U.S. Labor Market Roars Back, Adding 222,000 Jobs in June

The Labor Department released the June hiring and unemployment figures on Friday morning. This is the latest official snapshot of the state of the American economy.

The Numbers

• 222,000 jobs were added last month. Wall Street economists had expected employment gains of 175,000.

• The unemployment rate was 4.4 percent. May’s jobless rate was 4.3 percent.

• The average hourly wage grew by 2.5 percent from a year earlier.

• The labor-force participation rate inched up to 62.8 percent, from 62.7 percent.

The Takeaway

The labor market roared back in June, with a hefty monthly gain in jobs, and revisions that added 47,000 more jobs to April and May than previously reported. Over the past three months, job gains have averaged 194,000 a month. Although the unemployment rate ticked up from the previous month, it did so because more people joined the work force.

Rite Aid Corporation (RAD)

Rite Aid Corporation (RAD) is looking very interesting as a trading opportunity right now. The technical setup offers the best window into what traders can expect whether they are bullish on the play or bearish. We’re therefore exploring these deeper technical numbers with a view to helping traders make better decisions on the current trading prospects of RAD. Before we get into the numbers let’s take a look at the importance of these numbers that help to make up the technical chart. In trading you can often take lots of shots without having any real hits. Technical charts, when used rightly, can significantly improve your chances of scoring hits. This is why we build our trading theses around them.

RAD’s position, when dissected using the very handy technical charting tool we’ve championed above, now looks very interesting. This position is opened up first by the stock’s current day’s high $3.17 and the accompanying day’s low $3.06. As things stand, the current day’s high means the stock is positioned negatively when matched against the prevailing 52-week high of $8.77 set by RAD on 06/16/17. Given the range, and in particular the position of the stock’s low, we can make the assessment that the day’s low represents a 7.24% since 01/13/17. As a trader you can take this to mean something positive as it relates to RAD latent upside potential and the opportunities, or not, that it provides for active traders. It’s not just traders who are taking a keen look at the stock, either. In the weeks and days of data amassed for the stock, a more open display of analysts. From their perspective, the stock has presented a compelling picture via data. This data has created a $6.19 for RAD. As it stands, this target price is below the biggest gains set by the stock in recent times. Other important data is starting to inform the way analysts and traders see the stock. RAD beta is currently 1.85. Traders that use the beta metric in their trading assessments of stocks know that the current beta for RAD is greater than 1, and as such, gives clear directional bearing for upside. The current beta, as assessed below or above 1, suggests that RAD is theoretically more volatile than the composite sector to which it belongs. At this stage you should start to see what is developing for the stock. Let’s move more inland; these metrics only scratch the edges

The more data you have, the greater the clarity of focus. This is why we don’t stick to the surface in exploring the data points that offer the most value. Two of the most important technical indicators used by savvy traders are the Relative strength indicator (RSI) and Stochastic – both offer a deeper glimpse into the soul of the stock as it were. The present reading for RAD 14-day RSI is 41.12%. What does this mean in real terms? A RSI reading at that level suggests that RAD is neutral, suggesting that the stock is relatively stable and may possibly stay in situ, moving neither up or down in any meaningful or dramatic way. The stochastic reading is a sort of tag team partner for RSI. Usually they speak the same language in terms of telegraphing upside. For RAD, the stochastic reading of 24.64% suggests that the stock is oversold at current levels. RAD and its upside, of course, can be judged by tacking on even more salient technical data points. We are thinking here about the always-used statistical moving averages – namely the 50 and 200 SMAs. RAD, on the strength of its moving averages, appears to present a sentiment worthy of being called bearish. And as go the sentiment around the SMAs, so goes the upside potential of the stock. In this case the sentiments appear to be negative.

What do you think of the trading picture so far for RAD? A strong picture has really taken shape we think; but we are not finished yet. There are still a few other technical data points that can really drive the point home. RAD’s -0.59 has now created a much more confident set of data upon which traders can rely. This reliance is so pronounced that we can make a judgment that overall sentiment is now negative. This is hardly surprising for RAD because further analysis reveals that the stock has actually underperformed the S&P 500 by -79.51. As a result of this performance the stock is now offering higher volatility levels when juxtaposed with similar stocks in its native sector. Based on the overall readings, historical volatility has placed RAD in the front row for many traders. Again, this is hardly a shocker given that historical volatility for RAD is 87.33%. RAD is no slouch on the measure of the Average True Range, either. ATR, as you know, simply cannot be ignored in assessing a stock and RAD offers a very clear reading with an ATR reading of 6.97. RAD based on those readings, offers a very compelling picture. Traders can use this composite trading posture and make sound choices going forward. We hope you make good use of them.

