Commodity Currencies get the Blowtorch Treatment, FTSE Falls

AUDUSD was punished in Asia Tuesday 25 May as commodity-driven currencies get a thrashing.

The Wall Street Journal mentions the Euro could be an attractive funding currency for the carry trade going forward. The ECBs decision to buy goverment bonds of weak eurozone countries has increased doubts of the eurozone itself.

FTSE falls 3% in seconds over Korea tensions and Eurozone debt fears. Last week FTSE fell below the 5000 barrier.

Commodities and Commodity Currencies Crushed

Platinum and palladium fell in a sharp round of profit-taking, coinciding with the crazed assault on the Euro in the FX markets and corresponding "crashing" of commodity currencies.

Platinum dropped to a low of $1500 before reaching $1530 on the rebound.

As an aside, an interest in chemistry is essential to the commodity investor.

Platinum has the symbol Pt and its name derives from the Spanish phrase "platina del pinto" ("little Silver of the Pinto River"). Platinum is used in catalytic convertors (which reduce the toxicity of emissions from internal combustion engines e.g. evil nitrous oxides).

Eurozone Concerns: Bafin's Ban and its Implications for the FX and the Eurozone

Euro setting new lows, falling further (1.2163) as Germany bans short-selling - reason given was bond volatility and also widening of credit spreads. Bafin's (German regulator) doesn't German firms in the UK (e.g. Deutsche Bank London won't be affected according to the WSJ).

But what did the short-selling ban really mean? It covered shares, mainly of financial companies (e.g. Allianz), but not futures or long puts (arguably insurance, rather than short-selling). It also covered naked short-selling of euro-zone country debt, and naked sovereign CDS for Eurozone i.e. not for hedging of default risk.

Note to the curious: the Ba in BaFin stands for Bundesanstalt (Federal Agency) and Fin stands for Finanzdienstleistungsaufsicht (Finanicial Services Supervision).

S&P Drops almost 9% in "Flash Crash"

S&P 500 dropped almost 9% on Thursday 6 May (birthday of Nehru) with fears that a trading error could be to blame. According to the FT, this led to the wipeout of billions from portfolios. BlueTrend ($10bn computer-driven fund) dropped 7.57% in 1st week of May, AHL $20bn dropped 3.3%. Renaissance fell 3.6%. Quant funds didn't actually do as bad as some long-short equity funds. $2.2bn Odey European fund fell 8.68%. added to "flash crash" is uncertainty over the EU's 750bn EUR bail-out package.

Aide à la Grèce

The ECB (or "la BCE" in France) has agreed to bailout Greece.

Repo 105

"Repo 105" was an accounting trick Lehman allegedly used to temporarily boost its Balance Sheet. Fuld denies all knowledge.