UK Pound Down below $1.30 on Brexit jitters

The UK Pound drop below $1.30 on Wednesday amid increasing anxiety about Britain’s vote to leave the European Union that force investors to put their money on safe haven assets.

“Sterling hit fresh lows against all of the major currencies and while there was no news to explain the move, the sharp sell-off sent fresh jitters across the financial markets, driving investors into the safety of the US dollar, Japanese yen and gold,” according to Kathy Lien of BK Asset Management.

At one point of trading the UK pound drop to $1.2798, its lowest level since June 1985, before it recovers. The British currency dropped 1.0% against the euro at 85.88 pence.

The euro strengthened slightly against the dollar, up 0.2% at $1.1097.

“The eurozone is hardly sheltered from the UK’s troubles and there could be a banking sector crisis brewing in Italy but for now, the greater concern is clearly Britain,” Lien said in a client note.

The dollar was little moved by the minutes of the Federal Reserve’s June 14-15 policy meeting, which showed Fed officials divided over US growth prospects as they kept rates on hold.

Omer Esiner of Commonwealth Foreign Exchange said the dollar stands to benefit from continued aversion to risk, but that the outlook for the Fed leaving rates unchanged through 2016 was likely to keep its upside limited.

“Even upcoming economic data, like the all-important payrolls report for June this Friday, may have a limited impact on the dollar as the Brexit story continues to dominate market focus,” he said.

US Dollar is Up, Asian stocks and gold are Down

Due to the possibility of another interest rate increase by the Federal Reserve as early as June it push the US dollar sharply higher against major Asian currencies Thursday, with the Chinese yuan at its weakest level since February and the Japanese Yep losing its recent gains. The U.S. dollar index rallied to a two-month high.

Experts didn't expect the possibility of an interest-rate increase in June, but the latest Federal Reserve minutes, along with a batch of strong economic data, have changed that view.

Asian currencies falls into multi-month lows as traders adjusted positions to reflect the interest-rate expectations. The Indonesian rupiah fall to its three-month low, as did Thailand’s baht, while the South Korea won, the Philippine peso and the Singapore dollar fall into two-month low against the U.S. dollar.  The rise of the U.S. dollar also weakened the Japanese yen by nearly 1%.

MSCI's broadest index of Asia-Pacific shares outside Japan fall 1%, South Korea market fall by 0.6% while Australia were down by 0.8%.

Meanwhile, gold which are inversely correlated to monetary policy easing, fell 0.1% to a three-week low $1256 per ounce.

The stronger dollar also weighed on commodities such as oil, with U.S. crude futures losing 0.4% to $48.00 a barrel. A stronger dollar tends to put non-U.S. buyers of greenback-denominated commodities at a disadvantage.

Three-month copper on the London Metal Exchange fell to as low as $4563.50 overnight, the weakest since Feb. 19.

Regulators See Value in Bitcoin Digital Currency

Financial regulators, law enforcement, and even the chairman of the Federal Reserve show support for digital currencies at a Senate hearing.

Bitcoin is a crypto-currency that is designed to be use on the Internet. It has gained support at a U.S. Senate hearing on Monday including law enforcement, the chairman of the Federal Reserve, and financial regulators.

The value of the currency skyrocketed after the senate hearing.

Interested observers might have expected yesterday’s hearing on the potential risks, threats, and promises of virtual currencies to presage a regulatory crackdown: the hearing came just a month after the bust of Silk Road, a notorious online market that accepted bitcoins for guns, drugs, and other illicit goods. Though the hearing was nominally about digital currencies in general, the focus was really on Bitcoin, a currency that uses cryptographic techniques to allow money transfers directly between peers, rather than through a central authority like a bank or PayPal.

Euro Area Resumes Growth German Investor Confidence went Up

German investor confidence went up in August as the recovery in Europe’s largest economy helped pull the euro area out of its longest-ever recession.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, rose to 42 from 36.3 in July. That’s the highest level since March. Economists predicted 39.9, according to the median of 42 estimates in a Bloomberg News survey.

Growth in Germany may have exceeded economists’ forecasts in the second quarter, according to a government estimate, coaxing the 17-nation region out of a six-quarter slump. Paired with accelerating growth in the U.S. and a pickup in Chinese exports and manufacturing, signs of a global economic recovery are increasing.

