Dollar index at 15-year low on housing market woes

The dollar fell to a 15-year low against a basket of major currencies and a record low against the euro on Tuesday, hurt by the potential for credit woes and housing market weakness to weigh on the U.S. economy.
If problems emanating from the deteriorating U.S. subprime market spread to other sectors, foreign demand for U.S. non-government debt, a major source of funding for the trade deficit, could waver and further knock the dollar, analysts said.
"Doubtless the negative news from subprime and contagion to the broad U.S. credit market is bad news to the U.S. dollar," said analysts at Societe Generale.
"The financing of the U.S. trade deficit has become increasingly dependant on foreign purchases of U.S. corporate bonds," they wrote in a note to clients.
The dollar index dropped to a low of 80.016 , near the psychologically significant level of 80.0. By mid morning it was at 80.07.
The euro jumped to an all-time high of $1.3853, according to electronic platform EBS, before settling back at $1.3835, up 0.2 percent from late Monday.



The dollar sank to a two-month low of 120.42 yen, and sterling climbed to a 26-year high of around $2.0655.
"Credit markets continue to put pressure on the dollar," said Daniel Katzive, currency analyst with UBS in Stamford, Connecticut.
Weakness in the subprime, or risky, mortgage sector is already spreading to some segments of credit markets, forcing investors to flee to relative safety over the last few weeks by buying top-rated government bonds and selling the dollar for almost all other major currencies.
The latest round of fears about the housing market coincided with sharply lower second quarter profits from building materials maker USG Corp, which said the housing market is in the midst of a multiyear downturn.
"CAD"-ALYST
The latest lunge lower in the dollar coincided with a report showing Canadian retail sales in May had the biggest increase in nearly a decade, pushing the greenback to a 30-year low against the Canadian dollar of C$1.0367.
It retraced slightly to C$1.0385 but was ever closer to parity, something markets haven't seen since 1976.
Katzive said the U.S. dollar's broad move lower after the Canadian retail sales numbers supported a view that benchmark U.S. interest rates will remain steady while others rise.
Indeed, the New Zealand dollar rose above US$0.8100 to the highest since being floated in 1982 ahead of a policy meeting on Thursday at which the Reserve Bank of New Zealand is expected to raise what are already the highest interest rates in the industrialized world.
"In general, dollar weakness is still playing positive for many high yields, with the pound and New Zealand dollar stars in the G10 world, exemplifying the historic extremes that currencies can reach," said Alan Ruskin, chief international strategist with RBS Greenwich Capital.
The dollar's decline this week may have only begun, with June U.S. existing home sales due on Wednesday, new home sales on Thursday and the first take on second quarter gross domestic product on Friday.

stock Exchange

Currency stock exchanges function in a number of the countries with transitive economy. The functions of currency stock exchanges include realization of a currency exchange for legal persons and formation of a Forex exchange rate. The state usually actively adjusts a level of the exchange Forex rate, using compactness of the exchange market

Interbank Brokers

Until recently, foreign exchange brokers were doing large amounts of business, facilitating interbank trading and matching anonymous counterparts for comparatively small fees. Today, however, a lot of this business is moving onto more efficient electronic systems which function as a closed circuit for banks only. Still, the broker box providing the opportunity to listen in on the ongoing interbank trading is seen in most trading rooms, but turnover is noticeably smaller than just a year or two ago.

Customer Brokers

For many commercial and private clients, there is a need to receive specialised foreign exchange services. There is a fair number of non-banks offering dealing services, analysis and strategic advice to such clients. Many banks do not undertake trading for private clients at all, and do not have the necessary resources or inclination to support medium sized commercial clients adequately. The services of such brokers are more similar in nature to other investment brokers and typically provide a service-oriented approach to their clients. Saxo Bank belongs to this group of companies.

Private Persons

Physical persons spend a wide spectrum of uncommercial operations regarding foreign tourism, translations of wages, pensions, fees, purchases and sales of cash currency. In 1986 with introduction of margin Forex market trading physical persons had an opportunity to invest free money resources in Forex market with the purpose of profit reception.

