US dollar wallows near 4-week lows as Janet Yellen sounds cautious note

Dollar Flanked, Close to Four-Weeks Lows

After the remark of Federal Reserve Chair Janet Yellen failed to toss a lifebuoy to the recently plunging greenback, the dollar flanked up though still reeled close to four weeks lows against a basket of currencies on Tuesday. The index of the dollar that tracks U.S. currency against a basket of six main rivals pushed up 0.1% to 94.017, though it stayed within sight of its overnight low of 93.745, the weakest level since May 11.

However Yellen had remained comparatively enthusiastic regarding the overall U.S. economic outlook, stating that the Fed would hike the interest rate, she provided no fresh clues about timing, calling the last month’s U.S. jobs data as `disappointing’. Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong, had commented that `she was positive though compared to her speech of May 27, when she had said a move would have been suitable `in the coming months’, she had not been specific regarding the timing’. The dollar seemed to be under pressure since the Friday reports of the U.S. nonfarm payrolls had indicated the slowest job growth in more than five years in May, suppressing prospects for a near-term U.S. interest rate rise.

Recent Currency Market `Orderly’

The U.S. interest rate futures implicated traders had all but priced out any chance the Fed would raise rates at its policy meeting next week, even before Yellen had spoken. The dollar had upturned its previous losses against the yen and rose 0.2% to 107.81 yen pulling away from the previous session’s low of 106.35, its weakest in a month.

It stayed wary of levels above 109 yen, where it remained as recently on Friday. The Japanese Finance Minister, Taro Aso, earlier on Tuesday informed reporters that he would desist from commenting on the possible response of Japan on the currency market if the yen was to rise further. He also declined to comment on the remarks of U.S. Treasury Secretary Jack Lew over the weekend which described the recent currency market movement as `orderly’ as an indication of caution towards the currency intervention.

Recent Unstable Sterling Marked Hard Rebound

The euro had pushed up 0.1% to $1.1360, reversing toward the earlier sessions’ almost one-month high of $1.1393. The recent unstable sterling marked a hard rebound after dipping more than 1% to three week lows in the earlier session, resulting in several polls ahead of the June 23 poll preferred the chance of British voters choosing to leave the European Union.

However the two polls in Tuesday’s newspaper portrayed Britons narrowly preferred staying the EU, when compared to the surveys released earlier. The pound had added 0.7% to $1.4524 after moving a one-week high of $1.4664 and on Monday had followed a low of $1.4352, its deepest all-time low since May 16. The Australian dollar had risen 0.6% to $0.7413 to one-month high after Reserve Bank of Australia had held policy stable as anticipated. It stated that its decision had been steady with maintainable growth. According to a Reuter’s poll, the central bank is broadly likely to hold rates at record low of 1.75% after its cut in May, with 49 of 52 economist’s surveyed sightingthe RBA standing pat.

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Stronger Yen Weighs on Nikkei

Shares Hit by Yen Strengthening Against Dollar

Winning streak of five meetings for Japan’s Nikkei ended as shares were hit by the yen strengthening against the dollar. Benchmark of Japan, Nikkei 225 index dropped down to 279.25 (1.6% at 16,955.73). Dollar slipped below 110 yen. For Japanese exporters, stronger yen is usually seen as negative.

This resulted due to the Japanese Prime Minister; ShinzoAbe’s announcement, to a delay of a planned rise in sales tax. The rise in sales tax rate to 10% from 8%, planned for the year 2017, has now been pushed back to 2019.In individual stocks, Softbank had increased by 0.4% after the Japanese technology firm had stated that it would be offloading $7.9bn worth of shares in e-commerce giant of China - Alibaba.

 The transaction is said to reduce the stake of Softbank in Alibaba from 32.2% to 28%. The Shanghai Composite, in China, had edged down from 0.1% to 2,913.51 while the benchmark Hang Seng index in Hong Kong ended 54.11 points less at 20,760.98. The S&P ASX/200 index in Australia had closed down 55.39 points (1% at 5,323.17). Kospi index of South Korea was even for most of the session, closing at 1,982.72.

Strength of Yen – Decline of Exporters

Asian stock markets were generally higher on Tuesday tracking gains in U.S. stocks but Nikkei was assessed by the recent strength of yen and weak earnings results. The S&P 500 on Monday which had settled at a record high of 1593.61, lifted by a rally in the technology segment and the earnings sustained to be the main focus in the region. Japan’s Nikkei Stock Average dropped 0.2% to 13.860.86amidst the recent weakness of the dollar as well as the key ¥100 level continued to be elusive.

The dollar-yen pair had been at ¥97.70 from ¥97.77 in New York, late Monday. Nikkei had jumped to 11.9% till April and continues on course for its largest monthly increase since December 2009 irrespective of Tuesday’s drop. The strength of yen together with the disappointing results had led to the decline of exporters. A heavily weighted component, Fanuc, on the Nikkei had dropped to 5.6% after the company had informed that its operating profits slipped by 17% on-year to ¥184.8 billion for the fiscal year ended March 31.

Abenomic Effect on Consumer Confidence 

Ricoh had dropped to 8.4% after its fourth-quarter operating profit had come in at ¥23.0 billion considerably losing guidance and consensus forecasts, apparently owing to a fall in sales of the domestic office equipment as well as larger-than-expected rise in costs. CLSA equity strategist Nicholas Smith, noticing the data for March indicating an increase in household spending and a fall in the jobless rate commented that `regardless of stock price weakness, the signs for Japans’ economy are positive. Some of the data can be attributed to the `Abenomics’ effect on consumer confidence’.

