The innovation can help financial services companies and multi-nationals send money globally in a low-cost, low hassle manner, and in accordance with anti-money laundering and anti-terrorist financing best practices.    The software behind the patent permits a person to receive funds electronically without having to be a member of the system responsible for transferring the funds or being a member of the same system as the person sending the funds.

Probably the best way to explain the innovation is by way of example. Bob in the United States is sending money to Sally in Singapore.

Sender-Directed Payments work like this:
Bob provides Sally’s SWIFT bank account identifiers to his U.S. bank or Foreign Exchange Service Provider.  At the bank, He’ll pay a hefty international wire sending fee.  Sally receives no indication that the funds are on their way.  If everything goes well, Sally will see the funds in her Sing bank account in 2-3 days, less a hefty international wire reception fee.  If things don’t go well, (the SWIFT instructions are incorrectly entered by Bob, or incorrectly transposed by a correspondent bank along the SWIFT trail), Sally’s money won’t arrive and Bob and Sally have a painful, time consuming, relationship-impacting, and expensive experience ahead of them playing the trace game.  And for sender-directed first-time SWIFTS, “things don’t go well” 20% of the time!

Recipient-Directed Payments work like this:
Bob emails money to Sally through a 3^rd party payment service like PayPal, Western Union,  hyperWALLET. He’ll pay a nil or modest sending fee to his provider. The provider notifies Sally in real time that a payment has been received from Bob and is available for delivery.  Sally provides her local bank account identifier to the service.  If everything goes well, Sally will see the funds in her Sing bank account in 1-3 days, less a nil or modest local delivery fee.  If things don’t go well, (Sally’s instructions are incorrectly entered by Sally, or incorrectly processed by the provider) Sally’s money won’t arrive and Sally must deal with the provider to sort the issue out.  For recipient-directed first time instructions, “things don’t go well” in about 3% of cases.

Recipient-directed cross-border payments are:

• easier for senders to initiate,
• much less expensive, particularly for lower-value payments
• provide similar or often superior end-end settlement timing to SWIFT services,
• provide better payment status transparency for both parties via email/text notifications,
• incur 6-fold lower error/exception/return rates

The BIG problem with recipient-directed payments is that both the sender and the recipient must be members of the same service in order to benefit from these advantages: banks or 3^rd party providers which are licensed and regulated in only the sending jurisdiction can’t offer services to Sally.

hyperWALLET’s innovation solves this problem, allowing  Bob’s bank or FX provider to offer international email payments which yield all the benefits of recipient-directed payments, but without requiring the foreign recipient to register for a 3^rd party (or any new) service. From a regulatory perspective, our solution allows Bob’s provider to receive and act upon instructions only from Bob, not the foreign beneficiary.

We’ve been utilizing this software for our own corporate customers for some time now, and are pretty excited about making the solution available to banks and other payment brands in 2012.

Another European Summit and disagreement once more, but this time the UK was the thorn in Europe’s side. United Kingdom Prime Minister David Cameron refused to sign a new EU treaty that was drafted by Angela Merkel and Nicolas Sarkozy imposing strict budget and debt rules to not only the eurozone states, but also the other non-eurozone members in the EU. Britain, one of the countries that sits outside of the eurozone (thank goodness), led by Prime Minister David Cameron, refused to agree to the new treaty, saying he wanted guarantees protecting the UK’s financial services sector, which relates to one-tenth of the UK’s economy. Sarkozy said that Cameron’s demands were unacceptable and so the UK was left “out in the cold” as 26 of the 27 EU states agreed in principal to the new treaty. It has been many years since a UK Prime Minister has stood up to Europe to ensure that UK interests are not brushed under the carpet, but by taking this stance Cameron risks the Eurosceptics within his own Conservative Party of raising the issue that Britain should hold a referendum on whether the UK should leave the EU altogether, which it joined in 1973. Cameron has stated that this not an option, as the effects on the UK economy would be horrendous, but it will be interesting to see how he deals with both his own party and the issue of Europe in the coming months.

After the above events were digested, the meeting turned towards resolving the eurozone debt crisis, with many thinking that this was the last chance to save the euro from collapse and financial meltdown spreading across the global economy. Decisions were taken yesterday on the permanent bailout fund, the European Stability Mechanism, which is due to be in force by July 2012. However, once again promises that had been made before the meeting fell short of expectations. The ESM’s threshold will be set at €500 billion euros, far less than had been pledged before the meeting. Germany also opposed giving the fund a banking license, as had been originally suggested by Herman Van Rompuy, the President of the European Council. The license would have allowed the ESM to access cheap funds from the ECB, and by not agreeing to this Daniel Gros director of the Centre for European Policy Studies think tank in Brussels said, “This is a great leap sideways. We now have a framework that in 10 years’ time could restore a degree of fiscal order to the euro zone. The German view is that this is all that is needed to convince markets to buy Spanish and Italian debt. I have my doubts that it will be enough. I think the tensions continue.”

