BIGCAPITAL's Blog

September 26, 2010

Canadian banks may target U.S. regionals

 

Canadian banks may target U.S. regionals

New Basel rulings give Canadian banks opportunity to deploy capital

SAN FRANCISCO — Weak U.S. regional banks could be attractive targets for Canadian banks looking to expand their U.S. holdings, Credit Suisse Global Research analysts said in a note Friday.

New rulings from the Basel Committee on Banking Supervision, issued earlier this month, changed the definition of capital in a way that presented Canadian banks an opportunity to expand, said Credit Suisse analyst Nick Stogdill.

“It gives banks more certainty in deploying capital,” he told MarketWatch. Read more about new Basel capital requirements.

Potential U.S. targets include TCF Financial Corp. (TCB) in the Midwest, and Regions Financial Corp. (RF) and Synovus Financial Corp. (SNV) in the Southeast.

U.S. regional banks make good takeover targets for stronger Canadian banks because they are experiencing weak loan growth and have to operate under tight regulation, Credit Suisse said in its report. Other problems include pressure on net interest margins and low valuation relative to other financials.

“Canadian banks are motivated by a desire to add scale in specific regions at attractive valuation levels,” the report said.

The $1.5-billion First Niagara (FNFG) takeover of New Haven, Conn.-based NewAlliance (NAL) in August may have started the trend, the analysts said. First Niagara characterized the acquisition as “playing offense” by entering new markets that will enable profit growth.

“We will be able to do even more for the community as a larger, stronger institution,” First Niagara said in a statement. “This is another very positive step forward for both our Main Street and Wall Street constituents.”

The Credit Suisse report points to two Canadian banks, Toronto Dominion (CA:TD) and the Bank of Montreal (CA:BMO) , as potential buyers. Specifically, the analysts believe “TCB (TCB) and BMO’s Chicago-based Harris bank make an attractive combination.”

US Not Aware Of Deficit Dangers, Canada is better than the US

 

US Not Aware Of Deficit Dangers, Canada is better than the US

 

Taleb Says Unawareness of Deficit Risk Has Him `Extremely Bearish’ on U.S

 

Nassim Nicholas Taleb, author of “The Black Swan,” said he’s concerned budget deficits in the U.S. are spiraling out of control and may now represent a bigger problem than in countries such as Greece.

“The U.S. is probably the worst of all,” Taleb told Canada’s BNN television network in an interview today. “They are addicted to debt. We have an administration that, unlike the European administrations, is not aware of the risks of mounting deficits, of the addiction to public deficits and to big government.”

Taleb told the cable network, “People are complaining about Greece, but Greece has the IMF putting some discipline in their system. Who can discipline the U.S. government?”

Greece this year has imposed a series of austerity measures, including wage and pension cuts and higher sales taxes, in exchange for a 110 billion-euro ($148 billion) rescue from the European Union and International Monetary Fund. U.S. President Barack Obama inherited what the National Bureau of Economic Research said this week was the deepest U.S. recession since the Great Depression. The government’s outstanding debt is about $13.5 trillion, according to Treasury figures.

Risks to the global financial system are much larger than before the September 2008 bankruptcy of Lehman Brothers Holdings Inc., Taleb said.

‘Making Things Worse’

“People still don’t understand why we had the crisis and they don’t realize that we are making things worse,” he said. “We still have the same level of debt but we are transforming private debt into public debt. We are socializing these risks, and the system has fewer people employed. So we have a lot more risks than we did in 2007.”

Taleb, in Montreal today to give a speech to a group of business people, said Canada’s fiscal situation makes the country a safer investment than its southern neighbor.

Canada has the lowest ratio of net debt to gross domestic product among the Group of Seven industrialized countries and will keep that distinction until at least 2014, the finance department said in its March budget documents. Canada’s ratio, 24 percent in 2007, will rise to about 30 percent by 2014. The U.S. ratio, now above 40 percent, will top 80 percent in four years, the department said, citing IMF data.

“I am extremely bearish on the U.S.,” he said. “I am more bullish on Canada. Canada is much more robust than the U.S. You guys have much less debt, much more manageable risks.”

Taleb wrote the 2007 best-seller “The Black Swan: The Impact of the Highly Improbable,” which argues that history is littered with rare, high-impact events. The black-swan theory stems from the ancient misconception that all swans were white.

As the founder of New York-based Empirica LLC, a hedge-fund firm he ran for six years before closing it in 2004, Taleb built a strategy based on options trading to protect investors from market declines while profiting from rallies. He now advises Universa Investments LP, a Santa Monica, California-based fund that bets on extreme market moves.