The San Francisco-based company is seeking a valuation of 9.5 times 2014 sales in its IPO next month, according to data released in a filing with the Securities and Exchange Commission yesterday and analyst projections compiled by Bloomberg. That’s 27 percent cheaper than the 12.9 times 2014 sales that Facebook Inc. currently trades at, and 29 percent lower than LinkedIn Corp.’s multiple of 13.4 times sales, the data show.
The discount Twitter is offering underscores how the six-year-old short-messaging site is working to avoid the fate of Facebook, Groupon Inc. and Zynga Inc., which all lost more than half of their value within six months of their initial offerings. Twitter Chief Executive Officer Dick Costolo has taken a different tack from the start, first by filing confidentially to go public to avoid the hype that drove up Facebook’s pre-IPO valuation, and now by pricing the company more modestly than some of its Internet peers. The moves have left Twitter positioned to capitalize on a revival in investor appetite for social-media stocks.
“It’s fair to say they’re learning from Facebook’s mistakes,” said Michael Scanlon, managing director at Manulife Asset Management in Boston, who helps manage $3 billion. “It’s hard to imagine this deal isn’t oversubscribed and then they’ll have to gauge what they think the opportunity is to increase the price.”
$10.9 Billion
Twitter is planning to sell 70 million shares -- or a 13 percent stake -- at $17 to $20 each to raise as much as $1.4 billion, according to a filing yesterday. The $10.9 billion valuation at the top end of the range is based on the 544.7 million common shares outstanding after the IPO.
On a fully diluted basis, including restricted stock and options, Twitter will have about 695.2 million shares outstanding. By that measure, at the top end of the range Twitter would be valued at $13.9 billion.
The sale would be the largest IPO for an Internet company since Facebook debuted on the stock market in May 2012 and raised $16 billion. At the time, Facebook was valued at $81.3 billion based on the number of its common shares, or $104 billion based on a fully diluted share count. The Menlo Park, California-based company rode a wave of hype and bumped up its offering price range to $34 to $38 after initially seeking $28 to $35.
No Facebook
Facebook in its IPO was priced at 107 times trailing 12-month earnings on a fully diluted basis, making it more expensive than 99 percent of all companies in the Standard & Poor’s 500 Index at the time. The company quickly saw its stock sink below its $38 debut price after its IPO, before finally rallying to close above that level this August.
For Silicon Valley, a successful Twitter IPO will go a long way toward erasing the aftertaste from Facebook’s IPO, which along with the poor stock market performances of Zynga and Groupon shattered confidence in consumer Internet companies.
Following those offerings, venture capitalists and others shifted investing dollars to technology businesses that sold their products to other businesses, said Nihal Mehta, founder of LocalResponse Inc. and venture capitalist at Eniac Ventures. Now with Twitter’s debut and Facebook trading above its offering price, confidence in consumer technology has revived.
“Twitter will help escalate all the other advertising-based consumer companies, and create potential for more to be born,” Mehta said. “We’re seeing more consumer deals than we ever have before.”
Risk Factors
While Twitter has more than doubled revenue annually, to $534.4 million in the 12 months through Sept. 30, user growth is slowing, filings show. The service had 231.7 million monthly users in the three months through September, up 39 percent from a year earlier. That compares with 65 percent growth in the previous year.
Average revenue per user is less than half Facebook’s, filings show, with Twitter’s RPU at 73 cents, based on sales of $168.6 million in the third quarter, compared with Facebook’s $1.60 average monthly revenue per user.
Losses have also widened. For the third quarter, Twitter said its net loss expanded to $64.6 million from $21.6 million a year earlier.
Diluted Stakes
In the IPO, Twitter is selling 70 million shares, with another 10.5 million available to underwriters should they choose to exercise their option to buy shares. The offering will dilute the stakes of some holders, with co-founder Evan Williams’s stake dropping to 10.4 percent from 12 percent after the offering, the filing shows. He’s the single-biggest individual stockholder.
Employees who aren’t executives will be eligible to sell almost 10 million shares as early as Feb. 15. All stock held by executives and directors is subject to a standard 180-day lockup period.
Twitter will start meeting investors on its road show on Oct. 28, according to a schedule obtained by Bloomberg. The company will make stops in cities including New York, Boston, Chicago, San Francisco, Los Angeles and Denver before ending up back in New York on Nov. 6, the same day the final pricing of the shares is scheduled. Twitter would then start trading on the New York Stock Exchange the next day.
Costolo’s Message
Costolo and Chief Financial Officer Mike Gupta will lead the meetings, according to a person with knowledge of the matter, who asked not to be identified because the plans are private. Costolo and Gupta will be meeting today with banks including Goldman Sachs Group Inc. to practice their road-show presentation, according to another person with knowledge of the plans.
On the road show, Twitter, which has historically booked net losses, will point toward an adjusted measure of earnings before interest, taxes, depreciation and amortization to signal its profitability, one of the people said. The adjusted Ebitda excludes the effects of stock-based compensation and investments in servers, leases and networking equipment to support the company’s expansion, the company’s filing showed.
Adjusted Ebitda was $9.3 million in the quarter ended Sept. 30, compared with $2.9 million a year earlier.
Twitter also will describe the company as a conversational, public, real-time and distributed platform, as was outlined in its filings.
Spending Proceeds
With the money from the offering, Twitter may seek to expand globally and prove it can draw advertisers to the network. Advertisers can sponsor one of the service’s posts, paying to have it show up on users’ feeds even if they don’t follow the company.
Costolo is betting that the service’s popularity on mobile phones will help lure advertisers. About three-fourths of Twitter’s most active users accessed the service from mobile devices in the three months through September, compared with 69 percent in the year-earlier period, according to the filing. More than 70 percent of advertising revenue comes from those devices, a higher proportion than Facebook’s.
With an IPO, Twitter is set to cap its journey as a rudimentary site for short posts to a global megaphone for celebrities, politicians, businesses and more. The service came out of a failing startup from co-founder Williams called Odeo in 2006. Other co-founders include Biz Stone and Jack Dorsey, who was CEO in Twitter’s early days and now runs Square Inc.
Icahn, Bieber
The company’s site has become a destination for users to discuss everything from the finale of AMC series “Breaking Bad” to the unfolding of terrorist attacks and revolutions. Activist investor Carl Icahn used the platform to announce his discussions with Apple Inc. CEO Tim Cook, moving the stock with some updates. Pop star Justin Bieber, who has 45 million followers, has said things like “You will know my words, my heart #journals.”
Today there are more than 500 million posts, or tweets, each day, compared with 2 million per day in January 2009, the company has said.
Twitter will trade under the symbol TWTR on the New York Stock Exchange. The choice of the NYSE may let Twitter avoid the technical gaffes that plagued Facebook’s IPO last year on the Nasdaq Stock Market. It also follows years of the exchange trying to attract young technology companies away from its rival. While it missed out on Facebook, the NYSE won LinkedIn and Pandora Media Inc.’s IPOs in 2011.
Goldman Sachs is the lead underwriter of the IPO, joined by Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp., Deutsche Bank AG, Allen & Co. and Code Advisors.
To contact the reporters on this story: Sarah Frier in New York at sfrier1@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net
To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net; Jeffrey McCracken at jmccracken3@bloomberg.net

Obama address health care glitches NOW !

