[Obsidian]

Market positioning for more SNB intervention, says Citi, as EUR/CHF continues to grind lower towards 1.20. "Anecdotal evidence corroborates this view, with market participants continuing to add to their EUR/CHF longs as we nudge closer to the intervention trigger," says the bank.

Additionally, "our indicator is suggesting that the market is holding somewhat greater shorts in CHF against USD than in EUR/USD," it says. The shorts in CHF against USD are very close to the lows from September 2011 when the floor was first introduced.

[Obsidian]

Chances of JPY-selling intervention by Japanese authorities will heighten if the USD/JPY falls below 76.00, says Kengo Suzuki, forex strategist at Mizuho Securities in Tokyo.

The pair is being supported by market caution over potential intervention below that level, despite being pressured by USD selling, he adds, tipping the pair to trade in a 75.90-76.50 band for the day.

"Whether or not the pair will fall below the 76.00 mark will be the USD/JPY's immediate focus."

He expects the pair to move between 75.50 and 77.00 in a week from now.

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The U.S. dollar moved sharply higher against its Canadian counterpart after disappointing economic news out of Canada earlier Tuesday. It's not unreasonable to now expect the greenback to hazard a technical breakout versus the loonie, even though the U.S. dollar's upside momentum has so far been sluggish.

We learned earlier Tuesday that Canada's economy shrank unexpectedly in November, suggesting fourth-quarter growth is likely to undershoot the central bank's forecast and may keep it from raising interest rates at least through this year.

Gross domestic product contracted 0.1% to C$1.27 trillion ($1.26 trillion) in November, dragged down largely by the energy sector. Crude output declined because of maintenance shutdowns, and natural gas extraction fell, Statistics Canada said Tuesday. The consensus call was for a 0.2% GDP gain in the month, according to Royal Bank of Canada. All of that put the Canadian dollar under pressure.

The U.S. dollar, which had extended the nearly two-month downtrend to C$0.9961 earlier, is trading now at C$1.0031. A decisive move above C$1.0042 would give it a shot at technical breakout on the daily chart, that is, a move above C$1.0124.

Given a breakout, traders could reasonably anticipate a U.S. dollar uptrend to the C$1.0325-C$1.0536 resistance band. At this point, perhaps, an uptrend to C$1.0718--which the charts allow, in my opinion--is worth targeting.

If a dollar breakout is stymied and the dollar extends the downtrend, then traders will see a test of support at C$0.9978 at least.

Source: Dow Jones

[Obsidian]

The Swiss franc is keeping currency traders nervous as it strengthens dangerously close to the point at which the Swiss National Bank could intervene to whack it lower. Few market participants seriously doubt the SNB's resolve to prevent the euro from falling below CHF1.20, in keeping with the floor that the central bank imposed in early September. It remains committed to defending that level with "unlimited" force even after the departure of its president Philipp Hildebrand, who quit in January over his wife's currency dealings.

Any break in the SNB's floor would send the franc rocketing higher and other markets reeling. But the bigger risk, after the euro traded Monday at a four-month low of CHF1.2040, is that the SNB could unleash a massive splurge of euro-buying, potentially jolting all currency markets. "We have argued recently that the market is positioning for a potential FX market intervention which could send the [euro higher against the Swiss franc]," Valentin Marinov, a currencies strategist at Citigroup in London, said Tuesday in a note to clients.

"Anecdotal evidence continues to corroborate this view ... as we nudge closer to the intervention trigger," he said. Euro-buying by the SNB would not only directly affect the rate of exchange between the single currency and the franc. Past experience suggests the euro would almost certainly also jump against the dollar, and in turn could dent the buck's performance against other major currencies.

Few market participants believe the euro will fall under the SNB's CHF1.20 trip wire, even if some brave option derivative traders have placed a few cheeky bets, just in case. But on the slim chance the SNB's line in the sand is crossed, the market is stuffed with further orders to dump the euro if it does. As such, the potential knock-on effects of a break could be jarring for the rest of the market.

"While it would be very peculiar if the SNB stood by and did nothing, the market would take it as a very bearish signal and riskier currencies would suffer," said Daragh Maher, foreign exchange strategist at HSBC.

