Month: December 2012

It could get hairy before ‘cliff’ deal: Greenspan

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The US will likely avoid the “fiscal cliff” but it could be a bit hairy before politicians reach an agreement, former Federal Reserve Chairman Alan Greenspan told CNBC’s “Closing Bell” on Tuesday.

“The best possible outcome is to take something like Simpson-Bowles as it came out originally and work off that,” he said, of a deal to avoid the automatic tax hikes and spending cuts that go into effect at the end of the year.

But he said that reaching a final agreement won’t be an easy process, since the president believes he has a mandate following the election while House Republicans believe they, too, have a mandate.

“I’m not at altogether clear how much control (Speaker) Boehner has over the overall caucus,” Greenspan said. “At the end of the day it will all work out but it’s going to be a bit hairy before we get there.”

(Read More: Forget the `Fiscal Cliff,` Look at These Cliffs.)

Greenspan also warned there could be significant implications for markets if a deal is not reached.

A day ahead of the Federal Reserve’s interest rate decision on Wednesday, Greenspan also said that the Fed stimulus hasn’t had much of a major effect. They’ve created a very large expansion of the balance sheet which has ended up as reserves at the banks.

“Unless and until it is re-lent it will not have an impact on the economy,” he said. “The Fed is not as big a player as most people think in this context.”

Greenspan also believes that the housing market has bottomed. “Housing is the only area of the economy that is moving up on its own,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

OPEC sitting pretty, but are storm clouds brewing?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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I’m not going to make a mountain out of a mole hill, or should it be a gusher out of a trickle? Anyway, aside from mixed metaphors the fact is: this should be a very straight forward OPEC meeting in Vienna.

Oil price are where the group, which produces circa 40 percent of global oil output, want them. The OPEC basket is currently trading at around USD 106 per barrel. This is enough to keep the petro-dollars flowing and, more importantly, pay for spending programs to keep domestic populations happy for now.

In addition, OPEC has successfully filled in the export gap left by Iran’s sanctions and is, as per usual, happily pumping pretty much as much oil as it can. Fears of a euro zone collapse and/or a hard landing in China have, as of yet, failed to materialize and have a meaningful effect on global oil demand. Despite everything that is being thrown at the global economy, the planet is still consuming around 90 million barrels of oil per day in 2012, slightly more than we did a year earlier.

So, with all that going in OPEC’s favour, why is the meeting in Vienna going to be a potentially moody affair? Is the apparent lack of downside risk in the oil price disguising longer term economic and political problems ahead?

Here are four reasons why things might not be as relaxed as they look:

1) Oil prices are now above USD 100 per barrel and OPEC is producing more than a million barrels a day over what it thinks will be needed from the group in 2013. This is leading to above average inventory build in the consuming nations. So how much oil needs to be added to the inventories before this has a downward drag on price? Let’s face it, discipline and OPEC production have never gone hand in hand. Even if Saudi does respond and takes some supply off the table, who’s to say some non-OPEC player might add to the glut?

2) The US fiscal cliff is looming. If we go over the cliff, there will be a real fear that the US economy will take a severe hit and take with it the oil price. Risks assets, pumped up by QE (quantitative easing) could also fall as the long financial investors dump long positions. Don’t forget a lot of national oil companies and their supporting governments need USD 100 to support national budgets. Below that, domestic social problems may flare up dangerously. Even if global demand holds up, who’s to say the ‘speculator premium’ in the oil price won’t come out of it and takes us towards USD 80 per barrel or lower?,

3) Non-OPEC supply from the likes of Canada and U.S. is growing significantly. In the United States, according to the EIA, crude production was 6.5 million barrels per day in September 2012, the highest volume in nearly 15 years. The IEA reckons self-sufficiency is on the cards by 2035. Along the way, possibly within five years, the USA is set to overtake Saudi Arabia as the world’s top oil producer. It’s not only North America that is looking at shale and alternatives. OPEC is nervously watching the Chinese and Europeans’ attitude to shale and the like.

4) The OPEC secretary general Abdalla Salem El-Badri is set to retire as Secretary General of OPEC after five years in the job. His replacement is politically explosive as both Iran and Saudi Arabia want their man to replace the Libyan incumbent. This disagreement is part of the wider Iran/Saudi row which is engulfing the Middle East.