In the eyes of some Republicans, one of the cruelest ironies of the recent government shutdown was its overshadowing of the rollout of Obamacare's insurance exchanges - an inauspicious, glitch-ridden debut that even the law's most ardent supporters were hard-pressed to defend.

The circus that attended the shutdown prevented the public and the media from focusing more completely on the website problems that stymied thousands who tried to explore the online insurance marketplace on healthcare.gov. Stories about privacy concerns and technological glitches that might have led evening newscasts, for example, were pushed to the back-burner by the fiscal food fight. But now, with the budget war abated, at least temporarily, Obamacare's clumsy debut is again front-and-center on the political stage. And for Democrats, that could be a big problem.

It's clear they're trying to get out in front of the growing controversy. A senior administration official tells CBS News that President Obama is very upset with the problematic rollout, and that he finds the glitches with the website unacceptable.

On Monday, Mr. Obama will host an event at the White House to "to discuss how the health care law is strengthening health benefits and coverage for Americans," according to a White House official. He will be joined at the event by people who are already benefitting from the law, including some who have already managed to sign up for health insurance through the exchanges.

Democrats in the White House and Congress insist that, despite the rough beginning, the law will eventually accomplish exactly what it set out to do. The administration has announced that nearly half a million people had already completed applications - only the first step in the process, but a substantial one.

"The product - quality, affordable insurance - is good, and if anything, the interest and demand at the launch of HealthCare.gov proves just how urgently Americans want and need access to these new health care options," the White House official explained.

"The number one worry before we started was: Are people going to be interested? Will people sign up?" recalled Sen. Chuck Schumer, D-N.Y., Sunday on NBC's "Meet the Press." And based on the number of applications submitted, he explained, "the answer to that is, overwhelming, yes."

"I think the computer glitches are being used by a good number of people who never wanted Obamacare in the first place as an excuse to just sort of bash it," he said.

The technological problems have "to be fixed," added House Minority Leader Nancy Pelosi, D-Calif., on ABC's "This Week." "But what doesn't have to be fixed is the fact that tens of millions more people will have access to affordable, quality health care."

The administration has vowed to redouble its efforts to induct consumers into the exchanges, taking the website offline at various intervals for repairs and expanding the availability of offline options - like call centers or paper applications - to allow people to sign up for insurance in the absence of a functioning website.

• Nearly 500K sign up during messy rollout of Obamacare, WH says
• Ken Cuccinelli: Obamacare debut a "national embarrassment"

But Republicans, with the shutdown only just past, are already having a field day with the lingering problems surrounding the Obamacare rollout. Some are openly demanding the resignation of Health and Human Services Secretary Kathleen Sebelius.

"Absolutely she should resign," said Sen. Ted Cruz, R-Texas, on CNN. "Why? Because the program she implemented, Obamacare, is a disaster. It's not working. It's hurting people all across this country." Cruz joined Sen. Pat Roberts, R-Kansas, a long-time friend of the Sebelius family, and others demanding her ouster.

Some Republicans, including Sens. John McCain, R-Ariz., Marco Rubio, R-Fla., and Roy Blunt, R-Mo., struck a more circumspect tone, saying the problems are unacceptable but adding that Sebelius should answer to Congress for them. Even Sen. Dick Durbin, D-Ill., a close ally of the administration, predicted on "Fox News Sunday" that the secretary would eventually testify before Congress.

One concern voiced by conservatives is that an insufficient number of people might sign up - or that only unhealthy people would summon the patience to work through the glitches and purchase insurance - which could send insurance premiums skyrocketing on the exchanges.

"if enough people don't sign up for these exchanges, the rates on these exchanges are going to be astronomical and they're going to undermine the entire private health insurance industry in the country," said Rubio on "Fox News Sunday."

In light of concerns about cost and technology, some Republicans are vowing to continue trying to dismantle the law. Cruz pointedly refused to rule out a second government shutdown aimed at undoing Obamacare when the current spending bill expires in January. "There are a lot of politicians in Washington that want to put Obamacare behind us, say OK, fine. No more. No more discussing Obamacare. And you know what? The American people are not satisfied with that," he said. "And my view, we need to keep as our priority providing real relief for the people who are hurting because of Obamacare."

But others are content to assume the law will eventually collapse under its own weight, portraying the technological glitches as just the first of many fiascoes to come.

"This is just the beginning of the problems associated with a massive restructuring of one fifth of our economy, and there's going to be a whole lot more problems associated with this before it's done," said McCain on CNN.

"Obamacare is going to fail on its own right," predicted Sen. Tom Coburn, R-Okla., on NBC's "Meet the Press." "The fact is that the sick people are signing up, the healthy aren't. And they're not going to because the deductibles are so high and the cost is going to be high."

© 2013 CBS Interactive Inc. All Rights Reserved.