September 24, 2010

Canada Weekly Earnings Up 3.9% in July From Year Ago

Filed under: Uncategorized — bigcapital @ 8:47 pm
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(OTTAWA) — Canadian average weekly earnings rose 3.9% to a seasonally adjusted C$855.66 in July, the fastest year-over-year rise since February 2008, Statistics Canada said Thursday.

The agency noted that the pace of earnings growth has increased in recent months, with July being the sixth consecutive month for which the year-over-year increase was at or above 2.5%.

On a monthly basis, average weekly earnings increased 0.7%.

Monthly payroll employment was up 0.2% in July from June, and the year-over-year increase was 1.6%.

Website: http://www.statcan.gc.ca

UPDATE :
September 24, 2010 08:39 ET (12:39 GMT)

Is the Canadian Dollar Undervalued against the Swiss franc and US dollar ??

Filed under: Uncategorized — bigcapital @ 6:37 pm
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Is the Canadian Dollar Undervalued against the Swiss franc and US dollar ??

Recent years have shown a strong correlation between increases in oil prices and increases in the Canadian dollar. This relationship has a strong grounding in economic principles, since Canada is a significant exporter of oil. Canada is an even more significant exporter of natural gas. When oil prices increase, generally natural gas prices follow along, providing an important positive indirect impact of oil prices on the Canadian dollar. WTI oil prices have increased from $34 (U.S. dollars) in early 2003 to the $140 level. At the same time, the Canadian dollar has moved steadily upward, from 66 U.S. cents to 99 cents. Even when oil prices took a little dip in the latter half of 2006, the Canadian dollar mimicked this decline. There is therefore solid theoretical as well as empirical support for a strong association between increases in oil prices and increases in the Canadian dollar.

As the price of oil increased from $54 in early 2007 to $95 in early November 2007, the Canadian dollar, as expected, moved steadily upward from 85 cents to slightly over par. This adjustment seemed smooth and consistent, a comfortable equilibrium. Since reaching par, however, the Canadian dollar has refused to follow the surging price of oil. WTI oil has increased from $95 in November 2007 to the $140 level in early July 2008. The Canadian dollar, which was slightly above par when oil was at $95 in November, has been slightly below par for most of the eight months since.

  

How and Why Do Oil Prices Affect the Canadian Dollar?

What factors could possibly explain why the Canadian dollar, which so faithfully followed the price of oil up from $34 in early 2003 to $95 in November 2007, has refused to budge upward since?

First, it must be emphasized that most economic relationships, and this particularly applies to the oil/Canadian dollar relationship, hold generally over time. Second, technically, and theoretically, economists expect a strong relationship, not between the price of oil and the Canadian dollar, but between the expected price of oil and the Canadian dollar. To be precise, we expect that, if the price of oil is expected to be higher than otherwise over a sustained period, this puts upward pressure on the Canadian dollar.

A possible reason why the Canadian dollar did not move above par as the price of oil zoomed up from $95 is that the rise in late 2007 was assumed to be a temporary spike. In November 2007, when oil hit $95 it was assumed the price of oil would fall quickly and steadily to the $73 level by year-end 2008. Instead, over the past eight months those early expectations of a quick retreat in oil prices have replaced by more robust forecasts.

  

What Are the Other Fundamental Determinants of the Canadian Dollar?

It must be emphasized that many factors can affect the Canadian dollar’s value in U.S. cents. Short-term movements in the Canadian dollar are most heavily influenced by energy and other commodity export prices, the Canada/U.S. interest rate gap, and the view of international financial markets generally on the U.S. dollar. Over the longer term, the gap in Canada/U.S. inflation rates is an important determinant. In addition, many other economic and political factors have the potential to move the Canadian dollar significantly, and they sometimes do. That is why forecasting the Canadian dollar, or any other currency, is so difficult. The abovementioned factors, however, are those that have the most regular and most significant influence, as documented by years of economic modeling work at both Global Insight and the Bank of Canada.

Certain factors are most likely to be in a position to overwhelm the expected upward pressure on the Canadian dollar from a rising price of oil over the past eight months. First, if natural gas prices did not follow oil prices upward, that could explain why the Canadian dollar stayed flat as oil prices rose. However, over the November 2007–early July 2008 period, natural gas (Henry Hub US$) prices rose about 80% as WTI oil prices rose 50%. Thus, it was not the failure of natural gas prices to follow oil prices upward as they generally do. Second, of course the prices of non-energy exports is important. Overall, the prices of Canada’s non-energy exports appreciated from November 2007 to early 2008, but have since receded to about their November 2007 level. Therefore, non-energy export prices have had a neutral impact on the Canadian dollar over the past eight months.