The eurozone was however given a boost yesterday when the European Central Bank cut interest rates by 0.25% to 1% to help combat the debt crisis that has engulfed the region. The euro was sold off on the back of this news and also lost more ground when news of the summit agreement hit the markets. However, despite all of the bad news that has been emanating from Europe over the past few weeks the euro has been very resilient, but the failure to get Britain to agree to the treaty and the view from many investors that the additional €200 billion euros being lent to the IMF to help bailout the weaker eurozone countries is not nearly enough, are all negative factors for the euro in the months ahead. The uncertainty about whether the eurozone will be able to halt the crisis and bring stability to the region forced investors to dump higher-risk assets and commodity driven currencies such as the Aussie and Kiwi dollar, for the safe haven of the U.S. dollar.

As the summit came to a close today we are still left wondering whether the meeting has been any more successful in dealing with the eurozone debt crisis, than the other dismal attempts in the past few months. Yes they have agreed a roadmap for greater economic integration between EU members in the future, but once again they have failed to deliver a credible solution to the debt crisis that is threatening to engulf Italy and Spain. A Reuter’s poll of 57 economists taken before the summit began showed that even though 33 of them felt that the eurozone would survive in its current state, 38 expected the summit would fail to deliver a resolution to the debt crisis. It seems they have been proved right.

Weekly Market Commentary – Week Ending 25/11/11

It seems each week the troubles facing the eurozone just keep mounting up and the disastrous consequences of a complete break-up of the euro become a distinct possibility. This week alone has seen Germany’s Chancellor Angela Merkel insist that the European Central Bank would not act as the “lender of last resort”, even though Portugal has had national strikes and had its sovereign debt rating downgraded to junk status by Fitch, Italian bond spreads have reached record highs again and reports that Dexia Bank may require further emergency funds to prevent it from going under. What will it take until Merkel gets it that the euro is teetering on the brink of collapse whilst she stands by and watches it sink.

As a result of all the past week’s events equity markets have plunged as investors sought the sanctuary of safe haven assets such as the dollar, which today hit fresh seven week highs against the euro following Italy’s disastrous bond auction this morning where yields hit 6.5% to borrow over six months, double what it paid last month and much higher than analyst’s expectations. The real concern now for Italy is that in the last week of January it must refinance more than €30 billion of bonds and if the market refuses to take up the auction and the ECB has not changed its stance, then Italy could be forced to default and it may well spell the end for the euro. The only hope is that the ECB and Merkel will be pressured by other eurozone countries to change its stance and an article printed in the Financial Times today may well suggest that could now be a possibility. The article states that the Dutch, who have since now taken the same stance as Germany, seemed to have relented and endorsed the ECB as being the lender of last resort. The news has come as welcome relief to the euro and eurozone, but it is Germany’s word that will be final and as yet they have not indicated they are about to change their minds any time soon.

As mentioned earlier the dollar has been the biggest winner on the currency markets this week as fears about the eurozone and general economic health of the global economy pushed investors to seek the shelter of safe haven assets such as the U.S. dollar. The euro on the other had has been sold off this week and as Manuel Oliveri, currency strategist at UBS in Zurich put it, “Merkel sees no scope for euro bonds and the ECB continues to make it clear it sees no scope for financing public debt. Without agreement on either of those two factors there is not much chance of an improvement in sentiment toward the euro and we think it can go lower from here still.”

The Canadian dollar also lost out this week and again today, hitting a seven week low against the U.S. dollar as investors shied away from commodity driven currencies. Today’s decline came after the Italian bond auction stoked fears that the ever increasing debt crisis could lead to a break-up of the currency bloc. The loonie was also not helped by the thin trading volume due to the Thanksgiving holiday in the States yesterday, where currency movements can be exaggerated due to illiquid markets.

The markets will be back in full swing on Monday when once again all eyes will firmly be focused on the eurozone and more importantly what Angela Merkel and Germany are going to do to put an end to the crisis. The concern is that if she sticks to her guns over the coming weeks and insists that the ECB and Germany will not sanction a bailout of Europe’s sovereign debt, then the euro will most certainly break-up and Mrs. Merkel will go down in history as being the reason for its catastrophic failure.