–By Steve Sedgwick, Anchor, CNBC “Squawk Box”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Oil to stay ranged as fiscal cliff woes offset China cheer

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Benchmark oil prices will continue to remain in a tight range this week as the continued lack of progress on averting the U.S. “fiscal cliff” and a political crisis in Italy offset positive sentiment from data showing an improvement in China`s economy, according to CNBC’s latest survey of oil market sentiment.

“My prediction is that when an agreement is made by the politicians in the U.S. you will see oil move with the equity markets, most likely in an upward direction,” said Matt Grossman, chief equity market strategist for the Adam Mesh Trading Group. “The price will continue to be range-bound until the `fiscal cliff` issue is solved.”

Results are fairly evenly-balanced this week, suggesting a lack of clear price direction in the short-term. Four out of 11 of this week`s survey respondents expect oil prices to hold at current levels, four say prices may rise while three said prices may fall.

Brent oil prices rose slightly on Monday after Chinese data showed oil imports increased last month, helping end a five-day slide for the global benchmark.

Brent for January delivery rose 31 cents to settle at $107.33 per barrel, while U.S.-traded West Texas Intermediate fell 37 cents to $85.56 per barrel, posting a fifth day of losses, Reuters reported.

The divergence widened the spread between the European and U.S. benchmarks to around $21.77 a barrel, from as narrow as $20.45 last week.

Bullish respondents highlighted stronger U.S. jobs numbers on Friday and an improvement in economic data from China published over the weekend though cautioned renewed political turmoil from Europe as a key macro risk. Italian bond yields jumped after Prime Minister Mario Monti`s announcement that he would step down after approving the budget for 2013.

“Despite China`s improving economy, prices could come under some pressure as fresh uncertainty over Europe tempers sentiment,” ANZ commodity analysts led by Mark Pervan wrote in a report on Tuesday, adding prices would remain within recent $5 a barrel trading ranges.

Brent crude prices appeared to benefit more from China data (second largest consumer) which showed that implied oil demand surpassed 10 million barrels a day for the first time in November and oil imports hit the third-highest on record, ANZ said.

Moreover, Chinese refinery throughput reached a record 10.125 million barrels per day in November and was up 9.1 percent from the year-ago period while China`s crude imports rose further, “providing more evidence of economic recovery,” according to ANZ.

Still, China`s exports growth slowed to a much lower-than-expected 2.9 percent in November, a customs report said on Monday, suggesting the recovery was uneven.

A potential bullish driver for markets this week may be if the U.S. Federal Reserve extends “Operation Twist” – a program where the central bank sold short-term securities and bought long-term bonds at the pace of $45 billion monthly to `twist` the yield curve to bring down longer-dated securities in an effort to reduce borrowing costs.

Yu-Dee Chang of ACE Investment Strategists told CNBC Asia`s “Squawk Box” markets may be disappointed if the Fed fails to extend the program. “There may be a downside surprise if it doesn`t happen,” he said.

From a technical basis, Brent crude prices have room to ease initially towards the $105 or $106 zone and may test $104 – “an important low and strong support,” said Dhiren Sarin, chief technical strategist, Asia-Pacific at Barclays Capital.

Sean Hyman, editor of the Ultimate Wealth Report – though maintaining a long-term bullish view on expectations of a recovery in key emerging market consumers of oil – characterized Brent crude as “oversold” and said a break of support levels around $105 would make him bearish near-term.

“Overall my view is that China and India are beginning a recovery now that will show up and become more obvious throughout 2013 which will be bullish for commodities, especially oil,” Hyman said. “The only thing that would change that view is if we went back into a global recession, which at this point I don`t believe will happen. But we must see how the fiscal cliff is dealt with first.”

OPEC production talks this Wednesday will also be a focus for markets.

Saudi Arabian Oil Minister Ali al-Naimi said Monday that the main aim of the Organization of the Petroleum Exporting Countries when it meets is to keep the balance of the global crude markets to serve the interests of producers and consumers, Dow Jones Newswires reported.

Balancing the market will also help the growth of the global economy, particularly the developing countries, Naimi said, according to the state-run Saudi Press Agency. OPEC is expected to maintain its current oil production ceiling of 30 million barrels per day, after officials from member countries said earlier Monday conditions in the market support the status quo.