[Obsidian]

JPMorgan Wows Wall Street With Facebook IPO Win

JPMorgan Chase & Co surprised Wall Street by winning a leading role in Facebook's much anticipated public offering, besting other banks that have competed for months for the coveted position. Morgan Stanley, JPMorgan and Goldman Sachs Group Inc got the lead roles in the IPO, while Bank of America Merrill Lynch, Barclays Capital and Allen & Co also landed underwriting roles. The banks were told that they had all made the cut during a commitment meeting on Tuesday, two sources familiar with the situation said. Generally, banks assuming these roles are told months in advance of a company filing for an initial public offering.

Facebook submitted its IPO documents to the U.S. Securities and Exchange Commission on Wednesday. The company expects to raise targeted $5 billion.

Two other sources familiar with the matter said on Wednesday that JPMorgan's months of schmoozing with Facebook executives paid off in the end. JPMorgan is ranked No. 4 among banks that advised on U.S. technology IPOs in 2011. JPMorgan's Chief Executive Jamie Dimon, veteran rainmaker Jimmy Lee and other senior executives courted Facebook's Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman over the last year to help pave the way for the offering. Ebersman is leading the IPO process, one of the sources said.

As recently as December, Dimon visited Facebook's headquarters in Palo Alto, California, to establish its position within the team of bookrunners, the sources said. Lee has had a business relationship with Sandberg for years, which has allowed him to learn about Facebook's culture among senior executives, one of the sources said. Both Dimon and Lee saw Facebook as one of the next "Blue Chips," and JPMorgan stepped in early to build a commercial relationship, including spending millions of dollars to help Facebook build a data center, the source said.

The hard-won mandate is likely to bode well for JPMorgan's league table rankings. Currently, JPMorgan is ranked after Morgan Stanley, Deutsche Bank and Goldman Sachs in the league tables for U.S. listed technology IPOs, according to Thomson Reuters data. This counts because the banks may be doing the deal more for prestige than money. Facebook's IPO could set a new standard for how much investment banks are willing to lower their advisory fees to win big business [ID:nL2E8CQEDA].

Banks may offer their underwriting services for as little as 1 percent of gross proceeds, sources have said, compared with the 7 percent fee that smaller deals typically fetch, or the 2 or 3 percent that large deals tend to command. The underwriters established their relationship with the social network company over the last year through investments and loans.

In December 2010 and January 2011, Goldman Sachs purchased 69.5 million shares of Facebook's Class A common stock for $1.45 billion, according to filing. In 2010 and 2011, Morgan Stanley purchased shares of Facebook's Class B common stock. A year ago, Facebook entered into a credit agreement with five lenders, including Morgan Stanley, JPMorgan, Goldman Sachs, Bank of America Merrill Lynch, and Barclays to borrow up to $1.5 billion in revolving loans, according to the filing. In September 2011, the credit agreement was amended to increase the borrowing capacity to $2.5 billion, the filing said.

Source: Reuters

[Obsidian]

Spending cuts may be fantasy but what is the alternative?

What have they been smoking at the Treasury? The Institute for Fiscal Studies (IFS) didn't quite ask the question in its Green Budget yesterday, but its message was clear enough – that policy-makers must have been high on something when they drew up the Coalition's £123bn austerity programme.

Just look at the precedent. The seven-year squeeze will be the tightest for public spending since records began after the Second World War. The UK has never before tried to cut spending for more than two years running. Nothing like it has been attempted in the past 40 years in any of the world's 29 advanced economies. And the nearest equivalent was a three-year tightening in Ireland, between 1987 and 1989.

Then, look at what lies ahead. "More than £9 in every £10 of planned public service spending cuts is still to come," said Paul Johnson, IFS director. Of the planned tax rises – the easy bit, accounting for just one fifth of the total programme – only 27pc will be left to be done from April. Of the spending cuts, though, which account for four fifths of the consolidation, 88pc are still in store.

"The Government may yet prove unwilling or unable to carry out the spending cuts," said Rowena Crawford, an IFS research economist. "Can such tight spending plans be delivered?" True to its independent spirit, the respected think-tank posed the question and presented compelling evidence, but did not answer it.

A separate report yesterday from the National Audit Office, though, did suggest the Government has strayed into Wonderland. Just 2.3pc of departmental spending cuts have been completed so far, against a target of 19pc by April 2015, and too many of those were achieved by non-permanent measures such as delaying IT programmes.