Weekly Market Commentary – Week Ending 18/11/11

The escalating crisis in the eurozone took another turn for the worse this week when Italian, Spanish and French borrowing costs soared to near record highs and plunged the eurozone to the brink of collapse once again. It prompted the new European Central Bank President, Mario Draghi to admit his disbelief at the level of action taken by eurozone governments to deal with the crisis. He commented, “Where is the implementation of the long-standing decisions? We should not be waiting any longer.” Many analysts now believe that the only way to prevent contagion spreading across the eurozone region is for the ECB to “Print Money” and buy up vast quantities of Italian, Greek, Spanish and French bonds in the same way the Bank of England and the Federal Reserve pumped vast amounts of money into their respective economies in their own forms of quantitative easing measures.

However, trying to find consensus within the eurozone is like trying to find a needle in a haystack.Germany does not feel that the ECB should buy up these bonds and instead feels eurozone member states should stick to the agreement formulated when they met in Cannes earlier in the month to strengthen the European Financial Stability Fund by the December deadline. The worry is that if borrowing costs continue to rise the ECB may have no option but to act, otherwise the “unthinkable” may actually become “thinkable”. Some brighter news did surface yesterday and today in the eurozone after Mario Monti, Italy’s new Prime Minister not only survived a vote of no confidence but also announced new measures helped at tackling Italy’s rising debt mountain. As a result of this news and speculation out today that the ECB may start lending funds to the IMF, the euro reversed some of its losses from earlier in the week and was some 1 percent up against the greenback alone today.

Sterling continued to lose ground earlier in the week dropping to October lows against the dollar, but better than expected retail sales data out yesterday halted sterling’s slide and gave the pound some welcome support. Retail sales rose at an unexpected 0.6% in the month of October against a forecast of a drop of -0.3%. However, further gains were limited after reports suggested that the Bank of England may feel the need to increase its own asset purchase program beyond the £275bln target in order to keep its 2% inflation target on track. The dovish tone set by the Bank of England is likely to weigh heavily on sterling and many analysts predict a bearish outlook for the pound over the coming months.

In the U.S markets the dollar lost ground against most of the majors overnight and in the European trading session today after speculation the ECB may act to support the eurozone and Italian Prime Minister, Mario Monti winning a vote of no confidence, helped accelerate gains before the opening bell in New York. As in the eurozone, the U.S.has its own debt problems, which was reiterated by New York Fed President William Dudley who stated that the Federal Reserve would do “everything” in its powers to put life back into the U.S.economy as it still faces “significant downside risks”. As such, many feel that the door has been left open for the FOMC to increase its own quantitative easing measures and all eyes will turn to next week’s deadline for the U.S.“Super-Committee” to propose substantial budget cuts to help try and reduce its own debt mountain.

Finally, in Canada data out this morning showed annual inflation eased slightly in October, after posting a near record high in September. The consumer price index rose 2.9% in October, dropping from September’s 3.2% prompting traders to pull back expectations on the Canadian central bank cutting interest rates over worries about European and U.S. growth. The loonie strengthened to session highs this morning in the U.S. and as Camilla Sutton, Chief currency strategist at Scotia Capital put it, “The gains were fairly broad based. That limits the ability for the Bank of Canada to turn too dovish with still rising inflation in Canada, and it’s positive for the Canadian dollar.”

Weekly Market Commentary – Week Ending 11/11/11

Another week of turmoil in Europe has concluded with Italy’s parliament pushing through austerity measures aimed at halting Italy’s own debt crisis and the wider eurozone’s spiraling out of control. The sudden call to action by the Italian parliament had a lot to do with U.S. President Barack Obama heaping pressure on eurozone leaders to get their house in order. The vote to push through a new budget law in Italy paves the way to finally replace Silvio Berlusconi and form an emergency government. Under Berlusconi’s reign as leader of Italy their economy has grown at the slowest pace compared to any other country in the world, only being eclipsed by Zimbabwe and Haiti. He seemed to be more interested in throwing his now infamous “Bunga Bunga” parties than dealing with Italy’s economic woes. As a result of his negligence Italian bond yields hit a staggering 7.5 percent this week, pushing the eurozone to the brink of a bailout it just does not have the money for.