The other key factor in determining short-term movements of the Canadian dollar is the short-term Canada/U.S. interest rate gap—or, more precisely, expectations of this gap. This relationship has both theoretical as well as empirical support. These interest rates, and other rates related to them, influence short-term capital flows. The Canada/U.S. interest rate gap therefore provided some upward pressure on the Canadian dollar over early 2008

Overvalued Currencies

Based upon all 3 PPP calculations, the Swiss Franc is the most overvalued currency followed by the Australian dollar.

Bank of Canada increases overnight rate target to 1 per cent.

Canada’s central bank raised its key interest rate on Wednesday for the third time in as many months.

OTTAWA –The Bank of Canada announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies. In the United States, the recovery in private demand is being held back by high unemployment and recent indicators suggest a more muted recovery in the near term.

Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated. Going forward, consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields.

The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity. Inflation in Canada has been broadly in line with the Bank’s expectations and its dynamics are essentially unchanged.

Buy signals on CAD/CHF ?

The CAD has dropped significantly versus the CHF in the past several days, but few traders are concerned since many indicators are pointing toward an impending correction. As can be seen, the daily chart is giving bullish signals, indicating that CAD/CHF pair might go up. Forex traders can take advantage of this impending movement by having their Entry Orders in place to capture this reversal.

September 16, 2010

Japan Intervention May be Warning To China – CMC

Filed under: Uncategorized — bigcapital @ 6:35 pm
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Japan’s large JPY-selling intervention Wednesday “could be a loud warning shot to Beijing, given the (recent) record buying of Japanese government bonds by China,” says Ashraf Laidi, chief market strategist at CMC Markets. China in July increased net buying of Japan financial assets, all or nearly of which thought to be in JGBs. Some analysts speculate China’s JGB buying could be meant in part to keep JPY strong, weighing on Japan economy, which China looks to surpass as world’s second biggest this year. Japan Finance Minister Noda recently questioned “true intention” of China’s JGB purchases. Given Noda raising such suspicions, Japan’s post-intervention statements on resolve to pursue further action “sound like a warning shot to Beijing’s yen-purchases as opposed to the average currency speculator,” Laidi says. Adds, Beijing could counter by tightening monetary policy, which could upset risk trade, possibly push safe-haven JPY higher.

UPDATE: September 16, 2010 06:23 ET (10:23 GMT)

http://www.intermoney.org

Goldman Sachs: Japan’s intervention will be a success

Filed under: Uncategorized — bigcapital @ 4:24 pm
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Goldman Sachs: Japan’s intervention will be a success

Analysts at Goldman Sachs Group Inc. in London believe that Japan’s currency intervention will turn out to be successful.

According to the specialists, the efforts of Japanese monetary authorities will drive yen’s down to 90 yen per dollar in a year.

As a result, Japan may have to sell more yens in order to prevent national currency from excessive gains that affect the country’s economy.

There are different estimates for Japan’s intervention – from $1.2 billion by the Nikkei newspaper to $20 billion from BNP Paribas SA’s point of view.

UPDATE: September 16, 2010 04:17 ET (08:17 GMT)

http://www.intermoney.org

September 15, 2010

George Soros agree on Japanese Intervention

Filed under: Uncategorized — bigcapital @ 10:41 pm
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Soros Applauds Japan Intervention to Weaken Yen

Billionaire financier George Soros said on Wednesday that Japan was right to intervene in foreign exchange markets to bring down the value of the yen.

“Certainly, they are hurting because the currency is too strong so I think they are right to intervene. They had a real estate boom and then a crash in banking … It’s 20 years now, and they are still just struggling along.” Soros said at a Reuters Newsmaker event.

Japan sold yen in the market on Wednesday for the first time since 2004 and said it would do so again to prevent the currency’s rise from hurting exporters and threatening a fragile economic recovery.

Billionaire financier George Soros spoke at a Reuters Newsmaker event on Wednesday.

tag: JAPAN’S INTERVENTION TO BRING DOWN VALUE OF YEN

UPDATE: September 15, 2010 10:40 ET (14:40 GMT)

www.intermoney.org

Japan Intervenes To Weaken Yen And Warns Of More

JPY yen

Japan intervenes to weaken yen and warns of more

Japan sold yen in the market on Wednesday for the first time in six years and promised more to come in a bid to stop the currency’s relentless rise from hurting exporters and threatening a fragile economic recovery.

Fresh after victory in a party leadership contest, Japan’s Prime Minister Naoto Kan appeared to be stepping up efforts to wrench the country out of deflation by targeting yen strength, which has weighed on stock prices and corporate profits.