“Current output levels run above global demand, U.S. shale reserves are likely to dominate OPEC talks, but disagreements between OPEC leaders could hamper the group`s ability to respond,” said Malcolm Gissen, co-manager at Encompass Fund.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Will Asian equities carry their bull run into 2013?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian stocks have had a solid run this year, with the MSCI Asia Ex-Japan Index rallying 17 percent since the start of 2012, and Standard Chartered Bank says expect another 10 percent upside in the new year.

The main driving forces for the region’s equities will be a continued recovery in the world`s two largest economies – the United States and China – which will support risk appetite, together with strong foreign portfolio inflows and an improvement in earnings, the bank wrote in a recent report.

Asia is projected to see foreign inflows of USD 42 billion in 2013. Emerging markets saw net inflows of around USD 16.5 billion in the first three quarters of the year, according to data from Standard Chartered.

“In Asia, we see the economy recovering quite well. The Chinese economy is bottoming and that`s going to support Asia as well,” the bank`s chief investment strategist Steve Brice told CNBC Tuesday.

An improvement in earnings will also bolster the performance of Asian equities next year, the bank said, as growth in the region picks up to 6.5 percent in 2013, from an estimated 6.1 percent this year.

“The expansion in margin will (also) be driven by corporates passing on input price increases in an effort to recover some of the margin lost due to the slowdown in consumer growth over the past three years,” Clive McDonnell, head of equity strategy, Standard Chartered Bank, wrote.

While gains are expected across the board, including for the region`s laggard China, the bank is betting India, Philippines and Thailand will be 2013`s star performers, each offering returns of 15 percent next year.

Bet on India

Despite the sharp slowdown in India`s economy this year, the country`s benchmark BSE Sensex index has surged over 25 percent so far this year on the back of strong buying by foreign institutional investors and optimism surrounding the government`s reform efforts.

(Read more: Why Booming Indian Equities Will Rock in December)

Next year, the bank forecasts stocks will get a boost from interest rate cuts by the Reserve Bank of India, which will reduce the cost of capital and support investment growth, and from easing inflationary pressures – a positive for profit margins.

Standard Chartered economists expect inflation in India to moderate from 7.8 percent in 2012 to 6 percent in 2014, providing room for policymakers to reduce rates by up to 100 basis points in the year ahead.

The Philippines` stock market is also expected to continue its dream run next year, after rallying 33 percent since the start of 2012.

“This is based on our view that the rapid growth in the business process outsourcing sector is leading to increased middle class income growth, which in turn is driving a structural rise in consumer spending,” McDonnell wrote.

Finally, Thailand`s SET index, which has almost matched the Philippine`s PSE Composite`s stellar performance this year, up 31 percent year-to-date, is also expected to be among the best performers in 2013.

McDonnell said next year`s upside will be driven by a rise in investment in the country – by domestic and foreign investors.

The Thai government is planning to spend more than 2.2 trillion baht ($71.1 billion) over the next seven years to build railways and roads and another 350 billion baht ($11.3 billion) on infrastructure to prevent a repeat of the devastating 2011 floods that dragged economic growth down to just 0.1 percent for the year.

On the foreign investment front, a number of investors, including Japanese automakers, have announced plans to add production capacity in the country.

Don’t Write-Off China

As for China, the bank said it is growing more confident that the benchmark Shanghai Stock Exchange) which has underperformed considerably in the recent years – falling 5.2 percent year-to-date, after declining 22 percent in 2011 – will stage a turnaround in 2013. It forecasts gains of 12 percent for the market next year.

McDonnell argues that a recovery in earnings, alongside a pickup in growth, and an upturn in money supply will support the market.

The consensus 2013 earnings per share growth estimate rose from 10.7 percent in September to 11.5 percent at the end of November, according to the bank.

Meanwhile, money supply or the entire stock of currency and other liquid instruments in the economy at a particular time, has historically tracked the performance of the market closely and this measure has started to recover. In September, for example, the growth in a measure (M1) of money supply accelerated to 7.3 percent from 4 percent in August.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Euro zone crisis is back as Italy loses its ‘saviour’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Mario Monti’s announcement that he will step down as Italy’s Prime Minister represents a significant setback in the euro zone’s rehabilitation, analysts warned on Monday, with the decision set to push up Italian bond yields and heap pressure on the euro as well as push Spain closer to the edge of a funding crisis.