“Better-than-expected data from China and the U.S. are reflected in investor confidence,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. “The fundamentals of the German economy are healthy and that should help other European countries grow. But there’s still a risk that the debt crisis will flare up again.”
Stronger Growth

ZEW’s gauge of the current situation jumped to 18.3 from 10.6 in July, while an indicator of euro-area investor confidence increased to 44 from 32.8. The group surveyed 252 investors and analysts from July 29 to Aug. 12.

“First signs of an end to the recession in important euro-zone countries may have contributed to the indicator’s rise,” ZEW said in a statement. “This is also reflected by the strong increase of economic expectations for the euro zone. Furthermore, the economic optimism is supported by the robust domestic demand in Germany.”

The euro rose after the report and traded at $1.3302 at 11:07 a.m. in Frankfurt.

The German economy probably expanded about 0.75 percent in the second quarter, the Economy Ministry estimates. Economists project growth of 0.6 percent, according to the median of 47 forecasts in a separate survey. The Federal Statistics Office will release the data at 8 a.m. tomorrow.
Rekindling Growth

The country’s benchmark DAX index has risen more than 5 percent since July 4, when European Central Bank President Mario Draghi pledged to keep interest rates low for an extended period to rekindle growth in the euro area. Gross domestic product in the region rose 0.2 percent in the three months through June, economists predict. That report is due at 11 a.m. tomorrow.

While parts of southern Europe remain mired in a slump and almost one in four young people in the euro area are without a job, German industrial production, factory orders and exports all rose in June, and business confidence improved for a third month in July. The data bode well for Chancellor Angela Merkel, who is seeking a third term in Sept. 22 elections.

Kloeckner & Co SE, a German steel trader part-owned by the Knauf family, said on Aug. 7 it expects profit to revive next year on gains in the U.S., an improvement in prices and restructuring efforts after lowering its 2013 earnings outlook.

Henkel AG, the German maker of Loctite glue and Fa soap and deodorant, reported second-quarter profit that beat estimates, helped by revenue growth in its home-care and laundry division in emerging markets.
‘Lackluster’ Sales

At the same time, Adidas AG cut its 2013 revenue forecast last week because of “lackluster” sales of sporting goods in Europe and unfavorable currency impacts after reporting second-quarter profit that trailed analysts’ estimates.

European countries accounted for 69 percent of German exports last year, according to the Federal Statistics Office. About 16 percent of goods went to Asia and 12 percent to the U.S.

The Bundesbank predicts Germany’s economy will grow 0.3 percent this year and 1.5 percent in 2014. That compares with a 0.6 percent contraction in the euro area in 2013 and growth of 1.1 percent next year, according to the latest ECB forecasts.

“The German economy has gained traction and continues to be a stable anchor in Europe,” said Lothar Hessler, an economist at HSBC Trinkaus & Burkhardt AG in Dusseldorf. “Low unemployment is supporting private consumption. The question is when investment activity will pick up again.”

Source: Bloomber.com

European markets Trading Floor update

European markets were trading cautiously this morning. The FTSE and DAX opened up 0.2% while the CAC and Euro Stoxx were up by 0.1%.

The FTSE was topped by Kingfisher and Randgold Resources, while Burberry and Vedanta Resources recorded losses. Citigroup reported positive net income figures for the three months to the end of June.

Looking at the foreign exchange market, the euro and Australian dollar appreciated against the US dollar ahead of Bernanke's Testimony taking place on Wednesday. The rates were 0.9177 for AUD/USD and 1.3069 for EUR/USD. GBP/USD, on the other hand, was trading slightly lower at 1.5090 this morning.

Spanish government bonds dive on bailout fears

* Risk of Spanish bailout grows; bonds in free fall
* Greek funding worries add to peripheral pressure
* Bund yields set to mark new lows on safe-haven flows

Spanish government bonds sank on Monday, pushing yields sharply higher, on fears the government will lose access to debt markets and need a full bailout as its regions began lining up for financial help.

Worry over Greece resurfaced with international lenders scheduled to gather in Athens to discuss the terms of further rescue payments, after its prime minister said the country was mired in a "Great Depression"..

As risk aversion dominated financial markets, five- and 10-year German government bond yields hit new lows and U.S. T-note yields hit their lowest since the early 1800s.

The Spanish region of Murcia moved closer to following Valencia in seeking financial aid from the government, which set up an 18 billion euro fund earlier this year to help the regions refinance their debt. Media reported half a dozen others were ready to do likewise..

"Given the market reaction on the back of the news that more and more regions are looking to tap into the liquidity fund..., it will be very difficult for Spain to circumvent further support for itself," said Norbert Aul, a rate strategist at RBC Capital Markets.

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