ECB Said to Extend Backstop to Bulgaria as Greece Roils Region

By Andrew Langley, Bloomberg

European Central Bank is set to extend a backstop facility to Bulgaria and is ready to assist other nations in eastern Europe to ward off contagion from Greece, according to people familiar with the situation.

ECB would provide access to its refinancing operations, offering euros to the banking system against eligible collateral, the people said, asking to remain anonymous because the matter is confidential.

ECB, Bulgarian central bank declined to comment

What to expect from the US Nonfarm Payrolls report tomorrow?

Since the Employment and Inflation data is the backbone of the Fed’s monetary policy the investors will pay close attention to the figures released tomorrow at 12:30 GTC for a signal of a potential earlier rate hike.

Tomorrow is also Good Friday and since the stock exchanges will be closed there is a good chance that we will not be witnessing strong and volatile movements. But let’s not forget that the Nonfarm payrolls report is the most expected report from the market, since it measures the strength of the economy, and historically it is a major indicator for the changes in the Federal Reserve’s economic policy.

So what to expect from the figures tomorrow? Well that is hard to say. In the last meeting of the Federal Reserve Board, Ms Janet Yellen, the Vice chair of the Committee, expressed worries that the strong US dollar may cause difficulties with reaching the 2 percent inflation target and can also disturb the economic recovery, since it has the potential to reduce the exports.

According to Fed’s Yellen, we should see the first rate hikes in early September, even before inflation and wages have returned to normal.

The data from the ADR report yesterday show a grim picture, with its 189K new created jobs in March. Although this figure does not reflect the true measure, it also gives some clues what to expect tomorrow. Generally speaking the rule is that a higher reading should be taken bullish for the dollar where as a low reading is seen as bearish.  Following this rule a reading tomorrow below the expected 245K will be considered bad news from the market and we can see a weakening of the dollar. That will also mean that a rate hike will be delayed for September. On the contrary a reading above the previous 295K will bring the greenback to new highs, which will bring no doubt about the raising of the borrowing costs in June. Anything around 250 will most likely keep the position of the US currency unchanged.

Super Mario did it again

*reprinted from client’s note sent earlier today

What a day we got yesterday…. Super Mario did it again, he managed to surprise even the most dovish expectations concerning QE. Let me summarize for a minute- we are going to see 60 bl. per month for almost full two years pumped into the European monetary system that should lift inflation, stimulate the economy and my friends also put a strong tailwind to the stock markets.

In fact European debt markets /core as well as peripheral/ cheered QE announcement lifting 10 year bonds prices and of course pushing down yields to maturity as can be seen on the next chart:

Figure 1. 10 Year bonds Germany, France and Italy


Source: Bloomberg

Now back to the more important question-what does this mean for the single currency, my yesterday line of thought was for a down move of approximately 1-2 big figures and then stabilization, assuming no surprise, even hoping for a tradeable bottom that should lift Euro in a messy correction back to 1.2000 area.

This morning we are in fact 300 pips lower in EURUSD and market strategist scramble to adjust lower their end year 2015 forecasts which hints that market is not positioned at desired exposure and we can see continuation of the trend lower. Let see how this plays out and reassess after a few days…

USD: currently not the key driver….still we are fast approaching next FED meeting…and please keep a close eye to inflation and what FED members think about it…

EUR: when everything is said and done trend remains in place … inflation too a big item..


EURUSD trade carefully today… prudent strategy should be to sell bounces to 1.1350 or 1.1400 looking for a new trend lows.


The information in this FX analysis is collected from different sources and should serve for informative purposes only. Bulbrokers shall not be held responsible for the validity of the presented information. No part of this analysis recommends the purchase or sale of a currency pair or any other financial instrument.

Contact phone number: + 359 2 4893 715, 359 2 4893 798 e-mail:

ECB and QE in focus

Today we face the all important ECB meeting where markets expect European QE to be announced. As of now leakages as well as official statements point towards asset purchase program in amount of 500-600 billion Euros, which should be extended almost twice in order to meet the target of 1 trillion. Market consensus centers around 500-600 billions which posses significant risks concerning price action. There are a number of hints that we could see buy the rumor sell the fact phenomenon today, meaning that after the initial reaction lower for the single currency profit taking activity could hit the markets. Of course the exact reaction would be dependable on the details delivered by the Dragi but the above considerations as well as the fact that long USD short EUR is the most crowded trade at the moment requires extra caution.
If our line of thinking is correct what should we expect?