As well as the Italian parliament needing to take action this week, in Athens today the Greek parliament swore in their new Prime Minister Lucas Papademos, a former ECB policymaker, whose job it will be to prevent the country from going bankrupt by agreeing to the bailout terms set down at the recent Cannes summit of eurozone leaders. Many believe that this is just papering over the cracks and delaying the inevitable – a Greek default and exit from the euro. It was also muted today that the bailout fund (European Financial Stability Fund) being set aside to tackle the problem was struggling to raise the €1 trillion euro’s pledged at the same meeting, even though many still feel the amount needed is closer to €3 trillion.

The thought of Italy defaulting on its debt and exiting the euro do not bear thinking about and as such ECB policymaker Ewald Nowotny stated “The most important element to overcome the crisis is a very trusted and able new Italian government that can really fulfill the structural changes that are needed.”

The news of Italy’s parliament agreeing to pass the new austerity measures and the belief that Berlusconi’s reign is coming to an end pushed the euro higher today, but many fear that this will be short lived as even a new Italian government may struggle to deliver on the fiscal reforms like so many others have done in the past. As well as the euro strengthening, yields on Italian 10 year bonds fell significantly dropping below the crucial 7 percent barrier to 6.6 percent, but as one bond trader put it, “We can have maybe two or three days of calm, but nothing has really changed”.

Sterling reached 8-month highs against the euro yesterday, gaining on the back of Italy’s woes this week, but its gains were short lived after the Bank of England left interest rates on hold and made no changes to its quantitative easing program. The greenback also lost ground yesterday after worse than expected weekly jobless claims, the worst since April, indicated that the U.S. economy was still far from on the mend.

As for the Canadian dollar it has been a good week, gaining both from the easing euro concerns yesterday and domestic trade data coming in stronger than expected. A sudden rise in energy exports meant Canada posted a trade surplus in September, it’s first since January, indicating that the Canadian economy would return to growth in Q3. Further gains were limited after the data release due to the early closing of the Canadian bond market and traders squaring their positions due to the Remembrance Day holiday in Canada and Veterans Day holiday in the U.S.

The holidays have been a welcome relief for investors to what has been another turbulent week for the global economy. However, the calmness will not last for long as when the markets are back into full flow come Monday all eyes will be firmly focused on Europe, especially after yesterdays Italian and French Industrial production figures showed an alarming decline in September. Contagion across the region is now not just becoming a concern, but as we can see from the events in Italy this week, a distinct reality.

If you still feel that the eurozone crisis will be solved by bailouts and fiscal reform then I will leave you with the words of George Soros:-

“This crisis is potentially bigger than the crash of 2008, because we have survived the crash of 2008 and we have not yet survived this one. There is a danger if they get it wrong then you have a financial meltdown. If there is a disorderly default in Greece, and the rest of the euro zone has not been insulated from contagion, then you could have a meltdown not only of the Greek financial system, but of the European and in fact the global financial system because we are so interconnected.”

I had been hoping to talk of a brighter future for Europe this week, but a week on from Europe’s so called “Eurozone Rescue Package” to resolve the debt crisis which is crippling the eurozone, Angela Merkel and Nicolas Sarkozy summoned Greek Prime Minister, George Papandreou to an emergency meeting at the G20 Summit in Cannes. They asked him what in the name of Zeus was he doing calling for a referendum on his country’s bailout package. He was told in no uncertain terms to backtrack on the referendum or face receiving no bailout funds. As Sarkozy said, “We wish to continue building Europe and the euro with our Greek friends. We have done everything we could to achieve this, but there are a certain number of rules that are the bedrock of the solidarity pact, and it is up to the Greeks now to decide whether they wish to continue on this road together with us or not.”

As I see it the above is a clear indication that chaos and confusion remain, but at least something is happening. I believe Greece are going to have to leave the euro as it is not going to be fixed by fiscal union, it is certainly not going to be fixed by political union and the Germans are not going to continue to bailout Southern Europe indefinitely. The only way the problem is going to be resolved is to have fewer countries in the euro and at last it seems as though some European leaders are thinking the same.

However, Merkel and Sarkozy should shoulder much of the blame for the debacle that the eurozone finds itself in, as even after last week’s Rescue Package, the holes in it were very evident for all to see. The financial details of the plan were too complex and the €1 trillion euro’s pledged to increase Europe’s main rescue fund, the EFSF was nowhere near enough to withstand a run on Italy and Spain. Unfortunately the Greek tragedy that is being played out in real life should have been dealt with 2 years ago, when both Germany and France should have thrown vast amounts of money to save Greece and the euro, rather than trying to do it on the cheap and deliver a package which on the surface seemed to resolve the issues, but when you stripped away the layers fell way short, once again, of what was needed to put an end to the crisis.