"Departments need to make more fundamental changes to achieve sustainable reductions of the scale demanded by the Spending Review," it warned. "Short-term measures, though successful to date, will not be sufficient." Failing to do so would be so deeply damaging to front-line services that the politics would inevitably get ugly.

There is no alternative to the Treasury's fantasy cuts, though, the IFS stressed. The black hole blown in the public finances since 2008 is now estimated to be £114bn – of which £102bn can be blamed squarely on the financial crisis with the other £12bn put down to Labour's over-optimism, the IFS said. Under Labour's March 2010 £73bn consolidation plan, it added, the deficit would only have fallen from this year's £127bn to £76bn in April 2017 – £52bn more than under the Coalition.

Remarkably, for all that pain, in historic terms the cuts will only return UK public spending in 2017 to the same real-terms level as it was in 2005. What has made the consolidation so difficult to stomach, though, were the "12 years of consecutive real increases" in spending from 1999 to 2010. "People get used to the high level of services they enjoy and then adjust their expectations," Ms Crawford said. "Fiscal repair is a bit like going to the dentist. You know it's going to hurt but it'll be better in the long run if you do it."

Of course, growth is vital to trimming the UK deficit, which the IFS noted was larger in 2007 than in all other leading economies bar Ireland, Greece and Portugal. But, Mr Johnson said, there is little the UK can do that isn't "fiddling" at the edges. Even a temporary £10bn to £20bn net giveaway in the March Budget – through VAT, 2p off income tax, a National Insurance holiday, or investment spending – would deliver negligible growth, while risking fiscal credibility. "We're talking about GDP growth of one or two tenths of a percent more," Mr Johnson said. "What's driving the economy is what's going on in the rest of the world."

With the world in such perilous condition, the IFS judged it best that the Chancellor to stay his hand. Any firepower should be reserved for fighting the nasty recession a eurozone break-up would cause. Under Oxford Economics' scenario of Greece, Portugal, Ireland, Spain and Italy all leaving the euro, the UK would be plunged into a contraction of 1.7pc this year and 0.9pc next. Unemployment, which it expects to top 9pc in 2012, would hit 10.7pc.

In that event, "the case for a fiscal stimulus package would be strengthened considerably", the IFS said, arguing that George Osborne should outline a Plan B for the potential meltdown in the Budget "to avoid accusations that he was changing direction". The bigger goal is to get the "micro policy right", Mr Johnson said, by ensuring the tax system is efficient and effective. Beyond that, the Treasury's best hope is that the Europeans can lift Britain out of the rabbit hole.

Source: The Telegraph

[Obsidian]

Azumi: Can't Overlook Speculative Moves In Forex Mkt

Japan's finance minister said Thursday he cannot "overlook" speculative moves in the market to push the yen higher and will take "decisive steps" if necessary, stepping up his warnings over the currency's renewed strength.

"I am calmly watching the market now, but I can't overlook any acceleration in moves by short-term speculators" in the currency market, Jun Azumi told reporters at the Ministry of Finance. "As I have been saying, I will take decisive steps if deemed necessary."

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S&P Predicts A Soft Landing For China In 2012

- The world appears to be in store for more turmoil and trouble, according to the Chinese astrological calendar. Indeed, this may not seem remote, Standard & Poor's Ratings Services said in a report titled, "Credit Outlook: Chinese Dragon To Fly In To A Soft Landing In 2012", published today. We expect the debt crisis in Europe and the weak U.S. recovery to reduce demand and cause a drag on China's export- dependent economy. The country experienced a slowdown in GDP growth to 9.2% in 2011.
- "We expect the Chinese economy to fall further in 2012 to about 8%--our base-case scenario for our current ratings," Standard & Poor's credit analyst Terry Chan said. "We also project that there is a one-in-four chance of a medium landing of 7% growth to occur, and a one-in-ten likelihood of a hard landing of 5% GDP expansion."
- China's industry sectors would experience varying impacts from the marked slowdowns of the latter two scenarios. The impact could range from very high to low, which could mean from defaults to no downgrades. We believe the country's real estate sector and local governments would suffer most in a significant slowdown.