Regulators widen global probe into $5-trillion a day forex market

LONDON/NEW DELHI: As a global probe into suspected manipulations in forex markets widen, some groups of traders have come under scanner for possible manoeuvring in rupee trades, which clock an average daily volume of over USD 50 billion globally.

These groups have been found to be using monikers like 'The Cartel', 'The Dream Team', 'The Bandits' Club' and 'The Club' on various online forums, instant messaging platforms like WhatsApp and BlackBerry Messenger and are suspected to be engaged in manipulation of numerous foreign exchange rates.

The manipulation is suspected to have spread across the world, including the developed markets like the US, the UK, Switzerland and Europe and Asian nations like India, Singapore, Hong Kong and Indonesia.

According to sources, regulators from across the world, including in India, are cooperating with each other in the probe into the worldwide forex markets, which, according to some estimates, clock trades worth USD 5.3 trillion a day.

This includes trades worth over USD 50 billion a day involving Indian rupee, although nearly half of these trades take place outside India and in markets like London, Singapore, Dubai, Switzerland, the UK, Hong Kong and the US.

The manipulations are suspected to have taken place in both spot market rates and the forward markets, although Indian regulators do not have any jurisdiction over rupee trades taking place outside the country.

Within India, RBI regulates spot forex markets, while currency derivatives market is regulated by Sebi.

Those suspected to be involved in possible manipulations include some forex traders, as also certain Swiss banks and other European financial institutions, while it is unlikely that any Indian bank or financial services firm might be directly involved, sources said.

The issues being probed include possible cartelisation among banks, mostly from Switzerland and some other European countries, in manipulating foreign exchange rates, as also other manipulative practices adopted by forex traders.

In most likelihood, the possible manipulation in rupee trades might have taken place outside India, although the role of certain executives at Indian branches of suspected European banks might not be completely ruled out, they added.

The concerns about large NDF (Non Deliverable Forward) forex market trades in rupee outside India recently came to the fore after a sharp plunge in rupee value in recent months.

Rupee had slipped to a life-time low of 68.85 in August, although it has bounced back to near Rs 61 level now.

The NDF is a foreign exchange derivative instrument traded over-the-counter. It is operated in currencies that are not freely convertible such as the rupee. The market enables hedging of exchange rate risks, irrespective of any restrictions arising in the currency of origin.

Market positioning in the week ending August 7

 

 

Market positioning in the week ending August 7 suggests that speculators in the futures market generally agree with our assessment that ECB President Draghi recent proposal was not a game changer.  The recent pattern continued.  Essentially what this entails is buying the Australian and Canadian dollars and Mexican peso and some light position adjusting in the other currency futures--euro, yen, sterling and the Swiss franc.

Although many observers see the strength of the dollar-bloc currencies and peso, but also the Scandi currencies and the Polish zloty, for example, and conclude that the speculative operators are selling the euro on the crosses.  However, the Commitment of Traders report does not bear this out.

Euro:  Gross long euro futures positions rose for the third consecutive week.  The 5.4k increase brought the gross long position to 46.7k.  Gross short positions fell for the fourth consecutive week.  The a little less than 2k shorts were covered, still leaving a large gross short position of 178.5k contracts.  This combination produced a modest decline in the net short position from 139k to 131.7k contracts, which is the smallest in almost three months.  

Yen:  The net long yen position was trimmed to 27.5k contracts from 32.3k.  Yet this did not reflect decline in gross longs.  They actually edged higher by a little more than 500 contracts to 55.9k.  The decline in the net long position was a function of 5.2k new shorts coming being established.  

Sterling:  At a net short 8.3k contracts, the speculative position, though quite modest, is the largest in over a month.  The gross shorts rose by almost 1k contracts.  It was the 5.5k decline in gross longs that accounts for the bulk of the change in the net position.

Swiss franc:  Like the other currency major currency futures, the change in speculative positioning in the franc was quite modest.  The net short position fell by less than 1k contracts to 17.9k.  The gross long position rose by 1.4k contracts, while the gross short position rose by a little less than 500 contracts.  

Canadian dollar:  The net long speculative position rose to 19.1k from 12.4k contracts.  It is the largest in two months.  The  bulls continue to accumulate.  They added 12.5k contracts to 43.2k.   Some speculators tried, unsuccessfully, to pick a top in the Canadian dollar and added 5.9k shorts to 24.1k contracts.  

Australian dollar:  Speculators like the Canadian dollar, but they like the Australian dollar even more. The net long position jumped to 52.9k contracts in the week ending August 7 from 37.2k the previous reporting period.  It is the largest in three months.  Longs added 14.8k contracts to 94.6k.  Some bears capitulated and covered about 920 contracts, but still hold 41.7k contracts.  

Mexican peso:  Ok, so futures speculators like the dollar-bloc.  You get that.  But they like the Mexican peso even more.  The gross long position rose to 69.4k from 47.6k contracts.  This is the largest in four months.  The bulls bought another 12.4k contracts and now hold 81.9k.  The bears covered almost half their shorts (9.4k) to hold 12.5k contracts.  

II

The price action in recent days have not been conclusive.  Last week we had anticipated some follow though buying of the European currencies by around the middle of the week.  This failed to materialize.  In fact, the euro and Swiss franc recorded their lows for the week on Friday.  Yet, sterling made its highs for the week on Friday, and the euro and Swiss franc did not violate key support areas.  

A potential trend line drawn of the euro's multi-year low recorded on July 24 near $1.2045 and off the post-Draghi low near $1.2135 comes in now near $1.2220.  In addition, the  key retracement of the euro's gains on what many regard as the reevaluation of Draghi's comments was violated intraday on Friday with a break of $1.2250, but the euro still managed to close above it.  