The problem as I mentioned last week is now one of contagion. Italy now finds itself in a very precarious position as the Italian government is finding it increasingly difficult to fund their huge deficit. Bond yields are at 6.3% and widening all the time, despite the fact that the European Central Bank is buying vast amounts of Italian debt. So what is to be done – let Greece default and leave the euro? I think that this seems the only option left and even though a messy default of Greece would cause huge problems for the European economy and the European banking sector, the greater fear of contagion to Italy, Spain, Ireland and other eurozone countries could make the Credit Crunch of 2008 look like child’s play.

The euro has been a political project from the outset with Germany knowing full well that some of the countries should never have joined, let alone allowing other countries such as Greece to join later. Some leaders may well have felt this would end up where we are now and if it ultimately means one or several countries leave the euro then this week’s events would have changed the economic landscape of Europe forever.

The market, as you can imagine, have had another rollercoaster ride this week after the initial highs of last week’s deal, to the lows this week of events in both Athens and Cannes. In addition there came yesterdays surprise move by the new ECB President Mario Draghi to cut interest rates in the eurozone by 25 basis points to 1.25 percent as the worsening situation in the eurozone outweighed concerns over inflation. The euro weakened on the back of this news as it took many investors by surprise, but it bounced back by the end of the day’s trading after Mr Papandreou backed down on a referendum in Greece on the bailout plan. High yielding currencies such as the Aussie dollar and the South African Rand traded higher on the surprise rate cut by the ECB as it changed the outlook on interest rate differentials.

The Canadian dollar lost a bit of ground today after Canadian unemployment showed a surprise drop of 54,000, against an expected rise of 12,000. The drop in unemployment was a surprise and boosted the chances of a rate cut by the Bank of Canada in the future. As Sheryl King, Head of Canadian Economics at the Bank of America Merrill Lynch stated, “It is definitely suggesting the economy is slowing……….one or two more of these and there is a strong possibility the bank could start reducing interest rates.”

The greenback on the other hand has had a good week in the currency markets as fears over the eurozone have led many analysts to see more euro weakness in the months ahead as the runaway train that is the eurozone debt crisis seems to gain momentum. The dollar was given a further boost today after U.S. Non Farm payrolls showed an increase of some 80,000 jobs created in the month of October. Although this was below analysts’ expectations, it was enough to push the unemployment rate down to 9%; it’s lowest for six months.

So another week rolls on and still the problems in Europe persist and actually get worse by the day. Even if Greece’s Prime Minister manages to survive a vote of no confidence from the Greek Parliament in Athens later tonight, placates Merkel, Sarkozy and the other leaders who feel he has been a “traitor” to the cause this week and gets his bailout package, it still will not be enough to save Greece as it is only putting off the inevitable – a Greek default and exit from the euro. It is only a matter of when rather than if this will happen, but the reality exists that Italy could be next and if they were to leave the euro one feels that it could spell the beginning of the end for European Monetary Union.

Weekly Market Commentary – Week Ending 28^th October 2011

OVERVIEW

Leaders from the eurozone finally thrashed out a deal to try and contain the 2-year long debt crisis, by getting private banks to finally agree to take 50 percent losses on their Greek government bonds. At one stage it looked like the talks may fail yet again, but after 8 hours of intense negotiations with bankers, the International Monetary Fund, world leaders and central bankers they came to an agreement that will hopefully draw a line in the sand on the eurozone debt crisis and bring financial stability not only to the eurozone but the wider economic community.

The actual terms of the agreement will not be finalized until the end of November but in essence the deal means that the private sector has agreed to accept a 50 percent “haircut” in its bond investment to reduce Greece’s debt burden by 100 billion euro’s, reducing its debt to 120 percent of GDP by 2020. It currently stands at a whopping 160 percent to GDP.

In order to get the banks to accept such high losses on their Greek bonds, the eurozone will offer “credit enhancements” to the tune of 30 billion euro’s and other sweeteners to lessen the blow of the deal. It is hoped that the deal will be signed, sealed and delivered by the end of the year, so that a second financial aid package can be in place for Greece in early 2012.

Not only did they agree to try and reduce Greece’s woes, eurozone leaders also pledged to increase the European Financial Stability Facility from its current €440 billion to €1 trillion. Leaders are hoping that this will be enough to prevent the debt contagion spreading to Italy and Spain, but many still feel that the final bill will be closer to €2 trillion for things to return to some kind of normality in the eurozone.