STOCKS YOU CAN PICK UP THIS WEEK

Reliance Industries
Research: UBS Investment (June 14, ’07)
Rating: Buy
CMP: Rs 1,680 (Face Value Rs 10)

Based on an improved outlook for gas price realisation from KG D6 gas, UBS Investment has raised the FY09 EPS estimate by 3.6% from Rs 96.4 to Rs 99.8, while FY08 estimate remains unchanged. Media reports indicate that Reliance Industries (RIL) has received bids in the region of $4.3-4.7/mmbtu (excluding transportation charges, marketing margins and sales tax) for 25 mmscmd of gas. The contracts are likely to be for three years. UBS is upgrading its estimate for average KG D6 gas realisation from $3.55/mmbtu to $4.2/mmbtu. Recent disclosures by RIL’s partner, Hardy Oil (HOGP), indicate additional upside in new blocks D3, D9 and GS-01. HOGP has estimated gross prospective resources of 33.6 tcf of gas in D9 and 4.2 tcf of gas in D3. RIL has 90% interest in these blocks.

Dabur
Research: Macquarie (June 13, ’07)
Rating: Outperform
CMP: Rs 101 (Face Value Rs 1)

Dabur’s competitive advantage lies in its niche position as the premium player in ‘herbal’ personal care products. The company owns some of India’s most trusted brands in hair care, oral care and health supplements on an Ayurvedic platform. These factors support Dabur’s margins due to sustainable pricing power. The trend of margin expansion is unlikely to reverse. The strength of Dabur’s core business and brands, combined with the positive impact of its recent forays on the bottomline, should protect against any margin erosion due to investment in new businesses such as retail. Macquarie expects Dabur to remain among the fastest-growing FMCG players in India and report a three-year earnings CAGR of 18%. The company’s core business strength has enabled it to consistently deliver 20-50% earnings growth over the past five years. Importantly, earnings have outpaced revenues in each of these years. Dabur trades at a P/E ratio of 17x FY08E earnings, which is at a ~20% discount to its domestic consumer sector peers.

Gujarat State Petronet
Research: Citigroup (June 13, ’07)
Rating: Buy
CMP: Rs 55 (Face Value Rs 10)

Citigroup has raised the target price of Gujarat State Petronet as higher volumes of gas are likely to flow from Reliance Industries through GSPL’s network, as indicated by the management of both companies. The gas volumes transported through GSPL’s pipeline network are likely to increase ~2.5-fold to 38 mmscmd by FY12E. Recent speculation on the adverse impact of regulatory intervention in setting pipeline tariffs is premature and overdone. Based on the analysis, introducing regulated tariffs on the cost of service methodology may result in a net positive impact of 7-11% to Citigroup’s steady state (FY10-12E) earnings estimates. GSPL is Citigroup’s top pick in the domestic gas utilities space. A pure play gas transmission company, GSPL is highly levered to increasing consumption of gas in Gujarat, without being exposed to the vagaries of gas pricing. The stock trades at 8.8x FY09E P/CEPS, marginally higher than other gas utilities, but this is justified by its 30% EPS CAGR over FY07-10E (significantly higher than peers) and highest leverage to KG gas.
Jaiprakash Associates
Research: CLSA (June 14, ’07)
Rating: Buy
CMP: Rs 690 (Face Value Rs 10)

Jaiprakash is well-positioned for growth in the construction, cement, hydropower and real estate sectors. Cement capacity is set to triple by FY10 and construction revenue should improve by H2 FY08 as the Taj Expressway project takes off. Jaiprakash will triple its cement capacity to 21.7 million tonnes by FY10CL. Its average cost of capacity expansion is 30-40% below benchmark replacement cost, and it will receive excise duty and sales tax exemptions at some of its new plants. The government’s strategic interest in hydropower will boost the company’s construction order flow (hydro-projects comprise 70% of the order book) and provide opportunities for investment in new projects. The company’s two existing projects earn a 22-24% return on equity. Jaiprakash’s construction business will also see a rebound in construction segment revenue in FY09CL, with a pick-up in progress of the Rs 6,000-crore Taj Expressway project. The addition of 650 acres to its existing land bank of 600 acres in Noida, over the next few months, will deliver visibility on the value-creation potential in the Taj Expressway project.

