Dollar hits record low vs euro, subprime weighs

The dollar hit a record low against the euro on Monday and more than 20-year lows versus sterling and the New Zealand dollar on worries that problems in the U.S. subprime mortgage sector may trickle into the broader economy.
The yen zigzagged, recovering from a record low hit against the euro in early trading, and touched a six-week peak against the dollar of 120.80 yen on electronic trading platform EBS as some traders unwound risky carry trades.
But in the end, much of the yen's gains were short-lived, as the high-yielding currencies of Australia, Canada and New Zealand as well as sterling continued to climb on the belief that rates in those countries will keep rising.
The yen had rallied on Friday, when a fall in U.S. equities dampened investors' appetite for risk, prompting an unwinding carry trades, which involve selling low-yielding currencies such as the yen to invest in higher-yielding currencies and assets.
But traders said further gains may be difficult as investors continue to chase higher yields, and that the dollar remained well supported around the technically crucial 120.70 yen level. "If there's further risk reduction, we could see (the 120.70 yen level) taken out, but if not, we could see bets placed on dollar/yen again," said Sean McGoldrick, head of forex trading at Morgan Stanley in Tokyo.
"Global risk appetite will determine where dollar/yen is going at the moment."



The euro inched up 0.1 percent to $1.3840, hovering near a record high of $1.3846 struck earlier on Monday on EBS.
The New Zealand dollar climbed as high as 80.13 U.S. cents, its strongest level since the country floated the currency in 1985, as investors expect the Reserve Bank of New Zealand to lift its cash rate to 8.25 percent on Thursday.
Sterling climbed to a 26-year high of $2.0604 as many investors expect that the Bank of England will lift rates to 6.0 percent by year-end from 5.75 percent at the moment.
Defaults on subprime mortgages, made to borrowers with weak credit, and mounting losses on bonds backed by such debt have rattled financial markets and soured general dollar sentiment.
The euro fell around 0.25 percent to 167.25 yen, having pared gains after surging to a record high of 169.05 yen on EBS early on Monday.
YEN ZIGZAGS
The dollar fell 0.30 percent to 120.85 yen, holding near a six-week low. The dollar had jumped to around 122.20 yen in early Asian trading, only to give up those gains.
"It seems like there is some risk reduction taking place, I guess some unwinding of yen carry trades," said Yuji Matsuura, joing general manager for Aozora Bank's forex and derivatives trading group.
Traders said the yen's initial slide may have partly been due to newspaper polls published on Monday that showed that Japanese Prime Minister Shinzo Abe's ruling camp looked set to lose a July 29 upper house election after falling further behind the opposition. For details, click on [ID:nT147358]
Some market participants said that the yen may come under more selling pressure this week, particularly if the market regains its appetite for risky trades.
McGoldrick at Morgan Stanley said that a poor showing by Abe's coalition in this week's election, coupled with ongoing yen-selling demand from retail investors, may push the dollar/yen towards 124 yen by the end of the month.
Short covering on Monday initially boosted the yen against high-yielding currencies like sterling, and the Australian and New Zealand dollars, but the low-yielding yen remained weak after hitting its lowest level in as many as 21 years against those currencies late last week.
The currency matching system of news and information provider Reuters Group Plc suffered a temporary outage on Monday, forcing some traders to switch to alternative venues or trade over the phone. [IDnSP176161]
The outage hobbled trading in currencies primarily traded over the Reuters platform for much of the Asian session, affecting trades in sterling, and the Australian, New Zealand and Canadian dollars. (Additional reporting by Masayuki Kitano)

A few benchmarks for stocks - A quick and easy measuring stick.

These are a few benchmarks that can help you decide if you should spend more time on a stock or not. They are easily available and can be of great use in screening good stocks.

Revenues/Sales growth.
Revenues are how much the company has sold over a given period. Sales are the direct performance indicators for companies. The rate of growth of sales over the previous years indicates the forward momentum of the company, which will have a positive impact on the stock's valuation.

Bottom line growth
The bottom-line is the net profit of a company. The growth in net profit indicates the attractiveness of the stock. The expected growth rate might differ from industry to industry. For instance, the IT sector's growth in bottom-line could be as high as 65-70% from the previous years whereas for the old economy stocks the range could be anywhere in range of 10- 15%.