Monti’s decision to resign before the end of the year came after former prime minister Silvio Berlusconi’s People of Liberty Party (PDL) withdrew its support for the government. Berlusconi confirmed on Saturday that he would lead the party into new elections in early 2013. Hailed as Italy’s savior when he took over from Berlusconi in November 2011, “Super Mario” was embraced by more austerity-minded northern European partners.

Related Links:

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Analysts are concerned that the euro zone crisis could flare up again as investors fret over a lack of clear leadership and commitment to economic reform in Italy. If the widely-praised reforms started by Monti stall, they warn, Italy might struggle to access funding provided by the European Central Bank (ECB) and other partners.

“We believe that, should the elections yield a fragmented government majority with limited capacity to act and deliver important reforms, the ECB would not be willing to support Italy, even in the context of significant market pressure. In this circumstance, the risk of a standoff between the ECB and Italy are non-negligible and markets would likely reassess Italian sovereign risk by assigning a higher credit risk to the sovereign,”Nomura economists said in a note to clients on Monday.

In addition, some economists warn that investors have grown too complacent about Italy in recent months, arguing that a correction is due. Despite the jump in yields on Italian 10-year paper on Monday morning, the yield is still on a par with lows reached during the January-March rally that was fueled by the ECB’s provision of cheap 3-year loans to banks.

“The markets have been far too complacent about Italy of late. The signaling effect of the ECB’s bond-buying program has led to a period of deceptive calm in Spanish and Italian debt markets,” Nicolas Spiro,Managing Director of Spiro Sovereign Strategy said.

Shares were down across Europe and Italian bond prices fellon Monday. The cost of insuring Italian debt against default rose “The ‘Berlusconi effect’ is palpable and is leading to a reassessment of Italian credit risk that in any case was overdue,” Spiro said.

Domino Effect

Spain will be the first to suffer from the contagion effects of turmoil in Italy. The spread between German and Spanish bonds rose on Monday and Spanish Economy Minister Luis de Guindos warned that the developments in Italy would inevitably hit Spain.

“More widely, if markets do become unsettled over Italy we may see contagion into other euro zone economies, perhaps particularly Spain which has tended to move in tandem with Italy since August 2011,” Nomura’s Senior Political Analyst Alastair Newton said.

He pointed out that Spain faces a heavy year ofdebt refinancing in 2013, starting in January, against a backdrop of continuing uncertainty over whether Prime Minister Mariano Rajoy will seek a bailout or not.

With elections on the horizon in Germany, the taskof calming bond markets will be left largely up to the ECB, Newton warned.

The euro, already battered by the biggest one-day loss in a month on Thurday after the ECB slashed its growth estimates for the euro zone, will also feel the effects of political instability in Italy.

“The added political uncertainty is unwelcome news, and we expect it to add further downward pressure to the euro in coming months in the form of an increase in euro risk premium,” analysts at Barclays said.

Jens Nordvig at Nomura also said the developments were “clearly negative” for the single currency. The bank expects the euro to trade in a range of between USD 1.25 and USD 1.30, but expects the euro to break that range to the downside next year.

December 2012 Not December 2011

Despite the heightened sense of alert, anlaysts were also quick to point out that Monday’s sell-off was a knee-jerk reaction. Recent opinion polls show Berlusconi losing support and the most likely outcome is a center-left coalition led by Pier Luigi Bersani, the leader of the Democratic Party.

Bersani will likely stick with the austerity drive, Ignazio Marino, Senotor for Bersani’s PD party told CNBC.

“I think Mr Bersani will keep going on the route that Monti started, adding that Berlusconi stood little chance in the election. “Italians are smarter than that, they know that the crisis is very deep,” he said.

And while Spanish and Italian 10-year bond yieldsrose, they were trading at just only just over 5 percent and 4.8 percent respectively.

“Two-year Italian yields are currently trading at 2.3 percent, still significantly below the 5 percent level before Mr Draghi’s intervention and nowhere near the 8 percent level in late November 2011,” Spiro said. “December 2012 is not December 2011.”

Copyright 2012 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why next year will be ‘easier’ for India’s economy

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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After a challenging year marked by slowing growth, speeding inflation, a major power blackout and the threat of a credit ratings downgrade to “junk,” India can look forward to an “easier 2013,” say economists at Deutsche Bank.

On Wednesday, India delivered a boost to investor sentiment when its lower house of parliament voted in favor of allowing foreign retailers such as Wal-Mart to open up shop in the country.