EUR: In line announcement today should mark the medium term bottom for the single currency before moving probably back to 1.2000 area in the next month or so in a slow, position clearing process. That of course would be just that- correction within the long term bearish trend. So stay tuned and trade extra cautiously today- Swiss National Bank last week  proved that we can NOT trust the central bankers, they do not care about us and change their mind in a short manner.





The information in this FX analysis is collected from different sources and should serve for informative purposes only. Bulbrokers shall not be held responsible for the validity of the presented information. No part of this analysis recommends the purchase or sale of a currency pair or any other financial instrument.

The Doomsday for the Forex Industry

15th of January, 2015! This date will be remembered as the most critical day in the history of modern currency trading.

On 15th of January 2015, 12:30 CET, without any prior notice or even the smallest hint, the Swiss National Bank (SNB) discontinued the minimum exchange rate of 1.20 Swiss francs for an euro. As a result trading with CHF crosses practically stopped, the Swiss franc appreciated abruptly and within few minutes rose by 30% causing monstrous shocks.

The reason SNB introduced the minimum exchange rate 3 years ago, in the summer of 2011, was to protect its currency from overvaluation. Thereafter this mechanism had worked as a Swiss clock without the smallest deviation, until 15th of January when SNB removed the floor and unleashed hell for all forex industry.


What happened?  

In the last few years a lot of traders used the CHF as a safe bet – holding short CHF in order to win from the depreciation without risking to lose from appreciation guaranteed by the SNB. Removing of the minimum exchange rate had the effect of a dam collapsing. The accounts of traders with short positions in CHF and higher leverage became negative in minutes and while brokers were executing orders, those with huge hedged CHF positions could not close them at their liquidity providers – interbank market actually stopped. The CHF appreciated by 30% in minutes, then regained half of the movement and established at parity with the euro.

What’s the aftermath?

Alpari UK – one of the biggest forex brokers in the world entered into insolvency and most probably will exit the business. The amount of the loses is still unknown;
FXCM – announced $ 225 000 000 negative client accounts;
IG Group – loss of £ 30 000 000;

Saxo Bank, Citi Bank, IG announced they will be revising the trades of their clients and will recalculate them if necessary.

What’s the situation at Bulbrokers?

We are glad to announce that thanks to our robust risk management policy we survived this hell intact. We would like to take the opportunity to thank to our risk management and IT department for their professionalism and nerve. Due to them our systems have been working perfectly, the execution has been impeccable, all stop and pending orders were executed properly thus minimizing the risk for our clients.

Thank you for your trust!

Go JPY, Go…

Today GBPJPY is unstoppable-  three big figures up…

SPX / future/ rocks too



Source Bloomberg

The all important FED meeting…

Today we face the all important FED meeting that is likely to shape up the mid term picture in some of the major asset classes. In the run up to the meeting it seems that markets came to the conclusion that there is no big chance US central bankers to voice a hawkish massage given current conditions. The end of QE3 should be a done deal /or would be major bearish USD and somehow bullish SPX surprise/. The unknown details center around “considerable time” and the assessment of inflation/job market perspectives. It seems that markets position for a risk friendly outcome- we see explosive rally for a SPX and some USD long exposure trimming going into the meeting.

If we focus on currency markets such an outcome is going to kill the near term USD bullish trend probably for at least several more weeks as investors would got even more evidence for a much more balanced policy perspectives at US and EZ. Please remember that ECB covered bonds purchases are not going anywhere fast and there is clear disagreement among decision makers for the pace of balance sheet expansion. Than we should factor more neutral FED too that explains why rate differentials moved a lot more than FX markets reflect.


Figure1. 2y and 5Y swap differentials

swap rates


Source: Bloomberg



Figure 2. same picture with government spread



Source: Bloomberg



Now moving to SPX /S&P500/ it’s close to all time highs. If the outcome from the meeting is as assumed we are probably just a weeks before retest of 2020 area especially if reporting season continues to support with better than forecasted results for earnings/revenues. As allays it is worth paying attention to what other markets are doing and if they confirm the optimism. In this regard credit markets are one example that need to further improve as well as small cap space /HYG and Russell 2000/

Figure3. SPX with HYG fund and Russell 2000

index confirms

Source: Bloomberg


Interesting observation….

