In recent years, it hasn’t been like this. The eurozone debt crisis scared investors and confined them to the sidelines, while low volatility has curbed currency moves.
But that trend may have changed. Most banks saw record volumes last month, while large forex trading venues such as EBS and Thomson Reuters saw sharp increases as well. That fed optimism about healthier revenues for most market participants.
Breakout moves in heavily traded currencies such as the euro and yen spurred clients to enter and exit the market to hedge or cover rapidly changing positions, which should boost bank forex trading revenues after weak numbers the past five years.
Forex contribution to total fixed-income revenue from the top global investment banks has fallen since 2008 due to competition from other currency trading platforms and low volatility, said London-based financial analysis firm Coalition.
In 2012, forex revenues at major banks fell 22 percent to $ 22 billion from the previous year, according to Coalition’s survey, which tracks financials of the 10 largest investment banks led by Deutsche Bank, Goldman Sachs, JP Morgan Chase and Barclays.
Investors this year seized on the weak yen theme, a trend that emerged in November 2012 when it became apparent Shinzo Abe would become Japan’s prime minister. Abe favors aggressive easing to end Japan’s tenacious deflation, which has spurred a wave of yen selling that has persisted to this day.
Market participants have shorted the yen as a way to play the carry trade, which involves borrowing or selling a currency with a low interest rate and then using the proceeds to buy another with a higher yield.
On the other hand, short bets on the euro were unwound sharply on the view that eurozone crisis fears have eased. As a result, central bank reserve managers brought their euro weightings back to more normal levels from underweight.
Deutsche Bank, the world’s largest forex bank, saw some of the best days in terms of volume and requests for quotes in January, said Kevin Rodgers, the bank’s global head of FX sales and trading in London.
At UBS, forex volume was still at robust levels as of last week, although they have moderated from January’s peak. Yen flows were still 36 percent higher than the average weekly flow of the last 52 weeks, UBS data shows.
At EBS, the largest interbank FX platform for the spot market, the daily volume was $141.3 billion in January, up 54 percent from December, after several months of declines, according to data from parent ICAP Plc.
Volume on Thomson Reuters FX dealing platform was at $ 126 billion per day last month, up 24 percent from December, data from the company shows.
Jeff Feig, global head of G10 forex at Citigroup, said there are a number of potential catalysts for increased volatility as 2013 progresses.
For instance, intrigue over who will replace US Federal Reserve Chairman Ben Bernanke, whose second term expires in January of 2014, could spur more activity as early as the third quarter.
A Fed chairman viewed as an inflation hawk would tend to be supportive of the US currency, as rising interest rates would boost the appeal of dollar-denominated assets such as US Treasuries.
Last year’s focus on the global risk environment, which made it tougher to profit in currencies as volume declined and currencies reacted predictably to macroeconomic events, may be ending, analysts said. Investors will likely focus more on fundamentals specific to individual currencies and economies this year, which should spur more volatility.
The rotation out of cash into equities by institutional investors early this year, as risk appetite improved, has also helped drive momentum in the currency market. Investments in stocks in foreign markets entail a lot of currency conversions.
“Greater equity participation from institutions is a key source of currency flows,” said Samarjit Shankar, BNY Mellon’s director of market strategy in Boston.
He said BNY had seen large institutions pour money into equities, especially in Asia and the US.
In most cases, foreign equity holdings’ currency exposure needs to be hedged and that further boosts forex activity.
London-based asset manager Seven Investment Management, for instance, is bullish on Japanese equities, senior portfolio manager Alex Scott said.
“But the firm, which manages assets of about $ 7 billion, has fully hedged its yen exposure because of the Bank of the Japan’s easing stance.”
US investors have also been big buyers of foreign equities this month, UBS data show.
In the first week of February alone, US investors’ weekly purchases of foreign stocks were the largest since October 2008. They bought mostly eurozone, UK, and Japanese shares.
