20110817 0952 Global Market Related News.

Asia Inflation May Rise With Thai Rice Price (Source: Bloomberg)
Yingluck Shinawatra became Thailand’s first female prime minister by pledging to lift rural incomes through higher rice prices. The rest of Asia may now have to pay for her campaign promise. Yingluck has said the government will buy unmilled grain from farmers at 15,000 baht ($502) a ton at harvest in November, above current market rates of 9,900 baht. With Thailand the world’s biggest exporter, that may raise rice prices across a region that accounts for 87 percent of global consumption. The leader presented her economic policies to Cabinet yesterday and is scheduled to announce them publicly by Aug. 24. “High rice prices will translate into higher inflation pressures in Asia, at a time when most inflation readings are flirting near the higher end of central-bank target or forecast ranges,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “Once the global backdrop stabilizes, inflation could come back strongly.”

Asia Stocks Fall on EU Debt Crisis, U.S. Housing (Source: Bloomberg)
Asian stocks fell for the first time this week as European leaders said they wouldn’t expand a rescue fund to end the region’s debt crisis and U.S. housing starts slumped, boosting concern for Asian exporters’ earnings. Sony Corp. (6758), Japan’s biggest exporter of consumer electronics, sank 2 percent in Tokyo as Europe’s economic growth trailed estimates and U.S. housing starts slumped. Honda Motor Co., a carmaker that gets more than 80 percent of its sales abroad, dropped 2.3 percent. Boral Ltd. slumped 5.2 percent after profit missed analyst estimates. The MSCI Asia-Pacific Index fell 0.4 percent to 124.43 as of 9:35 a.m. in Tokyo. More than two stocks declined for every two that advanced, and nine of 10 industry groups tracked by the index dropped following talks in Paris yesterday between French President Nicolas Sarkozy and German Chancellor Angela Merkel.

GLOBAL MARKETS-Slow German growth hits stocks, euro
LONDON, Aug 16 (Reuters) - Stagnant growth in Europe's powerhouse Germany knocked stocks lower on Tuesday and hit the euro, fuelling investor fears that the global economy is slowing more than expected.
"The global slowdown is gradually reaching Germany," said Andreas Scheuerle, economist at Dekabank.

Import Prices in U.S. Rise 0.3%, Led by Gains in Costs of Fuel, Clothing (Source: Bloomberg)
Prices of goods imported into the U.S. rose in July, led by gains in costs of fuel, industrial supplies and clothing. The 0.3 percent gain in the import-price index followed a revised 0.6 percent drop in June, Labor Department figures showed today in Washington. Economists projected a 0.1 percent decrease for July, according to the median estimate in a Bloomberg News survey. Prices excluding petroleum rose 0.2 percent. Slowing growth in emerging economies such as China and Brazil, coupled with weakening demand in the U.S. amid political gridlock and stock declines, means import prices are likely to taper off this month. Federal Reserve policy makers last week said they expected inflation to “settle” lower as commodity price gains “dissipate further.”

S&P Downgraded in Treasury Trading After Upgrading Communist Rule in China (Source: Bloomberg)
Eleven days after lowering the credit rating on the U.S. for the first time, Standard & Poor’s is suffering a downgrade among global investors as American bonds are proving world beaters -- undermining S&P’s mathematical assumptions -- and prompting disbelief among political scientists months after the company upgraded China because of the stability fostered by Communist Party rule. Since S&P, the New York-based subsidiary of McGraw-Hill Cos., dropped the U.S. to AA+ from AAA on Aug. 5, the yield on the 10-year Treasury note, a benchmark for everything from home mortgages to car loans, has declined to as low as 2.03 percent from a high this year of 3.77 percent, with American debt on pace in August for the biggest monthly gain since December 2008. Interest rates on American bonds are lower today than on most of the countries with AAA ratings by S&P and the Treasury recently financed its outstanding debt at the lowest cost ever.
If anything, the decision from S&P, the largest ratings provider, resulted in an upgrade of U.S. securities as the American bond market outperformed world bond indexes during the period since the downgrade by S&P. Moody’s Investors Service and Fitch Ratings, the two next biggest rating companies, affirmed their AAA rankings on the U.S.

Housing Starts in U.S. Weaken as Construction Stagnates; Permits Decline (Source: Bloomberg)
Builders began work on fewer homes in July, indicating residential real estate is failing to contribute to U.S. growth two years into an economic recovery. Housing starts fell 1.5 percent to a 604,000 annual rate, in line with the median forecast of economists surveyed by Bloomberg News, from June’s 613,000 pace that was less than previously estimated, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, also dropped. Falling sales, foreclosures and a lack of jobs may keep delaying a rebound in homebuilding, depriving the world’s largest economy of a source of strength seen in the early stages of past recoveries. Concern over housing is prompting banks to maintain strict mortgage lending rules and was one reason the Federal Reserve said it would hold borrowing costs at a record low until at least mid-2013.

Industrial Output in U.S. Climbs, Easing Concern on Manufacturing Recovery (Source: Bloomberg)
Manufacturers in the U.S. churned out more cars, computers and furniture in July, easing concern that one of the mainstays of the recovery was giving way. The 0.9 percent increase in production at factories, mines and utilities was almost twice the median forecast of economists surveyed by Bloomberg News and the biggest gain of the year, according to data today from the Federal Reserve in Washington. Another report showed homebuilders cut back last month. Part of the jump in manufacturing reflects a rebound from the supply shock caused by the earthquake in Japan, indicating it will be difficult for factories to maintain this pace of output as consumer spending and exports cool. At the same time, companies have kept inventories lean, limiting the need for large-scale cuts that could trigger an economic slump.

Fed’s Bullard Says New Low Interest-Rate Pledge Is Not Signal for More QE (Source: Bloomberg)
St. Louis Federal Reserve Bank President James Bullard said the Fed’s pledge to keep rates at a record low through at least mid-2013 shouldn’t be seen as a signal for a new round of central bank bond purchases. “The most likely outcome for the U.S. economy is still that the economy continues to grow at a moderate pace through the second half of the year,” Bullard said today in a telephone interview. “If the economy is substantially weaker than expected, we could take more action, especially if it was coupled with a renewed deflation risk,” he said. Bullard, who doesn’t vote on monetary policy this year, said he would have dissented against the Aug. 9 Federal Open Market Committee statement that for the first time attaches a date to its pledge to keep borrowing costs in a range of zero to 0.25 percent. Previously, the FOMC promised to keep interest rates low for an “extended period.”

U.S. Government Merits Junk Debt Rating: Laurence Kotlikoff (Source: Bloomberg)
Politicians and investors say Standard & Poor’s made a mistake when it cut the U.S.’s credit rating from AAA to AA+. I agree. I wonder why S&P didn’t take it all the way down to CCC. The country’s political leaders, from President Barack Obama on down, are alternately decrying S&P’s hubris and blaming their opponents. Big investors who hold lots of Treasuries are also on S&P’s case. Warren Buffett said the downgrade “doesn’t make sense,” that Treasuries are still AAA in Omaha, Nebraska, and that S&P should rate U.S. debt AAAA. If AA+ means very low credit risk and AAA means no credit risk, I guess AAAA would signify negative credit risk. My question, though, is why U.S. government bonds carry a rating any better than CCC, which is well into junk territory. Such a grading, according to S&P, implies the debtor is “currently vulnerable and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments.”