The vote is symbolic – last year the coalition government led by Prime Minister Manmohan Singh was forced to back down on its decision to let foreign supermarket chains enter the country amid pressure from opposition parties who said the measure would force small stores out of business and lead to job losses.

But this week’s vote has raised hopes that India will continue a reform agenda started in September when it allowed foreign participation in retail, aviation and broadcast together with some fiscal tightening measures such as reducing fuel subsidies.

(Read More: India Declares, ‘We’re Back in Business’)

“While the economy remains vulnerable to external shocks and domestic political turbulence, incentives are in place for the authorities to respond with investment friendly reforms, a dynamic already underway,” wrote Deutsche Bank economists Taimur Baig and Kaushik Das in a note published Thursday.

They added that economic growth, which has slowed to around 5.5 percent this year, has bottomed and further policy initiatives would make for a “durable economic recovery,” going forward.

“The economy will likely see a pick-up in external demand next year, and exporters would also be supported by a considerably weaker exchange rate. The Reserve Bank of India (RBI) is likely to cut rates next year, which should also help. And finally, we see consumption remaining resilient, helping anchor demand,” the economists wrote.

The Indian rupee has seen a steep fall over the past one year and hovering around 54 against the US dollar, a level viewed as competitive for boosting exports. Also the central bank, which has this year focused on reigning in inflation stubbornly above 7 percent, is also widely expected to cut interest rates next year. Both these factors will help boost the economy, said experts.

According to an estimate by Credit Suisse, the RBI is likely to cut interest rates by 125 basis points next year. This would be enough to push India’s growth rate above 7 percent in late-2013, says Credit Suisse’s head of India and Southeast Asia Economics, Robert Prior Wandesforde.

(Read More: Why India Struggles to Deliver Its Growth Potential)

While returning to the days of 8 percent-plus growth may still be a way off, India is likely to “face less pressure in 2013 and get more breathing space,” according to the Deutsche Bank report. They forecast the Indian economy to recover to 6.5 percent gross domestic product growth in fiscal year 2013/2014.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Apple may fall another 20% on ‘panic selling’: Analyst

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Apple‘s stock is up Thursday, but the recent selloff may be far from over.

Extraordinary volume during the stock’s plunge this fall signals another 20 percent decline is still ahead, a top chart analyst on Wall Street says.

(Read more: Apple Defies ‘Death Cross’)

“Along with the two volume ‘spikes’ cited in my Nov. 16 note, yesterday (Wednesday) was another volume ‘spike’ day on the downside suggesting that the USD 528 support area will in fact be decisively broken on a closing basis over the near-term,” said John Mendelson, technical analyst for ISI. “My view continues to be that because the stock ran up so fast last spring, the next significant support area is USD 420.”

Technical analysts like Mendelson, who was ranked 19 times in that field by Institutional Investor magazine over his long career, often look at volume to gauge changes in supply and demand for a stock. In this case, because the heavy trading is occurring as Apple is falling, it may be signaling a mass, ongoing liquidation as the year comes to a close.

Apple fell 6 percent Wednesday to USD 538.79 for its worst one-day loss in four years. About 37 million shares changed hands yesterday, almost 70 percent more than the average daily volume for the stock.

(Read More: ‘A Real Conflict’ for Apple Stock: Milunovich)

Mendelson is focusing on the USD 420 level because that is where the stock established a base, trading around that price for a few weeks at the beginning of January before taking off.

“Technical analysts follow spikes in volume because they often signal panic selling or panic buying,” said Dennis Gartman of The Gartman Letter. “History shows that they often mark major turning points for stocks.”

Apple is already down more than 20 percent from its high reached at the end of September. The selling has accelerated again this week. However, the shares are still up 35 percent on the year.

Analysts who study charts seem to be a lot more bearish on the stock than analysts and investors who concentrate on fundamentals.

(Read More: Trading Apple Near Its ‘Death Cross’)

The fundamental Apple analyst at Mendelson’s very firm, Brian Marshall, has a USD 710 price target on Apple, citing strong holiday sales.

“This is tax selling and hedge fund liquidations,” said Mike Murphy of Rosecliff Capital, who is an Apple bull.

Speaking of hedge fund liquidations, Diamondback Capital Management closed down today amid heavy withdrawals and an insider-trading investigation. Diamondback held shares in Apple.