 Household spending had increased to 5.2% in March signifying consumers are showing more inclination to spend whereas unemployment had dropped to 4.1% of the labour force in March from 4.3% in February, which decline to its lowest since November 2008. Industrial production in March had increase by 0.2% on-month for the fourth straight month. Investors would be paying consideration to separate strategy meetings by the European Central Bank and the U.S, Federal Reserve for indications, later in the week.

Hard times on Wall Street as pay cuts, layoffs loom

Wall Street Pay – Trending Low

Latest report from compensation consultant Johnson Associates indicates that Wall Street pay tends to be trending lower this year as frail first quarter earnings, strong business environment and regulatory restraints will cause in slashes in almost all the trade’s lines of business. Managing director of Johnson Associates, Alan Johnson stated that this is the first time since the financial crisis that they have seen everyone trend down. The report is established on the results from the first three months of the year and hence the viewpoint could alter, according to Johnson.

But he did note that is a psychological change amidst the clients of his firm.Financial companies believe that the environment could be harder ahead; marked by more opposition, low interest rates for extended and extra regulation. Johnson has stated that there seems to be a lengthy list of things and that their clients have put them together saying that it is just going to become harder. According to report, in the financial industry, incentive pay will drop between 5% and 20% this year and the exemption to it will be in retail as well as commercial banking where the pay would be flat to around 5%.

Year Ahead Fair Amount of More Job Cuts

Johnson had mentioned that this area moves more with the cost of living and that the sector has been performing well. On the other hand, pay in investment bank would weaken between 10% and 20% though compensation in sales and trading is said to drop 5% to 20%, as per report and it is not only investment bankers perceived in taking a pay cut, since hedge fund compensation is projected to decline by 5 – 15%.

The pay for asset managers is seen off at 5% to 10% owing to weak inflows together with lower to flat appreciation in assets under the category of management. Together with pay being cut, payrolls would also be trimmed according to Johnson. He further added that it is quieter than in the past, though it seems to occur as one speaks. This year and ahead there will be a fair amount of more job cuts.

Global Mergers/Acquisitions – Volume Plunge 20%

Most of the financial companies are persistently reducing head count in places inclusive of London and New York since the cities tend to be too expensive, deciding to cut on jobs or move the workers to lower-cost centres. According to financial services data firm Dealogic, global investment banking businesses seemed to suffer the slowest first quarter since 2009.

The almost$750 billion in global mergers as well as acquisitions signified a volume plunge of 20% year over year, as per Dealogic report recently. The analysts stated that banking revenue was affected by a combination of slow start to the years’ M&A, weak high-yield debt issuance together with lingering weakness in the trading operations of banks. Making matter worse was the trading desk revenue which had been shrinking at several top banks.

Morgan Stanley had revealed plans of reducing head count in its fixed income, currency as well as commodities trading operation as a measure of a broader plan of streamlining operations and generating savings. But the stock of the bank had recovered from early February lows, and the shares are yet down by about 20% on the year. No comments have been provided by representatives of Morgan Stanley.

Should We be worried about our Pensions

Pension Scheme – Attention on Health of Final Salary Pension

The efforts of BHS together with its pension scheme have drawn attention on the health of final salary pensions. Over the years, 20,462 members of BHS staff right from shop workers to executives have paid into the BHS final salary pension scheme and now will receive less during retirement than they had expected. The scheme which is said to be like a black hole or deficit of £571m is presently in the hands of the Pension Protection Fund – PPF, which is a lifeboat organisation that tends to step in when companies seem to be ruined.

The BHS scheme is considered to be only one of thousands of final salary pension schemes linked to companies all over UK, schemes that guarantee to pay retirement income depending on certain percentage of the ultimate salary each year for the rest of your life. Latest figure of the PPF portrays that UK final salary pension schemes tend to have a collective deficit of £302bn and there are 4,891 schemes in deficit when compared with 1,054 in excess. It is a bit doubtful that some may be struggling. Joe Dabrowski from the Pensions and Lifetime Savings Association – PLSA which is the trade body for pension schemes has stated that schemes are facing challenging times.

Calum Cooper of pension consultancy Hymans Robertson portrays a bleak picture. He states that there are between 600 and 1,000 final salary pension schemes at risk of not being capable of paying the pension of their members at the time of their retirement and this is a very substantial number which puts over a million pensions as well as the jobs at risk.

Experts agree that there seems to be two main causes of the black hole in final salary pension schemes. The first is comparatively simple; people are living for longer period which makes pensions more expensive for companies since they are paying the pensioners for a longer period. The second main issue is the uncertain economic position wherein pension schemes tend to depend on the contributions from employees being invented successfully. Long period of low interest rates together with volatile markets have made it difficult in making money from investing.

Pension Schemes Related to Performance & Strength of Parent Company

Mr Cooper states that the final salary schemes pushed in £30bn in the last year in an attempt to make up for poor returns though it has not gone more than a fraction of the way in ensuring things are evened up. Senior partner at actuarial consultants Lane, Clark and Peacock, Bob Scott informed that another problem is `over-regulation’. He stated that this added to the problems for businesses attempting to keep schemes in good health.

According to Tom McPhail, head of retirement policy at investment company Hargreaves Lansdown informs that there is a wider threat considering the design of final salary schemes. He states that were there many more schemes to get into trouble, they would seem to be very expensive to rescue.

He adds that the challenge is whether it is accepted that there will be these constant failures maybe ultimately putting the subsidy of the PPF itself under pressure. Pension schemes are related to the performance and strength of their parent company as pointed out by Mr Cooper, deficits of some schemes tend to be larger than the actual business supporting them.