This sense of inconclusiveness is also evident in the Dollar Index.  It help key support near 82.00 area  early in the week, but it also held below the 82.95 resistance at the end of the week.   Similarly, the dollar's recovery stop shy of trend line resistance against the Swiss franc, which comes in near CHF0.9825 on Monday and declines by about 12 ticks a day, finishing next week near CHF0.9785.  

Technically, the yen and sterling are uninspiring.  They remain well within recent ranges against the dollar.  There is no compelling sign that would allow us to anticipate a near-term break out.  With minor exceptions, the dollar has been confined to a JPY78 handle since mid-July.  

For its part, sterling has been confined to a $1.54-$1.58 trading range since early June.  Although on Friday, sterling finished the North American session at its highest level in August, it is difficult to get excited.  We are more inclined to sell into additional strength, expecting the trading range to remain intact.   Moreover, the week ahead sees a number of UK economic reports and on balance they will underscore expectations for continued QE even after the current gilt purchase program is completed.  

Last week, we had thought the Australian and Canadian dollars were looking a bit toppish.  We were wrong and both currencies continued to advance.  Indeed the price action on Friday was particularly constructive for both.  They both recovered smartly after from initial losses and managed to finish the week near their best levels.  Technical factors favor addition strength.  

The Reserve Bank of Australia recognized that the Aussie's strength crimps growth, but few participants expect material intervention.  Moreover, the market has understood the RBA's economic assessment to signal it is in no hurry to cut interest rates.  In a world of low interest rates, Australia is an attractive place to park funds as is Canada.  

The implied 3-month Australian dollar volatility slipped to its lowest level since 2008 on Friday before recovering.  If the Australian dollar punches through the $1.06 area on a convincing and closing basis, implied volatility is likely to rise as it would raise expectations for a move toward $1.08-$1.0850, levels not seen in five months.   

The US dollar broke below CAD1.000 and, although it found support a big figure lower.  There does not appear to technical reasons not to look for continued greenback weakness.  Moreover, the Bank of Canada has not tempered its hawkish bias, despite speculation that the Federal Reserve is preparing for move stimulus.  The next important chart point is near CAD0.9800.  

Not only does Mexico offer even higher rates than Australia, which attracts flows, but the Mexican stock market is one of the stronger equity markets.  The Bolsa is up a little more than 10% thus far this year, while the Toronto Stock Exchange is off 0.5% and, by comparison, the Australian stock market is up almost 5.5%.  In addition, the implied volatility of the peso has also eased and this may also underscore its appeal on a risk-adjusted basis.  While the MXN13.00 area offers psychological support for the dollar, the technical target is the early May lows near MXN12.88.  

III

France and Germany will report Q2 GDP on August 14 as will the euro area.  Germany's ZEW survey will also be released that day.  Yet, the economics seem secondary to the politics.  And the politics will not be resolved in the days ahead.  Instead, European officials will send the next couple of weeks on vacation and staking out positions, ahead of September's key decisions.  

Perhaps it is like a multiple choice exam.  Students are often instructed that their first answer is often the best  The market initially was skeptical the merit of Draghi's proposals and then apparently reconsidered.  In part this was due to Draghi giving the impression to a similarly inclined market that Bundesbank's Weidmann was isolated.  

However, subsequent reports suggest there was not a formal vote and Weidmann may not be as isolated as Draghi would have us believe.  Look at Belgian central banker Coene's comments.  He said that ECB purchases of Spanish and Italian bonds won't solve their difficulties or restore investor confidence.  The conclusion, he drew from last year's ECB purchases of Italian bonds and PM Berlusconi reneged commitment, is that "when you take away the market pressures, you take away the pressure on politicians to act."

If at first the market responded by the lack of ECB action, and then focused on the implication of Draghi's proposal to buy short-term bonds, perhaps it will now come over to our view and focus on the conditions Draghi imposed on the resumption of ECB bond buying.  

Countries would have to formally request aid, sign a memorandum of understanding, which if nothing else will likely requires the gravitas and sovereignty eroding quarterly visits by the official creditors represented by the Troika.  In addition,  an disbursement of aid will require unanimous agreement by the member countries.  For some it may be an executive decision.  In others, like Germany, it will require parliamentary (or a committee thereof) approval.  

In addition to euro area developments, the other main consideration is the state of the US economy.  The economic data in the coming days, especially the July retail sales, industrial production and the August Philly and Empire State Fed surveys, will likely show that there has been no further slowing of the US economy.  

While these reports may be helpful, the key is understood to be the August jobs report (September 7).  The four week moving average of weekly initial jobless claims has been trending gently lower since the July national survey was conducted and our preliminary guesstimate is the economy is generating roughly the same number of net jobs as it did in July. 

Nevertheless, the economic data to be released in the coming days do not have the impact Fed expectations.  These expectations may partly turn on one's perception of the FOMC's bias:  Does the economy have to deteriorate further for the Fed to act or is it the case that the economy (labor market) must show improvement otherwise the Fed will move?

China bids oil

- China may soon get control of a large slice of UK North Sea oil supply, which is key to determining global oil prices, if bids by its state firms for assets of Canadian oil companies Nexen and Talisman are cleared by the regulators.

China's top offshore oil producer CNOOC on Monday offered to pay $15.1 billion for Nexen while China's top refiner Sinopec will buy 49 percent in the UK unit of Talisman for $1.5 billion.