Indraprastha Gas
Research: Enam Securities (June 11, ’07)
Rating: Buy
CMP: Rs 120 (Face Value Rs 10)

Indraprastha Gas (IGL) is the only distributor of compressed natural gas (CNG) and piped natural gas (PNG) in the national capital territory of Delhi (NCTD). IGL offers a leveraged play on the increasing penetration of natural gas in India. During Q4 FY07, IGL continued to benefit from its aggressive marketing strategy in CNG and PNG. As a result, it experienced a 12% YoY and 2% QoQ growth in CNG, primarily driven by conversion towards CNG by private car owners. PNG sales grew 44% YoY and 14% QoQ in Q4 FY07. Overall, IGL posted a 13% volume growth in Q4 FY07. Enam expects IGL to sustain a long-term volume growth of over 10% given: (1) economic benefits of CNG (2) regulatory directives and (3) a relatively under-penetrated market. Although competition remains inevitable in the near future, Enam expects IGL’s leadership position to be maintained, given its access to gas supplies and its first mover advantage. Given IGL’s strong business franchise, superior profitability and inexpensive valuations, it’s attractively valued at 9.8x FY08E EPS.

Gateway Distriparks
Research: ASK Securities (June 13, ’07)
Rating: Buy
CMP: Rs 178 (Face Value Rs 10)

Gateway Distriparks (GDL) is the largest private sector logistics service provider in the container freight station (CFS/ICD) business with a market share of 18%. With India’s containerised traffic set to double to 10 million TEU over the next five years, GDL is well-positioned to capitalise on the same. Unbridled competition in the traditional CFS business has led to a price war, which is most likely to play out for a few more quarters. Hence, margins may remain range-bound at 50%. Landside infrastructure development, particularly with regard to the upcoming dedicated freight corridor, may not lock step with growth in container traffic and therefore, the shift in time lines will impact the overall throughput. GDL is in the right business at the right time. While opportunities are compelling, the near-term prospect for GDL is lukewarm. Hence, GDL is an investment proposition only for the long term. Based on ASK Securities’ DCF analysis, the fair value is Rs 251. GDL discounts its FY08 and FY09 earnings of Rs 9.8 and Rs 11.6 by 18.2x and 15.5x, respectively.

Max India
Research: Merrill Lynch (June 8, ’07)
Rating: Sell
CMP: Rs 250 (Face Value Rs 2)

Merrill Lynch has downgraded Max India to a ‘sell’ as the company continues to lose market share and its first-year premia growth (though up 72% YoY) was 17% below estimates and 30% below the sector growth of 104%. Healthcare revenues were also 16% below estimates. Merrill Lynch has assigned higher NBAP multiples of 20x FY09E NBAP (v/s 16x earlier) due to its strong growth trajectory and higher margins that Max New York Life is likely to have on higher share of traditional policies and lower costs.

Market makers

What is a Market Maker? (Lexical) A Market Maker is the counterparty to the client. The Market Maker does not operate as an intermediate or trustee. A Market Maker performs the hedging of its clients' positions according to its policy, which includes offsetting various clients' positions, hedging via liquidity providers (banks) and its equity capital, at its discretion. Who are the Market Makers in the Forex industry? Banks, for example, or trading platforms (such as Easy-Forex™), who buy and sell financial instruments at the market. That is contrary to intermediates, which represent clients, basing their income on commission. Do Market Makers go against a client's position? By definition, a Market Maker is the counterparty to all its clients' positions, and he always offers a two-sided quote (two rates: BUY and SELL). Therefore, there is nothing personal with the trading conduct between the Market Maker and the customer. Market Makers regard the total positions of their clients as a whole, same goes for banks and other market makers in the Forex market. They offset between clients' opposite positions, and hedge their net exposure according to authorities' guidelines and their risk management policies. Do market makers and clients have a conflict of interest? Market makers are not intermediates, neither portfolio managers, nor advisors who represent customers (while earning commission), but rather they buy and sell goods to the customer. By definition, the Market Maker always provides a two-sided quote (the sell and the buy price), hence maintains neutrality as for the client. Banks do that, same with merchants in the markets, who buy goods and sell it to customers. The relationship between the trader (the customer) and the Market Maker (the bank; the trading platform; Easy-Forex™; etc.) is simply based on fundamental market forces: supply and demand. Can a Market Maker influence market prices against clients' position? Definitely not, because the Forex market is the nearest to being a "perfect market" (as defined by economics theory). This is the biggest market today, reaching a daily volume of 3 trillion dollars throughout the globe. That means that there is no single participant in the market, banks and governments included, who can consistently push the price in a certain direction. What is the main source of earnings to Easy-Forex™? Being a Market Maker, the major source to earnings is the spread between the bid and the ask prices. Accordingly, Easy-Forex™ maintains neutrality (as for the direction of any or all deals made by its traders), since the leading source for its income is the spread it earns.