For the best market insight, catch “Fast Money” each night at 5pm ET, and the “Halftime Report” each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Did Mario Draghi just kill rally in euro?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The euro, which has been remarkably resilient recently, saw a major selloff leading to its biggest one-day loss in a month after the European Central Bank (ECB) slashed its growth estimates for this year and next, and hinted at a possible rate cut in 2013.

Despite this setback, foreign exchange strategists expect the single currency to bounce back quickly. They see the euro supported by worries over the looming “fiscal cliff” of tax hikes and spending cuts in the US and uncertainty over what the Federal Reserve’s next move will be after its bond buying program, “Operation Twist” – which involves selling medium-term bonds and using the proceeds to buy longer-term ones – comes to an end on December 31.

(Read more: After the Fed’s “Twist” Comes the Hard Turn)

“We don’t think ECB President Draghi has completely killed the rally in the euro, the currency pair has had a very nice run over the past few weeks and a correction is not unexpected,” said Kathy Lien, managing director of forex strategy for BK Asset Management.

ECB chief Mario Draghi on Thursday painted a bleak outlook for the currency bloc’s economy and said policymakers had discussed negative deposit rates, prompting a steep fall in the euro.

The euro, which has risen over 5 percent against the US dollar since August, was trading near multi-month highs against major currencies including the greenback, British pound and Japanese yen on Thursday, giving rise to profit taking overnight.

“The euro had been built up, so yesterday’s (Thursday’s) move also reflected some profit taking,” Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole, who expects the single currency to end the year at USD 1.30.

Besides uncertainty around whether the US will manage to avoid the USD 600 billion “fiscal cliff” in January – which is negative for the dollar – Kotecha said the euro will also see some support from central bank buying.

“We’ve seen more flows from central banks – probably a result of reserve reallocations for the new year – which will help support the currency,” he said.

Barclays’ technical analyst Dhiren Sarin, who expects “choppy gains” in euro-dollar over the next one-two months, said support areas for the single currency are $1.2875 and then the 200-day average of $1.2790.

Boost From Equities

“We see this as a one to two month phenomenon, but thereafter the outlook is less clear and can’t rule out a stronger pullback,” Sarin said.

He also expects the currency will move higher in the near-term, helped by continued flows into European equity markets, due to their recent outperformance relative to US markets.

Over the past three months, major European markets including France’sCAC 40 index and Germany’s Dax 30 index have risen 2.6 percent and 5.1 percent, respectively, compared to a decline of 1.3 percent for the US’s S&P 500.

Euro in 2013

While the euro is expected to remain resilient in the near-term, the outlook for the currency over the next 12 months is less upbeat.

“We expect the euro to rise to USD 1.32-1.35 in the next quarter, but as we move through to the second quarter, we will be increasingly debating the US recovery. If there is a sense that growth may be starting to recover faster than expected, this could be negative for the euro,” said Robert Rennie, chief currency strategist at Westpac Institutional Bank, adding that the euro-dollar could fall to USD 1.25 in the second-half of 2013.

Michael Woolfolk, senior currency strategist, BNY Mellon, who is less optimistic on the prospects for the euro over both the short and medium-term, said 12 months out, he sees the currency below USD 1.20.

In the short-term, he said the US dollar will gain favor due to risk aversion in the markets. “Expect to see between now and the end of this year some further risk coming off the table. You want to be long dollars going into the last several weeks of the year.”

Over the medium-term, he expects the ECB will lower interest rates, which would be negative for the single currency.

“Draghi is very much in keeping with the G7 (nations) in supporting aggressive monetary easing, so there will be lower rates in Europe next year – it’s just a matter of time,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China’s new leader gives market a fillip: Will It Last?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Chinese stocks, which have had a forgettable year so far, climbed 3 percent on Wednesday, after the country`s new leadership promised further reforms. But is the rally that has fizzled out many times in the past here to stay?

China`s new Communist Party chief and incoming president Xi Jinping said on Tuesday, while addressing a Politburo meeting, that the government would deepen economic reforms, including allowing market forces to play a bigger role in setting prices.

The comments, plus positive economic data over the past couple of months, were enough to give the market a lift, analysts said, however adding that the sustainability of the rally was in question.

“Local investors are finally taking things more positively because there are clear signs of recovery in the economy. But it`s a short-term rally and whether it follows through, we will see,” Phillip Chan, director with Shenyin Wanguo Securities in Hong Kong told CNBC.

