August 2008

Is the end nigh?

18 August 2008
The Japanese Yen carry trade has been the centre of much debate over the past two years, but for good or for ill there are signs that it may well be coming to an end. The first indication that the carry trade could be in jeopardy appeared this time last year when the US subprime disaster hit the markets very hard. This immediately sent a warning shot across the bows of those who had sought cheap financing in Yen and invested it in higher yielding assets denominated in other currencies, mainly U.S dollars. The best way to describe the effect of the carry trade is that of a tsunami of money surging from East to West, crashing over the US and the UK and flowing down into Europe. The recent retreat of this tsunami has left devastation in its wake. However, before entering into the debate of whether the carry trade is ending or whether resurgence is possible, it is best to look at some of the history that led up to the current position.

Pumping up the gas

18 August 2008
Whatever else may be happening in the rest of the world, the Gulf States have been riding high on a seemingly insatiable global demand for its oil. With profits and confidence as sky-high as the latest Dubai landmark, the atmosphere among the business communities based across the Arabic states of the Persian Gulf has been described as “febrile”. However, with domestic gas demand in the area outstripping supply and threatening to put a brake on industrial development, a recent survey suggests the region will experience inflation at 7 percent. The International Monetary Fund – having warned of increased risks of a global economic slowdown, may be the harbinger of a 'more severe correction'. But where does this leave the Gulf States? Certainly, IMF officials gathering for their annual meeting in Singapore recently spoke with rare candor about the condition of the world economy, warning of the risk associated with a 'disorderly decline in the US dollar' resulting from the liquidation of US Treasury Bonds by Asian and oil producing countries.

Best footsie Forward…

18 August 2008
As the FTSE embark upon funding UNICEF’s new Corporate Social Responsibility position in New York, FX&MM’s Struan Rae talks to Mayaz Rahman, Corporate Relations Manager at UNICEF, about the charity’s corporate partnerships across the globe, the FTSE4Good Index Series, and the excitement of the new CSR in the Big Apple. The increased trend of Corporate Social Responsibility (CSR) and its effect on businesses has received a lot of media attention in the past few years. What is perhaps less known is the effect of this rise on the charity sector. At UNICEF, (United Nations International Children's Emergency Fund) the income received from the private sector has been growing substantially, from 13 million dollars in 2000, to 74.3 million in 2006 globally.

Stand and deliver

18 August 2008
Having written a line like “The world economy hangs on the price of oil – it dangles like a man hanging from a balloon…” any normal, moderately intelligent person would punch the delete key and start again. Not, alas, the scriptwriter of the BBC’s latest gaseous drama. An expensive and especially preachy piece of eco-tosh, (starring Josh, that nice bloke from The West Wing) Burn Up finger-wagged its warning about Kyoto, climate change and, naturally enough, a wearisome conspiracy theory or three with about as much charm as finding yourself manacled to Bob Geldof for an evening’s vege-fest fund raiser at Mr and Mrs Sting’s. It turns out that oil is bad, and oil companies are only interested in profits, and global warming is... a bad thing, oh and all Americans are baddies. Or at least the ones in charge of multi-national corporates are. As the program’s tag-line put it: ‘Politics v Climate change: In the end, it's all about power.’ No s**t Sherlock! It made me want to run out and burn a barrel of oil just out of spite! Which, if I did, apart from costing me about a hundred-and-twenty dollars, would presumably please quite a few people in the Persian Gulf, wondering what next sanity-challenging architectural edifice to blow a few zillion on.

Long or Short the MXN

18 August 2008
The global markets have been in somewhat of a tailspin the last several months due to a windfall of events. Problems stemming from the credit crisis and rising inflation have put severe strain on some of the largest economies in the G10. GDP has contracted on an annual basis in the US, and the trend of slowing growth has spread to neighboring countries. Foreign Exchange captures the full scope of a country’s economic health through the concept of relative value. Traders have been very attentive to signals that will give more clarity to project price behavior. Due to recent adjustments in monetary policy, rising inflation, and constricted growth, the FX markets have become increasingly volatile. The FX sector has become an alternative investment of growing interest from the retail and institutional audience, which has magnified the focus in emerging market currencies.