Neither firm put much emphasis in their statements on the importance of North Sea oil as a global benchmark while offering to pay hefty premiums, including a 61 percent premium offered by CNOOC for Nexen.

Together, Nexen and Talisman own stakes in UK North Sea fields that produce around 180,000 barrels of oil equivalent per day (bpd) according to Reuters calculations, including 110,000 bpd by Nexen and 70,000 bpd by Talisman.

Including operated production, the two handle around 300,000 bpd, almost a third of the dwindling UK North Sea oil output of roughly 1 million bpd. But falling output appears to have done little to put off Chinese oil giants.

The jewel in the crown is the Buzzard oilfield, operated by Nexen with a 43.2 percent stake. It lies in the North Sea about 60 miles northeast of Aberdeen and pumps about 200,000 bpd and is the UK's largest.

Oil from Buzzard, although only 0.2 percent of global supply, plays a crucial role in setting prices because it is the largest contributor to the Forties oil blend, one of four North Sea crude streams making up the Brent oil benchmark.

Forties usually sets the value of dated Brent, a benchmark used for pricing more than half of the world's crude, including oil from Africa, Europe, Asia and the Middle East. Dated is part of the underlying market for Brent crudefutures.

A drop in supply of Forties, and particularly from Buzzard because it is the largest of the more than 70 fields that feed into the Forties blend, can boost the prices paid by companies buying crude on a basis related to dated Brent.

This was seen last year and into 2012 when Forties shipments were subject to an unusual level of delays and cancellations due mainly to production problems at Buzzard, which boosted prices and the premium at which Forties trades to dated Brent.

The shipment delays have also highlighted the lack of information about supplies of crude affecting Brent. Some participants found out about the delays and cancellations to Forties cargoes before others.

China buys about 2 million bpd of crude priced off dated Brent, including West African crudes. According to Reuters calculations, a $1-per-barrel rise in Forties' differential to dated Brent can add $60 million a month to its oil import bill.

High premiums for Forties have repeatedly contrasted this year with a collapse in values for similar crudes. Forties rose due to field outages and due to exports to South Korea, which removed supply from northwest Europe.

As well as the North Sea, Nexen owns assets in regions including Western Canada, the Gulf of Mexico and Nigeria, encompassing conventional oil and gas, oil sands and shale gas.

Nexen acquired the Buzzard field in 2004, three years before production began. According to Nexen's web site, the other field partners are Canada's Suncor (29.89 percent), BG Group (21.73 percent) and Edinburgh Oil and Gas (5.16 percent).

Euro Falls

The European session began with a better risk sentiment outlook. The Far East markets were higher aided by renewed rumors that China would again cut its RRR rate but such sentiment faced headwinds ahead of key auctions from Spain and France.

The EUR/USD remained contained within its July range with the 1.2330 level initially approach but held again. Dealers were unable to gun for alleged stops building in the pair above 1.2330-50 area. The soggy Spanish auction results helped to cement the resistance once again.

The USD/JPY moved below the bottom of its recent range to test 78.50 before consolidating. The stronger JPY would likely to provoke more verbal intervention from Japanese authorities.

The GBP/USD was softer following its retail sales data for June. The pair tested below 1.5650 after failing to take out 1.57 handle earlier in the session

AUD/USD held above the 1.0400 region after renewed reports circulated that the German Bundesbank was expected to purchase AUD currency for its reserves in Q3

Spanish government bond yields remained at elevated levels heading into its bond auction results. The 10-year Govt Yield approached the 7.0% area and did retest it after the results in which its auction yields surged coupled with lower bid-to-cover ratios. Safe haven flows continued into various core European countries with 10-year Govt yield hitting fresh record lows for Austria, Belgium and France

Massive Bomb's

BEIRUT—Three top military and security leaders in the Syrian regime, including President Bashar al-Assad's brother-in-law and the defense minister, were killed in a bombing in Damascus on Wednesday, in the biggest blow to the country's rulers since the start of the uprising 17 months ago.


The attack was executed by insiders collaborating with the opposition and appeared to have been more a targeted assassination than an Islamist militant-style bombing, according to rebel leaders. This raises questions about the cohesiveness of the military and security forces and their ability to continue buttressing a regime already hit by crippling sanctions as well as important defections in recent weeks.


Just hours after the attack, there were signs that both the regime and rebels were gearing up for a significant escalation in the conflict that risks plunging the country into civil war, drawing in regional players and triggering a refugee and humanitarian crisis with far-reaching repercussions. Several civilian and military regime officials vowed after the attack to do everything possible to snuff out the armed insurrection. Fighting raged for a fourth day in several Damascus neighborhoods, with residents fleeing districts in the capital's northeast that have been the setting of pitched street battles involving helicopter gunships starting this week.


"This cowardly terrorist act will not dissuade the men of our armed forces from continuing their sacred duties to pursue the remnants of the terrorist criminal gangs and cut off the arm that extends to harm the security of the nation and the people," said Gen. Fahed Jassim al-Freij, who was appointed by President Assad to succeed the slain defense minister, in a televised statement.


Gen. Freij, a 62-year-old career army officer from the restive central province of Hama, confirmed in his statement the deaths of his predecessor, Gen. Dawoud Rajha, and of President Assad's brother-in-law Assef Shawkat. Mr. Shawkat, who also held the rank of general, was deputy defense minister and before that head of feared military intelligence.

The killing of Mr. Shawkat, one of the most powerful figures in Mr. Assad's security apparatus, is a major coup for the opposition, more so than the death of Gen. Rajha, a Christian, who occupied what was largely regarded as a ceremonial post. Mr. Shawkat was married to the president's only sister, Bushra, and was rumored to have survived an assassination attempt by rebels earlier this year through the poisoning of grilled meat served during a meal with his aides. Like the president and many in his inner entourage, Mr. Shawkat hailed from the minority Shiite-linked Alawite sect.