CURRENCY MARKETS

The financial markets seized on the good news and immediately investors scurried to cover their short euro positions, which had the effect of pushing the euro to almost a 2-month high against the greenback. The dollar on the other hand lost ground against most of the majors as investors used the news as a reason to ditch the safe haven of the dollar for riskier based assets such as carry trades, commodities and equities.

Unlike the euro, sterling weakened on the news as investors still felt that the sluggish UK economy and growth prospects will remain, even if the eurozone does manage to improve its debt ratios over the next few months. This view seemed to be backed up by data out from the Confederation of British Industry which showed UK factory orders fell in October at their fastest rate in 12 months. Likewise in the U.S. a handful of US Federal Reserve members have recently said that more quantitative easing may be required in the future if the U.S. economy and high level of unemployment do not start to show signs of improvement.

However, data out today did give the U.S. economy a boost as Q3 GDP grew at its fastest rate for almost a year as consumers and businesses alike increased spending, which may well continue into the final quarter of the year giving the U.S. economy a well needed boost. U.S. GDP jumped from 1.3 percent for the period April-June, to 2.5 percent for Q3 and was welcome relief to investors who have been waiting a while for some good news to come out of the States.

Commodity driven currencies not only strengthened on the back of the eurozone debt crisis negotiations, but also on news overnight that the Reserve Bank of New Zealand left interest rates at 2.5% and hinted to a rate hike sometime in the near future. In Japan, the yen continued to weaken and hit near record lows against the dollar after the Bank of Japan decided to extend its asset purchase program by 5 trillion yen to some 20 trillion yen ($65.8 billion). As one Japanese trader put it, “This was very predictable and foreign investors may be disappointed that the BoJ did not deliver something else.”

CONCLUSION

So finally Eurozone leaders managed to agree on a roadmap to resolve the debt crisis that has been the main feature of my blogs over the past month. As one reader told asked me this week, “Is this the slowest moving wreck you have ever seen? At least the US acted decisively when it had its own financial crisis after the fall of Lehman’s”. I could not agree more, which is why I think and have always thought that the concept of a single currency and single economic policy in the eurozone is fundamentally flawed as there are too many differences between each country, both culturally and economically. Only yesterday we saw Italian MP’s through punches at each other when discussions overheated regarding the solution of its own debt problems. The problem is though, how would a country leave the euro in an orderly fashion without causing untold problems for the region?  One view written in a report by UBS published in September is it will never happen, as they said the eurozone is like Hotel California “You can check out anytime but you can never leave.”

Weekly Market Commentary – Week Ending 21/10/11

OVERVIEW

The financial markets were still being driven by the ongoing events surrounding the eurozone where they were hoping this Sunday’s meeting of leaders from the 17-nation eurozone would finally deliver a resolute rescue package to prevent a sovereign debt meltdown in their currency zone. Alas, France and Germany once again could not agree on how best to deal with the situation and as a result a second summit has been scheduled for next Wednesday to thrash out how best to tackle the issue of maximizing the European Financial Stability Fund and the reduction of Greece’s debt. The reason for the second summit is twofold, firstly Angela Merkel, Germany’s Chancellor will not have sufficient time before Sunday to gain support required from her own parliament to conclude the talks in Brussels. Secondly, Merkel disagrees with French President Nicolas Sarkozy that it is not in the eurozone’s interests to make wider use of the European Central Bank in leveraging the EFSF bailout fund. Sarkozy argues that this is the best solution in dealing with the crisis that started in Greece, spread to Ireland and now threatens to infect Portugal and Spain.

The ongoing squabbling amongst European leaders has continued to raise eyebrows from other World leaders and as a result, China have had to cancel a summit that was planned for next Tuesday with the EU about how the debt crisis is affecting Europe’s standing in the world. China’s Premier Wen Jiabao called European Council President, Herman Van Rompuy to tell him in no uncertain terms that European leaders need to take concrete action now to put an end to the crisis and stabilize both the euro and financial markets.

CURRENCY MARKETS

In spite of the above the euro has managed to remain fairly robust this week, despite the fact that any concrete decisions on the debt crisis in Europe will not be decided until next Wednesday. The lack of movement likely reflects investor’s unwillingness to commit to increased risk until the outcome of the summit is revealed. German Ifo data out this morning did not provide the boost the euro was hoping, after data showed that German business sentiment fell for a 4^th straight month, indicating Germany’s economy is starting to slow down in a region where it is looked upon to be the driver for European growth.