The Shanghai Stock Exchange has shed 60 percent of its value since a 2007 peak and is languishing near 4-year lows. It has also fallen below the key support level of 2,000 several times this year. The index closed at 2,031.9, an upside of 2.87 percent from Tuesday`s close.

According to Dhiren Sarin, chief technical strategist for Asia with Barclays, the larger trend for the Shanghai Composite still remains lower at this point even if the market has bounced in the near-term.

“For the past two years, the bounces have repeatedly stopped short of previous meaningful peaks,” Sarin said. “The most recent peaks are around the October high of 2,145. It would take a close above this level to suggest that the downtrend is changing. Until then, the medium to longer term view is still for a move down towards 1,900 and potentially 1,815.”

Has the Market Bottomed?

While doubts remain on whether this rally will stick, Alan Lam, China strategist with Julius Baer in Hong Kong, said the scale and pace of the selloff in Chinese stocks has slowed recently, indicating that a bottom could be near.

“I think the market could establish a bottom by the fourth quarter or at the very latest, early next year,” he said.

At the same time, investors are increasingly giving up hope that the government will come up with major stimulus measures in the new year. Xi on Tuesday, while promising further reforms, also emphasized “policy continuity and stability,” further reinforcing this view, said Zhiwei Zhang, chief China economist with Nomura in Hong Kong.

Copyright 2011 cnbc.com

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Greece Is on the Road to Recovery: France’s Noyer

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Greece’s economy is mired in recession but there are reasons to be upbeat and the debt-laden nation will be able to rebound strongly as it works its way through reforms, European Central Bank governing council member Christian Noyer told CNBC.

Noyer pointed to a pick-up in Greek exports as a sign that the economy is finally on the mend. The rate of growth of Greek exports is now among the highest in the euro zone after costs and wages have been cut significantly, he told CNBC Asia’s Kaori Enjoji in an exclusive interview.

His comments follow remarks on Monday by Greece`s central bank, which said Greece`s economy can recover sooner-than-expected if structural reforms and financial measures are implemented.

Greece now needs to convince investors that it will press ahead with key economic reforms while reducing its ballooning debt, said Noyer, who is also France`s central bank governor.

“Now, what remains to be done is effective improvement in the administration and enabling economic activities to start and develop in a less bureaucratic fashion,” he said. “That is really the core issue in the (debt) program and many reasons to be confident that it (the economy) can surge.”

Greece, which is expected to enter its sixth year of recession in 2013, recently gave investors a reason to cheer with news that exports rose 11 percent in the first eight months of the year. In September, exports grew 9.7 percent from August, the biggest jump of all the countries in the euro currency bloc.

Athens has also promised to implement reforms such as spending cuts, the privatization of state enterprises and slashing red tape to make the economy more nimble and efficient, in exchange for aid from its international lenders.

Debt Buy-Back

Greece said on Monday it would buy back bonds through an auction as part of its plans to cut its debt, allowing it to assess the level of demand before setting a final price for the deal.

The bond buy-back is key to the efforts of foreign lenders to put Greece`s debt back on sustainable footing, and its success will pave the way for Athens to get the latest tranche of aid from its lenders to avoid bankruptcy.

Many current bondholders have bought Greek bonds “at a huge discount” from other creditors, Noyer said, and the market price now will be a fair deal to them.

“They should also take into account that if they don`t come, there is no assurance that the prices will not go down after the period has expired,” Noyer added, referring to the December 13 deadline by which Greece must conduct the deal.

Greece will receive more than 30 billion euros ($39 billion) in bailout payments from the euro zone and the International Monetary Fund if the debt buy-back succeeds, the lenders said last week.

“(It`s) likely to have strong interest to come,” Noyer said, referring to the debt buy-back. “We will see what happens. But I tend to be rather confident that they should attract a lot of interest.”

Athens said it would spend 10 billion euros ($13 billion) to buy back bonds at a price range that topped market expectations, boosting hopes it can reduce its ballooning debt and unlock long-delayed aid.

This sparked a rally in Greek bonds on Monday.

Greece is proportionately the currency area`s most heavily indebted country, with debt exceeding 100 percent of gross domestic product. Its economy has shrunk by nearly 25 percent in five years.

Copyright 2011 cnbc.com

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow