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Currency Trading at $5 Trillion a Day Surpassed Pre-Lehman High, BIS Says

By Anchalee Worrachate and David Goodman.

Currency trading may have risen to a record $5 trillion a day in September, surpassing the peak reached before Lehman Brothers (LEHMQ) Holdings Inc.'s collapse in 2008, according to the Bank for International Settlements.

Trading then declined to about $4.7 trillion a day in October and is likely to have fallen considerably in early 2012, the Basel, Switzerland-based bank said in a report. The BIS said it derived its estimates from supplementing the data in its foreign-exchange survey, which is undertaken every three years, with information collected from central banks and electronic- trading platforms.

The surveys found currency trading kept increasing in the first year of the financial crisis, climbing to about $4.5 trillion a day in September 2008, shortly before Lehman's collapse, Morten Bech, a senior economist at the BIS, wrote in the research paper. Average daily trading volume then plunged to $3 trillion in April 2009, he wrote.

"By mid-2009, global foreign-exchange activity had started to pick up again and it rose to $4 trillion a day in April 2010," Bech wrote. "Our measure shows the foreign-exchange activity may have reached $5 trillion a day in September 2011, before dropping off considerably by the end of the year."
Trading Surges

Foreign-exchange trading has surged as central banks including the Federal Reserve flooded markets with cash to combat the global financial crisis. Japan intervened to help its exporters after a record earthquake and tsunami a year ago, while the Swiss central bank imposed a cap to stem franc strength in September. Efforts to boost growth by protecting exports started a "currency war," Brazil Finance Minister Guido Mantega said in September 2010.

The dollar traded at $1.3109 per euro at 8:42 a.m. in London, up 0.1 percent from last week. The greenback slid 0.3 percent to 82.24 yen after rising to 82.65 on March 9, the strongest since April 27.

Bech said the recent data showed London remained the center with the highest volume of foreign-exchange trading, followed by New York.

"The turnover in the United Kingdom dwarfs that of any other market center," he wrote. "At slightly over $2 trillion per day in April 20111, its reported volume was larger than the other surveyed markets put together."
Volatility

Implied volatility of three-month options on Group of Seven currencies as tracked by the JPMorgan G7 Volatility Index (JPMVXYG7) climbed to 26.6 percent on Oct. 24, 2008, the most since Bloomberg began compiling the data in 1992. The gauge reached a 15-month high of 15.8 percent on Sept. 23 before falling to as low as 9.71 on Feb. 24.

A lower figure makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.

The BIS report differs from its triennial currency survey, with the next one scheduled for April 2013. In the previous survey published in September 2010, it said the average daily trading volume increased 20 percent from 2007 to $4 trillion.

The BIS supplemented its survey data with information taken from central-bank sponsored industry groups in the U.K., North America, Canada, Singapore, Japan and Australia. It also took data from electronic-trading systems operated by EBS and Thomson Reuters, Hotspot FX and the Chicago Mercantile Exchange.

The BIS also used data from CLS Bank, the New York-based operator of the largest currency-trading settlement system. CLS handled an average of $4.5 trillion per day in 2011, compared with $2 trillion in early 2005, according to the BIS report.

"While good and timely data are available on prices of foreign-exchange instruments, the same is not true for trading activity," Bech wrote. "In this article, I show how it is possible to leverage alternative sources of FX activity to obtain a timelier grasp of turnover developments."

The BIS was formed in 1930 and acts as a central bank for the world's monetary authorities. It has published the triennial survey since 1989.

UPDATE 1-Nokia to shut Indian mobile money service

March 12 (Reuters) - Nokia will close down Nokia Money, a financial service it runs in India, as it continues to narrow its focus on its phone business and location-based services.

"The mobile financial services business is not core to Nokia so we plan to exit the business," said a spokesman for the company.

After regional launches Nokia opened the India-wide service only late last year and was planning to expand it into several other emerging markets.

Financial services are seen as one of the major business opportunities in the wireless industry but so far have become a big business only in Kenya and the Philippines, as tight regulations and the lack of a business model have restricted take-up elsewhere.

Telecom operators, banks, credit card companies and technology firms like Nokia have been fighting to get a piece of the potentially lucrative business.

"The market is crowded and the role of Nokia in that business was questionable," said John Strand, head of mobile consultancy Strand Consult.

Nokia is in the midst of revamping its operations under Chief Executive Stephen Elop, who was hired in September 2010 to turn the company round.

The company has closed down most of the mobile services launched under previous management and has also cut thousands of jobs as it continues to battle falls in its market share. (Reporting by Tarmo Virki; Editing by David Holmes, Greg Mahlich)

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China Slowdown May Portend Easing as Asia Considers Options for Stimulus

By loomberg News.

China's economic growth slowed in the first two months of the year, with both exports and domestic demand moderating faster than analysts had forecast, building the case for Premier Wen Jiabao to accelerate stimulus measures.

The world's second-largest economy had the biggest trade deficit last month in at least 22 years, the weakest January- February factory-production gain since 2009 and retail sales below the median economist estimate, government data showed March 9 and 10.

Central bank Governor Zhou Xiaochuan said today that the nation has large scope in theory for lowering banks' reserve requirements, and the yuan tumbled after officials weakened the reference rate. Moderating inflation and Europe's faltering export demand may encourage the government to loosen credit and pause on currency gains, with the yuan down 0.5 percent this year against the dollar after climbing 4.5 percent in 2011.

"We are likely to see another cut sometime soon" in the required-reserves ratio, Brian Jackson, a Hong Kong-based economist with Royal Bank of Canada, said in a Bloomberg Television interview. "If you look at the January and February numbers combined, whether it's trade, whether it's industrial production, it all shows a pretty clear picture of things continuing to slow down since the start of the year."

The yuan fell 0.2 percent to 6.3239 as of 12:11 p.m. in Shanghai, the biggest decline since Jan. 20, after the central bank weakened the daily reference rate by the most since August 2010. The MSCI Asia Pacific index of stocks fell 0.6 percent as of 2:20 p.m. in Tokyo.
Vietnam Cuts Rates

In Asia, officials are weighing the need to preserve firepower for any deterioration in Europe with controlling inflation. Vietnam cut benchmark rates today, reducing the refinancing rate to 14 percent from 15 percent. India last week unexpectedly reduced its cash reserve ratio and Australia's central bank said it has scope to lower rates, while South Korea and Indonesia held off from stimulus.

Speaking at a briefing in Beijing as part of the annual meeting of the National People's Congress, Zhou said changes in capital flows and foreign-exchange reserves were key factors in decisions on bank reserve ratios, cut in February for the second time in three months. He said that such reductions were not an indication of policy loosening.

In a statement, the central bank reaffirmed a "prudent" monetary policy, to be fine-tuned as needed, and said "new ideas" will be used in managing the world's largest foreign- currency reserves of $3.18 trillion.
European Data

Stocks around the world rallied at the end of last week as Greece's private creditors agreed to a debt swap, the U.S. reported job growth that exceeded forecasts and China's data spurred talk of new stimulus. The U.S. Standard & Poor's 500 Index gained 0.4 percent on March 9.

In Asia, a Malaysian report today may show that industrial production growth slowed in January, according to the median estimate in a Bloomberg survey of economists, while Japan reported better-than-estimated machinery orders for January.

In Europe, Italy may report today that gross domestic product shrank 0.7 percent last quarter from the previous three- month period, confirming a preliminary estimate, according to another survey of analysts. In the U.S., the Treasury Department may say the government's budget deficit widened in February.

China will keep the exchange rate "basically stable at an appropriate and balanced level," Wen, 69, said in the opening speech to the National People's Congress on March 5. He announced an economic-growth target for 2012 of 7.5 percent, down from the 8 percent goal in place since 2005.

Appreciation in the yuan will be "difficult," said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd., who previously worked for the International Monetary Fund and European Central Bank.
Rate, Ratio Cuts

Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, is forecasting an interest-rate reduction this month and lower reserve requirements starting in April.

Zhou, 64, said inflation-adjusted interest rates may remain negative for some time and that a too-rapid increase in the benchmark one-year deposit interest rate, now at 3.5 percent, would lead to large capital inflows, given that "some developed countries are implementing very loose monetary policy and global liquidity is quite ample."

He didn't discuss how so-called real interest rates turned positive for the first time in more than two years with last week's report of 3.2 percent inflation in February.

In China, the February trade shortfall of $31.5 billion reported March 10 by the customs bureau in Beijing was the first in a year and four times the size of the previous largest deficit. Exports (CNFREXPY) rose 18.4 percent from a year earlier, while imports gained 39.6 percent.
No Conclusions

Zhou cautioned against making any conclusions from the deficit, saying trade has seasonal distortions at the beginning or end of the year. "We may need a relatively long time to observe it," he told reporters.

Data in the first two months are distorted by the timing of a Lunar New Year holiday, which fell in January this year and February in 2011. Analysts forecast a 31.1 percent increase in overseas sales and a 31.8 percent rise in inbound shipments, according to the median estimates in Bloomberg News surveys.

The rise in China's consumer prices in February was the least in 20 months. Industrial production gained 11.4 percent in January and February, less than forecast.

Retail sales rose 14.7 percent in the first two months from a year earlier, below the median economist estimate of 17.6 percent. New local-currency loans in February were 710.7 billion yuan ($113 billion), the People's Bank of China said March 9, lagging behind the median forecast of 750 billion yuan.
'Timely' Adjustments

Wen, in his work report to lawmakers last week, said the government will "carry out timely and appropriate anticipatory adjustments and fine-tuning" of fiscal and monetary policies.

Suntech Power Holdings Co., the largest maker of solar panels, said increased competition and government subsidy cuts will lead to a first-quarter drop in shipments, according to a statement March 8 from the Wuxi, China-based company. Deliveries in the first quarter will decline by about 30 percent from the fourth quarter, it said.

"Clearly, exports are still not strong enough to shore up 8 percent to 9 percent growth for China," said Ken Peng, a Beijing-based economist at BNP Paribas SA. "More policy support is necessary in coming months to ensure sufficient funding for investment."

--Zheng Lifei and Li Yanping in Beijing, with assistance from Shamim Adam in Singapore. Editor: Paul Panckhurst

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Stocks Drop for First Time Four Days as Commodities Decline on China Trade

By Lynn Thomasson and Jacob Adelman.

Stocks (MXWO) fell for the first time in four days, commodities slid and the yuan weakened after Chinese exports grew at a slower pace than forecast. Indian shares advanced as the central bank unexpectedly cut reserve requirements for banks.

The MSCI All-Country World Index (MXWD) dropped 0.2 percent as of 8:06 a.m. in London. The Stoxx Europe 600 Index lost 0.2 percent and Standard & Poor's 500 Index futures slipped 0.2 percent. The yuan fell after China's central bank weakened its daily fixing for the currency by the most since August 2010. Yields on German 10-year bonds fell two basis points to 1.78 percent. The S&P GSCI gauge of 24 commodities lost 0.4 percent, led by natural gas and silver.

China reported the biggest trade deficit in at least 22 years on March 10, adding to data last week on factory output and retail sales that signaled slowing economic growth. European finance ministers will meet in Brussels today to sign off on the 130 billion-euro ($170 billion) aid package for Greece and discuss Spain's budget-cutting efforts.

"All the economic data point to a slowing trend" in China, said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. "Investors are expecting the government to loosen monetary policy, though whether the government moves fast enough to satisfy those expectations remains to be seen."
Reserve-Ratio Cut

The BSE India Sensitive Index, or Sensex, gained 0.5 percent after the central bank on March 9 reduced the amount of deposits lenders need to set aside as reserves to ease a cash squeeze in the banking system. Australia's S&P/ASX 200 Index slipped 0.4 percent and South Korea's Kospi Index (KOSPI) lost 0.8 percent.

The MSCI Asia-Pacific gauge slid 1 percent last week, ending a record run of 11 weekly advances. The valuation for the equity benchmark reached 15 times estimated earnings in February, the highest level in almost two years, according to data compiled by Bloomberg.

The Hang Seng China Enterprises Index (HSCEI) declined 0.3 percent and the Shanghai Composite Index fell 0.2 percent. Chinese Premier Wen Jiabao will close an annual gathering of the legislature this week. The nation cut its 2012 economic growth target to 7.5 percent on March 5, down from 8 percent over the past seven years.
China Exports

Exports from China rose 18.4 percent last month from a year earlier, while imports gained 39.6 percent. Analysts forecast a 31.1 percent increase in overseas sales and that inbound shipments would rise 31.8 percent, based on estimates from Bloomberg News surveys.

China Railway Group Ltd. (390), the country's biggest builder of train lines, tumbled 5.4 percent in Hong Kong. A 300-meter section of an unopened high-speed railway collapsed in central China's Hubei province following heavy rains, Xinhua News said, citing local authorities.

The yuan lost 0.22 percent to 6.3245 per dollar for the biggest drop since January. The daily reference rate was set 0.33 percent lower at 6.3282 per dollar. The currency can move 0.5 percent either side of the fixing.

Brent oil for April settlement slid 0.5 percent to $125.39 a barrel on the London-based ICE Futures Europe exchange. Hedge funds reduced bullish bets on oil for the first time in five weeks as concern about a conflict with Iran decreased. Large speculators cut wagers on rising prices by 7.3 percent in the week ended March 6, according to the Commodity Futures Trading Commission.
Oil, Cotton

"The data from China is a downside pressure on the oil market," said Ken Hasegawa, a commodity-derivative sales manager at Newedge Group in Tokyo. "The trade deficit is much bigger than expected."

Cotton futures dropped as much as 0.9 percent to 88.01 cents a pound in New York. India, the world's second-biggest cotton producer, scrapped a one-week-old ban on exports of the fiber after protests from growers, traders and China, the nation's largest customer.

The cost of insuring bonds against non-payment in Asia rose, according to credit-default swap traders. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased 2 basis points to 159 basis points, Barclays Plc prices show. The measure is headed for its highest close since March 7, according to data provider CMA.

Yields on Australia's 10-year government bonds declined nine basis points to 3.92 percent. Ten-year Treasury yields fell one basis point to 2.01 percent.

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