Source: TTN

[Obsidian]

Germany's Power 'Is Causing Fear' in Europe

An idea aired by Berlin officials last week to place Greek budget policy under the control of an EU commissioner has been criticized as unworkable and disrespectful. But given its contribution to rescue packages, Germany has a right to insist on fiscal discipline in Europe, say German media commentators.

The EU summit on Monday was overshadowed by a new upsurge in fears of German domination following reports over the weekend that Berlin was proposing dispatching an EU commissioner to Athens to seize control of the Greek budget.

Chancellor Angela Merkel wanted the summit to send out a positive message about a commitment to jobs and growth, but failed to dispel the impression that Germany is throwing its weight about in the euro crisis.

Greek newspaper Ta Nea published a cartoon of Merkel holding Greece like a marionette under the headline "Nein! Nein! Nein!" And Italian Prime Minister Mario Monti warned this month that Germany must do more to help its eurozone partners or risk a backlash from citizens frustrated with austerity measures.

Economic data released on Tuesday underlined that Germany is doing far better than its European partners. German unemployment fell to a record low of 6.7 percent in January while joblessness in the euro zone rose to 10.4 percent in December, the highest rate since June 1998.

German media commentators say Germany has a right to insist on fiscal discipline in Europe but needs to tread more lightly in its rhetoric, and must refrain from proposals that insult its partners. The idea of an austerity commissioner, they say, was insensitive and unworkable.

The conservative Die Welt writes:

"Whatever the euro summit agreed and whatever the next one will agree -- we won't get a European austerity commissioner equipped with authoritative powers."

"Countries in crisis can't be transformed into protectorates. An EU fiscal commissioner wouldn't be able to achieve much unless he had the powers of an occupying statute."

"The conclusion almost sounds paradoxical: In order to rescue their state and their sovereignty, the Greeks have to leave the euro zone. They owe it to themselves. They have to go their own way with the freedom afforded by exchange rate movements and with a strong stimulus of economic growth."

The center-right Frankfurter Allgemeine Zeitung writes:

"Germany has the strongest economy by far in the EU, and its lead is growing. It is also the most populous country, which isn't insignificant in democratic terms. So it shouldn't surprise anyone that the German government is making use of this clout; that's legitimate."

"But Germany isn't the hegemon of Europe. It isn't the hesitant or even steamrolling hegemon who flattens the other members of the EU and/or euro zone. The union of the Europeans doesn't work that way. It isn't geared to systematic domination or subordination. That is the great achievement of its construction -- it is founded on respect. If Germany is to lead, as most partners want it to or say they want it to, this leadership cannot simply consist of giving orders.

"Leadership has to be learned. But it doesn't amount to some higher form of selflessness and distributing welfare. Germany bears a major burden in having to overcome a crisis that others got themselves into. It is de facto liable for their debts, which was never planned. Who can blame it for making its views clear? The fact that it insists on budget discipline doesn't undermine democracy in the debtor countries: It is the logic of life in the currency union, whose members joined of their own free will. No one should be insulted. But that applies to everyone. The Greek public shouldn't stupidly call the chancellor a Nazi, and should draw the right conclusions from a grandiose failure. And despite all the fuss being made: The country has de facto already surrendered its budget autonomy."

The center-left Süddeutsche Zeitung writes:

"Germany stands where it never wanted to stand again after 1945: as the dominant power in the middle of Europe. Its attempts to achieve this with cannons and tanks in the 20th century ended in apocalypses of blood and fire, but that's precisely why that Germany no longer exists.

"No country succumbed to the temptation of nationalism more terribly than Germany; in its collective memory, the crimes it committed across Europe still weigh heavily. True, it is a disgrace to exploit that fact today, even in Greece, whose political parties drove the state to ruin. But it should teach the German government not to confuse firmness with the arrogance of power when it comes to the euro crisis. Because this power is very real, and it is causing fear. The idea to impose an austerity commissioner on Greece was insensitive, as was the demand made by FDP leader Philipp Rösler for 'leadership and monitoring of Greece.'

"The Germans led Greece before, and though the massacres of Distomo and Kefalonia have nothing to do with today's euro crisis, such foolish tirades only fan the hysteria and the resistance."