A separate statement from the army confirmed the killings. Neither it nor the statement read by Gen. Freij said anything about how the attack was carried out, only labeling it a terrorist act.

State media said later that Gen. Hassan Turkmani, a former defense minister and an aide to Syria's vice president, died in the hospital after being severely wounded in the attack, and that Interior Minister Maj. Gen. Ibrahim al-Sha'ar and Gen. Hisham Ekhtiyar, the national-security chief, had also been wounded but were both "well and in stable condition."

Information Minister Omran al-Zughbi didn't give any details about the attack, but said it targeted a meeting of key military, security and intelligence officials that Syrian officials call a "crisis cell," an ad hoc committee of the president's top advisers who have met regularly in recent months as the crisis escalated. The meetings are usually attended by the defense minister, interior minister, senior ruling Baath Party officials, and security department chiefs.

The meeting was held at the national-security council headquarters in the tightly secured Rawda Square, several buildings away from the U.S. Embassy and from the private residence and office of Mr. Assad. The Greek, Italian, Lebanese and Turkish embassies are also nearby.

It isn't clear how many officials were at the meeting or inside the building, or whether President Assad was in attendance. Residents said security forces sealed off the al-Chami hospital, where victims of the bombing were being taken.

Mr. Zughbi accused the intelligence services of Western countries and Gulf Arab states, as well as Turkey, of helping plot the attack.

"They committed a crime and they will pay for it," he vowed, referring to these countries that strongly back the Syrian opposition.

Rebel commanders with the Free Syrian Army claimed responsibility for the attack, which they said was planned in coordination with former Republican Guard soldiers—from an elite military unit tasked with defending the capital—and security personnel at the building on Tuesday. Military defectors say they have secured contact in recent weeks with an array of army and intelligence officers who help them plan attacks.

One rebel commander in Damascus said the attack involved explosives but wasn't a suicide attack. He called it a "complex, elaborate, precise operation" and said the group planned more "major operations" on Wednesday and Thursday.

"These were major decision makers in the killing of innocent Syrian civilians," said the Damascus rebel commander. "Besides overseeing major military decisions, they were also involved in supporting and directing the shabeeha," he said, referring to pro-government agents who have taken part in some of the most gruesome killings in opposition strongholds.

The attack came on the fourth day of an offensive by rebels in several Damascus neighborhoods that has triggered heavy clashes and significant mobilization by government troops inside the capital.

Residents of the capital said Syrian government military planes were buzzing over Damascus after the bombing, which occurred in one of the most upscale and secure parts of the city.

"The developments today are one part of the battle of the Syrian people and their revolution," George Sabra, spokesman for the Syrian National Council, an umbrella group for the political opposition, told pan-Arab television. "Two days ago we told our people Damascus will witnesses the final, decisive battle. It seems some observers didn't take us seriously," he said.

Banks’ Libor costs may hit $22bn

Twelve global banks that have been publicly linked to the Libor rate-rigging scandal face as much as $22bn in combined regulatory penalties and damages to investors and counterparties, according to Morgan Stanley estimates.

The analysis, which the authors admit is “crude”, assumes that 11 more banks will be penalised like Barclays, which paid $456m last month to US and UK authorities for attempting to manipulate the London Interbank Offered Rate, the benchmark for $360tn in derivatives, loans and mortgages.

The calculation excludes the potential fallout from ongoing US and European Union cartel investigations, which could result in multibillion-dollar fines.

Joaquín Almunia, the EU’s competition enforcer, will on Friday say the year-old EU cartel probes into interest rate derivatives linked to Libor and two similar rates known as Euribor and Tibor are one of his “top priorities”.

Mr Almunia will say that the “shocking” Libor scandal represents some of the banking sector’s “most irresponsible behaviour of the past”. Should his concerns be confirmed, he wants the punishment to prompt “a change in culture” in a banking sector hitherto largely untouched by cartel enforcement.

European Commission cartel investigations take several years to complete, but can result in fines of up to 10 per cent of turnover. Under EU law, investigators simply need to demonstrate there was an attempt to form a cartel, rather than prove its exact effect on the product market.

Morgan Stanley’s analysis is the most detailed effort so far to quantify the potential damage from the scandal, in which Barclays admitted to lying on its submissions to the Libor rate-setting process.

The estimated fines would cut 4-13 per cent off banks’ earnings per share for 2012, or 0.5 per cent off book value, Morgan Stanley said.

The analysis also puts a value on the potential risk from class action lawsuits. Each of the banks named would pay an average $400m, with individual charges ranging from $60m to $1.1bn, depending on the size of their derivatives books.

The analysis assumes most of the other 11 banks will admit to roughly similar behaviour and will not receive the same discount as Barclays for early co-operation.

Some banks say privately that they do not have to cope with emails as stark as those sent by the Barclays’ traders promising bottles of Bollinger in return for specific rate quotes.

But Peter Wright, a former enforcement lawyer, said: “Barclays was not accused of conducting its business with a lack of integrity. If this is an allegation that is being pursued against other institutions . . . the financial penalty would be substantially higher.”

Worse Job Aussie Data

FXstreet.com (Barcelona) - Definitely risk-off is set in Asia-

Pacific today, with Hang-Seng index breaking to fresh 7-day 

low losing some -1.82% and Nikkei -1.01%. Following "a 

pretty horrible jobs report," says Westpac Bank Senior FX 

Strategist Imre Speizer as quoted by Rebecca Howard for 

DowJones, EUR/AUD cross bounces from all time lows 

around 1.1932 to current 1.2004.