Sterling has had a tough week in the markets as it has not only had to deal with dovish minutes from the Bank of England, but also sky high inflation numbers for the UK economy. Annual inflation came out higher than forecast at 5.2 percent, adding to worries that the UK economy in set for a long period of high inflation and slow growth, effectively known as “stagflation”. However, there was some respite for sterling yesterday after better than expected retail sales data was posted for September, showing a rise of 0.6% and indicating that UK consumers are still spending even though prices continue to rise.

Across the pond from the UK, U.S. economic data this week has gone relatively unnoticed and had little impact on the greenback as all eyes have been firmly directed towards Europe and its sovereign debt crisis. Against the Canadian dollar the greenback has weakened after data out today showed Canadian annual inflation jumped to 3.2 percent from 3.1 percent in August. This strengthened the loonie as traders now see very little chance of an interest rate cut this year or next.

The difference between Canada’s inflation problems and the UK’s is that Canada’s central bank can increase interest rates to dampen down inflation as it has growth in her economy and consumers will still spend, whereas the UK has stagnant growth and hence pushing up interest rates in the UK to tackle inflation would have the opposite effect of tightening the purse strings of UK consumers making them less likely to spend.

CONCLUSION

So yet another week goes by and the never ending saga that is played out in the eurozone rambles on. A unified agreement must be thrashed out next Wednesday for the financial markets to take some confidence with them into the last quarter of 2011. The agreements that will need to be made are acknowledgement that Greece is bust, followed by strong provisions from European member states to prevent contagion from Greece spreading to other eurozone countries. On top of that it they will also need to agree upon a plan to recapitalize the banks that will be forced to take severe haircuts on the Greek debt they are holding and a commitment to ensure other EU members will not be allowed to fail. Let’s all hope that by the time I write my blog next Friday unity from eurozone members on how to deal with the crisis will have been achieved.

Weekly Market Commentary – Week Ending 14/10/11

 OVERVIEW

The storm clouds continue to gather over the eurozone after the ratings agency, Standard and Poors downgraded Spain’s credit rating on Thursday, causing panic and anxiety amongst investors that a far larger European economy than Greece was heading for economic meltdown. Italy was also in need of some assistance this week as the European Central Bank intervened in the markets in the form of buying bonds to protect Italy’s worsening debt burden. However, Italy’s woes may not stop there as today Italian Prime Minister Silvio Berlusconi and his government face a vote of no confidence, which if successful will raise tensions across the eurozone and weaken the already fragile global economy.

With the above in mind, G20 Finance ministers assemble in Paris today and tomorrow to discuss how best to resolve the crisis which has now been raging for almost 2 years. However, disagreement amongst European leaders and the continuing currency war betweenWashington and Beijingover the value of the Yuan threaten to derail the talks, leaving policymakers very little time to put together a meaningful deal before the G20 Summit of World leaders meets in Cannes next month.

It is highly unlikely that anything concrete will come from the two day meeting as mentioned above, but France and Germany will be firmly placed under the spotlight to ensure a deal is in place by the Cannes meeting. Both countries leaders are being placed under increasing pressure by the US Treasury and the UK government to put regional differences aside and deal with the crisis now.

The United States needs to be careful how much pressure it exerts onto European leaders because it has problems of its own. They are fighting their own war of words with China, after passing a bill this week in the Senate that would allow the U.S. to impose import tariffs from countries with undervalued currencies. China, as you can imagine, was fuming and stated that this bill will create a trade war and protectionist policies that could lead to another drying up of credit that we saw in 2008 and in the Great Depression of 1930’s.

CURRENCY MARKETS

In the currency markets we saw the euro rally this week some 5% from last week’s 9-month lows against the greenback before falling back yesterday against both the dollar and yen as investors decided to take profit ahead of the talks this weekend in Paris. Investors were also spooked yesterday when the ECB released a statement declaring that the euro could plummet in the near future if eurozone leaders forced private investors to accept losses on government debt as part of the plan to deal with the debt crisis inEurope.

As you may have seen over the past few weeks the dollar has strengthened against a basket of currencies as investors sought the safe haven of the greenback, selling riskier assets due to the pressures facing the global economy. Overnight however, the dollar was sold off slightly after better than expected weekly jobless claims, a narrowing of the U.S. trade deficit (down -$45.63bln to -$45.61bln) and encouraging news out of China that consumer price inflation had eased, gave investors the opportunity to invest in riskier assets. However, do not be fooled by this bit of good news as any negative rhetoric from European Finance ministers over the next 48 hours or a weaker than expected U.S. retail sales number due out today could easily shift market sentiment back the other way.