Indexes entered some calm waters after explosive rally from the last week. This naturally pops the question is this the beginning of new trend enroute to new recovery highs or we are going to face new wave of fresh selling. For the fans of charting I represent S&P500 long term chart /in fact entire bull from 2009/ with its key trend line we’ve broken last month. Now index is again testing it, however from the other side and familiar with trend lines know that often prices make a retest in order to confirm the break down /just as we do it now/.

This is not a suggestion for positioning just un observation. In order to add some more color I’ve added extract from American Association of Individual Investors weekly survey results. Green line represent bullish individuals while the red one represent bearish views. The obvious observation is that individual investors /is anybody surprised / are most bullish near the tops and on the contrary most bearish at the corrective bottoms. Now look how are we positioned today, does it look as bottoming set up?

Just a food for thought…

Source Bloomberg


High S&P500 Profit margins a sign of weakness?

Again at the end of the week we continue the theme of the market conditions / expressed via S & P500 / which has been increasingly coming to the fore given the historical highs that have been reached. Previous time we discussed  the importance of CAPE on long-term return that we can expect from the index given 150 years of market history. P/E multiple expansion was a key contributor for the recent bull market and the outlook for  tapering, possibly passing to a tightening implies limited potential  of P/E growth .

In this sense, it is very useful to take a long term look at the “E” component or corporate profits.  Financial media literally bombard us with information what is expected EPS growth for the next year how forward P E does not seem demanding.

Here I want to emphasize that I’m not questioning the projections, but simply defined stocks represent  a claim on extremely long , at least 20-30 years of cash flows to shareholders generated by the business.

Many, pretty  successful investors, claim this indicator as one of the most pronounced to the tendency of mean reversion, /i.e. tendency to return to its long-term average over time and whenever depart dramatically from it/. Indicator is extremely important, as it is determinant to the ability of the companies to generate profits.

Figure 1. US corporate profit margins / corporate profits as a percentage of GDP / EPS growth of  S&P500 over the next four years.


As seen PM has a clear tendency to gravitate to the average value every time reaching extreme / so far nothing illogical / . More interesting however is the chart in orange that plots corporate profits growth of S&P companies over the next several years / scale is reversed for clarity / .

Phenomenon we observe is that higher profit margins / should be good news / is in fact associated with a subsequent drop in EPS growth. This suggests that long-term record high profitability is a sign of subsequent weakness, and return to a more moderate levels / 6% on average/ will put pressure on corporate profits in the coming quarters. This means that P/E at current levels should to be treated with even more caution and skepticism.

The reverse argument also sounds logical- depressed labor market in the U.S. coupled with investments in technologies allows maintaining a higher rate of return. Structural changes in the economy lead to high margin production and extraction of revenues from external markets /emerging especially/ also support the hypothesis of sustainable corporate earnings.

Again the idea of the discussion is not to envision impending problems for the stock market , but rather to give a perspective and to illustrate the risks to the bright future of the secular bull market.

Risks of a “buy and hold” strategy above long-term average

Continuing on the topic from  Feb. 12th about long-term view of the markets and the analogy with the Great Depression, today will illustrate why actually we added CAPE and what is its relation to the returns that can be expected from the index. Although e Valuations are not intended to be used as a market timing tool there are sufficient evidence that clearly demonstrates its relationship to the subsequent performance of the asset being analyzed.

Consider Figure 1 where we compare CAPE / Cyclically Adjusted Price Earnings ratio / with black solid graph and the subsequent long-term return of the S & P 500 index in red.

long term
What we really understand is that on the one hand CAPE values around 25 are unstable over time and are a sign of a significant overvaluation of the index. On the other hand values of 25 or above for CAPE usually lead to close to zero percent forward 10 years returns for the index. The only exception to this relationship was observed in the period between 1995 and 2000 during the so-called Technology bubble, but 2000 marks the beginning of this “Secular Bear” market lasting 13 years now.

Displayed relationship does not mean in any case they investors can’t make money in such market conditions, for example, following 2000 we witnessed two cyclical bear markets and two cyclical bull, the latter of which is still ongoing.
Rather risks of a “buy and hold” strategy, in a environment/ market conditions like what we see today are above long-term average in comparison to more favorable periods like 2003 or 2009 for example.