Monday 27th June 2016
NEWS TICKER: JUNE 27TH: This morning the story is about keeping calm even as the West European political landscape looks set to change forever. The aftershocks from the UK’s decision to leave the EU last week will continue for some time. This morning however the focus is on the UK Chancellor’s statement that was designed to calm the markets and set out a marker for the Leave camp in the ruling Conservative Party to keep him in a unity government if the divorce from the EU is to proceed unimpeded. Expect lots of posturing, but the reality is a deal will be wrought between prominent Remainers and Leavers, so that they can ‘sell’ to a clearly divided population that a reasonable outcome for the UK can be achieved. Expect also that many Leaver will now renege on many of the pledges and charges levelled against the EU, as they were plangently either not achievable or true. Politically, the fallout is far from over: Nicola Sturgeon, whose reputation has been enhanced by the referendum will now seek ways for Scotland to exit the Union; a clever move as firms looking to locate overseas to keep long term free access to Europe will now seriously consider Edinburgh and Glasgow as alternatives to Ireland or Luxembourg. There are areas of concern however: one is in Northern Ireland, where a call for a Border Poll by leader Martin McGuinness could reignite old political divisions and moves by many MPs in the Opposition Labour Party to oust the party’s leader Jeremy Corbin is distracting attention from the main question: how does the UK extricate itself from Europe with the most gain and least pain to all sides. While Leave campaigners and television commentators look to try to reassure the British public that they should not be worried by short term movements in sterling and the stock market. According to brokerage Clear Treasury: “Sterling this morning has drifted lower again since Friday’s close which saw the pound depreciate 9%. The worst may not be over for the pound either as the Brexit fallout is by no means over. We will likely see aftershocks in the market for the foreseeable future. The difficulty here will lie in anticipating these shocks, and for this reason it’s hard to justify many traders being able to justify holding or purchasing additional sterling. This is why we feel that the pound may not have reached its bottom just yet. Keep a close eye on economic data from the UK with GDP, market sentiment, retail figures etc all likely to be impacted going forward” – The world’s top central bankers meet in Brussels today for a three-day summit; no doubt Brexit is on the agenda and they will certainly be talking measures to calm the markets. On Tuesday, European leaders meet and following the inimitable Angela Merkel’s admonition to all Europeans to treat with the UK kindly and well will help defuse what could have been a rancorous meeting – St Louis Missouri-based Stifel Financial Corporation today announced that it has entered into a definitive agreement to sell Sterne Agee's legacy independent brokerage, clearing, and RIA businesses to INTL FCStone Inc. (NASDAQ: INTL). Following a financial restructuring of the combined businesses, consideration will approximate the tangible net asset value of the entities. The transaction is expected to close immediately after regulatory approval, which is anticipated in July. As part of the agreement, Stifel has agreed to sell: Sterne Agee Financial Services, Inc.; Sterne Agee Clearing, Inc.; Sterne Agee Leach, Inc.; Sterne Agee Asset Management; and Sterne Agee Investment Advisory Services. To support these businesses, INTL FCStone has agreed to hire substantially all of the Birmingham, Alabama-based support professionals. Ronald J. Kruszewski, chairman and CEO of Stifel, says, "Last year we successfully integrated the Private Client Group branches and institutional fixed income business from our Sterne Agee acquisition. We are pleased to have found an acquirer in INTL FCStone who is committed to these businesses and the professionals in the Birmingham community." -

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Bank of Japan Pushes the Yen Lower

Friday, 12 April 2013 Written by 
Bank of Japan Pushes the Yen Lower The Bank of Japan (BoJ) captured the attention of the foreign exchange world last week when it started to live up to the expectations of the market. After much anticipation, and lots of preceding rhetoric, Governor Haruhiko Kuroda announced the BoJ’s plan to double its bond buying efforts to reach the 2% inflation target in the allotted two-year window. It was his comments on Prime Minister Shinzo Abe’s inflation goals while still at the Asian Development Bank that might have won him the top job at the Japanese central bank. Earlier this week, the program kicked into gear and the JPY lost 4% versus the USD and 5% versus the GBP. The main beneficiaries have been Japan’s exporters and holders of Japanese stocks with the Nikkei Index reaching new highs on the value of the yen. http://www.ftseglobalmarkets.com/

The Bank of Japan (BoJ) captured the attention of the foreign exchange world last week when it started to live up to the expectations of the market. After much anticipation, and lots of preceding rhetoric, Governor Haruhiko Kuroda announced the BoJ’s plan to double its bond buying efforts to reach the 2% inflation target in the allotted two-year window. It was his comments on Prime Minister Shinzo Abe’s inflation goals while still at the Asian Development Bank that might have won him the top job at the Japanese central bank. Earlier this week, the program kicked into gear and the JPY lost 4% versus the USD and 5% versus the GBP. The main beneficiaries have been Japan’s exporters and holders of Japanese stocks with the Nikkei Index reaching new highs on the value of the yen.

The decision has not been without its critics and some, such as George Soros, cautioned that the fall in the yen could be “an avalanche” that the BoJ could not stop if the Japanese people start to sell the currency. China and South Korea remain critical of the move, branding it a currency war before the Group of Twenty meeting last February. This week, the negative criticism persisted, but the words used were “monetary blackmail” instead of “currency war”. Those ugly words have not been uttered since the Group of Seven made it clear that as long as Japan’s monetary easing means are used for domestic aims, it does not imply unfair currency manipulation.

 



 

Pound Sterling Fluctuations Continue

The GBP is coming off annual lows versus the USD registered in mid-March. The disappointing nonfarm payrolls jobs report released last week in the U.S. boosted the GBP, though it still remains below the 1.54 level. Last Thursday, the U.S. unemployment claims release came in well-below expected estimates and that in-turn could hinder the pound’s recovery as less Americans claimed unemployment support.

 

 

During the week, the pound gained significantly versus the yen after the BoJ’s new round of easing was introduced. Japan’s bond buying program could double the Japanese monetary base by the end of 2014. Though Kuroda is attempting to follow through on his pledge to reach Prime Minister Abe’s desired 2% inflation target within a tight timeframe, he has also said the BoJ’s ambitions are “flexible”.

 

 

Rise of the United Mexican States

Changes in legislation and favourable U.S. economic conditions have pushed the Mexican peso to a 20-month high. The changes introduced by President Pena Nieto’s administration bolstered confidence in Mexico’s media and telecommunications industries. Last month, the Bank of Mexico cut the overnight rate from 4.5% by 50 basis points after the inflation targets were within range. Bank of Mexico Governor Agustín Carstens has called the rise of the peso a reflection of the nation’s economic strength.

 

 

That statement is tough to refute. The MXN has gained 23.55% versus the JPY, 12.2% versus the GBP, and 8.67% versus the EUR since the beginning of the year.

Alfonso Esparza

Senior Currency Analyst, OANDA
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. He covers central banks and global economic and political trends for OANDA. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and financial services marketing from the University of Toronto.

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