The Canadian dollar pushed higher during the first half of this week when it did seem as though European leaders were finally starting to agree on a rescue plan for the eurozone, which led investors to buy back into commodities and riskier assets, pushing the loonie to a high against the U.S. dollar not seen since late September. However, later in the week the Canadian dollar lost some of its gains as commodity prices declined slightly after recent rallies and trade data out from China indicated towards a decline in global growth.

CONCLUSION

All eyes will now be firmly focused on Paris for the next 48 hours to see if European Finance ministers can set aside their regional differences and decide on a cohesive rescue package to put an end to the crisis engulfing so many of the Euro member states. It led Canadian Prime Minister Stephen Harper to call upon European leaders and the G20 economies to act “quickly and decisively” to avoid the global economy falling back into recession. As he said, “The good news is that the crisis can still be contained and reversed. The bad news is that, unless decisive action is urgently taken, our nations will once again be forced to respond to a full blown global recession, albeit this time without the full arsenal of policy weapons at our disposal.”

On that cheery note I wish you all a pleasant weekend.

OVERVIEW

All eyes this week were clearly focused again on the ever mounting Euro debt Crisis and the challenges the Euro zone faces over Greece. Earlier in the week cracks seemed to be appearing in the shaky consensus around rescue efforts for the euro zone and about how much money should be set aside to help deal with the huge debt pile in Europe. After last weekend’s talks at the IMF and World Bank meeting in Washington, it became clear that the current €440 billion set aside for the European Financial Stability Fund fell way short of what was needed. The figure agreed to be set aside was closer to €2 trillion and both UK Chancellor George Osborne and US Treasury Secretary Tim Geithner, urged Europe “to get on with it” and find a rescue plan to prevent not only the euro zone, but the whole global economy spiraling out of control.

Fortunately for Greece and the rest of the world, at a meeting this week, Germany’s parliament got approval of new powers for Europe’s bailout fund in order to increase the size of the fund to the €2 trillion. The news did give the euro and the equity markets some respite, but it was short lived as fears the global economy is slowing and the debt crisis will spiral out of control caused many investors to cut bets on risky assets and flee to the safe haven of the greenback, Swiss franc and gold at the quarter end.

The continued problems in Europe over the past few months have contributed heavily to the biggest drop in the MSCI world equity index falling more than 16% over the past quarter, the largest fall since the last three months of 2008.

Asia has not escaped the “European Problem” as Asian equities staged their worst monthly performance since the fall of Lehman’s in October 2008. China’s benchmark stock index stacked up acute losses amid fears of a property market correction, which is a clear indication that the problems in the euro zone are starting to impact the rest of the global economy.

CURRENCY MARKETS

The euro continued to fall this week against both the dollar and the yen, down to lows last seen in January and 2001, respectively. Overnight it was sold off again on doubts over the solidity of a strengthened euro zone bailout fund, leaving the euro on track for its biggest monthly fall in over 10 months.

The worry for the euro is that although the German parliament agreed to the extra powers to raise the EFSF, comments from Germany’s economy minister stated that the lower parliament seemed unwilling to approve higher limits, wiping out all the gains the euro had made on Thursday when lawmakers voted to approve bolstering the size of the fund.

The dollar continued to make gains last week, rising against a basket of currencies, raising its trade-weighted index 0.3 percent to 78.255. The rise in the dollar has much to do with month-end and quarter-end demand, as analysts saw a need for investors to buy the dollar against the yen, pound, and Aussie and Canadian currencies for adjustment purposes.

It is also interesting to note that the commodity driven currencies such as the Aussie, Kiwi and Canadian dollar have all suffered losses this week due to varying reasons. The New Zealand fell yesterday almost 1% to a six-month low, when Standard and Poor’s followed Fitch ratings in downgrading the country’s sovereign debt by one notch.

The Canadian dollar did not fare much better and was trading at a one-year low against the U.S. dollar as investors shied away from riskier assets by buying U.S. dollar-denominated assets. The loonie, (the Canadian dollar’s nickname in the markets) has fallen 2.2% over the last three months among a basket of currencies as the worry over the euro zone debt crisis and slowdown in global economy has bought risk aversion to the forefront of most investor’s current strategy.

CONCLUSION

I wish I could paint a rosier picture than the one I have been painting over the past few weeks, but until the euro zone countries get to grips with the debt crisis facing them it is hard to see how growth can be stimulated in the global arena. The crisis not only threatens to destabilise the global economy but the very existence of the Euro. The laissez-faire attitude to the crisis by many European leaders has contributed to the fear of contagion and confusion across the region, which has increased to an epic scale. This is what makes Europe’s crisis so worrying and more importantly, so very very difficult to treat.