Forex Investment and Currency Trading

BoA EPS better than expected $0.72 vs. consensus $0.54. Bank of America Corporation today reported second-quarter 2008 net income of $3.41 billion, down from a record $5.76 billion a year earlier. Diluted earnings per share decreased 44 percent to $0.72 from $1.28 in the same period in 2007. Net revenue rose to a record $20.32 billion. Earnings available to common shareholders totaled $3.22 billion. “We are pleased with these solid results in a difficult financial environment,” said Kenneth D. Lewis, chairman and chief executive officer. “Outside of real estate-related products, our operating results were quite good virtually across all business segments. This performance demonstrates not only the advantages of our company’s diversity and scale, but also the ability of our associates to differentiate Bank of America in the eyes of customers and clients.”

WSJ : FDIC Faces Mortgage Mess After Running Failed Bank - Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn’t afford them. It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them  predatory, according to government documents filed in federal court. The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill. Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank’s subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data.

Trading Strategy - Global equities finally bounced last week as financials came back from the doldrums (XLF up 13% on the week) and oil prices dropped (WTI down 11% on the week). In FX, carry trades came back. Finally, a number of EM central banks stepped further on the brakes. In the Philippines the central bank delivered A 50bp hike (more than expected) and in Mexico the central bank delivered another 25bp hike (on the high side of expectations) and in Turkey the central bank delivered 50bp (as expected). The trend towards tighter monetary policy in EM is starting to have an impact on FX trends.  Meanwhile, MXN and BRL have continued to trade to new highs.

This week, the most important data are European activity indicators. We have seen a clear moderation in Eurozone PMIs and hard data over the last two months. It is important whether the deterioration continues or not. Market expects the IFO (Thu) to come down a point to 100.5 (consensus has 100). Market expects the French INSEE (Thu) to come down 2 points to 100 (in line with consensus). There are also data release for the Flash PMI (Thu), French consumption data for June (Wed), and Euroland Manufacturing orders (Wed). The tone of all these releases will likely affect ECB views (as implied by market pricing), but also risk sentiment more broadly.

In the US this week, there is durable goods for June (Fri), but any news on inflation sentiment may be more important, especially after last week’s higher than expected core CPI (+0.3% mom). The Umich inflation expectations survey (Fri) is worth a look as usual, and Fed speakers may also clarify how concerned the Fed is about upside inflation risk. As for the Dollar, it looks like it’s firmly in a range for now, and Friday’s IMM data, which suddenly showed a big $ short in place, supports the idea that an upside break in EUR/$ will be tough in the near-term.