ROI - Return on Investment
ROI in layman terms is the return on capital invested in business i.e. if you invest Rs 1 crore in men, machines, land and material to generate 25 lakhs of net profit , then the ROI is 25%. Again the expected ROI by market analysts could differ form industry to industry. For the software industry it could be as high as 35-40%, whereas for a capital intensive industry it could be just 10-15%.

Volume
Many investors look at the volume of shares traded on a day in comparison with the average daily volume. The investor gets an insight of how active the stock was on a certain day as compared with previous days. When major news are announced, a stock can trade tens of times its average daily volume.
Volume is also an indicator of the liquidity in a stock. Highly liquid stocks can be traded in large batches with low transaction costs. Illiquid stocks trade infrequently and large sales often cause the price to rise/fall dramatically. Illiquid stocks tend to carry large spreads i.e. the difference between the buying price and the selling price. Volume is a key way to measure supply and demand, and is often the primary indicator of a new price trend. When a stock moves up in price on unusually high volumes it could indicate that big institutional investors are accumulating the stock. When a stock moves down in price on unusually heavy volume, major selling could be the reason.

Market Capitalization.
This is the current market value of the company's shares. Market value is the total number of shares multiplied by the current price of each share. This would indicate the sheer size of the company, it's stocks' liquidity etc.

Company management
The quality of the top management is the most important of all resources that a company has access to. An investor has to make a careful assessment of the competence of the company management as evidenced by the dynamism and vision. Finally, the results are the single most important barometer of the company's management. If the company's board includes certain directors who are well known for their efficiency, honesty and integrity and are associated with other companies of proven excellence, an investor can consider it as favourable. Among the directors the MD (Managing Director) is the most important person. It is essential to know whether the MD is a person of proven competence.

PSR (Price-to-Sales Ratio)
This is the number you want below 3, and preferably below 1. This measures a company's stock price against the sales per share. Studies have shown that a PSR above 3 almost guarantees a loss while those below 1 give you a much better chance of success.

Return on Equity
Supposedly Warren Buffet's favorite number, this measures how much your investment is actually earning. Around 20% is considered good.

Debt-to-Equity Ratio
This measures how much debt a company has compared to the equity. The debt-to-equity ratio is arrived by dividing the total debt of the company with the equity capital. You're looking for a very low number here, not necessarily zero, but less than .5. If you see it at 1, then the company is still okay. A D/E ratio of more than 2 or greater is risky. It means that the company has a high interest burden, which will eventually affect the bottom-line. Not all debt is bad if used prudently. If interest payments are using only a small portion of the company's revenues, then the company is better off by employing debt pushing growth. Also note capital intensive industries build on a higher Debt/Equity ratio, hence this tool is not a right parameter in such cases.

Beta
The Beta factor measures how volatile a stock is when compared with an index. The higher the beta, the more volatile the stock is. (A negative beta means that the stock moves inversely to the market so when the index rises the stock goes down and vice versa).

Earnings Per Share (EPS)
This ratio determines what the company is earning for every share. For many investors, earnings is the most important tool. EPS is calculated by dividing the earnings (net profit) by the total number of equity shares. Thus, if AB ltd has 2 crore shares and has earned Rs 4 crore in the past 12 months, it has an EPS of Rs 2. EPS Rating factors the long-term and short-term earnings growth of a company as compared with other firms in the segment. Take the last two quarters of earnings-per-share increase and combine that with the three-to-five-year earnings growth rate. Then compare this number for a company to all other companies in your watch list within each sector and rate the results on how it outperforms all other companies in your watch list in terms of earnings growth. Its advisable to invest in stocks that rank in the top 20% of companies in your watch list. This is based on the assumption that your portfolio of stocks in the "Watch List" have been selected by using some basic screening tools so as to include the best of the stocks as perceived and authenticated by the screening tools that you had used.

Price / Earnings Ratio (P/E).

Read about this most important investor tool in the next part of this module.

BSE, NSE ride the bulls on higher turnover

The bullish market has benefited not only stock brokers and investors, but also stock exchanges, thanks to rising turnover.

There has been a significant improvement in turnover at the country’s leading stock exchanges — BSE and NSE — in the run-up to record high of 14,964 scaled on Friday. Brokers said the higher turnover was due to the rise in share prices as well as a huge contribution from new listings. With this, valuations of stock exchanges are expected to improve as the rising turnover will reflect positively in their balance sheet. Their revenue from transaction charges will go up substantially, adding to their income and profitability, say brokers.