EUR/AUD is still slightly lower for the week and since 

previous Asia-Pacific open yesterday, all due to the -27000 

jobs lost in Australia for the month of June, much worse than 

expected, as most economist surveyed were calling for a flat 

figure, although the jobless rate rose to 5.2% as expected. 

Moments before the data was released South Korea 

unexpectedly cut rates to 3% for first time in 3 years 

according to Bloomberg, with all local share markets now in 

the red.

For the upside, immediate resistance for EUR/AUD shows at 

July 09 lows at 1.2009, followed by July 05 lows at 1.2022, 

and Monday/Tuesday's highs at 1.2094. For the downside, 

nearest support stands at recent all time lows 1.1935, with 

uncharted territory underneath.

Spain imposes

MADRID (AP) — Spain's government imposed more austerity measures on the beleaguered country Wednesday as it unveiled sales tax hikes and spending cuts aimed at shaving €65 billion ($79.85 billion) off the state budget over the next two and a half years.

A day after winning European Union approval for a huge bank bailout and breathing space on its deficit program, Prime Minister Mariano Rajoy warned Parliament that Spain's future was at stake as it grapples with recession, a bloated deficit and investor wariness of its sovereign debt.

"We are living in a crucial moment which will determine our future and that of our families, that of our youths, of our welfare state," Rajoy said to catcalls from the opposition socialists and other parties as he revealed the biggest single amount of projected deficit savings in modern Spanish history.
He spoke as thousands of miners stung by a huge cut in government subsidies marched through downtown Madrid and clashed with riot police outside the Industry Ministry.

The spending cuts, designed to cut €65 billion off state budgets by 2015, include a wage cut for civil servants and members of the national parliament and a new wave of closures at state-owned companies. Spain will also speed up a gradual increase in the retirement age from 65 to 67. They are to be approved officially Friday at a Cabinet meeting.

Spain has had to digest round after round of austerity measures since Rajoy's conservative government took power in December. Until now, there have been €60 billion ($73.71 billion) in spending cuts and tax hikes by the central government or regional administrations. If you include measures taken by the previous, Socialist government, the number goes up to €75 billion. Now, albeit spread over two-and-a-half years, comes another €65 billion.

"This is the reality. There is no other, and we have to get out of this hole and we have to do it as soon as possible and there is no room for fantasies or off-the cuff improvisations because there is no choice," Rajoy told Parliament.

The measures are in exchange for the bank bailout of up to €100 billion ($122.85 billion) granted to Spain by the other 16 countries that use the euro and extra time to cut the Spanish budget deficit. Finance ministers approved the bailout program at meetings in Brussels this week and as much as €30 billion could flow to Spain's banks by the end of the month. The country's banks are saddled with billions of euros in toxic loans and assets following the collapse of the country's real estate market. The full amount Spain will seek is not yet known.

Europe's finance ministers also this week extended Spain's deadline for achieving a budget deficit of less than 3 percent of its annual economic output, until 2014. The size of Spain's economy in 2011 is estimated to have been $1.5 trillion.

The bank aid and the deficit-cutting come at the cost of greater EU supervision of Spain's finances, both for the government and the banks, even though Rajoy's government insists it has given up no sovereignty.

"In exchange for the bank bailout agreement, Brussels, the ECB and the IMF have placed Spain and its institutions in a situation of strict monitoring and control," Spanish newspaper El Pais said in an editorial Wednesday.
The concern among investors and Europe-watchers is that further austerity cuts will push Spain's economy further into recession in the short term, making it
even harder for the government to trim its deficit.

Spain — the fourth-largest economy in the eurozone — has been struggling to keep a lid on its government deficit in the midst of a recession while trying to support its troubled banking industry. There are fears that should Spain need a bailout of its own as did Greece, Ireland and Portugal, the eurozone would struggle to finance it, pushing the region further into recession.

However, said Mark Miller of Capital Economics in London, markets are concentrating on the planned bank bailout, which could get the economy up and running again by providing businesses and households.
So if the bailout works, it should eventually compensate for the bitter cocktail of the new austerity package. "'It is the classic case of short-term pain for longer-term gain," Miller said.

Wednesday's increases in sales tax include a 3 percentage point hike on products and services like clothing, cars, cigarettes and telephone services to 21 percent and a 2 percentage point increase on goods such as public transport fares, processed foods and bar and hotel services to 10 percent. The sales tax on basic goods like bread, medicine and books stays at 4 percent.

Other measures outlined Wednesday included:
—€660 million of cuts in government spending beyond the reductions already outlined in the 2012 budget
— wage cuts for civil servants and members of the national parliament
— further closures of state-owned companies
— tax deductions for homeowners to be scrapped
— a 30 percent cut in the number of town councilors
— slight reduction in unemployment pay, designed to encourage jobless people to seek work more quickly.
— 20 percent cut in government subsidies to political parties and labor unions.
— possible privatization of ports, railways and airports

In Brussels, spokesman Simon O'Connor said the European Commission, the EU's executive arm, welcomed the government's announcement of the new measures as "an important step to ensure that the fiscal targets for this year can be met."

Financial markets greeted news of the measures. The interest rate on Spain's benchmark 10-year bond dropped 0.22 percent to 6.57 percent, away from the 7 percent levels it reached earlier this week, while the country's IBEX stock index was up by 1.1 percent in afternoon trading.

Copyright © 2012 The Associated Press. All rights reserved.