"In truth, this worst crisis since the start of the European Union shows how vital that union is. It shows that a common currency, the free movement of goods, open borders and friendship among peoples can't be taken for granted. These are historically unique achievements of a continent whose peoples settled their disputes by waging war up until two generations ago. Today there are ways and means, common institutions that now face their great test."

"Germany must convince rather than dictate. It is just as dependent on Europe as the Greeks."

Source: Der Spiegel

[Obsidian]

Europe’s Leaders Shouldn’t Sacrifice Union to Save Common Currency: View

The euro-area crisis is forcing many of the European Union’s long-running political disputes to the surface at the same time. As they wrestle to save the currency, Europe’s leaders -- above all Britain’s David Cameron, France’s Nicolas Sarkozy and Germany’s Angela Merkel -- need to make sure they don’t dismantle the union in the process.

Political tensions peaked in December, as Europe’s leaders were rushing to put together a fiscal compact that would convince markets that euro-area countries can get their sovereign debts under control. Cameron tried to leverage the need for a treaty to protect the U.K.’s lucrative financial sector from new EU regulations, in particular a transactions tax that is being proposed by France. When he failed, he vetoed the treaty, forcing the others to work outside the EU.

As after any domestic fight, it’s taking awhile for EU leaders to figure out whether their marriage of 27 can be the same again. In one positive sign, despite political opposition within his party, Cameron agreed this week to make an important concession: The U.K. won’t stand in the way of letting other EU members use the union’s buildings and bureaucracy to carry out their new, non-EU, fiscal compact.

Act of Sanity

Cameron’s act of sanity shouldn’t obscure that this is a dangerous moment for the EU. This remarkably successful political project -- aimed at preventing a repeat of the horrors of two world wars -- is often misunderstood. Euro-skeptics like to portray the EU as a leviathan that has subordinated national sovereignty to eurocrats; federalists present it as a train rolling on tracks that lead inexorably toward a United States of Europe; outsiders often see it as a genteel post-modern union, in which nations work out their differences by committee.

The reality is messier, more competitive and more vulnerable. It is a union achieved over decades with as much bubble gum and spit as vision, in which the critical players struggle continuously for the power to shape the union to their advantage and bide their time when obliged to cut deals and compromise on goals. To complicate matters, populist movements in many EU countries, from Hungary to France, are now targeting the EU as a proxy for complaints about globalization.

The perennial tension between the European Commission (an unelected European bureaucracy based in Brussels) and the European Council (which brings together the elected leaders of national governments) is also coming to a head. Part of the deal in the EU has long been that big countries rule at the Council, but the little ones are protected by the Commission. Yet as Germany takes the lead in forging a tighter fiscal union, inevitably the Commission is being sidelined. Rarely, if ever, has the EU been so dominated by a single country. Any crude move -- such as Germany’s rapidly dropped suggestion that a European budget czar be able to veto Greek fiscal policy -- can become political dynamite.

Then there is the longstanding debate between integrationists -- who want a smaller, more unified EU -- and those who favor an EU that is looser and keeps adding members. The EU is already running at multiple speeds to accommodate these competing views, but the euro-area crisis has given new life to the argument that the bloc should divide more formally into a tightly integrated inner core and the rest.

What you might call the EU’s ideological balance also risks being upset. Traditionally, France and Germany pushed for more continental solutions to Europe’s problems, including extensive labor regulations and other elements of what’s often called “social Europe.” The U.K., often allied with Scandinavian and Eastern European countries, pushed for more market-based solutions. Cameron’s self-inflicted exile risks weakening the impetus for changes that the EU still badly needs.

Resist Temptation

Merkel and Sarkozy are right to focus all their efforts on the euro right now. Indeed, they should be doing more and faster to ensure the currency survives -- the fiscal compact itself is a longer term fix of little immediate interest to markets. Failure would be calamitous for the EU and the world’s economy. But they need to resist the temptation to use this moment to sideline the non-euro countries and create a dual Europe, no matter how attractive it may seem to be rid of the awkward Brits. The onus on Cameron is to restore confidence in his government’s commitment to the EU.

Otherwise, saving the euro may come at the expense of breaking the EU into a divided Europe of core and periphery countries. That outcome would make Europe poorer and weaker at a time when it needs all the strength it can muster to compete on the global stage.

Source: Bloomberg