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Forex defies Wall Street gloom - Views on News from Equitymaster
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  • Dec 23, 2008

    Forex defies Wall Street gloom

    Alternative routes to limiting layoffs
    The biggest financial crisis since the Great Depression has spurned several layoffs across industries around the world with the developed nations facing the maximum heat. But in an effort to minimize layoffs and still rationalize costs at the same time, corporate in the US have been coming out with various initiatives such as four-day workweeks, unpaid vacations, wage freezes, pension cuts and flexible work schedules. In fact, as reported in the International Herald Tribune (IHT), many of the employees are volunteering for pay cuts, it being a much preferred option than being asked to leave. Besides, the pay cuts result in savings, which in turn could prevent further layoffs. Interestingly, the rationale behind these strategies is to have the required workforce at hand should the economy suddenly improve just as it had deteriorated so rapidly in October. The idea is to not cut too much. And corporates are being careful about hiring and firing, choosing to keep the productive workers on the payrolls.

    As highlighted in the IHT, the list of companies which are pruning labour costs without resorting to layoffs include Dell (extended unpaid holiday), Cisco (four-day year-end shutdown), Motorola (salary cuts), Nevada casinos (four-day workweek), Honda (voluntary unpaid vacation time) and The Seattle Times (plans to save US$1 m with a week of unpaid furlough for 500 workers).

    Currency traders are sitting pretty
    While bankers, investment bankers and people of their ilk are struggling to hold on to their jobs, currency traders are having it relatively easy. As reported on Bloomberg, while bonuses, which account for the bulk of annual pay for traders and investment bankers, will fall an average 45% this year, currency traders will see declines of about 15% from 2007; a huge gap indeed. With the significant volatility in currencies, foreign-exchange markets have been witnessing robust growth.

    Fathom some statistics on Bloomberg. Forex trading revenue at US commercial banks rose 66% in the second quarter from a year earlier. Global heads of foreign exchange trading will receive average bonuses of US$ 3.5 m to US$ 4.5 m, down 10% from last year. Not only that, foreign-exchange contracts traded at the CME Group Inc., the world’s largest futures market, surged in September by 32% from a year earlier, to a notional value of US$ 111 bn. What’s more, Deutsche Bank and UBS AG, the world’s two largest currency traders, posted three consecutive quarters of record revenue from foreign exchange. Therefore, with the reputation of Wall Street reduced to tatters, it is hardly surprising that foreign-exchange trading was the only area that got away unblemished. And as the volatility is expected to continue, the scenario for the forex markets and traders only appears brighter.

    Toyota’s heartache
    The global auto industry is finding itself well and truly down in the dumps. While the American ‘Big 3’ is banking on the support of the US government to bail them out, Japanese carmakers, which are the most efficient in the world, are also feeling the pinch of the global meltdown. The Japanese heavyweight Toyota, which is close in the race with the American giant General Motors, to be the world’s largest manufacturer of vehicles, is set to lose money in its core auto making business for the first time in 70 years. But unlike General Motors, which is struggling to stay alive, Toyota is expected to weather the storm better given the US$ 18.5 bn that it has in cash with very little debt. However, the scenario in the Japanese auto industry is more or less a replica of what is happening in the US namely lowering of earnings forecasts, cut in production and laying off of staff. Toyota’s peer Honda, which is Japan’s second largest car maker also reduced its profit forecast by about two thirds.



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