That same week also saw the eurozone attract more than $ 1 billion in inflows, the strongest since April 2009, supporting the euro and backing assertions by European Central Bank President Mario Draghi that capital inflows were gradually returning.
The rise in institutional FX trading was evident in the spike in volumes at Knight Capital-owned Hotspot FX, a forex venue known for attracting asset managers and big-money investors.
In January, Hotspot said its daily turnover was $27.1 billion, up 38.3 percent from December.
Hedge funds such as Soros Fund Management have already scored huge profits in the forex market betting against the yen. Soros made close to $ 1 billion on a bearish yen trade since November last year, the Wall Street Journal reported.
1,200 Jobs Cut on One Day in Australia
Three major Australian companies have announced nearly 1,200 job cuts between them on just one day, as weak earnings force businesses to focus on driving down costs and adapt to changing markets.
Telstra said it would cut 648 jobs from its struggling Sensis business--a division that has suffered massive revenue falls as demand for its key White Pages and Yellow Pages directories plummets, AAP reported.
Gas and electricity player Origin Energy announced it will cut an additional 350 jobs, in addition to 500 already flagged, during 2013 as it faces falling profits.
And 200 workers will be sacked from Iluka, a miner of mineral sands used in high-tech metals and paint pigments, after weak market conditions forced a 33-percent slide in full year profit.
The job cuts drew sympathy from federal Workplace Relations Minister Bill Shorten who sought to reassure Sensis workers they would find new work.
“The labor market for skilled workers is still reasonably tight,” Shorten said.
Unemployment in Australia is tipped to rise from its current level of 5.4 percent to around 5.6 percent during 2013. In a report released, insolvency firm Taylor Woodings said 2012 had been one of the toughest years on record for company collapses and 2013 was expected to remain challenging.
Canada’s Economy Struggles
Canada’s inflation rate fell in January to its lowest since 2009 and retail sales plunged in December, adding to evidence the country’s economy is struggling to accelerate from its slowest pace since the 2009 recession.
Consumer prices rose 0.5 percent in January from a year earlier, the least since October 2009, Statistics Canada said from Ottawa.
Retailers in December recorded a 2.1-percent drop in sales, the biggest decline in almost three years, the agency said separately, Bloomberg wrote.
The data suggest Canada’s economy is growing at the weakest pace since 2009, as households and businesses pare spending and the nation’s exporters struggle to sell goods abroad.
Bank of Canada Governor Mark Carney said last month an increase to his 1 percent policy interest rate has become less imminent because the weaker-than-expected economy is keeping inflation below the 2 percent target.
“All in all, it’s two negative reports that will likely weigh on expectations of the Bank of Canada’s ability to raise rates,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS), by telephone from Toronto.
Canada’s dollar weakened to the lowest since June, depreciating as much as 0.7 percent to C$1.0256 versus its US counterpart.
Nigeria, Brazil Boosting Trade
Nigeria and Brazil in Abuja signed a memorandum of understanding (MoU) covering agriculture and food security, petroleum, power, bio-fuel, trade and investment, mining, education, aviation, infrastructure management, finance and culture.
It was the high point of the visit of Brazil’s President Dilma Rousseff to Nigeria.
President Goodluck Jonathan said at the end of bilateral talks between the two countries that a bilateral commission will be set to implement the MoU, The Nation reported.
The MoU, according to President Jonathan, will be used to leverage on the economy, improve the lot of unemployed young men and women, and ensure the satisfaction of Nigerians and Brazilians.
President Rousseff said, “Our exchanges have actually outgrown significantly between 2009 and 2012, years marked by crises. Our trade exchanges have grown and for 2012 the figures come to $9billion.”
“We agreed that we must diversify and make it a more balanced trade.”
Later in a communique, the two leaders directed their foreign ministers to commence the immediate implementation of the agreement.
“Both sides expressed their readiness and strong commitment to expand cooperation in various fields and promote the growth of partnership between the two countries in line with the principles of mutual benefit, mutual respect and mutual interest,” the communique noted.