Stocks Fall as Europe Floats Financial Tax (Source: Bloomberg)
U.S. stocks fell, following the biggest three-day rally since 2009, as German and French leaders proposed a financial-transaction tax and rejected selling euro bonds to halt a debt crisis threatening economic growth. NYSE Euronext and Nasdaq OMX Group Inc. (NDAQ), two of the biggest exchange operators in Europe, dropped more than 2.7 percent. Caterpillar Inc. (CAT), Deere & Co. (DE) and 3M Co. (MMM) declined at least 1.4 percent, pacing losses in companies most-tied to the economy, as Europe’s economic growth trailed estimates and U.S. housing starts slumped. Citigroup Inc. (C) and Bank of America Corp. (BAC) slipped more than 4.2 percent after billionaire John Paulson’s hedge fund said it reduced positions in both lenders. The S&P 500 fell 1 percent to 1,192.76 at 4 p.m. in New York. The benchmark gauge advanced 2.2 percent yesterday, erasing last week’s decline. The Dow Jones Industrial Average slid 76.97 points, or 0.7 percent, to 11,405.93 today.

Japan Stocks Fall on Concern Europe Tax Plan Will Slow Growth; Sony Drops (Source: Bloomberg)
Japanese stocks fell for the first time in three days as concern increased that a planned financial-transaction tax in Europe will discourage investment and threaten global economic growth. Mizuho Financial Group, Inc., Japan’s third-biggest bank by market value, lost 0.9 percent. Sony Corp. (6758), Japan’s biggest exporter of consumer electronics, dropped 1.2 percent as Europe’s economic growth trailed estimates and U.S. housing starts slumped. Inpex Corp. (1605), Japan’s largest energy exploration company, declined 1 percent on lower crude prices. Nikkei 225 Stock Average fell 0.6 percent to 9,049.30 as of 9:05 a.m. in Tokyo. The broader Topix index dropped 0.5 percent to 775.38 with about two stocks retreating for each that rose.

India’s Inflation Rate May ‘Peak’ in August, Finance Ministry’s Basu Says (Source: Bloomberg)
India’s inflation rate may “peak” in August and will be about 10 percent, Kaushik Basu, the chief economic adviser in the finance ministry, said after the price gauge eased for a third straight month in July. The wholesale-price index rose 9.22 percent from a year earlier after a 9.44 percent jump in June, the commerce ministry said in New Delhi today. The median of 22 estimates in a Bloomberg News survey was for a 9.2 percent increase. “Till December, inflation will stay around the same levels,” Basu told reporters in New Delhi today. “Next month, it will peak and will be close to 10 percent. After December, we’ll see a sharp drop in inflation.”

‘Too Early’ to Bet on India Easing Its Monetary Policy, Credit Suisse Says (Source: Bloomberg)
Investors should hold off from bets that India’s central bank will cut interest rates as global inflation is unlikely to fall enough to bring down the country’s wholesale-price index, Credit Suisse Group AG said. “Against market consensus of inflation falling and thus potentially driving rate cuts, we believe it is too early for the ‘monetary easing’ trade,” Neelkanth Mishra and Karthik Visvanathan, analysts at Credit Suisse, wrote in today’s report. Prices are “unlikely to fall much” amid quantitative easing in developed markets unless the rupee rises against the dollar, they wrote. India’s wholesale-price index rose 9.22 percent in July from a year earlier, the commerce ministry said yesterday, after a 9.44 percent jump in June.
Emerging-market stocks may not have reached their lows because inflation has yet to slow in the so- called BRIC nations of Brazil, Russia, India and China, Adrian Mowat, JPMorgan Chase & Co.’s emerging-market strategist, said yesterday. India’s inflation is the fastest among the four nations.

Merkel, Sarkozy Shun Euro Bonds (Source: Bloomberg)
German Chancellor Angela Merkel and French President Nicolas Sarkozy rejected an expansion of the 440 billion-euro ($633 billion) rescue fund and rebuffed calls for joint euro borrowing to end the debt crisis, saying greater economic integration was needed first. The leaders of Europe’s two biggest economies agreed to press for closer euro-area cooperation, tougher deficit rules and a harmonization of their corporate tax rates. A plan to resubmit a financial-transaction tax, which the European Union rejected in 2010, sent stocks lower in New York trading. Sarkozy and Merkel spoke after a two-hour meeting in Paris as investors clamored for indications that they would do more to end the euro-area debt crisis amid a slowdown in their economies. Unprecedented bailouts by governments and the European Central Bank have so far failed to stamp out concerns that rattled markets in AAA-rated France last week.