With foreign investors picking up stakes in exchanges, the original institutional shareholders have seen the value of their holding surging. In possible secondary market deals, local financial institutions like ICICI Bank will be in a position to sell stakes at a substantial premium.

The NSE, which enjoys bigger market share among the two premier stock exchanges, has recorded daily average turnover of Rs 11,350 crore in the cash segment in the current month so far (till July 5), compared to Rs 9,221 crore in June and Rs 9,885 crore in May. Trading volumes improved to 47.9 crore shares from 37.9 crore and 46.6 crore, respectively. The hectic activity in derivatives (F&O) segment will prove to be an added advantage to the NSE, which enjoys almost the entire share in this market.

Turnover on the BSE shot up to Rs 5,353 crore, from Rs 4,537 crore and Rs 4,706 crore, while volumes rose to 30 crore shares, compared to 24.7 crore and 27.4 crore, respectively. High-profile new listings like DLF and Vishal Retail emerged as turnover toppers on the bourses.

Realty giant DLF, which was listed on Thursday, attracted a huge turnover of Rs 1,905 crore, while a total of 3.4 crore shares changed hands on the BSE. Debuted on Wednesday, Vishal Retail attracted volumes of 1.1 crore shares, which were worth Rs 854 crore.

Since turnover at the two stock exchanges was boosted by the initial frenzy in DLF and Vishal Retail, brokers feel there may be some correction in the trend as the euphoria eases in coming days. The two stocks, in fact, saw significantly lower turnover of Rs 318 crore and Rs 495 crore on Friday.

Euro at high vs. dollar amid subprime worries
NEW YORK (MarketWatch) -- The euro hit a new high against the dollar on Tuesday, topping $1.37 amid concerns that problems in the subprime mortgage loan sector would spread to other parts of the U.S. economy.
Investor perception that official interest rates in other major industrialized nations, already on the rise in some places, would go even higher added to dollar weakness.
The euro has set records against some of its major counterparts this week, reaching a new high Monday against the yen at 168.51 yen. The strength of the euro zone economy compared with the U.S. and increased speculative flows have helped boost demand for the euro in recent weeks.
The euro was up 0.7% at $1.3717. The dollar was down 0.9% against the yen at 122.12 yen. The British pound was up 0.5% at $2.0255.
"The primary catalyst could be concern about subprime troubles in the U.S. and poor earnings from Home Depot and Sears," said Mike Malpede, senior currency analyst at Man Global Research in Chicago.
Home Depot said Tuesday that it expects adjusted earnings per share for the year to drop between 15% and 18%, compared to an earlier forecast it had made for a decline of 15%. See full story.
"I think that there's a concern that the subprime situation may be spreading, which is forcing bond yields down," Malpede added. "Lower bond yields are fueling the [euro's] rally."
Rating agency Standard & Poor's said Tuesday that it might downgrade $12 billion of residential mortgage-backed securities, or RMBS.
S&P said it is changing the way it evaluates subprime RMBS, partly because of unprecedented levels of misrepresentation and fraud, combined with potentially shoddy loan data. See full story.
The concerns about spreading problems in the subprime sector could mute foreign investor enthusiasm for U.S. high-yield bonds and other debt products, which could keep pressure on U.S. yields, said David Solin, a partner at Foreign Exchange Analytics.
Investors should expect less foreign investment going forward because of a "global rethink of the credit quality of buying highly leveraged, high-yielding debt instruments," Solin said.
Ronald Simpson, senior currency strategist for Action Economics, said that the S&P's move "resulted in a kind of safe-haven buying of U.S. treasuries, sending U.S. yields even lower."
The S&P announcement also worsened ongoing concern about the difference between interest rates in other Group of Seven industrialized economies, which are on the rise, and those in the United States, Simpson said. The European Central Bank, the Bank of England and the Bank of Canada all have announced or hinted at rate hikes recently.
Meanwhile, Federal Reserve Chairman Ben Bernanke failed to mention anything related to inflation policy in a Tuesday speech hosted by the National Bureau of Economic Research. The dollar moved little after Bernanke's remarks. See full story.
"That might have been somewhat of a disappointment to the financial markets," said Man Global Research's Malpede. "Some people seem to think he had a hawkish bent on inflation outlook, but [the speech] was mainly an academic analysis of inflation."
Investors had watched the speech closely for language that gave hints about the Fed's view of inflation in the U.S. economy.
"Bernanke is not Alan Greenspan," Solin said. "He doesn't use public or private meetings to grab the ring nose of the bond market."