The two leaders instructed that the Joint Commission for Bilateral Cooperation Between Nigeria and Brazil should convene the seventh meeting scheduled to hold in Abuja as soon as possible to follow up the outcomes of President Rousseff’s visit to Nigeria.
Both presidents welcomed the positive trends in the development of bilateral trade and pledged to work together toward attaining a more balanced, diverse and mutually beneficial trade.
The two presidents noted the importance of implementing bilateral air services agreement and agreed that the facility of direct air links between the two countries will encourage better people-to-people exchanges and enhance trade between Brazil and Nigeria.
Iran Possesses Deepwater Drilling Technology
Translated by Farzam Vanaki
China and India possess the technology of deepwater drilling, though China is far behind Iran in this field, said the managing director of North Iranian Drilling Company (NIDC).
Hedayatollah Khademi, in a meeting to commemorate the anniversary of the company’s establishment on Sunday, said managing Amir Kabir semi-submersible drilling rig during the past three years has been the most outstanding activity of the company.
“This rig has no counterpart in the Middle East and Asia,” Khademi was quoted as saying by IRNA.
He said the rig was first located 250 kilometers offshore, but now it has been moved to drill the second rig of Sardar-e Jangal Oilfield in Caspian Sea.
Khademi announced that two drilling rigs called Sahar 1 and Sahar 2 have come on stream, adding that the former is being used in Farzad A joint oilfield with Saudi Arabia.
He noted that Sahar 2 drilling rig will probably be used in Phase 19 of South Pars in Bushehr province.
Last year, Khademi announced that an imported onshore drilling rig is operational in Dehloran, Ilam province.
Khademi noted that at present, his company owns a large number of drilling rigs. “Eighty percent of the revenues of onshore drilling rigs are spent on expenses, while 80 percent of offshore rigs’ income constitute the revenues,” he said.
He also said that a foreign company will construct and install 4 offshore and 10 onshore rigs for NIDC.
“According to the deal, about 20 percent of the expense will be provided by North Iranian Drilling Company and the rest will be financed by the foreign company.”
The official underlined that in case finances are allocated, the rigs will be imported ahead of schedule, adding that Oil Ministry will provide 20 percent of the expenses.
“Iran Khazar Drilling Rig, which is operating outside the country, has hit a record of four consecutive years of operation without any accidents. Because of this, it has been awarded several times,” he said.
Khademi also said the rig is now conducting its drilling activities under the supervision of a British-Emirati company and has drilled 40 oil wells.
He put the amount of money paid by Turkmenistan for renting the rig at $155,000 per day.
Khademi also said that 10 drill watch instruments are being designed and produced by his company.
“This instrument is installed on drilling rigs and provides us with information about different parameters, including depth of the drill,” he said.
Japan to Raise Oil Tanker Insurance Cover
A recent report said Japan is expected to raise its insurance cover for tankers carrying Iranian crude to $7.8 billion in 2013.
According to a report published by Platts, Japan will probably increase its insurance cover by 4 percent in 2013-14.
The increase in insurance cover, expected to come into effect on April 1, is due to a decision by the International Group of P&I Clubs to increase its maximum reinsurance cover in 2013-14.
On June 20, 2012, Japan’s Parliament endorsed a bill to provide $7.6 billion in guarantees to ship-owners that transfer Iranian crude oil after the European Union imposed sanctions banning the union’s members from purchasing Iran’s oil or extending insurance coverage for tankers carrying its crude in January 2012.
The EU bans entered into force on July 1, 2012.
The US, Israel and some of their allies have repeatedly accused Iran of pursuing non-civilian objectives in its nuclear energy program.
Using the unfounded allegation as pretext, the US and its European allies have imposed unilateral sanctions against the Islamic Republic.
Pakistan Stocks Higher
Pakistan’s stock market closed higher after the index crossed 18,000 points, boosted by buying from foreign fund managers in the last few days.