Estimates varied on how much Japan has spent in its first intervention in the foreign exchange market since 2003-2004, when its forked out 35 trillion yen ($409 billion).

Dealers suggested Wednesday’s intervention amounted to about 300-500 billion yen ($3.6-$6 billion), though some reports put it closer to 100 billion yen.

The U.S. dollar was boosted further after an official at Japan’s Ministry of Finance said intervention was not finished. It climbed about 3 percent on the day to more than 85.50 yen, having dropped to a 15-year low of 82.87 yen earlier.

Unlike in previous intervention, the Bank of Japan will not drain the money flowing into the economy as a result of the yen selling, sources familiar with the matter said.

That indicated the central bank plans to use the sold yen as a monetary tool to boost liquidity and support the economy.

Authorities that sell their own currencies to weaken them often issue bills to “sterilize” the funds and keep the excess money from becoming inflationary. In Japan’s case, it wants to promote inflation since the economy has been dogged with deflation for much of the past decade

The central bank may follow up with additional steps, such as buying more government debt, economists said.

“SYMPATHY”

Finance Minister Yoshihiko Noda, who will reportedly keep his post after a cabinet reshuffle, indicated Tokyo acted alone on the yen. He said he was in contact with authorities overseas and analysts expected Japan to be spared international criticism.

“Japan will be seen as a special case,” said Simon Flint, global head of foreign exchange research with Nomura in Singapore. “Obviously, its economy has been in significant trouble for a while, stocks have been depressed for some time, export performance relative to the Asian peer group has been very weak,” he said.

“To some degree there will be some sympathy in the rest of the world for Japan’s predicament.”

U.S. officials at the Federal Reserve and the Treasury declined immediate comment.

Analysts doubted whether Kan’s government was ready for a protracted battle with markets similar to the 15-month yen selling spree earlier this decade since that campaign prove ineffective at halting the yen’s strength for long.

WILL THE YEN STOP RISING?

Kan’s government has been trying to talk down the yen as it strengthened beyond 90 per dollar

“The government probably wanted to stamp out those views. But the question is: Will the yen stop rising from here? It’s not clear.”

USD/JPY’s recovery from around the session lows of 85.00 comes as a Japanese government official confirms the MOF/BOJ has intervened in European markets Wednesday

* Japan PM Kan: Intervened in fx because yen reached level where action was needed.

Japan’s Ministry of Finance said intervention was not finished. Japanese news agency Kyodo cited a ministry official saying Japan had intervened in European markets and will intervene in New York trading hours if need be.

www.Intermoney.org – Market Talk

Wednesday. September 15, 2010

UPDATE: 07:25 ET (11:25 GMT)

Naoshima: Expect BOJ to Take Further Monetary Steps To Fight Deflation

Filed under: Uncategorized — bigcapital @ 5:26 pm
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Naoshima: Expect BOJ to Take Further Monetary Steps To Fight Deflation

Japan’s Economy, Trade and Industry Minister Masayuki Naoshima said Wednesday that he expects the Bank of Japan to take further monetary steps to fight deflation shortly after the government and the central bank intervened in the currency market for the first time in more than six years, Kyodo News reported.

“In terms of stepping up cooperation between the government and the BOJ, and especially to show our strong resolve to end deflation, I expect more monetary policies from the BOJ,” Naoshima told reporters in Tokyo.

He also stressed that the market intervention was in line with the government’s policy, approved by the Cabinet on Friday, to “take decisive actions, including intervention, when necessary” to stem theY’s rise against major currencies.

“I think there was a strong impact on the market in the sense that the Japanese government made its will clear,” he added.

The policy was stipulated in the new stimulus package the government compiled to tackle the recent upsurge of theY and downside risks to Japan’s economic growth.

Asked about what the government would like the U.S. dollar-yen exchange rate to be, Naoshima said while it is difficult to tell, the assumed rate level among Japanese companies is 90Y to the dollar and the point is how “one thinks about the gap.”

http://www.Intermoney.org – Market Talk

Wednesday. September 15, 2010

USD/JPY Rally May Be Attacked Next Week

Filed under: Uncategorized — bigcapital @ 5:25 pm
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USD/JPY Rally May Be Attacked Next Week

The BOJ’s first intervention for the time since 2004 leads to a 200 sen rise in USD/JPY.

Mizuho Corporate Bank’s Nicole Elliott says the talk that is Y100B was spent, much of it around 83.30 with the rate topping out so far just above the pivotal 85.00 level. Elliott says looking at the charts, the move started at the bottom of a wedge formation that has dominated trade since late 2008 and there is now a potential ‘bullish engulfing candle’ which suggests the rate will hold above its 82.87 low for the rest of the week at least.

source: Citigroup

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