Stalling EU Economy May Keep ECB Rates on Hold (Source: Bloomberg)
Europe’s unexpectedly sharp economic slowdown has increased the risk of another recession and may prevent the European Central Bank from raising interest rates again this year. The 17-nation euro-area economy may struggle to gather momentum after growing just 0.2 percent in the second quarter, its worst performance since emerging from the last recession in 2009, said economists including Marco Valli at UniCredit Global Research and Stewart Robertson at Aviva Investors. France’s economy stagnated and in Germany, the region’s economic engine, expansion almost stalled. “I’m comfortable believing that this is a temporary slowdown, but the focus will remain on recession risks for the next few months,” said Valli, chief euro-region economist at UniCredit in Milan. “Rate hikes are off the table for now.”

European Economy Slows More Than Forecast as Debt Crisis Saps German Might (Source: Bloomberg)
European economic growth slowed more than economists forecast in the second quarter as Germany’s recovery almost ground to a halt amid the worsening sovereign- debt crisis. Gross domestic product in the 17-nation euro area rose 0.2 percent from the first quarter, when it increased 0.8 percent, the European Union’s statistics office in Luxembourg said in a statement today. That’s the worst performance since the euro region emerged from a recession in late 2009. Economists had forecast the economy to expand 0.3 percent, according to the median of 34 estimates in a Bloomberg News survey. Europe’s economy may struggle to gather strength as governments from Italy to Spain step up budget cuts to fight the debt crisis. In Germany, Europe’s largest economy, growth almost stalled in the second quarter. German Chancellor Angela Merkel will meet French President Nicolas Sarkozy today in Paris under pressure to do more to combat the fiscal crisis.

German Economy Almost Stalls as Sovereign-Debt Crisis Weighs on Confidence (Source: Bloomberg)
The German economy, Europe’s largest, almost stalled in the second quarter as the region’s sovereign-debt crisis weighed on confidence. Gross domestic product, adjusted for seasonal effects, rose 0.1 percent from the first quarter, when it jumped a revised 1.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists had forecast growth of 0.5 percent, according to the median of 33 estimates in a Bloomberg News survey. From a year earlier, GDP increased 2.8 percent. The worse-than-expected GDP data from Germany, which had been powering euro-area growth, add to signs Europe is flirting with a renewed economic slump as the debt crisis curbs spending across the region. France’s recovery unexpectedly ground to a halt in the second quarter, Italian and Spanish expansion remained sluggish and Greece’s economy contracted.

King Says ‘Severe’ Market Stress Could Threaten U.K.’s Economic Recovery (Source: Bloomberg)
Bank of England Governor Mervyn King said that turmoil in the euro region and in world stock markets poses a risk to the U.K. and could push inflation too far below the 2 percent target. “Recent developments in world stock markets and in the euro area are of particular concern,” King said in a letter to Chancellor of the Exchequer George Osborne after inflation kept above the central bank’s 3 percent ceiling in data released today. There is a risk of “severe stress and dislocation in financial markets and, were this risk to crystallize, it would have a significant impact on the U.K. economy.” Inflation accelerated more than economists forecast in July to 4.4 percent, led by the cost of clothes and footwear, housing maintenance and rent. While King predicted that inflation will reach 5 percent in coming months, he said that it might be below 2 percent without the impact of temporary factors such as energy costs and will probably slow through 2012.

