent events -
which were long overdue - reflect a process which can occasionally be
quite dramatic.
In its latest credit commentary, BNP Paribas says: "The amplitude and
velocity of spread widening in the cash bond, asset swap and CDS sectors
virtually ensure the markets will overshoot. The growing sense of dread
however over rising contagion risks and falling liquidity conditions
hints at fear-driven trade trumping credit rating upgrades and the
positive trends in economic, inflation, and interest rate data; thus we
anticipate more widening in credit spreads."
However, interest rates are still far from restrictive. According to
Lind, the greatest concern is whether the market is appropriately
pricing in the risk of the US housing problem, which triggered the
correction in the first place, and inflation, which are the two factors
that could dampen global growth.
"Fundamentally, from our perspective, investors need to be cautious of
corporate bonds. They are still too expensive. If they want to play the
economic cycle, a better way of doing so is via the equity market, which
is still well-supported in terms of valuation and growth. Obviously, we
are still in an environment where the pressure on credit could continue
to weigh on equities, so investors should shift from riskier areas of
the equity market to safer ones."
FinanceAsia, 3 August 2007
Link: http://www.financeasia.com/print.aspx?CIID=88105
Robert Lind says high-yield bonds are particularly vulnerable to the
market correction and should warrant higher risk premiums.
After Wednesday's global stock market crash, which caused Hong Kong's
Hang Seng index to drop 3.15%, the markets have been fickle. Intraday
trade has been erratic as bargain hunters move in and out of stocks,
trying to determine the markets' next move.
Negative sentiment has been fuelled by a couple of bad news reports.
Bear Stearns halted redemptions in a mortgage-related hedge fund in the
US, and Australia's Macquarie Bank said two of its bond funds may suffer
potential losses of up to 25%.
As stocks rose yesterday, Moody's darkened the mood again. The credit
ratings agency placed MGIC Australia's rating on review for possible
downgrade. MGIC Australia, is a wholly-owned subsidiary of Mortgage
Guaranty Insurance Corporation, a leading mortgage insurer in the US.
In this environment, investors are finding it impossible to price risk.
The benchmark iTraxx Crossover index, which consists of 50 mostly
junk-rated credits and is an important indicator of sentiment, broke the
500 barrier on Monday - illustrating the heightened cost of insurance
for the most risky assets. But it came down again substantially on
Tuesday, closing at 402, while rising once again on Wednesday to 475.
Says one specialist high-yield investor: "This magnitude of change only
happens every five to 10 years. Investors are so nervous they just don't
know what to do with their money and are behaving erratically."
However, Robert Lind, head of macro research at ABN AMRO, states that
these significant market moves should be viewed as a "normalisation",
which has come about following a bullrun in credit where investors
"bought anything", at prices which did not adequately reflect the risk.
"The areas which have suffered the most significant compressions are the
high-yield debt sectors in emerging markets. These markets should be
perceived as very vulnerable and warrant a much greater risk premium
than they have offered so far. We still need to see investors exercise
considerably more discrimination in their assessment of risk."
Since the tight spreads over the last few years have come about by in an
era of historically low interest rates in an environment of strong
global growth, Lind thinks it is likely that rates will increase. This
should lead to a gradual widening of spreads, although recent events -
which were long overdue - reflect a process which can occasionally be
quite dramatic.
In its latest credit commentary, BNP Paribas says: "The amplitude and
velocity of spread widening in the cash bond, asset swap and CDS sectors
virtually ensure the markets will overshoot. The growing sense of dread
however over rising contagion risks and falling liquidity conditions
hints at fear-driven trade trumping credit rating upgrades and the
positive trends in economic, inflation, and interest rate data; thus we
anticipate more widening in credit spreads."
However, interest rates are still far from restrictive. According to
Lind, the greatest concern is whether the market is appropriately
pricing in the risk of the US housing problem, which triggered the
correction in the first place, and inflation, which are the two factors
that could dampen global growth.
"Fundamentally, from our perspective, investors need to be cautious of
corporate bonds. They are still too expensive. If they want to play the
economic cycle, a better way of doing so is via the equity market, which
is still well-supported in terms of valuation and growth. Obviously, we
are still in an environment where the pressure on credit could continue
to weigh on equities, so investors should shift from riskier areas of
the equity market to safer ones."
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