Salgado Says Spain Asset Sales May Cut Debt Issuance Needs by $17 Billion (Source: Bloomberg)
Spain’s asset sales will cut debt issuance by as much as 12 billion euros ($17 billion) as the government presses ahead with the program before the election in November, Finance Minister Elena Salgado said. Spain’s Socialist government will stick to its plan to list lottery operator Sociedad Estatal Loterias y Apuestas del Estado in the last week of October and to auction management contracts for its two biggest airports in Madrid and Barcelona, Salgado said in an e-mailed response to questions. “It will allow debt issuance in the final part of 2011 to be lower than forecast,” she said. “We will have to issue around 10 billion to 12 billion euros less, which is good news.”

Eastern Europe’s Economic Growth Probably Faltered as Rate Bets Reversed (Source: Bloomberg)
Eastern European economic growth slowed in the second quarter, supporting expectations that central banks may have to start reducing borrowing costs. The Czech and Hungarian economies slowed for the first time since they emerged from recession in the first quarter of 2010, Slovak gross domestic product grew at the slowest pace since that same period and Romania’s decelerated after ending a two- year slump in the January-March period. Poland on Aug. 30 may say growth slowed, according to a Bloomberg survey. Eastern Europe’s export-led recovery from its worst slump since the end of communism two decades ago is in peril as a deepening debt crisis in the euro area and a cut in the U.S. credit-rating intensify threats to the global economy. That means regional central banks may consider rate cuts to bolster their economies as long they don’t weaken local currencies and threaten financial stability, according to Citigroup Inc.

Euro Weakens After Sarkozy, Merkel Reject Euro Bonds, Before CPI Data (Source: Bloomberg)
The euro declined against the dollar and yen on concern Europe’s debt crisis will spread after German and French leaders rejected the issuance of bonds by the common currency region and amid signs growth is slowing. The 17-nation currency weakened versus 13 of its 16 major counterparts before a report today that economists said will show inflation slowed in July. New Zealand’s dollar fell against the greenback for the first time in five days after Fonterra Cooperative Group Ltd., the largest dairy exporter, said whole- milk powder prices fell to the lowest in more than a year. “European leaders haven’t addressed the underlying problem of deficits in the individual countries and the exposure for banks and the crisis is set to bubble on,” said Derek Mumford, a Sydney-based director at Rochford Capital, a foreign-exchange and rates risk management firm. “Everything that’s going on in Europe would make it the sickest one at the moment. The euro is possibly at the top end of its range.”

Stalling EU Economy May Keep ECB Rates on Hold (Source: Bloomberg)
Europe’s unexpectedly sharp economic slowdown has increased the risk of another recession and may prevent the European Central Bank from raising interest rates again this year. The 17-nation euro-area economy may struggle to gather momentum after growing just 0.2 percent in the second quarter, its worst performance since emerging from the last recession in 2009, said economists including Marco Valli at UniCredit Global Research and Stewart Robertson at Aviva Investors. France’s economy stagnated and in Germany, the region’s economic engine, expansion almost stalled. “I’m comfortable believing that this is a temporary slowdown, but the focus will remain on recession risks for the next few months,” said Valli, chief euro-region economist at UniCredit in Milan. “Rate hikes are off the table for now.”

FOREX-Euro softer on poor GDP data, summit hopes low
LONDON, Aug 16 (Reuters) - The euro fell on Tuesday, retreating from a three-week high versus the dollar, after weak German and euro zone growth data sparked con Mcerns about a slowdown and piled pressure on policymakers to act decisively to address the region's debt problems.
German data showed GDP growth slowed to 0.1 percent in the second quarter, much less than a consensus forecast of 0.5 percent, and pushed the single currency down more than 1 percent against the safe-haven Swiss franc.

FOREX-Euro softer on poor GDP data, summit hopes low
LONDON, Aug 16 (Reuters) - The euro fell on Tuesday, retreating from a three-week high versus the dollar, after weak German and euro zone growth data sparked concerns about a slowdown and piled pressure on policymakers to act decisively to address the region's debt problems.
"The GDP data shows the euro zone economy is slowing very sharply. It's not just a peripheral problem any more, it's spreading to the core," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.